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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K.

ANNUAL REPORT PURSUANT TO SECTION 13

OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year ended December 31, 2002

or

For the transition period from                     to                     

US Airways, Inc.

(DEBTOR AND 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)

(703) 872-7000

(Registrant’s telephone number, including area code)

(Commission file number: 1-8442)

(I.R.S. Employer Identification No: 53-0218143)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ¨    No  x

There is currently no public market for the registrant’s Common Stock.

On February 28, 2003 there were outstanding 1,000 shares of Common Stock.

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US Airways, Inc.

Form 10-K

Year Ended December 31, 2002

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US Airways, Inc.

Form 10-K

Year Ended December 31, 2002

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Part I

Item 1. Business

Overview

US Airways, Inc. (US Airways or the Company) is a corporation organized under the laws of the State of Delaware and is a wholly-owned subsidiary of US Airways Group, Inc. (US Airways Group). US Airways is a certificated air carrier engaged primarily in the business of transporting passengers, property and mail. US Airways enplaned approximately 47 million passengers in 2002 and was the seventh largest U.S. air carrier (as ranked by revenue passenger miles (RPMs)). As of December 31, 2002, US Airways operated 280 jet aircraft (see Part I, Item 2 “Properties” for additional information related to aircraft operated by US Airways) and provided regularly scheduled service at 91 airports in the continental United States, Canada, Mexico, France, Germany, Italy, Spain, the Netherlands, the United Kingdom and the Caribbean. US Airways expects to begin service to Ireland in May 2003. US Airways’ executive offices are located at 2345 Crystal Drive, Arlington, Virginia 22227 (telephone number (703) 872-7000). US Airways’ internet address is www.usairways.com.

As discussed in more detail below, on August 11, 2002 (Petition Date), US Airways filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (Bankruptcy Code) in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division (Bankruptcy Court or Court) (Case No. 02-83985-SSM). On the same date, US Airways Group, US Airways’ parent company, and six of its other subsidiaries (collectively with US Airways, the Debtors) also filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors cases are being jointly administered under the caption “In re US Airways Group, Inc., et al., Case No. 02-83984-SSM.” US Airways continues to operate its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

US Airways has two reportable operating segments: US Airways and US Airways Express. The US Airways segment includes the operations of US Airways jet service. The US Airways Express segment only includes certain revenues and expenses related to US Airways Group’s wholly-owned regional airlines and from marketing agreements with three non-owned US Airways Express air carriers. US Airways accounted for approximately 83% of the Company’s operating revenues on a consolidated basis in 2002. The Company’s results are seasonal with operating results typically highest in the second and third quarters due to US Airways’ combination of business traffic and North-South leisure traffic in the eastern U.S. during those periods.

US Airways’ major connecting hubs are at airports in Charlotte, Philadelphia and Pittsburgh. US Airways also has substantial operations at Boston’s Logan International Airport (Logan), New York’s LaGuardia Airport (LaGuardia) and Washington’s Ronald Reagan Washington National Airport (Reagan National). Measured by departures, US Airways is among the largest at each of the foregoing airports and is the largest air carrier in many smaller eastern U.S. cities such as Buffalo, Hartford, Richmond, and Rochester. US Airways is also a leading airline from the Northeast U.S. to Florida. US Airways’ East coast-based hubs, combined with its strong presence at many East coast airports, have made it the largest intra-East coast carrier, comprising 35% of the industry’s intra-East coast revenues based on the most recent industry revenue data available.

Filings with the Securities and Exchange Commission (SEC) for US Airways, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are accessible free of charge at investor.usairways.com/edgar.cfm.

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Update on Chapter 11 Proceedings

Chapter 11 Reorganization

The following discussion provides general background information regarding the Debtors’ Chapter 11 cases, but is not intended to be an exhaustive summary. For additional information regarding the effect of these cases on the Debtors, investors should refer to the Bankruptcy Code and to the disclosure statement approved by the Bankruptcy Court on January 17, 2003 and filed with US Airways’ Current Report on Form 8-K, dated January 31, 2003 and filed with the SEC on February 4, 2003 (Disclosure Statement).

In response to a series of adverse events that led to severe financial losses, in mid-2002, US Airways’ management undertook a comprehensive restructuring effort to achieve cost competitiveness through economic concessions from key stakeholders, such as employees, aircraft lenders and lessors 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 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 outside of Chapter 11 of the Bankruptcy Code. Accordingly, faced with declining seasonal revenues and cash flow, the Company determined it was necessary to file for relief under Chapter 11 as a means of completing the restructuring process and putting the Company in a position to return to profitability.

On August 11, 2002, US Airways filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (Case No. 02-83985-SSM). On the same date, US Airways Group, US Airways’ parent company, and six of its other subsidiaries (collectively with US Airways, the Debtors) also filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors cases are being jointly administered under the caption “In re US Airways Group, Inc., et al., Case No. 02-83984-SSM.” The Debtors continue to operate their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

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; (d) honor obligations arising prior to the Petition Date related to the Company’s interline, clearinghouse, code sharing and other similar agreements; (e) pay certain pre-petition taxes and fees, including transportation excise taxes, payroll taxes and passenger facilities charges; and (f) pay certain other obligations. The Bankruptcy Court also gave interim approval for US Airways Group to borrow $75 million under a proposed $500 million senior secured debtor-in-possession financing facility provided by Credit Suisse First Boston, Cayman Islands Branch, and Bank of America, N.A., with participation from Texas Pacific Group (Original DIP Facility). At that time, US Airways Group also announced its entry into a memorandum of understanding with Texas Pacific Group (TPG) for a $200 million equity investment upon emergence from bankruptcy (the TPG MOU). Such proposed investment was subject to higher or otherwise better offers. As required by the Bankruptcy Code, the United States Trustee appointed an official committee of unsecured creditors (the Official Committee). The Official Committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court.

On September 25, 2002, each of the Debtors filed with the Bankruptcy Court their respective “Schedules of Assets and Liabilities and Statements of Financial Affairs” (Initial Schedules and Statements) and the corresponding explanatory notes (Explanatory Notes), which set forth, among

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other things, the assets and liabilities of the Debtors, subject to the assumptions contained in the Explanatory Notes. On December 2, 2002, certain of the Debtors filed amendments to the Initial Schedules and Statements to add certain new creditors thereto. The deadline for filing proofs of claim with the Bankruptcy Court was November 4, 2002 (General Bar Date), with a limited exception for governmental entities, which had until February 7, 2003 to file proofs of claim (Governmental Units Bar Date). The Debtors’ claims agent received approximately 4,500 timely-filed proofs of claims as of the General Bar Date totaling approximately $61 billion in the aggregate, and approximately 350 proofs of claims timely-filed by governmental entities totaling approximately $225 million in the aggregate. As is typical in reorganization cases, differences between amounts scheduled by the Debtors and claims by creditors are being investigated and resolved in connection with the claims resolution process. The aggregate amount of claims filed with the Bankruptcy Court far exceeds the Debtors’ estimate of such liability. The Debtors believe that many of these claims are duplicative, based upon contingencies that have not occurred, or otherwise are overstated, and are therefore invalid. The Plan of Reorganization (defined below) provides for a disputed claims resolution process. In light of the number of creditors of the Debtors, the claims resolution process may take considerable time to complete. Accordingly, the ultimate number and amount of allowed claims is not presently known. Until the disputed claims resolution process is finalized and the amount of allowed claims determined in connection therewith, distributions to general unsecured claimants under the Plan of Reorganization will not be made. On February 27, 2003, the Debtors filed an exhibit to its Plan of Reorganization listing the contracts that were assumed and rejected.

On September 26, 2002, after receiving an offer on September 25, 2002, US Airways Group entered into a definitive investment agreement with the Retirement Systems of Alabama to be the proposed Plan of Reorganization equity sponsor, superseding the TPG MOU. On January 17, 2003, US Airways Group and the Retirement Systems of Alabama entered into an amendment to the investment agreement (as amended, the RSA Investment Agreement) which provides that the Retirement Systems of Alabama Holdings LLC (RSA) will replace The Retirement Systems of Alabama as the investor under the RSA Investment Agreement. Under the RSA Investment Agreement, which is a keystone to the Plan of Reorganization, RSA will invest $240 million in cash and is expected to hold approximately 36.2%, on a fully-diluted basis, of the equity in, and the right to designate eight of 15 directors of, the reorganized US Airways Group immediately upon emergence from Chapter 11 pursuant to a confirmed plan of reorganization, as more fully described in the Disclosure Statement (the RSA Investment). Just as with the TPG MOU, the RSA Investment was subject to higher or otherwise better offers, to be solicited by the Debtors in accordance with the amended bidding procedures (Amended Bidding Procedures) approved by the Bankruptcy Court. The Amended Bidding Procedures established November 15, 2002 as the deadline for submission to the Debtors of competing plan proposals. No competing proposals were received by the Debtors and, accordingly, RSA was designated as the winning plan sponsor. US Airways Group also accepted a commitment from The Retirement Systems of Alabama for a fully-underwritten $500 million debtor-in-possession financing facility on substantially the same terms as the Original DIP Facility (RSA DIP Facility or DIP Facility). The RSA DIP Facility replaced the Original DIP Facility. See “Debtor-In-Possession Financing” and “RSA Investment” below for more information regarding the RSA DIP Facility and RSA Investment.

Under the Bankruptcy Code, the Debtors had the exclusive right for 120 days after the Petition Date to file a plan of reorganization and, if they did so, 60 additional days to obtain necessary acceptances of their plan. Such periods were subject to extension by the Bankruptcy Court for cause. On December 12, 2002, the Bankruptcy Court extended the Debtors’ exclusive period to propose a plan of reorganization (Filing Period) through January 31, 2003, and to solicit acceptances of such plan (Solicitation Period) through April 1, 2003. On February 20, 2003, the Bankruptcy Court once again extended the Filing Period and Solicitation Period through March 31, 2003 and May 30, 2003, respectively.

Bankruptcy law does not permit solicitation of votes on a reorganization plan until the Bankruptcy Court approves the applicable disclosure statement relating to the reorganization plan. On December 20, 2002, the Debtors filed the “Joint Plan of Reorganization of US Airways Group, Inc. and Affiliated Debtors and Debtors-in-Possession” and the related disclosure statement. On

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January 17, 2003, the Debtors filed the “First Amended Joint Plan of Reorganization of US Airways Group, Inc. and Affiliated Debtors and Debtors-in-Possession” (Plan of Reorganization) and related Disclosure Statement. On January 16 and January 17, 2003, the Bankruptcy Court held hearings on the Disclosure Statement and, on January 17, 2003, entered an order approving the Disclosure Statement as containing information adequate to enable creditors whose votes are being solicited to make an informed judgment whether to accept or reject the Plan of Reorganization and, among other things, authorized a balloting and solicitation process. That solicitation process commenced on January 31, 2003 when the Debtors mailed solicitation packages to creditors and concluded on March 10, 2003, which was the date by which creditors’ ballots were to be received by the Debtors’ voting agent in order to be counted. March 10, 2003 also marked the deadline by which objections to the Plan of Reorganization were to be filed with the Bankruptcy Court. In addition, the Bankruptcy Court scheduled March 18, 2003 as the date for commencement of a hearing on confirmation of the Plan of Reorganization.

The Plan of Reorganization constitutes a separate plan of reorganization for each of the Debtors. In accordance with the Bankruptcy Code, the Plan of Reorganization divides claims against, and interests in, each of the Debtors into classes (Classes of Claims and Interests) according to their relative seniority and other criteria and provides the same treatment for each claim or interest of a particular class unless the holder of a particular claim or interest agrees to a less favorable treatment of its claim or interest. Among other things, the Plan of Reorganization generally provides for full payment of all allowed administrative and priority claims, and the distribution of shares of new equity in reorganized US Airways Group to unsecured creditors of the Debtors in satisfaction of their allowed claims, which distribution is estimated to have a value, as disclosed in the Disclosure Statement, expected to be between 1.2 percent to 1.8 percent of total allowed unsecured claims. US Airways Group’s existing subordinated creditors and equity security holders are not entitled to any distribution under the Plan of Reorganization. Investors should refer to the Plan of Reorganization and the Disclosure Statement for a complete statement of its terms.

On March 18, 2003, the Bankruptcy Court entered an order confirming the Plan of Reorganization (Confirmation Order). While the Plan of Reorganization has been confirmed by the Bankruptcy Court, it has not yet been consummated. The Plan of Reorganization will be consummated on the business day determined by the Debtors on which all conditions to the consummation of the Plan of Reorganization have been satisfied or waived and is the day upon which the Plan of Reorganization is substantially consummated (the Effective Date). Provided that the conditions precedent to consummation are either satisfied or waived in accordance with the Plan of Reorganization, the Effective Date of the Plan of Reorganization is expected to occur on or about March 31, 2003, unless such date is extended by the Debtors. The following are the conditions precedent to the occurrence of the Effective Date: (i) the Bankruptcy Court shall have entered one or more orders (which may include the Confirmation Order) authorizing the assumption of unexpired leases and executory contracts by the Debtors as contemplated by the Plan of Reorganization; (ii) all conditions precedent to the funding under the RSA Investment Agreement shall have been satisfied or waived in accordance with the terms thereof and the funding under such agreement shall have occurred; (iii) the $900 million loan guarantee (ATSB Guarantee) from the Air Transportation Stabilization Board (Stabilization Board — see “ATSB Loan” below) shall have been executed and delivered by all of the parties thereto, and all conditions precedent to the consummation thereof shall have been waived or satisfied in accordance with the terms thereof, and funding as agreed upon under the ATSB Guarantee shall have occurred; (iv) the tentative agreements reached in December 2002, between US Airways and the employee groups represented by the Association of Flight Attendants, the Communication Workers of America, the International Association of Machinists and Aerospace Workers and the Transport Workers Union modifying earlier restructuring agreements to incorporate additional cost reductions shall have been ratified and executed by the parties thereto; (v) requisite actions shall have been taken such that the pension funding requirements with respect to the employee defined benefit pension plans maintained by US Airways shall be consistent with the pro forma financial projections appended to the Disclosure Statement; and (vi) the Confirmation Order shall remain unstayed. There can be no assurance that all conditions will be satisfied by March 31, 2003.

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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’ Chapter 11 filing automatically enjoined, or 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 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 were enjoined unless and until the Bankruptcy Court lifted 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 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 (Section 1110 Deadline), agree to perform all of the obligations (Section 1110 Agreement) under the lease, security agreement, or conditional sale contract 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) 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. Until the occurrence of the Effective Date, the provisions of section 1110 may materially impact the Debtors’ options with respect to its fleet optimization strategy.

In order to address the fleet-related issues raised by section 1110, the Debtors entered into various stipulations and agreements with their respective aircraft lessors and mortgagees including, but not limited to, stipulations to extend the section 1110 deadline (Section 1110 Deadline Extension) and Section 1110 Agreements. By March 31, 2003, the Debtors expect that every aircraft in the Debtors’ fleet will be subject to a restructuring agreement, a Section 1110 Agreement or a Section 1110 Deadline Extension, the agreement with respect to the aircraft will have been assumed, or such aircraft will have been abandoned or rejected. The Debtors may make further adjustments to their aircraft fleet consistent with the Plan of Reorganization and the Confirmation Order. As of December 31, 2002, US Airways had rejected or abandoned 75 aircraft including 51 aircraft that were parked prior to the Petition Date.

On January 30, 2003, the Debtors filed a motion requesting (i) a determination from the Bankruptcy Court that the Debtors satisfy the financial requirements for a “distress termination” of the defined benefit Retirement Income Plan for Pilots of US Airways, Inc. (Pilot Retirement Plan) under section 404(c)(2)(B)(ii)(IV) of the Employee Retirement Income Security Act of 1974, as amended, and approval of such pension plan’s termination and (ii) the authorization of the implementation of a defined contribution retirement plan for its pilots (Distress Termination Motion). A hearing on the Distress Termination Motion began on February 21, 2003 and continued thereafter from February 24 through March 1, 2003. On March 2, 2003, the Bankruptcy Court authorized the Debtors to terminate the Pilot Retirement Plan on March 31, 2003 subject to a determination, under the arbitration procedures established by the collective bargaining agreement and the Railway Labor Act, that the proposed termination does not violate the collective bargaining agreement between US Airways and the Air Line Pilots Association (ALPA). The Bankruptcy Court authorized US Airways to establish, effective as of the date of termination, a follow-on defined contribution retirement plan for the pilots of US Airways, on terms consistent with the letter agreement of December 13, 2002, between US Airways and ALPA. On March 21, 2003, the Company and ALPA reached agreement on a replacement pension plan to be effective April 1, 2003. The agreement was ratified by the ALPA Master Executive Council and is subject to approval by the Pension Benefit Guaranty Corporation (PBGC) and final approval by the Bankruptcy Court. On March 24, 2003, the Debtors filed a motion with the Bankruptcy Court seeking supplemental authority to implement the new defined contribution plan. The motion is expected to be heard on March 28, 2003. The Company anticipates receiving final PBGC approval prior to the proposed plan

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termination on March 31, 2003.

Debtor-In-Possession Financing

On September 26, 2002, the Bankruptcy Court approved US Airways Group’s designation of RSA as its proposed Plan of Reorganization equity sponsor and granted interim approval of the $500 million RSA DIP Facility on substantially the same terms as the Original DIP Facility. The Bankruptcy Court also granted US Airways Group the authority to borrow up to $300 million under the RSA DIP Facility. On September 27, 2002, US Airways Group borrowed $300 million under the RSA DIP Facility and used a portion of such funds to repay the $75 million that was outstanding under the Original DIP Facility. A final order approving the RSA DIP Facility was entered by the Bankruptcy Court on November 8, 2002. On March 7, 2003, an additional $69 million was borrowed under the RSA DIP Facility.

The RSA DIP Facility consists of a $250 million term loan facility and a $250 million revolving credit facility (with a $50 million letter of credit sub-facility) and is guaranteed by each of the Debtors (other than US Airways Group). The RSA 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. US Airways Group has the option of borrowing under the RSA DIP Facility at an interest rate of the prime rate plus 2.5% or LIBOR plus 4.0%.

The maturity date of the RSA DIP Facility is the earlier of the effective date of a plan of reorganization of the Debtors or September 30, 2003. The RSA DIP Facility may be accelerated upon the occurrence of an event of default under the RSA DIP Facility and contains customary mandatory prepayment events including, among other things, the occurrence of certain asset sales and the issuance of certain debt or equity securities.

The definitive documentation relating to the RSA DIP Facility contains covenants that require US Airways Group to satisfy ongoing financial requirements including operating results, cash receipts and liquidity. Such covenants also limit, among other things, the Debtors’ ability to borrow additional money, pay dividends and make additional corporate investments.

Under the RSA DIP Facility, borrowing availability is 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 borrowing availability under the RSA 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.

The remaining $131 million of availability under the RSA DIP Facility, subject to the limitation on borrowing availability discussed above, will be available to US Airways Group after certain conditions are met, including (i) the entry by the Bankruptcy Court of a final order approving the terms and conditions of the RSA DIP Facility documents; (ii) the minimum statutory and regulatory review periods shall have expired with respect to US Airways’ marketing agreements with United Air Lines, Inc. (United) and neither the U.S. Department of Transportation nor any other applicable governmental authority or third party has filed any material objection to such marketing agreements which has not been resolved; (iii) (a) the receipt of written confirmation from the Stabilization Board of its conditional approval for the ATSB Guarantee under the Air Transportation Safety and System Stabilization Act (Stabilization Act), subject to confirmation by the Bankruptcy Court of a plan of reorganization reasonably acceptable to the Stabilization Board, (b) the approval by the Stabilization Board of a substantially final draft of the plan of reorganization and disclosure statement to be filed in the cases, and (c) the Company demonstrating to the reasonable satisfaction of RSA that it is likely

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to satisfy all of the conditions to the issuance of the ATSB Guarantee; and (iv) banks, financial institutions and other institutional lenders satisfactory to the Company and RSA delivering commitments to lend at least the $100 million “at-risk” portion of the $1 billion Stabilization Board guaranteed loan. US Airways Group met the condition described in clause (i) above when the Bankruptcy Court entered a final order approving the RSA DIP Facility on November 8, 2002. With respect to the marketing agreements described in clause (ii) above, on October 2, 2002, the U.S. Department of Transportation announced that it had completed its review of US Airways’ marketing agreements with United and had determined to end the statutory waiting period for such agreements. US Airways Group met the conditions described in clauses (iii)(a) and (iii)(b) above when the Company received written confirmation from the Stabilization Board of its conditional approval of the ATSB Guarantee by letter on February 11, 2003 and the Plan of Reorganization, which was reasonably acceptable to the Stabilization Board, was confirmed by the Bankruptcy Court on March 18, 2003. US Airways Group met the condition in clause (iv) above when US Airways secured commitments from its “at-risk” lenders.

On March 20, 2003, US Airways Group notified RSA that it was not in compliance with a material financial covenant under the DIP Facility. Under the terms of the DIP Facility, RSA could exercise one or more remedies, including but not limited to, a cancellation of its commitment to lend under the DIP Facility as well as the right, upon five business days’ notice, to recover the collateral for the loan. The Company is in discussions with RSA regarding the funding of the remaining $131 million available under the DIP Facility and a potential waiver or standstill agreement while the Company completes the final stages of emergence from Chapter 11.

RSA Investment

The RSA Investment Agreement covers certain matters, including but not limited to, board composition, US Airways Group’s post-emergence capital structure and the replacement of the Retirement Systems of Alabama with the Retirement Systems of Alabama Holdings LLC as the investor under the RSA Investment Agreement. RSA will invest $240 million in cash and is expected to hold approximately 36.2%, on a fully-diluted basis, of the equity in the reorganized US Airways Group immediately upon emergence from Chapter 11 pursuant to the confirmed Plan of Reorganization. If the RSA Investment is consummated in accordance with its terms, RSA is expected to have a voting interest of approximately 71.6% in the reorganized US Airways Group immediately upon emergence from Chapter 11 pursuant to the confirmed Plan of Reorganization and would hold eight of 15 seats on US Airways Group’s Board of Directors. The RSA Investment is subject to customary conditions to closing as well as US Airways Group’s achievement of certain financial and operational benchmarks. The RSA Investment, if consummated, contemplates the cancellation of the common stock of US Airways Group (Common Stock).

Notice and Hearing Procedures for Trading in Claims and Equity Securities

In connection with US Airways Group’s bankruptcy filing, on August 12, 2002, the Bankruptcy Court entered an interim order (Interim NOL Order) to assist the Debtors in monitoring and preserving their net operating losses (NOLs) by imposing certain notice and hearing procedures on trading in (i) claims against the Debtors (Claims) or (ii) equity securities in US Airways Group. In general, the Interim NOL Order applied to any person or entity that, directly or indirectly, beneficially owns, or was about to enter into a transaction pursuant to which it would directly or indirectly beneficially own, (i) an aggregate principal amount of Claims equal to or exceeding $50 million (including a lease or leases under which one or more of the Debtors are lessees and pursuant to which payments of $50 million or more, in the aggregate, are or will become due) or (ii) three million or more shares of Common Stock. Under the Interim NOL Order, such persons or entities were required to provide 30 calendar days advance notice to the Court, the Debtors, and Debtors’ counsel prior to purchasing or selling any Claims or Common Stock, and the Debtors had 30 calendar days after receipt of such notice to object to any proposed transfer described therein. If the Debtors filed an objection, such transaction would not be effective unless approved by a final and nonappealable order of the Bankruptcy Court. If the Debtors did not object within such 30 day period, such transaction may have proceeded solely as set forth in the notice. Moreover, the Interim

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NOL Order required that any person or entity who, directly or indirectly, beneficially owned $50 million or more in Claims or three million or more shares of Common Stock file and serve a notice setting forth the size of their holdings on or before the later of (i) 40 days after the effective date of the notice of entry of the Interim NOL Order or (ii) 10 days after becoming such a beneficial owner. Pursuant to the Interim NOL Order, any purchase, sale or other transfer of Claims or equity securities in US Airways Group in violation of these procedures was null and void ab initio as an act in violation of the automatic stay under section 362 of the Bankruptcy Code.

After holding a final hearing on the Interim NOL Order on September 26, 2002, the Bankruptcy Court entered the final order on October 2, 2002 (Final NOL Order), which modified certain aspects of the Interim Order. The modifications include, among others, (i) an increase from $50 million to $100 million of the Claims threshold amount for determining which creditors are subject to the notice and objection procedures of the Final NOL Order and (ii) a decrease from 30 calendar days to 10 business days of the period during which the Debtors may object to a notice of proposed transfer of Claims or Common Stock. The Common Stock threshold amount for determining which equity holders are subject to the notice and objection procedures of the Final NOL Order remains unchanged from the Interim NOL Order.

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 (the ATSB Loan). US Airways applied for this loan and related guarantee in order to provide additional liquidity necessary to carry out its restructuring plan. On February 11, 2003, the Stabilization Board issued a letter to US Airways reaffirming its approval of the ATSB Guarantee, subject to certain conditions. The Stabilization Board’s conditions for 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, confirmation of the Plan of Reorganization by the Bankruptcy Court, a resolution of US Airways pension funding issue approved by the Pension Benefit Guarantee Corporation and, if necessary, the Bankruptcy Court, resolution of certain collateral issues, as well as customary closing documentation.

It is expected that the ATSB Loan will consist of a $1 billion term loan facility to US Airways, $900 million of which will be guaranteed by the Stabilization Board. The ATSB Loan will also be guaranteed by each of the Debtors (other than US Airways). The ATSB Loan will be secured by first priority liens on substantially all of the unencumbered present and future assets of the Debtors (including certain previously unencumbered aircraft, aircraft engines, spare parts, flight simulators, real property, takeoff and landing slots, ground equipment and accounts receivable), other than certain specified assets, including assets which are subject to other financing agreements. The ATSB Loan is expected to bear interest as follows: (i) 90% of the ATSB Loan will bear interest (a) if funded through a participating lender’s commercial paper conduit program, at a rate of interest equal to the conduit provider’s weighted average cost related to the issuance of certain commercial paper notes and other short-term borrowings plus 0.30% or (b) if not funded through such commercial paper conduit program, at a rate of interest equal to LIBOR plus 0.40% and (ii) 10% of the ATSB Loan will bear interest at LIBOR plus 4.0%. In addition, it is expected that US Airways will be charged an annual guarantee fee in respect of the ATSB Guarantee equal to 4.0% of the Stabilization Board’s exposure under the ATSB Guarantee, with such guarantee fee increasing by ten basis points annually. In addition, it is expected that the Stabilization Board will receive warrants that will enable it to purchase approximately 10% of the Company’s common stock on a fully diluted basis.

The maturity date of the ATSB Loan is expected to be six and one-half years following the funding date. In addition, it is expected that the ATSB Loan will require semi-annual amortization payments commencing in October 2006, each such amortization payment to be in the amount of $125 million, with a final scheduled principal payment of $250 million due on the maturity date of the ATSB Loan.

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The ATSB Loan will be subject to acceleration upon the occurrence of an event of default under the ATSB Loan and will contain mandatory prepayment events including, among other things, (i) the occurrence of certain asset sales and the issuance of certain debt or equity securities and (ii) from excess cash flow should the value of the collateral pledged in respect of the ATSB Loan decrease below a specified coverage level.

It is expected that the definitive documentation relating to the ATSB Loan will contain covenants that will require US Airways to satisfy ongoing financial requirements including operating results, fixed charge coverage and liquidity. Such covenants also limit, among other things, the Debtors’ ability to pay dividends, make additional corporate investments and acquisitions, enter into mergers and consolidations and modify certain concessions obtained as part of the Chapter 11 restructuring.

Definitive documentation for the ATSB Loan has not yet been completed and funding of the ATSB Loan is subject to certain conditions precedent which have not yet been satisfied. While the Company expects to satisfy such conditions in the near future, there is no assurance that it will satisfy such conditions.

Airline Industry and the Company’s Position in the Marketplace

Most of the markets in which US Airways operates are highly competitive. US Airways competes to varying degrees with other air carriers and with other forms of transportation. US Airways competes with at least one major airline on most of its routes between major cities. Airlines, including US Airways, typically use discount fares and other promotions to stimulate traffic during normally slack travel periods to generate cash flow and to maximize revenue per available seat mile. Discount and promotional fares are often non-refundable and subject to various restrictions such as minimum stay requirements, advance ticketing, limited seating and change fees. US Airways has often elected to match discount or promotional fares initiated by other air carriers in certain markets in order to compete in those markets. Competition between air carriers also involves certain route structure characteristics, such as flight frequencies, availability of nonstop flights, markets served and the time certain flights are operated. To a lesser extent, competition can involve other products, such as frequent flier programs and airport clubs. Despite numerous competitive pressures, the Company has remained the leading carrier at 71 of the 148 airports it serves on the East coast.

A substantial portion of US Airways flights are to or from cities in the eastern United States. Accordingly, severe weather, air traffic control problems and downturns in the economy in the eastern United States adversely affect US Airways Group’s results of operations and financial condition. With its concentration in the eastern United States, US Airways’ average stage length (i.e., trip distance) is shorter than those of other major airlines. This makes US Airways more susceptible than other major airlines to competition from surface transportation (e.g., automobile, trains, etc.).

US Airways considers the growth of low-cost competition and the growing presence of competitors’ regional jets in certain of its markets to be its foremost competitive threats. Recent years have seen the entrance and growth of low-cost competitors in many of the markets in which the Company operates. These competitors, based on low costs of operations and low-fare structures, include Southwest Airlines Co. (Southwest), AirTran Airways, Inc. and JetBlue Airways. Southwest has steadily increased operations within the eastern United States since first offering service in this region in late 1993. The Company anticipates further low-cost competition in the industry in the future.

Other major airlines have substantially increased the number of regional jets in the eastern United States. Regional jets are faster, quieter, more comfortable than turboprops and generally preferred by customers over turboprops. The Company continues to add regional jets to its fleet (see “US Airways Express Network” below); however, it continues to lose significant market share in markets where its turboprop affiliates compete with other major airline affiliates which operate regional jets.

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In August 2002, Continental Airlines, Delta Air Lines, and Northwest Airlines entered into a marketing alliance (CO/DL/NW Alliance). Implementation of that alliance is subject to a number of conditions imposed by the Department of Justice and the Department of Transportation (DOT). The carriers have objected to the DOT imposed conditions and indicated an intention to proceed without accepting them. However, to date, no substantive components of the alliance have been implemented and the carriers are in further discussion with the DOT. Should the CO/DL/NW Alliance be implemented without conditions similar to those indicated by the DOT, it could negatively impact the Company’s business and the benefits that the Company may ultimately realize from its own alliance with United, which is described below (See “Marketing Agreements with United Air Lines, Inc.”).

The growth of low cost carriers and the rise of price transparency due to the internet have resulted in continued pricing pressure for the Company. A decline in overall industry traffic since 2001 has also not been matched by an equivalent reduction in industry capacity, resulting in an oversupply situation that also has depressed yields. As fares have lowered and the range of fares has become more transparent, the gap between the lowest fares and the highest fares on any given route has come under increasing scrutiny. In response, the Company has undertaken several initiatives to modify the rules regarding the lowest priced tickets. In addition, several competitors have instituted revised fare structures centered on a lower fare for walk-up business travel. Given the Company’s route network and its corresponding dependence on business travelers, these new fare structures pose a threat to revenues to the extent that they encroach into the Company’s network.

In recent years, the Company’s profitability was significantly eroded by competitive pressures (including the incursion of both regional jets and low-cost carriers into its operating territories), unfavorable economic trends, and rising fuel and labor costs. The May 2000 proposed merger of United Air Lines, Inc. (United) and US Airways Group was designed to address this profitability erosion by adding US Airways Group into a global network. During the merger period, which ended in the termination of the agreement after failing to receive approval from the United States Department of Justice in late July 2001, the Company was precluded from restructuring its operations as a stand-alone carrier. Following the merger termination, the Company embarked on a phased, stand-alone restructuring plan to address the problems facing it; however, this plan was preempted by the September 11^th terrorist attacks.

US Airways was one of the airlines most significantly affected by the events of September 11^th. Not only were US Airways operations shut down entirely for three days in September, but Reagan National, at which US Airways is the largest carrier, was closed until October 4, 2001. Service was not fully restored there until May 2002. In addition, the East coast in general has been the part of the country most affected in the aftermath of the attacks. US Airways competes heavily with trains and automobiles as a result of their short-haul network and, as such, have been more affected than other airlines. The increased airport security charges and procedures have also had a disproportionate impact on short-haul travel.

In response to these adverse events, the Company, led by a new management team headed by David N. Siegel, who joined the Company in March 2002, implemented a plan to return the Company to profitability. The plan first required significant cost savings from key constituent groups including employees, vendors, aircraft lenders/lessors and financiers and other groups. Second, the plan sought to boost revenues and enhance competitiveness by the increased use of regional jets to service markets in an efficient manner. Finally, the Company sought to enhance revenues by entering into a strategic alliance for code sharing with domestic and international airlines. To obtain sufficient liquidity to implement the restructuring plan, the Company sought and obtained approval for a $1 billion, six and one-half year term loan, $900 million of which will be guaranteed by the federal government’s Stabilization Board, subject to certain conditions.

While the Company was able to successfully negotiate cost savings from many of its employee groups, the Company determined that it was unlikely to conclude consensual negotiations with all of the remaining labor groups, various vendors, aircraft lenders/lessors and financiers in a time frame necessary to complete an out-of-court restructuring. Factors contributing to this conclusion included the large number of lenders/lessors and financiers, the inability of trustees to modify payment terms

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of public equipment financings without the unanimous consent of holders of widely-held trust certificates and the Company’s inability to reject/abandon surplus aircraft leases, return excess aircraft and extinguish applicable obligations outside of Chapter 11. Faced with declining seasonal revenues, the Company filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code for it and its domestic subsidiaries to maximize their liquidity position and their prospects for a successful reorganization. As described above, on March 18, 2003 the Bankruptcy Court confirmed the Company’s Plan of Reorganization subject to certain conditions and the Company currently expects to complete its emergence on or about March 31, 2003.

On March 20, 2003, the Company announced that the formal commencement of military action against Iraq required the airline to take immediate steps to limit the war’s impact on its restructuring. The Company said it is evaluating actions that must be taken to actively manage the economic and operating challenges presented by the war. The Company also disclosed that its passenger bookings had been severely impacted as customers delayed or cancelled their travel plans, with transatlantic bookings the most heavily impacted. The Company noted that all of the airline’s labor contracts contain a provision that allows it to implement a 5 percent pay deferral for up to 18 months for all union, management and administrative employees, in conjunction with this military action. The Company is evaluating cost-reduction or deferral initiatives, with pay deferral and capacity reductions among the actions being considered.

US Airways Express Network

Certain air carriers have code share arrangements with US Airways to operate under the trade name “US Airways Express,” including US Airways Group’s wholly-owned regional airlines Allegheny, Piedmont and PSA. Typically, under a code share arrangement, one air carrier places its designator code and sells tickets on the flights of another air carrier (its code share partner). US Airways Express carriers are an integral component of the Company’s operating network. Due to the relatively small local traffic base at its hubs, US Airways relies heavily on feed traffic from its US Airways Express affiliates who carry passengers from low-density markets to US Airways’ hubs. As of December 2002, the US Airways Express network served 157 airports in the continental U.S., Canada and the Bahamas, including 46 airports also served by US Airways. During 2002, US Airways Express air carriers enplaned approximately 13 million passengers (of these approximately 7 million passengers were enplaned by US Airways Group’s wholly-owned regional airlines), approximately 58% of whom connected to US Airways Group’s flights. The Company uses its US Airways Express operations to feed connecting traffic at its hubs from low density markets that are uneconomical for US Airways to serve with large jets. In addition, US Airways Express operators offer complementary service in existing US Airways markets by operating flights in scheduling gaps between US Airways flights.

The US Airways Express code share arrangements are either in the form of a capacity purchase or a “prorate” agreement. The three regional wholly-owned airlines and the regional jet affiliate operators are capacity purchase relationships. The regional jet affiliates with a capacity purchase agreement are Chautauqua Airlines (Chautauqua), Mesa Airlines, Inc. (Mesa), Trans States Airlines, Inc. (Trans States), Midway Airlines Corporation (Midway) and Republic Airlines (Republic). The capacity purchase agreements provide that all revenues (passenger, mail and freight) go to US Airways. In return, US Airways agrees to pay predetermined fees to such airlines for operating an agreed number of aircraft, without regard to the number of passengers onboard. In addition, these agreements provide that certain variable costs, such as fuel and airport landing fees, be reimbursed 100% by US Airways. US Airways controls marketing, scheduling, ticketing, pricing and seat inventories. The regional jet capacity purchase agreements have expirations from 2008 to 2012 and provide for optional extensions at the Company’s discretion. The carriers with a prorate agreement are non-owned turboprop operators and include all or a portion of the turboprop operations of Colgan Airlines, Inc. (Colgan), Trans States, Shuttle Acquisition LLC (Shuttle America), and Air Midwest, Inc. (Air Midwest). The prorate agreements provide for affiliate carriers to pay certain service fees to US Airways as well as a prorated share of revenue for connecting customers. US Airways is responsible for pricing and marketing of connecting services to and from the prorate carrier. The prorate carrier is responsible for pricing and marketing the local, point to point markets. All

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US Airways Express carriers use US Airways’ reservation systems, logos, service marks, aircraft paint schemes and uniforms similar to US Airways.

US Airways’ agreements with its pilots provides that it may operate up to 465 regional jets, subject to certain restrictions. As of December 31, 2002, the regional jet affiliates operated 70 regional jets as US Airways Express. Additional regional jets up to 465 are subject to the “Jets for Jobs” protocol and related agreements with US Airways pilots. The Jets for Jobs protocol provides for 50% of new regional jet flight crew opportunities created as a result of increased use of regional jets at US Airways to be offered to furloughed US Airways pilots. The Jets for Jobs protocol requires consensus by the pilots union at each regional carrier where additional regional jets will be flown. Allegheny, PSA, Piedmont, Mesa and Midway pilots have all agreed to Jets for Jobs.

In an attempt to boost revenues and enhance competitiveness, the Company has begun to implement a key component to its overall restructuring plan - increased use of regional jets. To this end, in October 2002, US Airways reached agreement with Mesa to fly 20 additional 50-seat regional jets as part of the US Airways Express network. Some of these additional Mesa aircraft started flying in February 2003 and all are expected to enter service during calendar year 2003. In December 2002, US Airways reached an agreement with Midway to fly 18 50-seat regional jets as part of the US Airways Express network. These aircraft began to enter service in January 2003 and all such new service is expected to be complete during 2003. In December 2002, US Airways and Chautauqua reached an agreement to fly an additional nine regional jet aircraft that will enter into service in the second half of 2003. Also, US Airways and Republic agreed to a new Jet Service Agreement that provides for an additional 23 regional jets that will enter service in 2003 and 2004. Both the Chautauqua and the Republic agreements remain contingent on Jets for Job-related pilot provisions. An agreement between US Airways and Midway provides for a US Airways option, at its sole discretion, to add up to 48 additional aircraft. In connection with the Midway agreement, the Company has provided debtor-in-possession financing to Midway and will receive a substantial equity stake in the reorganized Midway, subject to consummation of binding agreements and completion of Midway’s reorganization.

The additional Mesa, Midway, Chautauqua and Republic regional jets are subject to certain conditions, including but not limited to, aircraft availability, the affiliate’s ability to finance the additional aircraft at agreed upon economic terms, and in the case of Chautauqua and Republic, each remains contingent upon a pilot agreement on Jets for Jobs. In addition, US Airways’ pilots have filed a grievance with the Company with respect to the interpretation and implementation of provisions of the Jets for Jobs protocol at Mesa. Because each of these situations is subject to an agreement on labor practices or economic terms by multiple parties, the implementation of the Company’s restructuring plan with respect to increased use of regional jets could be adversely affected.

Marketing Agreements with United Air Lines, Inc.

US Airways reached comprehensive marketing agreements with United in July 2002. The agreements received approvals from the pilot unions for both US Airways and United. The Department of Transportation announced on October 2, 2002, that it had concluded its review of the agreements. These agreements are in the process of being implemented. Once fully implemented, US Airways and United passengers will be able to contact either airline and make a single reservation that involves travel on either or both airlines (code share travel) through new streamlined ticketing, baggage handling and check-in procedures. In addition, US Airways and United customers have the opportunity to earn Dividend Miles and Mileage Plus Miles on both airlines and members of either airlines’ airport club may access both airline’s airport clubs under certain conditions. US Airways and United customers will also have the opportunity to redeem Dividend Miles and Mileage Plus awards on both airlines. The first elements of the marketing agreements began October 14, 2002, with the introduction of reciprocal airport lounge access between the two carriers’ club programs, as well as interline electronic ticketing. The ability for passengers to earn frequent flier miles on flights operated by either of the two airlines began November 1, 2002. The first code share flights began in January of 2003.

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United, as well as its parent company, UAL Corporation (UAL), and certain of its affiliates, filed for protection under Chapter 11 of the Bankruptcy Code on December 9, 2002. United requested bankruptcy court authority immediately to assume these agreements and the court granted United’s request.

Restructuring Cost Savings

The Company has projected total savings from its restructuring efforts averaging approximately $1.9 billion per year for US Airways Group over the period through 2008. Savings are comprised of employee cost reductions, restructured aircraft obligations, and other savings from vendors and affiliates and from process reengineering benefits. Employee cost reductions are expected to yield approximately $1.0 billion in annual savings as a result of pay and benefit reductions and changes in work rules. These savings estimates include the impact of contractual and inflationary cost increases that would have occurred during this period. Restructured aircraft obligations and changes in the mix of the operating fleet are expected to generate $460 million to $500 million in average annual savings and changes in vendor contracts, management concessions, and process reengineering initiatives are expected to generate at least $400 million in annual savings. For 2003, however, the improvement in expenses is expected to be approximately $1.5 billion compared to pre-restructured 2003 expenses due to timing and other differences in certain cash costs as compared to expenses. The estimated savings are subject to change with changes in the Company’s operating environment and level of operations over the forecast period.

Industry Regulation and Airport Access

US Airways operates under a certificate of public convenience and necessity issued by the DOT. This certificate may be altered, amended, modified or suspended by the DOT if the public convenience and necessity so require, or may be revoked for failure to comply with the terms and conditions of the certificate. Airlines are also regulated by the U.S. Federal Aviation Administration (FAA), a division of the DOT, primarily in the areas of flight operations, maintenance, ground facilities and other technical matters. Pursuant to these regulations, the Company has FAA-approved maintenance programs for each type of aircraft it operates that provide for the ongoing maintenance of such aircraft, ranging from periodic routine inspections to major overhauls. From time-to-time, the FAA issues airworthiness directives and other regulations affecting the Company or one or more of the aircraft types it operates. In recent years, for example, the FAA has issued or proposed such mandates relating to, among other things, expanded flight data recorder parameters; cargo hold smoke detection/fire suppression systems; enhanced ground proximity warning systems; fuselage pressure bulkhead reinforcement; fuselage lap joint inspection rework; increased inspections and maintenance procedures to be conducted on certain aircraft; increased cockpit security; fuel quality system improvements; and domestic reduced vertical separation.

The DOT allows local airport authorities to implement procedures designed to abate special noise problems, provided such procedures do not unreasonably interfere with interstate or foreign commerce or the national transportation system. Certain locales, including Boston, Washington, D.C., Chicago, San Diego, San Francisco and Orange County (California), among others, have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of such operations. In some instances these restrictions have caused curtailments in services or increases in operating costs and such restrictions could limit the ability of US Airways to expand its operations at the affected airports. Authorities at other airports may consider adopting similar noise regulations.

The airline industry is also subject to increasingly stringent federal, state and local laws protecting the environment. Future regulatory developments could affect operations and increase operating costs for the airline industry, including the Company.

The Company is obligated to collect a federal excise tax on domestic and international air transportation (commonly referred to as the “ticket tax”). The Company collects these taxes, along with certain other U.S. and foreign taxes and user fees on air transportation, and passes through the

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collected amounts to the appropriate governmental agencies. Although such taxes are not operating expenses to the Company, they represent an additional cost to the Company’s customers.

The Aviation and Transportation Security Act (Security Act) was enacted in November 2001. Under the Security Act, substantially all aspects of civil aviation passenger security screening were federalized and a new Transportation Security Administration (TSA) under the DOT was created. The TSA was then transferred to the Department of Homeland Security pursuant to the Homeland Security Act of 2002. The Security Act, among other matters, mandates improved flight deck security; carriage at no charge of federal air marshals; enhanced security screening of passengers, baggage, cargo, mail, employees and vendors; enhanced security training; regulations issued in connection therewith require fingerprint-based background checks of all employees and vendor employees with access to secure areas of airports; and provision of passenger data to U.S. Customs. Funding for the TSA is provided by a new fee collected by air carriers from their passengers of $2.50 per flight, but not more than $5.00 per one-way trip, and a new fee on air carriers that is limited to the amount