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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

For the quarterly period ended March 31, 2004

or

For the transition period from                      to                     

US Airways Group, Inc.

(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: 1-8444)

(I.R.S. Employer Identification No: 54-1194634)

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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No ¨

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes x No ¨

As of April 30, 2004, there were outstanding approximately 52,197,000 shares of US Airways Group, Inc. Class A common stock and 5,000,000 shares of US Airways Group, Inc. Class B common stock.

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US Airways Group, Inc.

Form 10-Q

Quarterly Period Ended March 31, 2004

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US Airways Group, Inc.

Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2004 and 2003 (unaudited)

(in millions, except share and per share amounts)

See accompanying Notes to Condensed Consolidated Financial Statements.

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US Airways Group, Inc.

Condensed Consolidated Balance Sheets

March 31, 2004 (unaudited) and December 31, 2003

(in millions)

See accompanying Notes to Condensed Consolidated Financial Statements.

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US Airways Group, Inc.

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2004 and 2003 (unaudited)

(in millions)

See accompanying Notes to Condensed Consolidated Financial Statements.

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US Airways Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Background

On August 11, 2002 (Petition Date), US Airways Group, Inc. (US Airways Group or the Company) and its seven domestic subsidiaries (collectively, the Filing Entities), which account for substantially all of the operations of the Company, including its principal operating subsidiary, US Airways, Inc. (US Airways), filed voluntary petitions 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, Alexandria Division (Bankruptcy Court) (Case Nos. 02-83984-SSM through 02-83991-SSM). The reorganization cases were jointly administered under the caption “In re US Airways Group, Inc., et al., Case No. 02-83984-SSM.” During the pendency of the Chapter 11 cases, the Filing Entities continued to operate their businesses as debtors-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.

The Filing Entities emerged from bankruptcy protection under the First Amended Joint Plan of Reorganization of US Airways Group, Inc. and Affiliated Debtors and Debtors-in-Possession, As Modified (Plan of Reorganization), which (i) was confirmed pursuant to an order of the Bankruptcy Court on March 18, 2003 and (ii) after each of the conditions precedent to consummation was satisfied or waived, became effective on March 31, 2003 (Effective Date). In accordance with AICPA Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (SOP 90-7), the Company adopted fresh-start reporting on the Effective Date.

The Plan of Reorganization constituted a separate plan of reorganization for each of the Filing Entities. In accordance with the Bankruptcy Code, the Plan of Reorganization divided claims against, and interests in, each of the Filing Entities into classes according to their relative seniority and other criteria and provided the same treatment for each claim or interest of a particular class unless the holder of a particular claim or interest agreed to a less favorable treatment of its claim or interest. Among other things, the Plan of Reorganization generally provided for full payment of all allowed administrative and priority claims, and the distribution of shares (or warrants to purchase shares) of new equity in the reorganized US Airways Group, Inc. (Reorganized US Airways Group) to the Air Transportation Stabilization Board (Stabilization Board), the Retirement Systems of Alabama Holdings LLC (RSA), the Company’s management and labor unions, General Electric Capital Corporation and Bank of America, N.A., and to unsecured creditors of the Filing Entities, including the Pension Benefit Guarantee Corporation (PBGC), in satisfaction of their allowed claims. The distribution to unsecured creditors is currently estimated to have a value of between 0.65 percent and 0.90 percent of total allowed unsecured claims; however, the ultimate distribution percentage may fall outside of this range. See “Claims Resolution” below. Persons holding equity in the Company prior to the Effective Date were not entitled to any distribution under the Plan of Reorganization and their shares of common stock were cancelled. For a complete discussion of the distributions provided for under the Plan of Reorganization, investors should refer to the Plan of Reorganization confirmed by the Bankruptcy Court on March 18, 2003 and filed with US Airways Group’s Current Report on Form 8-K, dated March 18, 2003 and filed with the Securities and Exchange Commission (SEC) on April 2, 2003.

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ATSB Loan

As part of its restructuring efforts, US Airways received a $900 million loan guarantee (ATSB Guarantee) under the Air Transportation Safety and System Stabilization Act from the Stabilization Board in connection with a $1 billion term loan financing (the ATSB Loan). The Company required this loan and related guarantee in order to provide the additional liquidity necessary to carry out the restructuring plan. The ATSB Loan was funded on the Effective Date. The ATSB Loan is secured by substantially all unencumbered assets of US Airways Group and its subsidiaries and is guaranteed by the Company and each of the Company’s domestic subsidiaries other than US Airways.

Effective March 12, 2004, US Airways entered into an amendment to the ATSB Loan which provided for a partial prepayment of the loan and modifications of financial covenants (covenant relief) for the measurement periods beginning June 30, 2004 through December 31, 2005. Existing ratios used in financial covenants were adjusted and reset to accommodate the Company’s forecast for 2004 and 2005. In exchange for this covenant relief and other changes described below, US Airways made a voluntary prepayment of $250 million on March 12, 2004, which reduced, pro rata, all future scheduled principal payments of the ATSB Loan (rather than shortening the remaining life of the loan). The amendment is filed as Exhibit 10.2 to US Airways, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004.

The amendment also provides for US Airways to retain, at its election, up to 25% of the net cash proceeds from any asset sale up to a total of $125 million to the extent that, among other things, definitive documentation for such asset sale is completed by February 28, 2005. In addition, US Airways may now accept a third-party secured note as permitted consideration for certain asset sales (including the US Airways Shuttle and wholly owned regional airline assets) as long as certain conditions are met. Such conditions include that such note’s amortization schedule shall be no more favorable than the ATSB Loan, proceeds from such note are used to prepay the ATSB Loan, the credit strength of the ATSB Loan would not be affected adversely as measured by certain ratings tests, and such note be pledged as collateral for the ATSB Loan. Finally, in consideration for the ATSB lenders amending the provision related to the going concern paragraph in the independent auditor’s report for the Company’s audited financial statements for the year ended December 31, 2003, US Airways agreed to a revised covenant that provides that month end minimum unrestricted cash will exceed the lesser of the outstanding ATSB Loan balance or $700 million and that no intra-month end of day unrestricted cash balance will fall below the lesser of the outstanding ATSB Loan balance or $575 million.

RSA Investment

Pursuant to a definitive agreement, on the Effective Date, RSA invested $240 million in cash in Reorganized US Airways Group (the RSA Investment Agreement) in exchange for approximately 36.2%, on a fully-diluted basis, of the equity in Reorganized US Airways Group. As of the Effective Date, in connection with its investment, RSA was granted a voting interest of approximately 71.6% in Reorganized US Airways Group and is entitled to designate and vote to elect eight of 15 directors to Reorganized US Airways Group’s Board of Directors.

Claims Resolution

Pursuant to the bankruptcy process, the Filing Entities’ claims agent received proofs of claims totaling approximately $65.5 billion in the aggregate, exclusive of approximately $16 billion in claims from Allegheny County, Pennsylvania (Allegheny County) and Allegheny County Airport Authority (ACAA) which have been resolved and approximately 350 proofs of claims filed by governmental entities totaling approximately $225 million in the aggregate. As of March 31, 2004, there are $3.8 billion of unresolved claims. The Plan of Reorganization provides for a disputed

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claims resolution process. The Plan of Reorganization provides for 4,968,720 shares of Class A Common Stock and 3,048,030 each of Class A-1 Warrants and shares of Class A Preferred Stock to be issued to unsecured creditors. Distributions of these shares and warrants through March 2004 totaled approximately 3.6 million shares of Class A Common Stock and 2.2 million each of Class A-1 Warrants and shares of Class A Preferred Stock to unsecured creditors. The effects of these distributions were reflected in the Company’s financial statements upon emergence and will not have any further impact on the results of operations. A number of significant claims, including certain aircraft related claims, remain to be resolved. Accordingly, ultimate allocations and distributions of new equity to claimants in Reorganized US Airways Group on account thereof, are not presently known.

Pittsburgh Leases

On January 5, 2004, US Airways signed a long-term lease agreement for ten gates and related terminal and support facilities at Pittsburgh International Airport (Pittsburgh), to replace the lease that was rejected as part of the Company’s Chapter 11 reorganization. Under the agreement, US Airways leases ten gates and associated operations and ticketing space on a signatory basis through 2018. The balance of 40 gates and other facilities currently used by US Airways and US Airways Express carriers at Pittsburgh is leased on a month-to-month, non-signatory basis. Additionally, US Airways signed a three-year lease agreement for its on-airport support facilities, including maintenance hangars, cargo, mail sorting and foodservice facilities. This includes an option for either party to terminate such agreement with respect to all or part of the facilities after 2004.

In the year since US Airways rejected its broader lease arrangements for the Pittsburgh hub and related facilities, the Company has been in discussions with Allegheny County, the ACAA and the Commonwealth of Pennsylvania about various proposals to reduce the debt service and the related costs of doing business at Pittsburgh. To date, those changes have resulted in the implementation of some cost savings initiatives, but far short of the Company’s stated goal of a $500 million reduction in the airport’s debt obligation.

In order to maintain a positive environment for discussions with state and local officials, US Airways has made a verbal commitment to maintain approximate existing flight activity and employment levels in the Pittsburgh region through September 2004.

The Company is currently pursuing a plan to achieve profitability by reducing its costs to levels competitive with low cost carriers. The final outcome on the future scope of service and the location of maintenance, reservations, training and other support facilities in the Pittsburgh region will ultimately depend on the negotiations between the Company and its labor unions, and state and local officials, on respective issues that need to be resolved as the Company implements its transformation plan.

The accompanying Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements contained in US Airways Group’s Annual Report to the SEC on Form 10-K for the year ended December 31, 2003. The accompanying Condensed Consolidated Financial Statements include the accounts of US Airways Group and its wholly owned subsidiaries. Principal subsidiaries include US Airways, Allegheny Airlines, Inc., Piedmont Airlines, Inc. and PSA Airlines, Inc. All significant intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified to conform with the 2004 presentation.

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Management believes that all adjustments, consisting of normally recurring items, necessary for a fair presentation of results have been included in the Condensed Consolidated Financial Statements for the interim periods presented, which are unaudited. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. The principal areas of judgment relate to impairment of goodwill, passenger revenue recognition, fresh-start reporting, impairment of long-lived assets and intangible assets subject to amortization, and pensions and other postretirement benefits.

In accordance with SOP 90-7, the Company adopted fresh-start reporting on the Effective Date. References in the Condensed Consolidated Financial Statements and the Notes to the Condensed Consolidated Financial Statements to “Predecessor Company” refer to the Company prior to March 31, 2003. References to “Successor Company” refer to the Company on and after March 31, 2003, after giving effect to the cancellation of existing common stock and the issuance of new securities in accordance with the Plan of Reorganization, and application of fresh-start reporting. As a result of the adoption of fresh-start reporting, the Company’s post-emergence financial statements are not comparable with its pre-emergence financial statements, because they are, in effect, those of a new entity.

SOP 90-7 requires that the financial statements for periods following the Chapter 11 filing through the Effective Date distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, revenues, expenses, realized gains and losses and provisions for losses directly associated with the reorganization and restructuring of the business are reported separately as Reorganization items, net in the Condensed Consolidated Statements of Operations. In addition, cash used for reorganization items is disclosed separately in the Condensed Consolidated Statements of Cash Flows.

(a) Fresh-start Reporting

In connection with its emergence from bankruptcy on March 31, 2003, US Airways Group adopted fresh-start reporting in accordance with SOP 90-7. Accordingly, the Company valued its assets, liabilities and equity at fair value. The excess of the reorganization value over tangible assets and identifiable intangible assets has been reflected as Goodwill on the Condensed Consolidated Balance Sheets. Estimates of fair value represent the Company’s best estimate based on independent appraisals and valuations and, where the foregoing are not available, industry trends and by reference to market rates and transactions. The Company received third-party appraisals for certain assets and liabilities subsequent to March 31, 2003. Changes in the fair value of these assets and liabilities from the previously estimated values had an impact on the reported value of Goodwill. During the three months ended March 31, 2004, the Company increased goodwill and other accrued expenses by $15 million related to the valuation of the Company’s deferred tax liabilities. The Company does not expect any further adjustments to the fair value of assets and liabilities subsequent to March 31, 2004.

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(b) Reorganization Items

Reorganization items, net for the Predecessor Company represent amounts recognized and incurred as a direct result of the Company’s Chapter 11 filing and emergence and are presented separately in the Company’s Condensed Consolidated Statements of Operations. Such items consist of the following for the three months ended March 31, 2003 (in millions):

Basic Earnings (Loss) per Common Share (EPS) is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the maximum dilution that would result after giving effect to dilutive stock options and warrants. The following table presents the computation of basic and diluted EPS (in millions, except per share amounts):

Note: EPS amounts may not recalculate due to rounding

For the three months ended March 31, 2004, 19.1 million stock options and warrants are not included in the computation of diluted EPS because the exercise price of the stock options and warrants exceeded the market price of the stock.

For the three months ended March 31, 2003, 19.0 million stock options are not included in the computation of diluted EPS because the option exercise price was greater than the average market price of common stock for the period.

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The earnings per share calculations for the Predecessor Company are based on common shares outstanding prior to the Company’s emergence from Chapter 11 on March 31, 2003. Upon emergence, these shares were cancelled. Earnings per share for the Successor Company is based upon shares outstanding subsequent to emergence from Chapter 11. Accordingly, post-emergence earnings per share is not comparable with pre-emergence amounts.

The Company recorded no income tax expense for the first quarter of 2004 or 2003. The Company continues to record a full valuation allowance against its net deferred tax asset.

Components of the net and total periodic benefit cost for the three months ended March 31, 2004 (Successor Company) and March 31, 2003 (Predecessor Company) include the following (in millions):

The Company currently expects to contribute $174 million to its defined benefit pension plans in 2004. This projection reflects the impact of the Pension Funding Equity Act of 2004, which was enacted in April 2004. There were no contributions made to the plans in the three months ended March 31, 2004.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Prescription Drug Act) became law in the United States. The Medicare Prescription Drug Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit. In accordance with FASB Staff Position FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” the Company has elected to defer recognition of the effects of the Medicare Prescription Drug Act in measuring its benefit obligation and cost. Specific authoritative guidance on the accounting for the federal subsidy is pending and that guidance, when issued, could require the Company to change previously reported information.

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The Predecessor Company applied the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations to account for awards of stock-based compensation granted to employees. Upon emergence, the Successor Company adopted the fair value method of recording stock-based employee compensation contained in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123) and is accounting for this change in accounting principle using the “prospective method” as described by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123”. Accordingly, the fair value of all Successor Company stock option and warrant grants, as determined on the date of grant, will be amortized as compensation expense in the Consolidated Statements of Operations over the vesting period.

The following table illustrates the effect on net income and net earnings per common share as if the fair value based recognition provisions of SFAS 123 had been applied to all outstanding and unvested stock option awards for the three months ended March 31, 2003 (in millions, except per share data):

Comprehensive income (loss) was $(156) million and $2.51 billion for the quarters ended March 31, 2004 and 2003, respectively. Comprehensive income encompasses net income and “other comprehensive income,” which includes all other non-owner transactions and events that change stockholders’ equity. Other comprehensive income includes changes in the fair value of certain derivative financial instruments and adjustments for minimum pension liabilities.

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A key component to the Company’s strategy is the increased usage of regional jets. The Company uses regional jets to fly into low-density markets where large-jet flying is not economical as well as to replace turbo-props with regional jets to better meet customer preferences. In May 2003, US Airways Group entered into agreements to purchase a total of 170 regional jets from Bombardier, Inc. (Bombardier) and Empresa Brasileira de Aeronautica S.A. (Embraer). The Company secured financing commitments from General Electric (GE) and from the respective airframe manufacturers for approximately 85% to 90% of these jets. These commitments are subject to certain credit standards or financial tests. Among the applicable credit standards under the aircraft financing commitments is the requirement that US Airways Group or US Airways maintains a minimum corporate credit rating of “B-” by Standard & Poor’s (S&P) or “B3” by Moody’s Investor Service, as well as customary conditions precedent.

On April 30, 2004, US Airways and GE agreed to certain changes in their regional jet financing agreement. These changes provided new conditions precedent for financing for scheduled aircraft deliveries through September 30, 2004. The new conditions precedent replace an existing no material adverse change (MAC) condition precedent with: (i) a no MAC since April 30, 2004 condition precedent; (ii) certain specific financial tests, and (iii) other conditions precedent. The financial tests include, but are not limited to, compliance with financial covenants in the ATSB Loan concerning fixed charge ratios and ratios of indebtedness to earnings before interest, debt, and aircraft rent (EBITDAR), as well as minimum EBITDAR requirements for the Company. GE’s financing commitment with respect to regional jets through September 30, 2004 is also conditioned on US Airways being permitted under its ATSB Loan to use its regional jets financed by GE utilizing mortgage debt as cross-collateral for other obligations of US Airways to GE. In addition, the April 30, 2004 amendment contains a provision for financing regional jet deliveries beyond September 30, 2004 subject to revised conditions precedent based on the successful implementation of US Airways’ transformation plan and the expected financial performance of the restructured Company, both in a manner acceptable to GE.

On May 5, 2004, S&P downgraded US Airways Group’s and US Airways’ corporate credit ratings to CCC+. As a result of the downgrade, GE, Embraer and Bombardier have the right to discontinue financing the Company’s regional jet purchases, unless US Airways is able to meet alternative minimum financial tests. US Airways is not yet able to determine whether it meets these tests. US Airways does not presently have alternative sources of financing regional jet purchases nor does it have the ability to purchase regional jets without financing. The Company is in negotiations with GE and the aircraft manufacturers to amend or waive the credit rating condition precedent, as well as the alternative minimum financial tests (if necessary). If US Airways is unable to meet the alternative minimum financial tests or the Company is not successful in obtaining such waivers or amendments, US Airways would be required to pay cancellation fees and/or liquidated damages of up to $90 million for the remainder of 2004 and $21 million in 2005 if US Airways is unable to obtain financing for the regional jet aircraft scheduled to be delivered during those periods.

In the event that US Airways is unable to obtain financing, it will likely be unable to execute its regional jet business plan, which would in turn likely have a material adverse effect on the Company’s future liquidity, results of operations (i.e., revenue contribution from regional jet operations) and financial condition.

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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 or the Company) Annual Report to the United States Securities and Exchange Commission (SEC) on Form 10-K for the year ended December 31, 2003. The information contained herein is not a comprehensive discussion and analysis of the financial condition and results of operations of the Company, but rather updates disclosures made in the aforementioned filing.

Certain of the statements contained herein should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect the current views of US Airways Group with respect to current events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “could,” “should,” and “continue” or similar words. These forward-looking statements may also use different phrases. 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 operate pursuant to the terms of its financing facilities (particularly the financial covenants); 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 ability of the Company to fund and execute its business plan; the ability of the Company to implement its transformation plan absent a judicial restructuring; 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; the ability of the Company to maintain satisfactory labor relations; demand for transportation in the markets in which the Company operates; economic conditions; labor costs; financing availability and costs; aviation fuel costs; security-related and insurance costs; competitive pressures on pricing (particularly from lower-cost competitors) and on demand (particularly from low-cost carriers and multi-carrier alliances); weather conditions; government legislation and regulation; impact of the Iraqi war and the Iraqi occupation; other acts of war or terrorism; ongoing market acceptance of the Company’s new Class A Common Stock; and other risks and uncertainties listed from time to time in the Company’s reports to the SEC. There may be other factors not identified above of which the Company is not currently aware that may affect matters discussed in the forward-looking statements, and 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

On August 11, 2002 (Petition Date), US Airways Group and its seven domestic subsidiaries (collectively, the Filing Entities), which account for substantially all of the operations of the Company, including its principal operating subsidiary, US Airways, Inc. (US Airways), filed voluntary petitions 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, Alexandria Division (Bankruptcy Court) (Case Nos. 02-83984-SSM through 02-83991-SSM). The reorganization cases were jointly administered under the caption “In re US Airways Group, Inc., et al., Case No. 02-83984-SSM.” During the pendency of the Chapter 11 cases, the Filing Entities continued to operate their businesses as debtors-in-possession under the jurisdiction of

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the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

The Filing Entities emerged from bankruptcy protection under the First Amended Joint Plan of Reorganization of US Airways Group, Inc. and Affiliated Debtors and Debtors-in-Possession, As Modified (Plan of Reorganization), which (i) was confirmed pursuant to an order of the Bankruptcy Court on March 18, 2003 and (ii) after each of the conditions precedent to consummation was satisfied or waived, became effective on March 31, 2003 (Effective Date). In accordance with AICPA Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (SOP 90-7), the Company adopted fresh-start reporting on the Effective Date.

Introduction

As discussed above, the Company emerged from bankruptcy protection and adopted fresh-start reporting on March 31, 2003. References to “Predecessor Company” refer to the Company prior to March 31, 2003. References to “Successor Company” refer to the Company on and after March 31, 2003, after giving effect to the cancellation of the then-existing common stock and the issuance of new securities in accordance with the Plan of Reorganization and application of fresh-start reporting. As a result of the application of fresh-start reporting, the Successor Company’s financial statements are not comparable with the Predecessor Company’s financial statements.

For the first quarter of 2004, the Company’s operating revenues were $1.70 billion, operating loss was $143 million and diluted loss per common share was $3.28 on a net loss of $177 million. Operating revenues were $1.53 billion, operating loss was $207 million and the diluted earnings per common share was $24.02 on net income of $1.63 billion for the same period in 2003. The Company’s results for the first quarter of 2003 were significantly impacted by the Company’s emergence from Chapter 11 (see Note 3(b) to the Condensed Consolidated Financial Statements).

While the Company emerged from bankruptcy protection in March 2003, it has continued to incur losses from operations. Primary factors contributing to these losses include the continued downward pressure on industry pricing and significant increases in fuel prices. The pressure on industry pricing is resulting from the rapid growth of low-fare low-cost airlines, the increasing transparency of fares available through internet sources and other changes in fare structures which result in lower fares for many business and leisure travelers. Given the Company’s continued operating losses, the Company is pursuing a transformation plan to further reduce cost per available seat mile to levels competitive with low-cost carriers such as America West and JetBlue. Key elements of this plan include changes in marketing and distribution techniques; employee compensation, benefits and work rules; and airline scheduling and operations. The Company expects to begin implementation of the actions needed to achieve the cost reductions by mid-year 2004. However, since the plan will require changes in the Company’s collective bargaining agreements, there can be no assurance that the plan can be achieved. While the Company’s preference is to complete its transformation on a consensual basis, failure to achieve the above-described competitive cost structure will force the Company to reexamine its strategic options, including but not limited to asset sales or a judicial restructuring.

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A key component to the Company’s strategy is the increased usage of regional jets. The Company uses regional jets to fly into low-density markets where large-jet flying is not economical as well as to replace turbo-props with regional jets to better meet customer preferences. In May 2003, US Airways Group entered into agreements to purchase a total of 170 regional jets from Bombardier, Inc. (Bombardier) and Empresa Brasileira de Aeronautica S.A. (Embraer). The Company secured financing commitments from General Electric (GE) and from the respective airframe manufacturers for approximately 85% to 90% of these jets. These commitments are subject to certain credit standards or financial tests. Among the applicable credit standards under the aircraft financing commitments is the requirement that US Airways Group or US Airways maintains a minimum corporate credit rating of “B-” by Standard & Poor’s (S&P) or “B3” by Moody’s Investor Service (Moody’s), as well as customary conditions precedent.

On April 30, 2004, US Airways and GE agreed to certain changes in their regional jet financing agreement. These changes provided new conditions precedent for financing for scheduled aircraft deliveries through September 30, 2004. The new conditions precedent replace an existing no material adverse change (MAC) condition precedent with: (i) a no MAC since April 30, 2004 condition precedent; (ii) certain specific financial tests, and (iii) other conditions precedent. The financial tests include, but are not limited to, compliance with financial covenants in the ATSB Loan concerning fixed charge ratios and ratios of indebtedness to earnings before interest, debt, and aircraft rent (EBITDAR), as well as minimum EBITDAR requirements for the Company. GE’s financing commitment with respect to regional jets through September 30, 2004 is also conditioned on US Airways being permitted under its ATSB Loan to use its regional jets financed by GE utilizing mortgage debt as cross-collateral for other obligations of US Airways to GE. In addition, the April 30, 2004 amendment contains a provision for financing regional jet deliveries beyond September 30, 2004 subject to revised conditions precedent based on the successful implementation of US Airways’ transformation plan and the expected financial performance of the restructured Company, both in a manner acceptable to GE.

On May 5, 2004, S&P downgraded US Airways Group’s and US Airways’ corporate credit ratings to CCC+. As a result of the downgrade, GE, Embraer and Bombardier have the right to discontinue financing the Company’s regional jet purchases, unless US Airways is able to meet alternative minimum financial tests. US Airways is not yet able to determine whether it meets these tests. US Airways does not presently have alternative sources of financing regional jet purchases nor does it have the ability to purchase regional jets without financing. The Company is in negotiations with GE and the aircraft manufacturers to amend or waive the credit rating condition precedent, as well as the alternative minimum financial tests (if necessary). If US Airways is unable to meet the alternative minimum financial tests or the Company is not successful in obtaining such waivers or amendments, US Airways would be required to pay cancellation fees and/or liquidated damages of up to $90 million for the remainder of 2004 and $21 million in 2005 if US Airways is unable to obtain financing for the regional jet aircraft scheduled to be delivered during those periods.

In the event that US Airways is unable to obtain financing, it will likely be unable to execute its regional jet business plan, which would in turn likely have a material adverse effect on the Company’s future liquidity, results of operations (i.e., revenue contribution from regional jet operations) and financial condition.

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Results of Operations

The following section pertains to activity included in the Company’s Condensed Consolidated Statements of Operations (which are contained in Part I, Item 1 of this report) and in “Selected Operating and Financial Statistics” below. Except where noted, operating statistics referred to below are for scheduled service only.

Three Months Ended March 31, 2004

Compared with the

Three Months Ended March 31, 2003

Operating Revenues–Passenger transportation revenues increased $155 million, or 11.4%, due to a 12.5% increase in revenue passenger miles (RPMs), partially offset by a 1.0% decrease in yield. The increase in RPMs is primarily due to a return of demand following the initial negative impact of the Iraqi war in the prior year, as well as an increase of 8.8% in available seat miles (ASMs). Other operating revenues increased 9.2% primarily due to increases in third-party fuel sales and mileage credit sales.

Operating Expenses–Operating expenses increased $103 million, or 5.9%, on a capacity increase of 8.8%. Personnel costs increased 3.1% primarily due to non-cash stock compensation charges resulting from the issuance of Class A Common Stock to employees covered by collective bargaining agreements following the Company’s emergence from Chapter 11, higher expenses associated with US Airways’ remaining defined benefit pension plans and from expenses relating to the defined contribution pension plan that replaced the defined benefit pension plan for US Airways’ pilots which was terminated upon emergence from Chapter 11, partially offset by reductions in expenses related to salaries and other benefits. Aviation fuel increased 9.4% due to higher average fuel prices and greater consumption. US Airways Express capacity purchases increased 44.6% reflecting a 47.3% increase in purchased ASMs from third-party regional jet operators. Aircraft rent was flat as a result of the favorably restructured leases and lease rejections made in connection with the Chapter 11 filing, offset by new leases as a result of the conversion of mortgaged aircraft to leased aircraft and planned increases to the fleet. Selling expenses increased 14.3% due to sales volume driven increases in credit card fees, computer reservation fees and commissions. Depreciation and amortization decreased 23.9% due to lower book values on the existing fleet as a result of fresh-start reporting and conversion of mortgaged aircraft to leased aircraft. Other operating expenses increased $9 million, or 2.9%, due to increases in third-party fuel sales expense, expenses associated with the redemption of Dividend Miles on partner airlines and expenses associated with outside services partially offset by decreases in expenses related to hull and liability insurance and outsourced technology services.

Other Income (Expense)–Other Income (Expense) decreased by $1.88 billion, primarily as a result of the reorganization items directly associated with the Company’s bankruptcy. See Note 3(b) to the Condensed Consolidated Financial Statements for additional information on the components of Reorganization items, net. Interest income increased due to higher average investment balances from the proceeds from debt and equity issued upon emergence from bankruptcy, partially offset by slightly less favorable return rates. Interest expense, net decreased 20.5% as a result of the conversion of mortgaged aircraft to leased aircraft as negotiated during the bankruptcy, partially offset by interest related to the emergence financing from the Air Transportation Stabilization Board (Stabilization Board). Other, net for the three month period ended March 31, 2004 includes a credit of $13 million related to a business interruption insurance recovery.

Provision for Income Taxes–The Company recorded no income tax expense for the first quarter of 2004 or 2003 and continues to record a full valuation allowance against its net deferred tax asset.

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Selected Operating and Financial Statistics ⁽¹⁾

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Liquidity and Capital Resources

As of March 31, 2004, the Company’s Cash and cash equivalents and Short-term investments totaled $978 million compared to $1.29 billion as of December 31, 2003.

The Company continues to be highly leveraged. Substantially all of its assets, including aircraft and engines, are subject to liens securing indebtedness. The Company and its subsidiaries require substantial working capital in order to meet scheduled debt and lease payments and to finance day-to-day operations. The Company needs to satisfy covenants in the emergence financing provided by the Stabilization Board (ATSB Loan) as noted below. The industry is highly competitive. In order to preserve and enhance its industry position, the Company continuously reviews its strategies for the use of its assets, including exiting non-performing markets and expansion into new markets, both alone and with partners, in order to deploy its resources most effectively.

Statement of Cash Flows Narrative

For the first three months of 2004, the Company’s operating activities provided net cash of $75 million (as presented in the Company’s Condensed Consolidated Statements of Cash Flows, which are contained in Part I, Item 1 of this report) compared to operating activities for the three months ended March 31, 2003 which used net cash of $282 million. Operating cash flows during the first quarter of 2003 included the use of $90 million for reorganization items.

For the first three months of 2004, investing activities included net cash outflows of $2 million related to capital expenditures and net equipment purchase deposit activity. This amount reflects the early return of aircraft purchase deposits by an aircraft manufacturer of $31 million. The decrease in short-term investments reflects a shift in the investment portfolio to investments with maturities less than 90 days as of March 31, 2004. The Company, in the ordinary course of business, withholds from employees and collects from passengers funds that are required to be paid to applicable governmental authorities, which include withholding for payroll taxes, transportation excise taxes, passenger facility charges, transportation security charges and other related fees, and has established trust accounts to fund these obligations. The increase in restricted cash reflects additional collateral deposits related to the Company’s third-party credit card processor, letters of credit and trust accounts, partially offset by a reduction in the balance related to the fuel hedging program. For the first three months of 2003, investing activities included cash outflows of $8 million related to capital expenditures, an increase to short term investments of $19 million, and increases in restricted cash, primarily associated with the trust accounts, of $57 million.

Net cash used for financing activities during the three months ended March 31, 2004 was $272 million. Principal payments on long-term debt and capital lease obligations of $295 million included the $250 million prepayment made in connection with the ATSB Loan amendment in March 2004 (see below). The financing activities for the three months ended March 31, 2003 were significantly impacted by the Company’s emergence from bankruptcy. Net cash provided by financing activities during the first three months of 2003 was $986 million. US Airways received proceeds of $1 billion from the ATSB Loan. Additionally, the Company borrowed $69 million under a debtor-in-possession facility provided by RSA (RSA DIP Facility) and $62 million under a debtor-in-possession liquidity facility provided by General Electric (GE DIP Facility). The Company also borrowed $63 million under an exit liquidity facility provided by General Electric (GE) and $18 million on a credit facility provided by GE (see below). The Company also received proceeds of $240 million in connection with the RSA investment agreement. The Company used a portion of the above proceeds to repay $369 million that was outstanding under the RSA DIP Facility on the Effective Date. The Company also used a portion of the proceeds to repay the $62 million outstanding under the GE DIP Facility. The Company also made principal payments of debt of $35 million during the quarter ended March 31, 2003.

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Reorganized Company Financings and Subsequent Amendments

As part of its reorganization, US Airways received a $900 million loan guarantee (ATSB Guarantee) under the Air Transportation Safety and System Stabilization Act from the Stabilization Board in connection with a $1 billion term loan financing. The Company required this loan and related guarantee in order to provide the additional liquidity necessary to carry out its restructuring plan. The ATSB Loan was funded on the Effective Date. The ATSB Loan is guaranteed by the Company and by each of the Company’s domestic subsidiaries (other than reorganized US Airways). The ATSB Loan is secured by first priority liens on substantially all of the unencumbered present and future assets of the reorganized Filing Entities (including certain cash and investments accounts, previously unencumbered aircraft, aircraft engines, spare parts, flight simulators, real property, takeoff and landing slots, ground equipment and accounts receivable), other than certain specified assets, including assets which are subject to other financing agreements. The ATSB Loan bears interest as follows: (i) 90% of the ATSB Loan bears interest (a) if funded through a participating lender’s commercial paper conduit program, at a rate of interest equal to the conduit provider’s weighted average cost related to the issuance of certain commercial paper notes and other short-term borrowings plus 0.30% or (b) if not funded through such commercial paper conduit program, at a rate of interest equal to LIBOR plus 0.40% and (ii) 10% of the ATSB Loan bears interest at LIBOR plus 4.0%. In addition, US Airways is charged an annual guarantee fee in respect of the ATSB Guarantee equal to 4.0% of the Stabilization Board’s guaranteed amount (initially $900 million) under the ATSB Guarantee, with such guarantee fee increasing by ten basis points annually. In addition, the Stabilization Board received 7,635,000 warrants that enable it to purchase shares of reorganized US Airways Group’s Class A Common Stock at $7.42 per share.

The ATSB Loan contains covenants that require the Company to satisfy ongoing financial requirements, including debt ratio, fixed charge coverage ratio and minimum liquidity levels. The ATSB Loan also contains covenants that limit, among other things, the Company’s ability to pay dividends, make additional corporate investments and acquisitions, enter into mergers and consolidations and modify certain concessions obtained as part of the Chapter 11 reorganization. The amendment described below does not eliminate any of these covenants.

The ATSB Loan is subject to acceleration upon the occurrence of an event of default, after expiration of applicable notice and/or cure periods. The ATSB Loan contains certain mandatory prepayment events including, among other things, (i) the occurrence of certain asset sales (except as provided for in the amendment described below) and the issuance of certain debt or equity securities and (ii) the value of the collateral pledged in respect of the ATSB Loan decreasing below specified coverage levels.

Effective March 12, 2004, US Airways entered into an amendment to the ATSB Loan which provided for a partial prepayment of the loan and modifications of financial covenants (covenant relief) for the measurement periods beginning June 30, 2004 through December 31, 2005. Existing ratios used in financial covenants were adjusted and reset to accommodate the Company’s forecast for 2004 and 2005. In exchange for this covenant relief and other changes described below, US Airways made a voluntary prepayment of $250 million on March 12, 2004, which reduced, pro rata, all future scheduled principal payments of the ATSB Loan (rather than shortening the remaining life of the loan). The amendment is filed as Exhibit 10.2 to US Airways, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004.

The amendment also provides for US Airways to retain, at its election, up to 25% of the net cash proceeds from any asset sale up to a total of $125 million to the extent that, among other things, definitive documentation for such asset sale is completed by February 28, 2005. In addition, US Airways may now accept a third-party secured note as permitted consideration for certain asset sales (including the US Airways Shuttle and wholly owned regional airline assets) as long as certain

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conditions are met. Such conditions include that such note’s amortization schedule shall be no more favorable than the ATSB Loan, proceeds from such note are used to prepay the ATSB Loan, the credit strength of the ATSB Loan would not be affected adversely as measured by certain ratings tests, and such note be pledged as collateral for the ATSB Loan. Finally, in consideration for the ATSB lenders amending the provision related to the going concern paragraph in the independent auditor’s report for the Company’s audited financial statements for the year ended December 31, 2003, US Airways agreed to a revised covenant that provides that month end minimum unrestricted cash will exceed the lesser of the outstanding ATSB Loan balance or $700 million and that no intra-month end of day unrestricted cash balance will fall below the lesser of the outstanding ATSB Loan balance or $575 million.

If the Company is unable to meet the aforementioned financial covenants, as amended, it would be in default under the ATSB Loan and the Stabilization Board has the right to accelerate the ATSB Loan and exercise other remedies against US Airways. Such acceleration would have a material adverse effect on the Company’s future liquidity, results of operation and financial condition.

US Airways relies heavily on credit card processing for its sales, and utilizes credit card issuers and third party service providers to process credit card transactions under agreements which require the Company to provide cash collateral and to comply with certain other financial and nonfinancial requirements. If US Airways fails to meet such covenants, these issuers and providers can require additional cash collateral and, under certain circumstances, terminate such credit card processing agreements. The termination of credit card agreements could have a material adverse affect on US Airways’ financial condition and results of operations.

On May 4, 2004, US Airways amended its agreement with American Express Travel Related Services Company, Inc. (American Express) to provide additional cash collateral to reduce the exposure borne by American Express against potential customer liabilities relating to unflown tickets purchased by our customers using the American Express card. US Airways has deposited $40 million in additional cash collateral in connection with the amendment, and will deposit an additional $20 million in cash collateral if US Airways’ unrestricted cash, cash equivalent and short-term investment balance falls below $850 million at any time. Additional cash collateral of up to $55 million may be required in the event that US Airways’ regional jet financing programs are terminated or if the Company fails to successfully implement its transformation plan. This amendment effectively aligns the American Express agreement with the arrangements currently in place for certain other credit card processors.

In November 2001, US Airways obtained a $404 million credit facility from General Electric (GE Credit Facility). The GE Credit Facility is secured by collateral including 11 A320-family aircraft and 28 spare engines. As discussed below, the terms of this credit facility were renegotiated so that borrowings bear interest rates of LIBOR plus 3.5% and the term of the facility was extended from 2006 to 2012.

GE is the Company’s largest creditor. In addition to the GE Credit Facility, GE has provided financing or guarantees on 134 of the Company’s current operating aircraft. It also maintains the engines on the Company’s B737-family aircraft, A320-family aircraft and B767 aircraft. In connection with its reorganization under Chapter 11, the Company reached a settlement with GE that resolved substantially all aircraft, aircraft engine and loan-related issues and the Company obtained additional financing from GE in the form of a liquidity facility of up to $360 million (GE Liquidity Facility). Borrowings under the liquidity facility bear interest of LIBOR plus 4.25%. GE received warrants to purchase 3,817,500 shares of Class A Common Stock at $7.42 per share in Reorganized US Airways Group. Every obligation of the Company to GE is generally cross-defaulted to the GE Credit Facility and the GE Liquidity Facility. Other than obligations to GE secured by aircraft, the Company’s obligations to GE are cross-collateralized to the GE Credit Facility.

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GE also agreed to provide committed financing for up to 70 regional jets or $1.4 billion utilizing lease equity and/or mortgage debt. The GE financing commitments, as well as other financing commitments from the airframe manufacturers, are subject to certain credit standards or financial tests, as well as customary conditions precedent. As discussed above under “Introduction,” on April 30, 2004, US Airways and GE agreed to certain changes in the regional jet financing agreement, including replacing the existing no MAC condition precedent with a new no MAC since April 30, 2004 condition precedent, certain specific financial tests and other conditions precedent. The changes will enable financing for scheduled aircraft deliveries through September 30, 2004, provided that US Airways meets these new conditions and tests. In addition, the April 30, 2004 amendment contains a provision for financing regional jet deliveries beyond September 30, 2004 subject to revised conditions precedent based on the successful implementation of US Airways’ transformation plan and the expected financial performance of the restructured Company, both in a manner acceptable to GE.

Among the applicable credit standards under the aircraft financing commitments is the requirement that US Airways Group or US Airways maintains a minimum corporate credit rating of “B-” by S&P or “B3” by Moody’s. As discussed above under “Introduction,” on May 5, 2004, S&P downgraded US Airways Group’s and US Airways’ corporate credit ratings to CCC+. The Company is in negotiations with GE and the aircraft manufacturers regarding the credit rating condition precedent. If US Airways is unable to meet alternative minimum financial tests or the Company is not successful in obtaining waivers of or amendments to the credit rating condition precedent, US Airways would be required to pay cancellation fees and/or liquidated damages of up to $90 million for the remainder of 2004 and $21 million in 2005 if it is unable to obtain financing for the regional jet aircraft scheduled to be delivered during those periods.

In the event that US Airways is unable to obtain financing, it will likely be unable to execute its regional jet business plan, which would in turn likely have a material adverse effect on the Company’s future liquidity, results of operations (i.e., revenue contribution from regional jet operations) and financial condition.

Prices and availability of all petroleum products are subject to political, economic and market factors that are generally outside of the Company’s control. Accordingly, the price and availability of aviation fuel, as well as other petroleum products, can be unpredictable. Because the operations of the Company’s airline subsidiaries are dependent upon aviation fuel, significant increases in aviation fuel costs could materially and adversely affect the Company’s liquidity, results of operations and financial condition.

The Company utilizes financial derivatives to manage the risk associated with changes in aviation fuel prices. In March 2004, the Company settled all of its fuel hedge contracts related to second quarter 2004 consumption resulting in an effective gain of $19 million which will be recognized in the second quarter of 2004 in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” As of March 31, 2004, the Company had open fuel hedge positions in place to hedge approximately 35% of its third quarter 2004 anticipated jet fuel requirements, 30% of its fourth quarter 2004 anticipated jet fuel requirements, and 5% of its 2005 anticipated fuel requirements.

There have been no other material changes to the Company’s disclosures related to certain market risks as reported under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

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Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2004. Based on that evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2004 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Part II. Other Information

No new material legal proceedings have commenced during the time period covered by this interim report. In addition, there have been no significant developments in the pending legal proceedings as previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

On April 19, 2004, Bruce R. Lakefield was named President and Chief Executive Officer of the Company upon the resignation of David N. Siegel. On May 3, 2004, David M. Davis was appointed Chief Financial Officer replacing Neal S. Cohen who resigned on April 30, 2004. Rono J. Dutta, a member of the Board of Directors of US Airways Group and US Airways, notified the Company of his resignation from the Board of Directors effective May 3, 2004 to permit Mr. Dutta to be engaged as a consultant within the transportation industry. Mr. Dutta had served as a member of the Audit, Human Resources and Strategy and Finance Committees of the Board of Directors.

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Item 6. Exhibits and Reports on Form 8-K

A. Exhibits

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B. Reports on Form 8-K

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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