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(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004

or

For the transition period from                      to                     

US Airways Group, Inc.
(Debtor-in-Possession)
(Exact name of registrant as specified in its charter)
State of Incorporation: Delaware

2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices, including zip code)
(703) 872-7000
(Registrant's telephone number, including area code)

(Commission file number: 1-8444)
(I.R.S. Employer Identification No: 54-1194634)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
                                                                Yes    X                     No      

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
                                                                Yes    X                     No      

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
                                                                Yes    X                     No      

     As of October 31, 2004 there were outstanding approximately 52,097,000 shares of US Airways Group, Inc. Class A common stock and 5,000,000 shares of US Airways Group, Inc. Class B common stock.

US Airways Group, Inc.
(Debtor-in-Possession)
Form 10-Q
Quarterly Period Ended September 30, 2004


Table of Contents

Part I. Financial Information

Item 1. Financial Statements

US Airways Group, Inc.
(Debtor-in-Possession)
Condensed Consolidated Statements of Operations

(in millions, except share and per share amounts)

(unaudited)

US Airways Group, Inc.
(Debtor-in-Possession)
Condensed Consolidated Balance Sheets
(in millions)

US Airways Group, Inc.
(Debtor-in-Possession)
Condensed Consolidated Statements of Cash Flows

(in millions)

(unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

     On September 12, 2004, US Airways Group, Inc. (US Airways Group or the Company) and its domestic subsidiaries (collectively, the Debtors), which account for substantially all of the operations of the Company, including its principal operating subsidiary, US Airways, Inc. (US Airways), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (Bankruptcy Code) in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division (Bankruptcy Court) (Case Nos. 04-13819-SSM through 04-13823-SSM). Each of the Debtors in these cases had previously filed a voluntary petition for relief under Chapter 11 on August 11, 2002 (the Prior Bankruptcy). The Debtors emerged from the Prior Bankruptcy under the First Amended Joint Plan of Reorganization of US Airways Group, Inc. and Affiliated Debtors and Debtors-in-Possession, As Modified (the 2003 Plan), which was confirmed pursuant to an order of the Bank ruptcy Court on March 18, 2003 and became effective on March 31, 2003.

      Before emerging from the Prior Bankruptcy in 2003, the Company had examined every phase of its contracts and operations and had significantly reduced costs. The Company had reduced its mainline capacity, realigned its network to maximize yield, initiated a business plan to use more regional jets and procured financing for these aircraft, and expanded its alliance with other carriers. However, in the 18 months since emerging from the Prior Bankruptcy, the Company has continued to incur substantial losses from operations. For the nine months ended September 30, 2004, the Company's operating revenues were $5.5 billion, operating loss was $236 million, net loss was $375 million and loss per common share was $6.88. The primary factors contributing to these losses include the reduction in domestic industry revenue and significant increases in fuel prices. The downward pressure on domestic industry revenue is a result of the rapid growth of low-fare, low-cost airlines, the increasing transparency of fares through Internet sources and other changes in fare structures that have resulted in substantially lower fares for many business and leisure travelers. The competitive environment has continued to intensify throughout 2004, particularly in key markets such as Philadelphia, Washington, D.C., Boston and New York.

     Throughout the spring and summer of 2004, the Company communicated with key stakeholders and the public its plan to transform US Airways into a fully competitive and profitable airline (the Transformation Plan). A key element of the Transformation Plan is significant reductions in labor costs through changes to US Airways' collective bargaining agreements. The Company aggressively sought the necessary agreements to allow full implementation of the Transformation Plan without the need for filing new Chapter 11 cases but was unable to do so in a timely manner. As a result of the recurring losses, available cash declining, and risk of defaults or cross defaults under certain key financing and operating agreements, it was necessary for the Company and its domestic subsidiaries to file voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code on September 12, 2004.

     At hearings held on September 13, 2004, the Bankruptcy Court granted the Company's first day motions for relief designed to stabilize its operations and business relationships with customers, vendors, employees and others and entered orders granting permission to the Debtors to, among other things: (a) pay employee wages and continue benefits, such as medical and dental insurance; (b) honor pre-petition obligations to customers and continue customer programs, including US Airways' Dividend Miles program; (c) pay for fuel under existing supply contracts, and honor existing fuel supply, distribution and storage agreements; (d) assume contracts related to interline agreements with other airlines; (e) pay pre-petition obligations to foreign vendors, foreign service providers and foreign governments; and (f) continue maintenance of existing bank accounts and existing cash management systems. The Bankruptcy Court also approved the interim agreement reached between the Company, th e Air Transportation Stabilization Board (ATSB) and the lenders under the loan, substantially guaranteed by the ATSB, to allow the Company continued use of the cash collateral securing the $1 billion loan obtained upon emergence from the Prior Bankruptcy (see further discussion below).

     On September 24, 2004, the Debtors filed a motion under Section 1113(e) of the Bankruptcy Code requesting interim relief from their collective bargaining agreements with the Air Line Pilots Association (ALPA), Association of Flight Attendants-Communications Workers of America (AFA), Transport Workers Union (TWU), Communications Workers of America (CWA) and International Association of Machinists and Aerospace Workers (IAM). Upon the approval of the Bankruptcy Court on October 15, 2004, base rates of pay were reduced by 21% through February 15, 2005. Reductions to pension contributions were also approved. The order does not apply to ALPA or TWU, whose members have ratified permanent agreements. The order will also be superseded for other labor groups for changes agreed to by the parties and approved by the Bankruptcy Court. On October 25, 2004, the IAM and AFA filed motions for reconsideration of the interim relief order with the Bankruptcy Court. The Bankruptcy Court also has ap proved the Company's motion to modify its projected minimum fleet size, if necessary, and to use third-party vendors through February 15, 2005 for heavy airframe maintenance work on its Airbus fleet.

     The Company has also implemented pay and benefit reductions for its management/non-union employees, including reductions to base pay, workforce reductions and modifications to the vacation and sick time accruals. The Company will also implement modifications to pension plans and retiree benefits. The pay rate reductions went into effect on October 11, 2004.

     On October 20, 2004, the Debtors filed a motion under Section 1110 of the Bankruptcy Code (Section 1110) to preserve the Debtors' right to retain and operate certain aircraft, aircraft engines and other equipment that are leased or subject to a security interest or conditional sale contract that is specifically governed by Section 1110. In this motion, the Debtors seek an order authorizing the Debtors to enter into Section 1110 agreements either to perform all of the obligations under the leases, security agreements, or conditional sale contracts and cure all defaults thereunder (other than defaults constituting a breach of provisions relating to the filing of the Chapter 11 cases, the Debtors' insolvency or other financial condition of the Debtors) or to extend the Section 1110(a)(1) deadline. All of the above agreements will be subject to final approval of the Bankruptcy Court. If this motion is not granted or the above agreements are not approved, the rights of the lessor or secured party 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 are not limited or otherwise affected by the automatic stay, or any other provision of the Bankruptcy Code. The Debtors are currently seeking to defer certain payments that would otherwise be due upon expiration of the automatic stay. Therefore, in the event the Company is not able to reach consensual agreements with the necessary parties with respect to such deferrals, the Debtors' business may be materially and adversely affected.

     The Company has begun the process of notifying all known or potential creditors of the Chapter 11 filing for the purposes of identifying and quantifying all pre-petition claims. The Chapter 11 filing triggered defaults on substantially all debt and lease obligations. Subject to certain exceptions under the Bankruptcy Code, the Debtors' Chapter 11 filing automatically stayed 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 September 12, 2004 (Petition Date). The Debtors have the exclusive right for 120 days from the Petition Date to file a plan of reorganization and, if they do so, 60 additional days to obtain necessary acceptance of the plan. These deadlines may be extended by the Bankruptcy Court.

     The potential adverse publicity associated with the Chapter 11 filings 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 and retain key employees; 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 Chapter 11 filings, realization of assets and liquidation of liabilities are subject to significant 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 Bankruptcy Code, unless creditors agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full before holders of the common stock are entitled to receive any distribution or retain any property under a plan. The ultimate recovery to creditors and/or holders of the common stock, 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 type or amount 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.

     On September 13, 2004, the Company received written notification from The NASDAQ Stock Market (NASDAQ) that effective at the opening of business on September 22, 2004, the Company's Class A Common Stock was to be delisted in accordance with Marketplace Rules 4300 and 4450(f). NASDAQ indicated in its letter that the delisting determination followed its review of the Company's press release announcing that the Company had filed for bankruptcy protection. As a result of the notification, the fifth character 'Q' was appended to the Company's trading symbol, which changed from UAIR to UAIRQ at the opening of business on September 15, 2004.

     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 the securities of the Company.

ATSB Loan and Cash Collateral Agreement

     As part of its reorganization under the Prior Bankruptcy, US Airways received a $900 million loan guarantee (ATSB Guarantee) under the Air Transportation Safety and System Stabilization Act from the ATSB in connection with a $1 billion term loan financing (ATSB Loan) that was funded on March 31, 2003. The Company and US Airways required this loan and related guarantee in order to provide the additional liquidity necessary to carry out its 2003 Plan. US Airways is the primary obligor under the ATSB Loan, which is guaranteed by the Company and by each of the Company's other domestic subsidiaries. The ATSB Loan is secured by substantially all of the present and future assets of the Debtors not otherwise encumbered (including certain cash and investments accounts, previously unencumbered aircraft, aircraft engines, spare parts, flight simulators, real property, takeoff and landing slots, ground equipment and accounts receivable), other than certain specified assets, i ncluding assets which are subject to other financing agreements. As of September 30, 2004, $718 million is outstanding under the ATSB Loan. The ATSB Loan is reflected as a current liability on the accompanying balance sheet at a book value of $701 million, which is net of $17 million of unamortized discount, and is not subject to compromise. Therefore, on September 30, 2004, the Company's $757 million in unrestricted cash and short-term investments is available to support daily operations, subject to certain conditions and limitations, under the Cash Collateral Agreement described below.

     The ATSB Loan bears interest as follows: (i) 90% of the ATSB Loan (Tranche A) was funded through a participating lender's commercial paper conduit program and bears interest at a rate equal to the conduit provider's weighted average cost related to the issuance of certain commercial paper notes and other short-term borrowings plus 0.30%, and (ii) 10% of the ATSB Loan (Tranche B) bears interest at LIBOR plus 4.0%. In addition, US Airways is charged an annual guarantee fee in respect of the ATSB Guarantee currently equal to 4.1% of the ATSB's guaranteed amount (initially $900 million) under the ATSB Guarantee, with such guarantee fee increasing by ten basis points annually. Due to the Company's September 2004 bankruptcy filing and the subsequent loss of regional jet financing, the guarantee fee increased by 2% per annum and the interest rate on Tranche A and Tranche B increased by an additional 2% and 4% per annum, respectively, for an effective increase in the interest rate on the loan balance of 4%.

     As discussed above, the Company has entered into an agreement, with the approval of the Bankruptcy Court, for the conti