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
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[GRAPHIC OBJECT OMITTED]
US Airways Group, 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: 1-8444)
(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
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As of July 31, 2002 there were outstanding approximately 68,125,107
shares of common stock of US Airways Group, Inc.
US Airways Group, Inc.
Debtor and Debtor-In-Possession as of August 11, 2002
Form 10-Q
Quarterly Period Ended June 30, 2002
Table of Contents
Part I. Financial Information Page
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Item 1. Financial Statements-US Airways Group, Inc.
On August 11, 2002, US Airways Group, Inc. (the Company), and
seven of its domestic subsidiaries filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of Virginia (Case Nos.
02-83984-SSM through 02-83991-SSM). The reorganization cases are being
jointly 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 15
Results of Operations 24
Liquidity and Capital Resources 30
Item 3. Quantitative and Qualitative Disclosures about Market Risk 33
Part II. Other Information
Item 1. Legal Proceedings 33
Item 3. Defaults Upon Senior Securities 34
Item 4. Submission of Matters to a Vote of Security Holders 34
Item 6. Exhibits and Reports on Form 8-K 35
Signature 37
US Airways Group, 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, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Operating Revenues
Passenger transportation $ 1,599 $ 2,183 $ 3,034 $ 4,147
Cargo and freight 37 44 70 90
Other 267 266 508 497
-------- -------- -------- --------
Total Operating Revenues 1,903 2,493 3,612 4,734
Operating Expenses
Personnel costs 878 959 1,762 1,892
Aviation fuel 189 311 369 622
Aircraft rent 135 145 269 283
Other rent and landing fees 107 119 213 238
Aircraft maintenance 105 143 202 281
Other selling expenses 83 106 175 217
Depreciation and amortization 75 101 153 197
Commissions 26 80 78 167
Asset impairments -- -- -- 22
Other 480 509 936 1,023
-------- -------- -------- --------
Total Operating Expenses 2,078 2,473 4,157 4,942
-------- -------- -------- --------
Operating Income (Loss) (175) 20 (545) (208)
Other Income (Expense)
Interest income 6 18 13 36
Interest expense (84) (76) (166) (145)
Interest capitalized 2 4 5 11
Other, net (8) 4 (1) 7
-------- -------- -------- --------
Other Income (Expense), Net (84) (50) (149) (91)
-------- -------- -------- --------
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Change (259) (30) (694) (299)
Provision (Credit) for Income Taxes (11) (6) (160) (97)
-------- -------- -------- --------
Income (Loss) Before Cumulative Effect
of Accounting Change (248) (24) (534) (202)
Cumulative Effect of Accounting Change, Net of
Applicable Income Taxes -- -- 17 7
-------- -------- -------- --------
Net Income (Loss) $ (248) $ (24) $ (517) $ (195)
======== ======== ======== ========
Earnings (Loss) per Common Share
Basic
Before Cumulative Effect of Accounting Change $ (3.64) $ (0.36) $ (7.86) $ (3.01)
Cumulative Effect of Accounting Change $ -- $ -- $ 0.26 $ 0.11
-------- -------- -------- --------
Net Earnings (Loss) per Common Share $ (3.64) $ (0.36) $ (7.60) $ (2.90)
======== ======== ======== ========
Diluted
Before Cumulative Effect of Accounting Change $ (3.64) $ (0.36) $ (7.86) $ (3.01)
Cumulative Effect of Accounting Change $ -- $ -- $ 0.26 $ 0.11
-------- -------- -------- --------
Net Earnings (Loss) per Common Share $ (3.64) $ (0.36) $ (7.60) $ (2.90)
======== ======== ======== ========
Shares Used for Computation (000)
Basic 68,135 67,082 67,975 67,058
Diluted 68,135 67,082 67,975 67,058
See accompanying Notes to Condensed Consolidated Financial Statements.
US Airways Group, 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 $ 532 $ 593
Short-term investments 70 485
Receivables, net 347 281
Materials and supplies, net 202 209
Prepaid expenses and other 305 207
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Total Current Assets 1,456 1,775
Property and Equipment
Flight equipment 6,308 7,472
Ground property and equipment 1,183 1,211
Less accumulated depreciation and amortization (2,862) (4,075)
------- -------
4,629 4,608
Purchase deposits for flight equipment 58 85
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Total Property and Equipment 4,687 4,693
Other Assets
Goodwill 531 531
Pension Assets 407 411
Other intangibles, net 316 343
Other assets, net 308 272
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Total Other Assets 1,562 1,557
------- -------
$ 7,705 $ 8,025
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 358 $ 159
Accounts payable 458 625
Traffic balances payable and unused tickets 983 817
Accrued aircraft rent 217 257
Accrued salaries, wages and vacation 331 372
Other accrued expenses 630 796
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Total Current Liabilities 2,977 3,026
Noncurrent Liabilities
Long-term debt, net of current maturities 3,474 3,515
Accrued aircraft rent 265 293
Deferred gains, net 565 589
Postretirement benefits other than pensions 1,518 1,474
Employee benefit liabilities and other 2,009 1,743
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Total Noncurrent Liabilities 7,831 7,614
Commitments and Contingencies
Stockholders' Equity (Deficit)
Common stock 101 101
Paid-in capital 2,149 2,185
Retained earnings (deficit) (3,454) (2,937)
Common stock held in treasury, at cost (1,712) (1,749)
Deferred compensation (60) (62)
Accumulated other comprehensive income (loss),
net of income tax effect (127) (153)
------- -------
Total Stockholders' Equity (Deficit) (3,103) (2,615)
------- -------
$ 7,705 $ 8,025
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
US Airways Group, Inc.
(Debtor and Debtor-In-Possession as of August 11, 2002)
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001 (unaudited)
(in millions)
2002 2001
---- ----
Net cash provided by (used for) operating activities $(305) $ 226
Cash flows from investing activities
Capital expenditures (123) (958)
Proceeds from dispositions of property 81 6
Decrease (increase) in short-term investments 409 38
Decrease (increase) in restricted cash and investments (207) (1)
Other 2 3
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Net cash provided by (used for) investing activities 162 (912)
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)
Sales of treasury stock -- 3
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Net cash provided by (used for) financing activities 82 660
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Net increase (decrease) in cash and cash equivalents (61) (26)
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Cash and cash equivalents at beginning of period 593 543
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Cash and cash equivalents at end of period $ 532 $ 517
===== =====
Noncash investing and financing activities
Flight equipment acquired through issuance of debt $ 77 $ --
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 Group, 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 Group, Inc.'s (US Airways Group 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), the Company and seven of its
domestic subsidiaries (collectively, the Debtors), which account for
substantially all of the operations of the Company and its subsidiaries,
including its principal operating subsidiary US Airways, Inc. (US Airways),
filed voluntary petitions 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 Nos. 02-83984-SSM through
02-83991-SSM). The reorganization cases are being jointly administered
under the caption "In re US Airways Group, Inc., et al., Case No.
02-83984-SSM." The Debtors will continue to operate their business 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.
At hearings held on August 12, 2002, the Bankruptcy Court granted the
Debtors' 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 the Debtors 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
the Debtors' 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.
Each of the Debtors 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, the Debtors began notifying
all known or potential creditors of the Chapter 11 filing for the purpose
of identifying all pre-petition claims against the Debtors. The Chapter 11
filing triggered defaults on substantially all debt and lease obligations
of the Debtors. Subject to certain exceptions under the Bankruptcy Code,
the Debtors' filing for reorganization automatically enjoined the
continuation of any judicial or administrative proceedings or other actions
against the Debtors or their 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 the Debtors, or to create,
perfect or enforce any lien against the property of the Debtors, 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, the Debtors' 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 the
Debtors, within 60 days after the Petition Date, agree 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 the Debtors' options with respect to its
fleet optimization strategy.
The Debtors have 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 the Debtors' exclusivity period lapses, any party in interest
may file a plan of reorganization for the Debtors. 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 the Debtors 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. Generally, with respect to common
stock interests, a plan may be crammed down if the proponent of the plan
demonstrates that (i) the common stock holders are receiving the value of
their common stock interests or no class junior to the common stock is
receiving or retaining property under the plan and (ii) no class of claims
or interests senior to the common stock is being paid more than in full.
Under section 365 of the Bankruptcy Code, the Debtors 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 the Debtors of their 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 the rejecting Debtor for
damages. Generally, the assumption of an executory contract or unexpired
lease requires the Debtors 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 the Debtors' 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 the Debtors' 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
the Debtors' creditors. Significant litigation may be required to resolve
any such disputes or discrepancies.
Although the Debtors expect 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 the Debtors 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 cases, 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 cases; (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
debtors-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, the Debtors 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 shareholders are entitled to
receive any distribution or retain any property under a plan. The ultimate
recovery to creditors and/or common shareholders, if any, will not be
determined until confirmation of a plan or plans 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. A plan of reorganization
could result in holders of the Company's common stock (Common Stock)
receiving no distribution on account of their interests and cancellation of
their existing stock. As discussed above, if the requirements of section
1129(b) of the Bankruptcy Code are met, a plan of reorganization can be
confirmed notwithstanding its rejection by the Company's equity security
holders and notwithstanding the fact that such equity security holders do
not receive or retain any property on account of their equity interests
under the plan. In addition, the New York Stock Exchange issued a statement
on August 14, 2002 that the Company's Common Stock would be suspended
immediately. As a result, trading in the Company's Common Stock has been
suspended and application to the United States Securities and Exchange
Commission (SEC) to delist the issue is pending.
The value of the Common Stock is highly speculative. The Company
urges that appropriate caution be exercised with respect to existing and
future investments in any liabilities and/or securities of the Company or
other Debtors.
Debtor-In-Possession Financing
The Company 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
the Company under the current interim Bankruptcy Court order. The Company
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 the Company
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 the DIP Facility
will contain covenants that will require the Company 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 the
Company obtaining certain concessions from its remaining unions. The
remaining $200 million of availability under the DIP Facility will be
available to the Company 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 the Company in exchange for common
stock and warrants to purchase common stock which would result in TPG
owning approximately 38% of the Company 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 the
Company 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 the Company 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 the Company 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 the Company. 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
against the Debtors 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. 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 the Company 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' Chapter 11 filings, the
Stabilization Board issued a statement that its conditional approval of
US Airways' application for the loan guarantee remains in effect.
2. Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include
the accounts of US Airways Group and its wholly-owned subsidiaries. These
interim period statements should be read in conjunction with the
Consolidated Financial Statements contained in the Company's and
US Airways' (the Company's principal operating subsidiary) Annual Report to
the SEC 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, the Debtors filed voluntary petitions 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 condensed 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.
The Company 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. Earnings (Loss) per Common Share
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. The
following table presents the computation of basic and diluted EPS (in
millions, except per share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2002 2001 2002 2001
---- ---- ---- ----
Earnings (loss) applicable to common stockholders before
cumulative effect of accounting change $ (248) $ (24) $ (534) $ (202)
======= ======= ======= =======
Common shares:
Weighted average common shares outstanding (basic) 68.1 67.1 68.0 67.1
Incremental shares related to outstanding stock options -- -- -- --
------- ------- ------- -------
Weighted average common shares outstanding (diluted) 68.1 67.1 68.0 67.1
======= ======= ======= =======
EPS before accounting change - Basic $ (3.64) $ (0.36) $ (7.86) $ (3.01)
EPS before accounting change - Diluted $ (3.64) $ (0.36) $ (7.86) $ (3.01)
Note: EPS amounts may not recalculate due to rounding.
For the three months ended June 30, 2002 and 2001, 0.1 million and
1.1 million incremental shares from the assumed exercise of stock options,
respectively, are not included in the computation of diluted EPS because of
the antidilutive effect on EPS. In addition, 17.3 million and 8.3 million
stock options for the three months ended June 30, 2002 and 2001,
respectively, 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.
For the six months ended June 30, 2002 and 2001, 0.1 million and 1.4
million incremental shares from the assumed exercise of stock options,
respectively, are not included in the computation of diluted EPS because of
the antidilutive effect on EPS. In addition, 15.1 million and 8.2 million
stock options for the six months ended June 30, 2002 and 2001,
respectively, 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.
4. Accounting Changes
Effective January 1, 2002, PSA Airlines, Inc. (PSA), a wholly-owned
subsidiary of the Company, changed its method of accounting for engine
maintenance from accruing on the basis of hours flown to expensing as
incurred. While the former method was permitted under GAAP, the Company
believes the new method is preferable as an obligation does not exist until
the maintenance services have been performed. The new method is the
predominant method used in the airline industry and is consistent with the
method used by US Airways and the Company's other subsidiaries. In
connection with the change, the Company recognized a $17 million credit
representing the cumulative effect of the accounting change. The effect of
adopting the new method was immaterial to the Company's net loss for the
three months and six months ended June 30, 2002. The pro forma effect of
the accounting change, assuming the Company had adopted the new method as
of January 1, 2001, is immaterial to the Company's net loss for the three
months and six months ended June 30, 2001.
In addition, on January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). The Company ceased amortization of goodwill upon
adoption of SFAS 142 and will test goodwill annually for impairment. During
the second quarter of 2002, the Company completed its impairment analysis
for goodwill and determined that an impairment does not exist based on the
Company's assessment of fair values. The Company 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 the Company's
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, the
Company recorded amortization expense of $13 million and $26 million,
respectively, related to these intangible assets. The Company 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.
The Company's 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,
except per share amounts):
Three Months Six Months
Ended Ended
June 30, 2001 June 30, 2001
------------- -------------
Reported net loss $ (24) $(195)
Goodwill amortization 5 10
------ -----
Adjusted net loss $ (19) $(185)
====== =====
Basic/Diluted loss per common share
Reported net loss $(0.36) $(2.90)
Goodwill amortization .08 .14
------ -----
Adjusted net loss $(0.28) $(2.76)
====== =====
On January 1, 2001, the Company 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, the Company 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 the Company's balance sheet as part of the
transition adjustment related to the Company's 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). The Company 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, the Company 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 the Company's
cumulative effect of an accounting change.
5. Comprehensive Income (Loss)
Comprehensive income (loss) was $(262) million and $(25) million for
the three months ended June 30, 2002 and 2001, respectively, and $(491)
million and $(193) 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 stockholders' equity. Other
comprehensive income (loss) includes changes in the fair value of the
Company's available-for-sale equity investments and changes in the fair
value of certain derivative financial instruments which qualify for hedge
accounting.
6. Operating Segments and Related Disclosures
The Company 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 includes the operations of the
Company's wholly-owned regional airlines and activity resulting from
marketing agreements with three non-owned US Airways Express air carriers.
All Other (as presented in the table below) reflects the activity of
subsidiaries other than those included in the Company's two reportable
operating segments.
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 external $ 1,582 $ 2,179 $ 3,029 $ 4,164
US Airways intersegment 19 21 35 37
US Airways Express external 298 288 541 526
US Airways Express intersegment 18 16 34 30
All Other 23 26 42 44
Intersegment elimination (37) (37) (69) (67)
------- ------- ------- -------
$ 1,903 $ 2,493 $ 3,612 $ 4,734
======= ======= ======= ========
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Change:
US Airways $ (271) $ (72) $ (680) $ (347)
US Airways Express 13 35 (14) 34
All Other (1) 7 -- 14
------- ------- ------- -------
$ (259) $ (30) $ (694) $ (299)
======= ======= ======= =======
7. Income Taxes
During 2001, the Company 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) the Company will recognize
an income tax credit not to exceed the Company's 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
$74 million related to 2001 losses realizable due to the enactment of the
Act and recorded in the period of enactment. The remainder of the tax
credit recorded in the first six months of 2002 is based on the estimated
annual effective tax rate for 2002 of 12% exclusive of benefit related to
2001. The Company continues to record a valuation allowance against its net
deferred tax asset which limits the 2002 tax credit. The effective tax rate
was 32% 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 the Company's permanent tax differences.
8. Commitments to Purchase Flight Equipment
As of June 30, 2002, the Company 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, the Company 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 the Company's 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. 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.
9. Unusual Item
During the first quarter of 2001, the Company 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 taken 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.
10. 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, with respect to US Airways, for debt instruments related to 18
aircraft and lease rental payments related to one aircraft, and with
respect to the Company's wholly-owned regional carriers lease payments
relating to nine 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 or the Company)
and US Airways, Inc.'s (US Airways) 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 the Company, but rather updates disclosures made in the
aforementioned filing.
On August 11, 2002, (Petition Date) the Company and seven of its
domestic subsidiaries (collectively, the Debtors), which account for
substantially all of the operations of the Company and its subsidiaries,
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 (Bankruptcy Court or Court). The
reorganization cases are being jointly administered under the caption "In
re US Airways Group, Inc., et al., Case No. 02-83984-SSM."
As a result of the filing, the Company 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 the
Company's consolidated financial statements filed under the securities
laws. Accordingly, the Company 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 the Company's or other Debtors' stock or debt or for comparison
with other financial information filed with the SEC.
Most of the Debtors' 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. The Company undertakes no obligation to make any further
public announcement with respect to the documents filed with the Court or any
matters referred to 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, the Company's 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 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, the Company and seven of its domestic
subsidiaries (collectively, the Debtors), which account for substantially
all of the operations of the Company and its subsidiaries, including its
principal operating subsidiary US Airways, filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court
(Case Nos. 02-83984-SSM through 02-83991-SSM). The reorganization cases are
being jointly administered under the caption "In re US Airways Group, Inc.,
et al., Case No. 02-83984-SSM." The Debtors will continue to operate their
business 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.
At hearings held on August 12, 2002, the Bankruptcy Court granted the
Debtors' 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 the Debtors 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
the Debtors' 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.
Each of the Debtors 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, the Debtors began notifying
all known or potential creditors of the Chapter 11 filing for the purpose
of identifying all pre-petition claims against the Debtors. The Chapter 11
filing triggered defaults on substantially all debt and lease obligations
of the Debtors. Subject to certain exceptions under the Bankruptcy Code,
the Debtors' filing for reorganization automatically enjoined the
continuation of any judicial or administrative proceedings or other actions
against the Debtors or their 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 the Debtors, or to create,
perfect or enforce any lien against the property of the Debtors, 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, the Debtors' 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 the
Debtors, within 60 days after the Petition Date, agree 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 the Debtors' options with respect to its
fleet optimization strategy.
The Debtors have 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 the Debtors' exclusivity period lapses, any party in interest
may file a plan of reorganization for the Debtors. 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 the Debtors 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. Generally, with respect to common
stock interests, a plan may be crammed down if the proponent of the plan
demonstrates that (i) the common stock holders are receiving the value of
their common stock interests or no class junior to the common stock is
receiving or retaining property under the plan and (ii) no class of claims
or interests senior to the common stock is being paid more than in full.
Under section 365 of the Bankruptcy Code, the Debtors 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 the Debtors of their 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 the rejecting Debtor for
damages. Generally, the assumption of an executory contract or unexpired
lease requires the Debtors 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 the Debtors' 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 the Debtors' 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
the Debtors' creditors. Significant litigation may be required to resolve
any such disputes or discrepancies.
Although the Debtors expect 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 the Debtors 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 cases, 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 cases; (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
debtors-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, the Debtors 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 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 shareholders are entitled to
receive any distribution or retain any property under a plan. The ultimate
recovery to creditors and/or common shareholders, if any, will not be
determined until confirmation of a plan or plans 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. A plan of reorganization
could result in holders of the Company's common stock receiving no
distribution on account of their interests and cancellation of their
existing stock. A plan of reorganization could result in holders of the
Company's common stock (Common Stock) receiving no distribution on account
of their interests and cancellation of their existing stock. As discussed
above, if the requirements of section 1129(b) of the Bankruptcy Code are
met, a plan of reorganization can be confirmed notwithstanding its
rejection by the Company's equity security holders and notwithstanding the
fact that such equity security holders do not receive or retain any
property on account of their equity interests under the plan. In addition,
the New York Stock Exchange issued a statement on August 14, 2002 that the
Company's Common Stock would be suspended immediately. As a result, trading
in the Company's Common Stock has been suspended and application to the SEC
to delist the issue is pending.
The value of the Common Stock is highly speculative. The Company
urges that appropriate caution be exercised with respect to existing and
future investments in any of these liabilities and/or securities of the
Company or other Debtors.
Debtor-In-Possession Financing
The Company 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
the Company under the current interim Bankruptcy Court order. The Company
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 the Company
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 the Company's DIP Facility
will contain covenants that will require the Company 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 the
Company obtaining certain concessions from its remaining unions. The
remaining $200 million of availability under the DIP Facility will be
available to the Company 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 the Company in exchange for common
stock and warrants to purchase common stock which would result in TPG
owning approximately 38% of the Company 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 the
Company 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 the Company 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 the Company 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 the Company. 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
against the Debtors 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. 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 the Company 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' 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 Company's 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 the Company 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 the Company's Board of
Directors and participation in profit sharing or, in the alternative,
receiving equity securities in the Company 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.
In addition, PSA Airlines, Inc. (PSA) and Piedmont Airlines, Inc.,
wholly-owned subsidiaries of the Company, reached tentative agreements for
concessions and for regional jets rates of pay with the labor unions
representing their pilots and flight attendants (approximately 1,150 employees
collectively). On August 14, 2002, PSA's pilots ratified the tentative
agreement.
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, the Company's operating revenues were
$1.9 billion, operating loss was $175 million, net loss was $248 million
and diluted loss per common share was $3.64. For the comparative period in
2001, operating revenues were $2.5 billion, operating income was $20
million, net loss was $24 million and diluted loss per common share was
$0.36.
For the six months of 2002, the Company's operating revenues were
$3.6 billion, operating loss was $545 million, loss before cumulative
effect of accounting change was $534 million and diluted loss per common
share before cumulative effect of accounting change was $7.86. For the
comparative period in 2001, operating revenues were $4.7 billion, operating
loss was $208 million, loss before cumulative effect of accounting change
was $202 million and diluted loss per common share before cumulative effect
of accounting change was $3.01. The Company's 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 the Company
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 the Company's costs are fixed over the
intermediate to longer term, so that the Company 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 the Company's
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 $584 million or
26.8%. Passenger transportation revenues for US Airways decreased $568 million
due to a 18.6% decrease in RPMs and a 11.9% decrease in yield. Passenger
transportation revenues related to the wholly-owned regional airlines
decreased $17 million reflecting a decrease in yield of 14.8% partially offset
by a 6.2% increase in RPMs. 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 15.9% 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
were flat. Revenues generated from sales of capacity (ASMs) on regional jet
affiliates increased by $20 million. These affiliates operated an average of
70 regional jets during the second quarter of 2002 versus 52 regional jets
during the second quarter of 2001. The increased revenues related to the
regional jet affiliates were largely offset by declines in revenue related to
a marketing agreement with Galileo International, Inc. which ended June 30,
2001, lower lease revenue associated with surplus aircraft and other
schedule-related revenues. The increased revenues resulting from sales of
capacity on the regional jet affiliates are partially offset by increased
expenses recognized in the Other operating expenses category related to
purchases of the capacity (see below).
Operating Expenses-The Company's operating expenses were lower by 16.0% on
a capacity decrease of 20.1% at US Airways. Personnel costs decreased 8.4%
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 39.2% due to lower average
fuel prices and schedule-driven decreases in consumption. Aircraft rent
decreased 6.9% as expense reductions from lease expirations were partially
offset with lease expense associated with new leased aircraft. Other rent
and landing fees decreased 10.1% due to schedule-driven reductions in
landings. Aircraft maintenance decreased 26.6% reflecting the retirement of
older aircraft as well as the closure of the US Airways engine shop in
Pittsburgh, PA. Other selling expenses decreased 21.7% due to sales volume
driven decreases in credit card fees and computer reservation fees.
Depreciation and amortization decreased 25.7% due to aircraft retirements
partially offset by the purchase of new Airbus aircraft. In addition, the
Company 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 67.5% due to lower ticket
sales and the elimination of the base domestic commissions in March 2002.
Other operating expenses decreased 5.7% due to decreases in
schedule-related expenses including passenger food expenses, crew travel
expenses and interrupted trip expenses. These decreases were partially
offset by increased expenses related to purchases of capacity (ASMs) on
regional jet affiliates, 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, the Company 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) the Company will recognize an income tax credit not to exceed the
Company's 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 second
quarter of 2002 of $11 million is based on the estimated annual effective
tax rate for 2002 of 12%. The Company continues to record a valuation
allowance against its net deferred tax asset which limits the 2002 tax
credit. The effective tax rate was 20% 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 the
Company's 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 $1.11 billion
or 26.8%. Passenger transportation revenues for US Airways decreased $1.07
billion due to a 17.4% decrease in RPMs and a 12.9% decrease in yield.
Passenger transportation revenues related to the wholly-owned regional
airlines decreased $42 million reflecting a decrease in yield of 15.9%
partially offset by a 4.0% increase in RPMs. 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 22.2% 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 were flat. Revenues generated from sales of capacity
(available seat miles or ASMs) on regional jet affiliates increased by $46
million. These affiliates operated an average of 70 regional jets during the
first six months of 2002 versus 48 regional jets during the first six months
of 2001. The increased revenues related to the regional jet affiliates were
offset by declines in revenue related to a marketing agreement with Galileo
International, Inc. which ended June 30, 2001, lower revenue from third-party
fuel sales (price-driven decline), lower lease revenue associated with surplus
aircraft and other schedule-related revenues. The increased revenues resulting
from sales of capacity on the regional jet affiliates are largely offset by
increased expenses recognized in the Other operating expenses category related
to purchases of the capacity (see below).
Operating Expenses-Excluding the aircraft impairment charge recognized in
the first quarter of 2001 (see "Asset impairments" below), the Company's
operating expenses were lower by 15.5% on a capacity decrease of 19.5% at US
Airways. Personnel costs decreased 6.9% 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 was flat as expense reductions from lease
expirations were offset with lease expense associated with new leased
aircraft. Other rent and landing fees decreased 10.5% due to schedule-driven
reductions in landings and timing of certain credits received. Aircraft
maintenance decreased 28.1% reflecting the retirement of older aircraft as
well as the closure of the US Airways engine shop in Pittsburgh, PA. Other
selling expenses decreased 19.4% due to sales volume driven decreases in
credit card fees and computer reservation fees. Depreciation and amortization
decreased 22.3% due to aircraft retirements partially offset by the purchase
of new Airbus aircraft. In addition, the Company 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
53.3% 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 the
Company 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 8.5% due to decreases in schedule-related expenses including
passenger food expenses, crew travel expenses and interrupted trip expenses.
These decreases were partially offset by increased expenses related to
purchases of capacity (ASMs) on regional jet affiliates, 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, the Company 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) the Company will recognize an income tax credit not to exceed the
Company's 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 $74 million related to 2001 losses realizable due to the enactment of
the Act and recorded in the period of enactment. The remainder of the tax
credit recorded in the first six months of 2002 is based on the estimated
annual effective tax rate for 2002 of 12% exclusive of benefit related to
2001. The Company continues to record a valuation allowance against its net
deferred tax asset which limits the 2002 tax credit. The effective tax rate
was 32% 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 the Company's permanent tax differences.
Cumulative Effect of Accounting Change, Net of Applicable Income
Taxes-Effective January 1, 2002, PSA Airlines, Inc. (PSA), a wholly-owned
subsidiary of the Company, changed its method of accounting for engine
maintenance from accruing on the basis of hours flown to expensing as
incurred. In connection with the change, PSA recognized a $17 million
credit representing the cumulative effect of the accounting change. The
Company adopted the provisions of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" effective January 1, 2001. 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).
(this space intentionally left blank)
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, the Company's cash and cash equivalents and
short-term investments totaled $602 million. The Company's ratio of current
assets to current liabilities (current ratio) was 0.5 (the Company's
Condensed Consolidated Balance Sheets are contained in Part I, Item 1 of
this report). As of December 31, 2001, the Company's cash and cash
equivalents and short-term investments totaled $1.08 billion and the
current ratio was 0.6.
For the first six months of 2002, the Company's operating activities
used net cash of $305 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 which provided net cash
of $226 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 the Company 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 $162 million. For the first six months of 2002,
investing activities included cash outflows of $123 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. The Company's 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 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, the
Company 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 the Company's 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 and Other asset,
net on the Company's Condensed Consolidated Balance Sheet. For the first
six months of 2001, investing activities included cash outflows of $958
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 $912 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 $660 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.
The Company 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
the Company under the current interim Bankruptcy Court order and has been
drawn. The Company 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.
The Company 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. The Company requires substantial working capital in order to
meet scheduled debt and lease payments and to finance day-to-day operations.
The Company 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, with respect to US
Airways, for debt instruments related to 18 aircraft and lease rental payments
related to one aircraft, and with respect to the Company's wholly-owned
regional carriers lease payments relating to nine 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 cases, 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 cases; (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, the Company's 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, the Company had received approximately $296 million
(US Airways received $287 million and the Company's Express subsidiaries
received $9 million) from the U.S. Government under the Stabilization Act.
The Company expects to receive an additional $24 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 the
Company 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 the Company 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, the Company 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, the Company 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 the Company's 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 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 Annual
Report of the Company to the U.S. Securities and Exchange Commission on
Form 10-K for the year ended December 31, 2001.
Part II. Other Information
Item 1. Legal Proceedings
On August 11, 2002, the Company and seven of its domestic
subsidiaries filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code in the Bankruptcy Court (Case Nos. 02-83984-SSM through
02-83991-SSM). The reorganization cases are being jointly administered
under the caption "In re US Airways Group, Inc., et al., Case No.
02-83984-SSM." Each of the Debtors continues to operate its business and
manage its property as a debtor-in-possession pursuant to sections 1107 and
1108 of the Bankruptcy Code. As a result of the filing, attempts to
collect, secure, or enforce remedies with respect to pre-petition claims
against the Debtors are subject to the automatic stay provisions of 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.
The Company 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, the Company 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, the Company and US Airways
believe the claims are without merit and intend to pursue a vigorous defense.
A declaratory judgment against certain airlines including the Company is
being sought in Quebec Superior Court that, if obtained, would require the
Company 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. The Company 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. The Company 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 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 the Company's 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, with respect
to US Airways, for debt instruments related to 18 aircraft and lease rental
payments related to one aircraft, and with respect to the Company's
wholly-owned regional carriers lease payments relating to nine 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 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on May 15, 2002.
Proxies for the meeting were solicited by the Company pursuant to Regulation
14A under the Securities Exchange Act of 1934.
All of management's nominees for the election to the Board of
Directors as listed in the Company's Proxy Statement for the meeting were
elected. In addition, the stockholders also voted on the following
proposals with the following results:
1. Management's proposal regarding ratification of the selection of
auditors of the Company for fiscal year 2002.
For: 44,298,631 Against: 1,192,272 Abstain: 554,605
Broker Non-Votes: None
2. Stockholder proposal concerning cumulative voting in the election of
directors.
For: 7,178,096 Against: 13,251,302 Abstain: 1,180,698
Broker Non-Votes: 24,435,412
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Designation Description
10.1 Amendment No. 11 dated as of July 17, 2002 to A319/A320/A321
Purchase Agreement dated October 31, 1997 between US Airways
Group, Inc. and AVSA, S.A.R.L. (portions of this exhibit have been
omitted pursuant to a request for confidential treatment and filed
separately with the SEC).
10.2 Amendment No. 5 dated as of July 17, 2002 to A330/A340 Purchase
Agreement dated November 24, 1998 between US Airways Group, Inc.
and AVSA, S.A.R.L. (portions of this exhibit have been omitted
pursuant to a request for confidential treatment and filed
separately with the SEC).
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 The Company 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 The Company 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 the
Company and its subsidiaries, the restructuring
process and the status of the Company's 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 Group, Inc. (Registrant)
Date: August 16, 2002 By: /s/ Anita P. Beier
----------------------
Anita P. Beier
Vice President and Controller
(Chief Accounting Officer)
Exhibit 10.1
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted text has been marked with a triple
asterisk ("***") and has been filed separately with the Securities and
Exchange Commission.
Amendment No.11
TO THE A319/A320/A321 PURCHASE AGREEMENT
dated as of October 31, 1997
between
AVSA, S.A.R.L.,
and
US AIRWAYS GROUP, INC.
This Amendment No. 11 (hereinafter referred to as the "Amendment") entered
into as of July 17, 2002, by and between AVSA, S.A.R.L., a societe a
responsabilite limitee organized and existing under the laws of the
Republic of France, having its registered office located at 2, Rond Point
Maurice Bellonte, 31700 Blagnac, FRANCE (hereinafter referred to as the
"Seller"), and US Airways Group, Inc., a corporation organized and existing
under the laws of the State of Delaware, United States of America, having
its executive offices located at 2345 Crystal Drive, Arlington, VA 22227,
U.S.A. (hereinafter referred to as the "Buyer");
WITNESSETH :
WHEREAS, the Buyer and the Seller entered into an Airbus A319/A320/A321
Purchase Agreement, dated as of October 31, 1997, relating to the sale by
the Seller and the purchase by the Buyer of certain Airbus A319, A320 and
A321 model aircraft (the "Aircraft"), which agreement, together with all
Exhibits, Appendices and Letter Agreements attached thereto and as amended
by Amendment No. 1 dated as of June 10, 1998, Amendment No. 2 dated as of
January 19, 1999, Amendment No. 3 dated as of March 31, 1999, Amendment No.
4 dated as of August 31, 1999, Amendment No. 5 dated as of October 29,
1999, Amendment No. 6 dated as of April 19, 2000, Amendment No. 7 dated as
of June 29, 2000, Amendment No. 8 dated as of November 27, 2000, Amendment
No. 9 dated as of December 29, 2000, Amendment No. 10 dated as of April 9,
2001, and as the same is amended hereby and may be further amended from
time to time, is hereinafter called the "Agreement."
WHEREAS, the Buyer and the Seller have agreed to reschedule the delivery of
certain Aircraft and to amend certain provisions of the Agreement and to
that effect, have signed binding agreements dated August 14, 2001 (AVSA No.
5283.3) October 11, 2001 (signed on October 12, 2001, AVSA No. 5283.4) and
June 28, 2002 (AVSA No. 5283.5.6) to amend the Agreement.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
Capitalized terms used herein and not otherwise defined in this Amendment
will have the meanings assigned to them in the Agreement. The terms
"herein," "hereof," and "hereunder" and words of similar import refer to
this Amendment.
1. DELIVERY
--------
1.1 At the request of the Buyer, the Buyer and the Seller have agreed
to certain *** of Aircraft and to rescheduling the delivery of ***
Aircraft, comprised of *** Aircraft and *** Aircraft, from ***.
1.2 At the request of the Buyer, the Buyer and the Seller have agreed
to reschedule the delivery of *** Aircraft from ***.
1.3 At the request of the Buyer, the Buyer and the Seller agree to
reschedule the delivery of *** Aircraft from *** to respectively
*** (individually and collectively, the "Rescheduled Aircraft").
1.4 In addition, the Buyer and the Seller have agreed to ***.
1.5 As a consequence of Subparagraphs 1.1, 1.2, 1.3 and 1.4 above, the
delivery schedule for Aircraft set forth in the Agreement as
amended from time to time is hereby deleted and replaced with
Appendix A to this Amendment which incorporates Subparagraph 1.1,
1.2, 1.3 and 1.4.
2. EFFECT ON PREDELIVERY PAYMENTS
------------------------------
The Buyer and the Seller agree that ***.
3. EFFECT OF AMENDMENT
-------------------
The Agreement will be deemed to be amended to the extent herein
provided, and, except as specifically amended hereby, will
continue in full force and effect in accordance with its original
terms. This Amendment supersedes any previous understandings,
commitments, or representations whatsoever, whether oral or
written, related to the subject matter of this Amendment
including, but not limited to, agreements between the Buyer and
the Seller dated August 14, 2001 (AVSA No. 5283.3), October 11,
2001 (and signed on October 12, 2001, AVSA No. 5283.4) and June
28, 2002 (AVSA No. 5283.5.6), but only to the extent such
agreements relate to the subject matter of this Amendment.
However, for the avoidance of doubt, the provisions of Paragraphs
1, 2 and 3 of the agreement dated August 14, 2001 (AVSA No.
5283.3) are deleted in their entirety and replaced with the
provisions of this Amendment.
Both parties agree that this Amendment will constitute an
integral, nonseverable part of the Agreement, that the provisions
of the Agreement are hereby incorporated herein by reference, and
that this Amendment will be governed by the provisions of the
Agreement, except that if the Agreement and this Amendment have
specific provisions that are inconsistent, the specific provisions
contained in this Amendment will govern.
4. ASSIGNMENT
----------
This Amendment and the rights and obligations of the Buyer
hereunder will not be assigned or transferred in any manner
without the prior written consent of the Seller, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 4 will be void and of no force or effect.
Notwithstanding the preceding sentence, the terms of Subclauses
19.5 and 19.6 of the Agreement will apply to this Amendment.
5. GOVERNING LAW
-------------
THIS AMENDMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PERFORMANCE OF THIS
AMENDMENT WILL BE DETERMINED ALSO IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. THE PARTIES HEREBY ALSO AGREE THAT THE
UNITED NATIONS CONVENTION ON THE INTERNATIONAL SALE OF GOODS WILL
NOT APPLY TO THIS TRANSACTION.
6. Counterparts
------------
This Amendment may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered will be
an original, but all such counterparts will together constitute
but one and the same instrument.
If the foregoing correctly sets forth our understanding, please
execute this Amendment in the space provided below, whereupon, as
of the date first above written, this Amendment will constitute
part of the Agreement.
Agreed and accepted Yours sincerely,
US AIRWAYS GROUP, INC. AVSA, S.A.R.L.
By: /s/ Jeffery A. McDougle By: /s/ Marie-Pierre Merle-Beral
------------------------ ----------------------------
Its: VP - Finance and Treasurer Its: Chief Executive Officer
-------------------------- --------------------------
Appendix A
***
LETTER AGREEMENT NO. 1
To Amendment No. 11 dated July 17, 2002
US Airways Group, Inc.
2345 Crystal Drive
Arlington, VA 22227
Re: Miscellaneous
Ladies and Gentlemen:
US Airways Group, Inc. (the "Buyer"), and AVSA, S.A.R.L. (the "Seller"),
have entered into Amendment No. 11, dated as of even date herewith (the
"Amendment"), to the Airbus A319/A320/A321 Purchase Agreement dated as of
October 31, 1997 as amended from time to time (the "Agreement"), which
Agreement covers among other things, the sale by the Seller and the
purchase by the Buyer of certain Aircraft, under the terms and conditions
set forth in said Agreement. The Buyer and the Seller have agreed to set
forth in this Letter Agreement No. 1 to the Amendment (the "Letter
Agreement") certain additional terms and conditions regarding the purchase
and sale of the Aircraft. Capitalized terms used herein and not otherwise
defined in this Letter Agreement will have the meanings assigned thereto in
the Agreement. The terms "herein," "hereof" and "hereunder" and words of
similar import refer to this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an integral,
nonseverable part of said Amendment, that the provisions of said Amendment
are hereby incorporated herein by reference, and that this Letter Agreement
will be governed by the provisions of said Agreement, except that if the
Agreement, the Amendment and this Letter Agreement have specific provisions
which are inconsistent, the specific provisions contained in this Letter
Agreement will govern
1. *** AND PREDELIVERY PAYMENTS
----------------------------
1.1 In consideration of the Seller having agreed to reschedule the
Rescheduled Aircraft pursuant to Subparagraph 1.3 of the
Amendment, the Buyer agrees to ***.
1.2 The parties further agree that the Seller shall ***.
1.3 For the avoidance of doubt, the parties agree that ***.
2. ***
---
2.1 The Buyer's order for ***, and the parties agree that the
provisions of Paragraph 2 of Letter Agreement No. 2 to the
Agreement are hereby deleted and of no further force or effect.
2.2 Notwithstanding the foregoing Subparagraph 2.1,***.
2.3 The Seller and the Buyer hereby agree that the Agreement shall
include ***:
2.3.1 ***
2.3.2 The Buyer may ***.
2.3.3 The Buyer shall ***.
2.3.4 ***
2.3.5 ***
2.3.6 ***
2.3.7 ***
2.3.8 ***
2.3.9 ***
2.3.10 Notwithstanding Subparagraph 2.3.6, the Buyer's right to ***.
2.3.11 All terms and conditions other than those stipulated in the
Amendment that are in effect as of the date of the Amendment ***.
2.3.12 The parties agree that the Buyer shall ***.
3. ***
---
3.1 As of the date of this Letter Agreement the parties
acknowledge and agree that the provisions of Paragraph 1 of Letter
Agreement No. 2 to the Agreement apply only to the following ***:
3.2 Aircraft No. Aircraft Type Scheduled Delivery
------------ ------------- ------------------
***
3.3 In the event that the Buyer ***.
4. ***
---
4.1 Paragraph 1.3 of Letter Agreement No. 5 to the Agreement is
deleted and replaced with the following:
QUOTE
1.3 ***
UNQUOTE
5. ***
---
5.1 ***
---
5.1.1 Subject to Subparagraph 5.1.2, the Seller hereby grants the Buyer ***.
5.1.2 The *** will:
***
5.2 ***
---
5.2.1 Subparagraph 2.2 of Letter Agreement No. 5 is hereby deleted and
replaced with the following:
QUOTE
2.2 ***
UNQUOTE
6. TRAINING
--------
6.1 The Buyer and the Seller agree to delete the provisions of
Paragraph 4 to Amendment No. 8 in their entirety and such
provisions are no longer in force or effect.
6.2 The parties further agree that in the event that ***.
6.3 ***
7. ***
---
The parties agree that the provisions of Paragraph 4 of Amendment
No. 4 to the Agreement shall apply to the ***.
8. ASSIGNMENT
----------
This Letter Agreement and the rights and obligations of the Buyer
hereunder will not be assigned or transferred in any manner
without the prior written consent of the Seller, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 8 will be void and of no force or effect.
Notwithstanding the preceding sentence, the terms of Subclauses
19.5 and 19.6 of the Agreement will apply to this Letter
Agreement.
9. GOVERNING LAW
-------------
The provisions of Paragraph 5 of the Amendment are hereby
incorporated by reference herein with the same effect as if set
forth in full herein.
10. COUNTERPARTS
------------
This Letter Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and
delivered will be an original, but all such counterparts will
together constitute but one and the same instrument.
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided
below and return a copy to the Seller.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ Marie-Pierre Merle-Beral
-------------------------------
Its: Chief Executive Officer
-------------------------------
Date:
-------------------------------
Accepted and Agreed
US Airways Group, Inc.
By: /s/ Jeffery A. McDougle
--------------------------------
Its: VP - Finance and Treasurer
--------------------------------
Date: July 17, 2002
--------------------------------
LETTER AGREEMENT NO. 2
To Amendment No. 11 dated July 17, 2002
US Airways Group, Inc.
2345 Crystal Drive
Arlington, VA 22227
Re: Other Matters
Ladies and Gentlemen:
US Airways Group, Inc. (the "Buyer"), and AVSA, S.A.R.L. (the "Seller"),
have entered into Amendment No. 11, dated as of even date herewith (the
"Amendment"), to the Airbus A319/A320/A321 Purchase Agreement dated as of
October 31, 1997 as amended from time to time (the "Agreement"), which
Agreement covers among other things, the sale by the Seller and the
purchase by the Buyer of certain Aircraft, under the terms and conditions
set forth in the said Agreement. The Buyer and the Seller have agreed to
set forth in this Letter Agreement No. 2 to the Amendment (the "Letter
Agreement") certain additional terms and conditions regarding the purchase
and sale of the Aircraft. Capitalized terms used herein and not otherwise
defined in this Letter Agreement will have the meanings assigned thereto in
the Agreement. The terms "herein," "hereof" and "hereunder" and words of
similar import refer to this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an integral,
nonseverable part of said Amendment, that the provisions of said Amendment
are hereby incorporated herein by reference, and that this Letter Agreement
will be governed by the provisions of said Agreement, except that if the
Agreement, the Amendment and this Letter Agreement have specific provisions
which are inconsistent, the specific provisions contained in this Letter
Agreement will govern.
1. Other Matters
-------------
1.1 ***
1.2 ***
1.3 ***
1.4 ***
2. Assignment
----------
This Letter Agreement and the rights and obligations of the Buyer
hereunder will not be assigned or transferred in any manner
without the prior written consent of the Seller, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 2 will be void and of no force or effect.
Notwithstanding the preceding sentence, the terms of Subclauses
19.5 and 19.6 of the Agreement will apply to this Letter
Agreement.
3. Governing Law
-------------
The provisions of Paragraph 5 of the Amendment are hereby
incorporated by reference herein with the same effect as if set
forth in full herein.
4. Counterparts
------------
This Letter Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and
delivered will be an original, but all such counterparts will
together constitute but one and the same instrument.
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided
below and return a copy to the Seller.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ Marie-Pierre Merle-Beral
--------------------------------
Its: Chief Executive Officer
--------------------------------
Date:
--------------------------------
Accepted and Agreed
US Airways Group, Inc.
By: /s/ Jeffery A. McDougle
------------------------------
Its: VP- Finance and Treasurer
------------------------------
Date: July 17, 2002
------------------------------
Exhibit 10.2
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted text has been marked with a triple
asterisk ("***") and has been filed separately with the Securities and
Exchange Commission.
Amendment No. 5
TO THE A330/A340 PURCHASE AGREEMENT
dated as of November 24, 1998
between
AVSA, S.A.R.L.,
and
US AIRWAYS GROUP, INC.
This Amendment No. 5 (hereinafter referred to as the "Amendment") entered into
as of July 17, 2002, by and between AVSA, S.A.R.L., a societe a responsabilite
limitee organized and existing under the laws of the Republic of France,
having its registered office located at 2, Rond Point Maurice Bellonte, 31700
Blagnac, FRANCE (hereinafter referred to as the "Seller"), and US Airways
Group, Inc., a corporation organized and existing under the laws of the State
of Delaware, United States of America, having its executive offices located at
2345 Crystal Drive, Arlington, VA 22227, U.S.A. (hereinafter referred to as
the "Buyer") ;
WITNESSETH :
WHEREAS, the Buyer and the Seller entered into an Airbus A330/A340 Purchase
Agreement, dated as of November 24, 1998, relating to the sale by the Seller
and the purchase by the Buyer of certain Airbus A330 and A340 model aircraft
(the "Aircraft"), which agreement, together with all Exhibits, Appendices and
Letter Agreements attached thereto and as amended by Amendment No.1 dated as
of March 23, 2000, Amendment No. 2 dated as of June 29, 2000, Amendment No. 3
dated as of November 27, 2000, Amendment No. 4 dated as of September 20, 2001,
and as the same is hereby and may be further amended from time to time, is
hereinafter called the "Agreement".
WHEREAS, the Buyer and the Seller agree to reschedule the delivery of one
Aircraft and to amend certain terms of the Agreement.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
Capitalized terms used herein and not otherwise defined in this Amendment will
have the meanings assigned to them in the Agreement. The terms "herein,"
"hereof," and hereunder and words of similar import refer to this Amendment.
1. DELIVERY
--------
1.1 The A330-300 Aircraft scheduled for delivery in ***.
1.2 As a result of the above ***, the delivery schedule set forth in
Clause 9.1.1 of the Agreement as amended from time to time
is hereby deleted and replaced with the following:
QUOTE
A/c No. A/c Type Delivery Date
------- -------- -------------
***
UNQUOTE
2. PAYMENTS
--------
The Buyer and the Seller agree that ***.
3. EFFECT OF AMENDMENT
-------------------
The Agreement will be deemed to be amended to the extent herein
provided, and, except as specifically amended hereby, will continue in
full force and effect in accordance with its original terms. This
Amendment supersedes any previous understandings, commitments, or
representations whatsoever, whether oral or written, related to the
subject matter of this Amendment including, but not limited to, the
agreements between the parties dated August 14, 2001 (AVSA No. 5283.3),
October 11, 2001 (signed on October 12, 2001, AVSA No. 5283.4) and June
28, 2002 (AVSA No. 5283.5.6) but only to the extent such agreements
relate to the subject matter of this Amendment.
Both parties agree that this Amendment will constitute an integral,
nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this
Amendment will be governed by the provisions of said Agreement, except
that if the Agreement and this Amendment have specific provisions that
are inconsistent, the specific provisions contained in this Amendment
will govern.
4. ASSIGNMENT
----------
This Amendment and the rights and obligations of the Buyer hereunder
will not be assigned or transferred in any manner without the prior
written consent of the Seller, and any attempted assignment or transfer
in contravention of the provisions of this Paragraph 4 will be void and
of no force or effect. Notwithstanding the preceding sentence, the
terms of Subclause 19.5 of the Agreement will apply to this Amendment.
5. GOVERNING LAW
-------------
THIS AMENDMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. THE PERFORMANCE OF THIS AMENDMENT WILL
BE DETERMINED ALSO IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
THE PARTIES HEREBY ALSO AGREE THAT THE UNITED NATIONS CONVENTION ON THE
INTERNATIONAL SALE OF GOODS WILL NOT APPLY TO THIS TRANSACTION.
6. COUNTERPARTS
------------
This Amendment may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered will be an
original, but all such counterparts will together constitute but one
and the same instrument.
If the foregoing correctly sets forth our understanding, please execute
this Amendment in the space provided below, whereupon, as of the date
first above written, this Amendment will constitute part of the
Agreement.
Agreed and accepted Yours sincerely,
US AIRWAYS GROUP, INC. AVSA, S.A.R.L.
By: /s/ Jeffery A. McDougle By: /s/ Marie-Pierre Merle-Beral
--------------------------- ----------------------------
Its: VP - Finance and Treasurer Its: Chief Executive Officer
--------------------------- ----------------------------
LETTER AGREEMENT NO. 1
To Amendment No. 5 dated July 17, 2002
US Airways Group, Inc.
2345 Crystal Drive
Arlington, VA 22227
Re: Miscellaneous
Ladies and Gentlemen:
US Airways Group, Inc. (the "Buyer"), and AVSA, S.A.R.L. (the "Seller"), have
entered into Amendment No. 5, dated as of even date herewith (the
"Amendment"), to the Airbus A330/A340 Purchase Agreement dated as of November
24, 1998 as amended from time to time (the "Agreement"), which Agreement
covers among other things, the sale by the Seller and the purchase by the
Buyer of certain Aircraft , under the terms and conditions set forth in said
Agreement. The Buyer and the Seller have agreed to set forth in this Letter
Agreement No. 1 to the Amendment (the "Letter Agreement") certain additional
terms and conditions regarding the purchase and sale of the Aircraft.
Capitalized terms used herein and not otherwise defined in this Letter
Agreement will have the meanings assigned thereto in the Agreement. The terms
"herein," "hereof" and "hereunder" and words of similar import refer to this
Letter Agreement.
Both parties agree that this Letter Agreement will constitute an integral,
nonseverable part of said Amendment, that the provisions of said Amendment are
hereby incorporated herein by reference, and that this Letter Agreement will
be governed by the provisions of said Agreement, except that if the Agreement,
the Amendment and this Letter Agreement have specific provisions which are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. ***
---
The parties agree that the provisions of Subparagraph 1.4 of Letter
Agreement No. 5 to the Agreement are hereby deleted in their entirety
and are no longer in force or effect.
@. ASSIGNMENT
----------
This Letter Agreement and the rights and obligations of the Buyer
hereunder will not be assigned or transferred in any manner without
the prior written consent of the Seller, and any attempted assignment
or transfer in contravention of the provisions of this Paragraph 2
will be void and of no force or effect. Notwithstanding the preceding
sentence, the terms of Subclause 19.5 of the Agreement will apply to
this Letter Agreeement.
3. GOVERNING LAW
-------------
The provisions of Paragraph 5 of the Amendment are hereby
incorporated by reference herein with the same effect as if set forth
in full herein.
4. COUNTERPARTS
------------
This Letter Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered
will be an original, but all such counterparts will together
constitute but one and the same instrument.
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided
below and return a copy to the Seller.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ Marie-Pierre Merle-Beral
----------------------------
Its: Chief Executive Officer
----------------------------
Date:
----------------------------
Accepted and Agreed
US Airways Group, Inc.
By: /s/ Jeffery A. McDougle
---------------------------
Its: VP - Finance and Treasurer
--------------------------
Date: July 17, 2002
--------------------------
US Airways - A330/A340 - LA 2 to AM 5
July 2002
LETTER AGREEMENT NO. 2
To Amendment No. 5 dated July 17, 2002
US Airways Group, Inc.
2345 Crystal Drive
Arlington, VA 22227
Re: Other Matters
Ladies and Gentlemen:
US Airways Group, Inc. (the "Buyer"), and AVSA, S.A.R.L. (the "Seller"), have
entered into Amendment No. 5, dated as of even date herewith (the
"Amendment"), to the Airbus A330/A340 Purchase Agreement dated as of November
24, 1998 as amended from time to time (the "Agreement"), which Agreement
covers among other things, the sale by the Seller and the purchase by the
Buyer of certain Aircraft , under the terms and conditions set forth in the
said Agreement. The Buyer and the Seller have agreed to set forth in this
Letter Agreement No. 2 to the Amendment (the "Letter Agreement") certain
additional terms and conditions regarding the purchase and sale of the
Aircraft. Capitalized terms used herein and not otherwise defined in this
Letter Agreement will have the meanings assigned thereto in the Agreement. The
terms "herein," "hereof" and "hereunder" and words of similar import refer to
this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an integral,
nonseverable part of said Amendment, that the provisions of said Amendment are
hereby incorporated herein by reference, and that this Letter Agreement will
be governed by the provisions of said Agreement, except that if the Agreement,
the Amendment and this Letter Agreement have specific provisions which are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. OTHER MATTERS
-------------
1.1 ***
1.2 ***
1.3 ***
1.4 ***
2. ASSIGNMENT
----------
This Letter Agreement and the rights and obligations of the Buyer
hereunder will not be assigned or transferred in any manner without
the prior written consent of the Seller, and any attempted assignment
or transfer in contravention of the provisions of this Paragraph 2
will be void and of no force or effect. Notwithstanding the preceding
sentence, the terms of Subclause 19.5 of the Agreement will apply to
this Letter Agreement.
3. GOVERNING LAW
-------------
The provisions of Paragraph 5 of the Amendment are hereby
incorporated by reference herein with the same effect as if set forth
in full herein.
4. COUNTERPARTS
------------
This Letter Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered
will be an original, but all such counterparts will together
constitute but one and the same instrument.
If the foregoing correctly sets forth our understanding, please execute the
original and one (1) copy hereof in the space provided below and return a copy
to the Seller.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ Marie-Pierre Merle-Beral
----------------------------
Its: Chief Executive Officer
----------------------------
Date:
----------------------------
Accepted and Agreed
US Airways Group, Inc.
By: /s/ Jeffery A. McDougle
---------------------------
Its: VP - Finance and Treasurer
--------------------------
Date: July 17, 2002
--------------------------
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 Group, Inc.
(Company) 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 the Company, and Neal
S. Cohen, as Chief Financial Officer of the Company, each hereby certifies,
pursuant to 18 U.S.C. Section 1350, 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
the Company.
/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 the Company for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended.