Attached files
file | filename |
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EX-32.2 - EXHIBIT 32.2 - US AIRWAYS GROUP INC | c99421exv32w2.htm |
EX-10.1 - EXHIBIT 10.1 - US AIRWAYS GROUP INC | c99421exv10w1.htm |
EX-31.3 - EXHIBIT 31.3 - US AIRWAYS GROUP INC | c99421exv31w3.htm |
EX-32.1 - EXHIBIT 32.1 - US AIRWAYS GROUP INC | c99421exv32w1.htm |
EX-31.4 - EXHIBIT 31.4 - US AIRWAYS GROUP INC | c99421exv31w4.htm |
EX-10.2 - EXHIBIT 10.2 - US AIRWAYS GROUP INC | c99421exv10w2.htm |
EX-31.2 - EXHIBIT 31.2 - US AIRWAYS GROUP INC | c99421exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - US AIRWAYS GROUP INC | c99421exv31w1.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 March 31, 2010
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.)
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.)
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
April 23, 2010, there were approximately 161,277,180 shares of US Airways Group, Inc. common
stock outstanding.
As of April 23, 2010, 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 March 31, 2010
Table of Contents
US Airways, Inc.
Form 10-Q
Quarterly Period Ended March 31, 2010
Table of Contents
Page | ||||||||
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43 | ||||||||
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Exhibit 10.1 | ||||||||
Exhibit 10.2 | ||||||||
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
Quarterly Report on 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 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 significant operating losses in the future; |
| downturns in economic conditions and their impact on passenger demand and related revenues; |
| increased costs of financing, a reduction in the availability of financing and fluctuations
in interest rates; |
| the impact of the price and availability of fuel and significant disruptions in the supply
of aircraft fuel; |
| our high level of fixed obligations and our ability to fund general corporate requirements,
obtain additional financing and respond to competitive developments; |
| any failure to comply with the liquidity covenants contained in our financing
arrangements; |
| provisions in our credit card processing and other commercial agreements that
may affect our liquidity; |
| the impact of union disputes, employee strikes and other labor-related disruptions; |
| our inability to maintain labor costs at competitive levels; |
| our reliance on third-party regional operators or third-party service providers; |
| our reliance on automated systems and the impact of any failure or disruption of these
systems; |
| the impact of changes to our business model; |
| competitive practices in the industry, including the impact of industry consolidation; |
| the loss of key personnel or our ability to attract and retain qualified personnel; |
| the impact of conflicts overseas or terrorist attacks, and the impact of ongoing security
concerns; |
| changes in government legislation and regulation; |
| our ability to operate and grow our route network; |
| the impact of environmental laws and regulations; |
| 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 or the aircraft of our regional
operators;
|
3
Table of Contents
| 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 global events that affect travel behavior, such as an outbreak of
a contagious disease; |
| the impact of foreign currency exchange rate fluctuations; |
| our ability to use NOLs and certain other tax attributes; 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 Quarterly Report on
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 Quarterly Report on Form 10-Q or as of the dates indicated in the statements.
Part I. Financial Information
This combined Quarterly Report on Form 10-Q is filed by US Airways Group and US Airways and
includes the condensed consolidated 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 Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Operating revenues: |
||||||||
Mainline passenger |
$ | 1,698 | $ | 1,611 | ||||
Express passenger |
601 | 551 | ||||||
Cargo |
33 | 24 | ||||||
Other |
319 | 269 | ||||||
Total operating revenues |
2,651 | 2,455 | ||||||
Operating expenses: |
||||||||
Aircraft fuel and related taxes |
534 | 378 | ||||||
Loss on fuel hedging instruments, net |
| 27 | ||||||
Salaries and related costs |
556 | 551 | ||||||
Express expenses |
650 | 604 | ||||||
Aircraft rent |
171 | 178 | ||||||
Aircraft maintenance |
157 | 174 | ||||||
Other rent and landing fees |
134 | 131 | ||||||
Selling expenses |
95 | 92 | ||||||
Special items, net |
5 | 6 | ||||||
Depreciation and amortization |
61 | 60 | ||||||
Other |
298 | 279 | ||||||
Total operating expenses |
2,661 | 2,480 | ||||||
Operating loss |
(10 | ) | (25 | ) | ||||
Nonoperating income (expense): |
||||||||
Interest income |
5 | 6 | ||||||
Interest expense, net |
(82 | ) | (71 | ) | ||||
Other, net |
42 | (13 | ) | |||||
Total nonoperating expense, net |
(35 | ) | (78 | ) | ||||
Loss before income taxes |
(45 | ) | (103 | ) | ||||
Income tax provision |
| | ||||||
Net loss |
$ | (45 | ) | $ | (103 | ) | ||
Loss per common share: |
||||||||
Basic loss per common share |
$ | (0.28 | ) | $ | (0.90 | ) | ||
Diluted loss per common share |
$ | (0.28 | ) | $ | (0.90 | ) | ||
Shares used for computation (in thousands): |
||||||||
Basic |
161,115 | 114,121 | ||||||
Diluted |
161,115 | 114,121 |
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)
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 1,532 | $ | 1,299 | ||||
Accounts receivable, net |
416 | 285 | ||||||
Materials and supplies, net |
227 | 227 | ||||||
Prepaid expenses and other |
564 | 520 | ||||||
Total current assets |
2,739 | 2,331 | ||||||
Property and equipment |
||||||||
Flight equipment |
4,094 | 3,852 | ||||||
Ground property and equipment |
888 | 883 | ||||||
Less accumulated depreciation and amortization |
(1,206 | ) | (1,151 | ) | ||||
3,776 | 3,584 | |||||||
Equipment purchase deposits |
41 | 112 | ||||||
Total property and equipment |
3,817 | 3,696 | ||||||
Other assets |
||||||||
Other intangibles, net of accumulated amortization of $120 million and $113 million, respectively |
496 | 503 | ||||||
Restricted cash |
442 | 480 | ||||||
Investments in marketable securities |
70 | 203 | ||||||
Other assets |
244 | 241 | ||||||
Total other assets |
1,252 | 1,427 | ||||||
Total assets |
$ | 7,808 | $ | 7,454 | ||||
LIABILITIES & STOCKHOLDERS DEFICIT |
||||||||
Current liabilities |
||||||||
Current maturities of debt and capital leases |
$ | 481 | $ | 502 | ||||
Accounts payable |
370 | 337 | ||||||
Air traffic liability |
1,110 | 778 | ||||||
Accrued compensation and vacation |
187 | 178 | ||||||
Accrued taxes |
209 | 141 | ||||||
Other accrued expenses |
827 | 853 | ||||||
Total current liabilities |
3,184 | 2,789 | ||||||
Noncurrent liabilities and deferred credits |
||||||||
Long-term debt and capital leases, net of current maturities |
4,125 | 4,024 | ||||||
Deferred gains and credits, net |
358 | 377 | ||||||
Postretirement benefits other than pensions |
129 | 130 | ||||||
Employee benefit liabilities and other |
459 | 489 | ||||||
Total noncurrent liabilities and deferred credits |
5,071 | 5,020 | ||||||
Commitments and contingencies |
||||||||
Stockholders deficit |
||||||||
Common stock, $0.01 par value; 400,000,000 shares authorized, 161,536,675 and 161,119,051 shares
issued and outstanding at March 31, 2010; 161,520,457 and 161,102,833 shares issued and
outstanding at December 31, 2009 |
2 | 2 | ||||||
Additional paid-in capital |
2,110 | 2,107 | ||||||
Accumulated other comprehensive income |
40 | 90 | ||||||
Accumulated deficit |
(2,586 | ) | (2,541 | ) | ||||
Treasury stock, common stock, 417,624 shares at March 31, 2010 and December 31, 2009 |
(13 | ) | (13 | ) | ||||
Total stockholders deficit |
(447 | ) | (355 | ) | ||||
Total liabilities and stockholders deficit |
$ | 7,808 | $ | 7,454 | ||||
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)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Net cash provided by operating activities |
$ | 199 | $ | 187 | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(78 | ) | (183 | ) | ||||
Sales of marketable securities |
132 | 20 | ||||||
Decrease in long-term restricted cash |
38 | 37 | ||||||
Proceeds from sale-leaseback transactions and dispositions of property and equipment |
| 52 | ||||||
Net cash provided by (used in) investing activities |
92 | (74 | ) | |||||
Cash flows from financing activities: |
||||||||
Repayments of debt and capital lease obligations |
(135 | ) | (105 | ) | ||||
Proceeds from issuance of debt |
80 | 221 | ||||||
Deferred financing costs |
(3 | ) | (1 | ) | ||||
Net cash provided by (used in) financing activities |
(58 | ) | 115 | |||||
Net increase in cash and cash equivalents |
233 | 228 | ||||||
Cash and cash equivalents at beginning of period |
1,299 | 1,034 | ||||||
Cash and cash equivalents at end of period |
$ | 1,532 | $ | 1,262 | ||||
Non-cash investing and financing activities: |
||||||||
Note payables issued for aircraft purchases |
$ | 111 | $ | 32 | ||||
Interest payable converted to debt |
11 | 9 | ||||||
Net unrealized loss on available-for-sale securities |
1 | | ||||||
Maintenance payable converted to debt |
| 9 | ||||||
Supplemental information: |
||||||||
Interest paid, net of amounts capitalized |
$ | 67 | $ | 63 | ||||
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)
(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, 2009. 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 (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. 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 asset valuation
allowance.
Recent Accounting Pronouncements
In December 2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2009-17, Consolidations (Topic 810) Improvements to Financial
Reporting by Enterprises Involved with Variable Interest Entities. ASU No. 2009-17 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. ASU No.
2009-17 requires 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 is required to disclose how its involvement with a variable interest entity
affects the reporting entitys financial statements. ASU No. 2009-17 is effective for fiscal years
beginning after November 15, 2009, and interim periods within those fiscal years. The Company
adopted ASU No. 2009-17 as of January 1, 2010, and its application had no impact on the Companys
condensed consolidated financial statements.
In October 2009, the FASB issued 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. The Company is currently
evaluating the requirements of ASU No. 2009-13 and has not yet determined its impact on the
Companys condensed consolidated financial statements.
8
Table of Contents
2. Special Items, Net
Special items, net as shown on the condensed consolidated statements of operations included
the following charges for the three months ended March 31, 2010 and 2009 (in millions):
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Aircraft costs (a) |
$ | 5 | $ | 5 | ||||
Severance charges (b) |
| 1 | ||||||
Special items, net |
$ | 5 | $ | 6 | ||||
(a) | In the three months ended March 31, 2010 and 2009, the Company recorded $5 million for
aircraft costs in each period as a result of its previously announced capacity reductions. |
|
(b) | In the three months ended March 31, 2009, the Company recorded $1 million in severance
charges as a result of capacity reductions. |
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 | ||||||||
March 31, | March 31, | |||||||
2010 | 2009 | |||||||
Basic and diluted loss per share: |
||||||||
Net loss |
$ | (45 | ) | $ | (103 | ) | ||
Weighted average common shares outstanding (in thousands) |
116,115 | 114,121 | ||||||
Basic and diluted loss per share |
$ | (0.28 | ) | $ | (0.90 | ) | ||
For the three months ended March 31, 2010 and 2009, 8,334,091 and 9,674,947 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 each of the three months ended March 31, 2010 and 2009,
3,048,914 incremental shares from the assumed conversion of the 7% Senior Convertible Notes due
2020 (the 7% notes) were excluded from the computation of diluted EPS due to their antidilutive
effect. For the three months ended March 31, 2010, 37,746,174 incremental shares from the assumed
conversion of the 7.25% Convertible Senior Notes due 2014 (the 7.25% notes) were excluded from
the computation of diluted EPS due to their antidilutive effect.
9
Table of Contents
4. Debt
The following table details the Companys debt (in millions). Variable interest rates listed
are the rates as of March 31, 2010.
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Secured |
||||||||
Citicorp North America loan, variable interest rate of 2.75%, installments due through 2014 |
$ | 1,152 | $ | 1,168 | ||||
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.63% to
10.25%, maturing from 2010 to 2021 |
2,342 | 2,201 | ||||||
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 7.08%
to 9.01%, maturing from 2015 to 2022 |
481 | 505 | ||||||
Other secured obligations, fixed interest rates ranging from 8% to 8.08%, maturing from 2015 to 2021 |
83 | 84 | ||||||
Senior secured discount notes |
| 32 | ||||||
4,058 | 3,990 | |||||||
Unsecured |
||||||||
Barclays prepaid miles, variable interest rate of 5%, interest only payments |
200 | 200 | ||||||
Airbus advance, repayments beginning in 2010 through 2018 |
259 | 247 | ||||||
7.25% convertible senior notes, interest only payments until due in 2014 |
172 | 172 | ||||||
7% senior convertible notes, interest only payments until due in 2020 |
74 | 74 | ||||||
Industrial development bonds, fixed interest rate of 6.3%, interest only payments until due in 2023 |
29 | 29 | ||||||
Other unsecured obligations, maturing from 2010 to 2012 |
68 | 81 | ||||||
802 | 803 | |||||||
Total long-term debt and capital lease obligations |
4,860 | 4,793 | ||||||
Less: Total unamortized discount on debt |
(254 | ) | (267 | ) | ||||
Current maturities, less $5 million and $9 million of unamortized discount on debt at March 31,
2010 and December 31, 2009, respectively |
(481 | ) | (502 | ) | ||||
Long-term debt and capital lease obligations, net of current maturities |
$ | 4,125 | $ | 4,024 | ||||
The Company was in compliance with the covenants in its debt agreements at March 31, 2010.
2010 Financing Transactions
US Airways borrowed $181 million in the first quarter of 2010 to finance Airbus aircraft
deliveries. These financings bear interest at a rate of LIBOR plus an applicable margin and contain
default provisions and other covenants that are typical in the industry.
Fair Value of Debt
The fair value of the Companys long-term debt was approximately $3.95 billion at each of
March 31, 2010 and December 31, 2009, 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.
10
Table of Contents
5. Income Taxes
As of December 31, 2009, the Company had approximately $2.13 billion of gross net operating
losses (NOLs) to reduce future federal taxable income. All of the Companys NOLs are expected to
be available to reduce federal taxable income in the calendar year 2010. The NOLs expire during the
years 2022 through 2029. The Companys net deferred tax assets, which include $2.06 billion of the
NOLs, have been subject to a full valuation allowance. The Company also had approximately $90
million of tax-effected state NOLs at December 31, 2009. At December 31, 2009, the federal and
state valuation allowance was $546 million and $77 million, respectively.
The Company reported a loss before income taxes in the first quarter of each of 2010 and 2009,
and the Company did not record a tax provision in either period.
The Patient Protection and Affordable Care Act was signed into law in March 2010. Beginning in
2013, the Company will no longer be able to claim an income tax deduction related to prescription
drug benefits provided to retirees and reimbursed under the Medicare Part D retiree drug subsidy.
Although the tax increase does not take effect until 2013, generally accepted accounting principles
require that the related deferred tax assets be written down in the period of legislation changing
the tax law enacted. Because the Companys net deferred tax assets have been subject to a full
valuation allowance, the write-off of the deferred tax asset associated with the Medicare Part D
subsidy was offset dollar for dollar by a corresponding reduction in the Companys valuation
allowance and had no impact on the Companys results of operations.
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 | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Aircraft fuel and related taxes |
$ | 170 | $ | 123 | ||||
Salaries and related costs |
63 | 63 | ||||||
Capacity purchases |
264 | 263 | ||||||
Aircraft rent |
13 | 13 | ||||||
Aircraft maintenance |
19 | 23 | ||||||
Other rent and landing fees |
31 | 31 | ||||||
Selling expenses |
36 | 34 | ||||||
Depreciation and amortization |
6 | 6 | ||||||
Other expenses |
48 | 48 | ||||||
Express expenses |
$ | 650 | $ | 604 | ||||
7. Derivative Instruments
Since the third quarter of 2008, the Company has not entered into any new fuel hedging
transactions, and the Company has no fuel hedging contracts outstanding. In the three months ended
March 31, 2009, the Company recognized $197 million of net realized losses on settled fuel hedging
transactions, offset by $170 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.
11
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8. Investments in Marketable Securities (Noncurrent)
As of March 31, 2010, the Company held auction rate securities totaling $114 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 six to 42 years, with 18% of the Companys portfolio maturing within the next 10 years
(2016), 58% maturing within the next 30 years (2033 2036) and 24% maturing thereafter (2049 -
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 March 31, 2010,
the fair value of the Companys auction rate securities was $70 million. Refer to Note 9 for
discussion on how the Company determines the fair value of its investments in auction rate
securities.
In the three months ended March 31, 2010, the Company sold certain investments in auction rate
securities for net proceeds of $132 million, resulting in a $49 million net realized gain recorded
in nonoperating expense, net, of which $48 million represents the reclassification of prior period
net unrealized gains from other comprehensive income as determined on a specific-identification
basis. In April 2010, the Company sold an additional amount of auction rate securities for net
proceeds of $11 million, leaving it with a remaining investment of $59 million. Net proceeds for
all sale transactions approximated the carrying amount of the Companys investments. Additionally,
in the first quarter of 2010, the Company recorded net unrealized losses of $1 million in other
comprehensive income, offsetting previously recognized unrealized gains, related to the decline in
fair value of certain investments in auction rate securities.
In the three months ended March 31, 2009, the Company recorded $7 million of
other-than-temporary impairment charges in other nonoperating expense, net related to the decline
in fair value of certain investments in auction rate securities.
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 March 31, 2010 |
||||||||||||||||||||
Investments in marketable securities (noncurrent) |
$ | 70 | $ | | $ | | $ | 70 | (1 | ) | ||||||||||
At December 31, 2009 |
||||||||||||||||||||
Investments in marketable securities (noncurrent) |
$ | 203 | $ | | $ | | $ | 203 | (1 | ) |
(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. |
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, 2009 |
$ | 203 | ||
Sales of marketable securities |
(132 | ) | ||
Net unrealized losses recorded to other comprehensive income |
(1 | ) | ||
Balance at March 31, 2010 |
$ | 70 | ||
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10. Other Comprehensive Income (Loss)
The Companys other comprehensive loss consisted of the following (in millions):
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Net loss |
$ | (45 | ) | $ | (103 | ) | ||
Recognition of net realized gains on sale of available-for-sale securities |
(48 | ) | | |||||
Net unrealized losses on available-for-sale securities |
(1 | ) | | |||||
Pension and other postretirement benefits |
(1 | ) | (4 | ) | ||||
Total comprehensive loss |
$ | (95 | ) | $ | (107 | ) | ||
The components of accumulated other comprehensive income were as follows (in millions):
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Pension and other postretirement benefits |
$ | 54 | $ | 55 | ||||
Available-for-sale securities |
(14 | ) | 35 | |||||
Accumulated other comprehensive income |
$ | 40 | $ | 90 | ||||
11. 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 would
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 would transfer to US Airways certain assets related to flight operations at Ronald Reagan
Washington National Airport (Washington National), 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 (DOT),
the Federal Aviation Administration (FAA) and The Port Authority of New York and New Jersey.
On
February 9, 2010, the FAA issued a proposed order conditionally approving the transaction.
The proposed order, which is subject to a 30-day comment period, would require the airlines to
divest 20 of the 125 slot pairs involved at LaGuardia and 14 of the 42 slot pairs at Washington
National.
Subsequently, on March 22, 2010, Delta and US Airways announced the proposed divestiture of
12% of the takeoff and landing slots to four airlines, contingent upon the subsequent closing of the originally proposed Delta-US Airways transaction. Under
the proposed divestiture transaction, AirTran Airlines, Inc., Spirit Airlines, Inc. and WestJet
Airlines, Ltd. will each receive five pairs of takeoff and landing slots at LaGuardia and JetBlue
Airways Corporation will receive five pairs of Washington National slots. Delta would then operate
an additional 110 slot pairs at LaGuardia and US Airways would operate an additional 37 slot pairs
at Washington National as well as gain access to the Sao Paulo and
Tokyo route authorities. The divestiture and asset purchase and sale
agreement with Delta remain subject to the regulatory approvals
described above.
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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)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Operating revenues: |
||||||||
Mainline passenger |
$ | 1,698 | $ | 1,611 | ||||
Express passenger |
601 | 551 | ||||||
Cargo |
33 | 24 | ||||||
Other |
353 | 305 | ||||||
Total operating revenues |
2,685 | 2,491 | ||||||
Operating expenses: |
||||||||
Aircraft fuel and related taxes |
534 | 378 | ||||||
Loss on fuel hedging instruments, net |
| 27 | ||||||
Salaries and related costs |
556 | 551 | ||||||
Express expenses |
675 | 632 | ||||||
Aircraft rent |
171 | 178 | ||||||
Aircraft maintenance |
157 | 174 | ||||||
Other rent and landing fees |
134 | 131 | ||||||
Selling expenses |
95 | 92 | ||||||
Special items, net |
5 | 6 | ||||||
Depreciation and amortization |
63 | 62 | ||||||
Other |
305 | 286 | ||||||
Total operating expenses |
2,695 | 2,517 | ||||||
Operating loss |
(10 | ) | (26 | ) | ||||
Nonoperating income (expense): |
||||||||
Interest income |
5 | 6 | ||||||
Interest expense, net |
(59 | ) | (61 | ) | ||||
Other, net |
41 | (14 | ) | |||||
Total nonoperating expense, net |
(13 | ) | (69 | ) | ||||
Loss before income taxes |
(23 | ) | (95 | ) | ||||
Income tax provision |
| | ||||||
Net loss |
$ | (23 | ) | $ | (95 | ) | ||
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)
(Unaudited)
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 1,494 | $ | 1,209 | ||||
Accounts receivable, net |
413 | 282 | ||||||
Materials and supplies, net |
192 | 188 | ||||||
Prepaid expenses and other |
551 | 507 | ||||||
Total current assets |
2,650 | 2,186 | ||||||
Property and equipment |
||||||||
Flight equipment |
3,948 | 3,710 | ||||||
Ground property and equipment |
860 | 856 | ||||||
Less accumulated depreciation and amortization |
(1,150 | ) | (1,098 | ) | ||||
3,658 | 3,468 | |||||||
Equipment purchase deposits |
41 | 112 | ||||||
Total property and equipment |
3,699 | 3,580 | ||||||
Other assets |
||||||||
Other intangibles, net of accumulated amortization of $112 million and $106 million, respectively |
461 | 467 | ||||||
Restricted cash |
442 | 480 | ||||||
Investments in marketable securities |
70 | 203 | ||||||
Other assets |
212 | 207 | ||||||
Total other assets |
1,185 | 1,357 | ||||||
Total assets |
$ | 7,534 | $ | 7,123 | ||||
LIABILITIES & STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Current maturities of debt and capital leases |
$ | 395 | $ | 418 | ||||
Accounts payable |
358 | 319 | ||||||
Payables to related parties, net |
664 | 642 | ||||||
Air traffic liability |
1,110 | 778 | ||||||
Accrued compensation and vacation |
178 | 171 | ||||||
Accrued taxes |
210 | 142 | ||||||
Other accrued expenses |
789 | 815 | ||||||
Total current liabilities |
3,704 | 3,285 | ||||||
Noncurrent liabilities and deferred credits |
||||||||
Long-term debt and capital leases, net of current maturities |
2,777 | 2,667 | ||||||
Deferred gains and credits, net |
302 | 317 | ||||||
Postretirement benefits other than pensions |
129 | 129 | ||||||
Employee benefit liabilities and other |
440 | 470 | ||||||
Total noncurrent liabilities and deferred credits |
3,648 | 3,583 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity |
||||||||
Common stock, $1 par value, 1,000 shares issued and outstanding |
| | ||||||
Additional paid-in capital |
2,445 | 2,445 | ||||||
Accumulated other comprehensive income |
44 | 94 | ||||||
Accumulated deficit |
(2,307 | ) | (2,284 | ) | ||||
Total stockholders equity |
182 | 255 | ||||||
Total liabilities and stockholders equity |
$ | 7,534 | $ | 7,123 | ||||
See accompanying notes to the condensed consolidated financial statements.
15
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US Airways, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Net cash provided by operating activities |
$ | 231 | $ | 176 | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(74 | ) | (182 | ) | ||||
Sales of marketable securities |
132 | 20 | ||||||
Decrease in long-term restricted cash |
38 | 37 | ||||||
Proceeds from sale-leaseback transactions and dispositions of property and equipment |
| 52 | ||||||
Net cash provide by (used in) investing activities |
96 | (73 | ) | |||||
Cash flows from financing activities: |
||||||||
Repayments of debt and capital lease obligations |
(119 | ) | (89 | ) | ||||
Proceeds from issuance of debt |
80 | 221 | ||||||
Deferred financing costs |
(3 | ) | (1 | ) | ||||
Net cash provided by (used in) financing activities |
(42 | ) | 131 | |||||
Net increase in cash and cash equivalents |
285 | 234 | ||||||
Cash and cash equivalents at beginning of period |
1,209 | 1,026 | ||||||
Cash and cash equivalents at end of period |
$ | 1,494 | $ | 1,260 | ||||
Non-cash investing and financing activities: |
||||||||
Note payables issued for aircraft purchases |
$ | 111 | $ | 32 | ||||
Interest payable converted to debt |
11 | 9 | ||||||
Net unrealized loss on available-for-sale securities |
1 | | ||||||
Maintenance payable converted to debt |
| 9 | ||||||
Supplemental information: |
||||||||
Interest paid, net of amounts capitalized |
$ | 49 | $ | 50 | ||||
Income taxes paid |
| |
See accompanying notes to the condensed consolidated financial statements.
16
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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, 2009. 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, US Airways Holdings, LLC. US Airways, LLC and its wholly owned subsidiary, FTCHP LLC,
are wholly owned subsidiaries of US Airways Holdings, LLC. 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. 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 asset valuation
allowance.
Recent Accounting Pronouncements
In December 2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2009-17, Consolidations (Topic 810) Improvements to Financial
Reporting by Enterprises Involved with Variable Interest Entities. ASU No. 2009-17 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. ASU No.
2009-17 requires 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 is required to disclose how its involvement with a variable interest entity
affects the reporting entitys financial statements. ASU No. 2009-17 is effective for fiscal years
beginning after November 15, 2009, and interim periods within those fiscal years. US Airways
adopted ASU No. 2009-17 as of January 1, 2010, and its application had no impact on US Airways
condensed consolidated financial statements.
In October 2009, the FASB issued 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. US Airways is currently
evaluating the requirements of ASU No. 2009-13 and has not yet determined its impact on US Airways
condensed consolidated financial statements.
17
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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 months ended March 31, 2010 and 2009 (in millions):
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Aircraft costs (a) |
$ | 5 | $ | 5 | ||||
Severance charges (b) |
| 1 | ||||||
Special items, net |
$ | 5 | $ | 6 | ||||
(a) | In the three months ended March 31, 2010 and 2009, US Airways recorded $5 million for
aircraft costs in each period as a result of its previously announced capacity reductions. |
|
(b) | In the three months ended March 31, 2009, US Airways recorded $1 million in severance charges
as a result of capacity reductions. |
3. Debt
The following table details US Airways debt (in millions). Variable interest rates listed are
the rates as of March 31, 2010.
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Secured |
||||||||
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.63% to
10.25%, maturing from 2010 to 2021 |
2,342 | 2,201 | ||||||
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 7.08%
to 9.01%, maturing from 2015 to 2022 |
481 | 505 | ||||||
Other secured obligations, fixed interest rates ranging from 8% to 8.08%, maturing from 2015 to 2021 |
83 | 84 | ||||||
Senior secured discount notes |
| 32 | ||||||
2,906 | 2,822 | |||||||
Unsecured |
||||||||
Airbus advance, repayments beginning in 2010 through 2018 |
259 | 247 | ||||||
Industrial development bonds, fixed interest rate of 6.3%, interest only payments until due in 2023 |
29 | 29 | ||||||
Other unsecured obligations, maturing from 2010 to 2012 |
68 | 81 | ||||||
356 | 357 | |||||||
Total long-term debt and capital lease obligations |
3,262 | 3,179 | ||||||
Less: Total unamortized discount on debt |
(90 | ) | (94 | ) | ||||
Current maturities, less $2 million and $4 million of unamortized discount on debt at March 31,
2010 and December 31, 2009, respectively |
(395 | ) | (418 | ) | ||||
Long-term debt and capital lease obligations, net of current maturities |
$ | 2,777 | $ | 2,667 | ||||
US Airways was in compliance with the covenants in its debt agreements at March 31, 2010.
2010 Financing Transactions
US Airways borrowed $181 million in the first quarter of 2010 to finance Airbus aircraft
deliveries. These financings bear interest at a rate of LIBOR plus an applicable margin and contain
default provisions and other covenants that are typical in the industry.
Fair Value of Debt
The fair value of US Airways long-term debt was approximately $2.86 billion and $2.83 billion
at March 31, 2010 and December 31, 2009, 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):
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
US Airways Group |
$ | 618 | $ | 607 | ||||
US Airways Groups wholly owned subsidiaries |
46 | 35 | ||||||
$ | 664 | $ | 642 | |||||
US Airways Group has the ability to move funds freely between operating subsidiaries to
support operations. These transfers are recognized as intercompany transactions.
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, 2009, US Airways had approximately $2.05 billion of gross net operating
losses (NOLs) to reduce future federal taxable income. All of US Airways NOLs are expected to be
available to reduce federal taxable income in the calendar year 2010. The NOLs expire during the
years 2022 through 2029. US Airways net deferred tax assets, which include $1.98 billion of the
NOLs, have been subject to a full valuation allowance. US Airways also had approximately $86
million of tax-effected state NOLs at December 31, 2009. At December 31, 2009, the federal and
state valuation allowance was $575 million and $78 million, respectively.
US Airways reported a loss before income taxes in the first quarter of each of 2010 and 2009,
and US Airways did not record a tax provision in either period.
The Patient Protection and Affordable Care Act was signed into law in March 2010. Beginning in
2013, US Airways will no longer be able to claim an income tax deduction related to prescription
drug benefits provided to retirees and reimbursed under the Medicare Part D retiree drug subsidy.
Although the tax increase does not take effect until 2013, generally accepted accounting principles
require that the related deferred tax assets be written down in the period of legislation changing
the tax law enacted. Because US Airways net deferred tax assets have been subject to a full
valuation allowance, the write-off of the deferred tax asset associated with the Medicare Part D
subsidy was offset dollar for dollar by a corresponding reduction in US Airways valuation
allowance and had no impact on US Airways results of operations.
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 | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Aircraft fuel and related taxes |
$ | 170 | $ | 123 | ||||
Salaries and related costs |
6 | 6 | ||||||
Capacity purchases |
412 | 418 | ||||||
Other rent and landing fees |
26 | 26 | ||||||
Selling expenses |
36 | 34 | ||||||
Other expenses |
25 | 25 | ||||||
Express expenses |
$ | 675 | $ | 632 | ||||
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7. Derivative Instruments
Since the third quarter of 2008, US Airways has not entered into any new fuel hedging
transactions, and US Airways has no fuel hedging contracts outstanding. In the three months ended
March 31, 2009, US Airways recognized $197 million of net realized losses on settled fuel hedging
transactions, offset by $170 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.
8. Investments in Marketable Securities (Noncurrent)
As of March 31, 2010, US Airways held auction rate securities totaling $114 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 six to 42 years, with 18% of US Airways portfolio maturing within the next 10 years
(2016), 58% maturing within the next 30 years (2033 2036) and 24% maturing thereafter (2049 -
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 March 31, 2010,
the fair value of US Airways auction rate securities was $70 million. Refer to Note 9 for
discussion on how US Airways determines the fair value of its investments in auction rate
securities.
In the three months ended March 31, 2010, US Airways sold certain investments in auction rate
securities for net proceeds of $132 million, resulting in a $49 million net realized gain recorded
in nonoperating expense, net, of which $48 million represents the reclassification of prior period
net unrealized gains from other comprehensive income as determined on a specific-identification
basis. In April 2010, US Airways sold an additional amount of auction rate securities for net
proceeds of $11 million, leaving it with a remaining investment of $59 million. Net proceeds for
all sale transactions approximated the carrying amount of US Airways investments. Additionally, in
the first quarter of 2010, US Airways recorded net unrealized losses of $1 million in other
comprehensive income, offsetting previously recognized unrealized gains, related to the decline in
fair value of certain investments in auction rate securities.
In the three months ended March 31, 2009, US Airways recorded $7 million of
other-than-temporary impairment charges in other nonoperating expense, net related to the decline
in fair value of certain investments in auction rate securities.
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.
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 March 31, 2010 |
||||||||||||||||||||
Investments in marketable securities (noncurrent) |
$ | 70 | $ | | $ | | $ | 70 | (1 | ) | ||||||||||
At December 31, 2009 |
||||||||||||||||||||
Investments in marketable securities (noncurrent) |
$ | 203 | $ | | $ | | $ | 203 | (1 | ) |
(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. |
20
Table of Contents
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, 2009 |
$ | 203 | ||
Sales of marketable securities |
(132 | ) | ||
Net unrealized losses recorded to other comprehensive income |
(1 | ) | ||
Balance at March 31, 2010 |
$ | 70 | ||
10. Other Comprehensive Income (Loss)
US Airways other comprehensive loss consisted of the following (in millions):
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Net loss |
$ | (23 | ) | $ | (95 | ) | ||
Recognition of net realized gains on sale of available-for-sale securities |
(48 | ) | | |||||
Net unrealized losses on available-for-sale securities |
(1 | ) | | |||||
Other postretirement benefits |
(1 | ) | (4 | ) | ||||
Total comprehensive loss |
$ | (73 | ) | $ | (99 | ) | ||
The components of accumulated other comprehensive income were as follows (in millions):
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Other postretirement benefits |
$ | 58 | $ | 59 | ||||
Available-for-sale securities |
(14 | ) | 35 | |||||
Accumulated other comprehensive income |
$ | 44 | $ | 94 | ||||
11. 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 would
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 would transfer to US Airways certain assets related to flight operations at Ronald Reagan
Washington National Airport (Washington National), 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 (DOT),
the Federal Aviation Administration (FAA) and The Port Authority of New York and New Jersey.
On
February 9, 2010, the FAA issued a proposed order conditionally approving the transaction.
The proposed order, which is subject to a 30-day comment period, would require the airlines to
divest 20 of the 125 slot pairs involved at LaGuardia and 14 of the 42 slot pairs at Washington
National.
Subsequently, on March 22, 2010, Delta and US Airways announced the proposed divestiture of
12% of the takeoff and landing slots to four airlines, contingent upon the subsequent closing of the originally proposed Delta-US Airways transaction. Under
the proposed divestiture transaction, AirTran Airlines, Inc., Spirit Airlines, Inc. and WestJet
Airlines, Ltd. will each receive five pairs of takeoff and landing slots at LaGuardia and JetBlue
Airways Corporation will receive five pairs of Washington National slots. Delta would then operate
an additional 110 slot pairs at LaGuardia and US Airways would operate an additional 37 slot pairs
at Washington National as well as gain access to the Sao Paulo and
Tokyo route authorities. The divestiture and asset purchase and sale
agreement with Delta remain subject to the regulatory approvals
described above.
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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,
2009 (the 2009 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 2009 Form 10-K.
Background
US Airways Group 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 (AAL).
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 hubs in Charlotte, Philadelphia
and Phoenix and a focus city in Washington, D.C. at Ronald Reagan Washington National Airport
(Washington National). We offer scheduled passenger service on more than 3,000 flights daily to
more than 190 communities in the United States, Canada, Mexico, Europe, the Middle East, the
Caribbean, Central and South America. We also have an established East Coast route network,
including the US Airways Shuttle service, with substantial presence at Washington National. For the
three months ended March 31, 2010, we had approximately 12 million passengers boarding our mainline
flights. As of March 31, 2010, we operated 347 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 235 regional jets and 60 turboprops.
The U.S. Airline Industry
The first quarter of 2010 provided several indications that economic recovery is now on the
horizon and that the U.S. airline industry is rebounding from the economic recession that drove
record declines in passenger revenue in 2009. The Air Transport Association of America (ATA)
reported that January 2010 marked the first month that total system passenger revenue for U.S.
airlines had increased compared to the same month in 2009 after 14 consecutive months of declines.
Continued sequential passenger revenue improvements in February and March of 2010 further support
that the industry is in the recovery phase of the economic cycle.
Domestic passenger revenue per available seat mile (PRASM) rose approximately 2% and 8%
year over year in January and February 2010, respectively. Overall domestic revenues also continue
to benefit from ancillary revenue initiatives including baggage fees, premium seat fees and
transaction processing fees.
International markets are expected to outperform domestic markets in 2010 with respect to
year-over-year improvements in revenue. International markets were more severely impacted by the
economic slowdown than domestic markets in 2009 due to their greater reliance on business travel,
particularly premium and first class seating, to drive profitability. Business travel now appears
to be recovering. International PRASM rose approximately 5% and 13% year over year in January and
February 2010, respectively. Cargo, which was also significantly impacted by the contraction of
business spending in 2009, also appears to be improving. In its most recent data available, ATA
reported cargo demand, as measured by cargo revenue ton miles, rose 14% in each of January and
February 2010 over the same prior year period.
Increases in revenue generated by the economic recovery were offset in part by the effects of
severe weather particularly on the East Coast of the United States, which negatively impacted
passenger revenues in the first quarter of 2010. ATA reported that approximately 2.9% fewer
passengers traveled on U.S. airlines in February 2010 as compared to the same period prior year, in
large part due to weather.
The industry has also been subject to service disruption due to a natural disaster. On April
14, 2010, a volcano under a glacier in Iceland erupted, resulting in volcanic ash clouds covering
and closing much of Europes airspace. This closure caused a significant disruption in air travel
to and from Europe. The ultimate impact of the closure of Europes airspace due to the volcano has
yet to be determined.
In addition to the
factors described above, another key variable the industry cannot control
is the cost of fuel. The average price of crude oil was relatively constant at $78.81 per barrel
for the first quarter of 2010 as compared to $76.00 per barrel for the fourth quarter of 2009.
However, the price of crude oil in the first quarter of 2010 was somewhat volatile ranging from a
high of $83.45 to a low of $71.15 per barrel. This volatility
continued in April
2010 as the average price of crude oil rose to $84.68 per barrel
through April 23, 2010. Fuel price remains a risk for the
industry as the current economic recovery may drive the cost of fuel higher more quickly than the industry
can recover that cost with higher yields.
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U.S. airline
liquidity balances have improved due to recent capital raising efforts. In the latter part
of 2009, credit and equity markets were increasingly open to airlines, and several U.S. airlines
raised cash to enhance liquidly through public stock and debt offerings, asset sales, asset
sale-leasebacks and transactions with co-branded credit card issuers. The overall macro economic
environment also contributes to an improved liquidity outlook for the
industry. Although liquidity risk appears to
be fading, the risk remains that the economy could dip into a recession again and cause the current
recovery in passenger demand and pricing to reverse itself.
US Airways
Similar to other U.S. carriers, we experienced growth in revenues as a result of the improving
economy. Our corporate booked revenue for the first quarter of 2010 was up 34% on a year-over-year
basis. Mainline and Express passenger revenues in the first quarter of 2010 increased $137 million
or 6.4% on 2.8% lower capacity as compared to the 2009 period. Our mainline and Express PRASM was
11.58 cents in the first quarter of 2010, a 9.5% increase as compared to 10.58 cents in the 2009
period. Our revenues also continued to benefit from our ancillary revenue initiatives which
generated $118 million in revenues for the first quarter of 2010, an increase of $25 million over
the 2009 period primarily due to additional baggage fees in effect during the 2010 period. As a
result of our ancillary revenues, our total revenue per available seat mile (RASM) increased by a
greater amount. RASM was 13.35 cents in 2010, as compared to 12.02 cents in the 2009 period,
representing an 11.1% improvement.
We
estimate weather-related cancellations reduced revenues for the first quarter 2010 by
approximately $30 million. With more departures than any carrier on the East Coast of the United
States, our first quarter 2010 operations were severely impacted by the extreme weather in that
region. Due to the length and severity of the storms, flight operations were suspended for a total
of six days in the month of February at three of the hardest hit major airports (two days at our
hub in Philadelphia, three days at Washington National in our focus city Washington, D.C. and one
day at New York-LaGuardia where we maintain a substantial presence). See the Customer Service
section below for a further discussion.
We do not believe the April 2010 closure of much of Europes airspace and resulting disruption
in air travel to and from Europe will have as significant an effect on us, relative to other U.S.
legacy or big five hub-and-spoke carriers, as our larger domestic presence means we have less
exposure to international markets. Our transatlantic capacity represents 14% of our total ASMs.
Fuel
Since the third quarter of 2008, we have not entered into any new fuel hedging transactions,
and we have no fuel hedging contracts outstanding. As discussed above the average per barrel price
of crude oil in the first quarter of 2010 was relatively constant as compared to the fourth quarter
of 2009. However, when comparing the average price of crude oil per barrel for the first quarter of
2010 with the corresponding first quarter of 2009, the 2010 period was significantly higher. The
average price of crude oil for the first quarter of 2009, spurred by the global economic downturn,
was very low at only $43.14 per barrel. As a result, the average mainline and Express price per
gallon of fuel was $1.48 for first quarter of 2009 as compared to an average cost per gallon of
$2.18 in the first quarter of 2010, an increase of 47.1%. Accordingly, our mainline and Express
fuel expense for the first quarter of 2010 was $203 million, or 40.6%, higher than the 2009 period
on 2.8% lower capacity.
Cost Control
We remain committed to maintaining our 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. We continue to focus on matching capacity to demand.
For the first quarter of 2010, system capacity was down 2.8% as compared to the first quarter of
2009, due in part to the significant weather-related cancellations. However, for the full year
2010, total system capacity is expected to be up slightly.
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The following table presents our mainline costs per available seat mile (CASM).
Percent | ||||||||||||
2010 | 2009 | Change | ||||||||||
(In cents) | ||||||||||||
Mainline CASM excluding special items and fuel: |
||||||||||||
Total mainline CASM |
12.13 | 11.05 | 9.8 | |||||||||
Special items, net |
(0.03 | ) | (0.04 | ) | (20.9 | ) | ||||||
Aircraft fuel and related taxes |
(3.22 | ) | (2.23 | ) | 44.7 | |||||||
Loss on fuel hedging instruments, net |
| (0.16 | ) | nm | ||||||||
Total mainline CASM excluding special items and fuel (1) |
8.88 | 8.63 | 2.9 | |||||||||
(1) | We believe that the presentation of mainline CASM excluding fuel is useful to
investors as both the cost and availability of fuel are subject to many economic and
political factors beyond our control, and excluding special items provides investors the ability to measure financial
performance in a way that is more indicative of our ongoing performance and
is more comparable to measures reported by other major airlines.
Management uses mainline CASM excluding special items and fuel to
evaluate our operating performance. Amounts may not recalculate
due to rounding. |
Our mainline operating CASM excluding special items, fuel, and 2009 fuel
hedging losses, increased 0.25 cents, or 2.9%, from 8.63 cents in the first quarter of 2009 to
8.88 cents in the first quarter of 2010 due primarily to the reduction in available seat miles
caused by the February 2010 weather-related flight cancellations.
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.
As discussed above, our first quarter 2010 operations were severely impacted by the extreme
weather on the East Coast of the United States resulting in 7.1% of our flights in the month of
February 2010 being cancelled. This cancellation rate is the highest since the merger of US Airways
and America West in 2005, exceeding the previous high by 3.3 points, or 87.9%. The weather-related
cancellations drove a completion factor for February 2010 of 92.9%. Our on-time performance rate of
75.3% and customer complaints rate of 1.69 in February 2010 also reflects the impact of this
weather. Despite these weather-related challenges, our first quarter 2010 baggage handling
performance improved by more than 10% on a year-over-year basis.
We reported the following combined operating statistics to the U.S. Department of
Transportation (DOT) for mainline operations for the first quarter of 2010 and 2009:
2010 | 2009 | Percent Better (Worse) 2010-2009 | ||||||||||||||||||||||||||||||||||
January | February | March (e) | January | February | March | January | February | March | ||||||||||||||||||||||||||||
On-time performance (a) |
79.4 | 75.3 | 80.9 | 77.3 | 82.2 | 79.6 | 2.7 | (8.4 | ) | 1.6 | ||||||||||||||||||||||||||
Completion factor (b) |
97.0 | 92.9 | 98.6 | 98.1 | 99.0 | 98.1 | (1.1 | ) | (6.2 | ) | 0.5 | |||||||||||||||||||||||||
Mishandled baggage (c) |
3.45 | 3.22 | 2.92 | 4.15 | 3.08 | 3.46 | 16.9 | (4.5 | ) | 15.6 | ||||||||||||||||||||||||||
Customer complaints (d) |
2.03 | 1.69 | 1.78 | 2.05 | 1.64 | 1.00 | 1.0 | (3.0 | ) | (78.0 | ) |
(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) | March 2010 operating statistics are preliminary as the DOT has not issued its March 2010 Air
Travel Consumer Report as of the date of this filing. |
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Liquidity Position
As of March 31, 2010, our cash, cash equivalents, investments in marketable securities and
restricted cash were $2.04 billion, of which $442 million was restricted. Our investments in
marketable securities included $70 million of auction rate securities that are classified as
noncurrent assets on our condensed consolidated balance sheets.
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
(In millions) | ||||||||
Cash and cash equivalents |
$ | 1,532 | $ | 1,299 | ||||
Short and long-term restricted cash |
442 | 480 | ||||||
Long-term investments in marketable securities |
70 | 203 | ||||||
Total cash, cash equivalents, investments in marketable securities and restricted cash |
$ | 2,044 | $ | 1,982 | ||||
During the first quarter of 2010, we sold a portion of our investments in auction rate
securities for net proceeds of $132 million. In April 2010, we sold an additional amount of auction
rate securities for net proceeds of $11 million, leaving us with a remaining investment of $59
million. Net proceeds for all sale transactions approximated the carrying amount of our
investments. Restricted cash declined during the first quarter of 2010 primarily due to a reduction
in the amount of holdback held by certain credit card processors for advance ticket sales for which
we have not yet provided air transportation.
Status of Strategic Initiatives
Delta Slot Transaction
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 would
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 would transfer to US Airways certain assets related to flight operations at Washington
National, 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 DOT, the Federal Aviation Administration (FAA) and The Port Authority of New York
and New Jersey. If approved, this transaction would significantly increase our capacity in the
Washington, D.C. market and improve profitability.
On February 9,
2010, the FAA issued a proposed order conditionally approving the transaction.
The proposed order, which is subject to a 30-day comment period, would require the airlines to
divest 20 of the 125 slot pairs involved at LaGuardia and 14 of the 42 slot pairs at Washington
National.
Subsequently, on March 22, 2010, Delta and US Airways announced the proposed divestiture of
12% of the takeoff and landing slots to four airlines, contingent upon the subsequent closing of the originally proposed Delta-US Airways transaction. Under
the proposed divestiture transaction, AirTran Airlines, Inc., Spirit Airlines, Inc. and WestJet
Airlines, Ltd. will each receive five pairs of takeoff and landing slots at LaGuardia and JetBlue
Airways Corporation will receive five pairs of Washington National slots. Delta would then operate
an additional 110 slot pairs at LaGuardia and US Airways would operate an additional 37 slot pairs
at Washington National as well as gain access to the Sao Paulo and
Tokyo route authorities. The divestiture and asset purchase and sale
agreement with Delta remain subject to the regulatory approvals
described above.
2010 Outlook
As we begin 2010, it is difficult to predict or quantify the ongoing impacts of the global
economic recovery. We have taken numerous actions to strengthen our current and future liquidity
position. We have significantly reduced our required capital expenditures for 2010 through 2012 and
eliminated our need to access aircraft finance markets in 2010. We believe that these actions
coupled with our previously announced operational realignment, which focuses on our core network
strengths and will result in our Phoenix, Philadelphia and Charlotte Hubs and focus city in
Washington, D.C. at Washington National representing 99% of our ASMs by the end of 2010, have
positioned us well as the economy recovers.
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Table of Contents
US Airways Groups Results of Operations
In the three months ended March 31, 2010, we realized an operating loss of $10 million and a
loss before income taxes of $45 million. We experienced growth in revenues as a result of the
improving economy. Our first quarter 2010 results were also impacted by recognition of the
following items:
| $5 million of net special charges for aircraft costs as a result of our
previously announced capacity reductions; and |
| $49 million of net realized gains related to sales of certain investments in
auction rate securities, included in nonoperating expense, net. |
In the three months ended March 31, 2009, we realized an operating loss of $25 million and a
loss before income taxes of $103 million. We experienced significant declines in revenues in the
first quarter of 2009 as a result of the global economic recession. Our first quarter 2009 results
were also impacted by recognition of the following items:
| $197 million of net realized losses on settled fuel hedging instruments, offset
by $170 million of net unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments. These unrealized gains
were due primarily to the reversal of unrealized losses recognized in prior periods as hedge
transactions settled in the 2009 period; |
| $6 million of net special charges consisting of $5 million in aircraft costs and
$1 million in severance charges, both as a result of capacity reductions; and |
| $7 million in other-than-temporary non-cash impairment charges for our
investments in auction rate securities, included in nonoperating expense, net. |
At December 31, 2009, we had approximately $2.13 billion of gross net operating losses
(NOLs) to reduce future federal taxable income. All of our NOLs are expected to be available to
reduce federal taxable income in the calendar year 2010. The NOLs expire during the years 2022
through 2029. Our net deferred tax assets, which include $2.06 billion of the NOLs, have been
subject to a full valuation allowance. We also had approximately $90 million of tax-effected state
NOLs at December 31, 2009. At December 31, 2009, the federal and state valuation allowance was $546
million and $77 million, respectively.
We reported a loss before income taxes in the first quarter of each of 2010 and 2009, and we
did not record a tax provision in either period.
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The table below sets forth our selected mainline and Express operating data:
Three Months Ended | Percent | |||||||||||
March 31, | Change | |||||||||||
2010 | 2009 | 2010-2009 | ||||||||||
Mainline |
||||||||||||
Revenue passenger miles (millions) (a) |
13,053 | 13,309 | (1.9 | ) | ||||||||
Available seat miles (millions) (b) |
16,579 | 16,979 | (2.4 | ) | ||||||||
Passenger load factor (percent) (c) |
78.7 | 78.4 | 0.3 | pts | ||||||||
Yield (cents) (d) |
13.01 | 12.10 | 7.5 | |||||||||
Passenger revenue per available seat mile (cents) (e) |
10.24 | 9.49 | 8.0 | |||||||||
Operating cost per available seat mile (cents) (f) |
12.13 | 11.05 | 9.8 | |||||||||
Passenger enplanements (thousands) (g) |
11,985 | 12,409 | (3.4 | ) | ||||||||
Departures (thousands) |
108 | 117 | (7.5 | ) | ||||||||
Aircraft at end of period |
347 | 347 | | |||||||||
Block hours (thousands) (h) |
286 | 304 | (5.9 | ) | ||||||||
Average stage length (miles) (i) |
959 | 934 | 2.6 | |||||||||
Average passenger journey (miles) (j) |
1,599 | 1,527 | 4.8 | |||||||||
Fuel consumption (gallons in millions) |
247 | 258 | (4.3 | ) | ||||||||
Average aircraft fuel price including related taxes (dollars per gallon) |
2.17 | 1.47 | 47.6 | |||||||||
Full time equivalent employees at end of period |
30,439 | 32,245 | (5.6 | ) | ||||||||
Express (k) |
||||||||||||
Revenue passenger miles (millions) (a) |
2,270 | 2,374 | (4.4 | ) | ||||||||
Available seat miles (millions) (b) |
3,279 | 3,455 | (5.1 | ) | ||||||||
Passenger load factor (percent) (c) |
69.2 | 68.7 | 0.5 | pts | ||||||||
Yield (cents) (d) |
26.49 | 23.22 | 14.1 | |||||||||
Passenger revenue per available seat mile (cents) (e) |
18.34 | 15.95 | 14.9 | |||||||||
Operating cost per available seat mile (cents) (f) |
19.80 | 17.48 | 13.3 | |||||||||
Passenger enplanements (thousands) (g) |
5,946 | 5,978 | (0.5 | ) | ||||||||
Aircraft at end of period |
282 | 293 | (3.8 | ) | ||||||||
Fuel consumption (gallons in millions) |
77 | 81 | (4.9 | ) | ||||||||
Average aircraft fuel price including related taxes (dollars per gallon) |
2.20 | 1.51 | 45.7 | |||||||||
Total Mainline and Express |
||||||||||||
Revenue passenger miles (millions) (a) |
15,323 | 15,683 | (2.3 | ) | ||||||||
Available seat miles (millions) (b) |
19,858 | 20,434 | (2.8 | ) | ||||||||
Passenger load factor (percent) (c) |
77.2 | 76.7 | 0.5 | pts | ||||||||
Yield (cents) (d) |
15.01 | 13.79 | 8.9 | |||||||||
Passenger revenue per available seat mile (cents) (e) |
11.58 | 10.58 | 9.5 | |||||||||
Total revenue per available seat mile (cents) (l) |
13.35 | 12.02 | 11.1 | |||||||||
Passenger enplanements (thousands) (g) |
17,931 | 18,387 | (2.5 | ) | ||||||||
Aircraft at end of period |
629 | 640 | (1.7 | ) | ||||||||
Fuel consumption (gallons in millions) |
324 | 339 | (4.5 | ) | ||||||||
Average aircraft fuel price including related taxes (dollars per gallon) |
2.18 | 1.48 | 47.1 |
(a) | Revenue passenger mile (RPM) A basic measure of sales volume. One RPM represents one
passenger flown one mile. |
|
(b) | Available seat mile (ASM) A basic measure of production. One 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 RPMs and
expressed in cents per mile. |
|
(e) | Passenger revenue per available seat mile (PRASM) Passenger revenues divided by ASMs. |
|
(f) | Operating cost per available seat mile (CASM) Operating expenses divided by ASMs. |
|
(g) | Passenger enplanements The number of passengers on board an aircraft, including local,
connecting and through passengers. |
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(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 ASMs. |
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Table of Contents
Three Months Ended March 31, 2010
Compared with the
Three Months Ended March 31, 2009
Compared with the
Three Months Ended March 31, 2009
Operating Revenues:
Percent | ||||||||||||
2010 | 2009 | Change | ||||||||||
(In millions) | ||||||||||||
Operating revenues: |
||||||||||||
Mainline passenger |
$ | 1,698 | $ | 1,611 | 5.4 | |||||||
Express passenger |
601 | 551 | 9.1 | |||||||||
Cargo |
33 | 24 | 37.1 | |||||||||
Other |
319 | 269 | 18.0 | |||||||||
Total operating revenues |
$ | 2,651 | $ | 2,455 | 7.9 | |||||||
Total operating revenues in the first quarter of 2010 were $2.65 billion as compared to $2.46
billion in the 2009 period, an increase of $196 million or 7.9%. Significant changes in the
components of operating revenues are as follows:
| Mainline passenger revenues were $1.7 billion in the first quarter of 2010 as
compared to $1.61 billion in the 2009 period. Mainline RPMs decreased 1.9% as mainline
capacity, as measured by ASMs, decreased 2.4%, resulting in a 0.3 point increase in load
factor to 78.7%. Mainline passenger yield increased 7.5% to 13.01 cents in the first quarter
of 2010 from 12.1 cents in the 2009 period. Mainline PRASM increased 8% to 10.24 cents in the
first quarter of 2010 from 9.49 cents in the 2009 period. Mainline yield and PRASM increased
in the first quarter of 2010 due principally to the increase in passenger demand and
improving pricing environment driven by the recovering global economy. |
| Express passenger revenues were $601 million in the first quarter of 2010, an
increase of $50 million from the 2009 period. Express RPMs decreased by 4.4% as Express
capacity, as measured by ASMs, decreased 5.1%, resulting in a 0.5 point increase in load
factor to 69.2%. Express passenger yield increased by 14.1% to 26.49 cents in the first
quarter of 2010 from 23.22 cents in the 2009 period. Express PRASM increased 14.9% to 18.34
cents in the first quarter of 2010 from 15.95 cents in the 2009 period. The increases in
Express yield and PRASM were the result of the same favorable passenger demand and improving
pricing environment discussed in mainline passenger revenues above. |
| Cargo revenues were $33 million in the first quarter of 2010, an increase of $9
million or 37.1% from the 2009 period. The increase in cargo revenues was driven by an
increase in freight volume as a result of the recovering economic environment as compared to
the 2009 period. |
| Other revenues were $319 million in the first quarter of 2010, an increase of
$50 million or 18% from the 2009 period, primarily due to an increase in revenue generated by
our checked bag fees as a result of increases in rates charged. An increase in revenues
associated with our frequent traveler program also contributed to the increase in other
revenues. |
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Operating Expenses:
Percent | ||||||||||||
2010 | 2009 | Change | ||||||||||
(In millions) | ||||||||||||
Operating expenses: |
||||||||||||
Aircraft fuel and related taxes |
$ | 534 | $ | 378 | 41.2 | |||||||
Loss (gain) on fuel hedging instruments, net: |
||||||||||||
Realized |
| 197 | nm | |||||||||
Unrealized |
| (170 | ) | nm | ||||||||
Salaries and related costs |
556 | 551 | 0.9 | |||||||||
Aircraft rent |
171 | 178 | (3.8 | ) | ||||||||
Aircraft maintenance |
157 | 174 | (10.0 | ) | ||||||||
Other rent and landing fees |
134 | 131 | 2.8 | |||||||||
Selling expenses |
95 | 92 | 2.3 | |||||||||
Special items, net |
5 | 6 | (22.8 | ) | ||||||||
Depreciation and amortization |
61 | 60 | 1.5 | |||||||||
Other |
298 | 279 | 6.9 | |||||||||
Total mainline operating expenses |
2,011 | 1,876 | 7.2 | |||||||||
Express expenses: |
||||||||||||
Fuel |
170 | 123 | 38.5 | |||||||||
Other |
480 | 481 | (0.4 | ) | ||||||||
Total Express expenses |
650 | 604 | 7.5 | |||||||||
Total operating expenses |
$ | 2,661 | $ | 2,480 | 7.3 | |||||||
Total operating expenses were $2.66 billion in the first quarter of 2010, an increase of $181
million or 7.3% compared to the 2009 period. Mainline operating expenses were $2.01 billion in the
first quarter of 2010, an increase of $135 million or 7.2% from the 2009 period, while ASMs
decreased 2.4%.
The 2010 period included net special charges of $5 million for aircraft costs as a result of
our previously announced capacity reductions. This compares to net special charges of $6 million in
the 2009 period, consisting of $5 million in aircraft costs and $1 million in severance charges,
both as a result of capacity reductions.
Our mainline operating CASM excluding special items, fuel, and 2009 fuel hedging losses,
increased 0.25 cents, or 2.9%, from 8.63 cents in the first quarter of 2009 to 8.88 cents in
the first quarter of 2010 due primarily to the reduction in available seat miles caused by the
February 2010 weather-related flight cancellations.
The table below
sets forth the major components of our mainline CASM and presents our mainline
CASM including and excluding special items and fuel for the three months ended March 31, 2010 and 2009:
Percent | ||||||||||||
2010 | 2009 | Change | ||||||||||
(In cents) | ||||||||||||
Mainline CASM: |
||||||||||||
Aircraft fuel and related taxes |
3.22 | 2.23 | 44.7 | |||||||||
Loss on fuel hedging instruments, net |
| 0.16 | nm | |||||||||
Salaries and related costs |
3.35 | 3.24 | 3.3 | |||||||||
Aircraft rent |
1.03 | 1.04 | (1.5 | ) | ||||||||
Aircraft maintenance |
0.95 | 1.03 | (7.8 | ) | ||||||||
Other rent and landing fees |
0.81 | 0.77 | 5.3 | |||||||||
Selling expenses |
0.57 | 0.54 | 4.7 | |||||||||
Special items, net |
0.03 | 0.04 | (20.9 | ) | ||||||||
Depreciation and amortization |
0.37 | 0.35 | 3.9 | |||||||||
Other |
1.80 | 1.65 | 9.5 | |||||||||
Total mainline CASM |
12.13 | 11.05 | 9.8 | |||||||||
Special items, net |
(0.03 | ) | (0.04 | ) | ||||||||
Aircraft fuel and related taxes |
(3.22 | ) | (2.23 | ) | ||||||||
Loss on fuel hedging instruments, net |
| (0.16 | ) | |||||||||
Total mainline CASM excluding special items and fuel (1) |
8.88 | 8.63 | 2.9 | |||||||||
(1) | We believe that the presentation of mainline CASM
excluding fuel is useful to investors
as both the cost and availability of fuel are subject to many economic and political factors
beyond our control, and excluding special items provides investors the ability to measure
financial performance in a way that is more indicative of our ongoing performance and is more comparable to
measures reported by other major airlines. Management uses mainline
CASM excluding special items and fuel to evaluate our operating
performance. Amounts may not recalculate due to rounding. |
30
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Significant changes in the components of mainline operating expense per ASM are as follows:
| Aircraft fuel and related taxes per ASM increased 44.7% primarily due to a 47.6% increase
in the average price per gallon of fuel to $2.17 in the first quarter of 2010 from $1.47 in
the 2009 period. A 4.3% decrease in gallons of fuel consumed in the 2010 period on 2.4%
lower capacity partially offset the increase. |
||
| Since the third quarter of 2008, we have not entered into any new fuel hedging
transactions, and we have no fuel hedging contracts outstanding. We recognized a net loss of
$27 million in the first quarter of 2009 related to our fuel hedging instruments due to the
decline in the price of heating oil in the 2009 period. |
||
| Aircraft maintenance expense per ASM decreased 7.8% due principally to a
decrease in the number of engine overhauls performed in the 2010 period as compared to 2009
period as a result of the timing of maintenance cycles. |
||
| Other rent and landing fees per ASM increased 5.3% over the 2009 period due to the fixed
nature of space rent. |
||
| Other expense per ASM increased 9.5% primarily due to the negative effects of the severe
weather on the East Coast of the United States in the first quarter of 2010. An increase in
the incremental cost of travel redemptions associated with our frequent traveler program,
principally as a result of higher fuel costs, also contributed to the increase in other
expenses. |
Total Express expenses increased $46 million or 7.5% in the first quarter of 2010 to $650
million from $604 million in the 2009 period. The period-over-period increase was primarily driven
by a $47 million increase in fuel costs. The average fuel price per gallon was $1.51 in the 2009
period, which was 45.7% lower than the average fuel price per gallon of $2.20 in the 2010 period. A
4.9% decrease in gallons of fuel consumed in the 2010 period on 5.1% lower capacity partially
offset the increase. Other Express expenses decreased only $1 million or 0.4% despite a 5.1%
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 | ||||||||||||
2010 | 2009 | Change | ||||||||||
(In millions) | ||||||||||||
Nonoperating income (expense): |
||||||||||||
Interest income |
$ | 5 | $ | 6 | (14.2 | ) | ||||||
Interest expense, net |
(82 | ) | (71 | ) | 15.9 | |||||||
Other, net |
42 | (13 | ) | nm | ||||||||
Total nonoperating expense, net |
$ | (35 | ) | $ | (78 | ) | (54.9 | ) | ||||
Net nonoperating expense was $35 million in the first quarter of 2010 as compared to $78
million in the 2009 period. Interest expense, net increased $11 million due to an increase in the
average debt balance outstanding primarily as a result of financing transactions completed
throughout 2009.
Other nonoperating expense, net in the 2010 period included $49 million of net realized gains
related to sales of certain investments in auction rate securities, offset by $6 million in foreign
currency losses. Other nonoperating expense, net in the 2009 period included $7 million in
other-than-temporary non-cash impairment charges for our investments in auction rate securities as
well as $6 million in foreign currency losses. The sales of auction rate securities are discussed
in more detail under Liquidity and Capital Resources.
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Table of Contents
US Airways Results of Operations
In the three months ended March 31, 2010, US Airways realized an operating loss of $10 million
and a loss before income taxes of $23 million. US Airways experienced growth in revenues as a
result of the improving economy. US Airways first quarter 2010 results were also impacted by
recognition of the following items:
| $5 million of net special charges for aircraft costs as a result of US Airways
previously announced capacity reductions; and |
| $49 million of net realized gains related to sales of certain investments in
auction rate securities, included in nonoperating expense, net. |
In the three months ended March 31, 2009, US Airways realized an operating loss of $26 million
and a loss before income taxes of $95 million. US Airways experienced significant declines in
revenues in the first quarter of 2009 as a result of the global economic recession. US Airways
first quarter 2009 results were also impacted by recognition of the following items:
| $197 million of net realized losses on settled fuel hedging instruments, offset
by $170 million of net unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments. These unrealized gains
were due primarily to the reversal of unrealized losses recognized in prior periods as hedge
transactions settled in the 2009 period; |
| $6 million of net special charges consisting of $5 million in aircraft costs and
$1 million in severance charges, both as a result of capacity reductions; and |
| $7 million in other-than-temporary non-cash impairment charges for US Airways
investments in auction rate securities, included in nonoperating expense, net. |
At December 31, 2009, US Airways had approximately $2.05 billion of gross NOLs to reduce
future federal taxable income. All of US Airways NOLs are expected to be available to reduce
federal taxable income in the calendar year 2010. The NOLs expire during the years 2022 through
2029. US Airways net deferred tax assets, which include $1.98 billion of the NOLs, have been
subject to a full valuation allowance. US Airways also had approximately $86 million of
tax-effected state NOLs at December 31, 2009. At December 31, 2009, the federal and state valuation
allowance was $575 million and $78 million, respectively.
US Airways reported a loss before income taxes in the first quarter of each of 2010 and 2009,
and US Airways did not record a tax provision in either period.
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The table below sets forth US Airways selected mainline and Express operating data:
Three Months Ended | Percent | |||||||||||
March 31, | Change | |||||||||||
2010 | 2009 | 2010-2009 | ||||||||||
Mainline |
||||||||||||
Revenue passenger miles (millions) (a) |
13,053 | 13,309 | (1.9 | ) | ||||||||
Available seat miles (millions) (b) |
16,579 | 16,979 | (2.4 | ) | ||||||||
Passenger load factor (percent) (c) |
78.7 | 78.4 | 0.3 | pts | ||||||||
Yield (cents) (d) |
13.01 | 12.10 | 7.5 | |||||||||
Passenger revenue per available seat mile (cents) (e) |
10.24 | 9.49 | 8.0 | |||||||||
Aircraft at end of period |
347 | 347 | | |||||||||
Fuel consumption (gallons in millions) |
247 | 258 | (4.3 | ) | ||||||||
Average aircraft fuel price including related taxes (dollars per gallon) |
2.17 | 1.47 | 47.6 | |||||||||
Express (f) |
||||||||||||
Revenue passenger miles (millions) (a) |
2,270 | 2,374 | (4.4 | ) | ||||||||
Available seat miles (millions) (b) |
3,279 | 3,455 | (5.1 | ) | ||||||||
Passenger load factor (percent) (c) |
69.2 | 68.7 | 0.5 | pts | ||||||||
Yield (cents) (d) |
26.49 | 23.22 | 14.1 | |||||||||
Passenger revenue per available seat mile (cents) (e) |
18.34 | 15.95 | 14.9 | |||||||||
Aircraft at end of period |
282 | 293 | (3.8 | ) | ||||||||
Fuel consumption (gallons in millions) |
77 | 81 | (4.9 | ) | ||||||||
Average aircraft fuel price including related taxes (dollars per gallon) |
2.20 | 1.51 | 45.7 | |||||||||
Total Mainline and Express |
||||||||||||
Revenue passenger miles (millions) (a) |
15,323 | 15,683 | (2.3 | ) | ||||||||
Available seat miles (millions) (b) |
19,858 | 20,434 | (2.8 | ) | ||||||||
Passenger load factor (percent) (c) |
77.2 | 76.7 | 0.5 | pts | ||||||||
Yield (cents) (d) |
15.01 | 13.79 | 8.9 | |||||||||
Passenger revenue per available seat mile (cents) (e) |
11.58 | 10.58 | 9.5 | |||||||||
Total revenue per available seat mile (cents) (g) |
13.52 | 12.19 | 10.9 | |||||||||
Aircraft at end of period |
629 | 640 | (1.7 | ) | ||||||||
Fuel consumption (gallons in millions) |
324 | 339 | (4.5 | ) | ||||||||
Average aircraft fuel price including related taxes (dollars per gallon) |
2.18 | 1.48 | 47.1 |
(a) | Revenue passenger mile (RPM) A basic measure of sales volume. One RPM represents one
passenger flown one mile. |
|
(b) | Available seat mile (ASM) A basic measure of production. One 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 RPMs and
expressed in cents per mile. |
|
(e) | Passenger revenue per available seat mile (PRASM) Passenger revenues divided by ASMs. |
|
(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 ASMs. |
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Table of Contents
Three Months Ended March 31, 2010
Compared with the
Three Months Ended March 31, 2009
Compared with the
Three Months Ended March 31, 2009
Operating Revenues:
Percent | ||||||||||||
2010 | 2009 | Change | ||||||||||
(In millions) | ||||||||||||
Operating revenues: |
||||||||||||
Mainline passenger |
$ | 1,698 | $ | 1,611 | 5.4 | |||||||
Express passenger |
601 | 551 | 9.1 | |||||||||
Cargo |
33 | 24 | 37.1 | |||||||||
Other |
353 | 305 | 15.4 | |||||||||
Total operating revenues |
$ | 2,685 | $ | 2,491 | 7.8 | |||||||
Total operating revenues in the first quarter of 2010 were $2.69 billion as compared to $2.49
billion in the 2009 period, an increase of $194 million or 7.8%. Significant changes in the
components of operating revenues are as follows:
| Mainline passenger revenues were $1.7 billion in the first quarter of 2010 as
compared to $1.61 billion in the 2009 period. Mainline RPMs decreased 1.9% as mainline
capacity, as measured by ASMs, decreased 2.4%, resulting in a 0.3 point increase in load
factor to 78.7%. Mainline passenger yield increased 7.5% to 13.01 cents in the first quarter
of 2010 from 12.1 cents in the 2009 period. Mainline PRASM increased 8% to 10.24 cents in the
first quarter of 2010 from 9.49 cents in the 2009 period. Mainline yield and PRASM increased
in the first quarter of 2010 due principally to the increase in passenger demand and
improving pricing environment driven by the recovering global economy. |
| Express passenger revenues were $601 million in the first quarter of 2010, an
increase of $50 million from the 2009 period. Express RPMs decreased by 4.4% as Express
capacity, as measured by ASMs, decreased 5.1%, resulting in a 0.5 point increase in load
factor to 69.2%. Express passenger yield increased by 14.1% to 26.49 cents in the first
quarter of 2010 from 23.22 cents in the 2009 period. Express PRASM increased 14.9% to 18.34
cents in the first quarter of 2010 from 15.95 cents in the 2009 period. The increases in
Express yield and PRASM were the result of the same favorable passenger demand and improving
pricing environment discussed in mainline passenger revenues above. |
| Cargo revenues were $33 million in the first quarter of 2010, an increase of $9
million or 37.1% from the 2009 period. The increase in cargo revenues was driven by an
increase in freight volume as a result of the recovering economic environment as compared to
the 2009 period. |
| Other revenues were $353 million in the first quarter of 2010, an increase of
$48 million or 15.4% from the 2009 period, primarily due to an increase in revenue generated
by US Airways checked bag fees as a result of increases in rates charged. An increase in
revenues associated with US Airways frequent traveler program also contributed to the
increase in other revenues. |
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Table of Contents
Operating Expenses:
Percent | ||||||||||||
2010 | 2009 | Change | ||||||||||
(In millions) | ||||||||||||
Operating expenses: |
||||||||||||
Aircraft fuel and related taxes |
$ | 534 | $ | 378 | 41.2 | |||||||
Loss (gain) on fuel hedging instruments, net: |
||||||||||||
Realized |
| 197 | nm | |||||||||
Unrealized |
| (170 | ) | nm | ||||||||
Salaries and related costs |
556 | 551 | 0.9 | |||||||||
Aircraft rent |
171 | 178 | (3.8 | ) | ||||||||
Aircraft maintenance |
157 | 174 | (10.0 | ) | ||||||||
Other rent and landing fees |
134 | 131 | 2.8 | |||||||||
Selling expenses |
95 | 92 | 2.3 | |||||||||
Special items, net |
5 | 6 | (22.8 | ) | ||||||||
Depreciation and amortization |
63 | 62 | 1.4 | |||||||||
Other |
305 | 286 | 6.6 | |||||||||
Total mainline operating expenses |
2,020 | 1,885 | 7.1 | |||||||||
Express expenses: |
||||||||||||
Fuel |
170 | 123 | 38.5 | |||||||||
Other |
505 | 509 | (0.8 | ) | ||||||||
Total Express expenses |
675 | 632 | 6.8 | |||||||||
Total operating expenses |
$ | 2,695 | $ | 2,517 | 7.1 | |||||||
Total operating expenses were $2.7 billion in the first quarter of 2010, an increase of $178
million or 7.1% compared to the 2009 period. Mainline operating expenses were $2.02 billion in the
first quarter of 2010, an increase of $135 million or 7.1% from the 2009 period. Fuel costs net of
hedging losses in the 2009 period were $129 million higher in the 2010 period as compared to the
2009 period.
The 2010 period included net special charges of $5 million for aircraft costs as a result of
US Airways previously announced capacity reductions. This compares to net special charges of $6
million in the 2009 period, consisting of $5 million in aircraft costs and $1 million in severance
charges, both as a result of capacity reductions.
Significant changes in the components of mainline operating expenses are as follows:
| Aircraft fuel and related taxes increased 41.2% primarily due to a 47.6% increase in the
average price per gallon of fuel to $2.17 in the first quarter of 2010 from $1.47 in the
2009 period. A 4.3% decrease in gallons of fuel consumed in the 2010 period on 2.4% lower
capacity partially offset the increase. |
| Since the third quarter of 2008, US Airways has not entered into any new fuel
hedging transactions, and US Airways has no fuel hedging contracts outstanding. US Airways
recognized a net loss of $27 million in the first quarter of 2009 related to its fuel
hedging instruments due to the decline in the price of heating oil in the 2009 period. |
| Aircraft maintenance expense decreased 10% due principally to a decrease in the
number of engine overhauls performed in the 2010 period as compared to 2009 period as a
result of the timing of maintenance cycles. |
| Other expense increased 6.6% primarily due to the negative effects of the severe weather
on the East Coast of the United States in the first quarter of 2010. An increase in the
incremental cost of travel redemptions associated with US Airways frequent traveler
program, principally as a result of higher fuel costs, also contributed to the increase in
other expenses. |
Total Express expenses increased $43 million or 6.8% in the first quarter of 2010 to $675
million from $632 million in the 2009 period. The period-over-period increase was primarily driven
by a $47 million increase in fuel costs. The average fuel price per gallon was $1.51 in the 2009
period, which was 45.7% lower than the average fuel price per gallon of $2.20 in the 2010 period. A
4.9% decrease in gallons of fuel consumed in the 2010 period on 5.1% lower capacity partially
offset the increase. Other Express expenses decreased only $4 million or 0.8% despite a 5.1%
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.
35
Table of Contents
Nonoperating Income (Expense):
Percent | ||||||||||||
2010 | 2009 | Change | ||||||||||
(In millions) | ||||||||||||
Nonoperating income (expense): |
||||||||||||
Interest income |
$ | 5 | $ | 6 | (14.2 | ) | ||||||
Interest expense, net |
(59 | ) | (61 | ) | (3.8 | ) | ||||||
Other, net |
41 | (14 | ) | nm | ||||||||
Total nonoperating expense, net |
$ | (13 | ) | $ | (69 | ) | (82.2 | ) | ||||
Net nonoperating expense was $13 million in the first quarter of 2010 as compared to $69
million in the 2009 period. Interest expense, net decreased $2 million due to a reduction in
interest-bearing intercompany payable balances, offset by an increase in the average debt balance
outstanding primarily as a result of financing transactions completed throughout 2009.
Other nonoperating expense, net in the 2010 period included $49 million of net realized gains
related to sales of certain investments in auction rate securities, offset by $6 million in foreign
currency losses. Other nonoperating expense, net in the 2009 period included $7 million in
other-than-temporary non-cash impairment charges for US Airways investments in auction rate
securities as well as $6 million in foreign currency losses. The sales of auction rate securities
are discussed in more detail under Liquidity and Capital Resources.
36
Table of Contents
Liquidity and Capital Resources
As of March 31, 2010, our cash, cash equivalents, investments in marketable securities and
restricted cash were $2.04 billion, of which $442 million was restricted. Our investments in
marketable securities included $70 million of auction rate securities at fair value ($114 million
par value) that are classified as noncurrent assets on our condensed consolidated balance sheets.
Investments in Marketable Securities
As of March 31, 2010, we held auction rate securities totaling $114 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
six to 42 years, with 18% of our portfolio maturing within the next 10 years (2016), 58% maturing
within the next 30 years (2033 2036) and 24% maturing thereafter (2049 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. At March 31, 2010, the fair value of our
auction rate securities was $70 million.
In the three months ended March 31, 2010, we sold certain investments in auction rate
securities for net proceeds of $132 million, resulting in a $49 million net realized gain recorded
in nonoperating expense, net, of which $48 million represents the reclassification of prior period
net unrealized gains from other comprehensive income. In April 2010, we sold an additional amount
of auction rate securities for net proceeds of $11 million, leaving us with a remaining investment
of $59 million. Net proceeds for all sale transactions approximated the carrying amount of our
investments. Additionally, in the first quarter of 2010, we recorded net unrealized losses of $1
million in other comprehensive income, offsetting previously recognized unrealized gains, related
to the decline in fair value of certain 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 March
31, 2010, 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 $199 million and $187 million for the first
quarter of 2010 and 2009, respectively. Net loss for the first quarter of 2010 was $45 million as
compared to a net loss of $103 million for the first quarter of 2009, an improvement of $58
million. However, included in the 2010 first quarter net loss was a $49 million nonoperating
realized gain on the sales of auction rate securities during the period, which was previously
recorded in other comprehensive income.
Net cash provided by investing activities was $92 million for the first three months of 2010
as compared to net cash used in operating activities of $74 million for the first three months of
2009. Principal investing activities in the 2010 period included net proceeds from sales of
marketable securities of $132 million and a $38 million decrease in restricted cash, offset by
expenditures for property and equipment totaling $78 million, primarily related to the purchase of
Airbus aircraft. The $132 million in proceeds were related to sales of certain investments in
auction rate securities. Restricted cash declined primarily due to a reduction in the amount of
holdback held by certain credit card processors for advance ticket sales for which we have not yet
provided air transportation. Principal investing activities in the 2009 period included
expenditures for property and equipment totaling $183 million, primarily related to the purchase of
Airbus aircraft and a $48 million increase in equipment purchase deposits for certain aircraft on
order, offset by $52 million in proceeds from dispositions of property and equipment, a $37 million
decrease in restricted cash and net sales of investments in marketable securities of $20 million.
The $52 million in proceeds was the result of the swap of one of US Airways owned aircraft in
exchange for the leased aircraft involved in the Flight 1549 accident and several engine
sale-leaseback transactions.
Net cash used in financing activities was $58 million for the first three months of 2010 as
compared to net cash provided by financing activities of $115 million for the first three months of
2009. Principal financing activities in the 2010 period included debt repayments of $135 million
and proceeds from the issuance of debt of $80 million, which primarily included the financing
associated with the purchase of Airbus aircraft. Principal financing activities in the 2009 period
included proceeds from the issuance of debt of $221 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 our third party Express carriers and the financing associated with the
purchase of Airbus aircraft. Debt repayments totaled $105 million in the 2009 period.
37
Table of Contents
US Airways
Net cash provided by operating activities was $231 million and $176 million for the first
quarter of 2010 and 2009, respectively. Net loss for the first quarter of 2010 was $23 million as
compared to a net loss of $95 million for the first quarter of 2009, an improvement of $72 million.
However, included in the 2010 first quarter net loss was a $49 million nonoperating realized gain
on the sales of auction rate securities during the period, which was previously recorded in other
comprehensive income. In addition, in the first quarter of 2010, US Airways operating cash flow
benefited from intercompany cash transfers from US Airways Group.
Net cash provided by investing activities was $96 million for the first three months of 2010
as compared to net cash used in operating activities of $73 million for the first three months of
2009. Principal investing activities in the 2010 period included net proceeds from sales of
marketable securities of $132 million and a $38 million decrease in restricted cash, offset by
expenditures for property and equipment totaling $74 million, primarily related to the purchase of
Airbus aircraft. The $132 million in proceeds were related to sales of certain investments in
auction rate securities. Restricted cash declined primarily due to a reduction in the amount of
holdback held by certain credit card processors for advance ticket sales for which US Airways has
not yet provided air transportation. Principal investing activities in the 2009 period included
expenditures for property and equipment totaling $182 million, primarily related to the purchase of
Airbus aircraft and a $48 million increase in equipment purchase deposits for certain aircraft on
order, offset by $52 million in proceeds from dispositions of property and equipment, a $37 million
decrease in restricted cash and net sales of investments in marketable securities of $20 million.
The $52 million in proceeds was the result of the swap of one of US Airways owned aircraft in
exchange for the leased aircraft involved in the Flight 1549 accident and several engine
sale-leaseback transactions.
Net cash used in financing activities was $42 million for the first three months of 2010 as
compared to net cash provided by financing activities of $131 million for the first three months of
2009. Principal financing activities in the 2010 period included debt repayments of $119 million
and proceeds from the issuance of debt of $80 million, which primarily included the financing
associated with the purchase of Airbus aircraft. Principal financing activities in the 2009 period
included proceeds from the issuance of debt of $221 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 Airbus aircraft. Debt repayments totaled $89 million in the 2009 period.
Commitments
As of March 31, 2010, 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 2009 Annual Report on 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 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 March 31, 2010, the interest rate on the Citicorp credit facility was
2.75% based on a 2.50% LIBOR margin.
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.
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In addition, the Citicorp credit facility requires certain mandatory prepayments upon the
occurrence of specified 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. The Citicorp credit facility
requires 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, which would become restricted for use by us if certain adverse events occur per the
terms of the agreement. In addition, the Citicorp credit facility amendment provides that we may
issue debt in the future with a second lien on the assets pledged as collateral under the Citicorp
credit facility. The principal amount outstanding under the Citicorp credit facility was $1.15
billion as of March 31, 2010. As of March 31, 2010, we were in compliance with all debt covenants
under the amended credit facility.
2010 Financing Transactions
US Airways borrowed $181 million in the first quarter of 2010 to finance Airbus aircraft
deliveries. These financings bear interest at a rate of LIBOR plus an applicable margin and contain
default provisions and other covenants that are typical in the industry.
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), of which 30 aircraft were delivered through December 31, 2009.
During the first quarter of 2010, US Airways took delivery of two A320 aircraft and two A330-200
aircraft, which were financed as discussed above. US Airways plans to take delivery of 24 A320
family aircraft in 2011 and 2012, with the remaining 46 A320 family aircraft scheduled to be
delivered between 2013 and 2015. In addition, US Airways plans to take delivery of the eight
remaining A330-200 aircraft in 2013 and 2014. Deliveries of the 22 A350 XWB aircraft are scheduled
to begin in 2017 and extend through 2019.
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 2013 for use on the Airbus A330-200 fleet and three new
Trent XWB spare engines scheduled for delivery in 2017 through 2019 for use on the Airbus A350 XWB
aircraft. US Airways has taken delivery of two of the Trent 700 spare engines and one of the
V2500-A5 spare engines through December 31, 2009.
Under all of our aircraft and engine purchase agreements, our total future commitments as of
March 31, 2010 are expected to be approximately $5.95 billion through 2019, which includes
predelivery deposits and payments. We have financing commitments for
all Airbus aircraft scheduled for delivery in 2011 and 2012. See Part II, Item 1A, Risk Factors 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 and 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.
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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. Our long-term debt agreements also generally contain
cross-default provisions, which may be triggered by defaults by us under other agreements relating
to indebtedness. See Part II, Item 1A, 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 and 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. As of March 31, 2010, 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 March 31, 2010:
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.
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
2009 Annual Report on Form 10-K.
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Contractual Obligations
The following table provides details of our future cash contractual obligations as of March
31, 2010 (in millions):
Payments Due by Period | ||||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
US Airways Group (1) |
||||||||||||||||||||||||||||
Debt (2) |
$ | 74 | $ | 16 | $ | 116 | $ | 116 | $ | 1,276 | $ | | $ | 1,598 | ||||||||||||||
Interest obligations (3) |
43 | 54 | 51 | 46 | 21 | | 215 | |||||||||||||||||||||
US Airways (4) |
||||||||||||||||||||||||||||
Debt and capital lease obligations (5) (6) |
295 | 387 | 320 | 271 | 282 | 1,707 | 3,262 | |||||||||||||||||||||
Interest obligations (3) (6) |
120 | 156 | 157 | 112 | 96 | 405 | 1,046 | |||||||||||||||||||||
Aircraft purchase and operating lease commitments (7) |
806 | 1,497 | 1,441 | 1,860 | 1,573 | 5,795 | 12,972 | |||||||||||||||||||||
Regional capacity purchase agreements (8) |
765 | 1,036 | 903 | 773 | 772 | 2,347 | 6,596 | |||||||||||||||||||||
Other US Airways Group subsidiaries (9) |
9 | 9 | 9 | 7 | 6 | 1 | 41 | |||||||||||||||||||||
Total |
$ | 2,112 | $ | 3,155 | $ | 2,997 | $ | 3,185 | $ | 4,026 | $ | 10,255 | $ | 25,730 | ||||||||||||||
(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 $164 million of unamortized debt discount as of March 31, 2010. |
|
(3) | For variable-rate debt, future interest obligations are shown above using interest rates in
effect as of March 31, 2010. |
|
(4) | Commitments listed separately under US Airways and its wholly owned subsidiaries represent
commitments under agreements entered into separately by those companies. |
|
(5) | Excludes $90 million of unamortized debt discount as of March 31, 2010. |
|
(6) | Includes $481 million of future principal payments and $209 million of future interest
payments as of March 31, 2010, respectively, related to pass through trust certificates or
EETCs associated with mortgage financings for the purchase of certain aircraft. |
|
(7) | Includes $3.12 billion of future minimum lease payments related to EETC leveraged leased
financings of certain aircraft as of March 31, 2010. |
|
(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 may reduce the amount of cash
generated by operations or increase our costs. For instance, an 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 significant 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 first quarter of 2010, there were no changes to our critical accounting policies and
estimates from those disclosed in the financial statements and accompanying notes contained in our
2009 Annual Report on Form 10-K.
Recent Accounting Pronouncements
In December 2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2009-17, Consolidations (Topic 810) Improvements to Financial
Reporting by Enterprises Involved with Variable Interest Entities. ASU No. 2009-17 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. ASU No.
2009-17 requires 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 is required to disclose how its involvement with a variable interest entity
affects the reporting entitys financial statements. ASU No. 2009-17 is effective for fiscal years
beginning after November 15, 2009, and interim periods within those fiscal years. We adopted ASU
No. 2009-17 as of January 1, 2010, and its application had no impact on our condensed consolidated
financial statements.
In October 2009, the FASB issued 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. We are currently evaluating
the requirements of ASU No. 2009-13 and have not yet determined its 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 2009 Annual Report
on Form 10-K except as updated below.
Commodity price risk
Our 2010 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 fuel hedging
transactions, and we have no fuel hedging contracts outstanding.
Interest rate risk
Our exposure to interest rate risk relates primarily to our cash equivalents, investment
portfolios and variable rate debt obligations. At March 31, 2010, our variable-rate long-term debt
obligations of approximately $3.42 billion represented approximately 70% of our total long-term
debt. If interest rates increased 10% in 2010, the impact on our results of operations would be
approximately $14 million of additional interest expense.
At March 31, 2010, included within our investment portfolio are $114 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 March 31, 2010, the fair value of our auction rate securities was $70 million. In
April 2010, we sold auction rate securities for net proceeds of $11
million, leaving us with a remaining investment of $59 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 March
31, 2010, 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 Securities Exchange Act of
1934, as amended) as of March 31, 2010. Based on that evaluation, our management, including the CEO
and CFO, concluded that our disclosure controls and procedures were effective as of March 31, 2010.
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 March 31, 2010 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 March 31, 2010.
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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. Substantially all of the
claims in the 2004 Bankruptcy have been settled and the remaining claims, if paid at all, will be
paid out in common stock of the post-bankruptcy US Airways Group at a small fraction of the actual
claim amount. However, the effects of these common stock distributions were already reflected in
the Companys financial statements upon emergence from bankruptcy and will not have any further
impact on its financial position or results of operations. The Company presently expects the
bankruptcy case to be closed during 2010.
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 its
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 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 economies in other regions
of the world. Unfavorable conditions in these broader economies have resulted, and may continue to
result, in decreased passenger demand for air travel and changes in booking practices, both of
which in turn have had, and may continue to have, 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.
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In addition, we have substantial non-cancelable commitments for capital expenditures,
including the acquisition of new aircraft and related spare engines. We have not yet secured
financing commitments for some of the aircraft we have on order, commencing with deliveries
scheduled for 2013, 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.
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 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 one of the largest single cost items in
our business. Fuel prices have fluctuated substantially over the past several years and sharply in
the last two years.
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 price increases.
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 designed to protect
against rising fuel costs. Since the third quarter of 2008, we have not entered into any new fuel
hedging transactions, and we have no fuel hedging contracts outstanding. Our ability to hedge in
the future may be limited, particularly if our financial condition provides insufficient liquidity
to meet counterparty collateral requirements. Our future fuel hedging arrangements, if any, may not
completely protect us against price increases and may be limited in both volume of fuel and
duration. Also, a rapid decline in the price of fuel could adversely impact our short-term
liquidity as our hedge counterparties could 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.
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.
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 our credit card processors 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.
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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 (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 (NMB).
If no agreement is reached during direct negotiations between the parties, either party may
request the NMB to appoint a federal mediator. The RLA prescribes no timetable for the direct
negotiation and mediation processes, and it is not unusual for those processes to last for many
months or even several years. If no agreement is reached in mediation, the NMB in its discretion
may declare that an impasse exists and proffer binding arbitration to the parties. Either party may
decline to submit to arbitration, and if arbitration is rejected by either party, a 30-day cooling
off period commences. During or after that period, a Presidential Emergency Board (PEB) may be
established, which examines the parties positions and recommends a solution. The PEB process lasts
for 30 days and is followed by another 30-day cooling off period. At the end of a cooling off
period, unless an agreement is reached or action is taken by Congress, the labor organization may
exercise self-help, such as a strike, which could adversely affect our ability to conduct our
business and our financial performance.
Additionally, 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. We are also involved in
binding arbitrations regarding grievances under our collective bargaining agreements, including but
not limited to issues related to wages and working conditions, which if determined adversely
against us could negatively affect our ability to conduct our business and our financial
performance.
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The inability to maintain labor costs at competitive levels could harm our financial performance.
Currently, our labor costs are very competitive relative to the other big five hub-and-spoke
carriers. 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.
If we incur problems with any of our third-party regional operators or third-party service
providers, our operations could be adversely affected by a resulting decline in revenue or
negative public perception about our services.
A significant portion of our regional operations are conducted by third-party operators on our
behalf, primarily under capacity purchase agreements. Due to our reliance on third parties to
provide these essential services, we are subject to the risks of disruptions to their operations,
which may result from many of the same risk factors disclosed in this report, such as the impact of
current economic conditions, and other risk factors, such as a bankruptcy restructuring of the
regional operators. For example, in January 2010, Mesa Air Group Inc. and its subsidiary Mesa
Airlines filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. We cannot
predict whether Mesa Airlines will be successfully reorganized or any other aspect of the pending
bankruptcy case. At December 31, 2009, Mesa Airlines operated 53 aircraft for our Express passenger
operations, representing over $450 million in annual passenger revenues to us in 2009. In addition,
we may also experience disruption to our regional operations if we terminate the capacity purchase
agreement with one or more of our current operators and transition the services to another
provider. As our regional segment provides revenues to us directly and indirectly (by providing
flow traffic to our hubs), any significant disruption to our regional operations would have a
material adverse effect on our business, financial condition and results of operations.
In addition, 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.
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, process transactions 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.
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, however, as time goes on, we expect that it will be more difficult to identify and
implement additional initiatives. 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.
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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 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.
Additionally, 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.
We may be adversely affected by conflicts overseas or terrorist attacks; the travel industry
continues to face ongoing security concerns.
Acts of terrorism or fear of such attacks, including elevated national threat warnings, wars
or other military conflicts, including the wars in Iraq and Afghanistan, may depress air travel,
particularly on international routes, and cause declines in revenues and increases in costs. The
attacks of September 11, 2001 and continuing terrorist threats and attempted attacks materially
impacted and continue to impact air travel. 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. The Aviation 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. 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 FAA, the Transportation Security Administration 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.
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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, fuel tank
inerting, crew scheduling 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. Additionally, new proposals by the FAA to further regulate flight crew
duty times could increase our costs and reduce staffing flexibility.
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 finalized rules, taking effect on April 29,
2010, requiring new procedures for customer handling during long onboard delays, as well as additional
reporting requirements for airlines. The DOT has signaled its intent
to aggressively enforce the new rules and is planning to release
additional proposed regulations in this area in 2010.
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, particularly in the EU, may increase costs or
restrict our operations.
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.
There is increasing global regulatory focus on climate change and greenhouse gas emissions. In
particular, the United States and the EU have developed regulatory requirements that may affect our
business. The U.S. Congress is considering climate-related legislation to reduce emissions of
greenhouse gases. Several states have also developed measures to regulate emissions of greenhouse
gases, primarily through the planned development of greenhouse gas emissions inventories and/or
regional greenhouse gas cap and trade programs. In late 2009 and early
2010, the U.S. EPA adopted regulations requiring reporting of greenhouse gas emissions from
certain facilities, updating the renewable fuels standard and is considering additional regulation
of greenhouse gases under the existing federal Clean Air Act. In addition, the EU has adopted
legislation to include aviation within the EUs existing greenhouse gas emission trading scheme
effective in 2012. This legislation has been legally challenged in the EU but we have had to begin
complying and incurred additional costs as a result of this legislation. While we cannot yet
determine what the final regulatory programs will be in the United States, the EU or in other areas
in which we do business, such climate change-related regulatory activity in the future may
adversely affect our business and financial results.
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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 are 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 continue our efforts to meet these standards, new and
revised standards may be imposed that may be difficult for us to meet.
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 or our focus city could have a
material adverse impact on our operations.
We operate principally through hubs in Charlotte, Philadelphia and Phoenix and a focus city in
Washington, D.C. at Ronald Reagan Washington National Airport. Substantially all 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 resulting from air traffic control delays, weather conditions, natural
disasters, growth constraints, relations with third-party service providers, failure of computer
systems, labor relations, fuel supplies, terrorist activities or otherwise 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 or the aircraft of our regional operators.
If one of our aircraft, an aircraft that is operated under our brand by one of our regional
operators or an aircraft that is operated by an airline that is one of our codeshare partners 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, an aircraft that is operated under
our brand by one of our regional operators or an aircraft that is operated by an airline that is
one of our codeshare partners could create a public perception that our aircraft or those of our
regional operators or codeshare partners are not safe or reliable, which could harm our reputation,
result in air travelers being reluctant to fly on our aircraft or those of our regional operators
or codeshare partners and adversely impact our financial condition and operations.
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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 accept or 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 winter
weather 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.
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. An outbreak of a contagious disease such as Severe Acute Respiratory Syndrome (SARS),
H1N1 influenza virus, 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.
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 net operating losses and certain other tax attributes could be
limited in the future.
When a corporation undergoes an ownership change as defined in Section 382 of the Internal
Revenue Code, or Section 382, a limitation is imposed on the corporations future ability to
utilize any net operating losses, or NOLs, 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. We believe an ownership change as defined in Section 382 occurred for US
Airways Group in February 2007. 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 Section 382. Until US Airways
Group has used all of its existing NOLs, future shifts in ownership of US Airways Groups common
stock could result in new Section 382 limitations on the use of our NOLs 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.
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Risks Relating to Our Common Stock
The price of our common stock has recently been and may in the future be volatile.
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.
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. |
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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 5. Exhibits |
Exhibit No. | Description | |||
10.1 | 2010 Annual Incentive Program Under 2008 Equity Incentive Plan. |
|||
10.2 | 2010 Long Term Incentive Performance Program Under 2008 Equity Incentive Plan. |
|||
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. |
| Management contract or compensatory plan or arrangement. |
55
Table of Contents
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: April 26, 2010 | 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: April 26, 2010 | By: | /s/ Derek J. Kerr | ||
Derek J. Kerr | ||||
Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
56
Table of Contents
Exhibit Index
Exhibit No. | Description | |||
10.1 | 2010 Annual Incentive Program Under 2008 Equity Incentive Plan. |
|||
10.2 | 2010 Long Term Incentive Performance Program Under 2008 Equity Incentive Plan. |
|||
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. |
| Management contract or compensatory plan or arrangement. |
57