UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q.--QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2002
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ______________
US Airways, Inc.
(DEBTOR AND DEBTOR-IN-POSSESSION as of August 11, 2002)
(Exact name of registrant as specified in its charter)
State of Incorporation: Delaware
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 872-7000
(Registrant's telephone number, including area code)
(Commission file number: 1-8442)
(I.R.S. Employer Identification No: 53-0218143)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
As of July 31, 2002 there were outstanding 1,000 shares of common stock
of US Airways, Inc.
US Airways, Inc.
Debtor and Debtor-in-Possession as of August 11, 2002
Form 10-Q
Quarterly Period Ended June 30, 2002
Table of Contents
Page
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Part I. Financial Information
Item 1. Financial Statements-US Airways, Inc.
On August 11, 2002, US Airways, Inc. (US Airways)
filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of Virginia (Case
No. 02-83985-SSM). The reorganization case is being
administered under the caption "In re US Airways Group,
Inc., et al., Case No.02-83984-SSM." Please see Note 1 to
the Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Operations
- Three Months and Six Months Ended June 30, 2002 and 2001 1
Condensed Consolidated Balance Sheets
- June 30, 2002 and December 31, 2001 2
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 2002 and 2001 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Results of Operations 22
Liquidity and Capital Resources 27
Item 3. Quantitative and Qualitative Disclosures about Market Risk 30
Part II. Other Information
Item 1. Legal Proceedings 30
Item 3. Defaults Upon Senior Securities 31
Item 6. Exhibits and Reports on Form 8-K 32
Signature 33
US Airways, Inc.
(Debtor and Debtor-in-Possession as of August 11, 2002)
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2002 and 2001 (unaudited)
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Operating Revenues
Passenger transportation $ 1,437 $ 2,005 $ 2,744 $ 3,815
US Airways Express transportation revenues 290 287 521 517
Cargo and freight 36 43 69 88
Other 128 151 251 299
----- ----- ----- -----
Total Operating Revenues 1,891 2,486 3,585 4,719
Operating Expenses
Personnel costs 811 901 1,632 1,779
Aviation fuel 175 295 342 589
Aircraft rent 120 129 241 253
Other rent and landing fees 99 114 197 227
Aircraft maintenance 75 116 147 231
Other selling expenses 74 97 157 200
Depreciation and amortization 70 96 143 188
Commissions 25 74 73 155
Asset impairments - - - 22
US Airways Express capacity purchases 278 239 536 461
Other 340 394 662 800
----- ----- ----- -----
Total Operating Expenses 2,067 2,455 4,130 4,905
----- ----- ----- -----
Operating Income (Loss) (176) 31 (545) (186)
Other Income (Expense)
Interest income 8 21 18 42
Interest expense (85) (76) (167) (145)
Interest capitalized 1 3 2 7
Other, net (7) 3 (1) 6
----- ----- ----- -----
Other Income (Expense), Net (83) (49) (148) (90)
----- ----- ----- -----
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Change (259) (18) (693) (276)
Provision (Credit) for Income Taxes (34) (2) (170) (90)
----- ----- ----- -----
Income (Loss) Before Cumulative Effect
of Accounting Change (225) (16) (523) (186)
Cumulative Effect of Accounting Change, Net of
Applicable Income Taxes - - - 7
----- ----- ----- -----
Net Income (Loss) $ (225) $ (16) $ (523) $ (179)
===== ===== ===== =====
See accompanying Notes to Condensed Consolidated Financial Statements.
US Airways, Inc.
(Debtor and Debtor-in-Possession as of August 11, 2002)
Condensed Consolidated Balance Sheets
June 30, 2002 (unaudited) and December 31, 2001
(in millions)
June 30, December 31,
ASSETS 2002 2001
------------ ------------
Current Assets
Cash and cash equivalents $ 473 $ 537
Short-term investments 70 485
Receivables, net 339 272
Receivables from related parties, net 155 155
Materials and supplies, net 187 193
Prepaid expenses and other 291 151
------- -------
Total Current Assets 1,515 1,793
Property and Equipment
Flight equipment 6,055 7,223
Ground property and equipment 1,138 1,167
Less accumulated depreciation and amortization (2,703) (3,924)
------- -------
4,490 4,466
Purchase deposits for flight equipment - 28
------- -------
Total Property and Equipment 4,490 4,494
Other Assets
Goodwill 531 531
Pension assets 407 411
Other intangibles, net 316 343
Receivable from parent company 42 43
Other assets, net 362 326
------- -------
Total Other Assets 1,658 1,654
------- -------
$ 7,663 $ 7,941
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 358 $ 159
Accounts payable 431 598
Traffic balances payable and unused tickets 983 817
Accrued aircraft rent 211 249
Accrued salaries, wages and vacation 327 367
Other accrued expenses 594 742
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Total Current Liabilities 2,904 2,932
Noncurrent Liabilities
Long-term debt, net of current maturities 3,474 3,515
Accrued aircraft rent 265 293
Deferred gains, net 561 585
Postretirement benefits other than pensions 1,517 1,473
Employee benefit liabilities and other 2,067 1,773
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Total Noncurrent Liabilities 7,884 7,639
Commitments and Contingencies
Stockholder's Equity (Deficit)
Common stock - -
Paid-in capital 2,613 2,611
Retained earnings (deficit) (3,349) (2,826)
Receivable from parent company (2,262) (2,262)
Accumulated other comprehensive income (loss), net of income tax effect (127) (153)
------- -------
Total Stockholder's Equity (Deficit) (3,125) (2,630)
------- -------
$ 7,663 $ 7,941
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
US Airways, Inc.
(Debtor and Debtor-in-Possession as of August 11, 2002)
Condensed Consolidated Cash Flows
Six Months Ended June 30, 2002 and 2001 (unaudited)
(in millions)
2002 2001
------ ------
Net cash provided by (used for) operating activities $ (313) $ 206
Cash flows from investing activities
Capital expenditures (117) (908)
Proceeds from dispositions of property 79 6
Decrease (increase) in short-term investments 409 38
Decrease (increase) in restricted cash and investments (207) (1)
Funding of parent company's aircraft purchase deposits - (31)
Other 3 3
------ ------
Net cash provided by (used for) investing activities 167 (893)
Cash flows from financing activities
Proceeds from the sale-leaseback of aircraft - 344
Proceeds from issuance of long-term debt 149 538
Principal payments on long-term debt and capital lease obligations (67) (225)
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Net cash provided by (used for) financing activities 82 657
------ ------
Net increase (decrease) in cash and cash equivalents (64) (30)
------ ------
Cash and cash equivalents at beginning of period 537 496
------ ------
Cash and cash equivalents at end of period $ 473 $ 466
====== ======
Noncash investing and financing activities
Flight equipment acquired through issuance of debt $ 77 $ -
Reduction of parent company receivable-assignment of aircraft purchase
rights by parent company $ - $ 121
Capital lease obligation incurred $ - $ 28
Supplemental Information
Interest paid during the period, net of amount capitalized $ 154 $ 129
Income taxes paid (received) during the period $ (171) $ (50)
See accompanying Notes to Condensed Consolidated Financial Statements.
US Airways, Inc.
Debtor and Debtor-in-Possession as of August 11, 2002
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Subsequent Events
Chapter 11 Reorganization
In light of recent severe financial losses and as previously announced,
US Airways, Inc.'s (US Airways or the Company) management has undertaken a
comprehensive restructuring effort to achieve cost competitiveness by
attempting to obtain economic concessions from key stakeholders, such as
employees, aircraft lessors, aircraft and engine manufacturers and other
vendors in order to allow the Company to reduce costs, create financial
flexibility and restore its long-term viability and profitability. Despite
extensive negotiations over the last four and a half months and substantial
progress in obtaining concessions, the Company was unable to achieve
sufficient cost savings from a sufficient number of its key stakeholders to
enable it to restructure on a consensual basis. Accordingly, faced with
declining seasonal revenues and cash flow, the Company determined it was
necessary to file for relief under Chapter 11 of the United States Bankruptcy
Code (Bankruptcy Code) as a means of completing the restructuring process and
to put the Company in a position to return to profitability.
On August 11, 2002 (Petition Date), US Airways filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court for the Eastern District of Virginia (Bankruptcy Court
or Court) (Case No. 02-83985-SSM). On the same date, US Airways Group, Inc.
(US Airways Group) and six of its other subsidiaries (collectively with
US Airways, the Debtors) also filed voluntary petitions for relief under Chapter
11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors cases are being
jointly administered under the caption "In re US Airways Group, Inc., et al.,
Case No. 02-83984-SSM." US Airways will continue to operate its business as a
"debtor-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code and orders of
the Bankruptcy Court.
At hearings held on August 12, 2002, the Bankruptcy Court granted
US Airways' first day motions for various relief designed to stabilize their
operations and business relationships with customers, vendors, employees and
others and entered orders granting authority to US Airways to, among other
things: (a) pay pre-petition and post-petition employee wages, salaries,
benefits and other employee obligations; (b) pay vendors and other providers
in the ordinary course for goods and services received from and after the
Petition Date; (c) honor customer service programs, including US Airways'
Dividend Miles program and its ticketing programs; and (d) honor obligations
arising prior to the Petition Date related to the Company's interline,
clearinghouse, code sharing and other similar agreements. The Bankruptcy Court
also gave interim approval for $75 million of a proposed $500 million senior
secured debtor-in-possession financing facility (DIP Facility) as described
below.
US Airways continues to operate its business and manage its property as
a debtor-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy
Code. Shortly after the filing, US Airways began notifying all known or
potential creditors of the Chapter 11 filing for the purpose of identifying
all pre-petition claims against US Airways. The Chapter 11 filing triggered
defaults on substantially all debt and lease obligations of the Company.
Subject to certain exceptions under the Bankruptcy Code, US Airways' filing
for reorganization automatically enjoined the continuation of any judicial or
administrative proceedings or other actions against US Airways or its property
to recover on, collect or secure a claim arising prior to the Petition Date.
Thus, for example, creditor actions to obtain possession of property from
US Airways, or to create, perfect or enforce any lien against the property of
US Airways, or to collect on or otherwise exercise rights or remedies with
respect to a pre-petition claim are enjoined unless and until the Court lifts
the automatic stay.
Notwithstanding the above general discussion of the automatic stay,
however, US Airways' right to retain and operate certain aircraft, aircraft
engines and other equipment (as defined in section 1110 of the Bankruptcy
Code) that are leased or subject to a security interest or conditional sale
contract are specifically governed by section 1110 of the Bankruptcy Code.
That section provides, in relevant part, that unless US Airways, within 60
days after the Petition Date, agrees to perform all of the obligations of the
lease, security agreement, or conditional sale contract and cure all defaults
thereunder (other than the filing of the Chapter 11 cases and certain other
financial condition defaults) within the time specified in section 1110, the
right of the lessor, secured party or conditional vendor to take possession of
such equipment in compliance with the provisions of the lease, security
agreement, or conditional sale contract and to enforce any of its other rights
or remedies under such lease, security agreement, or conditional sale contract
is not limited or otherwise affected by the automatic stay, by any other
provision of the Bankruptcy Code, or by any power of the Bankruptcy Court. The
provisions of section 1110 may materially impact US Airways' options with
respect to its fleet optimization strategy.
US Airways has the exclusive right for 120 days after the Petition Date
to file a plan of reorganization and 60 additional days to obtain necessary
acceptances. Such periods may be extended by the Bankruptcy Court for cause.
If US Airways' exclusivity period lapses, any party in interest may file a
plan of reorganization for US Airways. In addition to being voted on by
holders of impaired claims and equity interests, a plan of reorganization must
satisfy certain requirements of the Bankruptcy Code and must be approved, or
confirmed, by the Court in order to become effective. A plan has been accepted
by holders of claims against and equity interests in US Airways if (i) at
least one-half in number and two-thirds in dollar amount of claims actually
voting in each impaired class of claims have voted to accept the plan and (ii)
at least two-thirds in amount of equity interests actually voting in each
impaired class of equity interests has voted to accept the plan. Under certain
circumstances set forth in the so-called "cramdown" provisions of section
1129(b) of the Bankruptcy Code, the Bankruptcy Court may confirm a plan even
if such plan has not been accepted by all impaired classes of claims and
equity interests. A class of claims or equity interests that does not receive
or retain any property under the plan on account of such claims or interests
is deemed to have voted to reject the plan. The precise requirements and
evidentiary showing for confirming a plan notwithstanding its rejection by one
or more impaired classes of claims or equity interests depends upon a number
of factors, including the status and seniority of the claims or equity
interests in the rejecting class-i.e., secured claims or unsecured claims,
subordinated or senior claims, preferred or common stock.
Under section 365 of the Bankruptcy Code, US Airways may assume, assume
and assign, or reject executory contracts and unexpired leases, including real
property, aircraft and engine leases, subject to the approval of the Court and
certain other conditions. Rejection constitutes a court-authorized breach of
the lease or contract in question and, subject to certain exceptions, relieves
US Airways of its future obligations under such lease or contract but creates
a deemed pre-petition claim for damages caused by such breach or rejection.
Parties whose contracts or leases are rejected may file claims against
US Airways for damages. Generally, the assumption of an executory contract or
unexpired lease requires US Airways to cure all prior defaults under such
executory contract or unexpired lease, including all pre-petition arrearages,
and to provide adequate assurance of future performance. In this regard, the
Company expects that liabilities subject to compromise and resolution in the
Chapter 11 case will arise in the future as a result of damage claims created
by US Airways' rejection of various executory contracts and unexpired leases.
Conversely, the Company would expect that the assumption of certain executory
contracts and unexpired leases may convert liabilities shown in future
financial statements as subject to compromise to post-petition liabilities.
Due to the uncertain nature of many of the potential claims, the Company is
unable to project the magnitude of such claims with any degree of certainty.
The Bankruptcy Court will establish a deadline for the filing of proofs
of claim under the Bankruptcy Code, requiring US Airways' creditors to submit
claims for liabilities not paid and for damages incurred. There may be
differences between the amounts at which any such liabilities are recorded in
the Company's financial statements and the amount claimed by US Airways'
creditors. Significant litigation may be required to resolve any such disputes
or discrepancies.
Although US Airways expects to file a reorganization plan that provides
for emergence from Chapter 11 in early 2003, there can be no assurance that a
reorganization plan will be proposed by US Airways or confirmed by the Court,
or that any such plan will be consummated.
The Company has incurred and will continue to incur significant costs
associated with the reorganization. The amount of these costs, which are being
expensed as incurred, are expected to significantly affect the results of
operations.
As of the Petition Date, the Company had in excess of $500 million in
unrestricted cash, cash equivalents and short-term investments and a DIP
Facility of up to $500 million, as described below, to provide sufficient
liquidity during the restructuring process. The ability of the Company,
both during and after the Chapter 11 case, to continue as a going-concern
is dependent upon, among other things, (i) the Company's ability to comply
with the terms of the DIP Facility and any cash management order entered by
the Bankruptcy Court in connection with the Chapter 11 case; (ii) the
ability of the Company to successfully achieve required cost savings to
complete its restructuring; (iii) the ability of the Company to maintain
adequate cash on hand; (iv) the ability of the Company to generate cash
from operations; (v) the ability of the Company to confirm a plan of
reorganization under the Bankruptcy Code; and (vi) the Company's ability to
achieve profitability. Uncertainty as to the outcome of these factors
raises substantial doubt about the Company's ability to continue as a
going-concern. The accompanying unaudited condensed consolidated financial
statements do not include any adjustments that might result should the
Company be unable to continue as a going-concern. A plan of reorganization
could materially change the amounts currently disclosed in the unaudited
condensed consolidated financial statements.
The potential adverse publicity associated with the Chapter 11 filing
and the resulting uncertainty regarding the Company's future prospects may
hinder the Company's ongoing business activities and its ability to operate,
fund and execute its business plan by impairing relations with existing and
potential customers; negatively impacting the ability of the Company to
attract, retain and compensate key executives and associates and to retain
employees generally; limiting the Company's ability to obtain trade credit;
and impairing present and future relationships with vendors and service
providers.
As a result of the filing, realization of assets and liquidation of
liabilities are subject to uncertainty. While operating as a
debtor-in-possession under the protection of Chapter 11 of the Bankruptcy
Code, and subject to Bankruptcy Court approval or otherwise as permitted in
the normal course of business, US Airways may sell or otherwise dispose of
assets and liquidate or settle liabilities for amounts other than those
reflected in the condensed consolidated financial statements. Further, a plan
of reorganization could materially change the amounts and classifications
reported in the consolidated historical financial statements, which do not
give effect to any adjustments to the carrying value of assets or amounts of
liabilities that might be necessary as a consequence of confirmation of a plan
of reorganization.
Under the priority scheme established by the Bankruptcy Code, unless
creditors agree otherwise, post-petition liabilities and pre-petition
liabilities must be satisfied in full before US Airways Group is entitled to
receive any distribution or retain any property under a plan. The ultimate
recovery to creditors and US Airways Group, as sole shareholder, if any, will
not be determined until confirmation of a plan of reorganization. No assurance
can be given as to what values, if any, will be ascribed in the Chapter 11
cases to each of these constituencies or what types or amounts of
distributions, if any they would receive. Accordingly, the Company urges that
appropriate caution be exercised with respect to existing and future
investments in any of the Company's liabilities.
Debtor-In-Possession Financing
US Airways Group has obtained a $500 million secured DIP Facility led
by joint arrangers Credit Suisse First Boston, Cayman Islands Branch
(CSFB), and Banc of America Securities, LLC. The DIP Facility consists of a
$250 million term loan facility and a $250 million revolving credit
facility and is guaranteed by each of the Debtors. The DIP Facility remains
subject to final Bankruptcy Court approval, at a hearing scheduled for
September 26, 2002. The DIP Facility is secured by first priority liens on
all unencumbered present and future assets of the Debtors and by best
priority available junior liens on all other assets of the Debtors, other
than certain specified assets, including assets which are subject to
financing agreements that are entitled to the benefits of section 1110 of
the Bankruptcy Code to the extent such financing agreements prohibit such
junior liens. $75 million of the $500 million DIP Facility is available to
US Airways Group under the current interim Bankruptcy Court order.
US Airways Group has the option of borrowing under the DIP Facility at an
interest rate of the CSFB prime rate plus 2.5% or LIBOR plus 3.5%.
The maturity date of the DIP Facility is the earlier of the effective
date of a plan of reorganization of the Debtors and September 30, 2003.
The DIP Facility may be accelerated upon the occurrence of an event
of default under the DIP Facility and will contain customary mandatory
prepayment events upon the occurrence of certain asset sales and the
issuance of certain debt or equity securities. In addition, TPG Partners
III, L.P.'s (TPG) $100 million participation described below under "TPG
Investment" is subject to mandatory prepayment upon the occurrence of
certain events, including (i) the failure of the Court to approve a bidding
procedures order substantially in the form agreed to between US Airways
Group and TPG within 60 days of the Petition Date, (ii) TPG's termination
of the Memorandum of Understanding relating to its $200 million equity
investment as a result of the findings of its due diligence prior to the
earlier of September 25, 2002 and 3 days prior to the bidding procedures
hearing, which hearing is currently scheduled for September 26, 2002, or
(iii) failure of TPG to be selected as the winning bidder pursuant to the
Court-approved bidding procedures. If TPG exercises its right to be prepaid
in accordance with the preceding sentence, the lenders under the DIP
Facility other than TPG, by majority vote, may also elect to be prepaid.
The other lenders do not have this prepayment right if TPG is entitled to
be prepaid because it is not the winning bidder if the winning bidder
purchases TPG's participation in the DIP Facility and is reasonably
acceptable to the administrative agent.
The definitive documentation relating to US Airways Group's DIP Facility
will contain covenants that will require US Airways Group to satisfy ongoing
financial requirements. The DIP Facility documents also will contain covenants
that limit, among other things, the Debtors' ability to borrow additional
money, pay dividends and make additional corporate investments.
Under the DIP Facility, borrowing availability will be determined by a
formula based on a percentage of eligible assets. The eligible assets consist
of certain previously unencumbered aircraft, aircraft engines, spare parts,
flight simulators, real property (including interests in certain airport
facilities), takeoff and landing slots, ground equipment and accounts
receivable. The underlying values of such assets may fluctuate periodically
due to prevailing market conditions, and fluctuations in value may have an
impact on the availability under the DIP Facility. Availability may be further
limited by additional reserves imposed by the administrative agent and the
collateral agent as they deem necessary in their reasonable credit judgment.
Upon completion of the definitive documentation relating to the DIP
Facility, entry of a final order of the Bankruptcy Court approving the DIP
Facility, completion of documentation relating to TPG's equity investment
in US Airways Group as outlined in the Memorandum of Understanding and
discussed below under "TPG Investment", entry of a bidding procedures order
by the Bankruptcy Court with respect to the proposed TPG equity investment,
achievement of certain milestones involving certain of the Company's
collective bargaining units, and satisfaction of certain other conditions,
availability under the DIP Facility will be increased from $75 million to
up to $250 million in the aggregate. Thereafter, availability under the DIP
Facility will be increased by up to an additional $50 million upon
US Airways obtaining certain concessions from its remaining unions. The
remaining $200 million of availability under the DIP Facility will be
available to US Airways Group after (i) the above described conditions have
been satisfied; (ii) expiration of certain regulatory objection/review
periods without material unresolved objections by regulatory agencies with
respect to the Company's recently announced alliance with United Air Lines,
Inc.; (iii) receipt of written reaffirmation from the Air Transportation
Stabilization Board (Stabilization Board) of its conditional approval for a
$900 million loan guarantee (ATSB Guarantee) under the Air Transportation
Safety and System Stabilization Act (Stabilization Act) from the
Stabilization Board subject to confirmation by the Bankruptcy Court of a
plan of reorganization reasonably acceptable to the Stabilization Board;
and (iv) demonstration by the Company to the reasonable satisfaction of the
administrative agent that the Company is likely to satisfy all of the
conditions to the issuance of the ATSB Guarantee.
As of August 14, 2002, the outstanding principal balance under the DIP
Facility was $75 million.
TPG Investment
In connection with the Company's restructuring, TPG has committed to
participate as a lender for $100 million of the $500 million DIP Facility and
to invest $200 million in cash in US Airways Group in exchange for common
stock and warrants to purchase common stock which would result in TPG owning
approximately 38% of US Airways Group upon its emergence from Chapter 11
pursuant to a confirmed plan of reorganization. These commitments are
contained in a Memorandum of Understanding which was executed by US Airways
Group and TPG on August 10, 2002 and is to be followed by definitive
documentation. It is contemplated that the terms of the TPG investment will be
subject to higher or better offers in accordance with bidding procedures to
be approved by the Bankruptcy Court.
Subject to the terms and conditions of the DIP financing documents,
TPG's participation in the DIP financing will be $100 million allocated pro
rata between the term loan facility and the revolving credit facility.
Upon the occurrence of certain events relating to TPG's proposed equity
investment, TPG's commitment under the DIP Facility may be terminated and
US Airways Group may be required to repay amounts owed to TPG under the DIP
Facility. If TPG exercises such election, the remaining lenders under the DIP
Facility other than TPG would have the right, under certain circumstances, to
elect (with the consent of the majority of the non-TPG lenders) to terminate
their remaining commitments under the DIP Facility and require US Airways
Group to prepay all obligations then outstanding under the DIP Facility.
Notice and Hearing Procedures for Trading in Claims and Equity Securities
On August 12, 2002, the Bankruptcy Court entered an interim order (NOL
Order) which will assist the Debtors in monitoring and preserving their net
operating losses (NOLs) by imposing certain notice and hearing procedures on
trading in (i) claims against the Debtors (Claims) or (ii) equity securities
in US Airways Group. In general, the NOL Order applies to any person or entity
that, directly or indirectly, beneficially owns, or is about to enter into a
transaction pursuant to which it will directly or indirectly beneficially own,
(i) an aggregate principal amount of Claims equal to or exceeding $50 million
(including a lease or leases under which one or more of the Debtors are
lessees and pursuant to which payments of $50 million or more, in the
aggregate, are or will become due) or (ii) 3 million or more shares of common
stock of US Airways Group (Common Stock). Such persons or entities must
provide thirty (30) days advance notice to the Court, the Debtors, and
Debtors' counsel prior to purchasing or selling any Claims or Common Stock.
The Debtors will have thirty (30) days after receipt of notice to object to
any proposed transfer of Claims or Common Stock described in such notice. If
the Debtors file an objection, such transaction will not be effective unless
approved by a final and nonappealable order of the Bankruptcy Court. If the
Debtors do not object within such thirty (30) day period, such transaction may
proceed solely as set forth in the notice. Moreover, the NOL Order requires
that any person or entity who, directly or indirectly, beneficially owns $50
million or more in Claims or 3 million or more shares of Common Stock file and
serve a notice setting forth the size of their holdings on or before (i) forty
(40) days after the effective date of the notice of entry of the NOL Order or
(ii) ten (10) days after becoming such a beneficial owner. Pursuant to the NOL
Order, any purchase, sale or other transfer of Claims or equity securities in
US Airways Group in violation of these procedures is null and void ab initio
as an act in violation of the automatic stay under section 362 of the
Bankruptcy Code. A final hearing on the NOL Order is scheduled for September
5, 2002.
ATSB Loan
As part of its restructuring efforts, US Airways sought and received
conditional approval for a $900 million loan guarantee under the Stabilization
Act from the Stabilization Board in connection with a proposed $1 billion loan
financing. US Airways applied for this loan and related guarantee in order to
provide additional liquidity necessary to carry out its restructuring plan.
The Stabilization Board's conditions to issuance of the ATSB Guarantee
included, among other things, the execution and delivery of legally binding
agreements acceptable to the Stabilization Board containing economic
concessions from key stakeholders, as well as an agreement to issue a
sufficient number of stock warrants at a strike price acceptable to the
Stabilization Board.
The regulations promulgated pursuant to the Stabilization Act provide
that an eligible borrower must be an air carrier that can demonstrate, to the
satisfaction of the Stabilization Board, that it is not under bankruptcy
protection or receivership when the Stabilization Board issues the guarantee,
unless the guarantee and the underlying financial obligation are to be part of
a bankruptcy court-certified reorganization plan. Subsequent to the Company's
and US Airways Group's Chapter 11 filings, the Stabilization Board issued a
statement that its conditional approval of US Airways' application for the
loan guarantee remains in effect.
USLM Corporation and USIM Mergers
Effective July 1, 2002, USLM Corporation, a wholly-owned subsidiary of
US Airways Group, and US Airways Investment Management Company, Inc. (USIM),
US Airways' wholly-owned subsidiary, were merged into US Airways.
2. Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include the
accounts of US Airways and its wholly-owned subsidiary, USIM. US Airways is a
wholly-owned subsidiary of US Airways Group. These interim period statements
should be read in conjunction with the Consolidated Financial Statements
contained in US Airways' Annual Report to the United States Securities and
Exchange Commission on Form 10-K for the year ended December 31, 2001. Certain
prior year amounts have been reclassified to conform with 2002
classifications.
Management believes that all adjustments necessary for a fair statement
of results have been included in the Condensed Consolidated Financial
Statements for the interim periods presented, which are unaudited. All
significant intercompany accounts and transactions have been eliminated. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
On August 11, 2002, US Airways filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code (see Note 1). American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code" (SOP 90-7), which is
applicable to companies in Chapter 11, generally does not change the manner in
which financial statements are prepared. However, it does require that the
financial statements for periods subsequent to the filing of the Chapter 11
petition distinguish transactions and events that are directly associated with
the reorganization from the ongoing operations of the business.
Revenues, expenses (including professional fees), realized gains and
losses, and provisions for losses that can be directly associated with the
reorganization and restructuring of the business must be reported separately
as reorganization items in the consolidated statements of operations beginning
in the quarter ending September 30, 2002. The condensed consolidated balance
sheet must distinguish pre-petition liabilities subject to compromise from
both those pre-petition liabilities that are not subject to compromise and
from post-petition liabilities. Liabilities that may be affected by the plan
must be reported at the amounts expected to be allowed, even if they may be
settled for lesser amounts. In addition, cash provided by reorganization items
must be disclosed separately in the condensed consolidated statement of cash
flows.
US Airways adopted SOP 90-7 effective on the Petition Date and will
segregate those items as outlined above for all reporting periods subsequent
to the Petition Date.
3. Accounting Changes
On January 1, 2002, US Airways adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142).
US Airways ceased amortization of goodwill upon adoption of SFAS 142 and will
test goodwill annually for impairment. During the second quarter of 2002,
US Airways completed its impairment analysis for goodwill and determined that an
impairment does not exist based on US Airways' assessment of fair values.
US Airways expects that year 2002 amortization expense will be favorably
impacted by $19 million as a result of ceasing amortization of this asset.
The following table provides information relating to US Airways'
intangible assets subject to amortization (except where noted) as of June 30,
2002 (in millions):
Original Accumulated
Cost Amortization
-------- ------------
Airport take-off and landing slots $ 184 $ 59
Airport gate leasehold rights 165 120
Capitalized software costs 211 151
Intangible pension asset (1) 86 -
----- ------
Total $ 646 $ 330
(1) Not subject to amortization.
The intangible assets subject to amortization generally are amortized
over 25 years for airport take-off and landing slots, and over the term of the
lease for airport gate leasehold rights on a straight-line basis and included
in Depreciation and amortization on the Condensed Consolidated Statements of
Operations. Capitalized software costs are amortized over five years on a
straight-line basis and included in Depreciation and amortization. The
intangible pension asset is recognized in accordance with Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions."
For the three months and six months ended June 30, 2002, US Airways recorded
amortization expense of $13 million and $26 million, respectively, related to
these intangible assets. US Airways expects to record annual amortization
expense of $48 million in 2003; $25 million in 2004; $16 million in 2005; $13
million in 2006; and $10 million in 2007 related to these intangible assets.
US Airways' goodwill balance as of January 1, 2002 was $531 million,
which is no longer subject to amortization. Results for the three months and
six months ended June 30, 2001, as adjusted, assuming the discontinuation of
amortization of goodwill, are shown below (in millions):
Three Months Six Months
Ended Ended
June 30, 2001 June 30, 2001
------------- -------------
Reported net loss $ (16) $ (179)
Goodwill amortization 5 10
------ -------
Adjusted net loss $ (11) $ (169)
====== =======
On January 1, 2001, US Airways adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). This resulted in a $7 million credit, net of income
taxes, from a cumulative effect of a change in accounting principle, and a $1
million increase, net of income taxes, in Stockholders' equity (deficit). Upon
adoption of SFAS 133, US Airways began to account for its heating oil swap
contracts, which were used to hedge against jet fuel price increases, as cash
flow hedges, as defined by SFAS 133. The fair value of the heating oil swaps
on January 1, 2001, which was $2 million, was recorded as an asset on
US Airways' balance sheet as part of the transition adjustment related to
US Airways' adoption of SFAS 133. The offset to this balance sheet adjustment
was primarily an increase to "Accumulated other comprehensive income (loss)," a
component of stockholders' equity (deficit). US Airways holds warrants in
various e-commerce companies and holds stock options in Sabre Holdings
Corporation which are accounted for in accordance with SFAS 133. Also upon
adoption of SFAS 133, US Airways recorded an asset of $12 million for these
stock options and warrants as part of the transition adjustment. The offset to
this was a $7 million credit, net of income taxes, to US Airways' cumulative
effect of an accounting change.
4. Comprehensive Income (Loss)
Comprehensive income (loss) was $(239) million and $(17) million for the
three months ended June 30, 2002 and 2001, respectively, and $(497) million
and $(178) million for the six months ended June 30, 2002 and 2001,
respectively. Comprehensive income (loss) encompasses net income (loss) and
"other comprehensive income," which includes all other non-owner transactions
and events that change stockholder's equity. Other comprehensive income (loss)
includes changes in the fair value of US Airways' available-for-sale equity
investments and changes in the fair value of certain derivative financial
instruments which qualify for hedge accounting.
5. Operating Segments and Related Disclosures
US Airways has two reportable operating segments: US Airways and
US Airways Express. The US Airways segment includes the operations of
US Airways. The US Airways Express segment only includes certain revenues and
expenses related to US Airways Group's wholly-owned regional airlines and from
marketing agreements with three non-owned US Airways Express air carriers.
Financial information for each reportable operating segment is set forth
below (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Operating Revenues:
US Airways $ 1,601 $ 2,199 $ 3,064 $ 4,202
US Airways Express 290 287 521 517
-------- -------- -------- --------
$ 1,891 $ 2,486 $ 3,585 $ 4,719
======== ======== ======= ========
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Change:
US Airways $ (271) $ (72) $ (680) $ (347)
US Airways Express 12 48 (15) 56
All Other 2
- 6 15
-------- -------- -------- --------
$ (259) $ (18) $ (693) $ (276)
======== ======== ======= ========
6. Income Taxes
During 2001, US Airways recognized a valuation allowance against its net
deferred tax asset. As a result of the March 2002 enactment of the Job
Creation and Worker Assistance Act of 2002 (Act) US Airways will recognize an
income tax credit not to exceed US Airways' carryback potential. The Act
provides, among other things, an extension of the net operating loss carryback
period to five years from two years for net operating losses arising from tax
years that end in 2001 or 2002 and the elimination of the 90% limitation for
alternative minimum tax purposes on those loss carrybacks. The tax credit
recorded in the first quarter of 2002 includes $53 million related to 2001
losses realizable due to the enactment of the Act and recorded in the period
of enactment.
7. Commitments to Purchase Flight Equipment
As of June 30, 2002, US Airways Group, the parent company of US Airway,
had 37 A320-family aircraft on firm order scheduled for delivery in the years
2005 through 2009, 173 purchase right aircraft which may be converted to firm
order and options for 72 additional aircraft. In addition, US Airways Group
had one A330-300 aircraft on firm order, scheduled for delivery in 2007, and
options for 20 additional aircraft. As of June 30, 2002, the minimum
determinable payments associated with these acquisition agreements for
firm-order Airbus aircraft (including progress payments, payments at delivery,
buyer-furnished equipment, spares, capitalized interest, penalty payments,
cancellation fees and/or nonrefundable deposits) were estimated $4 million in
2003, $14 million in 2004, $96 million in 2005, $596 million in 2006 and $1.30
billion thereafter. The minimum determinable payments by year reflect the
deferral of four A321 aircraft previously scheduled for delivery in the latter
half of 2002 to 2006.
8. Unusual Item
During the first quarter of 2001, US Airways recorded a $22 million
impairment charge in Asset impairments in accordance with provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The impairment charge was in connection with the planned retirement of five
Boeing 737-200 aircraft due to a third party's early return of certain leased
Boeing 737-200 aircraft, and early retirement of certain other Boeing 737-200s.
9. Selective Payment Deferrals
In connection with its comprehensive effort to restructure its costs,
the Company began implementing a strategic initiative in late June 2002
involving deferrals of selected payments related to certain vendors,
aircraft lessors and lenders. The payment deferrals are primarily related
to aircraft that had already been grounded and selected older Boeing
aircraft in service that have been targeted as part of the restructuring
process, including any such aircraft financed with the proceeds of public
debt. As a result of these deferrals, as of June 30, 2002, the Company had
fully matured events of default resulting from the violation of payment
provisions for debt instruments related to 18 aircraft and lease rental
payments related to one aircraft. The aggregate principal amount of the
debt secured by the 18 aircraft described in the preceding sentences was
$172 million, and is reflected under the caption "Current maturities of
long-term debt" on the Condensed Consolidated Balance Sheet as of June 30,
2002. The Chapter 11 filing triggered defaults on substantially all debt
and lease obligations of the Debtors.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General Information
Part I, Item 2 of this report should be read in conjunction with Part
II, Item 7 of US Airways Group, Inc.'s (US Airways Group) and US Airways,
Inc.'s (US Airways or the Company) Annual Report to the United States
Securities and Exchange Commission (SEC) on Form 10-K for the year ended
December 31, 2001. The information contained herein is not a comprehensive
discussion and analysis of the financial condition and results of operations
of US Airways, but rather updates disclosures made in the aforementioned
filing.
On August 11, 2002, (Petition Date) US Airways filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code
(Bankruptcy Code) in the United States Bankruptcy Court for the Eastern
District of Virginia (Bankruptcy Court or Court). The reorganization case is
being administered under the caption "In re US Airways Group, Inc., et al."
Case No. 02-83985-SSM."
As a result of the filing, US Airways is now periodically required to
file various documents with and provide certain information to, the Bankruptcy
Court, including statements of financial affairs, schedules of assets and
liabilities, and monthly operating reports in forms prescribed by federal
bankruptcy law, as well as certain financial information on an unconsolidated
basis.
Such materials will be prepared according to requirements of federal
bankruptcy law. While they accurately provide then-current information
required under federal bankruptcy law, they are nonetheless unconsolidated,
unaudited, and are prepared in a format different from that used in
US Airways' consolidated financial statements filed under the securities laws.
Accordingly, US Airways believes that the substance and format do not allow
meaningful comparison with its regular publicly-disclosed consolidated
financial statements.
Moreover, the materials filed with the Bankruptcy Court are not prepared
for the purpose of providing a basis for an investment decision relating to
US Airways' securities, or for comparison with other financial information filed
with the SEC.
Most of US Airways' filings with the Court are available to the public
at the offices of the Clerk of the Bankruptcy Court or the Bankruptcy Court's
website (www.vaeb.uscourts.gov) or may be obtained through private document
retrieval services. US Airways undertakes no obligation to make any further
public announcement with respect to the documents filed with the Court or any
matters referred therein.
Certain of the information contained herein should be considered
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, that reflect the Company's current views with
respect to current events and financial performance. Such forward looking
statements are and will be, as the case may be, subject to many risks,
uncertainties and factors relating to the Company's operations and business
environment which may cause the actual results of the Company to be materially
different from any future results, express or implied, by such forward-looking
statements. Factors that could cause actual results to differ materially from
these forward-looking statements include, but are not limited to, the
following: the ability of the Company to continue as a going-concern; the
ability of the Company to comply with the terms of the DIP Facility; the
Company's ability to obtain Court approval with respect to motions in the
Chapter 11 case prosecuted by it from time to time; the ability of the Company
to develop, prosecute, confirm and consummate one or more plans of
reorganization with respect to the Chapter 11 cases; risks associated with
third parties seeking and obtaining Court approval to terminate or shorten the
exclusivity period for the Company to propose and confirm one or more plans of
reorganization, for the appointment of a Chapter 11 trustee or to convert the
cases to Chapter 7 cases; the ability of the Company to obtain and maintain
normal terms with vendors and service providers; the Company's ability to
maintain contracts that are critical to its operations; the potential adverse
impact of the Chapter 11 cases on the Company's liquidity or results of
operations; the ability of the Company to fund and execute its business plan;
the ability of the Company to attract, motivate and/or retain key executives
and associates; the ability of the Company to attract and retain customers;
demand for transportation in the markets in which the Company operates;
economic conditions; labor costs; financing costs; aviation fuel costs;
security-related costs; competitive pressures on pricing (particularly from
lower-cost competitors); weather conditions; government legislation and
regulation; consumer perceptions of the Company's products; and other risks
and uncertainties listed from time to time in the Company's reports to the
SEC. Other factors and assumptions not identified above are also involved in
the preparation of forward-looking statements, and the failure of such other
factors and assumptions to be realized may also cause actual results to differ
materially from those discussed. The Company assumes no obligation to update
such estimates to reflect actual results, changes in assumptions or changes in
other factors affecting such estimates other than as required by law.
Chapter 11 Reorganization
In light of recent severe financial losses and as previously announced,
US Airways' management has undertaken a comprehensive restructuring effort to
achieve cost competitiveness by attempting to obtain economic concessions from
key stakeholders, such as employees, aircraft lessors, aircraft and engine
manufacturers and other vendors in order to allow the Company to reduce costs,
create financial flexibility and restore its long-term viability and
profitability. Despite extensive negotiations over the last four and a half
months and substantial progress in obtaining concessions, the Company was
unable to achieve sufficient cost savings from a sufficient number of its key
stakeholders to enable it to restructure on a consensual basis. Accordingly,
faced with declining seasonal revenues and cash flow, the Company determined
it was necessary to file for relief under Chapter 11 of the United States
Bankruptcy Code (Bankruptcy Code) as a means of completing the restructuring
process and to put the Company in a position to return to profitability.
On August 11, 2002, US Airways filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (Case No.
02-83985-SSM). On the same date, US Airways Group and six of its other
subsidiaries (collectively with US Airways, the Debtors) also filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy
Court. The Debtors cases are being jointly administered under the caption "In
re US Airways Group, Inc., et al., Case No. 02-83984-SSM." US Airways will
continue to operate its business as a "debtor-in-possession" under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
At hearings held on August 12, 2002, the Bankruptcy Court granted
US Airways' first day motions for various relief designed to stabilize their
operations and business relationships with customers, vendors, employees and
others and entered orders granting authority to US Airways to, among other
things: (a) pay pre-petition and post-petition employee wages, salaries,
benefits and other employee obligations; (b) pay vendors and other providers
in the ordinary course for goods and services received from and after the
Petition Date; (c) honor customer service programs, including US Airways'
Dividend Miles program and its ticketing programs; and (d) honor obligations
arising prior to the Petition Date related to the Company's interline,
clearinghouse, code sharing and other similar agreements. The Bankruptcy Court
also gave interim approval for $75 million of a proposed $500 million senior
secured debtor-in-possession financing facility (DIP Facility) as described
below.
US Airways continues to operate its business and manage its property as
a debtor-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy
Code. Shortly after the filing, US Airways began notifying all known or
potential creditors of the Chapter 11 filing for the purpose of identifying
all pre-petition claims against US Airways. The Chapter 11 filing triggered
defaults on substantially all debt and lease obligations of the Company.
Subject to certain exceptions under the Bankruptcy Code, US Airways' filing
for reorganization automatically enjoined the continuation of any judicial or
administrative proceedings or other actions against US Airways or its property
to recover on, collect or secure a claim arising prior to the Petition Date.
Thus, for example, creditor actions to obtain possession of property from
US Airways, or to create, perfect or enforce any lien against the property of
US Airways, or to collect on or otherwise exercise rights or remedies with
respect to a pre-petition claim are enjoined unless and until the Court lifts
the automatic stay.
Notwithstanding the above general discussion of the automatic stay,
however, US Airways' right to retain and operate certain aircraft, aircraft
engines and other equipment (as defined in section 1110 of the Bankruptcy
Code) that are leased or subject to a security interest or conditional sale
contract are specifically governed by section 1110 of the Bankruptcy Code.
That section provides, in relevant part, that unless US Airways, within 60
days after the Petition Date, agrees to perform all of the obligations of
the lease, security agreement, or conditional sale contract and cure all
defaults thereunder (other than the filing of the Chapter 11 cases and
certain other financial condition defaults) within the time specified in
section 1110, the right of the lessor, secured party or conditional vendor
to take possession of such equipment in compliance with the provisions of
the lease, security agreement, or conditional sale contract and to enforce
any of its other rights or remedies under such lease, security agreement,
or conditional sale contract is not limited or otherwise affected by the
automatic stay, by any other provision of the Bankruptcy Code, or by any
power of the Bankruptcy Court. The provisions of section 1110 may
materially impact US Airways' options with respect to its fleet
optimization strategy.
US Airways has the exclusive right for 120 days after the Petition Date
to file a plan of reorganization and 60 additional days to obtain necessary
acceptances. Such periods may be extended by the Bankruptcy Court for cause.
If US Airways' exclusivity period lapses, any party in interest may file a
plan of reorganization for US Airways. In addition to being voted on by
holders of impaired claims and equity interests, a plan of reorganization must
satisfy certain requirements of the Bankruptcy Code and must be approved, or
confirmed, by the Court in order to become effective. A plan has been accepted
by holders of claims against and equity interests in US Airways if (i) at
least one-half in number and two-thirds in dollar amount of claims actually
voting in each impaired class of claims have voted to accept the plan and (ii)
at least two-thirds in amount of equity interests actually voting in each
impaired class of equity interests has voted to accept the plan. Under certain
circumstances set forth in the so-called "cramdown" provisions of section
1129(b) of the Bankruptcy Code, the Bankruptcy Court may confirm a plan even
if such plan has not been accepted by all impaired classes of claims and
equity interests. A class of claims or equity interests that does not receive
or retain any property under the plan on account of such claims or interests
is deemed to have voted to reject the plan. The precise requirements and
evidentiary showing for confirming a plan notwithstanding its rejection by one
or more impaired classes of claims or equity interests depends upon a number
of factors, including the status and seniority of the claims or equity
interests in the rejecting class-i.e., secured claims or unsecured claims,
subordinated or senior claims, preferred or common stock.
Under section 365 of the Bankruptcy Code, US Airways may assume, assume
and assign, or reject executory contracts and unexpired leases, including real
property, aircraft and engine leases, subject to the approval of the Court and
certain other conditions. Rejection constitutes a court-authorized breach of
the lease or contract in question and, subject to certain exceptions, relieves
US Airways of its future obligations under such lease or contract but creates
a deemed pre-petition claim for damages caused by such breach or rejection.
Parties whose contracts or leases are rejected may file claims against
US Airways for damages. Generally, the assumption of an executory contract or
unexpired lease requires US Airways to cure all prior defaults under such
executory contract or unexpired lease, including all pre-petition arrearages,
and to provide adequate assurance of future performance. In this regard, the
Company expects that liabilities subject to compromise and resolution in the
Chapter 11 case will arise in the future as a result of damage claims created
by US Airways' rejection of various executory contracts and unexpired leases.
Conversely, the Company would expect that the assumption of certain executory
contracts and unexpired leases may convert liabilities shown in future
financial statements as subject to compromise to post-petition liabilities.
Due to the uncertain nature of many of the potential claims, the Company is
unable to project the magnitude of such claims with any degree of certainty.
The Bankruptcy Court will establish a deadline for the filing of proofs
of claim under the Bankruptcy Code, requiring US Airways' creditors to submit
claims for liabilities not paid and for damages incurred. There may be
differences between the amounts at which any such liabilities are recorded in
the Company's financial statements and the amount claimed by US Airways'
creditors. Significant litigation may be required to resolve any such disputes
or discrepancies.
Although US Airways expects to file a reorganization plan that provides
for emergence from Chapter 11 in early 2003, there can be no assurance that a
reorganization plan will be proposed by US Airways or confirmed by the Court,
or that any such plan will be consummated.
The Company has incurred and will continue to incur significant costs
associated with the reorganization. The amount of these costs, which are being
expensed as incurred, are expected to significantly affect the results of
operations.
As of the Petition Date, the Company had in excess of $500 million in
unrestricted cash, cash equivalents and short-term investments and a DIP
Facility of up to $500 million, as described below, to provide sufficient
liquidity during the restructuring process. The ability of the Company,
both during and after the Chapter 11 case, to continue as a going-concern
is dependent upon, among other things, (i) the Company's ability to comply
with the terms of the DIP Facility and any cash management order entered by
the Bankruptcy Court in connection with the Chapter 11 case; (ii) the
ability of the Company to successfully achieve required cost savings to
complete its restructuring; (iii) the ability of the Company to maintain
adequate cash on hand; (iv) the ability of the Company to generate cash
from operations; (v) the ability of the Company to confirm a plan of
reorganization under the Bankruptcy Code; and (vi) the Company's ability to
achieve profitability. Uncertainty as to the outcome of these factors
raises substantial doubt about the Company's ability to continue as a
going-concern. The accompanying unaudited condensed consolidated financial
statements do not include any adjustments that might result should the
Company be unable to continue as a going-concern. A plan of reorganization
could materially change the amounts currently disclosed in the unaudited
condensed consolidated financial statements.
The potential adverse publicity associated with the Chapter 11 filing
and the resulting uncertainty regarding the Company's future prospects may
hinder the Company's ongoing business activities and its ability to operate,
fund and execute its business plan by impairing relations with existing and
potential customers; negatively impacting the ability of the Company to
attract, retain and compensate key executives and associates and to retain
employees generally; limiting the Company's ability to obtain trade credit;
and impairing present and future relationships with vendors and service
providers.
As a result of the filing, realization of assets and liquidation of
liabilities are subject to uncertainty. While operating as a
debtor-in-possession under the protection of Chapter 11 of the Bankruptcy
Code, and subject to Bankruptcy Court approval or otherwise as permitted in
the normal course of business, US Airways may sell or otherwise dispose of
assets and liquidate or settle liabilities for amounts other than those
reflected in the condensed consolidated financial statements. Further, a plan
of reorganization could materially change the amounts and classifications
reported in the consolidated historical financial statements, which do not
give effect to any adjustments to the carrying value of assets or amounts of
liabilities that might be necessary as a consequence of confirmation of a plan
of reorganization.
Under the priority scheme established by the Bankruptcy Code, unless
creditors agree otherwise, post-petition liabilities and pre-petition
liabilities must be satisfied in full before US Airways Group is entitled to
receive any distribution or retain any property under a plan. The ultimate
recovery to creditors and US Airways Group, as sole shareholder, if any, will
not be determined until confirmation of a plan of reorganization. No assurance
can be given as to what values, if any, will be ascribed in the Chapter 11
cases to each of these constituencies or what types or amounts of
distributions, if any they would receive. Accordingly, the Company urges that
appropriate caution be exercised with respect to existing and future
investments in any of the Company's liabilities.
Debtor-In-Possession Financing
US Airways Group has obtained a $500 million secured DIP Facility led
by joint arrangers Credit Suisse First Boston, Cayman Islands Branch
(CSFB), and Banc of America Securities, LLC. The DIP Facility consists of a
$250 million term loan facility and a $250 million revolving credit
facility and is guaranteed by each of the Debtors. The DIP Facility remains
subject to final Bankruptcy Court approval, at a hearing scheduled for
September 26, 2002. The DIP Facility is secured by first priority liens on
all unencumbered present and future assets of the Debtors and by best
priority available junior liens on all other assets of the Debtors, other
than certain specified assets, including assets which are subject to
financing agreements that are entitled to the benefits of section 1110 of
the Bankruptcy Code to the extent such financing agreements prohibit such
junior liens. $75 million of the $500 million DIP Facility is available to
US Airways Group under the current interim Bankruptcy Court order.
US Airways Group has the option of borrowing under the DIP Facility at an
interest rate of the CSFB prime rate plus 2.5% or LIBOR plus 3.5%.
The maturity date of the DIP Facility is the earlier of the effective
date of a plan of reorganization of the Debtors and September 30, 2003.
The DIP Facility may be accelerated upon the occurrence of an event
of default under the DIP Facility and will contain customary mandatory
prepayment events upon the occurrence of certain asset sales and the
issuance of certain debt or equity securities. In addition, TPG Partners
III, L.P.'s (TPG) $100 million participation described below under "TPG
Investment" is subject to mandatory prepayment upon the occurrence of
certain events, including (i) the failure of the Court to approve a bidding
procedures order substantially in the form agreed to between US Airways
Group and TPG within 60 days of the Petition Date, (ii) TPG's termination
of the Memorandum of Understanding relating to its $200 million equity
investment as a result of the findings of its due diligence prior to the
earlier of September 25, 2002, and 3 days prior to the bidding procedures
hearing, which hearing is currently scheduled for September 26, 2002, or
(iii) failure of TPG to be selected as the winning bidder pursuant to the
Court-approved bidding procedures. If TPG exercises its right to be prepaid
in accordance with the preceding sentence, the lenders under the DIP
Facility other than TPG, by majority vote, may also elect to be prepaid.
The other lenders do not have this prepayment right if TPG is entitled to
be prepaid because it is not the winning bidder if the winning bidder
purchases TPG's participation in the DIP Facility and is reasonably
acceptable to the administrative agent.
The definitive documentation relating to US Airways Group's DIP Facility
will contain covenants that will require US Airways Group to satisfy ongoing
financial requirements. The DIP Facility documents also will contain covenants
that limit, among other things, the Debtors' ability to borrow additional
money, pay dividends and make additional corporate investments.
Under the DIP Facility, borrowing availability will be determined by a
formula based on a percentage of eligible assets. The eligible assets may
consist of certain previously unencumbered aircraft, aircraft engines, spare
parts, flight simulators, real property (including interests in certain
airport facilities), takeoff and landing slots, ground equipment and accounts
receivable. The underlying values of such assets may fluctuate periodically
due to prevailing market conditions, and fluctuations in value may have an
impact on the availability under the DIP Facility. Availability may be further
limited by additional reserves imposed by the administrative agent and the
collateral agent as they deem necessary in their reasonable credit judgment.
Upon completion of the definitive documentation relating to the DIP
Facility, entry of a final order of the Bankruptcy Court approving the DIP
Facility, completion of documentation relating to TPG's equity investment
in US Airways Group as outlined in the Memorandum of Understanding and
discussed below under "TPG Investment", entry of a bidding procedures order
by the Bankruptcy Court with respect to the proposed TPG equity investment,
achievement of certain milestones involving certain of the Company's
collective bargaining units, and satisfaction of certain other conditions,
availability under the DIP Facility will be increased from $75 million to
up to $250 million in the aggregate. Thereafter, availability under the DIP
Facility will be increased by up to an additional $50 million upon
US Airways obtaining certain concessions from its remaining unions. The
remaining $200 million of availability under the DIP Facility will be
available to US Airways Group after (i) the above described conditions have
been satisfied; (ii) expiration of certain regulatory objection/review
periods without material unresolved objections by regulatory agencies with
respect to the Company's recently announced alliance with United Air Lines,
Inc.; (iii) receipt of written reaffirmation from the Air Transportation
Stabilization Board (Stabilization Board) of its conditional approval for a
$900 million loan guarantee (ATSB Guarantee) under the Air Transportation
Safety and System Stabilization Act (Stabilization Act) from the
Stabilization Board subject to confirmation by the Bankruptcy Court of a
plan of reorganization reasonably acceptable to the Stabilization Board;
and (iv) demonstration by the Company to the reasonable satisfaction of the
administrative agent that the Company is likely to satisfy all of the
conditions to the issuance of the ATSB Guarantee.
As of August 14, 2002, the outstanding principal balance under the DIP
Facility was $75 million.
TPG Investment
In connection with the Company's restructuring, TPG has committed to
participate as a lender for $100 million of the $500 million DIP Facility and
to invest $200 million in cash in US Airways Group in exchange for common
stock and warrants to purchase common stock which would result in TPG owning
approximately 38% of US Airways Group upon its emergence from Chapter 11
pursuant to a confirmed plan of reorganization. These commitments are
contained in a Memorandum of Understanding which was executed by US Airways
Group and TPG on August 10, 2002 and is to be followed by definitive
documentation. It is contemplated that the terms of the TPG investment will be
subject to higher or better offers in accordance with bidding procedures to be
approved by the Bankruptcy Court.
Subject to the terms and conditions of the DIP financing documents,
TPG's participation in the DIP financing will be $100 million allocated pro
rata between the term loan facility and the revolving credit facility.
Upon the occurrence of certain events relating to TPG's proposed
equity investment, TPG's commitment under the DIP Facility may be
terminated and US Airways Group may be required to repay amounts owed to
TPG under the DIP Facility. If TPG exercises such election, the remaining
lenders under the DIP Facility other than TPG would have the right, under
certain circumstances, to elect (with the consent of the majority of the
non-TPG lenders) to terminate their remaining commitments under the DIP
Facility and require US Airways Group to prepay all obligations then
outstanding under the DIP Facility.
Notice and Hearing Procedures for Trading in Claims and Equity Securities
On August 12, 2002, the Bankruptcy Court entered an interim order (NOL
Order) which will assist the Debtors in monitoring and preserving their net
operating losses (NOLs) by imposing certain notice and hearing procedures on
trading in (i) claims against the Debtors (Claims) or (ii) equity securities
in US Airways Group. In general, the NOL Order applies to any person or entity
that, directly or indirectly, beneficially owns, or is about to enter into a
transaction pursuant to which it will directly or indirectly beneficially own,
(i) an aggregate principal amount of Claims equal to or exceeding $50 million
(including a lease or leases under which one or more of the Debtors are
lessees and pursuant to which payments of $50 million or more, in the
aggregate, are or will become due) or (ii) 3 million or more shares of common
stock of US Airways Group (Common Stock). Such persons or entities must
provide thirty (30) days advance notice to the Court, the Debtors, and
Debtors' counsel prior to purchasing or selling any Claims or Common Stock.
The Debtors will have thirty (30) days after receipt of notice to object to
any proposed transfer of Claims or Common Stock described in such notice. If
the Debtors file an objection, such transaction will not be effective unless
approved by a final and nonappealable order of the Bankruptcy Court. If the
Debtors do not object within such thirty (30) day period, such transaction may
proceed solely as set forth in the notice. Moreover, the NOL Order requires
that any person or entity who, directly or indirectly, beneficially owns $50
million or more in Claims or 3 million or more shares of Common Stock file and
serve a notice setting forth the size of their holdings on or before (i) forty
(40) days after the effective date of the notice of entry of the NOL Order or
(ii) ten (10) days after becoming such a beneficial owner. Pursuant to the NOL
Order, any purchase, sale or other transfer of Claims against the Debtors or
equity securities in US Airways Group in violation of these procedures is null
and void ab initio as an act in violation of the automatic stay under section
362 of the Bankruptcy Code. A final hearing on the NOL Order is scheduled for
September 5, 2002.
ATSB Loan
As part of its restructuring efforts, US Airways sought and received
conditional approval for a $900 million loan guarantee under the Stabilization
Act from the Stabilization Board in connection with a proposed $1 billion loan
financing. US Airways applied for this loan and related guarantee in order to
provide additional liquidity necessary to carry out its restructuring plan.
The Stabilization Board's conditions to issuance of the ATSB Guarantee
included, among other things, the execution and delivery of legally binding
agreements acceptable to the Stabilization Board containing economic
concessions from key stakeholders, as well as an agreement to issue a
sufficient number of stock warrants at a strike price acceptable to the
Stabilization Board.
The regulations promulgated pursuant to the Stabilization Act provide
that an eligible borrower must be an air carrier that can demonstrate, to the
satisfaction of the Stabilization Board, that it is not under bankruptcy
protection or receivership when the Stabilization Board issues the guarantee,
unless the guarantee and the underlying financial obligation are to be part of
a bankruptcy court-certified reorganization plan. Subsequent to the Company's
and US Airways Group's Chapter 11 filings, the Stabilization Board issued a
statement that its conditional approval of US Airways' application for the
loan guarantee remains in effect.
Other Restructuring Progress
In the months following September 11th, the Company moved quickly to
address its deteriorating liquidity position. Actions taken include an overall
capacity reduction of approximately 23% from pre-September 11th levels
(including the cessation of MetroJet), parking 111 aircraft resulting in the
retirement of the MD-80, F-100 and B737-200 fleet types, furloughs of
approximately 11,000 employees representing more than 20% of US Airways' work
force, deferral of future Airbus aircraft deliveries, and completion of a $404
million secured financing in November 2001.
Despite the actions taken, the impact of September 11th terrorist
attacks on the Company's liquidity position and the prospect, on a projected
longer term basis, of a failure to experience full industry revenue recovery
from the dramatic decline resulting from the September 11th terrorist attacks,
have left the Company without sufficient liquidity to continue operations
under its current cost structure for a sustained period of time. In response
to this, in May 2002, the Company launched a comprehensive restructuring
effort to restore long-term viability and profitability, enhance revenues and
achieve cost competitiveness by obtaining concessions from key stakeholders
that would allow it to reduce costs consistent with its reduced revenue
generating capability, and create financial flexibility.
The Company sought to enhance its revenues and its cost competitiveness
by taking the following actions:
o Restructuring its schedule to optimize revenue production in the
post-September 11th environment.
o Significantly increasing the number of regional jets flown by US Airways
Express affiliates so as to enable the Company to effectively compete
and acquire additional feed for its mainline operation.
o Entering into a comprehensive marketing alliance that includes domestic
and international code share, thereby leveraging the Company's strong
position in the East Coast to generate additional revenues.
o Significantly reducing labor costs, including rates of pay, work rules
and benefits.
o Obtaining concessions from aircraft and engine manufacturers, aircraft
lenders and lessors, other creditors and certain other suppliers that
lower aircraft capital costs and contract costs.
On July 10, 2002, the Stabilization Board conditionally approved the
Company's application for the ATSB Guarantee under the Stabilization Act in
connection with a $1 billion financing. The Company applied for this loan in
order to restore its liquidity in connection with its restructuring efforts.
The Stabilization Board's conditions include, among other things, execution
and delivery of legally binding agreements acceptable to the Stabilization
Board containing economic concessions from key stakeholders as well as an
agreement to issue a sufficient number of stock warrants at a strike price
acceptable to the Stabilization Board.
The Company had made significant progress in obtaining the economic
concessions in connection with its restructuring effort to meet the
Stabilization Board's requirements for the ATSB Guarantee and has taken
measures to enhance revenues:
Employees
- ---------
US Airways has ratified an agreement for concessions with its pilots who
are represented by the Air Line Pilots Association, International (ALPA)
(approximately 4,400 employees). The projected annual savings obtained under
the pilot agreement are $465 million over the 6.5 year term. The pilot
agreement generally includes a rollback of wages to rates in effect prior to
their wage rate increases of 16% and 17% received in May 2002 and 2001,
respectively. The pilot agreement provides that the union will be entitled to
elect a member of the US Airways Group Board of Directors. The pilot agreement
also provides the union membership with 17.5 million shares of restricted
stock and entitles them to exchange 11.5 million previously awarded options to
purchase common stock for shares of restricted stock. In bankruptcy, the form
of securities may be modified to provide equivalent value (defined as 19.33%
of the fully diluted common stock).
US Airways has ratified an agreement for concessions with its flight
attendants who are represented by the Association of Flight Attendants (AFA)
(approximately 7,600 employees). The projected annual savings obtained under
the flight attendant agreement are $76 million over its 6.5 year term. US
Airways has tentative agreements for concessions with its flight crew training
instructors, simulator engineers and flight dispatchers who are represented by
the Transport Workers Union of America (TWU) (approximately 320 employees
collectively). Pursuant to the terms of these agreements, the AFA and the TWU
will be permitted to nominate a member of the Board of Directors of US Airways
Group and a new seat on the Board of Directors has been created for this
purpose. These agreements also provide that the employees covered under the
agreements will participate in a profit sharing plan, or, in the alternative,
receive equity securities in US Airways Group upon its emergence from
Chapter 11.
The International Association of Machinist and Aerospace Workers which
represents US Airways' mechanics and related employees and fleet service
employees is submitting US Airways' proposal for concessions to its membership
for ratification. This proposal includes a seat on US Airways Group's Board of
Directors and participation in profit sharing or, in the alternative,
receiving equity securities in US Airways Group upon its emergence from
Chapter 11. US Airways has not reached an agreement with the Communication
Workers of America (CWA), which represents US Airways' passenger service
employees. US Airways has requested that the CWA put out for ratification
US Airways' proposal for concession to its membership, but has not yet received
a formal response.
Marketing alliance
- ------------------
US Airways reached a comprehensive marketing agreement with United Air
Lines, Inc. (United). The agreement has received approvals from the pilot
unions for both US Airways and United and is under review by the Department of
Transportation. Once implemented, US Airways and United passengers will be
able to contact either airline and make a single reservation that involves
travel on both airlines (code share travel) through new streamlined ticketing,
baggage handling and check-in procedures. In addition, US Airways and United
customers will have the opportunity to earn and redeem Dividend Miles and
Mileage Plus Miles on both airlines and members of either airlines airport
club may access both airlines' airport clubs. The first code share flights are
expected to begin before the end of 2002.
Regional jet growth
- -------------------
US Airways' ratified agreement for concessions with its pilots provides
that it may operate up to 465 regional jets subject to certain restrictions.
In July 2002, US Airways signed a letter of intent with Midway Airlines to fly
up to 18 50-seat Bombardier CRJ regional jets as part of US Airways Express.
This agreement is contingent on several factors, including Midway reaching
agreements with certain of its labor unions and US Airways obtaining an equity
interest in Midway over the course of the agreement.
Financial Overview
For the second quarter of 2002, US Airways' operating revenues were $1.9
billion, operating loss was $176 million and net loss was $225 million. For
the comparative period in 2001, operating revenues were $2.5 billion,
operating income was $31 million and net loss was $16 million.
For the six months of 2002, US Airways' operating revenues were $3.6
billion, operating loss was $545 million and loss before cumulative effect of
accounting change was $523 million. For the comparative period in 2001,
operating revenues were $4.7 billion, operating loss was $186 million and loss
before cumulative effect of accounting change was $186 million. US Airways'
results for the first six months of 2001 include an unusual item (see
discussion of asset impairments in "Results of Operations" below).
Lower capacity and lower passenger fares have significantly impacted
results for the three and six months ended June 30, 2002. Results for 2001
were also impacted by passenger fare pressures. The lower passenger fares
resulted from declines in business traffic (which has higher yields than
leisure traffic) which began early in 2001 and was exacerbated by the
terrorist attacks of September 11th . The airline industry has engaged in
heavy price discounting since September 11th to entice customers to fly and
competition from low-fare carriers has intensified. While US Airways has taken
aggressive actions to reduce its costs since September 11th, including
significant reductions in workforce and capacity (as measured by available
seat miles or ASMs), many of US Airways' costs are fixed over the intermediate
to longer term, so that US Airways is not able to reduce its costs as quickly
as it is able to reduce its capacity. In addition to lower passenger fares,
results for the three and six months ended June 30, 2001 were adversely
impacted by relatively high jet fuel prices.
Results of Operations
The following section pertains to activity included in US Airways'
Condensed Consolidated Statements of Operations (which are contained in Part
I, Item 1 of this report) and in "Selected US Airways Operating and Financial
Statistics" below. Except where noted, operating statistics referred to below
are for scheduled service only.
Three Months Ended June 30, 2002
Compared with the
Three Months Ended June 30, 2001
OPERATING REVENUES - Passenger transportation revenues decreased $568 million or
28.3% due to an 18.6% decrease in RPMs and a 11.9% decrease in yield. The
unfavorable yield variances reflect a decline in business traffic as many
companies have corporate travel restrictions in place as a result of generally
weak economic conditions. In addition, the airline industry has continued to
engage in heavy price discounting since September 11th to entice customers to
fly. The decrease in RPMs for US Airways is primarily due to the
post-September 11th schedule reductions. Cargo and freight revenues decreased
16.3% primarily as a result of lower mail revenues, which reflect mail
carriage restrictions imposed by the Federal Aviation Administration in the
aftermath of September 11th. Other operating revenues declined 15.2% due to
declines in revenue related to a marketing agreement with Galileo
International, Inc. which ended June 30, 2001, lease revenue associated with
surplus aircraft and other schedule-related revenues.
OPERATING EXPENSES - US Airways' operating expenses were lower by 15.8% on a
capacity decrease of 20.1%. Personnel costs decreased 10.0% due to lower
headcount levels. This was partially offset by higher wage rates and increases
in employee pension and benefit expenses. Effective May 1, 2002 and 2001, most
US Airways pilots received 16% and 17% wage rate increases, respectively,
pursuant to the "parity plus 1%" provision in their labor contract. Aviation
fuel decreased 40.7% due to lower average fuel prices and schedule-driven
decreases in consumption. Aircraft rent decreased 7.0% as expense reductions
from lease expirations were partially offset with lease expense associated
with new leased aircraft. Other rent and landing fees decreased 13.2% due to
schedule-driven reductions in landings. Aircraft maintenance decreased 35.3%
reflecting the retirement of older aircraft as well as the closure of the
US Airways engine shop in Pittsburgh, PA. Other selling expenses decreased 23.7%
due to sales volume driven decreases in credit card fees and computer
reservation fees. Depreciation and amortization decreased 27.1% due to
aircraft retirements partially offset by the purchase of new Airbus aircraft.
In addition, US Airways ceased amortizing its goodwill effective January 1,
2002 in connection with its adoption of Statement of Financial Standards No.
142, "Goodwill and Other Intangible Assets" (SFAS 142). This favorably
impacted expenses by $5 million. Commissions decreased 66.2% due to lower
ticket sales and the elimination of the base domestic commissions in March
2002. Other operating expenses decreased 13.7% due to decreases in
schedule-related expenses including passenger food expenses, crew travel
expenses and interrupted trip expenses partially offset by higher insurance
expenses and higher security expenses.
OTHER INCOME (EXPENSE) - Interest income decreased due to lower average
investment balances and return rates quarter-over-quarter. Interest expense
increased due to an increase in outstanding equipment financing.
PROVISION (CREDIT) FOR INCOME TAXES - During 2001, US Airways recognized a
valuation allowance against its net deferred tax asset. As a result of the
March 2002 enactment of the Job Creation and Worker Assistance Act of 2002
(Act) US Airways will recognize an income tax credit not to exceed US Airways'
carryback potential. The Act provides, among other things, an extension of the
net operating loss carryback period to five years from two years for net
operating losses arising from tax years that end in 2001 or 2002 and the
elimination of the 90% limitation for alternative minimum tax purposes on
those loss carrybacks. US Airways continues to record a valuation allowance
against its net deferred tax asset which limits the 2002 tax credit. The
effective tax rate was 11% for the second quarter of 2001. The tax credit for
the second quarter of 2001 results from the tax benefits associated with the
pretax losses, offset by the tax effects of US Airways' permanent tax
differences during the second quarter.
Six Months Ended June 30, 2002
Compared with the
Six Months Ended June 30, 2001
OPERATING REVENUES - Passenger transportation revenues decreased $1.07 billion
or 28.1% due to a 17.4% decrease in RPMs and a 12.9% decrease in yield. The
unfavorable yield variances reflect a decline in business traffic as many
companies have corporate travel restrictions in place as a result of generally
weak economic conditions. In addition, the airline industry has continued to
engage in heavy price discounting since September 11th to entice customers to
fly. The decrease in RPMs for US Airways is primarily due to the
post-September 11th schedule reductions. Cargo and freight revenues decreased
21.6% primarily as a result of lower mail revenues, which reflect mail
carriage restrictions imposed by the Federal Aviation Administration in the
aftermath of September 11th. Other operating revenues declined 16.1% due to
declines in revenue related to a marketing agreement with Galileo
International, Inc. which ended June 30, 2001, revenue from third-party fuel
sales (price-driven decline), lease revenue associated with surplus aircraft
and other schedule-related revenues.
OPERATING EXPENSES - Excluding the aircraft impairment charge recognized in the
first quarter of 2001 (see "Asset impairments" below), US Airways' operating
expenses were lower by 15.4% on a capacity decrease of 19.5% at US Airways.
Personnel costs decreased 8.3% due to lower headcount levels. This was
partially offset by higher wage rates and increases in employee pension and
benefit expenses. Effective May 1, 2002 and 2001, most US Airways pilots
received 16% and 17% wage rate increases, respectively, pursuant to the
"parity plus 1%" provision in their labor contract. Aviation fuel decreased
41.9% due to lower average fuel prices and schedule-driven decreases in
consumption. Aircraft rent was flat as expense reductions from lease
expirations were offset with lease expense associated with new leased
aircraft. Other rent and landing fees decreased 13.2% due to schedule-driven
reductions in landings and timing of certain credits received. Aircraft
maintenance decreased 36.4% reflecting the retirement of older aircraft as
well as the closure of the US Airways engine shop in Pittsburgh, PA. Other
selling expenses decreased 21.5% due to sales volume driven decreases in
credit card fees and computer reservation fees. Depreciation and amortization
decreased 23.9% due to aircraft retirements partially offset by the purchase
of new Airbus aircraft. In addition, US Airways ceased amortizing its goodwill
effective January 1, 2002 in connection with its adoption of SFAS 142, which
favorably impacted expenses by $10 million. Commissions decreased 52.9% due to
lower ticket sales and lower average commission rates. Commission rates
decreased due to the elimination of the base domestic commissions in March
2002, increases in internet bookings which are less costly to US Airways and
generally lower maximum payments to travel agents implemented in August 2001.
Asset impairments represents a $22 million impairment charge in connection
with the planned retirement of five Boeing 737-200 aircraft due to a third
party's early return of certain leased Boeing 737-200 aircraft, and early
retirement of certain other Boeing 737-200s. Other operating expenses
decreased 17.3% due to decreases in schedule-related expenses including
passenger food expenses, crew travel expenses and interrupted trip expenses
partially offset by higher insurance expenses and higher security expenses.
OTHER INCOME (EXPENSE) - Interest income decreased due to lower average
investment balances and return rates. Interest expense increased due to an
increase in outstanding equipment financing.
PROVISION (CREDIT) FOR INCOME TAXES - During 2001, US Airways recognized a
valuation allowance against its net deferred tax asset. As a result of the
March 2002 enactment of the Job Creation and Worker Assistance Act of 2002
(Act) US Airways will recognize an income tax credit not to exceed US Airways'
carryback potential. The Act provides, among other things, an extension of the
net operating loss carryback period to five years from two years for net
operating losses arising from tax years that end in 2001 or 2002 and the
elimination of the 90% limitation for alternative minimum tax purposes on
those loss carrybacks. The tax credit recorded in the first quarter of 2002
includes $53 million related to 2001 losses realizable due to the enactment of
the Act and recorded in the period of enactment. US Airways continues to
record a valuation allowance against its net deferred tax asset which limits
the 2002 tax credit. The effective tax rate was 33% for the first six months
of 2001. The tax credit for the first six months of 2001 results from the tax
benefits associated with the pretax losses, offset by the tax effects of
US Airways' permanent tax differences.
Selected US Airways Operating and Financial Statistics (1)
Three Months Ended Six Months Ended
June 30, Increase June 30, Increase
----------------------- ----------------------
2002 2001 (Decrease) 2002 2001 (Decrease)
---- ---- ---------- ---- ---- ----------
Revenue passengers (thousands)* 12,982 16,582 (21.7)% 24,807 30,775 (19.4)%
Total RPMs (millions) (2) 10,969 13,480 (18.6)% 20,551 24,893 (17.4)%
RPMs (millions)* 10,966 13,471 (18.6)% 20,547 24,874 (17.4)%
Total ASMs (millions) (3) 14,609 18,275 (20.1)% 28,589 35,520 (19.5)%
ASMs (millions)* 14,606 18,265 (20.0)% 28,584 35,499 (19.5)%
Passenger load factor* (4) 75.1% 73.8 1.3 pts. 71.9% 70.1% 1.8 pts.
Break-even load factor (5) 87.8% 76.2% 11.6 pts. 87.8% 75.5% 12.3 pts.
Yield* (6) 13.11(c) 14.88(c) (11.9)% 13.36(c) 15.34(c) (12.9)%
Passenger revenue per ASM* (7) 9.84(c) 10.98(c) (10.4)% 9.60(c) 10.75(c) (10.7)%
Revenue per ASM (8) 10.96(c) 12.04(c) (9.0)% 10.72(c) 11.83(c) (9.4)%
Cost per ASM (9) 12.25(c) 12.13(c) 1.0% 12.57(c) 12.45(c) 1.0%
Average passenger journey (miles)* 845 812 4.1% 828 808 2.5%
Average stage length (miles)* 684 666 2.7% 667 661 0.9%
Cost of aviation fuel per gallon (10) 69.28(c) 88.12(c) (21.4)% 68.80(c) 90.91(c) (24.3)%
Cost of aviation fuel per gallon,
excluding fuel taxes (11) 63.57(c) 81.89(c) (22.4)% 63.13(c) 84.57(c) (25.4)%
Gallons of aviation fuel consumed (millions) 252 334 (24.6)% 498 648 (23.1)%
Scheduled mileage completion factor* 99.3% 98.7% 0.6 pts. 99.4% 98.2% 1.2 pts.
Operating aircraft at period-end 311 423 (26.5)% 311 423 (26.5)%
Full-time equivalent employees at period-end 33,902 44,673 (24.1)% 33,902 44,673 (24.1)%
* Scheduled service only (excludes charter service).
c = cents
(1) Operating statistics include free frequent travelers and the related
miles they flew. Financial statistics exclude the revenues and expenses
generated under capacity purchase arrangements US Airways has with
certain US Airways Express air carriers. Financial statistics for the
six months ended June 30, 2001 exclude an impairment charge of $22
million.
(2) Revenue Passenger Miles (RPMs) - revenue passengers multiplied by the
number of miles they flew.
(3) Available Seat Miles (ASMs) - seats available multiplied by the number
of miles flown (a measure of capacity).
(4) Percentage of aircraft seating capacity that is actually utilized
(RPMs/ASMs).
(5) Percentage of aircraft seating capacity utilized that equates to
US Airways breaking-even at the pre-tax income level.
(6) Passenger transportation revenue divided by RPMs.
(7) Passenger transportation revenue divided by ASMs (a measure of unit
revenue).
(8) Total Operating Revenues divided by ASMs (a measure of unit revenue).
(9) Total Operating Expenses divided by ASMs (a measure of unit cost).
(10) Includes fuel taxes and transportation charges.
(11) Includes transportation charges (excludes fuel taxes).
Capacity (as measured by ASMs) decreased 20.0% and 19.5% for the three
and six months ended June 30, 2002. RPMs decreased 18.6% and 17.4% for the
three and six months ended June 30, 2002. This resulted in a 75.1% passenger
load factor for the three months ended June 30, 2002, a 1.3 percentage point
increase. Both RPMs and ASMs were significantly affected by the schedule
reductions put in place after September 11th. For the three months ended June
30, 2002, yield declined 11.9% reflecting the significant decline in close-in
business bookings, aggressive fare discounting in the airline industry and
intensified competition from low-fare carriers. US Airways competes heavily
with trains and automobiles as a result of its short-haul network. In the
aftermath of the September 11th terrorist attacks, many customers have
switched to these other forms of transportation. Additionally, the increased
airport security charges and procedures have had a disproportionate impact on
short-haul carriers. Full-time equivalent employees at period-end declined
24.1% reflecting the headcount reduction measures put in place after September
11th.
New Accounting Standard
On July 30, 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 146 (SFAS 146), "Accounting
for Costs Associated with Exit or Disposal Activities." The standard requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or
disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated
with a restructuring, discontinued operation, plant closing or other exit or
disposal activity. Previous accounting guidance was provided by Emerging
Issues Task Force Issue No. 94-3 (EITF 94-3), "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 replaces EITF
94-3. The principal effect of applying SFAS 146 will be on the timing of
recognition of costs associated with exit or disposal activities. In many
cases, those costs will be recognized as liabilities in periods following a
commitment to a plan, not at the date of the commitment. SFAS 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002.
Liquidity and Capital Resources
As of June 30, 2002, US Airways' cash and cash equivalents and
short-term investments totaled $543 million. US Airways' ratio of current
assets to current liabilities (current ratio) was 0.5 (US Airways' Condensed
Consolidated Balance Sheets are contained in Part I, Item 1 of this report).
As of December 31, 2001, US Airways' cash and cash equivalents and short-term
investments totaled $1.02 billion and the current ratio was 0.6.
For the first six months of 2002, US Airways' operating activities used
net cash of $313 million (as presented in US Airways' Condensed Consolidated
Statements of Cash Flows, which are contained in Part I, Item 1 of this
report) compared to operating activities which provided net cash of $206
million for the first six months of 2001. Operating cash flows during the
first six months of 2002 were adversely affected by the same factors that
adversely affected financial results during that period (see discussion in
"Results of Operations" above). Included in net cash used for operating
activities for the first six months of 2002 is an income tax refund of $169
million received by US Airways primarily as a result of the recently enacted
Job Creation and Worker Assistance Act of 2002, $32 million of compensation
received under the Stabilization Act (see below) and payments of $188 million
of ticket taxes for which remittance was deferred until January 2002 under the
Stabilization Act.
The net cash provided by investing activities for the six months ended
June 30, 2002 was $167 million. For the first six months of 2002, investing
activities included cash outflows of $117 million related to capital
expenditures. Capital expenditures included $107 million for new aircraft
(including purchase deposits) with the balance related to rotables, ground
equipment and miscellaneous assets. Proceeds from disposition of property
includes, among other things, proceeds related to the surplus aircraft and
related parts delivered during the first six months of 2002. During the first
quarter of 2002, US Airways entered into agreements to sell 97 surplus DC-9,
B737-200 and MD-80 aircraft. As of June 30, 2002, substantially all of the
proceeds related to these agreements had been received. Decrease (increase) in
short-term investments reflects proceeds from the sale of short-term
investments. US Airways' cash and cash equivalents and short-term investments
as of December 31, 2001 include funds which, in the ordinary course of
business, it withholds from employees and it collects from passengers. These
funds are required to be paid to applicable governmental authorities, and
include withholding for payroll taxes, transportation excise taxes, passenger
facility charges and transportation security charges. During the second
quarter of 2002, US Airways established trusts to fund these obligations. The
initial funding (which totaled approximately $201 million) and the net cash
flows of the trust are reflected in Decrease (increase) in restricted cash and
investments on US Airways' Condensed Consolidated Statements of Cash Flows.
The funds in these trust accounts totaled $195 million as of June 30, 2002 and
are classified as prepaid expenses and other current assets net on US Airways'
Condensed Consolidated Balance Sheet. For the first six months of 2001,
investing activities included cash outflows of $908 million related to capital
expenditures. Capital expenditures included $850 million for new aircraft
(including purchase deposits) with the balance related to rotables, ground
equipment and miscellaneous assets. The net cash used for investing activities
for the six months ended June 30, 2001 was $893 million.
Net cash provided by financing activities during the first six months of
2002 was $82 million. US Airways received proceeds of $116 million from the
mortgage financing of three A321 aircraft. Additionally, US Airways received
proceeds of $33 million with the private placement of pass-through
certificates that partially finance five previously delivered A330s. These
proceeds were offset by the scheduled principal repayments of long-term debt
in the amount of $67 million. Net cash provided by financing activities during
the first six months of 2001 was $657 million. US Airways received proceeds of
$534 million from the mortgage financing of nine A320-family aircraft and
three A330 aircraft. US Airways also received $344 million from sale-leaseback
transactions on eight A320-family aircraft. These proceeds were partially
offset by the scheduled principal repayments of long-term debt in the amount
of $225 million including the February 1, 2001 repayment of US Airways' $175
million 9 5/8% Senior Notes.
US Airways Group has obtained a $500 million secured DIP Facility led
by joint arrangers CSFB and Banc of America Securities, LLC. The DIP
Facility consists of a $250 million term loan facility and a $250 million
revolving credit facility and guaranteed by each of the Debtors. The DIP
Facility remains subject to final Bankruptcy Court approval, at a hearing
scheduled for September 26, 2002. The DIP Facility is secured by first
priority liens on all unencumbered present and future assets of the Debtors
and by best priority available junior liens on all other assets of the
Debtors, other than certain specified assets, including assets which are
subject to financing agreements that are entitled to the benefits of
section 1110 of the Bankruptcy Code to the extent such financing agreements
prohibit such junior liens. $75 million of the $500 million DIP Facility is
available to US Airways Group under the current interim Bankruptcy Court
order and has been drawn. US Airways Group has the option of borrowing
under the DIP Facility at an interest rate of the CSFB prime rate plus 2.5%
or LIBOR plus 3.5%. See Note 1 to the Company's Condensed Consolidated
Financial Statements for more information.
As discussed above, US Airways sought and received conditional approval
for the ATSB Guarantee under the Stabilization Act from the
Stabilization Board in connection with a $1 billion loan financing. Subsequent
to the Chapter 11 filing, the Stabilization Board issued a statement
indicating that its conditional approval of US Airways application for the
ATSB Guarantee remains in effect.
Parties in interest in the Chapter 11 cases can request adequate
assurance of future performance with respect to contracts that will be assumed
and adequate protection of their interests in property. Such performance or
protection may include additional collateral deposits subject to approval of
the Bankruptcy Court. As a result of the Chapter 11 filing, the Company
expects that substantial additional collateral deposits may be required in
connection with certain service contracts. At this time, the Company cannot
predict the amount of the additional collateral deposits.
US Airways continues to be highly leveraged. It has a higher amount of
debt compared to equity capital than most of its principal competitors.
Substantially all of its aircraft and engines are subject to liens securing
indebtedness. US Airways requires substantial working capital in order to
meet scheduled debt and lease payments and to finance day-to-day operations.
US Airways has not generated positive operating cash flows since September 11,
2001.
In connection with its comprehensive effort to restructure its costs,
the Company began implementing a strategic initiative in late June 2002
involving deferrals of selected payments related to certain vendors,
aircraft lessors and lenders. The payment deferrals are primarily related
to aircraft that had already been grounded and selected older Boeing
aircraft in service that have been targeted as part of the restructuring
process, including any such aircraft financed with the proceeds of public
debt. As a result of these deferrals, as of June 30, 2002, the Company had
fully matured events of default resulting from the violation of payment
provisions for debt instruments related to 18 aircraft and lease rental
payments related to one aircraft. The aggregate principal amount of the
debt secured by the 18 aircraft described in the preceding sentences was
$172 million, and is reflected under the caption "Current maturities of
long-term debt" on the Condensed Consolidated Balance Sheet as of June 30,
2002. The Chapter 11 filing triggered defaults on substantially all debt
and lease obligations of the Debtors.
As of the Petition Date, the Company had in excess of $500 million in
unrestricted cash, cash equivalents and short-term investments and a DIP
Facility of up to $500 million, as described below, to provide sufficient
liquidity during the restructuring process. The ability of the Company,
both during and after the Chapter 11 case, to continue as a going-concern
is dependent upon, among other things, (i) the Company's ability to comply
with the terms of the DIP Facility and any cash management order entered by
the Bankruptcy Court in connection with the Chapter 11 case; (ii) the
ability of the Company to successfully achieve required cost savings to
complete its restructuring; (iii) the ability of the Company to maintain
adequate cash on hand; (iv) the ability of the Company to generate cash
from operations; (v) the ability of the Company to confirm a plan of
reorganization under the Bankruptcy Code; and (vi) the Company's ability to
achieve profitability. Uncertainty as to the outcome of these factors
raises substantial doubt about the Company's ability to continue as a
going-concern. The accompanying unaudited condensed consolidated financial
statements do not include any adjustments that might result should the
Company be unable to continue as a going-concern. A plan of reorganization
could materially change the amounts currently disclosed in the unaudited
condensed consolidated financial statements.
As a result of the September 11th terrorist attacks, aviation insurers
have significantly reduced the maximum amount of insurance coverage available
to commercial air carriers for liability to persons other than passengers for
claims resulting from acts of terrorism, war or similar events (war-risk
coverage). At the same time, they significantly increased the premiums for
such coverage as well as for aviation insurance in general. Pursuant to
authority granted in the Stabilization Act, the Federal Aviation
Administration (FAA) has supplemented the commercial war-risk insurance until
October 16, 2002 with a third party liability policy to cover losses in excess
of $50 million to persons other than passengers for renewable 60-day periods.
In the event the insurance carriers further reduce the amount of insurance
coverage available or the FAA fails to renew war-risk insurance, US Airways'
operations and/or financial position, results of operations or cash flows
could be adversely impacted.
The Stabilization Act provides for $5 billion in payments to compensate
U.S. air carriers for losses incurred as a result of the terrorist attacks on
the United States that occurred on September 11, 2001. Through June 30, 2002,
US Airways had received approximately $287 million from the U.S. Government
under the Stabilization Act. US Airways expects to receive an additional $22
million in 2002 under this provision of the Stabilization Act. Adjustments to
the amount of compensation received may be recognized in 2002 as the rules
governing the distribution are finalized. The payments will partially
compensate US Airways for its direct and incremental losses incurred beginning
on September 11, 2001 and ending on December 31, 2001.
On August 12, 2002, Standard and Poor's (S&P) lowered its corporate
credit ratings on the US Airways Group and US Airways to "D" (Default) from
"SD" (Selective Default). Ratings on most issues of US Airways that have not
already defaulted were lowered as well, and remain on CreditWatch with
developing implications. On August 12, 2002, Moody's Investor Service
(Moody's) downgraded its Senior Implied Ratings of US Airways Group and
US Airways to Caa3 from Caa2 and the rating outlook is negative. Credit ratings
issued by agencies such as S&P and Moody's affect the Company's ability to
issue debt or equity securities and the effective rate at which such
financings are undertaken.
As of June 30, 2002, US Airways Group, the parent company of US Airways,
had 37 A320-family aircraft on firm order scheduled for delivery in the years
2005 through 2009, 173 Purchase right aircraft which may be converted to firm
order and options for 72 additional aircraft. In addition, US Airways had one
A330-300 aircraft on firm order, scheduled for delivery in 2007, and options
for 20 additional aircraft. As of June 30, 2002, the minimum determinable
payments associated with US Airways' acquisition agreements for firm-order
Airbus aircraft (including progress payments, payments at delivery,
buyer-furnished equipment, spares, capitalized interest, penalty payments,
cancellation fees and/or nonrefundable deposits) were estimated at $4 million
in 2003, $14 million in 2004, $96 million in 2005, $598 million in 2006 and
$1.30 billion thereafter.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to US Airways' disclosures related
to certain market risks as reported under Part II, Item 7A, "Quantitative and
Qualitative Disclosures About Market Risk," in the Annual Report of
US Airways, Inc. to the SEC on Form 10-K for the year ended December 31, 2001.
Part II. Other Information
Item 1. Legal Proceedings
On August 11, 2002, US Airways filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (Case No.
02-83985-SSM). The reorganization is being administered under the caption "In
re US Airways Group, Inc., et al., Case No. 02-83984-SSM." US Airways
continues to operate its business and manage its property as a
debtor-in-possession pursuant to sections 1107 and 1109 of the Bankruptcy
Code. As a result of the filing, attempts to collect, secure, or enforce
remedies with respect to pre-petition claims against US Airways are subject to
the automatic stay provisions of 11 U.S.C. section 362 (a) of the Bankruptcy
Code. The Chapter 11 case is discussed in greater detail in Note 1 to the
condensed consolidated unaudited financial statements.
US Airways Group and US Airways have been named as defendants in two
lawsuits filed in U.S. District Court for the Eastern District of Michigan.
Delta Air Lines is also named as a defendant in both actions, while Northwest
Airlines and the Airlines Reporting Corporation are named as defendants in one
additional action. The complaints were filed on behalf of a class of airline
passengers who originated or terminated their trips at the defendant carriers'
respective hubs. These passengers allege that they paid excessive fares due to
the respective airlines' enforcement of ticketing rules which prohibit the use
of a connecting segment coupon which is part of a through-fare ticket where
the passenger does not fly or intend to fly the entire ticketed itinerary.
Plaintiffs allege monopolization and restraint of trade in violation of
federal antitrust laws. They seek recovery of trebled damages in the amount of
$390 million and an injunction prohibiting future enforcement of the rules at
issue. On May 16, 2002, the court denied the defendant airlines motion for
summary judgment and granted the plaintiff's motion for class certification in
each of the cases. On May 31, 2002, US Airways filed a petition with the
United States Court of Appeals for the Sixth Circuit seeking a discretionary
review of the certification order. That petition remains pending.
Notwithstanding the district court's denial of summary judgment, US Airways
Group and US Airways believe the claims are without merit and intend to pursue
a vigorous defense.
A declaratory judgment against certain airlines including US Airways is
being sought in Quebec Superior Court that, if obtained, would require
US Airways and such other named airlines to pay commissions to travel agents
under the IATA rules. The amount of commissions sought has not been specified.
Under Quebec civil procedure, a motion for a declaratory judgment must be
supported by an affidavit from each plaintiff. As of August 13, 2002, more
than thirty plaintiffs have filed affidavits indicating their participation in
this lawsuit. A hearing has been scheduled for August 29, 2002 to discuss the
scheduling of preliminary motions and depositions. US Airways intends to
pursue a vigorous defense.
The ALPA and the AFA each filed a grievance against US Airways
alleging that the furlough of employees is a breach of applicable collective
bargaining agreements. An arbitrator had been selected to hear each of these
matters. Hearings on the claim filed by ALPA began before the arbitrator.
In each of these matters, the applicable union contended that furloughs
and certain other employment practices that occurred following the September
11, 2001 terrorist attacks were in violation of the applicable collective
bargaining agreement. Among the remedies being sought was a reinstatement of
furloughed employees and full back pay to furloughed employees. US Airways
believed that its actions were permissible under force majeure clauses in the
collective bargaining agreements and that it has valid defenses to the other
allegations. Pursuant to the terms of the collective bargaining agreement
between ALPA and US Airways as ratified on August 8, 2002, and between the AFA
and US Airways as ratified on August 9, 2002, ALPA and the AFA each have
withdrawn their grievances.
ALPA also filed another grievance claiming that certain pilot furloughs
and transfer of flying to US Airways Express carriers were impermissible under
the scope provisions of the pilots' collective bargaining agreement. Among the
remedies being sought was a reinstatement of the furloughed pilots and full
back pay. An arbitration hearing was conducted in January 2002 and, in May
2002, the arbitrator ruled in US Airways' favor.
Item 3. Defaults Upon Senior Securities
In connection with its comprehensive effort to restructure its costs,
the Company began implementing a strategic initiative in late June 2002
involving deferrals of selected payments. The payment deferrals are related
primarily to amounts owed to aircraft lessors and lenders for aircraft that
had already been grounded and selected older Boeing aircraft in service that
have been targeted as part of the restructuring process, including any such
aircraft financed with the proceeds of public debt. As a result of these
deferrals, as of June 30, 2002, the Company had fully matured events of
default resulting from the violation of payment provisions for debt
instruments related to 18 aircraft and lease rental payments related to one
aircraft. The aggregate principal amount of the debt secured by the 18
aircraft described in the preceding sentences was $172 million, and is
reflected under the caption "Current maturities of long-term debt" on the
Condensed Consolidated Balance Sheet as of June 30, 2002. The Chapter 11
filing triggered defaults on substantially all debt and lease obligations of
the Debtors.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Designation Description
99.1 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
B. Reports on Form 8-K
Date of Report Subject of Report
August 11, 2002 News releases disclosing that the Company
has filed voluntary petitions for relief
under Chapter 11 of Title 11 of the United
States Code in the United States Bankruptcy
Court for the Eastern District of Virginia
and the approval of bridge orders by the
same court.
August 8, 2002 US Airways disclosed the information
contained in a slide presentation to
public bondholders on August 8, 2002.
August 8, 2002 News release clarifying reports regarding
the meeting with public bondholders held on
August 8, 2002.
August 8, 2002 News release disclosing that US Airways'
ALPA pilots ratified its restructuring plan
agreement on August 8, 2002.
August 8, 2002 US Airways disclosed that a meeting with
public bondholders was held on August 8,
2002, in New York.
August 6, 2002 News release disclosing July 2002
performance for US Airways, Inc. including
certain forward-looking information.
July 18, 2002 News release disclosing the results of
operations for both US Airways Group, Inc.
and US Airways, Inc. for the three months
and six months ended June 30, 2002 and
selected operating and financial statistics
for US Airways for the same periods.
July 10, 2002 News release regarding conditional approval
of US Airways, Inc.'s application for a
$900 million federal loan guarantee by the
Air Transportation Stabilization Board.
July 3, 2002 News release disclosing June 2002
performance for US Airways, Inc. including
certain forward-looking information.
July 1, 2002 News release announcing US Airways, Inc.
completed the submission of its final
application with the Air Transportation
Stabilization Board for a $900 million
federal loan guarantee of a $1 billion loan.
June 24, 2002 News release regarding US Airways'
implementation of a strategic initiative
involving the deferrals of selected
payments linked to the proposed consensual
restructuring plan.
June 5, 2002 News release disclosing May 2002
performance for US Airways, Inc. including
certain forward-looking information.
May 22, 2002 News release regarding the participation of
Dave N. Siegel, President and Chief
Executive Officer of US Airways, in a
series of meetings to update US Airways'
employees on the financial outlook of
US Airways Group and its subsidiaries, the
restructuring process and the status of the
loan application with the Air
Transportation Stabilization Board.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
US Airways, Inc. (Registrant)
Date: August 16, 2002 By: /s/ Anita P. Beier
--------------------------
Anita P. Beier
Vice President and Controller
(Chief Accounting Officer)
Exhibit 99.1
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Report on Form 10-Q of US Airways, Inc. (US Airways)
for the quarterly period ending June 30, 2002, as filed with the Securities
and Exchange Commission on the date hereof (Report), David N. Siegel, as
President and Chief Executive Officer of US Airways, and Neal S. Cohen, as
Chief Financial Officer of US Airways, each hereby certifies, pursuant to 18
U.S.C. Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
US Airways.
/s/ David N. Siegel
- ------------------------------------
Name: David N. Siegel
Title: President and Chief Executive Officer
Date: August 16, 2002
/s/ Neal S. Cohen
- ------------------------------------
Name: Neal S. Cohen
Title: Chief Financial Officer
Date: August 16, 2002
This certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by US Airways for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.