Attached files
file | filename |
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EX-2.1 - EXHIBIT 2.1 - US AIRWAYS GROUP INC | c91298exv2w1.htm |
EX-3.1 - EXHIBIT 3.1 - US AIRWAYS GROUP INC | c91298exv3w1.htm |
EX-10.1 - EXHIBIT 10.1 - US AIRWAYS GROUP INC | c91298exv10w1.htm |
EX-32.2 - EXHIBIT 32.2 - US AIRWAYS GROUP INC | c91298exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - US AIRWAYS GROUP INC | c91298exv31w1.htm |
EX-10.5 - EXHIBIT 10.5 - US AIRWAYS GROUP INC | c91298exv10w5.htm |
EX-31.4 - EXHIBIT 31.4 - US AIRWAYS GROUP INC | c91298exv31w4.htm |
EX-10.4 - EXHIBIT 10.4 - US AIRWAYS GROUP INC | c91298exv10w4.htm |
EX-31.3 - EXHIBIT 31.3 - US AIRWAYS GROUP INC | c91298exv31w3.htm |
EX-32.1 - EXHIBIT 32.1 - US AIRWAYS GROUP INC | c91298exv32w1.htm |
EX-10.3 - EXHIBIT 10.3 - US AIRWAYS GROUP INC | c91298exv10w3.htm |
EX-31.2 - EXHIBIT 31.2 - US AIRWAYS GROUP INC | c91298exv31w2.htm |
EX-10.2 - EXHIBIT 10.2 - US AIRWAYS GROUP INC | c91298exv10w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2009
or
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
US Airways Group, Inc.
(Exact name of registrant as specified in its charter)
(Commission File No. 1-8444)
54-1194634 (IRS Employer Identification No.)
54-1194634 (IRS Employer Identification No.)
111 West Rio Salado Parkway, Tempe, Arizona 85281
(Address of principal executive offices, including zip code)
(Address of principal executive offices, including zip code)
US Airways, Inc.
(Exact name of registrant as specified in its charter)
(Commission File No. 1-8442)
53-0218143 (IRS Employer Identification No.)
53-0218143 (IRS Employer Identification No.)
111 West Rio Salado Parkway, Tempe, Arizona 85281
(Address of principal executive offices, including zip code)
(Address of principal executive offices, including zip code)
(480) 693-0800
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Delaware
(State of Incorporation of all Registrants)
(State of Incorporation of all Registrants)
Indicate by check mark whether each 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 þ No o
Indicate by check mark whether each registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
US Airways Group, Inc.
|
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | ||||
US Airways, Inc.
|
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
US Airways Group, Inc.
|
Yes | o | No | þ | ||||
US Airways, Inc.
|
Yes | o | No | þ |
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.
US Airways Group, Inc.
|
Yes | þ | No | o | ||||
US Airways, Inc.
|
Yes | þ | No | o |
As of October 16, 2009, there were approximately 161,102,717 shares of US Airways Group, Inc.
common stock outstanding.
As of October 16, 2009, US Airways, Inc. had 1,000 shares of common stock outstanding, all of which
were held by US Airways Group, Inc.
US Airways Group, Inc.
US Airways, Inc.
Form 10-Q
Quarterly Period Ended September 30, 2009
Table of Contents
US Airways, Inc.
Form 10-Q
Quarterly Period Ended September 30, 2009
Table of Contents
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Exhibit 2.1 | ||||||||
Exhibit 3.1 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 10.2 | ||||||||
Exhibit 10.3 | ||||||||
Exhibit 10.4 | ||||||||
Exhibit 10.5 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 31.3 | ||||||||
Exhibit 31.4 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
Table of Contents
This combined Quarterly Report on Form 10-Q is filed by US Airways Group, Inc. (US Airways
Group) and its wholly owned subsidiary US Airways, Inc. (US Airways). References in this Form
10-Q to we, us, our and the Company refer to US Airways Group and its consolidated
subsidiaries.
Note Concerning Forward-Looking Statements
Certain of the statements contained in this report should be considered forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements may be identified by words such as may, will, expect, intend,
anticipate, believe, estimate, plan, project, could, should, and continue and
similar terms used in connection with statements regarding, among others, our outlook, expected
fuel costs, the revenue environment, and our expected financial performance. These statements
include, but are not limited to, statements about the benefits of the business combination
transaction involving America West Holdings Corporation (America West Holdings) and US Airways
Group, including future financial and operating results, our plans, objectives, expectations and
intentions and other statements that are not historical facts. These statements are based upon the
current beliefs and expectations of management and are subject to significant risks and
uncertainties that could cause our actual results and financial position to differ materially from
these statements. These risks and uncertainties include, but are not limited to, those described
below under Part II, Item 1A Risk Factors, and the following:
| the impact of future significant operating losses; |
| economic conditions and their impact on passenger demand and related revenues; |
| a reduction in the availability of financing and changes in prevailing interest rates
that result in increased costs of financing; |
| our high level of fixed obligations and our ability to obtain and maintain financing for
operations and other purposes and operate pursuant to the terms of our financing facilities
(particularly the financial covenants); |
| the impact of fuel price volatility, significant disruptions in the supply of aircraft
fuel and further significant increases to fuel prices; |
| our ability to maintain adequate liquidity; |
| labor costs and relations with unionized employees generally and the impact and outcome
of labor negotiations, including our ability to complete the integration of the labor groups
of US Airways Group and America West Holdings; |
| our reliance on vendors and service providers and our ability to obtain and maintain
commercially reasonable terms with those vendors and service providers; |
| our reliance on automated systems and the impact of any failure or disruption of these
systems; |
| the impact of the integration of our business units; |
| the impact of changes in our business model; |
| competitive practices in the industry, including significant fare restructuring
activities, capacity reductions and in court or out of court restructuring by major
airlines; |
| the impact of industry consolidation; |
| our ability to attract and retain qualified personnel; |
| the impact of global instability, including the current instability in the Middle East,
the continuing impact of the military presence in Iraq and Afghanistan and the terrorist
attacks of September 11, 2001 and the potential impact of future hostilities, terrorist
attacks, infectious disease outbreaks or other global events that affect travel behavior; |
| changes in government legislation and regulation; |
| our ability to obtain and maintain adequate facilities and infrastructure to operate and
grow our route network; |
| the impact of environmental laws and regulations; |
3
Table of Contents
| costs of ongoing data security compliance requirements and the impact of any data
security breach; |
| interruptions or disruptions in service at one or more of our hub airports; |
| the impact of any accident involving our aircraft; |
| delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity; |
| the impact of weather conditions and seasonality of airline travel; |
| the cyclical nature of the airline industry; |
| the impact of possible future increases in insurance costs and disruptions to insurance
markets; |
| the impact of foreign currency exchange rate fluctuations; |
| our ability to use NOLs and certain other tax attributes; |
| our ability to maintain contracts that are critical to our operations; |
| our ability to attract and retain customers; and |
| other risks and uncertainties listed from time to time in our reports to and filings with
the Securities and Exchange Commission. |
All of the forward-looking statements are qualified in their entirety by reference to the
factors discussed in Part II, Item 1A Risk Factors and elsewhere in this Form 10-Q. There may be
other factors of which we are not currently aware that may affect matters discussed in the
forward-looking statements and may also cause actual results to differ materially from those
discussed. We assume no obligation to publicly update or supplement any forward-looking statement
to reflect actual results, changes in assumptions or changes in other factors affecting these
estimates other than as required by law. Any forward-looking statements speak only as of the date
of this Form 10-Q or as of the dates indicated in the statements.
Part I. Financial Information
This combined Form 10-Q is filed by US Airways Group and US Airways and includes the financial
statements of each company in Item 1A and Item 1B, respectively.
4
Table of Contents
Item 1A. | Condensed Consolidated Financial Statements of US Airways Group, Inc. |
US Airways Group, Inc.
Condensed Consolidated Statements of Operations
(In millions, except share and per share amounts)
(Unaudited)
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Operating revenues: |
||||||||||||||||
Mainline passenger |
$ | 1,757 | $ | 2,197 | $ | 5,092 | $ | 6,364 | ||||||||
Express passenger |
662 | 771 | 1,856 | 2,230 | ||||||||||||
Cargo |
23 | 37 | 67 | 111 | ||||||||||||
Other |
277 | 256 | 817 | 652 | ||||||||||||
Total operating revenues |
2,719 | 3,261 | 7,832 | 9,357 | ||||||||||||
Operating expenses: |
||||||||||||||||
Aircraft fuel and related taxes |
534 | 1,110 | 1,353 | 3,018 | ||||||||||||
Loss (gain) on fuel hedging instruments, net |
2 | 420 | 7 | (80 | ) | |||||||||||
Salaries and related costs |
553 | 567 | 1,653 | 1,701 | ||||||||||||
Express expenses |
654 | 844 | 1,882 | 2,400 | ||||||||||||
Aircraft rent |
171 | 183 | 523 | 544 | ||||||||||||
Aircraft maintenance |
174 | 188 | 532 | 601 | ||||||||||||
Other rent and landing fees |
148 | 137 | 422 | 424 | ||||||||||||
Selling expenses |
99 | 120 | 291 | 340 | ||||||||||||
Special items, net |
15 | 8 | 22 | 67 | ||||||||||||
Depreciation and amortization |
63 | 52 | 185 | 159 | ||||||||||||
Goodwill impairment |
| | | 622 | ||||||||||||
Other |
300 | 321 | 859 | 982 | ||||||||||||
Total operating expenses |
2,713 | 3,950 | 7,729 | 10,778 | ||||||||||||
Operating income (loss) |
6 | (689 | ) | 103 | (1,421 | ) | ||||||||||
Nonoperating income (expense): |
||||||||||||||||
Interest income |
5 | 19 | 17 | 69 | ||||||||||||
Interest expense, net |
(81 | ) | (58 | ) | (229 | ) | (176 | ) | ||||||||
Other, net |
(10 | ) | (135 | ) | (16 | ) | (140 | ) | ||||||||
Total nonoperating expense, net |
(86 | ) | (174 | ) | (228 | ) | (247 | ) | ||||||||
Loss before income taxes |
(80 | ) | (863 | ) | (125 | ) | (1,668 | ) | ||||||||
Income tax provision |
| 3 | | 3 | ||||||||||||
Net loss |
$ | (80 | ) | $ | (866 | ) | $ | (125 | ) | $ | (1,671 | ) | ||||
Loss per common share: |
||||||||||||||||
Basic loss per common share |
$ | (0.60 | ) | $ | (8.46 | ) | $ | (1.01 | ) | $ | (17.50 | ) | ||||
Diluted loss per common share |
$ | (0.60 | ) | $ | (8.46 | ) | $ | (1.01 | ) | $ | (17.50 | ) | ||||
Shares used for computation (in thousands): |
||||||||||||||||
Basic |
132,985 | 102,406 | 123,632 | 95,522 | ||||||||||||
Diluted |
132,985 | 102,406 | 123,632 | 95,522 |
See accompanying notes to the condensed consolidated financial statements.
5
Table of Contents
US Airways Group, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share and per share amounts)
(Unaudited)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 1,242 | $ | 1,034 | ||||
Investments in marketable securities |
| 20 | ||||||
Restricted cash |
| 186 | ||||||
Accounts receivable, net |
341 | 293 | ||||||
Materials and supplies, net |
237 | 201 | ||||||
Prepaid expenses and other |
485 | 684 | ||||||
Total current assets |
2,305 | 2,418 | ||||||
Property and equipment |
||||||||
Flight equipment |
3,820 | 3,157 | ||||||
Ground property and equipment |
887 | 816 | ||||||
Less accumulated depreciation and amortization |
(1,109 | ) | (954 | ) | ||||
3,598 | 3,019 | |||||||
Equipment purchase deposits |
322 | 267 | ||||||
Total property and equipment |
3,920 | 3,286 | ||||||
Other assets |
||||||||
Other intangibles, net of accumulated amortization of $107 million and $87 million, respectively |
525 | 545 | ||||||
Restricted cash |
530 | 540 | ||||||
Investments in marketable securities |
228 | 187 | ||||||
Other assets |
236 | 238 | ||||||
Total other assets |
1,519 | 1,510 | ||||||
Total assets |
$ | 7,744 | $ | 7,214 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
Current liabilities |
||||||||
Current maturities of debt and capital leases |
$ | 491 | $ | 362 | ||||
Accounts payable |
347 | 797 | ||||||
Air traffic liability |
852 | 698 | ||||||
Accrued compensation and vacation |
193 | 158 | ||||||
Accrued taxes |
138 | 142 | ||||||
Other accrued expenses |
836 | 887 | ||||||
Total current liabilities |
2,857 | 3,044 | ||||||
Noncurrent liabilities and deferred credits |
||||||||
Long-term debt and capital leases, net of current maturities |
4,135 | 3,623 | ||||||
Deferred gains and credits, net |
360 | 383 | ||||||
Postretirement benefits other than pensions |
103 | 108 | ||||||
Employee benefit liabilities and other |
549 | 550 | ||||||
Total noncurrent liabilities and deferred credits |
5,147 | 4,664 | ||||||
Commitments and contingencies |
||||||||
Stockholders deficit |
||||||||
Common stock, $0.01 par value; 400,000,000 shares authorized, 161,518,096 and 161,102,048
shares issued and outstanding at September 30, 2009; 114,527,377 and 114,113,384 shares issued
and outstanding at December 31, 2008 |
2 | 1 | ||||||
Additional paid-in capital |
2,103 | 1,789 | ||||||
Accumulated other comprehensive income |
109 | 65 | ||||||
Accumulated deficit |
(2,461 | ) | (2,336 | ) | ||||
Treasury stock, common stock, 416,048 and 413,993 shares at September 30, 2009 and December 31,
2008 |
(13 | ) | (13 | ) | ||||
Total stockholders deficit |
(260 | ) | (494 | ) | ||||
Total liabilities and stockholders deficit |
$ | 7,744 | $ | 7,214 | ||||
See accompanying notes to the condensed consolidated financial statements.
6
Table of Contents
US Airways Group, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2009 | 2008 | |||||||
Net cash provided by (used in) operating activities |
$ | 130 | $ | (583 | ) | |||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(676 | ) | (755 | ) | ||||
Purchases of marketable securities |
| (299 | ) | |||||
Sales of marketable securities |
20 | 416 | ||||||
Proceeds from sale of other investments |
| 3 | ||||||
Decrease (increase) in long-term restricted cash |
10 | (117 | ) | |||||
Proceeds from dispositions of property and equipment |
55 | 17 | ||||||
Increase in equipment purchase deposits |
(55 | ) | (97 | ) | ||||
Net cash used in investing activities |
(646 | ) | (832 | ) | ||||
Cash flows from financing activities: |
||||||||
Repayments of debt and capital lease obligations |
(271 | ) | (205 | ) | ||||
Proceeds from issuance of debt |
803 | 669 | ||||||
Deferred financing costs |
(11 | ) | (8 | ) | ||||
Proceeds from issuance of common stock, net |
203 | 179 | ||||||
Net cash provided by financing activities |
724 | 635 | ||||||
Net increase (decrease) in cash and cash equivalents |
208 | (780 | ) | |||||
Cash and cash equivalents at beginning of period |
1,034 | 1,948 | ||||||
Cash and cash equivalents at end of period |
$ | 1,242 | $ | 1,168 | ||||
Non-cash investing and financing activities: |
||||||||
Note payables issued for aircraft purchases |
$ | 136 | $ | | ||||
Interest payable converted to debt |
29 | | ||||||
Maintenance payable converted to debt |
13 | | ||||||
Net unrealized gain on available for sale securities |
(51 | ) | | |||||
Supplemental information: |
||||||||
Interest paid |
$ | 165 | $ | 173 | ||||
Income taxes paid |
| |
See accompanying notes to the condensed consolidated financial statements.
7
Table of Contents
US Airways Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of US Airways Group,
Inc. (US Airways Group or the Company) should be read in conjunction with the financial
statements contained in US Airways Groups Annual Report on Form 10-K for the year ended December
31, 2008. The accompanying unaudited condensed consolidated financial statements include the
accounts of US Airways Group and its wholly owned subsidiaries. Wholly owned subsidiaries include
US Airways, Inc. (US Airways), Piedmont Airlines, Inc. (Piedmont), PSA Airlines, Inc. (PSA),
Material Services Company, Inc. (MSC) and Airways Assurance Limited, LLC (AAL). All significant
intercompany accounts and transactions have been eliminated.
Management believes that all adjustments necessary for the fair presentation of results,
consisting of normally recurring items, have been included in the unaudited condensed consolidated
financial statements for the interim periods presented. Certain prior year amounts have been
reclassified to conform with the 2009 presentation. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The principal areas of judgment relate to passenger
revenue recognition, impairment of long-lived and intangible assets, valuation of investments in
marketable securities, the frequent traveler program and the deferred tax valuation allowance.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles A Replacement of FASB Statement No. 162.
SFAS No. 168 establishes the FASB Accounting Standards Codification (the Codification) as the
single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. Effective July 1, 2009, the
Codification superseded all existing non-SEC accounting and reporting standards.
In May 2008, the FASB issued FASB Staff Position (FSP) Accounting Principles Board (APB)
14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement), as adopted by the Codification on July 1, 2009. FSP APB 14-1
applies to convertible debt instruments that, by their stated terms, may be settled in cash (or
other assets) upon conversion, including partial cash settlement of the conversion option. FSP APB
14-1 requires bifurcation of the instrument into a debt component that is initially recorded at
fair value and an equity component. The difference between the fair value of the debt component and
the initial proceeds from issuance of the instrument is recorded as a component of equity. The
liability component of the debt instrument is accreted to par using the effective yield method;
accretion is reported as a component of interest expense. The equity component is not subsequently
re-valued as long as it continues to qualify for equity treatment. FSP APB 14-1 must be applied
retrospectively to previously issued cash-settleable convertible instruments as well as
prospectively to newly issued instruments. FSP APB 14-1 is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years.
In September 2005, the Company issued a total of $144 million principal amount of 7% Senior
Convertible Notes due 2020 (the 7% notes). As of September 30, 2009, $74 million of principal
amount remained outstanding under the 7% notes. The holders of these notes may convert, at any time
prior to the earlier of the business day prior to the redemption date and the second business day
preceding the maturity date, any outstanding notes (or portions thereof) into shares of the
Companys common stock, at an initial conversion rate of 41.4508 shares of common stock per $1,000
principal amount of notes (equivalent to an initial conversion price of approximately $24.12 per
share). In lieu of delivery of shares of common stock upon conversion of all or any portion of the
7% notes, the Company may elect to pay cash or a combination of shares and cash to holders
surrendering notes for conversion. The 7% notes are subject to the provisions of FSP APB 14-1 since
the 7% notes can be settled in cash upon conversion.
8
Table of Contents
The Company adopted FSP APB 14-1 on January 1, 2009. The Company concluded that the fair value
of the equity component of the 7% notes at the time of issuance in 2005 was $47 million. Upon
retrospective application, the adoption resulted in a $29 million increase in accumulated deficit
at December 31, 2008, comprised of non-cash interest expense of $17 million for the years 2005-2008
and non-cash losses on debt extinguishment of $12 million related to the partial conversion of
certain of the 7% notes to common stock in 2006. As of September 30, 2009 and December 31, 2008,
the carrying value of the equity component was $40 million. The principal amount of the outstanding
notes, the unamortized discount and the net carrying value at September 30, 2009 was $74 million,
$7 million and $67 million, respectively, and at December 31, 2008 was $74 million, $11 million and
$63 million, respectively. The remaining period over which the unamortized discount will be
recognized is one year. The Company recognized $1 million and $4 million in non-cash interest
expense in the
three and nine months ended September 30, 2009, respectively, and $1 million and $3 million in
the three and nine months ended September 30, 2008, respectively, related to the adoption of FSP
APB 14-1. In addition, the Company recognized $2 million and $4 million in cash interest expense in
the three and nine months ended September 30, 2009, respectively, and $2 million and $4 million in
cash interest expense in the three and nine months ended September 30, 2008, respectively. The
following table presents the December 31, 2008 balance sheet line items affected as adjusted and as
originally reported (in millions).
December 31, 2008 | ||||||||
As Adjusted | As Reported | |||||||
Long-term debt and capital leases, net of current maturities |
$ | 3,623 | $ | 3,634 | ||||
Additional paid-in capital |
1,789 | 1,749 | ||||||
Accumulated deficit |
(2,336 | ) | (2,307 | ) |
In April 2009, the FASB issued FSP Financial Accounting Standards (FAS) 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments, as adopted by the Codification
on July 1, 2009. This FSP changes existing guidance for determining whether an impairment of debt
securities is other-than-temporary. The FSP requires other-than-temporary impairments to be
separated into the amount representing the decrease in cash flows expected to be collected from a
security (referred to as credit losses) which is recognized in earnings and the amount related to
other factors (referred to as noncredit losses) which is recognized in other comprehensive income.
This noncredit loss component of the impairment may only be classified in other comprehensive
income if both of the following conditions are met (a) the holder of the security concludes that it
does not intend to sell the security and (b) the holder concludes that it is more likely than not
that the holder will not be required to sell the security before the security recovers its value.
If these conditions are not met, the noncredit loss must also be recognized in earnings. When
adopting the FSP, an entity is required to record a cumulative effect adjustment as of the
beginning of the period of adoption to reclassify the noncredit component of a previously
recognized other-than-temporary impairment from retained earnings to accumulated other
comprehensive income. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods
ending after June 15, 2009. The Company adopted FSP FAS 115-2 and FAS 124-2 as of April 1, 2009.
The Company does not meet the conditions necessary to recognize the noncredit loss component of its
auction rate securities in other comprehensive income. Accordingly, the Company did not reclassify
any previously recognized other-than-temporary impairment losses from retained earnings to
accumulated other comprehensive income and the adoption of FSP FAS 115-2 and FAS 124-2 had no
material impact on the Companys condensed consolidated financial statements. Refer to Note 8 for
further discussion of the Companys investments in marketable securities.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, as adopted by the Codification on July 1, 2009. This FSP
provides additional guidance on estimating fair value when the volume and level of activity for an
asset or liability have significantly decreased in relation to normal market activity for the asset
or liability. The FSP also provides additional guidance on circumstances that may indicate that a
transaction is not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after
June 15, 2009. The Company adopted FSP FAS 157-4 during the second quarter of 2009, and its
application had no impact on the Companys condensed consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, as adopted by the Codification
on July 1, 2009, which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before the financial statements are issued or are
available to be issued. SFAS No. 165 provides guidance on the period after the balance sheet date
during which management of a reporting entity should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial statements, the circumstances under which
an entity should recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures that an entity should make about events or transactions
that occurred after the balance sheet date. The Company adopted SFAS No. 165 during the second
quarter of 2009, and its application had no impact on the Companys condensed consolidated
financial statements. The Company evaluated subsequent events through the date the accompanying
financial statements were issued, which was October 21, 2009.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation (FIN) No.
46(R), which changes how a reporting entity determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another entity is based on,
among other things, the other entitys purpose and design and the reporting entitys ability to
direct the activities of the other entity that most significantly impact the other entitys
economic performance. SFAS No. 167 will require a reporting entity to provide additional
disclosures about its involvement with variable interest entities and any significant changes in
risk exposure due to that involvement. A reporting entity will be required to disclose how its
involvement with a variable interest entity affects the reporting entitys financial statements.
SFAS No. 167 is effective for fiscal years beginning after November 15, 2009, and interim periods
within those fiscal years. Management is currently evaluating the requirements of SFAS No. 167 and
has not yet determined the impact on the Companys condensed consolidated financial statements.
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In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, Revenue
Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements. ASU No. 2009-13 addresses the
accounting for multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than as a combined unit. This guidance establishes a
selling price hierarchy
for determining the selling price of a deliverable, which is based on: (a) vendor-specific
objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the
residual method of allocation and requires that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling price method. In
addition, this guidance significantly expands required disclosures related to a vendors
multiple-deliverable revenue arrangements. ASU No. 2009-13 is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010 and early adoption is permitted. A company may elect, but will not be required, to adopt the
amendments in ASU No. 2009-13 retrospectively for all prior periods. Management is currently
evaluating the requirements of ASU No. 2009-13 and has not yet determined the impact on the
Companys condensed consolidated financial statements.
2. Special Items, Net
Special items, net as shown on the condensed consolidated statements of operations included
the following charges for the three and nine months ended September 30, 2009 and 2008 (in
millions):
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Aircraft costs (a) |
$ | 10 | $ | | $ | 16 | $ | 6 | ||||||||
Severance and other charges (b) |
5 | 8 | 6 | 8 | ||||||||||||
Merger related transition expenses (c) |
| | | 35 | ||||||||||||
Asset impairment charges (d) |
| | | 18 | ||||||||||||
Special items, net |
$ | 15 | $ | 8 | $ | 22 | $ | 67 | ||||||||
(a) | In connection with previously announced capacity reductions, the Company recorded $10 million
and $16 million in the three and nine months ended September 30, 2009, respectively, in
charges for aircraft costs. The Company also recognized $6 million in aircraft costs in the
nine months ended September 30, 2008. |
|
(b) | The Company recorded $5 million and $6 million in severance and other charges in the three
and nine months ended September 30, 2009, respectively. The Company also recognized $8 million
in severance charges related to capacity reductions in the third quarter of 2008. |
|
(c) | In connection with the effort to consolidate functions and integrate organizations,
procedures and operations, the Company incurred $35 million of merger related transition
expenses in the first nine months of 2008. These expenses included $12 million in uniform
costs to transition employees to the new US Airways uniforms; $5 million in applicable
employment tax expenses related to contractual benefits granted to certain current and former
employees as a result of the merger; $6 million in compensation expenses for equity awards
granted in connection with the merger to retain key employees through the integration period;
$5 million of aircraft livery costs; $4 million in professional and technical fees related to
the integration of airline operations systems; and $3 million in other expenses. |
|
(d) | In the nine months ended September 30, 2008, the Company recorded $18 million in non-cash
impairment charges related to the decline in the fair value of certain spare parts associated
with the Companys Boeing 737 aircraft fleet. |
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3. Loss Per Common Share
Basic earnings (loss) per common share (EPS) is computed on the basis of the weighted
average number of shares of common stock outstanding during the period. Diluted EPS is computed on
the basis of the weighted average number of shares of common stock plus the effect of potentially
dilutive shares of common stock outstanding during the period using the treasury stock method.
Potentially dilutive shares include outstanding employee stock options, employee stock appreciation
rights, employee restricted stock units and convertible debt. The following table presents the
computation of basic and diluted EPS (in millions, except share and per share amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Basic and diluted loss per share: |
||||||||||||||||
Net loss |
$ | (80 | ) | $ | (866 | ) | $ | (125 | ) | $ | (1,671 | ) | ||||
Weighted average common shares outstanding (in thousands) |
132,985 | 102,406 | 123,632 | 95,522 | ||||||||||||
Basic and diluted loss per share |
$ | (0.60 | ) | $ | (8.46 | ) | $ | (1.01 | ) | $ | (17.50 | ) | ||||
For the three and nine months ended September 30, 2009, 12,128,427 and 11,288,952 shares,
respectively, underlying stock options, stock appreciation rights and restricted stock units were
not included in the computation of diluted EPS because inclusion of such shares would be
antidilutive or because the exercise prices were greater than the average market price of common
stock for the period. In addition, for the three and nine months ended September 30, 2009,
3,048,914 incremental shares from the assumed conversion of the 7% notes were excluded from the
computation of diluted EPS due to their antidilutive effect. For the three and nine months ended
September 30, 2009, 37,746,174 and 19,357,012 incremental shares, respectively, from the assumed
conversion of the 7.25% convertible senior notes were excluded from the computation of diluted EPS
due to their antidilutive effect.
For the three and nine months ended September 30, 2008, 9,256,697 and 7,602,552 shares,
respectively, underlying stock options, stock appreciation rights and restricted stock units were
not included in the computation of diluted EPS because inclusion of such shares would be
antidilutive or because the exercise prices were greater than the average market price of common
stock for the period. For the three and nine months ended September 30, 2008, 3,048,914 incremental
shares from assumed conversion of the 7% notes were excluded from the computation of diluted EPS
due to their antidilutive effect.
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4. Debt
The following table details the Companys debt (in millions). Variable interest rates listed
are the rates as of September 30, 2009.
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Secured |
||||||||
Citicorp North America loan, variable interest rate of 2.75%, installments due through 2014 |
$ | 1,168 | $ | 1,184 | ||||
Equipment loans, aircraft pre-delivery payment financings and other notes payable, fixed and
variable interest rates ranging from 1.64% to 10.51%, averaging 4.32%, maturing from 2010 to 2021 |
2,226 | 1,674 | ||||||
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 7.08%
to 9.01%, averaging 7.79%, maturing from 2015 to 2022 |
505 | 540 | ||||||
Slot financing, fixed interest rate of 8.08%, interest only payments until due in 2015 |
47 | 47 | ||||||
Capital lease obligations, interest rate of 8%, installments due through 2021 |
37 | 39 | ||||||
Senior secured discount notes, variable interest rate of 5.39%, due in 2009 |
32 | 32 | ||||||
4,015 | 3,516 | |||||||
Unsecured |
||||||||
Barclays prepaid miles, variable interest rate of 5%, interest only payments |
200 | 200 | ||||||
Airbus advance, repayments beginning in 2010 through 2018 |
237 | 207 | ||||||
7% senior convertible notes, interest only payments until due in 2020 |
74 | 74 | ||||||
7.25% convertible senior notes, interest only payments until due in 2014 |
172 | | ||||||
Engine maintenance notes |
54 | 72 | ||||||
Industrial development bonds, fixed interest rate of 6.3%, interest only payments until due in 2023 |
29 | 29 | ||||||
Note payable to Pension Benefit Guaranty Corporation, fixed interest rate of 6%, interest only
payments until due in 2012 |
10 | 10 | ||||||
Other notes payable, due in 2009 to 2011 |
70 | 45 | ||||||
846 | 637 | |||||||
Total long-term debt and capital lease obligations |
4,861 | 4,153 | ||||||
Less: Total unamortized discount on debt |
(235 | ) | (168 | ) | ||||
Current maturities, less $1 million and $10 million of unamortized discount on debt at September
30, 2009 and December 31, 2008, respectively |
(491 | ) | (362 | ) | ||||
Long-term debt and capital lease obligations, net of current maturities |
$ | 4,135 | $ | 3,623 | ||||
The Company was in compliance with the covenants in its debt agreements at September 30, 2009.
7.25% Convertible Senior Notes
In May 2009, US Airways Group issued $172 million aggregate principal amount of 7.25%
Convertible Senior Notes due 2014 (the 7.25% notes) for proceeds, net of expenses, of
approximately $168 million. The 7.25% notes bear interest at a rate of 7.25% per annum, which shall
be payable semi-annually in arrears on each May 15 and November 15, beginning November 15, 2009.
The 7.25% notes mature on May 15, 2014.
Holders may convert their 7.25% notes at their option at any time prior to the close of
business on the second scheduled trading day immediately preceding the maturity date for the 7.25%
notes. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of US
Airways Groups common stock or a combination thereof at the Companys election. The initial
conversion rate for the 7.25% notes is 218.8184 shares of US Airways Groups common stock per
$1,000 principal amount of notes (equivalent to an initial conversion price of approximately $4.57
per share). Such conversion rate is subject to adjustment in certain events.
If the Company undergoes a fundamental change, holders may require the Company to purchase all
or a portion of their 7.25% notes for cash at a price equal to 100% of the principal amount of the
7.25% notes to be purchased plus any accrued and unpaid interest to, but excluding, the purchase
date. A fundamental change includes a person or group (other than the Company or its subsidiaries)
becoming the beneficial owner of more than 50% of the voting power of the Companys capital stock,
certain merger or combination transactions, a substantial turnover of the Companys directors,
stockholder approval of the liquidation or dissolution of the Company and the Companys common
stock ceasing to be listed on at least one national securities exchange.
The 7.25% notes rank equal in right of payment to all of the Companys other existing and
future unsecured senior debt and senior in right of payment to the Companys debt that is expressly
subordinated to the 7.25% notes, if any. The 7.25% notes impose no limit on the amount of debt the
Company or its subsidiaries may incur. The 7.25% notes are structurally subordinated to all debt
and other liabilities and commitments (including trade payables) of the Companys subsidiaries. The
7.25% notes are also effectively junior to the Companys secured debt, if any, to the extent of the
value of the assets securing such debt.
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As the 7.25% notes can be settled in cash upon conversion, for accounting purposes, the 7.25%
notes were bifurcated into a debt component that is initially recorded at fair value and an equity
component. The Company concluded that the fair value of the equity component of its 7.25% notes is
$98 million. The unamortized debt discount at September 30, 2009 is $95 million and the carrying
value of the notes is $77 million. The remaining period over which the unamortized debt discount
will be recognized as non-cash interest expense is 4.7 years as follows: $3 million in 2009, $12
million in 2010, $16 million in 2011, $22 million in 2012, $29 million in 2013 and $13 million in
2014. The Company recognized $2 million and $3 million in non-cash interest expense in the three
and nine months ended September 30, 2009, respectively, related to the amortization of the debt
discount.
Other 2009 Financing Transactions
On January 16, 2009, US Airways exercised its right to obtain new loan commitments and incur
additional loans under a spare parts loan agreement. In connection with the exercise of that right,
Airbus Financial Services funded $50 million in satisfaction of a previous commitment. This loan
will mature on October 20, 2014, bears interest at a rate of LIBOR plus a margin and is secured by
the collateral securing loans under the spare parts loan agreement.
On March 31, 2009, US Airways again exercised its right to obtain new loan commitments and
incur additional loans under the spare parts loan agreement and borrowed $50 million. This loan
will mature on October 20, 2014, bears interest at a rate of LIBOR plus a margin and is secured by
the collateral securing loans under the spare parts loan agreement. US Airways used a portion of
the proceeds to purchase an A321 aircraft previously leased to US Airways by an affiliate of the
debt holder. As a result, this aircraft became unencumbered.
In June 2009, US Airways entered into loan agreements totaling $132 million to finance the
acquisition of certain A330-200 aircraft. The loans bear interest at a rate of LIBOR plus an
applicable margin, contain default provisions and other covenants that are typical in the industry
for similar financings and are amortized over seven years with balloon payments at maturity.
In the third quarter of 2009, US Airways utilized backstop financing through the manufacturer
totaling $104 million to finance the acquisition of certain A320 family aircraft. The financing
bears interest at a rate of LIBOR plus an applicable margin, contains default provisions and other
covenants that are typical in the industry for similar financings and is amortized over twelve
years.
US Airways Group had previously entered into a co-branded credit card agreement with Barclays
Bank Delaware. The agreement provides for, among other things, the pre-purchase of frequent flyer
miles in the aggregate amount of $200 million. Barclays has agreed that it will pre-purchase
additional miles on a monthly basis in an amount equal to the difference between $200 million and
the amount of unused miles then outstanding, which purchases average approximately $17 million per
month. Among the conditions to this monthly purchase of miles is a requirement that US Airways
Group maintain an unrestricted cash balance of at least $1.5 billion. In September 2009, Barclays
agreed to temporarily reduce this requirement to $1.35 billion for the months of August through
October 2009.
Fair Value of Debt
The fair value of the Companys long-term debt was approximately $3.54 billion and
$3.31 billion at September 30, 2009 and December 31, 2008, respectively. The fair values were
estimated using quoted market prices where available. For long-term debt not actively traded, fair
values were estimated using a discounted cash flow analysis, based on the Companys current
incremental borrowing rates for similar types of borrowing arrangements.
5. Income Taxes
As of December 31, 2008, the Company had approximately $1.4 billion of gross net operating
loss carryforwards (NOL) to reduce future federal taxable income, substantially all of which is
available to reduce federal taxable income in the calendar year 2009. The NOL expires during the
years 2022 through 2028. The Companys deferred tax asset, which included $1.3 billion of the NOL
discussed above, has been subject to a full valuation allowance. The Company also had approximately
$77 million of tax-effected state NOL at December 31, 2008.
In assessing the realizability of the deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will be realized. The
Company has recorded a valuation allowance against its net deferred tax asset. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income
(including reversals of deferred tax liabilities) during the periods in which those temporary
differences will become deductible.
The Company reported a loss in the nine months ended September 30, 2009 and did not record a
tax provision in any 2009 period.
The Company recorded income tax expense of $3 million in the three and nine month periods
ended September 30, 2008 related to a reconciliation of the 2007 tax provision to the tax return as
filed in the third quarter of 2008.
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6. Express Expenses
Expenses associated with the Companys wholly owned regional airlines and affiliate regional
airlines operating as US Airways Express are classified as Express expenses on the condensed
consolidated statements of operations. Express expenses consist of the following (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Aircraft fuel and related taxes |
$ | 171 | $ | 349 | $ | 438 | $ | 938 | ||||||||
Salaries and related costs |
63 | 62 | 187 | 189 | ||||||||||||
Capacity purchases |
271 | 269 | 802 | 798 | ||||||||||||
Aircraft rent |
13 | 13 | 39 | 38 | ||||||||||||
Aircraft maintenance |
19 | 20 | 62 | 59 | ||||||||||||
Other rent and landing fees |
30 | 35 | 91 | 89 | ||||||||||||
Selling expenses |
41 | 45 | 115 | 127 | ||||||||||||
Depreciation and amortization |
6 | 6 | 18 | 18 | ||||||||||||
Other expenses |
40 | 45 | 130 | 144 | ||||||||||||
Express expenses |
$ | 654 | $ | 844 | $ | 1,882 | $ | 2,400 | ||||||||
7. Derivative Instruments
To manage the risk of changes in aviation fuel prices, the Company periodically enters into
derivative contracts comprised of heating oil-based derivative instruments to hedge a portion of
its projected jet fuel requirements. Since the third quarter of 2008, the Company has not entered
into any new transactions as part of its fuel hedging program and as of September 30, 2009, there
were no remaining outstanding fuel hedging contracts.
The Companys fuel hedging instruments did not qualify for hedge accounting. Accordingly, the
derivative hedging instruments were recorded as an asset or liability on the balance sheet at fair
value and any changes in fair value were recorded in the period of change as gains or losses on
fuel hedging instruments, net in operating expenses in the accompanying condensed consolidated
statements of operations. The following table details the Companys loss (gain) on fuel hedging
instruments, net (in millions):
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Realized loss (gain) |
$ | 50 | $ | (68 | ) | $ | 382 | $ | (342 | ) | ||||||
Unrealized loss (gain) |
(48 | ) | 488 | (375 | ) | 262 | ||||||||||
Loss (gain) on fuel hedging instruments, net |
$ | 2 | $ | 420 | $ | 7 | $ | (80 | ) | |||||||
The unrealized gains in the 2009 periods were related to the reversal of prior period
unrealized losses due to contracts settling in the three and nine months ended September 30, 2009.
8. Investments in Marketable Securities (Noncurrent)
As of September 30, 2009, the Company held auction rate securities totaling $411 million at
par value, which are classified as available for sale securities and noncurrent assets on the
Companys condensed consolidated balance sheets. Contractual maturities for these auction rate
securities range from seven to 43 years, with 62% of the Companys portfolio maturing within the
next 10 years (2016 2017), 10% maturing within the next 20 years (2025), 16% maturing within the
next 30 years (2033 2036) and 12% maturing thereafter (2039 2052). With the liquidity issues
experienced in the global credit and capital markets, all of the Companys auction rate securities
have experienced failed auctions since August 2007. The estimated fair value of these auction rate
securities no longer approximates par value. At September 30, 2009, the fair value of the Companys
auction rate securities was $228 million, a net increase of $14 million from June 30, 2009 and $41
million from December 31, 2008. Refer to Note 9 for discussion on how the Company determines the
fair value of its investments in auction rate securities.
In the three and nine months ended September 30, 2009, the Company recorded unrealized gains
of $17 million and $51 million, respectively, in other comprehensive income related to the increase
in fair value of certain of the Companys investments in auction rate securities. These unrealized
gains were offset by other-than-temporary impairment charges of $3 million and $10 million,
respectively, in the three and nine months ended September 30, 2009. These other-than-temporary
impairment charges are recorded in other nonoperating expense, net and relate to the decline in
fair value of certain of the Companys investments in auction rate securities.
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In the three and nine months ended September 30, 2008, the Company recorded $127 million and
$140 million, respectively, of other-than-temporary impairment charges in other nonoperating
expense, net. These charges in the three and nine months ended September 30, 2008, included $103
million and $48 million, respectively, of previously recorded unrealized losses in other
comprehensive income.
The Company continues to monitor the market for auction rate securities and consider its
impact (if any) on the fair value of its investments. If the current market conditions deteriorate,
the Company may be required to record additional impairment charges in other nonoperating expense,
net in future periods.
9. Fair Value Measurements
Assets measured at fair value on a recurring basis are as follows (in millions):
Quoted Prices in | Significant Other | Significant | ||||||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||||||
Identical Assets | Inputs | Inputs | Valuation | |||||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | Technique | ||||||||||||||||
At September 30, 2009 |
||||||||||||||||||||
Investments in marketable securities (noncurrent) |
$ | 228 | $ | | $ | | $ | 228 | (1 | ) | ||||||||||
At December 31, 2008 |
||||||||||||||||||||
Investments in marketable securities (noncurrent) |
$ | 187 | $ | | $ | | $ | 187 | (1 | ) | ||||||||||
Fuel hedging derivatives |
(375 | ) | | (375 | ) | | (2 | ) |
(1) | The Company estimated the fair value of its auction rate securities based on the following:
(i) the underlying structure of each security; (ii) the present value of future principal and
interest payments discounted at rates considered to reflect current market conditions;
(iii) consideration of the probabilities of default, passing a future auction, or repurchase
at par for each period; and (iv) estimates of the recovery rates in the event of default for
each security. These estimated fair values could change significantly based on future market
conditions. Refer to Note 8 for further discussion of the Companys investments in marketable
securities. |
|
(2) | As the Companys fuel hedging derivative instruments were not traded on a market exchange,
the fair values were determined using valuation models which included assumptions about
commodity prices based on those observed in the underlying markets. The fair value of fuel
hedging derivatives is recorded in accounts payable on the consolidated balance sheets. Refer
to Note 7 for further discussion of the Companys fuel hedging derivatives. |
Assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) are as follows (in millions):
Investments in | ||||
Marketable | ||||
Securities | ||||
(Noncurrent) | ||||
Balance at December 31, 2008 |
$ | 187 | ||
Unrealized gains recorded to other comprehensive income |
51 | |||
Impairment losses included in other nonoperating expense, net |
(10 | ) | ||
Balance at September 30, 2009 |
$ | 228 | ||
10. Other Comprehensive Income (Loss)
The Companys other comprehensive loss consists of the following (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net loss |
$ | (80 | ) | $ | (866 | ) | $ | (125 | ) | $ | (1,671 | ) | ||||
Unrealized gains on available for sale securities |
17 | | 51 | | ||||||||||||
Recognition of previous unrealized losses now deemed other-than-temporary |
| 103 | | 48 | ||||||||||||
Pension and other postretirement benefits |
(2 | ) | | (7 | ) | (3 | ) | |||||||||
Total comprehensive loss |
$ | (65 | ) | $ | (763 | ) | $ | (81 | ) | $ | (1,626 | ) | ||||
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The components of accumulated other comprehensive income were as follows (in millions):
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Pension and other postretirement benefits |
$ | 58 | $ | 65 | ||||
Accumulated net unrealized gains on available for sale securities |
51 | | ||||||
Accumulated other comprehensive income |
$ | 109 | $ | 65 | ||||
11. Flight 1549
On January 15, 2009, US Airways flight 1549 was involved in an accident in New York that
resulted in the aircraft ditching in the Hudson River. The Airbus A320 aircraft was en route to
Charlotte from LaGuardia with 150 passengers and a crew of five onboard. All aboard survived and
there were no serious injuries. US Airways has insurance coverage for both the aircraft (which is a
total loss) as well as costs resulting from the accident, and there are no applicable deductibles.
The aircraft involved in the flight 1549 accident was leased by US Airways. In the first
quarter of 2009, US Airways exercised its aircraft substitution right under the lease agreement and
transferred title of an owned Airbus A320 to the lessor in substitution for the Airbus A320
aircraft that was involved in the accident. This transferred aircraft will continue to be leased to
US Airways under the same terms and conditions of the lease agreement. In connection with this
transaction, US Airways extinguished $22 million of debt associated with the previously owned
aircraft that was transferred to the lessor.
12. Stockholders Equity
In May 2009, the Company completed an underwritten public offering of 15.2 million shares of
common stock, as well as the full exercise of 2.28 million shares of common stock included in an
overallotment option, at an offering price of $3.97 per share. Net proceeds from the offering,
after underwriting discounts and commissions, were $66 million.
In September 2009, the Company completed an underwritten public offering of 26.3 million
shares of common stock, as well as the exercise of 2.7 million shares of common stock included in
an overallotment option, at a price of $4.75 per share. Net proceeds from the offering, after
offering costs, were $137 million.
13. Slot Exchange
In August 2009, the Company and US Airways entered into a mutual asset purchase and sale
agreement with Delta Air Lines, Inc. (Delta). Pursuant to the agreement, US Airways will transfer
to Delta certain assets related to flight operations at LaGuardia Airport in New York, including
125 pairs of slots currently used to provide US Airways Express service at LaGuardia. Delta will
transfer to US Airways certain assets related to flight operations at Reagan National Airport in
Washington, D.C., including 42 pairs of slots, and the authority to serve Sao Paulo, Brazil and
Tokyo, Japan. One slot equals one take-off or landing, and each pair of slots equals one roundtrip
flight. The agreement is structured as two simultaneous asset sales and is expected to be cash
neutral to US Airways. The closing of the transactions under the agreement is subject to certain
closing conditions, including approvals from a number of government agencies including the U.S.
Department of Justice, the U.S. Department of Transportation, the Federal Aviation Administration
and The Port Authority of New York and New Jersey.
14. Subsequent Event
US Airways entered into a term sheet to sell 10 of its Embraer 190 aircraft to Republic
Airline Inc. (Republic). Through October 21, 2009, five of the 10 aircraft sales have been
completed and the remaining five are expected to close in the fourth quarter of 2009. US Airways
will lease back eight of the 10 aircraft from Republic for periods ranging from one to seven
months. Debt outstanding on the 10 Embraer aircraft was $217 million at September 30, 2009. In
connection with this transaction, Republic has agreed to assume the full amount of this debt and
release US Airways from its obligations associated with the principal due under the debt.
Additionally, at September 30, 2009, US Airways had $35 million outstanding under a loan from
Republic (the Republic loan). The Republic loan was scheduled to be repaid starting in January
2010 and fully repaid in October 2011. In accordance with the term sheet, the full amount
outstanding under the Republic loan will be applied to the purchase price of the 10 aircraft. US
Airways expects to incur an aggregate loss of approximately $47 million from the sale of the 10
aircraft and write-off of debt discount associated with the Republic loan in the fourth quarter of
2009.
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Item 1B. | Condensed Consolidated Financial Statements of US Airways, Inc. |
US Airways, Inc.
Condensed Consolidated Statements of Operations
(In millions)
(Unaudited)
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Operating revenues: |
||||||||||||||||
Mainline passenger |
$ | 1,757 | $ | 2,197 | $ | 5,092 | $ | 6,364 | ||||||||
Express passenger |
662 | 771 | 1,856 | 2,230 | ||||||||||||
Cargo |
23 | 37 | 67 | 111 | ||||||||||||
Other |
316 | 288 | 930 | 742 | ||||||||||||
Total operating revenues |
2,758 | 3,293 | 7,945 | 9,447 | ||||||||||||
Operating expenses: |
||||||||||||||||
Aircraft fuel and related taxes |
534 | 1,110 | 1,353 | 3,018 | ||||||||||||
Loss (gain) on fuel hedging instruments, net |
2 | 420 | 7 | (80 | ) | |||||||||||
Salaries and related costs |
553 | 567 | 1,653 | 1,701 | ||||||||||||
Express expenses |
689 | 872 | 1,975 | 2,485 | ||||||||||||
Aircraft rent |
171 | 183 | 523 | 544 | ||||||||||||
Aircraft maintenance |
174 | 188 | 532 | 601 | ||||||||||||
Other rent and landing fees |
148 | 137 | 422 | 424 | ||||||||||||
Selling expenses |
99 | 120 | 291 | 340 | ||||||||||||
Special items, net |
15 | 8 | 22 | 67 | ||||||||||||
Depreciation and amortization |
65 | 55 | 192 | 166 | ||||||||||||
Goodwill impairment |
| | | 622 | ||||||||||||
Other |
307 | 321 | 879 | 977 | ||||||||||||
Total operating expenses |
2,757 | 3,981 | 7,849 | 10,865 | ||||||||||||
Operating income (loss) |
1 | (688 | ) | 96 | (1,418 | ) | ||||||||||
Nonoperating income (expense): |
||||||||||||||||
Interest income |
5 | 19 | 17 | 68 | ||||||||||||
Interest expense, net |
(64 | ) | (48 | ) | (189 | ) | (146 | ) | ||||||||
Other, net |
(10 | ) | (135 | ) | (18 | ) | (140 | ) | ||||||||
Total nonoperating expense, net |
(69 | ) | (164 | ) | (190 | ) | (218 | ) | ||||||||
Loss before income taxes |
(68 | ) | (852 | ) | (94 | ) | (1,636 | ) | ||||||||
Income tax provision |
| 3 | | 3 | ||||||||||||
Net loss |
$ | (68 | ) | $ | (855 | ) | $ | (94 | ) | $ | (1,639 | ) | ||||
See accompanying notes to the condensed consolidated financial statements.
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US Airways, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share and per share amounts)
(Unaudited)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 965 | $ | 1,026 | ||||
Investments in marketable securities |
| 20 | ||||||
Restricted cash |
| 186 | ||||||
Accounts receivable, net |
338 | 291 | ||||||
Materials and supplies, net |
199 | 163 | ||||||
Prepaid expenses and other |
473 | 673 | ||||||
Total current assets |
1,975 | 2,359 | ||||||
Property and equipment |
||||||||
Flight equipment |
3,679 | 3,017 | ||||||
Ground property and equipment |
860 | 791 | ||||||
Less accumulated depreciation and amortization |
(1,059 | ) | (914 | ) | ||||
3,480 | 2,894 | |||||||
Equipment purchase deposits |
322 | 267 | ||||||
Total property and equipment |
3,802 | 3,161 | ||||||
Other assets |
||||||||
Other intangibles, net of accumulated amortization of $100 million and $81 million, respectively |
489 | 508 | ||||||
Restricted cash |
530 | 540 | ||||||
Investments in marketable securities |
228 | 187 | ||||||
Other assets |
199 | 199 | ||||||
Total other assets |
1,446 | 1,434 | ||||||
Total assets |
$ | 7,223 | $ | 6,954 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||
Current liabilities |
||||||||
Current maturities of debt and capital leases |
$ | 475 | $ | 346 | ||||
Accounts payable |
329 | 781 | ||||||
Payables to related parties, net |
478 | 985 | ||||||
Air traffic liability |
852 | 698 | ||||||
Accrued compensation and vacation |
184 | 147 | ||||||
Accrued taxes |
139 | 142 | ||||||
Other accrued expenses |
807 | 867 | ||||||
Total current liabilities |
3,264 | 3,966 | ||||||
Noncurrent liabilities and deferred credits |
||||||||
Long-term debt and capital leases, net of current maturities |
2,673 | 2,236 | ||||||
Deferred gains and credits, net |
334 | 342 | ||||||
Postretirement benefits other than pensions |
102 | 107 | ||||||
Employee benefit liabilities and other |
521 | 524 | ||||||
Total noncurrent liabilities and deferred credits |
3,630 | 3,209 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity (deficit) |
||||||||
Common stock, $1 par value, 1,000 shares issued and outstanding |
| | ||||||
Additional paid-in capital |
2,445 | 1,845 | ||||||
Accumulated other comprehensive income |
122 | 78 | ||||||
Accumulated deficit |
(2,238 | ) | (2,144 | ) | ||||
Total stockholders equity (deficit) |
329 | (221 | ) | |||||
Total liabilities and stockholders equity (deficit) |
$ | 7,223 | $ | 6,954 | ||||
See accompanying notes to the condensed consolidated financial statements.
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US Airways, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2009 | 2008 | |||||||
Net cash provided by (used in) operating activities |
$ | 211 | $ | (438 | ) | |||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(672 | ) | (734 | ) | ||||
Purchases of marketable securities |
| (299 | ) | |||||
Sales of marketable securities |
20 | 416 | ||||||
Proceeds from sale of other investments |
| 3 | ||||||
Decrease (increase) in long-term restricted cash |
10 | (117 | ) | |||||
Proceeds from dispositions of property and equipment |
55 | 17 | ||||||
Increase in equipment purchase deposits |
(55 | ) | (97 | ) | ||||
Net cash used in investing activities |
(642 | ) | (811 | ) | ||||
Cash flows from financing activities: |
||||||||
Repayments of debt and capital lease obligations |
(255 | ) | (189 | ) | ||||
Proceeds from issuance of debt |
631 | 669 | ||||||
Deferred financing costs |
(6 | ) | (8 | ) | ||||
Net cash provided by financing activities |
370 | 472 | ||||||
Net decrease in cash and cash equivalents |
(61 | ) | (777 | ) | ||||
Cash and cash equivalents at beginning of period |
1,026 | 1,940 | ||||||
Cash and cash equivalents at end of period |
$ | 965 | $ | 1,163 | ||||
Non-cash investing and financing activities: |
||||||||
Forgiveness of intercompany payable to US Airways Group |
$ | 600 | $ | | ||||
Note payables issued for aircraft purchases |
136 | | ||||||
Interest payable converted to debt |
29 | | ||||||
Maintenance payable converted to debt |
13 | | ||||||
Net unrealized gain on available for sale securities |
(51 | ) | | |||||
Supplemental information: |
||||||||
Interest paid |
$ | 126 | $ | 101 | ||||
Income taxes paid |
| |
See accompanying notes to the condensed consolidated financial statements.
19
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US Airways, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of US Airways, Inc.
(US Airways) should be read in conjunction with the financial statements contained in US Airways
Annual Report on Form 10-K for the year ended December 31, 2008. US Airways is a wholly owned
subsidiary of US Airways Group, Inc. (US Airways Group). The accompanying unaudited condensed
consolidated financial statements include the accounts of US Airways and its wholly owned
subsidiary, America West Holdings, LLC (America West Holdings). America West Airlines, LLC
(AWA) and its wholly owned subsidiary, FTCHP, LLC, are wholly owned subsidiaries of America West
Holdings. All significant intercompany accounts and transactions between US Airways and its wholly
owned subsidiaries have been eliminated.
Management believes that all adjustments necessary for the fair presentation of results,
consisting of normally recurring items, have been included in the unaudited condensed consolidated
financial statements for the interim periods presented. Certain prior year amounts have been
reclassified to conform with the 2009 presentation. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The principal areas of judgment relate to passenger
revenue recognition, impairment of long-lived and intangible assets, valuation of investments in
marketable securities, the frequent traveler program and the deferred tax valuation allowance.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles A Replacement of FASB Statement No. 162.
SFAS No. 168 establishes the FASB Accounting Standards Codification (the Codification) as the
single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. Effective July 1, 2009, the
Codification superseded all existing non-SEC accounting and reporting standards.
In April 2009, the FASB issued FASB Staff Position (FSP) Financial Accounting Standards
(FAS) 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, as
adopted by the Codification on July 1, 2009. This FSP changes existing guidance for determining
whether an impairment of debt securities is other-than-temporary. The FSP requires
other-than-temporary impairments to be separated into the amount representing the decrease in cash
flows expected to be collected from a security (referred to as credit losses) which is recognized
in earnings and the amount related to other factors (referred to as noncredit losses) which is
recognized in other comprehensive income. This noncredit loss component of the impairment may only
be classified in other comprehensive income if both of the following conditions are met (a) the
holder of the security concludes that it does not intend to sell the security and (b) the holder
concludes that it is more likely than not that the holder will not be required to sell the security
before the security recovers its value. If these conditions are not met, the noncredit loss must
also be recognized in earnings. When adopting the FSP, an entity is required to record a cumulative
effect adjustment as of the beginning of the period of adoption to reclassify the noncredit
component of a previously recognized other-than-temporary impairment from retained earnings to
accumulated other comprehensive income. FSP FAS 115-2 and FAS 124-2 is effective for interim and
annual periods ending after June 15, 2009. US Airways adopted FSP FAS 115-2 and FAS 124-2 as of
April 1, 2009. US Airways does not meet the conditions necessary to recognize the noncredit loss
component of its auction rate securities in other comprehensive income. Accordingly, US Airways did
not reclassify any previously recognized other-than-temporary impairment losses from retained
earnings to accumulated other comprehensive income and the adoption of FSP FAS 115-2 and FAS 124-2
had no material impact on US Airways condensed consolidated financial statements. Refer to Note 8
for further discussion of US Airways investments in marketable securities.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, as adopted by the Codification on July 1, 2009. This FSP
provides additional guidance on estimating fair value when the volume and level of activity for an
asset or liability have significantly decreased in relation to normal market activity for the asset
or liability. The FSP also provides additional guidance on circumstances that may indicate that a
transaction is not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after
June 15, 2009. US Airways adopted FSP FAS 157-4 during the second quarter of 2009, and its
application had no impact on US Airways condensed consolidated financial statements.
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In May 2009, the FASB issued SFAS No. 165, Subsequent Events, as adopted by the Codification
on July 1, 2009, which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before the financial statements are issued or are
available to be issued. SFAS No. 165 provides guidance on the period after the balance sheet date
during which management of a reporting entity should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial statements, the circumstances under which
an entity should recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures that an entity should make about events or transactions
that occurred after the balance sheet date. US Airways adopted SFAS No. 165 during the second
quarter of 2009, and its application had no impact on US Airways condensed consolidated financial
statements. US Airways evaluated subsequent events through the date the accompanying financial
statements were issued, which was October 21, 2009.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation (FIN) No.
46(R), which changes how a reporting entity determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another entity is based on,
among other things, the other entitys purpose and design and the reporting entitys ability to
direct the activities of the other entity that most significantly impact the other entitys
economic performance. SFAS No. 167 will require a reporting entity to provide additional
disclosures about its involvement with variable interest entities and any significant changes in
risk exposure due to that involvement. A reporting entity will be required to disclose how its
involvement with a variable interest entity affects the reporting entitys financial statements.
SFAS No. 167 is effective for fiscal years beginning after November 15, 2009, and interim periods
within those fiscal years. Management is currently evaluating the requirements of SFAS No. 167 and
has not yet determined the impact on US Airways condensed consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, Revenue
Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements. ASU No. 2009-13 addresses the
accounting for multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than as a combined unit. This guidance establishes a
selling price hierarchy for determining the selling price of a deliverable, which is based on: (a)
vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also
eliminates the residual method of allocation and requires that arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the relative selling price
method. In addition, this guidance significantly expands required disclosures related to a vendors
multiple-deliverable revenue arrangements. ASU No. 2009-13 is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010 and early adoption is permitted. A company may elect, but will not be required, to adopt the
amendments in ASU No. 2009-13 retrospectively for all prior periods. Management is currently
evaluating the requirements of ASU No. 2009-13 and has not yet determined the impact on US Airways
condensed consolidated financial statements.
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2. Special Items, Net
Special items, net as shown on the condensed consolidated statements of operations included
the following charges for the three and nine months ended September 30, 2009 and 2008 (in
millions):
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Aircraft costs (a) |
$ | 10 | $ | | $ | 16 | $ | 6 | ||||||||
Severance and other charges (b) |
5 | 8 | 6 | 8 | ||||||||||||
Merger related transition expenses (c) |
| | | 35 | ||||||||||||
Asset impairment charges (d) |
| | | 18 | ||||||||||||
Special items, net |
$ | 15 | $ | 8 | $ | 22 | $ | 67 | ||||||||
(a) | In connection with previously announced capacity reductions, US Airways recorded $10 million
and $16 million in the three and nine months ended September 30, 2009, respectively, in
charges for aircraft costs. US Airways also recognized $6 million in aircraft costs in the
nine months ended September 30, 2008. |
|
(b) | US Airways recorded $5 million and $6 million in severance and other charges in the three and
nine months ended September 30, 2009, respectively. US Airways also recognized $8 million in
severance charges related to capacity reductions in the third quarter of 2008. |
|
(c) | In connection with the effort to consolidate functions and integrate organizations,
procedures and operations, US Airways incurred $35 million of merger related transition
expenses in the first nine months of 2008. These expenses included $12 million in uniform
costs to transition employees to the new US Airways uniforms; $5 million in applicable
employment tax expenses related to contractual benefits granted to certain current and former
employees as a result of the merger; $6 million in compensation expenses for equity awards
granted in connection with the merger to retain key employees through the integration period;
$5 million of aircraft livery costs; $4 million in professional and technical fees related to
the integration of airline operations systems; and $3 million in other expenses. |
|
(d) | In the nine months ended September 30, 2008, US Airways recorded $18 million in non-cash
impairment charges related to the decline in the fair value of certain spare parts associated
with its Boeing 737 aircraft fleet. |
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3. Debt
The following table details US Airways debt (in millions). Variable interest rates listed are
the rates as of September 30, 2009.
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Secured |
||||||||
Equipment loans, aircraft pre-delivery payment financings and other notes payable, fixed and
variable interest rates ranging from 1.64% to 10.51%, averaging 4.32%, maturing from 2010 to 2021 |
$ | 2,226 | $ | 1,674 | ||||
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 7.08%
to 9.01%, averaging 7.79%, maturing from 2015 to 2022 |
505 | 540 | ||||||
Slot financing, fixed interest rate of 8.08%, interest only payments until due in 2015 |
47 | 47 | ||||||
Capital lease obligations, interest rate of 8%, installments due through 2021 |
37 | 39 | ||||||
Senior secured discount notes, variable interest rate of 5.39%, due in 2009 |
32 | 32 | ||||||
2,847 | 2,332 | |||||||
Unsecured |
||||||||
Airbus advance, repayments beginning in 2010 through 2018 |
237 | 207 | ||||||
Engine maintenance notes |
54 | 72 | ||||||
Industrial development bonds, fixed interest rate of 6.3%, interest only payments until due in 2023 |
29 | 29 | ||||||
Note payable to Pension Benefit Guaranty Corporation, fixed interest rate of 6%, interest only
payments until due in 2012 |
10 | 10 | ||||||
Other notes payable, due in 2009 to 2011 |
70 | 45 | ||||||
400 | 363 | |||||||
Total long-term debt and capital lease obligations |
3,247 | 2,695 | ||||||
Less: Total unamortized discount on debt |
(99 | ) | (113 | ) | ||||
Current maturities, less $1 million and $10 million of unamortized discount on debt at September
30, 2009 and December 31, 2008, respectively |
(475 | ) | (346 | ) | ||||
Long-term debt and capital lease obligations, net of current maturities |
$ | 2,673 | $ | 2,236 | ||||
US Airways was in compliance with the covenants in its debt agreements at September 30, 2009.
2009 Financing Transactions
On January 16, 2009, US Airways exercised its right to obtain new loan commitments and incur
additional loans under a spare parts loan agreement. In connection with the exercise of that right,
Airbus Financial Services funded $50 million in satisfaction of a previous commitment. This loan
will mature on October 20, 2014, bears interest at a rate of LIBOR plus a margin and is secured by
the collateral securing loans under the spare parts loan agreement.
On March 31, 2009, US Airways again exercised its right to obtain new loan commitments and
incur additional loans under the spare parts loan agreement and borrowed $50 million. This loan
will mature on October 20, 2014, bears interest at a rate of LIBOR plus a margin and is secured by
the collateral securing loans under the spare parts loan agreement. US Airways used a portion of
the proceeds to purchase an A321 aircraft previously leased to US Airways by an affiliate of the
debt holder. As a result, this aircraft became unencumbered.
In June 2009, US Airways entered into loan agreements totaling $132 million to finance the
acquisition of certain A330-200 aircraft. The loans bear interest at a rate of LIBOR plus an
applicable margin, contain default provisions and other covenants that are typical in the industry
for similar financings and are amortized over seven years with balloon payments at maturity.
In the third quarter of 2009, US Airways utilized backstop financing through the manufacturer
totaling $104 million to finance the acquisition of certain A320 family aircraft. The financing
bears interest at a rate of LIBOR plus an applicable margin, contains default provisions and other
covenants that are typical in the industry for similar financings and is amortized over twelve
years.
Fair Value of Debt
The fair value of US Airways long-term debt was approximately $2.61 billion and $2.28 billion
at September 30, 2009 and December 31, 2008, respectively. The fair values were estimated using
quoted market prices where available. For long-term debt not actively traded, fair values were
estimated using a discounted cash flow analysis, based on US Airways current incremental borrowing
rates for similar types of borrowing arrangements.
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4. Related Party Transactions
The following represents the net payable balances to related parties (in millions):
September 30, 2009 | December 31, 2008 | |||||||
US Airways Group |
$ | 439 | $ | 949 | ||||
US Airways Groups wholly owned subsidiaries |
39 | 36 | ||||||
$ | 478 | $ | 985 | |||||
US Airways Group has the ability to move funds freely between operating subsidiaries to
support operations. These transfers are recognized as intercompany transactions. In September 2009,
US Airways Group contributed $600 million in net intercompany receivables due from US Airways to
the capital of US Airways.
The net payable to US Airways Groups wholly owned subsidiaries consists of amounts due under
regional capacity agreements with the other airline subsidiaries and fuel purchase arrangements
with a non-airline subsidiary.
5. Income Taxes
US Airways and its wholly owned subsidiaries are part of the US Airways Group consolidated
income tax return.
As of December 31, 2008, US Airways had approximately $1.3 billion of gross net operating loss
carryforwards (NOL) to reduce future federal taxable income, substantially all of which is
available to reduce federal taxable income in the calendar year 2009. The NOL expires during the
years 2022 through 2028. US Airways deferred tax asset, which included $1.2 billion of the NOL
discussed above, has been subject to a full valuation allowance. US Airways also had approximately
$72 million of tax-effected state NOL at December 31, 2008.
In assessing the realizability of the deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will be realized. US
Airways has recorded a valuation allowance against its net deferred tax asset. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income
(including reversals of deferred tax liabilities) during the periods in which those temporary
differences will become deductible.
US Airways reported a loss in the nine months ended September 30, 2009 and did not record a
tax provision in any 2009 period.
US Airways recorded income tax expense of $3 million in the three and nine month periods ended
September 30, 2008 related to a reconciliation of the 2007 tax provision to the tax return as filed
in the third quarter of 2008.
6. Express Expenses
Expenses associated with affiliate regional airlines operating as US Airways Express are
classified as Express expenses on the condensed consolidated statements of operations. Express
expenses consist of the following (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Aircraft fuel and related taxes |
$ | 171 | $ | 349 | $ | 438 | $ | 938 | ||||||||
Salaries and related costs |
6 | 5 | 18 | 16 | ||||||||||||
Capacity purchases |
425 | 419 | 1,261 | 1,255 | ||||||||||||
Other rent and landing fees |
24 | 30 | 75 | 74 | ||||||||||||
Selling expenses |
41 | 45 | 115 | 127 | ||||||||||||
Other expenses |
22 | 24 | 68 | 75 | ||||||||||||
Express expenses |
$ | 689 | $ | 872 | $ | 1,975 | $ | 2,485 | ||||||||
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7. Derivative Instruments
To manage the risk of changes in aviation fuel prices, US Airways periodically enters into
derivative contracts comprised of heating oil-based derivative instruments to hedge a portion of
its projected jet fuel requirements. Since the third quarter of 2008, US Airways has not entered
into any new transactions as part of its fuel hedging program and as of September 30, 2009, there
were no remaining outstanding fuel hedging contracts.
US Airways fuel hedging instruments did not qualify for hedge accounting. Accordingly, the
derivative hedging instruments were recorded as an asset or liability on the balance sheet at fair
value and any changes in fair value were recorded in the period of change as gains or losses on
fuel hedging instruments, net in operating expenses in the accompanying condensed consolidated
statements of operations. The following table details US Airways loss (gain) on fuel hedging
instruments, net (in millions):
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Realized loss (gain) |
$ | 50 | $ | (68 | ) | $ | 382 | $ | (342 | ) | ||||||
Unrealized loss (gain) |
(48 | ) | 488 | (375 | ) | 262 | ||||||||||
Loss (gain) on fuel hedging instruments, net |
$ | 2 | $ | 420 | $ | 7 | $ | (80 | ) | |||||||
The unrealized gains in the 2009 periods were related to the reversal of prior period
unrealized losses due to contracts settling in the three and nine months ended September 30, 2009.
8. Investments in Marketable Securities (Noncurrent)
As of September 30, 2009, US Airways held auction rate securities totaling $411 million at par
value, which are classified as available for sale securities and noncurrent assets on US Airways
condensed consolidated balance sheets. Contractual maturities for these auction rate securities
range from seven to 43 years, with 62% of US Airways portfolio maturing within the next 10 years
(2016 2017), 10% maturing within the next 20 years (2025), 16% maturing within the next 30 years
(2033 2036) and 12% maturing thereafter (2039 2052). With the liquidity issues experienced in
the global credit and capital markets, all of US Airways auction rate securities have experienced
failed auctions since August 2007. The estimated fair value of these auction rate securities no
longer approximates par value. At September 30, 2009, the fair value of US Airways auction rate
securities was $228 million, a net increase of $14 million from June 30, 2009 and $41 million from
December 31, 2008. Refer to Note 9 for discussion on how US Airways determines the fair value of
its investments in auction rate securities.
In the three and nine months ended September 30, 2009, US Airways recorded unrealized gains of
$17 million and $51 million, respectively, in other comprehensive income related to the increase in
fair value of certain of US Airways investments in auction rate securities. These unrealized gains
were offset by other-than-temporary impairment charges of $3 million and $10 million, respectively,
in the three and nine months ended September 30, 2009. These other-than-temporary impairment
charges are recorded in other nonoperating expense, net and relate to the decline in fair value of
certain of US Airways investments in auction rate securities.
In the three and nine months ended September 30, 2008, US Airways recorded $127 million and
$140 million, respectively, of other-than-temporary impairment charges in other nonoperating
expense, net. These charges in the three and nine months ended September 30, 2008, included $103
million and $48 million, respectively, of previously recorded unrealized losses in other
comprehensive income.
US Airways continues to monitor the market for auction rate securities and consider its impact
(if any) on the fair value of its investments. If the current market conditions deteriorate, US
Airways may be required to record additional impairment charges in other nonoperating expense, net
in future periods.
25
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9. Fair Value Measurements
Assets measured at fair value on a recurring basis are as follows (in millions):
Quoted Prices in | Significant Other | Significant | ||||||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||||||
Identical Assets | Inputs | Inputs | Valuation | |||||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | Technique | ||||||||||||||||
At September 30, 2009 |
||||||||||||||||||||
Investments in marketable securities (noncurrent) |
$ | 228 | $ | | $ | | $ | 228 | (1 | ) | ||||||||||
At December 31, 2008 |
||||||||||||||||||||
Investments in marketable securities (noncurrent) |
$ | 187 | $ | | $ | | $ | 187 | (1 | ) | ||||||||||
Fuel hedging derivatives |
(375 | ) | | (375 | ) | | (2 | ) |
(1) | US Airways estimated the fair value of its auction rate securities based on the following:
(i) the underlying structure of each security; (ii) the present value of future principal and
interest payments discounted at rates considered to reflect current market conditions;
(iii) consideration of the probabilities of default, passing a future auction, or repurchase
at par for each period; and (iv) estimates of the recovery rates in the event of default for
each security. These estimated fair values could change significantly based on future market
conditions. Refer to Note 8 for further discussion of US Airways investments in marketable
securities. |
|
(2) | As US Airways fuel hedging derivative instruments were not traded on a market exchange, the
fair values were determined using valuation models which included assumptions about commodity
prices based on those observed in the underlying markets. The fair value of fuel hedging
derivatives is recorded in accounts payable on the consolidated balance sheets. Refer to Note
7 for further discussion of US Airways fuel hedging derivatives. |
Assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) are as follows (in millions):
Investments in | ||||
Marketable | ||||
Securities | ||||
(Noncurrent) | ||||
Balance at December 31, 2008 |
$ | 187 | ||
Unrealized gains recorded to other comprehensive income |
51 | |||
Impairment losses included in other nonoperating expense, net |
(10 | ) | ||
Balance at September 30, 2009 |
$ | 228 | ||
10. Other Comprehensive Income (Loss)
US Airways other comprehensive loss consists of the following (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net loss |
$ | (68 | ) | $ | (855 | ) | $ | (94 | ) | $ | (1,639 | ) | ||||
Unrealized gains on available for sale securities |
17 | | 51 | | ||||||||||||
Recognition of previous unrealized losses now deemed other-than-temporary |
| 103 | | 48 | ||||||||||||
Other postretirement benefits |
(2 | ) | | (7 | ) | (2 | ) | |||||||||
Total comprehensive loss |
$ | (53 | ) | $ | (752 | ) | $ | (50 | ) | $ | (1,593 | ) | ||||
The components of accumulated other comprehensive income were as follows (in millions):
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Other postretirement benefits |
$ | 71 | $ | 78 | ||||
Accumulated net unrealized gains on available for sale securities |
51 | | ||||||
Accumulated other comprehensive income |
$ | 122 | $ | 78 | ||||
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11. Flight 1549
On January 15, 2009, US Airways flight 1549 was involved in an accident in New York that
resulted in the aircraft ditching in the Hudson River. The Airbus A320 aircraft was en route to
Charlotte from LaGuardia with 150 passengers and a crew of five onboard. All aboard survived and
there were no serious injuries. US Airways has insurance coverage for both the aircraft (which is a
total loss) as well as costs resulting from the accident, and there are no applicable deductibles.
The aircraft involved in the flight 1549 accident was leased by US Airways. In the first
quarter of 2009, US Airways exercised its aircraft substitution right under the lease agreement and
transferred title of an owned Airbus A320 to the lessor in substitution for the Airbus A320
aircraft that was involved in the accident. This transferred aircraft will continue to be leased to
US Airways under the same terms and conditions of the lease agreement. In connection with this
transaction, US Airways extinguished $22 million of debt associated with the previously owned
aircraft that was transferred to the lessor.
12. Slot Exchange
In August 2009, US Airways Group and US Airways entered into a mutual asset purchase and sale
agreement with Delta Air Lines, Inc. (Delta). Pursuant to the agreement, US Airways will transfer
to Delta certain assets related to flight operations at LaGuardia Airport in New York, including
125 pairs of slots currently used to provide US Airways Express service at LaGuardia. Delta will
transfer to US Airways certain assets related to flight operations at Reagan National Airport in
Washington, D.C., including 42 pairs of slots, and the authority to serve Sao Paulo, Brazil and
Tokyo, Japan. One slot equals one take-off or landing, and each pair of slots equals one roundtrip
flight. The agreement is structured as two simultaneous asset sales and is expected to be cash
neutral to US Airways. The closing of the transactions under the agreement is subject to certain
closing conditions, including approvals from a number of government agencies including the U.S.
Department of Justice, the U.S. Department of Transportation, the Federal Aviation Administration
and The Port Authority of New York and New Jersey.
13. Subsequent Event
US Airways entered into a term sheet to sell 10 of its Embraer 190 aircraft to Republic
Airline Inc. (Republic). Through October 21, 2009, five of the 10 aircraft sales have been
completed and the remaining five are expected to close in the fourth quarter of 2009. US Airways
will lease back eight of the 10 aircraft from Republic for periods ranging from one to seven
months. Debt outstanding on the 10 Embraer aircraft was $217 million at September 30, 2009. In
connection with this transaction, Republic has agreed to assume the full amount of this debt and
release US Airways from its obligations associated with the principal due under the debt.
Additionally, at September 30, 2009, US Airways had $35 million outstanding under a loan from
Republic (the Republic loan). The Republic loan was scheduled to be repaid starting in January
2010 and fully repaid in October 2011. In accordance with the term sheet, the full amount
outstanding under the Republic loan will be applied to the purchase price of the 10 aircraft. US
Airways expects to incur an aggregate loss of approximately $47 million from the sale of the 10
aircraft and write-off of debt discount associated with the Republic loan in the fourth quarter of
2009.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of US Airways
Group, Inc.s and US Airways, Inc.s Annual Report on Form 10-K for the year ended December 31,
2008 (the 2008 Form 10-K). 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 2008 Form 10-K.
Background
US Airways Group, a Delaware corporation, is a holding company whose primary business activity
is the operation of a major network air carrier through its wholly owned subsidiaries US Airways,
Piedmont Airlines, Inc. (Piedmont), PSA Airlines, Inc. (PSA), Material Services Company, Inc.
(MSC) and Airways Assurance Limited.
We operate the fifth largest airline in the United States as measured by domestic revenue
passenger miles (RPMs) and available seat miles (ASMs). We have primary hubs in Charlotte,
Philadelphia and Phoenix, and focus cities in New York, Washington, D.C., Boston and Las Vegas. We
offer scheduled passenger service on more than 3,000 flights daily to more than 200 communities in
the United States, Canada, Europe, the Middle East, the Caribbean and Latin America. We also have
an established East Coast route network, including the US Airways Shuttle service, with substantial
presence at capacity constrained airports including New Yorks LaGuardia Airport and the
Washington, D.C. areas Ronald Reagan Washington National Airport. For the nine months ended
September 30, 2009, we had approximately 39 million passengers boarding our mainline flights. As of
September 30, 2009, we operated 348 mainline jets and are supported by our regional airline
subsidiaries and affiliates operating as US Airways Express either under capacity purchase or
prorate agreements, which operate approximately 236 regional jets and 65 turboprops.
U.S. Airline Industry Environment
The airline industry in the United States has been severely impacted in 2009 by the global
economic recession. Passenger demand, as reported by the Air Transport Association of America
(ATA), continued to be down throughout the third quarter of 2009 as compared to the same period
in 2008. ATA reported U.S. airline passenger revenues were down 21% for the first nine months of
2009 and September 2009 marked the eleventh consecutive month in which industry revenues have
fallen.
Business bookings continue to be down sharply as, in response to the economic recession,
companies have cut costs by reducing their travel budgets. For those companies whose employees
continue to travel for business, airlines are experiencing lower yields as travelers are purchasing
the tickets carrying fewer restrictions at lower fares. The contraction of business spending has
also significantly impacted cargo demand. ATA reported that cargo, as measured by revenue ton
miles, declined 18% year-over-year in the first eight months of 2009. August 2009 marked the
thirteenth consecutive month of declining cargo traffic. Leisure travel has held up relatively
well, although yields have significantly declined.
Many U.S. airlines continue to report strong load factors through the third quarter of 2009 as
capacity cuts have helped offset the decline in demand for air travel. However industry revenues
have been adversely affected by severe fare discounting by carriers to stimulate demand. Passenger
revenue per available seat mile (PRASM) is down significantly in the third quarter of 2009 with
substantially greater declines experienced in international markets. International markets continue
to be more severely impacted by the economic slowdown than domestic markets. This is a result of
capacity expansion overseas during the past several years, which the U.S. industry only intends to
reduce by 6% in 2009 as compared to domestic capacity reductions of 8%. Additionally, international
traffic has greater reliance on premium business and first class seating and cargo to drive
profitability.
U.S. airlines, like other airlines worldwide, remain highly vulnerable to increases in fuel
costs. The price of crude oil is down substantially from its record high of $147 per barrel in July
2008, which offsets some of the effects of declining passenger demand resulting from the economic
recession. Typically, falling fuel prices would be a natural hedge during times of weak travel
demand. However, during the first nine months of 2009, the price of crude oil on a per barrel basis
was volatile, ranging from a high of $73.68 to a low of $34.03, and closing at $70.46 on September
30, 2009. This volatility in oil prices has made use of hedging positions by airlines to contain
fuel costs either expensive (call options) or risky due to counterparty cash collateral
requirements (collars and swaps).
There are some signs that improvement may be on the horizon. For example, monthly
year-over-year declines in yield for U.S. airlines, as reported by ATA, reached a high of 21% in
June 2009. ATA has since reported improvements in the third quarter, with September 2009 monthly
year-over-year declines in yield reported at 18%. However, heading into fall and winter, the
seasonally weakest periods of the year for the airline industry, it is difficult to predict the
ongoing effects of the global economic recession. Accordingly, the industry is focused on
conserving and building cash and matching capacity to demand. During the third quarter of 2009,
credit markets were increasingly open to airlines and several U.S. airlines raised cash to enhance
liquidity through a number of initiatives such as traditional public stock and debt issuances,
asset sales, asset sale and leasebacks, and transactions with affinity credit card issuers.
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US Airways
Relative to other U.S. legacy or big six hub and spoke carriers, our larger domestic presence
means our revenues are less adversely affected by the global economic downturn. The industry has
taken much more aggressive corrective capacity reductions domestically and we are less exposed to
the sharp declines in passenger and cargo demand in international markets. Our international
transatlantic traffic represents approximately 22% of our total ASMs. As a result, our total
revenue passenger miles (RPMs) for the nine months ended September 30, 2009 decreased 4.8% on
5.3% lower capacity as compared to the same period in 2008, whereas overall U.S. industry declines
in demand in this same period averaged 6% on 6% lower capacity. Cargo represents approximately 1%
of our operating revenues.
We have also benefited from our new revenue initiatives implemented in 2008, which have
generated $305 million in ancillary revenues for the nine months ended September 30, 2009 and are
expected to generate in excess of $400 million for fiscal year 2009. Given our shorter length of
haul and domestic focus, we believe these initiatives will benefit us more than our competitors.
Ancillary revenues include a first and second checked bag service fee, processing fees for travel
awards issued through our Dividend Miles frequent traveler program, our new Choice Seats program,
increases to the cost of call center/airport ticketing fees and increases to certain preexisting
service fees. As a result of these new ancillary revenues, while our mainline and Express PRASM was
10.75 cents in the third quarter of 2009, a 15.4% decline as compared to 12.71 cents in the third
quarter of 2008, our total revenue per available seat mile (RASM) declined by a lower amount.
RASM was 12.08 cents in the third quarter of 2009, as compared to 13.97 cents in the third quarter
of 2008, representing only a 13.5% decline. Our ancillary revenues were strengthened in the third
quarter of 2009, as we implemented increases to our first and second checked bag fees and added a
second checked bag fee on our trans-Atlantic European flights.
During the first nine months of 2009, we continued our capacity reduction, cost control and
cash conservation initiatives to further improve our liquidity position.
Capacity and Fleet Reductions
We are continuing to execute our plan of reducing our 2009 total mainline capacity by 4% to 6%
and our Express capacity by 4% to 6% from 2008 levels. During the first nine months of 2009, we
reduced our mainline and Express capacity by 5.5% and 4.5%, respectively, over the 2008 period. We
are achieving our 2009 capacity reductions through the return of aircraft to lessors and reductions
in aircraft utilization.
We are also executing strategic transactions to better match capacity to demand. In August
2009, US Airways Group and US Airways entered into a mutual asset purchase and sale agreement with
Delta Air Lines, Inc. (Delta). Pursuant to the agreement, US Airways will transfer to Delta
certain assets related to flight operations at LaGuardia Airport in New York, including 125 pairs
of slots currently used to provide US Airways Express service at LaGuardia. Delta will transfer to
US Airways certain assets related to flight operations at Reagan National Airport in Washington,
D.C., including 42 pairs of slots, and the authority to serve Sao Paulo, Brazil and Tokyo, Japan.
One slot equals one take-off or landing, and each pair of slots equals one roundtrip flight. The
agreement is structured as two simultaneous asset sales and is expected to be cash neutral to US
Airways. The closing of the transactions under the agreement is subject to certain closing
conditions, including approvals from a number of government agencies including the U.S. Department
of Justice, the U.S. Department of Transportation, the Federal Aviation Administration and The Port
Authority of New York and New Jersey. If approved, this transaction will significantly increase our
capacity in the Washington, D.C. market.
Cost Control
We remain committed to maintaining a low cost structure, which we believe is necessary in an
industry whose economic prospects are heavily dependent upon two variables we cannot control: the
health of the economy and the price of fuel. As a result of reduced flying discussed above, we have
reduced non-essential headcount through voluntary and involuntary furlough programs as well as
attrition. In connection with our capacity reductions described above, we have eliminated
approximately 3,200 positions across the system including 300 pilots, 800 flight attendants, 1,400
airport employees and 700 non-union administrative management and staff since the third quarter of
2008. Most importantly, we control costs by continuing to run a good operation. See the Customer
Service section below for further discussion. Additionally, in the current industry environment,
our cost focus has been extended to cash conservation, and we intend to minimize or defer
discretionary expenditures.
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Liquidity
As of September 30, 2009, our cash, cash equivalents, investments in marketable securities and
restricted cash were $2 billion, of which $530 million was restricted. Our investments in
marketable securities included $228 million of auction rate securities that are classified as
noncurrent assets on our condensed consolidated balance sheets. See Liquidity and Capital
Resources for further discussion of our investments in auction rate securities.
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(In millions) | ||||||||
Cash, cash equivalents and short-term investments in marketable securities |
$ | 1,242 | $ | 1,054 | ||||
Short and long-term restricted cash |
530 | 726 | ||||||
Long-term investments in marketable securities |
228 | 187 | ||||||
Total cash, cash equivalents, investments in marketable securities and restricted cash |
$ | 2,000 | $ | 1,967 | ||||
We have taken several actions in 2009 to strengthen our liquidity position. In the third
quarter of 2009, we completed an underwritten public offering of common stock which generated net
proceeds of $137 million. During the first half of 2009, we completed a series of financing
transactions generating approximately $350 million in net proceeds, including common stock and
convertible note offerings, which generated net proceeds of $234 million, an additional loan under
a spare parts loan agreement, a loan secured by certain airport landing slots and an unsecured
financing with one of our third party Express carriers.
All of our remaining A320 family aircraft scheduled for delivery in 2009 have backstop
financing available through the manufacturer and we have secured financing for the remaining two
A330-200 deliveries scheduled for delivery in 2009. Due to the uncertainty of the ongoing effects
of the economic recession, we are pursuing additional sources of liquidity as well as strategies to
preserve liquidity to strengthen our position.
Current Financial Results and Outlook
US Airways Groups net loss for the third quarter of 2009 was $80 million, or a loss of $0.60
per share, as compared to a net loss of $866 million, or $8.46 per share, in the third quarter of
2008.
The average mainline and Express price per gallon of fuel decreased 49.3% to $1.90 in the
third quarter of 2009 from $3.75 in the third quarter of 2008. As a result, our mainline and
Express fuel expense for the third quarter of 2009 was $754 million or 51.7% lower than the 2008
period on 3.6% lower capacity. Since the third quarter of 2008, we have not entered into any new
transactions as part of our fuel hedging program and as of September 30, 2009, there were no
remaining outstanding fuel hedging contracts. Net losses associated with fuel hedging transactions
were $2 million in the third quarter of 2009, a decline of $418 million from the 2008 period. The
third quarter of 2009 included $50 million of net realized losses, offset by $48 million of net
unrealized gains. In mark-to-market accounting, the unrealized losses recognized in prior periods
are reversed as hedge transactions are settled in the current period.
While fuel costs decreased significantly, the weak demand environment caused by the global
economic recession resulted in a $549 million or 18.5% decrease in mainline and Express passenger
revenues in the third quarter of 2009 on lower capacity as compared to the 2008 period. Our
mainline and Express PRASM was 10.75 cents in the third quarter of 2009, a 15.4% decline as
compared to 12.71 cents in the third quarter of 2008. Mainline and Express yield was 13.01 cents in
the third quarter of 2009 as compared to 15.45 cents in the third quarter of 2008, a 15.8% decline.
As discussed above, our new ancillary revenues introduced during 2008 mitigated some of the impact
of declining demand. While PRASM declined 15.4% as compared to the third quarter of 2008, our total
RASM decline was only 13.5%, decreasing from 13.97 cents in the third quarter of 2008 to 12.08
cents in the third quarter of 2009.
While the magnitude of the ongoing impact of the weakened economic environment remains
uncertain, we believe that our greater presence in U.S. domestic markets as well as our actions to
increase revenue, reduce costs and strengthen and preserve liquidity have better positioned us
relative to other U.S. legacy or big six hub and spoke carriers for the difficult global economy.
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Customer Service
We are committed to running a successful airline. One of the important ways we do this is by
taking care of our customers. We believe that our focus on excellent customer service in every
aspect of our operations, including personnel, flight equipment, in-flight and ancillary amenities,
on-time performance, flight completion ratios and baggage handling, will strengthen customer
loyalty and attract new customers.
Through August 2009, we ranked first in on-time performance among the big six hub and spoke
carriers as measured by the Department of Transportations (DOT) Air Travel Consumer Report. This
follows our first place ranking for the full year 2008 among these same carriers. Our mishandled
baggage ratio as reported by the DOT has significantly improved each month during the first nine
months of 2009 as compared to the same period in 2008. For the months of July and August of 2009,
our ratio of mishandled bags ranked second and third, respectively, as measured against the 10
largest airlines according to the DOT monthly Air Travel Consumer Report. Additionally, our
mishandled baggage rate of 2.14 per 1,000 passengers reported in September 2009 is our lowest ratio
since January 2002. The combination of continued strong on-time performance and fewer mishandled
bags contributed to 49.8% fewer reported customer complaints to the DOT in the third quarter of
2009 as compared to the same period in 2008.
We reported the following combined operating statistics to the DOT for mainline operations for
the third quarter of 2009 and 2008:
2009 | 2008 | Percent Change 2009-2008 | ||||||||||||||||||||||||||||||||||
July | August | September (e) | July | August | September | July | August | September | ||||||||||||||||||||||||||||
On-time performance (a) |
80.6 | 81.4 | 87.9 | 78.3 | 80.8 | 84.1 | 2.9 | 0.7 | 4.5 | |||||||||||||||||||||||||||
Completion factor (b) |
98.9 | 99.0 | 99.5 | 98.3 | 98.2 | 98.8 | 0.6 | 0.8 | 0.7 | |||||||||||||||||||||||||||
Mishandled baggage (c) |
2.75 | 2.90 | 2.14 | 4.22 | 4.09 | 3.09 | (34.8 | ) | (29.1 | ) | (30.7 | ) | ||||||||||||||||||||||||
Customer complaints (d) |
1.18 | 1.10 | 0.99 | 2.16 | 2.45 | 1.90 | (45.4 | ) | (55.1 | ) | (47.9 | ) |
(a) | Percentage of reported flight operations arriving on time as defined by the DOT. |
|
(b) | Percentage of scheduled flight operations completed. |
|
(c) | Rate of mishandled baggage reports per 1,000 passengers. |
|
(d) | Rate of customer complaints filed with the DOT per 100,000 passengers. |
|
(e) | September 2009 operating statistics are preliminary as the DOT has not issued its September
2009 Air Travel Consumer Report as of the date of this filing. |
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US Airways Groups Results of Operations
In the three months ended September 30, 2009, we realized operating income of $6 million and a
loss before income taxes of $80 million. The weak demand environment caused by the global economic
recession drove a $542 million or 16.6% decrease in total revenues on 3.6% lower capacity as
compared to the 2008 period. The declines in revenues were offset by lower fuel expense as our
mainline and Express fuel expense for the third quarter of 2009 was $754 million or 51.7% lower
than the 2008 period on 3.6% lower capacity. The average mainline and Express price per gallon of
fuel decreased 49.3% to $1.90 in the third quarter of 2009 from $3.75 in the third quarter of 2008.
Our third quarter 2009 results were also impacted by recognition of the following items:
| $50 million of net realized losses on settled fuel hedging instruments, offset
by $48 million of net unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments. In mark-to-market
accounting, the unrealized losses recognized in prior periods are reversed as hedge
transactions are settled in the current period. We were required to use mark-to-market
accounting as our fuel hedging instruments did not meet the requirements for hedge
accounting. If these instruments had qualified for hedge accounting treatment, any unrealized
gains or losses would have been recorded in other comprehensive income, a component of
stockholders equity; |
| $15 million of net special charges consisting of $10 million in aircraft costs
as a result of our previously announced capacity reductions and $5 million in severance and
other charges; and |
| $3 million in other-than-temporary non-cash impairment charges included in
nonoperating expense, net for our investments in auction rate securities. |
In the three months ended September 30, 2008, we realized an operating loss of $689 million
and a loss before income taxes of $863 million. The third quarter of 2008 loss was driven by an
average price per gallon of fuel of $3.75 for mainline and Express operations. Our third quarter
2008 results were also impacted by recognition of the following items:
| $488 million of net unrealized losses resulting from the application of
mark-to-market accounting for changes in the fair value of fuel hedging instruments, offset
by $68 million of net realized gains on settled fuel hedging instruments; |
| $8 million of net special charges for severance costs as a result of our
capacity reductions; and |
| $127 million in other-than-temporary non-cash impairment charges included in
nonoperating expense, net for our investments in auction rate securities. |
In the first nine months of 2009, we realized operating income of $103 million and a loss
before income taxes of $125 million. The weak demand environment caused by the global economic
recession drove a $1.53 billion or 16.3% decrease in total revenues on 5.3% lower capacity as
compared to the 2008 period. The declines in revenues were offset by lower fuel expense as our
mainline and Express fuel expense for the first nine months of 2009 was $2.17 billion or 54.7%
lower than the 2008 period on 5.3% lower capacity. The average mainline and Express price per
gallon of fuel decreased 51.5% to $1.67 in the first nine months of 2009 from $3.44 in the 2008
period. Our results for the first nine months of 2009 were also impacted by recognition of the
following items:
| $382 million of net realized losses on settled fuel hedging instruments, offset
by $375 million of net unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments; |
| $22 million of net special charges consisting of $16 million in aircraft costs
as a result of our previously announced capacity reductions and $6 million in severance and
other charges; and |
| $10 million in other-than-temporary non-cash impairment charges for our
investments in auction rate securities as well as a $2 million non-cash asset impairment
charge, all included in nonoperating expense, net. |
In the first nine months of 2008, we realized an operating loss of $1.42 billion and a loss
before income taxes of $1.67 billion. The loss in the first nine months of 2008 was driven by an
average price per gallon of fuel of $3.44 for mainline and Express operations as well as a $622
million non-cash charge to write off all the goodwill created by the merger of US Airways Group and
America West Holdings in September 2005. Our results for the first nine months of 2008 were also
impacted by recognition of the following items:
| $342 million of net realized gains on settled fuel hedging instruments, offset
by $262 million of net unrealized losses resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments;
|
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| $67 million of net special charges consisting of $35 million of merger related
transition expenses, $18 million in non-cash charges related to the decline in the fair value
of certain spare parts associated with our Boeing 737 aircraft fleet, and as a result of our
capacity reductions, $8 million in severance charges and $6 million in aircraft costs; and |
| $140 million in other-than-temporary non-cash impairment charges for our
investments in auction rate securities, a $2 million write off of debt discount and debt
issuance costs in connection with the refinancing of certain aircraft equipment notes, offset
by $8 million in gains on forgiveness of debt, all included in nonoperating expense, net. |
At December 31, 2008, we had approximately $1.4 billion of gross net operating loss
carryforwards (NOL) to reduce future federal taxable income, substantially all of which is
available to reduce federal taxable income in the calendar year 2009. The NOL expires during the
years 2022 through 2028. Our deferred tax asset, which included $1.3 billion of the NOL discussed
above, has been subject to a full valuation allowance. We also had approximately $77 million of
tax-effected state NOL at December 31, 2008.
We reported a loss in the nine months ended September 30, 2009 and did not record a tax
provision in any 2009 period.
We recorded income tax expense of $3 million in the three and nine month periods ended
September 30, 2008 related to a reconciliation of the 2007 tax provision to the tax return as filed
in the third quarter of 2008.
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The table below sets forth our selected mainline and Express operating data:
Three Months Ended | Percent | Nine Months Ended | Percent | |||||||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||||||
2009 | 2008 | 2009-2008 | 2009 | 2008 | 2009-2008 | |||||||||||||||||||
Mainline |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
15,719 | 16,270 | (3.4 | ) | 44,553 | 46,952 | (5.1 | ) | ||||||||||||||||
Available seat miles (millions) (b) |
18,718 | 19,402 | (3.5 | ) | 54,007 | 57,124 | (5.5 | ) | ||||||||||||||||
Passenger load factor (percent) (c) |
84.0 | 83.9 | 0.1 | pts | 82.5 | 82.2 | 0.3 | pts | ||||||||||||||||
Yield (cents) (d) |
11.18 | 13.50 | (17.2 | ) | 11.43 | 13.56 | (15.7 | ) | ||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
9.39 | 11.32 | (17.1 | ) | 9.43 | 11.14 | (15.4 | ) | ||||||||||||||||
Operating cost per available seat mile (cents) (f) |
11.00 | 16.01 | (31.3 | ) | 10.82 | 14.67 | (26.2 | ) | ||||||||||||||||
Passenger enplanements (thousands) (g) |
13,049 | 14,068 | (7.2 | ) | 38,899 | 42,014 | (7.4 | ) | ||||||||||||||||
Departures (thousands) |
115 | 125 | (7.5 | ) | 350 | 378 | (7.2 | ) | ||||||||||||||||
Aircraft at end of period |
348 | 358 | (2.8 | ) | 348 | 358 | (2.8 | ) | ||||||||||||||||
Block hours (thousands) (h) |
313 | 332 | (5.6 | ) | 934 | 996 | (6.2 | ) | ||||||||||||||||
Average stage length (miles) (i) |
1,013 | 986 | 2.7 | 977 | 965 | 1.3 | ||||||||||||||||||
Average passenger journey (miles) (j) |
1,766 | 1,645 | 7.4 | 1,650 | 1,583 | 4.3 | ||||||||||||||||||
Fuel consumption (gallons in millions) |
282 | 297 | (5.0 | ) | 818 | 882 | (7.2 | ) | ||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
1.89 | 3.73 | (49.4 | ) | 1.65 | 3.42 | (51.7 | ) | ||||||||||||||||
Full time equivalent employees at end of period |
31,592 | 32,779 | (3.6 | ) | 31,592 | 32,779 | (3.6 | ) | ||||||||||||||||
Express (k) |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
2,873 | 2,942 | (2.4 | ) | 8,055 | 8,333 | (3.3 | ) | ||||||||||||||||
Available seat miles (millions) (b) |
3,785 | 3,943 | (4.0 | ) | 10,917 | 11,434 | (4.5 | ) | ||||||||||||||||
Passenger load factor (percent) (c) |
75.9 | 74.6 | 1.3 | pts | 73.8 | 72.9 | 0.9 | pts | ||||||||||||||||
Yield (cents) (d) |
23.06 | 26.20 | (12.0 | ) | 23.04 | 26.76 | (13.9 | ) | ||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
17.50 | 19.55 | (10.5 | ) | 17.00 | 19.50 | (12.8 | ) | ||||||||||||||||
Operating cost per available seat mile (cents) (f) |
17.27 | 21.40 | (19.3 | ) | 17.24 | 20.98 | (17.8 | ) | ||||||||||||||||
Passenger enplanements (thousands) (g) |
7,235 | 7,117 | 1.7 | 20,264 | 20,382 | (0.6 | ) | |||||||||||||||||
Aircraft at end of period |
288 | 296 | (2.7 | ) | 288 | 296 | (2.7 | ) | ||||||||||||||||
Fuel consumption (gallons in millions) |
89 | 92 | (3.6 | ) | 256 | 269 | (4.7 | ) | ||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
1.93 | 3.80 | (49.3 | ) | 1.71 | 3.49 | (51.0 | ) | ||||||||||||||||
Total Mainline and Express |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
18,592 | 19,212 | (3.2 | ) | 52,608 | 55,285 | (4.8 | ) | ||||||||||||||||
Available seat miles (millions) (b) |
22,503 | 23,345 | (3.6 | ) | 64,924 | 68,558 | (5.3 | ) | ||||||||||||||||
Passenger load factor (percent) (c) |
82.6 | 82.3 | 0.3 | pts | 81.0 | 80.6 | 0.4 | pts | ||||||||||||||||
Yield (cents) (d) |
13.01 | 15.45 | (15.8 | ) | 13.21 | 15.55 | (15.0 | ) | ||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
10.75 | 12.71 | (15.4 | ) | 10.70 | 12.54 | (14.6 | ) | ||||||||||||||||
Total revenue per available seat mile (cents) (l) |
12.08 | 13.97 | (13.5 | ) | 12.06 | 13.65 | (11.6 | ) | ||||||||||||||||
Passenger enplanements (thousands) (g) |
20,284 | 21,185 | (4.2 | ) | 59,163 | 62,396 | (5.2 | ) | ||||||||||||||||
Aircraft at end of period |
636 | 654 | (2.8 | ) | 636 | 654 | (2.8 | ) | ||||||||||||||||
Fuel consumption (gallons in millions) |
371 | 389 | (4.7 | ) | 1,074 | 1,151 | (6.6 | ) | ||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
1.90 | 3.75 | (49.3 | ) | 1.67 | 3.44 | (51.5 | ) |
(a) | Revenue passenger mile (RPM) A basic measure of sales volume. A RPM represents one
passenger flown one mile. |
|
(b) | Available seat mile (ASM) A basic measure of production. An ASM represents one seat flown
one mile. |
|
(c) | Passenger load factor The percentage of available seats that are filled with revenue
passengers. |
|
(d) | Yield A measure of airline revenue derived by dividing passenger revenue by revenue
passenger miles and expressed in cents per mile. |
|
(e) | Passenger revenue per available seat mile (PRASM) Passenger revenues divided by available
seat miles. |
|
(f) | Operating cost per available seat mile (CASM) Operating expenses divided by available
seat miles. |
|
(g) | Passenger enplanements The number of passengers on board an aircraft including local,
connecting and through passengers. |
34
Table of Contents
(h) | Block hours The hours measured from the moment an aircraft first moves under its own power,
including taxi time, for the purposes of flight until the aircraft is docked at the next point
of landing and its power is shut down. |
|
(i) | Average stage length The average of the distances flown on each segment of every route. |
|
(j) | Average passenger journey The average one-way trip measured in miles for one passenger
origination. |
|
(k) | Express statistics include Piedmont and PSA, as well as operating and financial results from
capacity purchase agreements with Air Wisconsin Airlines Corporation, Republic Airways, Mesa
Airlines, Inc. and Chautauqua Airlines, Inc. |
|
(l) | Total revenue per available seat mile (RASM) Total revenues divided by total mainline and
Express available seat miles. |
Three Months Ended September 30, 2009
Compared with the
Three Months Ended September 30, 2008
Compared with the
Three Months Ended September 30, 2008
Operating Revenues:
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Operating revenues: |
||||||||||||
Mainline passenger |
$ | 1,757 | $ | 2,197 | (20.0 | ) | ||||||
Express passenger |
662 | 771 | (14.1 | ) | ||||||||
Cargo |
23 | 37 | (36.5 | ) | ||||||||
Other |
277 | 256 | 8.0 | |||||||||
Total operating revenues |
$ | 2,719 | $ | 3,261 | (16.6 | ) | ||||||
Total operating revenues in the third quarter of 2009 were $2.72 billion as compared to $3.26
billion in the 2008 period, a decline of $542 million or 16.6%. The weak demand environment in 2009
drove a $549 million or 18.5% decrease in mainline and Express passenger revenues on 3.6% lower
capacity as compared to the 2008 period. The increase in ancillary revenues resulting from our new
revenue initiatives implemented in the latter part of 2008 offset a portion of this decline. As a
result, on a period over period basis, total RASM decreased by only 13.5% as compared to mainline
and Express PRASM, which decreased by 15.4%. Significant changes in the components of operating
revenues are as follows:
| Mainline passenger revenues were $1.76 billion in the third quarter of 2009 as
compared to $2.2 billion for the 2008 period. Mainline RPMs decreased 3.4% as mainline
capacity, as measured by ASMs, decreased 3.5%, resulting in a 0.1 point increase in load
factor to 84%. Mainline passenger yield decreased 17.2% to 11.18 cents in the third quarter
of 2009 from 13.5 cents in the 2008 period. Mainline PRASM decreased 17.1% to 9.39 cents in
the third quarter of 2009 from 11.32 cents in the 2008 period. Mainline yield and PRASM
decreased in the third quarter of 2009 due principally to the decline in passenger demand and
weak pricing environment driven by the global economic recession. |
| Express passenger revenues were $662 million in the third quarter of 2009, a
decrease of $109 million from the 2008 period. Express RPMs decreased by 2.4% as Express
capacity, as measured by ASMs, decreased 4%, resulting in a 1.3 point increase in load factor
to 75.9%. Express passenger yield decreased by 12% to 23.06 cents in the third quarter of
2009 from 26.2 cents in the 2008 period. Express PRASM decreased 10.5% to 17.5 cents in the
third quarter of 2009 from 19.55 cents in the 2008 period. The decreases in Express yield and
PRASM were the result of the same passenger demand declines and weak pricing environment
discussed in mainline passenger revenues above. |
| Cargo revenues were $23 million in the third quarter of 2009, a decrease of $14
million or 36.5% from the 2008 period. The decrease in cargo revenues was driven by declines
in freight volumes as a result of the contraction of business spending in the current
economic environment as well as a decrease in fuel surcharges in 2009 as compared to the 2008
period. |
| Other revenues were $277 million in the third quarter of 2009, an increase of
$21 million or 8% from the 2008 period primarily due to an increase of $46 million generated
by our first checked bag fees, which were implemented in the third quarter of 2008. This
increase was offset in part by declines in fuel sales to our pro-rate carriers through our
MSC subsidiary driven by lower fuel prices in the 2009 period. A decline in the volume of
passenger ticketing change fees also contributed to this decrease. |
35
Table of Contents
Operating Expenses:
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Operating expenses: |
||||||||||||
Aircraft fuel and related taxes |
$ | 534 | $ | 1,110 | (51.9 | ) | ||||||
Loss (gain) on fuel hedging instruments, net: |
||||||||||||
Realized |
50 | (68 | ) | nm | ||||||||
Unrealized |
(48 | ) | 488 | nm | ||||||||
Salaries and related costs |
553 | 567 | (2.5 | ) | ||||||||
Aircraft rent |
171 | 183 | (6.4 | ) | ||||||||
Aircraft maintenance |
174 | 188 | (7.5 | ) | ||||||||
Other rent and landing fees |
148 | 137 | 8.2 | |||||||||
Selling expenses |
99 | 120 | (17.3 | ) | ||||||||
Special items, net |
15 | 8 | 81.6 | |||||||||
Depreciation and amortization |
63 | 52 | 20.2 | |||||||||
Other |
300 | 321 | (6.4 | ) | ||||||||
Total mainline operating expenses |
2,059 | 3,106 | (33.7 | ) | ||||||||
Express expenses: |
||||||||||||
Fuel |
171 | 349 | (51.1 | ) | ||||||||
Other |
483 | 495 | (2.3 | ) | ||||||||
Total Express expenses |
654 | 844 | (22.5 | ) | ||||||||
Total operating expenses |
$ | 2,713 | $ | 3,950 | (31.3 | ) | ||||||
Total operating expenses were $2.71 billion in the third quarter of 2009, a decrease of $1.24
billion or 31.3% compared to the 2008 period. Mainline operating expenses were $2.06 billion in the
third quarter of 2009, a decrease of $1.05 billion or 33.7% from the 2008 period, while ASMs
decreased 3.5%.
Mainline CASM decreased 31.3% to 11 cents in the third quarter of 2009 from 16.01 cents in the
2008 period. The period over period decrease in mainline CASM was driven principally by decreases
in fuel costs ($576 million or 2.87 cents per ASM) as well as a decrease in the net losses on fuel
hedging instruments ($418 million or 2.16 cents per ASM) in the 2009 period compared to the 2008
period.
The 2009 period included $15 million of net special charges consisting of $10 million in
aircraft costs as a result of our previously announced capacity reductions and $5 million in
severance and other charges. This compares to net special charges of $8 million in the 2008 period
for severance costs as a result of our capacity reductions.
The table below sets forth the major components of our mainline CASM for the three months
ended September 30, 2009 and 2008:
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In cents) | ||||||||||||
Mainline CASM: |
||||||||||||
Aircraft fuel and related taxes |
2.85 | 5.72 | (50.2 | ) | ||||||||
Loss on fuel hedging instruments, net |
0.01 | 2.17 | (99.5 | ) | ||||||||
Salaries and related costs |
2.96 | 2.92 | 1.1 | |||||||||
Aircraft rent |
0.91 | 0.94 | (2.9 | ) | ||||||||
Aircraft maintenance |
0.93 | 0.97 | (4.1 | ) | ||||||||
Other rent and landing fees |
0.79 | 0.71 | 12.1 | |||||||||
Selling expenses |
0.53 | 0.62 | (14.2 | ) | ||||||||
Special items, net |
0.08 | 0.04 | 88.2 | |||||||||
Depreciation and amortization |
0.34 | 0.27 | 24.6 | |||||||||
Other |
1.60 | 1.65 | (3.0 | ) | ||||||||
Total mainline CASM |
11.00 | 16.01 | (31.3 | ) | ||||||||
36
Table of Contents
Significant changes in the components of mainline operating expense per ASM are as follows:
| Aircraft fuel and related taxes per ASM decreased 50.2% primarily due to a 49.4% decrease
in the average price per gallon of fuel to $1.89 in the third quarter of 2009 from $3.73 in
the 2008 period. A 5% decrease in gallons of fuel consumed in the 2009 period on 3.5% lower
capacity also contributed to the decrease. |
| Loss on fuel hedging instruments, net per ASM was a loss of 0.01 cent in the
third quarter of 2009 as compared to a loss of 2.17 cents in the third quarter of 2008.
Since the third quarter of 2008, we have not entered into any new transactions as part of
our fuel hedging program and as of September 30, 2009, there were no remaining outstanding
fuel hedging contracts. The net loss in the 2009 period included realized losses of $50
million on settled fuel hedging instruments, offset by net unrealized gains of $48 million.
The unrealized gains are the result of the application of mark-to-market accounting in which
unrealized losses recognized in prior periods are reversed as hedge transactions are settled
in the current period. We recognized net losses from our fuel hedging program in the third
quarter of 2008 due to the significant decline in the price of oil in September 2008, which
generated unrealized losses on certain open fuel hedging instruments as the price of heating
oil fell below the lower limit of those collar transactions. |
| Other rent and landing fees per ASM increased 12.1% despite a decrease in ASMs of 3.5%
over the 2008 period due to rate increases in landing fees and space rent at certain airport
locations as well as the fixed nature of space rent. |
| Selling expenses per ASM decreased 14.2% due to lower credit card fees, booking fees and
commissions paid as a result of a decline in the number and value of tickets sold resulting
from the weakened demand and pricing caused by the economic recession. |
| Depreciation and amortization expense per ASM increased 24.6% due to an increase in the
average number of owned aircraft to 75 in the 2009 period from 57 in the 2008 period, which
increased depreciation expense. The increase in the average number of owned aircraft
included 13 Airbus 320 family, three Embraer 190 and two Airbus 330 aircraft. |
Total Express expenses decreased $190 million or 22.5% in the third quarter of 2009 to $654
million from $844 million in the 2008 period. The period over period decrease was primarily driven
by decreases in fuel costs. Express fuel costs decreased $178 million as the average fuel price per
gallon decreased 49.3% from $3.80 in the 2008 period to $1.93 in the 2009 period. In addition,
gallons of fuel consumed in 2009 decreased 3.6% on 4% lower capacity. Other Express expenses
decreased $12 million or 2.3% despite a 4% decrease in Express ASMs due to certain fixed costs
associated with our capacity purchase agreements as well as certain contractual rate increases with
these carriers.
Nonoperating Income (Expense):
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Nonoperating income (expense): |
||||||||||||
Interest income |
$ | 5 | $ | 19 | (75.1 | ) | ||||||
Interest expense, net |
(81 | ) | (58 | ) | 40.3 | |||||||
Other, net |
(10 | ) | (135 | ) | (93.0 | ) | ||||||
Total nonoperating expense, net |
$ | (86 | ) | $ | (174 | ) | (50.5 | ) | ||||
Net nonoperating expense was $86 million in the third quarter of 2009 as compared to $174
million in the 2008 period. Interest income decreased $14 million in the 2009 period due to lower
average investment balances and lower rates of return. Interest expense, net increased $23 million
due to an increase in the average debt balance outstanding primarily as a result of financing
transactions completed in the fourth quarter of 2008 and first nine months of 2009, partially
offset by reductions in average interest rates associated with variable rate debt as compared to
the 2008 period.
Other nonoperating expense, net in the 2009 period included a $6 million loss on the sale of
certain aircraft equipment and $3 million in other-than-temporary non-cash impairment charges for
our investments in auction rate securities. Other nonoperating expense, net in the 2008 period
included $127 million in other-than-temporary non-cash impairment charges for our investments in
auction rate securities as well as $8 million in foreign currency losses. The impairment charges on
auction rate securities are discussed in more detail under Liquidity and Capital Resources.
37
Table of Contents
Nine Months Ended September 30, 2009
Compared with the
Nine Months Ended September 30, 2008
Compared with the
Nine Months Ended September 30, 2008
Operating Revenues:
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Operating revenues: |
||||||||||||
Mainline passenger |
$ | 5,092 | $ | 6,364 | (20.0 | ) | ||||||
Express passenger |
1,856 | 2,230 | (16.8 | ) | ||||||||
Cargo |
67 | 111 | (39.3 | ) | ||||||||
Other |
817 | 652 | 25.3 | |||||||||
Total operating revenues |
$ | 7,832 | $ | 9,357 | (16.3 | ) | ||||||
Total operating revenues for the nine months ended September 30, 2009 were $7.83 billion as
compared to $9.36 billion in the 2008 period, a decline of $1.53 billion or 16.3%. The weak demand
environment in 2009 drove a $1.65 billion or 19.2% decrease in mainline and Express passenger
revenues on 5.3% lower capacity as compared to the 2008 period. The increase in ancillary revenues
resulting from our new revenue initiatives implemented in the latter part of 2008 offset a portion
of this decline. As a result, on a period over period basis, total RASM decreased only 11.6% as
compared to mainline and Express PRASM, which decreased by 14.6%. Significant changes in the
components of operating revenues are as follows:
| Mainline passenger revenues were $5.09 billion for the nine months ended
September 30, 2009 as compared to $6.36 billion for the 2008 period. Mainline RPMs decreased
5.1% as mainline capacity, as measured by ASMs, decreased 5.5%, resulting in a 0.3 point
increase in load factor to 82.5%. Mainline passenger yield decreased 15.7% to 11.43 cents in
the first nine months of 2009 from 13.56 cents in the 2008 period. Mainline PRASM decreased
15.4% to 9.43 cents in the first nine months of 2009 from 11.14 cents in the 2008 period.
Mainline yield and PRASM decreased in the first nine months of 2009 due principally to the
decline in passenger demand and weak pricing environment driven by the global economic
recession. |
| Express passenger revenues were $1.86 billion for the nine months ended
September 30, 2009, a decrease of $374 million from the 2008 period. Express RPMs decreased
by 3.3% as Express capacity, as measured by ASMs, decreased 4.5%, resulting in a 0.9 point
increase in load factor to 73.8%. Express passenger yield decreased by 13.9% to 23.04 cents
in the first nine months of 2009 from 26.76 cents in the 2008 period. Express PRASM decreased
12.8% to 17 cents in the first nine months of 2009 from 19.5 cents in the 2008 period. The
decreases in Express yield and PRASM were the result of the same passenger demand declines
and weak pricing environment discussed in mainline passenger revenues above. |
| Cargo revenues were $67 million for the nine months ended September 30, 2009, a
decrease of $44 million or 39.3% from the 2008 period. The decrease in cargo revenues was
driven by declines in freight volumes as a result of the contraction of business spending in
the current economic environment as well as a decrease in fuel surcharges in 2009 as compared
to the 2008 period. |
| Other revenues were $817 million for the nine months ended September 30, 2009,
an increase of $165 million or 25.3% from the 2008 period. The increase was primarily due to
an increase of $221 million generated by our first and second checked bag fees, which were
implemented in the second and third quarters of 2008. This increase was offset in part by
declines in fuel sales to our pro-rate carriers through our MSC subsidiary driven by lower
fuel prices in the 2009 period. A decline in the volume of passenger ticketing change fees
also contributed to this decrease. |
38
Table of Contents
Operating Expenses:
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Operating expenses: |
||||||||||||
Aircraft fuel and related taxes |
$ | 1,353 | $ | 3,018 | (55.2 | ) | ||||||
Loss (gain) on fuel hedging instruments, net: |
||||||||||||
Realized |
382 | (342 | ) | nm | ||||||||
Unrealized |
(375 | ) | 262 | nm | ||||||||
Salaries and related costs |
1,653 | 1,701 | (2.8 | ) | ||||||||
Aircraft rent |
523 | 544 | (3.9 | ) | ||||||||
Aircraft maintenance |
532 | 601 | (11.4 | ) | ||||||||
Other rent and landing fees |
422 | 424 | (0.6 | ) | ||||||||
Selling expenses |
291 | 340 | (14.5 | ) | ||||||||
Special items, net |
22 | 67 | (67.7 | ) | ||||||||
Depreciation and amortization |
185 | 159 | 16.0 | |||||||||
Goodwill impairment |
| 622 | nm | |||||||||
Other |
859 | 982 | (12.5 | ) | ||||||||
Total mainline operating expenses |
5,847 | 8,378 | (30.2 | ) | ||||||||
Express expenses: |
||||||||||||
Fuel |
438 | 938 | (53.3 | ) | ||||||||
Other |
1,444 | 1,462 | (1.2 | ) | ||||||||
Total Express expenses |
1,882 | 2,400 | (21.6 | ) | ||||||||
Total operating expenses |
$ | 7,729 | $ | 10,778 | (28.3 | ) | ||||||
Total operating expenses were $7.73 billion in the first nine months of 2009, a decrease of
$3.05 billion or 28.3% compared to the 2008 period. Mainline operating expenses were $5.85 billion
in the first nine months of 2009, a decrease of $2.53 billion or 30.2% from the 2008 period, while
ASMs decreased 5.5%.
Mainline CASM decreased 26.2% to 10.82 cents in the first nine months of 2009 from 14.67 cents
in the 2008 period. The period over period decrease in mainline CASM was driven principally by
decreases in fuel costs ($1.67 billion or 2.78 cents per ASM) in the 2009 period. The 2008 period
included a $622 million non-cash charge to write off all of the goodwill created by the merger of
US Airways Group and America West Holdings in September 2005, which contributed 1.09 cents to our
mainline CASM.
The 2009 period included $22 million of net special charges consisting of $16 million in
aircraft costs as a result of our previously announced capacity reductions and $6 million in
severance and other charges. This compares to net special charges of $67 million in the 2008
period, consisting of $35 million of merger related transition expenses, $18 million in non-cash
charges related to the decline in the fair value of certain spare parts associated with our Boeing
737 aircraft fleet, and as a result of our capacity reductions, $8 million in severance charges and
$6 million in aircraft costs.
The table below sets forth the major components of our mainline CASM for the nine months ended
September 30, 2009 and 2008:
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In cents) | ||||||||||||
Mainline CASM: |
||||||||||||
Aircraft fuel and related taxes |
2.50 | 5.28 | (52.6 | ) | ||||||||
Loss (gain) on fuel hedging instruments, net |
0.01 | (0.14 | ) | nm | ||||||||
Salaries and related costs |
3.06 | 2.98 | 2.8 | |||||||||
Aircraft rent |
0.97 | 0.95 | 1.6 | |||||||||
Aircraft maintenance |
0.99 | 1.05 | (6.3 | ) | ||||||||
Other rent and landing fees |
0.78 | 0.74 | 5.1 | |||||||||
Selling expenses |
0.54 | 0.60 | (9.6 | ) | ||||||||
Special items, net |
0.04 | 0.12 | (65.9 | ) | ||||||||
Depreciation and amortization |
0.34 | 0.28 | 22.7 | |||||||||
Goodwill impairment |
| 1.09 | nm | |||||||||
Other |
1.59 | 1.72 | (7.5 | ) | ||||||||
Total mainline CASM |
10.82 | 14.67 | (26.2 | ) | ||||||||
39
Table of Contents
Significant changes in the components of mainline operating expense per ASM are as follows:
| Aircraft fuel and related taxes per ASM decreased 52.6% primarily due to a 51.7% decrease
in the average price per gallon of fuel to $1.65 in the first nine months of 2009 from $3.42
in the 2008 period. A 7.2% decrease in gallons of fuel consumed in the 2009 period on 5.5%
lower capacity also contributed to the decrease. |
| Loss (gain) on fuel hedging instruments, net per ASM fluctuated to a loss of
0.01 cent in the first nine months of 2009 from a gain of 0.14 cents in the first nine
months of 2008. Since the third quarter of 2008, we have not entered into any new
transactions as part of our fuel hedging program and as of September 30, 2009, there were no
remaining outstanding fuel hedging contracts. The net loss in the 2009 period included
realized losses of $382 million on settled fuel hedging instruments, offset by $375 million
of net unrealized gains. The unrealized gains are the result of the application of
mark-to-market accounting in which unrealized losses recognized in prior periods are
reversed as hedge transactions are settled in the current period. We recognized net gains
from our fuel hedging program in the first nine months of 2008 as the price of heating oil
exceeded the upper limit on certain of our collar transactions. |
| Aircraft maintenance expense per ASM decreased 6.3% due principally to
decreases in the number of engine and landing gear overhauls performed in the 2009 period as
compared to the 2008 period as a result of the timing of maintenance cycles. |
| Other rent and landing fees per ASM increased 5.1% despite a decrease in ASMs of 5.5%
over the 2008 period due to the fixed nature of space rent as well as rate increases in
landing fees and space rent at certain airport locations. |
| Selling expenses per ASM decreased 9.6% due to lower credit card fees, booking fees and
commissions paid as a result of a decline in the number and value of tickets sold resulting
from the weakened demand and pricing caused by the economic recession. |
| Depreciation and amortization expense per ASM increased 22.7% due to an increase in the
average number of owned aircraft to 69 in the 2009 period from 51 in the 2008 period, which
increased depreciation expense. The increase in the average number of owned aircraft
included nine Airbus 320 family, eight Embraer 190 and one Airbus 330 aircraft. |
| Other expense per ASM decreased 7.5% due to a decrease in the incremental cost of travel
awards associated with our frequent traveler program, principally as a result of lower fuel
costs and the decline in the cost of fuel associated with sales to pro-rate carriers through
MSC driven by lower fuel prices in the 2009 period. Our continued focus on overall cost
control also contributed to the decrease. |
Total Express expenses decreased $518 million or 21.6% in the first nine months of 2009 to
$1.88 billion from $2.4 billion in the 2008 period. The period over period decrease was primarily
driven by decreases in fuel costs. Express fuel costs decreased $500 million as the average fuel
price per gallon decreased 51% from $3.49 in the first nine months of 2008 to $1.71 in the 2009
period. In addition, gallons of fuel consumed in 2009 decreased 4.7% on 4.5% lower capacity. Other
Express expenses decreased $18 million or 1.2% despite a 4.5% decrease in Express ASMs due to
certain fixed costs associated with our capacity purchase agreements as well as certain contractual
rate increases with these carriers.
Nonoperating Income (Expense):
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Nonoperating income (expense): |
||||||||||||
Interest income |
$ | 17 | $ | 69 | (74.6 | ) | ||||||
Interest expense, net |
(229 | ) | (176 | ) | 29.8 | |||||||
Other, net |
(16 | ) | (140 | ) | (88.2 | ) | ||||||
Total nonoperating expense, net |
$ | (228 | ) | $ | (247 | ) | (7.8 | ) | ||||
40
Table of Contents
Net nonoperating expense was $228 million in the first nine months of 2009 as compared to $247
million in the 2008 period. Interest income decreased $52 million in the 2009 period due to lower
average investment balances and lower rates of return. Interest expense, net increased $53 million
due to an increase in the average debt balance outstanding primarily as a result of financing
transactions completed in the fourth quarter of 2008 and first nine months of 2009, partially
offset by reductions in average interest rates associated with variable rate debt as compared to
the 2008 period.
Other nonoperating expense, net in the 2009 period included $10 million in
other-than-temporary non-cash impairment charges for our investments in auction rate securities, a
$6 million loss on the sale of certain aircraft equipment and a $2 million non-cash asset
impairment charge, offset by $2 million in foreign currency gains. Other nonoperating expense, net
in the 2008 period included $140 million in other-
than-temporary non-cash impairment charges for our investments in auction rate securities, $6
million in foreign currency losses, and a $2 million write off of debt discount and debt issuance
costs in connection with the refinancing of certain aircraft equipment notes, offset by $8 million
in gains on forgiveness of debt. The impairment charges on auction rate securities are discussed in
more detail under Liquidity and Capital Resources.
41
Table of Contents
US Airways Results of Operations
In the three months ended September 30, 2009, US Airways realized operating income of $1
million and a loss before income taxes of $68 million. The weak demand environment caused by the
global economic recession drove a $535 million or 16.2% decrease in total revenues on 3.6% lower
capacity as compared to the 2008 period. The declines in revenues were offset by lower fuel expense
as US Airways mainline and Express fuel expense for the third quarter of 2009 was $754 million or
51.7% lower than the 2008 period on 3.6% lower capacity. The average mainline and Express price per
gallon of fuel decreased 49.3% to $1.90 in the third quarter of 2009 from $3.75 in the third
quarter of 2008. US Airways third quarter 2009 results were also impacted by recognition of the
following items:
| $50 million of net realized losses on settled fuel hedging instruments, offset
by $48 million of net unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments. In mark-to-market
accounting, the unrealized losses recognized in prior periods are reversed as hedge
transactions are settled in the current period. US Airways was required to use mark-to-market
accounting as its fuel hedging instruments did not meet the requirements for hedge
accounting. If these instruments had qualified for hedge accounting treatment, any unrealized
gains or losses would have been recorded in other comprehensive income, a component of
stockholders equity; |
| $15 million of net special charges consisting of $10 million in aircraft costs
as a result of US Airways previously announced capacity reductions and $5 million in
severance and other charges; and |
| $3 million in other-than-temporary non-cash impairment charges included in
nonoperating expense, net for US Airways investments in auction rate securities. |
In the three months ended September 30, 2008, US Airways realized an operating loss of $688
million and a loss before income taxes of $852 million. The third quarter of 2008 loss was driven
by an average price per gallon of fuel of $3.75 for mainline and Express operations. US Airways
third quarter 2008 results were also impacted by recognition of the following items:
| $488 million of net unrealized losses resulting from the application of
mark-to-market accounting for changes in the fair value of fuel hedging instruments, offset
by $68 million of net realized gains on settled fuel hedging instruments; |
| $8 million of net special charges for severance costs as a result of US Airways
capacity reductions; and |
| $127 million in other-than-temporary non-cash impairment charges included in
nonoperating expense, net for US Airways investments in auction rate securities. |
In the first nine months of 2009, US Airways realized operating income of $96 million and a
loss before income taxes of $94 million. The weak demand environment caused by the global economic
recession drove a $1.5 billion or 15.9% decrease in total revenues on 5.3% lower capacity as
compared to the 2008 period. The declines in revenues were offset by lower fuel expense as US
Airways mainline and Express fuel expense for the first nine months of 2009 was $2.17 billion or
54.7% lower than the 2008 period on 5.3% lower capacity. The average mainline and Express price per
gallon of fuel decreased 51.5% to $1.67 in the first nine months of 2009 from $3.44 in the 2008
period. US Airways results for the first nine months of 2009 were also impacted by recognition of
the following items:
| $382 million of net realized losses on settled fuel hedging instruments, offset
by $375 million of net unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments; |
| $22 million of net special charges consisting of $16 million in aircraft costs
as a result of US Airways previously announced capacity reductions and $6 million in
severance and other charges; and |
| $10 million in other-than-temporary non-cash impairment charges for US Airways
investments in auction rate securities as well as a $2 million non-cash asset impairment
charge, all included in nonoperating expense, net. |
42
Table of Contents
In the first nine months of 2008, US Airways realized an operating loss of $1.42 billion and a
loss before income taxes of $1.64 billion. The loss in the first nine months of 2008 was driven by
an average price per gallon of fuel of $3.44 for mainline and Express operations as well as a $622
million non-cash charge to write off all the goodwill created by the merger of US Airways Group and
America West Holdings in September 2005. US Airways results for the first nine months of 2008 were
also impacted by recognition of the following items:
| $342 million of net realized gains on settled fuel hedging instruments, offset
by $262 million of net unrealized losses resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments; |
| $67 million of net special charges consisting of $35 million of merger related
transition expenses, $18 million in non-cash charges related to the decline in the fair value
of certain spare parts associated with US Airways Boeing 737 aircraft fleet, and as a result
of US Airways capacity reductions, $8 million in severance charges and $6 million in
aircraft costs; and |
| $140 million in other-than-temporary non-cash impairment charges for US Airways
investments in auction rate securities, a $2 million write off of debt discount and debt
issuance costs in connection with the refinancing of certain aircraft equipment notes, offset
by $8 million in gains on forgiveness of debt, all included in nonoperating expense, net. |
At December 31, 2008, US Airways had approximately $1.3 billion of gross NOL to reduce future
federal taxable income, substantially all of which is available to reduce federal taxable income in
the calendar year 2009. The NOL expires during the years 2022 through 2028. US Airways deferred
tax asset, which included $1.2 billion of the NOL discussed above, has been subject to a full
valuation allowance. US Airways also had approximately $72 million of tax-effected state NOL at
December 31, 2008.
US Airways reported a loss in the nine months ended September 30, 2009 and did not record a
tax provision in any 2009 period.
US Airways recorded income tax expense of $3 million in the three and nine month periods ended
September 30, 2008 related to a reconciliation of the 2007 tax provision to the tax return as filed
in the third quarter of 2008.
43
Table of Contents
The table below sets forth US Airways selected mainline and Express operating data:
Three Months Ended | Percent | Nine Months Ended | Percent | |||||||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||||||
2009 | 2008 | 2009-2008 | 2009 | 2008 | 2009-2008 | |||||||||||||||||||
Mainline |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
15,719 | 16,270 | (3.4 | ) | 44,553 | 46,952 | (5.1 | ) | ||||||||||||||||
Available seat miles (millions) (b) |
18,718 | 19,402 | (3.5 | ) | 54,007 | 57,124 | (5.5 | ) | ||||||||||||||||
Passenger load factor (percent) (c) |
84.0 | 83.9 | 0.1 | pts | 82.5 | 82.2 | 0.3 | pts | ||||||||||||||||
Yield (cents) (d) |
11.18 | 13.50 | (17.2 | ) | 11.43 | 13.56 | (15.7 | ) | ||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
9.39 | 11.32 | (17.1 | ) | 9.43 | 11.14 | (15.4 | ) | ||||||||||||||||
Aircraft at end of period |
348 | 358 | (2.8 | ) | 348 | 358 | (2.8 | ) | ||||||||||||||||
Fuel consumption (gallons in millions) |
282 | 297 | (5.0 | ) | 818 | 882 | (7.2 | ) | ||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
1.89 | 3.73 | (49.4 | ) | 1.65 | 3.42 | (51.7 | ) | ||||||||||||||||
Express (f) |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
2,873 | 2,942 | (2.4 | ) | 8,055 | 8,333 | (3.3 | ) | ||||||||||||||||
Available seat miles (millions) (b) |
3,785 | 3,943 | (4.0 | ) | 10,917 | 11,434 | (4.5 | ) | ||||||||||||||||
Passenger load factor (percent) (c) |
75.9 | 74.6 | 1.3 | pts | 73.8 | 72.9 | 0.9 | pts | ||||||||||||||||
Yield (cents) (d) |
23.06 | 26.20 | (12.0 | ) | 23.04 | 26.76 | (13.9 | ) | ||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
17.50 | 19.55 | (10.5 | ) | 17.00 | 19.50 | (12.8 | ) | ||||||||||||||||
Aircraft at end of period |
288 | 296 | (2.7 | ) | 288 | 296 | (2.7 | ) | ||||||||||||||||
Fuel consumption (gallons in millions) |
89 | 92 | (3.6 | ) | 256 | 269 | (4.7 | ) | ||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
1.93 | 3.80 | (49.3 | ) | 1.71 | 3.49 | (51.0 | ) | ||||||||||||||||
Total Mainline and Express |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
18,592 | 19,212 | (3.2 | ) | 52,608 | 55,285 | (4.8 | ) | ||||||||||||||||
Available seat miles (millions) (b) |
22,503 | 23,345 | (3.6 | ) | 64,924 | 68,558 | (5.3 | ) | ||||||||||||||||
Passenger load factor (percent) (c) |
82.6 | 82.3 | 0.3 | pts | 81.0 | 80.6 | 0.4 | pts | ||||||||||||||||
Yield (cents) (d) |
13.01 | 15.45 | (15.8 | ) | 13.21 | 15.55 | (15.0 | ) | ||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
10.75 | 12.71 | (15.4 | ) | 10.70 | 12.54 | (14.6 | ) | ||||||||||||||||
Total revenue per available seat mile (cents) (g) |
12.26 | 14.11 | (13.1 | ) | 12.24 | 13.78 | (11.2 | ) | ||||||||||||||||
Aircraft at end of period |
636 | 654 | (2.8 | ) | 636 | 654 | (2.8 | ) | ||||||||||||||||
Fuel consumption (gallons in millions) |
371 | 389 | (4.7 | ) | 1,074 | 1,151 | (6.6 | ) | ||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
1.90 | 3.75 | (49.3 | ) | 1.67 | 3.44 | (51.5 | ) |
(a) | Revenue passenger mile (RPM) A basic measure of sales volume. A RPM represents one
passenger flown one mile. |
|
(b) | Available seat mile (ASM) A basic measure of production. An ASM represents one seat flown
one mile. |
|
(c) | Passenger load factor The percentage of available seats that are filled with revenue
passengers. |
|
(d) | Yield A measure of airline revenue derived by dividing passenger revenue by revenue
passenger miles and expressed in cents per mile. |
|
(e) | Passenger revenue per available seat mile (PRASM) Passenger revenues divided by available
seat miles. |
|
(f) | Express statistics include Piedmont and PSA, as well as operating and financial results from
capacity purchase agreements with Air Wisconsin Airlines Corporation, Republic Airways,
Mesa Airlines, Inc. and Chautauqua Airlines, Inc. |
|
(g) | Total revenue per available seat mile (RASM) Total revenues divided by total mainline and
Express available seat miles. |
44
Table of Contents
Three Months Ended September 30, 2009
Compared with the
Three Months Ended September 30, 2008
Compared with the
Three Months Ended September 30, 2008
Operating Revenues:
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Operating revenues: |
||||||||||||
Mainline passenger |
$ | 1,757 | $ | 2,197 | (20.0 | ) | ||||||
Express passenger |
662 | 771 | (14.1 | ) | ||||||||
Cargo |
23 | 37 | (36.5 | ) | ||||||||
Other |
316 | 288 | 9.5 | |||||||||
Total operating revenues |
$ | 2,758 | $ | 3,293 | (16.2 | ) | ||||||
Total operating revenues in the third quarter of 2009 were $2.76 billion as compared to $3.29
billion in the 2008 period, a decline of $535 million or 16.2%. The weak demand environment in 2009
drove a $549 million or 18.5% decrease in mainline and Express passenger revenues on 3.6% lower
capacity as compared to the 2008 period. The increase in ancillary revenues resulting from US
Airways new revenue initiatives implemented in the latter part of 2008 offset a portion of this
decline. As a result, on a period over period basis, total RASM decreased by only 13.1% as compared
to mainline and Express PRASM, which decreased by 15.4%. Significant changes in the components of
operating revenues are as follows:
| Mainline passenger revenues were $1.76 billion in the third quarter of 2009 as
compared to $2.2 billion for the 2008 period. Mainline RPMs decreased 3.4% as mainline
capacity, as measured by ASMs, decreased 3.5%, resulting in a 0.1 point increase in load
factor to 84%. Mainline passenger yield decreased 17.2% to 11.18 cents in the third quarter
of 2009 from 13.5 cents in the 2008 period. Mainline PRASM decreased 17.1% to 9.39 cents in
the third quarter of 2009 from 11.32 cents in the 2008 period. Mainline yield and PRASM
decreased in the third quarter of 2009 due principally to the decline in passenger demand and
weak pricing environment driven by the global economic recession. |
| Express passenger revenues were $662 million in the third quarter of 2009, a
decrease of $109 million from the 2008 period. Express RPMs decreased by 2.4% as Express
capacity, as measured by ASMs, decreased 4%, resulting in a 1.3 point increase in load factor
to 75.9%. Express passenger yield decreased by 12% to 23.06 cents in the third quarter of
2009 from 26.2 cents in the 2008 period. Express PRASM decreased 10.5% to 17.5 cents in the
third quarter of 2009 from 19.55 cents in the 2008 period. The decreases in Express yield and
PRASM were the result of the same passenger demand declines and weak pricing environment
discussed in mainline passenger revenues above. |
| Cargo revenues were $23 million in the third quarter of 2009, a decrease of $14
million or 36.5% from the 2008 period. The decrease in cargo revenues was driven by declines
in freight volumes as a result of the contraction of business spending in the current
economic environment as well as a decrease in fuel surcharges in 2009 as compared to the 2008
period. |
| Other revenues were $316 million in the third quarter of 2009, an increase of
$28 million or 9.5% from the 2008 period primarily due to an increase of $46 million
generated by US Airways first checked bag fees, which were implemented in the third quarter
of 2008. This increase was offset in part by a decline in the volume of passenger ticketing
change fees. |
45
Table of Contents
Operating Expenses:
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Operating expenses: |
||||||||||||
Aircraft fuel and related taxes |
$ | 534 | $ | 1,110 | (51.9 | ) | ||||||
Loss (gain) on fuel hedging instruments, net: |
||||||||||||
Realized |
50 | (68 | ) | nm | ||||||||
Unrealized |
(48 | ) | 488 | nm | ||||||||
Salaries and related costs |
553 | 567 | (2.5 | ) | ||||||||
Aircraft rent |
171 | 183 | (6.4 | ) | ||||||||
Aircraft maintenance |
174 | 188 | (7.5 | ) | ||||||||
Other rent and landing fees |
148 | 137 | 8.2 | |||||||||
Selling expenses |
99 | 120 | (17.3 | ) | ||||||||
Special items, net |
15 | 8 | 81.6 | |||||||||
Depreciation and amortization |
65 | 55 | 19.3 | |||||||||
Other |
307 | 321 | (4.4 | ) | ||||||||
Total mainline operating expenses |
2,068 | 3,109 | (33.5 | ) | ||||||||
Express expenses: |
||||||||||||
Fuel |
171 | 349 | (51.1 | ) | ||||||||
Other |
518 | 523 | (1.1 | ) | ||||||||
Total Express expenses |
689 | 872 | (21.1 | ) | ||||||||
Total operating expenses |
$ | 2,757 | $ | 3,981 | (30.8 | ) | ||||||
Total operating expenses were $2.76 billion in the third quarter of 2009, a decrease of $1.22
billion or 30.8% compared to the 2008 period. Mainline operating expenses were $2.07 billion in the
third quarter of 2009, a decrease of $1.04 billion or 33.5% from the 2008 period. The period over
period decrease in mainline operating expenses was driven principally by decreases in fuel costs
($576 million) as well as a decrease in the net losses on fuel hedging instruments ($418 million)
in the 2009 period compared to the 2008 period.
The 2009 period included $15 million of net special charges consisting of $10 million in
aircraft costs as a result of US Airways previously announced capacity reductions and $5 million
in severance and other charges. This compares to net special charges of $8 million in the 2008
period for severance costs as a result of US Airways capacity reductions.
Significant changes in the components of mainline operating expenses are as follows:
| Aircraft fuel and related taxes decreased 51.9% primarily due to a 49.4% decrease in the
average price per gallon of fuel to $1.89 in the third quarter of 2009 from $3.73 in the
2008 period. A 5% decrease in gallons of fuel consumed in the 2009 period on 3.5% lower
capacity also contributed to the decrease. |
| Loss on fuel hedging instruments, net was a loss of $2 million in the third quarter of
2009 as compared to a loss of $420 million in the third quarter of 2008. Since the third
quarter of 2008, US Airways has not entered into any new transactions as part of its fuel
hedging program and as of September 30, 2009, there were no remaining outstanding fuel
hedging contracts. The net loss in the 2009 period included realized losses of $50 million
on settled fuel hedging instruments, offset by net unrealized gains of $48 million. The
unrealized gains are the result of the application of mark-to-market accounting in which
unrealized losses recognized in prior periods are reversed as hedge transactions are settled
in the current period. US Airways recognized net losses from its fuel hedging program in the
third quarter of 2008 due to the significant decline in the price of oil in September 2008,
which generated unrealized losses on certain open fuel hedging instruments as the price of
heating oil fell below the lower limit of those collar transactions. |
| Other rent and landing fees increased 8.2% despite a 3.5% decrease in capacity over the
2008 period due to rate increases in landing fees and space rent at certain airport
locations as well as the fixed nature of space rent. |
| Selling expenses decreased 17.3% due to lower credit card fees, booking fees and
commissions paid as a result of a decline in the number and value of tickets sold resulting
from the weakened demand and pricing caused by the economic recession. |
| Depreciation and amortization expense increased 19.3% due to an increase in the average
number of owned aircraft to 75 in the 2009 period from 57 in the 2008 period, which
increased depreciation expense. The increase in the average number of owned aircraft
included 13 Airbus 320 family, three Embraer 190 and two Airbus 330 aircraft. |
46
Table of Contents
Total Express expenses decreased $183 million or 21.1% in the third quarter of 2009 to $689
million from $872 million in the 2008 period. The period over period decrease was primarily driven
by decreases in fuel costs. Express fuel costs decreased $178 million as the average fuel price per
gallon decreased 49.3% from $3.80 in the 2008 period to $1.93 in the 2009 period. In addition,
gallons of fuel consumed in 2009 decreased 3.6% on 4% lower capacity. Other Express expenses
decreased $5 million or 1.1% despite a 4% decrease in Express ASMs due to certain fixed costs
associated with US Airways capacity purchase agreements as well as certain contractual rate
increases with these carriers.
Nonoperating Income (Expense):
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Nonoperating income (expense): |
||||||||||||
Interest income |
$ | 5 | $ | 19 | (75.1 | ) | ||||||
Interest expense, net |
(64 | ) | (48 | ) | 34.1 | |||||||
Other, net |
(10 | ) | (135 | ) | (93.0 | ) | ||||||
Total nonoperating expense, net |
$ | (69 | ) | $ | (164 | ) | (57.8 | ) | ||||
Net nonoperating expense was $69 million in the third quarter of 2009 as compared to $164
million in the 2008 period. Interest income decreased $14 million in the 2009 period due to lower
average investment balances and lower rates of return. Interest expense, net increased $16 million
due to an increase in the average debt balance outstanding primarily as a result of financing
transactions completed in the fourth quarter of 2008 and first nine months of 2009, partially
offset by reductions in average interest rates associated with variable rate debt as compared to
the 2008 period.
Other nonoperating expense, net in the 2009 period included a $6 million loss on the sale of
certain aircraft equipment and $3 million in other-than-temporary non-cash impairment charges for
US Airways investments in auction rate securities. Other nonoperating expense, net in the 2008
period included $127 million in other-than-temporary non-cash impairment charges for US Airways
investments in auction rate securities as well as $8 million in foreign currency losses. The
impairment charges on auction rate securities are discussed in more detail under Liquidity and
Capital Resources.
47
Table of Contents
Nine Months Ended September 30, 2009
Compared with the
Nine Months Ended September 30, 2008
Compared with the
Nine Months Ended September 30, 2008
Operating Revenues:
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Operating revenues: |
||||||||||||
Mainline passenger |
$ | 5,092 | $ | 6,364 | (20.0 | ) | ||||||
Express passenger |
1,856 | 2,230 | (16.8 | ) | ||||||||
Cargo |
67 | 111 | (39.3 | ) | ||||||||
Other |
930 | 742 | 25.4 | |||||||||
Total operating revenues |
$ | 7,945 | $ | 9,447 | (15.9 | ) | ||||||
Total operating revenues for the nine months ended September 30, 2009 were $7.95 billion as
compared to $9.45 billion in the 2008 period, a decline of $1.5 billion or 15.9%. The weak demand
environment in 2009 drove a $1.65 billion or 19.2% decrease in mainline and Express passenger
revenues on 5.3% lower capacity as compared to the 2008 period. The increase in ancillary revenues
resulting from US Airways new revenue initiatives implemented in the latter part of 2008 offset a
portion of this decline. As a result, on a period over period basis, total RASM decreased only
11.2% as compared to mainline and Express PRASM, which decreased by 14.6%. Significant changes in
the components of operating revenues are as follows:
| Mainline passenger revenues were $5.09 billion for the nine months ended
September 30, 2009 as compared to $6.36 billion for the 2008 period. Mainline RPMs decreased
5.1% as mainline capacity, as measured by ASMs, decreased 5.5%, resulting in a 0.3 point
increase in load factor to 82.5%. Mainline passenger yield decreased 15.7% to 11.43 cents in
the first nine months of 2009 from 13.56 cents in the 2008 period. Mainline PRASM decreased
15.4% to 9.43 cents in the first nine months of 2009 from 11.14 cents in the 2008 period.
Mainline yield and PRASM decreased in the first nine months of 2009 due principally to the
decline in passenger demand and weak pricing environment driven by the global economic
recession. |
| Express passenger revenues were $1.86 billion for the nine months ended
September 30, 2009, a decrease of $374 million from the 2008 period. Express RPMs decreased
by 3.3% as Express capacity, as measured by ASMs, decreased 4.5%, resulting in a 0.9 point
increase in load factor to 73.8%. Express passenger yield decreased by 13.9% to 23.04 cents
in the first nine months of 2009 from 26.76 cents in the 2008 period. Express PRASM decreased
12.8% to 17 cents in the first nine months of 2009 from 19.5 cents in the 2008 period. The
decreases in Express yield and PRASM were the result of the same passenger demand declines
and weak pricing environment discussed in mainline passenger revenues above. |
| Cargo revenues were $67 million for the nine months ended September 30, 2009, a
decrease of $44 million or 39.3% from the 2008 period. The decrease in cargo revenues was
driven by declines in freight volumes as a result of the contraction of business spending in
the current economic environment as well as a decrease in fuel surcharges in 2009 as compared
to the 2008 period. |
| Other revenues were $930 million for the nine months ended September 30, 2009,
an increase of $188 million or 25.4% from the 2008 period. The increase was primarily due to
an increase of $221 million generated by US Airways first and second checked bag fees, which
were implemented in the second and third quarters of 2008. This increase was offset in part
by a decline in the volume of passenger ticketing change fees. |
48
Table of Contents
Operating Expenses:
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Operating expenses: |
||||||||||||
Aircraft fuel and related taxes |
$ | 1,353 | $ | 3,018 | (55.2 | ) | ||||||
Loss (gain) on fuel hedging instruments, net: |
||||||||||||
Realized |
382 | (342 | ) | nm | ||||||||
Unrealized |
(375 | ) | 262 | nm | ||||||||
Salaries and related costs |
1,653 | 1,701 | (2.8 | ) | ||||||||
Aircraft rent |
523 | 544 | (3.9 | ) | ||||||||
Aircraft maintenance |
532 | 601 | (11.4 | ) | ||||||||
Other rent and landing fees |
422 | 424 | (0.6 | ) | ||||||||
Selling expenses |
291 | 340 | (14.5 | ) | ||||||||
Special items, net |
22 | 67 | (67.7 | ) | ||||||||
Depreciation and amortization |
192 | 166 | 15.4 | |||||||||
Goodwill impairment |
| 622 | nm | |||||||||
Other |
879 | 977 | (9.8 | ) | ||||||||
Total mainline operating expenses |
5,874 | 8,380 | (29.9 | ) | ||||||||
Express expenses: |
||||||||||||
Fuel |
438 | 938 | (53.3 | ) | ||||||||
Other |
1,537 | 1,547 | (0.6 | ) | ||||||||
Total Express expenses |
1,975 | 2,485 | (20.5 | ) | ||||||||
Total operating expenses |
$ | 7,849 | $ | 10,865 | (27.8 | ) | ||||||
Total operating expenses were $7.85 billion in the first nine months of 2009, a decrease of
$3.02 billion or 27.8% compared to the 2008 period. Mainline operating expenses were $5.87 billion
in the first nine months of 2009, a decrease of $2.51 billion or 29.9% from the 2008 period. The
period over period decrease in mainline operating expenses was driven principally by decreases in
fuel costs ($1.67 billion) in the 2009 period. The 2008 period included a $622 million non-cash
charge to write off all of the goodwill created by the merger of US Airways Group and America West
Holdings in September 2005.
The 2009 period included $22 million of net special charges consisting of $16 million in
aircraft costs as a result of US Airways previously announced capacity reductions and $6 million
in severance and other charges. This compares to net special charges of $67 million in the 2008
period, consisting of $35 million of merger related transition expenses, $18 million in non-cash
charges related to the decline in the fair value of certain spare parts associated with US Airways
Boeing 737 aircraft fleet, and as a result of US Airways capacity reductions, $8 million in
severance charges and $6 million in aircraft costs.
Significant changes in the components of mainline operating expenses are as follows:
| Aircraft fuel and related taxes decreased 55.2% primarily due to a 51.7% decrease in the
average price per gallon of fuel to $1.65 in the first nine months of 2009 from $3.42 in the
2008 period. A 7.2% decrease in gallons of fuel consumed in the 2009 period on 5.5% lower
capacity also contributed to the decrease. |
| Loss (gain) on fuel hedging instruments, net fluctuated to a loss of $7 million
in the first nine months of 2009 from a gain of $80 million in the first nine months of
2008. Since the third quarter of 2008, US Airways has not entered into any new transactions
as part of its fuel hedging program and as of September 30, 2009, there were no remaining
outstanding fuel hedging contracts. The net loss in the 2009 period included realized losses
of $382 million on settled fuel hedging instruments, offset by $375 million of net
unrealized gains. The unrealized gains are the result of the application of mark-to-market
accounting in which unrealized losses recognized in prior periods are reversed as hedge
transactions are settled in the current period. US Airways recognized net gains from its
fuel hedging program in the first nine months of 2008 as the price of heating oil exceeded
the upper limit on certain of its collar transactions. |
| Aircraft maintenance expense decreased 11.4% due principally to decreases in the number
of engine and landing gear overhauls performed in the 2009 period as compared to the 2008
period as a result of the timing of maintenance cycles. |
| Selling expenses decreased 14.5% due to lower credit card fees, booking fees and
commissions paid as a result of a decline in the number and value of tickets sold resulting
from the weakened demand and pricing caused by the economic recession. |
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| Depreciation and amortization expense increased 15.4% due to an increase in the average
number of owned aircraft to 69 in the 2009 period from 51 in the 2008 period, which
increased depreciation expense. The increase in the average number of owned aircraft
included nine Airbus 320 family, eight Embraer 190 and one Airbus 330 aircraft |
| Other expense decreased 9.8% due to a decrease in the incremental cost of travel awards
associated with US Airways frequent traveler program, principally as a result of lower fuel
costs. US Airways continued focus on overall cost control also contributed to the decrease. |
Total Express expenses decreased $510 million or 20.5% in the first nine months of 2009 to
$1.98 billion from $2.49 billion in the 2008 period. The period over period decrease was primarily
driven by decreases in fuel costs. Express fuel costs decreased $500 million as the average fuel
price per gallon decreased 51% from $3.49 in the first nine months of 2008 to $1.71 in the 2009
period. In addition, gallons of fuel consumed in 2009 decreased 4.7% on 4.5% lower capacity. Other
Express expenses decreased $10 million or 0.6% despite a 4.5% decrease in Express ASMs due to
certain fixed costs associated with US Airways capacity purchase agreements as well as certain
contractual rate increases with these carriers.
Nonoperating Income (Expense):
Percent | ||||||||||||
2009 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Nonoperating income (expense): |
||||||||||||
Interest income |
$ | 17 | $ | 68 | (74.6 | ) | ||||||
Interest expense, net |
(189 | ) | (146 | ) | 29.0 | |||||||
Other, net |
(18 | ) | (140 | ) | (87.1 | ) | ||||||
Total nonoperating expense, net |
$ | (190 | ) | $ | (218 | ) | (13.0 | ) | ||||
Net nonoperating expense was $190 million in the first nine months of 2009 as compared to $218
million in the 2008 period. Interest income decreased $51 million in the 2009 period due to lower
average investment balances and lower rates of return. Interest expense, net increased $43 million
due to an increase in the average debt balance outstanding primarily as a result of financing
transactions completed in the fourth quarter of 2008 and first nine months of 2009, partially
offset by reductions in average interest rates associated with variable rate debt as compared to
the 2008 period.
Other nonoperating expense, net in the 2009 period included $10 million in
other-than-temporary non-cash impairment charges for US Airways investments in auction rate
securities, a $6 million loss on the sale of certain aircraft equipment and a $2 million non-cash
asset impairment charge, offset by $2 million in foreign currency gains. Other nonoperating
expense, net in the 2008 period included $140 million in other-than-temporary non-cash impairment
charges for US Airways investments in auction rate securities, $6 million in foreign currency
losses, and a $2 million write off of debt discount and debt issuance costs in connection with the
refinancing of certain aircraft equipment notes, offset by $8 million in gains on forgiveness of
debt. The impairment charges on auction rate securities are discussed in more detail under
Liquidity and Capital Resources.
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Liquidity and Capital Resources
As of September 30, 2009, our cash, cash equivalents, investments in marketable securities and
restricted cash were $2 billion, of which $530 million was restricted. Our investments in
marketable securities included $228 million of auction rate securities at fair value ($411 million
par value) that are classified as noncurrent assets on our condensed consolidated balance sheets.
Investments in Marketable Securities
As of September 30, 2009, we held auction rate securities totaling $411 million at par value,
which are classified as available for sale securities and noncurrent assets on our condensed
consolidated balance sheets. Contractual maturities for these auction rate securities range from
seven to 43 years, with 62% of our portfolio maturing within the next 10 years (2016 2017), 10%
maturing within the next 20 years (2025), 16% maturing within the next 30 years (2033 2036) and
12% maturing thereafter (2039 2052). With the liquidity issues experienced in the global credit
and capital markets, all of our auction rate securities have experienced failed auctions since
August 2007. The estimated fair value of these auction rate securities no longer approximates par
value. As of September 30, 2009, the fair value of our auction rate securities was $228 million, a
net increase of $14 million from June 30, 2009 and $41 million from December 31, 2008.
In the three and nine months ended September 30, 2009, we recorded unrealized gains of $17
million and $51 million, respectively, in other comprehensive income related to the increase in
fair value of certain of our investments in auction rate securities. These unrealized gains were
offset by other-than-temporary impairment charges of $3 million and $10 million, respectively, in
the three and nine months ended September 30, 2009. These other-than-temporary impairment charges
are recorded in other nonoperating expense, net and relate to the decline in fair value of certain
of our investments in auction rate securities.
We continue to monitor the market for auction rate securities and consider its impact (if any)
on the fair value of our investments. If the current market conditions deteriorate, we may be
required to record additional impairment charges in other nonoperating expense, net in future
periods.
We believe that, based on our current unrestricted cash and cash equivalents balance at
September 30, 2009, the current lack of liquidity in our investments in auction rate securities
will not have a material impact on our liquidity, our cash flow or our ability to fund our
operations.
Sources and Uses of Cash
US Airways Group
Net cash provided by operating activities was $130 million for the first nine months of 2009
as compared to net cash used in operating activities of $583 million for the first nine months of
2008. The period over period increase of $713 million was primarily driven by a decrease in the net
loss recognized in the first nine months of 2009 as compared to the first nine months of 2008. Fuel
costs were substantially lower in the 2009 period, which was offset in part by a decline in
revenues. Our mainline and Express fuel expense was $2.17 billion lower in the 2009 period as
compared to the 2008 period on 5.3% lower capacity. Total revenues declined $1.53 billion due to
the economic slowdown and resulting weak revenue environment in 2009.
Net cash used in investing activities was $646 million and $832 million for the first nine
months of 2009 and 2008, respectively. Principal investing activities in the 2009 period included
expenditures for property and equipment totaling $676 million, including the purchase of 10 Airbus
aircraft, and a $55 million increase in equipment purchase deposits for certain aircraft on order,
offset by $55 million in proceeds from the disposition of property and equipment and net sales of
investments in marketable securities of $20 million. The $55 million in proceeds resulted from a
swap of an owned aircraft for the aircraft involved in the Flight 1549 accident as allowed under
our lease agreement and three engine sale-leaseback transactions. Principal investing activities in
the 2008 period included expenditures for property and equipment totaling $755 million, including
the purchase of 13 Embraer aircraft and three Airbus aircraft, a $117 million increase in
restricted cash and a $97 million increase in equipment purchase deposits for certain aircraft on
order, all of which were offset in part by net sales of investments in marketable securities of
$117 million. The change in the restricted cash balance was due to a change in the amount of
holdback by certain credit card processors for advance ticket sales for which we had not yet
provided air transportation.
Net cash provided by financing activities was $724 million and $635 million for the first nine
months of 2009 and 2008, respectively. Principal financing activities in the 2009 period included
proceeds from the issuance of debt of $803 million, which included the issuance of $172 million of
convertible notes, additional loans under a spare parts loan agreement, a loan secured by certain
airport landing slots, an unsecured financing with one of our third party Express carriers and the
financing associated with the purchase of 10 Airbus aircraft acquisitions. Debt repayments totaled
$271 million in the 2009 period. Financing activities in the 2009 period also included net proceeds
from the issuance of common stock of $66 million as a result of a public stock offering of 17.5
million shares in May 2009 and $137 million as a result of a public stock offering of 29 million
shares in September 2009. Principal financing activities in the 2008 period included proceeds from
the issuance of debt of $669 million, in part to finance the acquisition of 13 Embraer aircraft and
three Airbus aircraft, and $145 million in proceeds from the refinancing of certain aircraft equipment notes. Debt
repayments were $205 million, including $97 million related to the $145 million aircraft equipment
note refinancing discussed above. Financing activities in the 2008 period also included $179
million in net proceeds from the issuance of common stock as a result of a public stock offering of
21.85 million common shares during the third quarter of 2008.
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US Airways
Net cash provided by operating activities was $211 million for the first nine months of 2009
as compared to net cash used in operating activities of $438 million for the first nine months of
2008. The period over period increase of $649 million was primarily driven by a decrease in the net
loss recognized in the first nine months of 2009 as compared to the first nine months of 2008. Fuel
costs were substantially lower in the 2009 period, which was offset in part by a decline in
revenues. US Airways mainline and Express fuel expense was $2.17 billion lower in the 2009 period
as compared to the 2008 period on 5.3% lower capacity. Total revenues declined $1.5 billion due to
the economic slowdown and resulting weak revenue environment in 2009.
Net cash used in investing activities was $642 million and $811 million for the first nine
months of 2009 and 2008, respectively. Principal investing activities in the 2009 period included
expenditures for property and equipment totaling $672 million, including the purchase of 10 Airbus
aircraft, and a $55 million increase in equipment purchase deposits for certain aircraft on order,
offset by $55 million in proceeds from the disposition of property and equipment and net sales of
investments in marketable securities of $20 million. The $55 million in proceeds resulted from a
swap of an owned aircraft for the aircraft involved in the Flight 1549 accident as allowed under US
Airways lease agreement and three engine sale-leaseback transactions. Principal investing
activities in the 2008 period included expenditures for property and equipment totaling $734
million, including the purchase of 13 Embraer aircraft and three Airbus aircraft, a $117 million
increase in restricted cash and a $97 million increase in equipment purchase deposits for certain
aircraft on order, all of which were offset in part by net sales of investments in marketable
securities of $117 million. The change in the restricted cash balance was due to a change in the
amount of holdback by certain credit card processors for advance ticket sales for which US Airways
had not yet provided air transportation.
Net cash provided by financing activities was $370 million and $472 million for the first nine
months of 2009 and 2008, respectively. Principal financing activities in the 2009 period included
proceeds from the issuance of debt of $631 million, which included additional loans under a spare
parts loan agreement, a loan secured by certain airport landing slots, an unsecured financing with
one of US Airways third party Express carriers and the financing associated with the purchase of
10 Airbus aircraft acquisitions. Debt repayments totaled $255 million in the 2009 period. Principal
financing activities in the 2008 period included proceeds from the issuance of debt of $669
million, in part to finance the acquisition of 13 Embraer aircraft and three Airbus aircraft, and
$145 million in proceeds from the refinancing of certain aircraft equipment notes. Debt repayments
were $189 million, including $97 million related to the $145 million aircraft equipment note
refinancing discussed above.
Commitments
As of September 30, 2009, we had $4.86 billion of long-term debt and capital leases (including
current maturities and before discount on debt). The information contained herein is not a
comprehensive discussion and analysis of our commitments, but rather updates disclosures made in
the 2008 Form 10-K.
Citicorp Credit Facility
On March 23, 2007, US Airways Group entered into a term loan credit facility with Citicorp
North America, Inc., as administrative agent, and a syndicate of lenders pursuant to which US
Airways Group borrowed an aggregate principal amount of $1.6 billion. US Airways, AWA and certain
other subsidiaries of US Airways Group are guarantors of the Citicorp credit facility.
The Citicorp credit facility bears interest at an index rate plus an applicable index margin
or, at our option, LIBOR plus an applicable LIBOR margin for interest periods of one, two, three or
six months. The applicable index margin, subject to adjustment, is 1.00%, 1.25% or 1.50% if the
adjusted loan balance is less than $600 million, between $600 million and $1 billion, or greater
than $1 billion, respectively. The applicable LIBOR margin, subject to adjustment, is 2.00%, 2.25%
or 2.50% if the adjusted loan balance is less than $600 million, between $600 million and
$1 billion, or greater than $1 billion, respectively. In addition, interest on the Citicorp credit
facility may be adjusted based on the credit rating for the Citicorp credit facility as follows:
(i) if the credit ratings of the Citicorp credit facility by Moodys and S&P in effect as of the
last day of the most recently ended fiscal quarter are both at least one subgrade better than the
credit ratings in effect on March 23, 2007, then (A) the applicable LIBOR margin will be the lower
of 2.25% and the rate otherwise applicable based upon the adjusted Citicorp credit facility balance
and (B) the applicable index margin will be the lower of 1.25% and the rate otherwise applicable
based upon the Citicorp credit facility principal balance, and (ii) if the credit ratings of the
Citicorp credit facility by Moodys and S&P in effect as of the last day of the most recently ended
fiscal quarter are both at least two subgrades better than the credit ratings in effect on
March 23, 2007, then (A) the applicable LIBOR margin will be 2.00% and (B) the applicable index
margin will be 1.00%. As of September 30, 2009, the interest rate on the Citicorp credit facility
was 2.75% based on a 2.50% LIBOR margin.
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The Citicorp credit facility matures on March 23, 2014, and is repayable in seven annual
installments with each of the first six installments to be paid on each anniversary of the closing
date in an amount equal to 1% of the initial aggregate principal amount of the loan and the final
installment to be paid on the maturity date in the amount of the full remaining balance of the
loan.
In addition, the Citicorp credit facility requires certain mandatory prepayments upon the
occurrence of certain events, establishes certain financial covenants, including minimum cash
requirements and maintenance of certain minimum ratios, contains customary affirmative covenants
and negative covenants and contains customary events of default. Prior to the amendment discussed
below, the Citicorp credit facility required us to maintain consolidated unrestricted cash and cash
equivalents of not less than $1.25 billion, with not less than $750 million (subject to partial
reductions upon certain reductions in the outstanding principal amount of the loan) of that amount
held in accounts subject to control agreements, which would become restricted for use by us if
certain adverse events occur per the terms of the agreement.
On October 20, 2008, US Airways Group entered into an amendment to the Citicorp credit
facility. Pursuant to the amendment, we repaid $400 million of indebtedness under the credit
facility, reducing the principal amount outstanding under the credit facility to approximately
$1.17 billion as of September 30, 2009. The Citicorp credit facility amendment also provides for a
reduction in the amount of unrestricted cash required to be held by us from $1.25 billion to $850
million. In addition, the Citicorp credit facility amendment provides that we may issue debt in the
future with a silent second lien on the assets pledged as collateral under the Citicorp credit
facility. As of September 30, 2009, we were in compliance with all debt covenants under the amended
credit facility.
7.25% Convertible Senior Notes
In May 2009, US Airways Group issued $172 million aggregate principal amount of 7.25%
Convertible Senior Notes due 2014 (the 7.25% notes) for proceeds, net of expenses, of
approximately $168 million. The 7.25% notes bear interest at a rate of 7.25% per annum, which shall
be payable semi-annually in arrears on each May 15 and November 15, beginning November 15, 2009.
The 7.25% notes mature on May 15, 2014.
Holders may convert their 7.25% notes at their option at any time prior to the close of
business on the second scheduled trading day immediately preceding the maturity date for the 7.25%
notes. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common
stock or a combination thereof at our election. The initial conversion rate for the 7.25% notes is
218.8184 shares of our common stock per $1,000 principal amount of notes (equivalent to an initial
conversion price of approximately $4.57 per share). Such conversion rate is subject to adjustment
in certain events.
If we undergo a fundamental change, holders may require us to purchase all or a portion of
their 7.25% notes for cash at a price equal to 100% of the principal amount of the 7.25% notes to
be purchased plus any accrued and unpaid interest to, but excluding, the purchase date. A
fundamental change includes a person or group (other than us or our subsidiaries) becoming the
beneficial owner of more than 50% of the voting power of our capital stock, certain merger or
combination transactions, a substantial turnover of our directors, stockholder approval of our
liquidation or dissolution and US Airways Groups common stock ceasing to be listed on at least one
national securities exchange.
The 7.25% notes rank equal in right of payment to all of our other existing and future
unsecured senior debt and senior in right of payment to our debt that is expressly subordinated to
the 7.25% notes, if any. The 7.25% notes impose no limit on the amount of debt we or our
subsidiaries may incur. The 7.25% notes are structurally subordinated to all debt and other
liabilities and commitments (including trade payables) of our subsidiaries. The 7.25% notes are
also effectively junior to our secured debt, if any, to the extent of the value of the assets
securing such debt.
As the 7.25% notes can be settled in cash upon conversion, for accounting purposes, the 7.25%
notes were bifurcated into a debt component that is initially recorded at fair value and an equity
component. In addition to the 7.25% coupon interest, we expect to record non-cash interest expense
of $3 million in 2009, $12 million in 2010, $16 million in 2011, $22 million in 2012, $29 million
in 2013 and $13 million in 2014 representing the amortization of the discounted carrying value of
the 7.25% notes to its face value over the five year term.
Other 2009 Financing Transactions
On January 16, 2009, US Airways exercised its right to obtain new loan commitments and incur
additional loans under a spare parts loan agreement. In connection with the exercise of that right,
Airbus Financial Services funded $50 million in satisfaction of a previous commitment. This loan
will mature on October 20, 2014, bears interest at a rate of LIBOR plus a margin and is secured by
the collateral securing loans under the spare parts loan agreement.
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On March 31, 2009, US Airways again exercised its right to obtain new loan commitments and
incur additional loans under the spare parts loan agreement and borrowed $50 million. This loan
will mature on October 20, 2014, bears interest at a rate of LIBOR plus a margin and is secured by
the collateral securing loans under the spare parts loan agreement. US Airways used a portion of
the proceeds to purchase an A321 aircraft previously leased to US Airways by an affiliate of the
debt holder. As a result, this aircraft became unencumbered.
In June 2009, US Airways entered into loan agreements totaling $132 million to finance the
acquisition of certain A330-200 aircraft. The loans bear interest at a rate of LIBOR plus an
applicable margin, contain default provisions and other covenants that are typical in the industry
for similar financings and are amortized over seven years with balloon payments at maturity.
In the third quarter of 2009, US Airways utilized backstop financing through the manufacturer
totaling $104 million to finance the acquisition of certain A320 family aircraft. The financing
bears interest at a rate of LIBOR plus an applicable margin, contains default provisions and other
covenants that are typical in the industry for similar financings and is amortized over twelve
years.
US Airways Group had previously entered into a co-branded credit card agreement with Barclays
Bank Delaware. The agreement provides for, among other things, the pre-purchase of frequent flyer
miles in the aggregate amount of $200 million. Barclays has agreed that it will pre-purchase
additional miles on a monthly basis in an amount equal to the difference between $200 million and
the amount of unused miles then outstanding, which purchases average approximately $17 million per
month. Among the conditions to this monthly purchase of miles is a requirement that US Airways
Group maintain an unrestricted cash balance of at least $1.5 billion. In September 2009, Barclays
agreed to temporarily reduce this requirement to $1.35 billion for the months of August through
October 2009.
Credit Card Processing Agreements
We have agreements with companies that process customer credit card transactions for the sale
of air travel and other services. Credit card processors have financial risk associated with
tickets purchased for travel because, although the processor generally forwards the cash related to
the purchase to us soon after the purchase is completed, the air travel generally occurs after that
time, and the processor may have liability if we do not ultimately provide the air travel. Our
agreements allow these processing companies, under certain conditions, to hold an amount of our
cash (referred to as a holdback) equal to a portion of advance ticket sales that have been
processed by that company, but for which we have not yet provided the air transportation. These
holdback requirements can be modified at the discretion of the processing companies, up to the
estimated liability for future air travel purchased with the respective credit cards, upon the
occurrence of specified events, including material adverse changes in our financial condition. The
amount that the processing companies may withhold also varies as a result of changes in financial
risk due to seasonal fluctuations in ticket volume. Additional holdback requirements will reduce
our liquidity in the form of unrestricted cash and short-term investments by the amount of the
holdbacks.
Aircraft and Engine Purchase Commitments
US Airways has definitive purchase agreements with Airbus for the acquisition of 134 aircraft,
including 97 single-aisle A320 family aircraft and 37 widebody aircraft (comprised of 22 A350 XWB
aircraft and 15 A330-200 aircraft). Deliveries of the A320 family aircraft commenced during 2008
with the delivery of five A321 aircraft. During the first nine months of 2009, US Airways took
delivery of 12 A321 aircraft and three A330-200 aircraft. Of the 12 A321 aircraft, eight were
financed through existing financing facilities, three were financed using manufacturer backstop
financing and one was financed through a leasing transaction. Of the three A330-200 aircraft, two
were financed through the June 2009 agreements discussed above and one was financed through a
leasing transaction. US Airways plans to take delivery of six A321 aircraft, two A320 aircraft and
two A330-200 aircraft prior to the end of 2009. Deliveries of the remaining A320 family aircraft
and the A330-200 aircraft will continue through 2012 and deliveries of the A350 XWB aircraft will
begin in 2015 and extend through 2018.
US Airways has agreements for the purchase of eight new IAE V2500-A5 spare engines scheduled
for delivery through 2014 for use on the Airbus A320 family fleet, three new Trent 700 spare
engines scheduled for delivery through 2011 for use on the Airbus A330-200 fleet and three new
Trent XWB spare engines scheduled for delivery in 2015 through 2017 for use on the Airbus A350 XWB
aircraft. US Airways has taken delivery of one Trent 700 spare engine, which was financed through a
leasing transaction.
Under all of our aircraft and engine purchase agreements, our total future commitments as of
September 30, 2009 are expected to be approximately $6 billion through 2018, which includes
predelivery deposits and payments. The remaining A320 family aircraft scheduled for delivery in
2009 have backstop financing available through the manufacturer and we have secured financing for
the remaining two A330-200 deliveries scheduled for delivery in 2009. See Risk Factors Our high
level of fixed obligations limits our ability to fund general corporate requirements and obtain
additional financing, limits our flexibility in responding to competitive developments and
increases our vulnerability to adverse economic and industry conditions in Part II, Item 1A, Risk
Factors.
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Covenants and Credit Rating
In addition to the minimum cash balance requirements, our long-term debt agreements contain
various negative covenants that restrict or limit our actions, including our ability to pay
dividends or make other restricted payments. Certain long-term debt agreements also contain
cross-default provisions, which may be triggered by defaults by us under other agreements relating
to indebtedness. See Risk Factors Our high level of fixed obligations limits our ability to fund
general corporate requirements and obtain additional financing, limits our flexibility in
responding to competitive developments and increases our vulnerability to adverse economic and
industry conditions in Part II, Item 1A, Risk Factors. As of September 30, 2009, we and our
subsidiaries were in compliance with the covenants in our long-term debt agreements.
Our credit ratings, like those of most airlines, are relatively low. The following table
details our credit ratings as of September 30, 2009:
S&P | Fitch | Moodys | ||||
Local Issuer | Issuer Default | Corporate | ||||
credit rating | credit rating | Family rating | ||||
US Airways Group |
B- | CCC | Caa1 | |||
US Airways |
B- | * | * |
(*) | The credit agencies do not rate these categories for US Airways. |
A decrease in our credit ratings could cause our borrowing costs to increase, which would
increase our interest expense and could affect our net income, and our credit ratings could
adversely affect our ability to obtain additional financing. If our financial performance or
industry conditions do not improve, we may face future downgrades, which could further negatively
impact our borrowing costs and the prices of our equity or debt securities. In addition, any
downgrade of our credit ratings may indicate a decline in our business and in our ability to
satisfy our obligations under our indebtedness.
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Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual
arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a
retained or a contingent interest in transferred assets, (3) an obligation under derivative
instruments classified as equity or (4) any obligation arising out of a material variable interest
in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support
to us, or that engages in leasing, hedging or research and development arrangements with us.
There have been no material changes in our off-balance sheet arrangements as set forth in our
2008 Form 10-K.
Contractual Obligations
The following table provides details of our future cash contractual obligations as of
September 30, 2009 (in millions):
Payments Due by Period | ||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | ||||||||||||||||||||||
US Airways Group (1) |
||||||||||||||||||||||||||||
Debt (2) |
$ | | $ | 33 | $ | 116 | $ | 99 | $ | 16 | $ | 1,350 | $ | 1,614 | ||||||||||||||
Interest obligations (3) |
15 | 59 | 56 | 51 | 48 | 55 | 284 | |||||||||||||||||||||
US Airways (4) |
||||||||||||||||||||||||||||
Debt and capital lease obligations (5) (6) |
148 | 403 | 335 | 298 | 248 | 1,815 | 3,247 | |||||||||||||||||||||
Interest obligations (3) (6) |
37 | 138 | 153 | 135 | 92 | 431 | 986 | |||||||||||||||||||||
Aircraft purchase and operating lease commitments (7) |
698 | 2,394 | 2,213 | 1,610 | 737 | 5,869 | 13,521 | |||||||||||||||||||||
Regional capacity purchase agreements (8) |
247 | 1,030 | 1,050 | 915 | 784 | 2,812 | 6,838 | |||||||||||||||||||||
Other US Airways Group subsidiaries (9) |
2 | 2 | 1 | 1 | 1 | | 7 | |||||||||||||||||||||
Total |
$ | 1,147 | $ | 4,059 | $ | 3,924 | $ | 3,109 | $ | 1,926 | $ | 12,332 | $ | 26,497 | ||||||||||||||
(1) | These commitments represent those specifically entered into by US Airways Group or joint
commitments entered into by US Airways Group and US Airways under which each entity is jointly
and severally liable. |
|
(2) | Excludes $136 million of unamortized debt discount as of September 30, 2009. |
|
(3) | For variable-rate debt, future interest obligations are shown above using interest rates in
effect as of September 30, 2009. |
|
(4) | Commitments listed separately under US Airways and its wholly owned subsidiaries represent
commitments under agreements entered into separately by those companies. |
|
(5) | Excludes $99 million of unamortized debt discount as of September 30, 2009. |
|
(6) | Includes $505 million of future principal payments and $229 million of future interest
payments as of September 30, 2009, respectively, related to pass through trust certificates or
EETCs associated with mortgage financings for the purchase of certain aircraft. |
|
(7) | Includes $3.27 billion of future minimum lease payments related to EETC leveraged leased
financings of certain aircraft as of September 30, 2009. |
|
(8) | Represents minimum payments under capacity purchase agreements with third-party Express
carriers. |
|
(9) | Represents operating lease commitments entered into by US Airways Groups other airline
subsidiaries Piedmont and PSA. |
We expect to fund these cash obligations from funds provided by operations and future
financings, if necessary. The cash available to us from these sources, however, may not be
sufficient to cover these cash obligations because economic factors outside our control may reduce
the amount of cash generated by operations or increase our costs. For instance, a prolonged or
continuing economic downturn or general global instability caused by military actions, terrorism,
disease outbreaks and natural disasters could reduce the demand for air travel, which would reduce
the amount of cash generated by operations. An increase in our costs, either due to an increase in
borrowing costs caused by a reduction in our credit rating or a general increase in interest rates
or due to an increase in the cost of fuel, maintenance, aircraft and aircraft engines and parts,
could decrease the amount of cash available to cover the cash obligations. Moreover, the Citicorp
credit facility, our amended credit card agreement with Barclays and certain of our other financing
arrangements contain minimum cash balance requirements. As a result, we cannot use all of our
available cash to fund operations, capital expenditures and cash obligations without violating
these requirements.
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Critical Accounting Policies and Estimates
In the third quarter of 2009, there were no changes to our critical accounting policies and
estimates from those disclosed in the financial statements and accompanying notes contained in our
2008 Form 10-K except as updated below.
Impairment of Intangible and Other Assets
We assess the impairment of long-lived assets and intangible assets whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. In addition, our
international route authorities and trademark intangible assets are classified as indefinite lived
assets and are reviewed for impairment annually. Factors which could trigger an impairment review
include the following: significant changes in the manner of use of the assets; significant
underperformance relative to historical or projected future operating results; or significant
negative industry or economic trends. An impairment has occurred when the future undiscounted cash
flows estimated to be generated by those assets are less than the carrying amount of those items.
Cash flow estimates are based on historical results adjusted to reflect managements best estimate
of future market and operating conditions. The net carrying value of assets not recoverable is
reduced to fair value.
Estimates of fair value represent managements best estimate based on appraisals, industry
trends and reference to market rates and transactions. The magnitude of the ongoing impact of the
weakened economic environment remains uncertain. Changes in industry capacity and demand for air
transportation can significantly impact the fair value of intangible assets, aircraft and related
assets which in turn could result in future non-cash impairment charges.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles A Replacement of FASB Statement No. 162.
SFAS No. 168 establishes the FASB Accounting Standards Codification (the Codification) as the
single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. Effective July 1, 2009, the
Codification superseded all existing non-SEC accounting and reporting standards.
In May 2008, the FASB issued FASB Staff Position (FSP) Accounting Principle Board (APB)
14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement), as adopted by the Codification on July 1, 2009. FSP APB 14-1
applies to convertible debt instruments that, by their stated terms, may be settled in cash (or
other assets) upon conversion, including partial cash settlement of the conversion option. FSP APB
14-1 requires bifurcation of the instrument into a debt component that is initially recorded at
fair value and an equity component. The difference between the fair value of the debt component and
the initial proceeds from issuance of the instrument is recorded as a component of equity. The
liability component of the debt instrument is accreted to par using the effective yield method;
accretion is reported as a component of interest expense. The equity component is not subsequently
re-valued as long as it continues to qualify for equity treatment. FSP APB 14-1 must be applied
retrospectively to previously issued cash-settleable convertible instruments as well as
prospectively to newly issued instruments. FSP APB 14-1 is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years.
In September 2005, we issued a total of $144 million principal amount of 7% Senior Convertible
Notes due 2020 (the 7% notes). As of September 30, 2009, $74 million of principal amount remained
outstanding under the 7% notes. The holders of these notes may convert, at any time prior to the
earlier of the business day prior to the redemption date and the second business day preceding the
maturity date, any outstanding notes (or portions thereof) into shares of our common stock, at an
initial conversion rate of 41.4508 shares of common stock per $1,000 principal amount of notes
(equivalent to an initial conversion price of approximately $24.12 per share). In lieu of delivery
of shares of common stock upon conversion of all or any portion of the 7% notes, we may elect to
pay cash or a combination of shares and cash to holders surrendering notes for conversion. The 7%
notes are subject to the provisions of FSP APB 14-1 since the 7% notes can be settled in cash upon
conversion.
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We adopted FSP APB 14-1 on January 1, 2009. We concluded that the fair value of the equity
component of the 7% notes at the time of issuance in 2005 was $47 million. Upon retrospective
application, the adoption resulted in a $29 million increase in accumulated deficit at December 31,
2008, comprised of non-cash interest expense of $17 million for the years 2005-2008 and non-cash
losses on debt extinguishment of $12 million related to the partial conversion of certain of the 7%
notes to common stock in 2006. As of September 30, 2009 and December 31, 2008, the carrying value
of the equity component was $40 million. The principal amount of the outstanding notes, the
unamortized discount and the net carrying value at September 30, 2009 was $74 million, $7 million
and $67 million, respectively, and at December 31, 2008 was $74 million, $11 million and $63
million, respectively. The remaining period over which the unamortized discount will be recognized
is one year. We recognized $1 million and $4 million in non-cash interest expense in the three and
nine months ended September 30, 2009, respectively, and $1 million and $3 million in the three and
nine months ended September 30, 2008, respectively, related to the adoption of FSP APB 14-1. In addition, we recognized $2 million and $4 million
in cash interest expense in the three and nine months ended September 30, 2009, respectively, and
$2 million and $4 million in cash interest expense in the three and nine months ended September 30,
2008, respectively. The following table presents the December 31, 2008 balance sheet line items
affected as adjusted and as originally reported (in millions).
December 31, 2008 | ||||||||
As Adjusted | As Reported | |||||||
Long-term debt and capital leases, net of current maturities |
$ | 3,623 | $ | 3,634 | ||||
Additional paid-in capital |
1,789 | 1,749 | ||||||
Accumulated deficit |
(2,336 | ) | (2,307 | ) |
In April 2009, the FASB issued FSP Financial Accounting Standards (FAS) 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments, as adopted by the Codification
on July 1, 2009. This FSP changes existing guidance for determining whether an impairment of debt
securities is other-than-temporary. The FSP requires other-than-temporary impairments to be
separated into the amount representing the decrease in cash flows expected to be collected from a
security (referred to as credit losses) which is recognized in earnings and the amount related to
other factors (referred to as noncredit losses) which is recognized in other comprehensive income.
This noncredit loss component of the impairment may only be classified in other comprehensive
income if both of the following conditions are met (a) the holder of the security concludes that it
does not intend to sell the security and (b) the holder concludes that it is more likely than not
that the holder will not be required to sell the security before the security recovers its value.
If these conditions are not met, the noncredit loss must also be recognized in earnings. When
adopting the FSP, an entity is required to record a cumulative effect adjustment as of the
beginning of the period of adoption to reclassify the noncredit component of a previously
recognized other-than-temporary impairment from retained earnings to accumulated other
comprehensive income. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods
ending after June 15, 2009. We adopted FSP FAS 115-2 and FAS 124-2 as of April 1, 2009. We do not
meet the conditions necessary to recognize the noncredit loss component of our auction rate
securities in other comprehensive income. Accordingly, we did not reclassify any previously
recognized other-than-temporary impairment losses from retained earnings to accumulated other
comprehensive income and the adoption of FSP FAS 115-2 and FAS 124-2 had no material impact on our
condensed consolidated financial statements.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, as adopted by the Codification on July 1, 2009. This FSP
provides additional guidance on estimating fair value when the volume and level of activity for an
asset or liability have significantly decreased in relation to normal market activity for the asset
or liability. The FSP also provides additional guidance on circumstances that may indicate that a
transaction is not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after
June 15, 2009. We adopted FSP FAS 157-4 during the second quarter of 2009, and its application had
no impact on our condensed consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, as adopted by the Codification
on July 1, 2009, which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before the financial statements are issued or are
available to be issued. SFAS No. 165 provides guidance on the period after the balance sheet date
during which management of a reporting entity should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial statements, the circumstances under which
an entity should recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures that an entity should make about events or transactions
that occurred after the balance sheet date. We adopted SFAS No. 165 during the second quarter of
2009, and its application had no impact on our condensed consolidated financial statements. We
evaluated subsequent events through the date the accompanying financial statements were issued,
which was October 21, 2009.
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In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation (FIN) No.
46(R), which changes how a reporting entity determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another entity is based on,
among other things, the other entitys purpose and design and the reporting entitys ability to
direct the activities of the other entity that most significantly impact the other entitys
economic performance. SFAS No. 167 will require a reporting entity to provide additional
disclosures about its involvement with variable interest entities and any significant changes in
risk exposure due to that involvement. A reporting entity will be required to disclose how its
involvement with a variable interest entity affects the reporting entitys financial statements.
SFAS No. 167 is effective for fiscal years beginning after November 15, 2009, and interim periods
within those fiscal years. Management is currently evaluating the requirements of SFAS No. 167 and
has not yet determined the impact on our condensed consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, Revenue
Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements. ASU No. 2009-13 addresses the
accounting for multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than as a combined unit. This guidance establishes a
selling price hierarchy for determining the selling price of a deliverable, which is based on: (a)
vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also
eliminates the residual method of allocation and requires that arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the relative selling price
method. In addition, this guidance significantly expands required disclosures related to a vendors multiple-deliverable revenue arrangements. ASU No.
2009-13 is effective prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010 and early adoption is permitted. A company may
elect, but will not be required, to adopt the amendments in ASU No. 2009-13 retrospectively for all
prior periods. Management is currently evaluating the requirements of ASU No. 2009-13 and has not
yet determined the impact on our condensed consolidated financial statements.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market Risk Sensitive Instruments
Our primary market risk exposures include commodity price risk (i.e., the price paid to obtain
aviation fuel) and interest rate risk. Our exposure to market risk from changes in commodity prices
and interest rates has not changed materially from our exposure discussed in our 2008 Form 10-K
except as updated below.
Commodity price risk
Our 2009 forecasted mainline and Express fuel consumption is approximately 1.42 billion
gallons, and a one cent per gallon increase in aviation fuel price results in a $14 million annual
increase in expense. Since the third quarter of 2008, we have not entered into any new transactions
as part of our fuel hedging program and as of September 30, 2009, there were no remaining
outstanding fuel hedging contracts.
Interest rate risk
Our exposure to interest rate risk relates primarily to our cash equivalents, investment
portfolios and variable rate debt obligations. At September 30, 2009, our variable-rate long-term
debt obligations of approximately $3.38 billion represented approximately 70% of our total
long-term debt. If interest rates increased 10% in 2009, the impact on our results of operations
would be approximately $12 million of additional interest expense.
At September 30, 2009, included within our investment portfolio are $411 million par value of
investments in auction rate securities. With the liquidity issues experienced in the global credit
and capital markets, all of our auction rate securities have experienced failed auctions since
August 2007. The estimated fair value of these auction rate securities no longer approximates par
value. As of September 30, 2009, the fair value of our auction rate securities was $228 million. We
continue to monitor the market for auction rate securities and consider its impact (if any) on the
fair value of our investments. If the current market conditions deteriorate, we may be required to
record additional impairment charges in other nonoperating expense, net in future periods.
We believe that, based on our current unrestricted cash and cash equivalents balance at
September 30, 2009, the current lack of liquidity in our investments in auction rate securities
will not have a material impact on our liquidity, our cash flow or our ability to fund our
operations. Refer to Note 8, Investments in Marketable Securities (Noncurrent) in Part I,
Items 1A and 1B, respectively, of this report for additional information.
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Item 4. | Controls and Procedures |
Evaluation of disclosure controls and procedures.
An evaluation was performed under the supervision and with the participation of US Airways
Groups and US Airways management, including the Chief Executive Officer (the CEO) and Chief
Financial Officer (the CFO), of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in the rules promulgated under the Exchange Act) as of
September 30, 2009. Based on that evaluation, our management, including the CEO and CFO, concluded
that our disclosure controls and procedures were effective as of September 30, 2009.
Changes in internal control over financial reporting.
There has been no change to US Airways Groups or US Airways internal control over financial
reporting that occurred during the quarter ended September 30, 2009 that has materially affected,
or is reasonably likely to materially affect, US Airways Groups or US Airways internal control
over financial reporting.
Limitation on the effectiveness of controls.
We believe that a controls system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the controls system are met and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and the CEO and CFO believe that our disclosure
controls and procedures were effective at the reasonable assurance level as of September 30,
2009.
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Part II. Other Information
Item 1. | Legal Proceedings |
On September 12, 2004, US Airways Group and its domestic subsidiaries (collectively, the
Reorganized Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division
(Case Nos. 04-13819-SSM through 03-13823-SSM) (the 2004 Bankruptcy). On September 16, 2005, the
Bankruptcy Court issued an order confirming the plan of reorganization submitted by the Reorganized
Debtors and on September 27, 2005, the Reorganized Debtors emerged from the 2004 Bankruptcy. The
Bankruptcy Courts order confirming the plan included a provision called the plan injunction, which
forever bars other parties from pursuing most claims against the Reorganized Debtors that arose
prior to September 27, 2005 in any forum other than the Bankruptcy Court. The great majority of
these claims are pre-petition claims that, if paid out at all, will be paid out in common stock of
the post-bankruptcy US Airways Group at a fraction of the actual claim amount.
The Company and/or its subsidiaries are defendants in various pending lawsuits and
proceedings, and from time to time are subject to other claims arising in the normal course of our
business, many of which are covered in whole or in part by insurance. The outcome of those matters
cannot be predicted with certainty at this time, but the Company, having consulted with outside
counsel, believes that the ultimate disposition of these contingencies will not materially affect
its consolidated financial position or results of operations.
Item 1A. | Risk Factors |
Below are a series of risk factors that may affect our results of operations or financial
performance. We caution the reader that these risk factors may not be exhaustive. We operate in a
continually changing business environment, and new risk factors emerge from time to time.
Management cannot predict such new risk factors, nor can it assess the impact, if any, of these
risk factors on our business or the extent to which any factor or combination of factors may impact
our business.
Risk Factors Relating to the Company and Industry Related Risks
US Airways Group could experience significant operating losses in the future.
There are several reasons, including those addressed in these risk factors, why US Airways
Group might fail to achieve profitability and might experience significant losses. In particular,
the weakened condition of the economy and the high volatility of fuel prices have had and continue
to have an impact on our operating results, and overall worsening economic conditions increase the
risk that we will experience losses.
Downturns in economic conditions adversely affect our business.
Due to the discretionary nature of business and leisure travel spending, airline industry
revenues are heavily influenced by the condition of the U.S. economy and the economies in other
regions of the world. Unfavorable conditions in these broader economies have resulted in decreased
passenger demand for air travel and changes in booking practices, both of which in turn have had a
strong negative effect on our revenues. In addition, during challenging economic times, actions by
our competitors to increase their revenues can have an adverse impact on our revenues. See The
airline industry is intensely competitive and dynamic below. Certain contractual obligations limit
our ability to reduce the number of aircraft in operation below certain levels. As a result, we may
not be able to optimize the number of aircraft in operation in response to a decrease in passenger
demand for air travel.
Increased costs of financing, a reduction in the availability of financing and fluctuations in
interest rates could adversely affect our liquidity, operating expenses and results.
Recent global market and economic conditions have been unprecedented and challenging with
tighter credit conditions. Continued concerns about the systemic impact of inflation, the
availability and cost of credit, energy costs and geopolitical issues, combined with declining
business activity levels and consumer confidence, increased unemployment and volatile oil prices,
have contributed to unprecedented levels of volatility in the capital markets. As a result of these
market conditions, the cost and availability of credit have been and may continue to be adversely
affected by illiquid credit markets and wider credit spreads. These changes in the domestic and
global financial markets may increase our costs of financing and adversely affect our ability to
obtain financing needed for the acquisition of aircraft that we have contractual commitments to
purchase and for other types of financings we may seek in order to raise capital or fund other
types of obligations. Any downgrades to our credit rating may likewise increase the cost and reduce
the availability of financings.
In addition, we have substantial non-cancelable commitments for capital expenditures,
including the acquisition of new aircraft and related spare engines. Although we have in place
backstop financing for the narrow body aircraft we have on order, we have not yet secured financing
commitments or backstop financing for some of the widebody aircraft we have on order, commencing
with deliveries scheduled for March 2010, and cannot assure you of the availability or cost of that financing. If we are not
able to arrange financing for such aircraft at customary advance rates and on terms and conditions
acceptable to us, we expect we would seek to negotiate deferrals of aircraft deliveries with the
manufacturer or financing at lower than customary advance rates, or, if required, use cash from
operations or other sources to purchase the aircraft.
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Further, a substantial portion of our indebtedness bears interest at fluctuating interest
rates. These are primarily based on the London interbank offered rate for deposits of U.S. dollars,
or LIBOR. LIBOR tends to fluctuate based on general economic conditions, general interest rates,
federal reserve rates and the supply of and demand for credit in the London interbank market. We
have not hedged our interest rate exposure and, accordingly, our interest expense for any
particular period may fluctuate based on LIBOR and other variable interest rates. To the extent
these interest rates increase, our interest expense will increase, in which event we may have
difficulties making interest payments and funding our other fixed costs, and our available cash
flow for general corporate requirements may be adversely affected. See also the discussion of
interest rate risk in Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk.
Our high level of fixed obligations limits our ability to fund general corporate requirements and
obtain additional financing, limits our flexibility in responding to competitive developments and
increases our vulnerability to adverse economic and industry conditions.
We have a significant amount of fixed obligations, including debt, aircraft leases and
financings, aircraft purchase commitments, leases and developments of airport and other facilities
and other cash obligations. We also have certain guaranteed costs associated with our regional
alliances. Our existing indebtedness is secured by substantially all of our assets.
As a result of the substantial fixed costs associated with these obligations:
| a decrease in revenues results in a disproportionately greater percentage decrease in
earnings; |
| we may not have sufficient liquidity to fund all of these fixed costs if our revenues
decline or costs increase; and |
| we may have to use our working capital to fund these fixed costs instead of funding
general corporate requirements, including capital expenditures. |
These obligations also impact our ability to obtain additional financing, if needed, and our
flexibility in the conduct of our business.
Any failure to comply with the liquidity covenants contained in our financing arrangements would
likely have a material adverse effect on our business, financial condition and results of
operations.
The terms of our Citicorp credit facility and certain of our other financing arrangements
require us to maintain consolidated unrestricted cash and cash equivalents of not less than
$850 million, with not less than $750 million (subject to partial reductions upon certain
reductions in the outstanding principal amount of the loan) of that amount held in accounts subject
to control agreements.
Our ability to comply with these covenants while paying the fixed costs associated with our
contractual obligations and our other expenses will depend on our operating performance and cash
flow, which are seasonal, as well as factors including fuel costs and general economic and
political conditions.
In order to strengthen our ability to continue complying with our liquidity covenants in the
event that the factors affecting our liquidity will in fact be more adverse than we currently
anticipate, management is pursuing a number of initiatives. These initiatives are intended to
provide a cushion to mitigate against such an event. There can be no assurance that these
initiatives will be consummated, however, and even if these initiatives are consummated, the
factors affecting our liquidity (and our ability to comply with related covenants) will remain
subject to significant fluctuations and uncertainties, many of which are outside our control. Any
breach of our liquidity covenants or failure to timely pay our obligations could result in a
variety of adverse consequences, including the acceleration of our indebtedness, the withholding of
credit card proceeds by the credit card servicers and the exercise of remedies by our creditors and
lessors. In such a situation, it is unlikely that we would be able to fulfill our contractual
obligations, repay the accelerated indebtedness, make required lease payments or otherwise cover
our fixed costs.
Our business is dependent on the price and availability of aircraft fuel. Continued periods of
high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of
aircraft fuel could have a significant negative impact on our operating results and liquidity.
Our operating results are significantly impacted by changes in the availability, price
volatility and the cost of aircraft fuel, which represents the largest single cost item in our
business. Fuel prices have fluctuated substantially over the past several years and sharply in the
last year.
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Because of the amount of fuel needed to operate our airline, even a relatively small increase
in the price of fuel can have a significant adverse aggregate effect on our costs and liquidity.
Due to the competitive nature of the airline industry and unpredictability of the market, we can
offer no assurance that we may be able to increase our fares, impose fuel surcharges or otherwise
increase revenues sufficiently to offset fuel prices.
Although we are currently able to obtain adequate supplies of aircraft fuel, we cannot predict
the future availability, price volatility or cost of aircraft fuel. Natural disasters, political
disruptions or wars involving oil-producing countries, changes in fuel-related governmental policy,
the strength of the U.S. dollar against foreign currencies, speculation in the energy futures
markets, changes in aircraft fuel production capacity, environmental concerns and other
unpredictable events may result in fuel supply shortages, additional fuel price volatility and cost
increases in the future.
Historically from time to time we have entered into hedging arrangements to protect against
rising fuel costs. Since the third quarter of 2008, we have not entered into any new hedging
transactions as part of our fuel hedging program and as of September 30, 2009, there were no
remaining outstanding fuel hedging contracts. Our ability to hedge in the future, however, may be
limited, particularly if the financial condition of our airline worsens. In the event we do hedge
in the future, our fuel hedging arrangements do not completely protect us against price increases
and are limited in both volume of fuel and duration. Also, a rapid decline in the price of fuel can
adversely impact our short-term liquidity as our hedge counterparties require that we post
collateral in the form of cash or letters of credit when the projected future market price of fuel
drops below the strike price. See also the discussion in Part I, Item 3, Quantitative and
Qualitative Disclosures About Market Risk.
If our financial condition worsens, provisions in our credit card processing and other commercial
agreements may adversely affect our liquidity.
We have agreements with companies that process customer credit card transactions for the sale
of air travel and other services. These agreements allow these processing companies, under certain
conditions, to hold an amount of our cash (referred to as a holdback) equal to a portion of
advance ticket sales that have been processed by that company, but for which we have not yet
provided the air transportation. These holdback requirements can be modified at the discretion of
the processing companies upon the occurrence of specific events, including material adverse changes
in our financial condition. An increase in the current holdback balances to higher percentages up
to and including 100% of relevant advanced ticket sales could materially reduce our liquidity.
Likewise, other of our commercial agreements contain provisions that allow other entities to impose
less favorable terms, including the acceleration of amounts due, in the event of material adverse
changes in our financial condition.
Union disputes, employee strikes and other labor-related disruptions may adversely affect our
operations.
Relations between air carriers and labor unions in the United States are governed by the
Railway Labor Act (the RLA). Under the RLA, collective bargaining agreements generally contain
amendable dates rather than expiration dates, and the RLA requires that a carrier maintain the
existing terms and conditions of employment following the amendable date through a multi-stage and
usually lengthy series of bargaining processes overseen by the National Mediation Board. These
processes do not apply to our current and ongoing negotiations for post-merger integrated labor
agreements, and this means unions may not lawfully engage in concerted refusals to work, such as
strikes, slow-downs, sick-outs or other similar activity, against us. Nonetheless, after more than
four years of negotiations without a resolution to the bargaining issues that arose from the
merger, there is a risk that disgruntled employees, either with or without union involvement, could
engage in one or more concerted refusals to work that could individually or collectively harm the
operation of our airline and impair our financial performance. Likewise, employees represented by
unions that have reached post-merger integrated agreements could engage in improper actions that
disrupt our operations.
If we incur problems with any of our third party service providers, our operations could be
adversely affected by a resulting decline in revenue or negative public perception about our
services.
Our reliance upon others to provide essential services on behalf of our operations may result
in our relative inability to control the efficiency and timeliness of contract services. We have
entered into agreements with contractors to provide various facilities and services required for
our operations, including Express flight operations, aircraft maintenance, ground services and
facilities, reservations and baggage handling. Similar agreements may be entered into in any new
markets we decide to serve. These agreements are generally subject to termination after notice by
the third party service provider. We are also at risk should one of these service providers cease
operations, and there is no guarantee that we could replace these providers on a timely basis with
comparably priced providers. Recent volatility in fuel prices, disruptions to capital markets and
the current economic downturn in general have subjected certain of these third party service
providers to strong financial pressures. Any material problems with the efficiency and timeliness
of contract services, resulting from financial hardships or otherwise, could have a material
adverse effect on our business, financial condition and results of operations.
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We rely heavily on automated systems to operate our business and any failure or disruption of
these systems could harm our business.
To operate our business, we depend on automated systems, including our computerized airline
reservation systems, flight operations systems, telecommunication systems, airport customer
self-service kiosks and websites. Our website and reservation systems must be able to accommodate a
high volume of traffic and deliver important flight information on a timely and reliable basis.
Substantial or repeated disruptions or failures of any of these automated systems could impair our
operations, reduce the attractiveness of our services and could result in lost revenues and
increased costs. In addition, these automated systems require periodic maintenance, upgrades and
replacements, and our business may be harmed if we fail to properly maintain, upgrade or replace
such systems.
The integration of our business units following the merger continues to present significant
challenges.
We continue to face significant challenges relating to our merger in consolidating functions
and integrating diverse organizations, information technology systems, processes, procedures,
operations and training and maintenance programs, in a timely and efficient manner. This
integration has been and will continue to be costly, complex and time consuming. Failure to
successfully complete the integration may adversely affect our business and results of operations.
Changes to our business model that are designed to increase revenues may not be successful and may
cause operational difficulties or decreased demand.
We have implemented several new measures designed to increase revenue and offset costs. These
measures include charging separately for services that had previously been included within the
price of a ticket and increasing other pre-existing fees. We may introduce additional initiatives
in the future. We cannot assure you that these new measures or any future initiatives will be
successful in increasing our revenues. Additionally, the implementation of these initiatives
creates logistical challenges that could harm the operational performance of our airline. Also, the
new and increased fees might reduce the demand for air travel on our airline or across the industry
in general, particularly as weakening economic conditions make our customers more sensitive to
increased travel costs.
The airline industry is intensely competitive and dynamic.
Our competitors include other major domestic airlines as well as foreign, regional and new
entrant airlines, some of which have more financial resources or lower cost structures than ours,
and other forms of transportation, including rail and private automobiles. In many of our markets
we compete with at least one low cost air carrier. Our revenues are sensitive to numerous factors,
and the actions of other carriers in the areas of pricing, scheduling and promotions can have a
substantial adverse impact not only on our revenues but on overall industry revenues. These factors
may become even more significant in periods when the industry experiences large losses, as airlines
under financial stress, or in bankruptcy, may institute pricing structures intended to achieve
near-term survival rather than long-term viability. In addition, because a significant portion of
our traffic is short-haul travel, we are more susceptible than other major airlines to competition
from surface transportation such as automobiles and trains.
Low cost carriers have a profound impact on industry revenues. Using the advantage of low unit
costs, these carriers offer lower fares, particularly those targeted at business passengers, in
order to shift demand from larger, more-established airlines. Some low cost carriers, which have
cost structures lower than ours, have better financial performance and significant numbers of
aircraft on order for delivery in the next few years. These low-cost carriers are expected to
continue to increase their market share through growth and could continue to have an impact on the
overall performance of US Airways Group.
Industry consolidation could weaken our competitive position.
If mergers or other forms of industry consolidation including antitrust immunity grants take
place, we might or might not be included as a participant. Depending on which carriers combine and
which assets, if any, are sold or otherwise transferred to other carriers in connection with such
combinations, our competitive position relative to the post-combination carriers or other carriers
that acquire such assets could be harmed. In addition, as carriers combine through traditional
mergers or antitrust immunity grants, their route networks might grow and result in greater overlap
with our network, which in turn could result in lower overall market share and revenues for us.
Such consolidation is not limited to the U.S., but could include further consolidation among
international carriers in Europe and elsewhere.
The loss of key personnel upon whom we depend to operate our business or the inability to attract
additional qualified personnel could adversely affect the results of our operations or our
financial performance.
We believe that our future success will depend in large part on our ability to attract and
retain highly qualified management, technical and other personnel, particularly in light of
reductions in headcount associated with cost-saving measures that we have implemented. We may not
be successful in retaining key personnel or in attracting and retaining other highly qualified
personnel. Any inability to retain or attract significant numbers of qualified management and other
personnel could adversely affect our business.
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The travel industry continues to face ongoing security concerns.
The attacks of September 11, 2001 and continuing terrorist threats materially impacted and
continue to impact air travel. The Aviation and Transportation Security Act mandates improved
flight deck security; deployment of federal air marshals on board flights; improved airport
perimeter access security; airline crew security training; enhanced security screening of
passengers, baggage, cargo, mail, employees and vendors; enhanced training and qualifications of
security screening personnel; additional provision of passenger data to U.S. Customs and enhanced
background checks. These increased security procedures introduced at airports since the attacks and
other such measures as may be introduced in the future generate higher operating costs for
airlines. A concurrent increase in airport security charges and procedures, such as restrictions on
carry-on baggage, has also had and may continue to have a disproportionate impact on short-haul
travel, which constitutes a significant portion of our flying and revenue. We would also be
materially impacted in the event of further terrorist attacks or perceived terrorist threats.
Changes in government regulation could increase our operating costs and limit our ability to
conduct our business.
Airlines are subject to extensive regulatory requirements. In the last several years, Congress
has passed laws, and the DOT, the Federal Aviation Administration (FAA), the Transportation
Security Administration (TSA) and the Department of Homeland Security have issued a number of
directives and other regulations. These requirements impose substantial costs on airlines. On
October 10, 2008, the FAA finalized new rules governing flight operations at the three major New
York airports. These rules did not take effect because of a legal challenge, but the FAA has pushed
forward with a reduction in the number of flights per hour at LaGuardia. The FAA is attempting to
work with carriers on a voluntary basis to implement its new lower operations cap at LaGuardia. If
this is not successful, the FAA may resort to other methods to reduce congestion in New York.
Additionally, the DOT recently finalized a policy change that will permit airports to charge
differentiated landing fees during congested periods, which could impact our ability to serve
certain markets in the future. The new rule is being challenged in court by the industry. The Obama
Administration has not yet indicated how it intends to move forward on the issue of congestion
management in the New York region.
The FAA from time to time issues directives and other regulations relating to the maintenance
and operation of aircraft that require significant expenditures or operational restrictions. Some
FAA requirements cover, among other things, retirement of older aircraft, security measures,
collision avoidance systems, airborne windshear avoidance systems, noise abatement and other
environmental concerns, aircraft operation and safety and increased inspections and maintenance
procedures to be conducted on older aircraft. Our failure to timely comply with these requirements
can result in fines and other enforcement actions by the FAA or other regulators. For example, on
October 14, 2009, the FAA proposed a fine of $5.4 million with respect to certain alleged
violations and we are in discussions with the agency regarding resolution of this matter.
Additional laws, regulations, taxes and policies have been proposed or discussed from time to
time, including recently introduced federal legislation on a passenger bill of rights, that, if
adopted, could significantly increase the cost of airline operations or reduce revenues. The state
of New Yorks attempt to adopt such a measure has been successfully challenged by the airline
industry. Other states, however, are contemplating similar legislation. The DOT also has a
rulemaking pending and completed a stakeholder task force working on various initiatives that could
lead to additional expansion of airline obligations in the customer service area and increase our
costs.
Finally, the ability of U.S. carriers to operate international routes is subject to change
because the applicable arrangements between the U.S. and foreign governments may be amended from
time to time, or because appropriate slots or facilities may not be available. We cannot assure you
that laws or regulations enacted in the future will not adversely affect our operating costs. In
addition, increased environmental regulation may increase costs or restrict our operations. The EU
has been particularly aggressive in this area.
The inability to maintain labor costs at competitive levels could harm our financial performance.
Currently, our labor costs are very competitive. However, we cannot assure you that labor
costs going forward will remain competitive because some of our agreements are amendable now and
others may become amendable, competitors may significantly reduce their labor costs or we may agree
to higher-cost provisions in our current labor negotiations. Approximately 87% of the employees
within US Airways Group are represented for collective bargaining purposes by labor unions,
including unionized groups of our employees abroad. Some of our unions have brought and may
continue to bring grievances to binding arbitration. Unions may also bring court actions and may
seek to compel us to engage in the bargaining processes where we believe we have no such
obligation. If successful, there is a risk these judicial or arbitral avenues could create
additional costs that we did not anticipate.
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Our ability to operate and grow our route network in the future is dependent on the availability of
adequate facilities and infrastructure throughout our system.
In order to operate our existing flight schedule and, where appropriate, add service along new
or existing routes, we must be able to obtain adequate gates, ticketing facilities, operations
areas, slots (where applicable) and office space. For example, at our largest hub airport, we are seeking to increase international service despite challenging airport space constraints. The
nations aging air traffic control infrastructure presents challenges as well. The ability of the
air traffic control system to handle traffic in high-density areas where we have a large
concentration of flights is critical to our ability to operate our existing schedule. Also, as
airports around the world become more congested, we cannot always be sure that our plans for new
service can be implemented in a commercially viable manner given operating constraints at airports
throughout our network.
We are subject to many forms of environmental regulation and may incur substantial costs as a
result.
We are subject to increasingly stringent federal, state, local and foreign laws, regulations
and ordinances relating to the protection of the environment, including those relating to emissions
to the air, discharges to surface and subsurface waters, safe drinking water, and the management of
hazardous substances, oils and waste materials. Compliance with all environmental laws and
regulations can require significant expenditures.
Several U.S. airport authorities are actively engaged in efforts to limit discharges of
de-icing fluid (glycol) to local groundwater, often by requiring airlines to participate in the
building or reconfiguring of airport de-icing facilities. Such efforts are likely to impose
additional costs and restrictions on airlines using those airports. We do not believe, however,
that such environmental developments will have a material impact on our capital expenditures or
otherwise adversely affect our operations, operating costs or competitive position.
We are also subject to other environmental laws and regulations, including those that require
us to remediate soil or groundwater to meet certain objectives. Under federal law, generators of
waste materials, and owners or operators of facilities, can be subject to liability for
investigation and remediation costs at locations that have been identified as requiring response
actions. We have liability for such costs at various sites, although the future costs associated
with the remediation efforts are currently not expected to have a material adverse affect on our
business.
We have various leases and agreements with respect to real property, tanks and pipelines with
airports and other operators. Under these leases and agreements, we have agreed to standard
language indemnifying the lessor or operator against environmental liabilities associated with the
real property or operations described under the agreement, even if we are not the party responsible
for the initial event that caused the environmental damage. We also participate in leases with
other airlines in fuel consortiums and fuel committees at airports, where such indemnities are
generally joint and several among the participating airlines.
Recently, climate change issues and greenhouse gas emissions (including carbon) have attracted
international and domestic regulatory interest that may result in the imposition of additional
regulation on airlines. For example, the EU has adopted legislation to include aviation within the
EUs existing greenhouse gas emission trading scheme effective in 2012. Any such regulatory
activity in the future may adversely affect our business and financial results.
California is in the process of implementing environmental provisions aimed at limiting
emissions from motorized vehicles, which may include some airline belt loaders and tugs and require
a change of ground service vehicles. The future costs associated with replacing some or all of our
ground fleets in California cities are currently not expected to have a material adverse affect on
our business.
Governmental authorities in several U.S. and foreign cities are also considering or have
already implemented aircraft noise reduction programs, including the imposition of nighttime
curfews and limitations on daytime take-offs and landings. We have been able to accommodate local
noise restrictions imposed to date, but our operations could be adversely affected if
locally-imposed regulations become more restrictive or widespread.
Ongoing data security compliance requirements could increase our costs, and any significant data
breach could harm our business, financial condition or results of operations.
Our business requires the appropriate and secure utilization of customer and other sensitive
information. We cannot be certain that advances in criminal capabilities, discovery of new
vulnerabilities, attempts to exploit existing vulnerabilities in our systems, data thefts, physical
system or network break-ins or inappropriate access, or other developments will not compromise or
breach the technology protecting the networks that access and store database information.
Furthermore, there has been heightened legislative and regulatory focus on data security in the
U.S. and abroad (particularly in the EU), including requirements for varying levels of customer
notification in the event of a data breach.
Many of our commercial partners, including credit card companies, have imposed certain data
security standards that we must meet. In particular, we were required by the Payment Card Industry
Security Standards Council, founded by the credit card companies, to comply with their highest
level of data security standards. While we currently meet these standards, new and revised
standards may be imposed that may be difficult for us to meet.
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In addition to the Payment Card Industry Standards discussed above, failure to comply with the
other privacy and data use and security requirements of our partners or related laws and
regulations to which we are subject may expose us to fines, sanctions or other penalties, which
could materially and adversely affect our results of operations and overall business. In addition,
failure to address appropriately these issues could also give rise to additional legal risks,
which, in turn, could increase the size and number of litigation claims and damages asserted or
subject us to enforcement actions, fines and penalties and cause us to incur further related costs
and expenses.
Interruptions or disruptions in service at one of our hub airports could have a material adverse
impact on our operations.
We operate principally through primary hubs in Charlotte, Philadelphia and Phoenix and focus
cities in New York, Washington, D.C., Boston and Las Vegas. A majority of our flights either
originate in or fly into one of these locations. A significant interruption or disruption in
service at one of our hubs could result in the cancellation or delay of a significant portion of
our flights and, as a result, could have a severe impact on our business, operations and financial
performance.
We are at risk of losses and adverse publicity stemming from any accident involving any of our
aircraft.
If one of our aircraft were to be involved in an accident, we could be exposed to significant
tort liability. The insurance we carry to cover damages arising from any future accidents may be
inadequate. In the event that our insurance is not adequate, we may be forced to bear substantial
losses from an accident. In addition, any accident involving an aircraft that we operate could
create a public perception that our aircraft are not safe or reliable, which could harm our
reputation, result in air travelers being reluctant to fly on our aircraft and adversely impact our
financial condition and operations.
Delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity may adversely
impact our operations and financial results.
The success of our business depends on, among other things, the ability to operate a certain
number and type of aircraft. In many cases, the aircraft we intend to operate are not yet in our
fleet, but we have contractual commitments to purchase or lease them. If for any reason we were
unable to secure deliveries of new aircraft on contractually scheduled delivery dates, this could
have a negative impact on our business, operations and financial performance. Our failure to
integrate newly purchased aircraft into our fleet as planned might require us to seek extensions of
the terms for some leased aircraft. Such unanticipated extensions may require us to operate
existing aircraft beyond the point at which it is economically optimal to retire them, resulting in
increased maintenance costs. If new aircraft orders are not filled on a timely basis, we could face
higher monthly rental rates.
Our business is subject to weather factors and seasonal variations in airline travel, which cause
our results to fluctuate.
Our operations are vulnerable to severe weather conditions in parts of our network that could
disrupt service, create air traffic control problems, decrease revenue and increase costs, such as
during hurricane season in the Caribbean and Southeast United States, snow and severe winters in
the Northeast United States and thunderstorms in the Eastern United States. In addition, the air
travel business historically fluctuates on a seasonal basis. Due to the greater demand for air and
leisure travel during the summer months, revenues in the airline industry in the second and third
quarters of the year tend to be greater than revenues in the first and fourth quarters of the year.
Our results of operations will likely reflect weather factors and seasonality, and therefore
quarterly results are not necessarily indicative of those for an entire year, and our prior results
are not necessarily indicative of our future results.
Increases in insurance costs or reductions in insurance coverage may adversely impact our
operations and financial results.
The terrorist attacks of September 11, 2001 led to a significant increase in insurance
premiums and a decrease in the insurance coverage available to commercial air carriers.
Accordingly, our insurance costs increased significantly and our ability to continue to obtain
insurance even at current prices remains uncertain. In addition, we have obtained third party war
risk (terrorism) insurance through a special program administered by the FAA, resulting in lower
premiums than if we had obtained this insurance in the commercial insurance market. The program has
been extended, with the same conditions and premiums, until August 31, 2010. If the federal
insurance program terminates, we would likely face a material increase in the cost of war risk
insurance. The failure of one or more of our insurers could result in a lack of coverage for a
period of time. Additionally, severe disruptions in the domestic and global financial markets could
adversely impact the ratings and survival of some insurers. Future downgrades in the ratings of
enough insurers could adversely impact both the availability of appropriate insurance coverage and
its cost. Because of competitive pressures in our industry, our ability to pass additional
insurance costs to passengers is limited. As a result, further increases in insurance costs or
reductions in available insurance coverage could have an adverse impact on our financial results.
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We may be adversely affected by global events that affect travel behavior.
Our revenue and results of operations may be adversely affected by global events beyond our
control. Acts of terrorism, wars or other military conflicts, including the war in Iraq, may
depress air travel, particularly on international routes. An outbreak of a contagious disease such
as Severe Acute Respiratory Syndrome (SARS), avian flu, or any other influenza-type illness, if
it were to persist for an extended period, could again materially affect the airline industry and
us by reducing revenues and impacting travel behavior. For example, the recent outbreak of the
swine flu, or H1N1 influenza virus, has caused a decline in the demand of our flights to and from
Mexico.
We are exposed to foreign currency exchange rate fluctuations.
As we expand our international operations, we will have significant operating revenues and
expenses, as well as assets and liabilities, denominated in foreign currencies. Fluctuations in
foreign currencies can significantly affect our operating performance and the value of our assets
and liabilities located outside of the United States.
The use of US Airways Groups NOLs and certain other tax attributes could be limited in the
future.
From the time of the merger until the first half of 2007, a significant portion of US Airways
Groups common stock was beneficially owned by a small number of equity investors. Since the
merger, some of the equity investors have sold portions of their holdings and other investors have
purchased US Airways Group stock, and, as a result, we believe an ownership change as defined in
Internal Revenue Code Section 382 occurred for US Airways Group in February 2007. When a company
undergoes such an ownership change, Section 382 limits the future ability to utilize any net
operating losses, or NOL, generated before the ownership change and certain subsequently recognized
built-in losses and deductions, if any, existing as of the date of the ownership change. A
companys ability to utilize new NOL arising after the ownership change is not affected. Since
February 2007 there have been additional changes in the ownership of US Airways Group that, if
combined with sufficiently large future changes in ownership, could result in another ownership
change as defined in Internal Revenue Code Section 382. Until US Airways Group has used all of its
existing NOL, future shifts in ownership of US Airways Groups common stock could result in a new
Section 382 limit on our NOL as of the date of an additional ownership change. For purposes of
determining if an ownership change has occurred, the right to convert convertible notes into stock
may be treated as if US Airways Group had issued the underlying stock.
Risks Relating to Our Common Stock
Our common stock has limited trading history and its market price may be volatile.
Our common stock began trading on the NYSE on September 27, 2005. The market price of our
common stock may fluctuate substantially due to a variety of factors, many of which are beyond our
control, including:
| our operating results failing to meet the expectations of securities analysts or
investors; |
| changes in financial estimates or recommendations by securities analysts; |
| material announcements by us or our competitors; |
| movements in fuel prices; |
| new regulatory pronouncements and changes in regulatory guidelines; |
| general and industry-specific economic conditions; |
| public sales of a substantial number of shares of our common stock; and |
| general market conditions. |
Conversion of our convertible notes will dilute the ownership interest of existing stockholders
and could adversely affect the market price of our common stock.
The conversion of some or all of US Airways Groups 7% senior convertible notes due 2020 or
7.25% convertible senior notes due 2014 will dilute the ownership interests of existing
stockholders. Any sales in the public market of the common stock issuable upon such conversion
could adversely affect prevailing market prices of our common stock. In addition, the existence of
the convertible notes may encourage short selling by market participants because the conversion of
the notes could depress the price of our common stock.
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Certain provisions of the amended and restated certificate of incorporation and amended and
restated bylaws of US Airways Group make it difficult for stockholders to change the composition
of our board of directors and may discourage takeover attempts that some of our stockholders might
consider beneficial.
Certain provisions of the amended and restated certificate of incorporation and amended and
restated bylaws of US Airways Group may have the effect of delaying or preventing changes in
control if our board of directors determines that such changes in control are not in the best
interests of US Airways Group and its stockholders. These provisions include, among other things,
the following:
| a classified board of directors with three-year staggered terms; |
| advance notice procedures for stockholder proposals to be considered at stockholders
meetings; |
| the ability of US Airways Groups board of directors to fill vacancies on the board; |
| a prohibition against stockholders taking action by written consent; |
| a prohibition against stockholders calling special meetings of stockholders; |
| a requirement that holders of at least 80% of the voting power of the shares entitled to
vote in the election of directors approve amendment of the amended and restated bylaws; and |
| super-majority voting requirements to modify or amend specified provisions of US Airways
Groups amended and restated certificate of incorporation. |
These provisions are not intended to prevent a takeover, but are intended to protect and
maximize the value of US Airways Groups stockholders interests. While these provisions have the
effect of encouraging persons seeking to acquire control of our company to negotiate with our board
of directors, they could enable our board of directors to prevent a transaction that some, or a
majority, of our stockholders might believe to be in their best interests and, in that case, may
prevent or discourage attempts to remove and replace incumbent directors. In addition, US Airways
Group is subject to the provisions of Section 203 of the Delaware General Corporation Law, which
prohibits business combinations with interested stockholders. Interested stockholders do not
include stockholders, such as our equity investors at the time of the merger, whose acquisition of
US Airways Groups securities is approved by the board of directors prior to the investment under
Section 203.
Our charter documents include provisions limiting voting and ownership of our equity interests,
which includes our common stock and our convertible notes, by foreign owners.
Our charter documents provide that, consistent with the requirements of Subtitle VII of
Title 49 of the United States Code, as amended, or as the same may be from time to time amended
(the Aviation Act), any person or entity who is not a citizen of the United States (as defined
under the Aviation Act and administrative interpretations issued by the Department of
Transportation, its predecessors and successors, from time to time), including any agent, trustee
or representative of such person or entity (a non-citizen), shall not own (beneficially or of
record) and/or control more than (a) 24.9% of the aggregate votes of all of our outstanding equity
securities (as defined, which definition includes our capital stock, securities convertible into or
exchangeable for shares of our capital stock, including our outstanding convertible notes, and any
options, warrants or other rights to acquire capital stock) (the voting cap amount) or (b) 49.9%
of our outstanding equity securities (the absolute cap amount). If non-citizens nonetheless at
any time own and/or control more than the voting cap amount, the voting rights of the equity
securities in excess of the voting cap amount shall be automatically suspended in accordance with
the provisions of our bylaws. Voting rights of equity securities, if any, owned (beneficially or of
record) by non-citizens shall be suspended in reverse chronological order based upon the date of
registration in the foreign stock record. Further, if at any time a transfer of equity securities
to a non-citizen would result in non-citizens owning more than the absolute cap amount, such
transfer shall be void and of no effect, in accordance with provisions of our bylaws. Certificates
for our equity securities must bear a legend set forth in our amended and restated certificate of
incorporation stating that such equity securities are subject to the foregoing restrictions. Under
our bylaws, it is the duty of each stockholder who is a non-citizen to register his, her or its
equity securities on our foreign stock record. In addition, our bylaws provide that in the event
that non-citizens shall own (beneficially or of record) or have voting control over any equity
securities, the voting rights of such persons shall be subject to automatic suspension to the
extent required to ensure that we are in compliance with applicable provisions of law and
regulations relating to ownership or control of a United States air carrier. In the event that we
determine that the equity securities registered on the foreign stock record or the stock records of
the Company exceed the absolute cap amount, sufficient shares shall be removed from the foreign
stock record and the stock records of the Company so that the number of shares entered therein does
not exceed the absolute cap amount. Shares of equity securities shall be removed from the foreign
stock record and the stock records of the Company in reverse chronological order based on the date
of registration in the foreign stock record and the stock records of the Company.
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Item 6. | Exhibits |
Exhibit No. | Description | |||
2.1 | Mutual Asset Purchase and Sale Agreement dated as of August 11, 2009 among Delta Air
Lines, Inc., US Airways, Inc. and US Airways Group, Inc.* |
|||
3.1 | Certificate of Amendment to Amended and Restated Certificate of Incorporation of US
Airways Group, Inc., effective as of July 24, 2009. |
|||
10.1 | Amendment No. 4 to the Amended and Restated Airbus A320 Family Aircraft Purchase
Agreement dated as of October 2, 2007 between Airbus S.A.S. and US Airways, Inc.* |
|||
10.2 | Amendment No. 4 to the A330 Purchase Agreement dated as of October 2, 2007 between
Airbus S.A.S. and US Airways, Inc.* |
|||
10.3 | Amendment No. 3 to the Amended and Restated Airbus A350 XWB Purchase Agreement dated as
of October 2, 2007 between Airbus S.A.S. and US Airways, Inc.* |
|||
10.4 | Amendment No. 8 to America West Co-Branded Card Agreement dated September 17, 2009 by
and between US Airways Group, Inc. and Barclays Bank Delaware.* |
|||
10.5 | Amendment No. 9 to America West Co-Branded Card Agreement dated September 21, 2009 by
and between US Airways Group, Inc. and Barclays Bank Delaware.* |
|||
31.1 | Certification of US Airways Groups Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|||
31.2 | Certification of US Airways Groups Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|||
31.3 | Certification of US Airways Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|||
31.4 | Certification of US Airways Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|||
32.1 | Certification of US Airways Groups Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of US Airways Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Portions of this exhibit have been omitted under a request for confidential treatment and
filed separately with the United States Securities and Exchange Commission. |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly
caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
US Airways Group, Inc. (Registrant) |
||||
Date: October 21, 2009 | By: | /s/ Derek J. Kerr | ||
Derek J. Kerr | ||||
Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
||||
US Airways, Inc. (Registrant) |
||||
Date: October 21, 2009 | By: | /s/ Derek J. Kerr | ||
Derek J. Kerr | ||||
Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
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Exhibit Index
Exhibit No. | Description | |||
2.1 | Mutual Asset Purchase and Sale Agreement dated as of August 11, 2009 among Delta Air
Lines, Inc., US Airways, Inc. and US Airways Group, Inc.* |
|||
3.1 | Certificate of Amendment to Amended and Restated Certificate of Incorporation of US
Airways Group, Inc., effective as of July 24, 2009. |
|||
10.1 | Amendment No. 4 to the Amended and Restated Airbus A320 Family Aircraft Purchase
Agreement dated as of October 2, 2007 between Airbus S.A.S. and US Airways, Inc.* |
|||
10.2 | Amendment No. 4 to the A330 Purchase Agreement dated as of October 2, 2007 between
Airbus S.A.S. and US Airways, Inc.* |
|||
10.3 | Amendment No. 3 to the Amended and Restated Airbus A350 XWB Purchase Agreement dated as
of October 2, 2007 between Airbus S.A.S. and US Airways, Inc.* |
|||
10.4 | Amendment No. 8 to America West Co-Branded Card Agreement dated September 17, 2009 by
and between US Airways Group, Inc. and Barclays Bank Delaware.* |
|||
10.5 | Amendment No. 9 to America West Co-Branded Card Agreement dated September 21, 2009 by
and between US Airways Group, Inc. and Barclays Bank Delaware.* |
|||
31.1 | Certification of US Airways Groups Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|||
31.2 | Certification of US Airways Groups Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|||
31.3 | Certification of US Airways Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|||
31.4 | Certification of US Airways Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|||
32.1 | Certification of US Airways Groups Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of US Airways Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Portions of this exhibit have been omitted under a request for confidential treatment and
filed separately with the United States Securities and Exchange Commission. |
73