Attached files
file | filename |
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EX-31.3 - EXHIBIT 31.3 - US AIRWAYS GROUP INC | c07052exv31w3.htm |
EX-31.1 - EXHIBIT 31.1 - US AIRWAYS GROUP INC | c07052exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - US AIRWAYS GROUP INC | c07052exv31w2.htm |
EX-31.4 - EXHIBIT 31.4 - US AIRWAYS GROUP INC | c07052exv31w4.htm |
EX-10.1 - EXHIBIT 10.1 - US AIRWAYS GROUP INC | c07052exv10w1.htm |
EX-32.1 - EXHIBIT 32.1 - US AIRWAYS GROUP INC | c07052exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - US AIRWAYS GROUP INC | c07052exv32w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 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.)
54-1194634 (IRS Employer Identification No.)
111 West Rio Salado Parkway, Tempe, Arizona 85281
(Address of principal executive offices, including zip code)
(Address of principal executive offices, including zip code)
US Airways, Inc.
(Exact name of registrant as specified in its charter)
(Commission File No. 1-8442)
53-0218143 (IRS Employer Identification No.)
53-0218143 (IRS Employer Identification No.)
111 West Rio Salado Parkway, Tempe, Arizona 85281
(Address of principal executive offices, including zip code)
(Address of principal executive offices, including zip code)
(480) 693-0800
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Delaware
(State of Incorporation of all Registrants)
(State of Incorporation of all Registrants)
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether each registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
US Airways Group, Inc.
|
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | ||||
US Airways, Inc.
|
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
US Airways Group, Inc.
|
Yes | o | No | þ | ||||
US Airways, Inc.
|
Yes | o | No | þ |
Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
US Airways Group, Inc.
|
Yes | þ | No | o | ||||
US Airways, Inc.
|
Yes | þ | No | o |
As of October 15, 2010, there were approximately 161,533,485 shares of US Airways Group, Inc.
common stock outstanding.
As of October 15, 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 September 30, 2010
Table of Contents
US Airways, Inc.
Form 10-Q
Quarterly Period Ended September 30, 2010
Table of Contents
Page | ||||||||
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24 | ||||||||
50 | ||||||||
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62 | ||||||||
Exhibit 10.1 | ||||||||
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 and pricing environment, and our expected financial performance and
liquidity position. 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 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)
(Unaudited)
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Operating revenues: |
||||||||||||||||
Mainline passenger |
$ | 2,066 | $ | 1,757 | $ | 5,800 | $ | 5,092 | ||||||||
Express passenger |
746 | 662 | 2,114 | 1,856 | ||||||||||||
Cargo |
37 | 23 | 107 | 67 | ||||||||||||
Other |
330 | 277 | 980 | 817 | ||||||||||||
Total operating revenues |
3,179 | 2,719 | 9,001 | 7,832 | ||||||||||||
Operating expenses: |
||||||||||||||||
Aircraft fuel and related taxes |
625 | 534 | 1,775 | 1,353 | ||||||||||||
Loss on fuel hedging instruments, net |
| 2 | | 7 | ||||||||||||
Salaries and related costs |
579 | 553 | 1,708 | 1,653 | ||||||||||||
Express expenses |
694 | 654 | 2,027 | 1,882 | ||||||||||||
Aircraft rent |
168 | 171 | 508 | 523 | ||||||||||||
Aircraft maintenance |
160 | 174 | 479 | 532 | ||||||||||||
Other rent and landing fees |
143 | 148 | 413 | 422 | ||||||||||||
Selling expenses |
118 | 99 | 320 | 291 | ||||||||||||
Special items, net |
3 | 15 | (1 | ) | 22 | |||||||||||
Depreciation and amortization |
65 | 63 | 189 | 185 | ||||||||||||
Other |
309 | 300 | 907 | 859 | ||||||||||||
Total operating expenses |
2,864 | 2,713 | 8,325 | 7,729 | ||||||||||||
Operating income |
315 | 6 | 676 | 103 | ||||||||||||
Nonoperating income (expense): |
||||||||||||||||
Interest income |
2 | 5 | 11 | 17 | ||||||||||||
Interest expense, net |
(83 | ) | (81 | ) | (252 | ) | (229 | ) | ||||||||
Other, net |
7 | (10 | ) | 41 | (16 | ) | ||||||||||
Total nonoperating expense, net |
(74 | ) | (86 | ) | (200 | ) | (228 | ) | ||||||||
Income (loss) before income taxes |
241 | (80 | ) | 476 | (125 | ) | ||||||||||
Income tax provision |
1 | | 1 | | ||||||||||||
Net income (loss) |
$ | 240 | $ | (80 | ) | $ | 475 | $ | (125 | ) | ||||||
Earnings (loss) per common share: |
||||||||||||||||
Basic earnings (loss) per common share |
$ | 1.49 | $ | (0.60 | ) | $ | 2.94 | $ | (1.01 | ) | ||||||
Diluted earnings (loss) per common share |
$ | 1.22 | $ | (0.60 | ) | $ | 2.45 | $ | (1.01 | ) | ||||||
Shares used for computation (in thousands): |
||||||||||||||||
Basic |
161,464 | 132,985 | 161,290 | 123,632 | ||||||||||||
Diluted |
204,535 | 132,985 | 200,775 | 123,632 |
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)
(Unaudited)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 1,885 | $ | 1,299 | ||||
Investments in marketable securities |
55 | | ||||||
Accounts receivable, net |
371 | 285 | ||||||
Materials and supplies, net |
223 | 227 | ||||||
Prepaid expenses and other |
538 | 520 | ||||||
Total current assets |
3,072 | 2,331 | ||||||
Property and equipment |
||||||||
Flight equipment |
4,105 | 3,852 | ||||||
Ground property and equipment |
824 | 883 | ||||||
Less accumulated depreciation and amortization |
(1,250 | ) | (1,151 | ) | ||||
3,679 | 3,584 | |||||||
Equipment purchase deposits |
91 | 112 | ||||||
Total property and equipment |
3,770 | 3,696 | ||||||
Other assets |
||||||||
Other intangibles, net of accumulated amortization of $133 million and $113 million, respectively |
483 | 503 | ||||||
Restricted cash |
389 | 480 | ||||||
Investments in marketable securities |
59 | 203 | ||||||
Other assets |
233 | 241 | ||||||
Total other assets |
1,164 | 1,427 | ||||||
Total assets |
$ | 8,006 | $ | 7,454 | ||||
LIABILITIES & STOCKHOLDERS EQUITY (DEFICIT) |
||||||||
Current liabilities |
||||||||
Current maturities of debt and capital leases |
$ | 441 | $ | 502 | ||||
Accounts payable |
372 | 337 | ||||||
Air traffic liability |
1,036 | 778 | ||||||
Accrued compensation and vacation |
256 | 178 | ||||||
Accrued taxes |
154 | 141 | ||||||
Other accrued expenses |
790 | 853 | ||||||
Total current liabilities |
3,049 | 2,789 | ||||||
Noncurrent liabilities and deferred credits |
||||||||
Long-term debt and capital leases, net of current maturities |
3,987 | 4,024 | ||||||
Deferred gains and credits, net |
342 | 377 | ||||||
Postretirement benefits other than pensions |
128 | 130 | ||||||
Employee benefit liabilities and other |
426 | 489 | ||||||
Total noncurrent liabilities and deferred credits |
4,883 | 5,020 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity (deficit) |
||||||||
Common stock, $0.01 par value; 400,000,000 shares authorized, 161,950,734 and 161,533,110 shares
issued and outstanding at September 30, 2010; 161,520,457 and 161,102,833 shares issued and
outstanding at December 31, 2009 |
2 | 2 | ||||||
Additional paid-in capital |
2,117 | 2,107 | ||||||
Accumulated other comprehensive income |
34 | 90 | ||||||
Accumulated deficit |
(2,066 | ) | (2,541 | ) | ||||
Treasury stock, common stock, 417,624 shares at September 30, 2010 and December 31, 2009 |
(13 | ) | (13 | ) | ||||
Total stockholders equity (deficit) |
74 | (355 | ) | |||||
Total liabilities and stockholders equity (deficit) |
$ | 8,006 | $ | 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)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
Net cash provided by operating activities |
$ | 789 | $ | 130 | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(133 | ) | (731 | ) | ||||
Purchases of marketable securities |
(180 | ) | | |||||
Sales of marketable securities |
268 | 20 | ||||||
Decrease in long-term restricted cash |
91 | 10 | ||||||
Proceeds from sale-leaseback transactions and dispositions of property and equipment |
3 | 55 | ||||||
Net cash provided by (used in) investing activities |
49 | (646 | ) | |||||
Cash flows from financing activities: |
||||||||
Repayments of debt and capital lease obligations |
(367 | ) | (271 | ) | ||||
Proceeds from issuance of debt |
120 | 803 | ||||||
Deferred financing costs |
(5 | ) | (11 | ) | ||||
Proceeds from issuance of common stock, net |
| 203 | ||||||
Net cash provided by (used in) financing activities |
(252 | ) | 724 | |||||
Net increase in cash and cash equivalents |
586 | 208 | ||||||
Cash and cash equivalents at beginning of period |
1,299 | 1,034 | ||||||
Cash and cash equivalents at end of period |
$ | 1,885 | $ | 1,242 | ||||
Non-cash investing and financing activities: |
||||||||
Note payables issued for aircraft purchases |
$ | 111 | $ | 136 | ||||
Interest payable converted to debt |
33 | 29 | ||||||
Net unrealized loss (gain) on available-for-sale securities |
1 | (51 | ) | |||||
Deposit applied to principal repayment on debt |
(31 | ) | | |||||
Maintenance payable converted to debt |
| 13 | ||||||
Supplemental information: |
||||||||
Interest paid, net of amounts capitalized |
$ | 181 | $ | 165 | ||||
Income taxes paid |
1 | |
See accompanying notes to the condensed consolidated financial statements.
7
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US Airways Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of US Airways Group,
Inc. (US Airways Group or the Company) should be read in conjunction with the consolidated
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 (credits) for the three and nine months ended September 30, 2010 and 2009 (in
millions):
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Aviation Security Infrastructure Fee (ASIF) refund (a) |
$ | | $ | | $ | (16 | ) | $ | | |||||||
Other costs (b) |
3 | | 10 | | ||||||||||||
Aircraft costs (c) |
| 10 | 5 | 16 | ||||||||||||
Severance and other charges (d) |
| 5 | | 6 | ||||||||||||
Special items, net |
$ | 3 | $ | 15 | $ | (1 | ) | $ | 22 | |||||||
(a) | In the nine months ended September 30, 2010, the Company recorded a $16 million refund of
ASIF paid to the Transportation Security Administration (TSA) during the years 2005 to 2009. |
|
(b) | In the three months ended September 30, 2010, the Company recorded $3 million in other net
special charges. In the nine months ended September 30, 2010, the Company recorded other net
special charges of $10 million, which included a settlement and corporate transaction costs. |
|
(c) | In the nine months ended September 30, 2010, the Company recorded $5 million in aircraft
costs as a result of previously announced capacity reductions. |
|
In the three and nine months ended September 30, 2009, the Company recorded $10 million and $16
million in aircraft costs, respectively, as a result of capacity reductions. |
||
(d) | In the three and nine months ended September 30, 2009, the Company recorded $5 million and $6
million in severance and other charges, respectively. |
9
Table of Contents
3. Earnings (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 (SARs), employee restricted stock units (RSUs) and convertible debt. The following table
presents the computation of basic and diluted EPS (in millions, except share and per share
amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic earnings (loss) per share: |
||||||||||||||||
Net income (loss) |
$ | 240 | $ | (80 | ) | $ | 475 | $ | (125 | ) | ||||||
Weighted average common shares outstanding (in thousands) |
161,464 | 132,985 | 161,290 | 123,632 | ||||||||||||
Basic earnings (loss) per share |
$ | 1.49 | $ | (0.60 | ) | $ | 2.94 | $ | (1.01 | ) | ||||||
Diluted earnings (loss) per share: |
||||||||||||||||
Net income (loss) |
$ | 240 | $ | (80 | ) | $ | 475 | $ | (125 | ) | ||||||
Interest expense on 7.25% convertible senior notes |
6 | | 17 | | ||||||||||||
Interest expense on 7% senior convertible notes |
3 | | | | ||||||||||||
Net income (loss) for purposes of computing diluted
earnings (loss) per share |
$ | 249 | $ | (80 | ) | $ | 492 | $ | (125 | ) | ||||||
Share computation (in thousands): |
||||||||||||||||
Weighted average common shares outstanding |
161,464 | 132,985 | 161,290 | 123,632 | ||||||||||||
Dilutive effect of stock awards |
2,307 | | 1,739 | | ||||||||||||
Assumed conversion of 7.25% convertible senior notes |
37,746 | | 37,746 | | ||||||||||||
Assumed conversion of 7% senior convertible notes |
3,018 | | | | ||||||||||||
Weighted average common shares outstanding as adjusted |
204,535 | 132,985 | 200,775 | 123,632 | ||||||||||||
Diluted earnings (loss) per share |
$ | 1.22 | $ | (0.60 | ) | $ | 2.45 | $ | (1.01 | ) | ||||||
For the three and nine months ended September 30, 2010, the adjustments to net income for
purposes of computing diluted EPS are net of the related effect of profit sharing.
For the three and nine months ended September 30, 2010, 1,873,853 and 1,857,322 shares,
respectively, underlying stock options, SARs and RSUs were not included in the computation of
diluted EPS because inclusion of such shares would be antidilutive. For the three and nine months
ended September 30, 2010, 2,829,908 and 4,603,283 SARs, respectively, were not included in the
computation of diluted EPS because their exercise prices were greater than the average market price
of common stock for the period. In addition, for the nine months ended September 30, 2010,
3,038,590 incremental shares from the assumed conversion of the 7% Senior Convertible Notes (the
7% notes) were excluded from the computation of diluted EPS due to their antidilutive effect.
Refer to Note 4 for further discussion of the 7% notes.
For the three and nine months ended September 30, 2009, 6,136,243 and 4,642,232 shares,
respectively, underlying stock options, SARs and RSUs were not included in the computation of
diluted EPS because inclusion of such shares would be antidilutive. For the three and nine months
ended September 30, 2009, 5,992,184 and 6,646,720 SARs, respectively, were not included in the
computation of diluted EPS because their exercise prices were greater than the average market price
of common stock for the period. In addition, for each of the three and nine months ended September
30, 2009, 3,048,914 incremental shares from the assumed conversion of the 7% notes were excluded
from the computation of diluted EPS due to their antidilutive effect. For the three and nine months
ended September 30, 2009, 37,746,174 and 19,357,012 incremental shares, respectively, from the
assumed conversion of the 7.25% convertible senior notes were excluded from the computation of
diluted EPS due to their antidilutive effect.
10
Table of Contents
4. Debt
The following table details the Companys debt (in millions). Variable interest rates listed
are the rates as of September 30, 2010.
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Secured |
||||||||
Citicorp North America loan, variable interest rate of 2.76%, installments due through 2014 |
$ | 1,152 | $ | 1,168 | ||||
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.66% to
10.52%, maturing from 2010 to 2029 |
2,286 | 2,201 | ||||||
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 7.08%
to 9.01%, maturing from 2015 to 2022 |
469 | 505 | ||||||
Other secured obligations, fixed interest rates ranging from 8% to 8.08%, maturing from 2015 to 2021 |
79 | 84 | ||||||
Senior secured discount notes |
| 32 | ||||||
3,986 | 3,990 | |||||||
Unsecured |
||||||||
Barclays prepaid miles, variable interest rate of 5.01%, interest only payments |
200 | 200 | ||||||
Airbus advance, repayments through 2018 |
238 | 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 (a) |
5 | 74 | ||||||
Industrial development bonds, fixed interest rate of 6.3%, interest only payments until due in 2023 |
29 | 29 | ||||||
Other unsecured obligations, maturing from 2011 to 2012 |
27 | 81 | ||||||
671 | 803 | |||||||
Total long-term debt and capital lease obligations |
4,657 | 4,793 | ||||||
Less: Total unamortized discount on debt |
(229 | ) | (267 | ) | ||||
Current maturities, less $9 million of unamortized discount on debt at December 31, 2009 |
(441 | ) | (502 | ) | ||||
Long-term debt and capital lease obligations, net of current maturities |
$ | 3,987 | $ | 4,024 | ||||
The Company was in compliance with the covenants in its debt agreements at September 30, 2010. |
||
(a) | Prior to September 30, 2010, the Company had $74 million of principal amount outstanding
under its 7% notes. Holders had the right to require the Company to purchase for cash or
shares or a combination thereof, at the Companys election, all or a portion of their 7% notes
on September 30, 2010 at a purchase price equal to 100% of the principal amount of the
7% notes to be repurchased plus accrued and unpaid interest, if any, to the purchase date. As
of September 30, 2010, $69 million of the 7% notes outstanding were validly surrendered for
purchase and the Company paid $69 million in cash to satisfy the aggregate purchase price. The
principal amount of the remaining 7% notes outstanding as of September 30, 2010 was $5
million. |
2010 Financing Transactions
In the first quarter of 2010, US Airways borrowed $181 million 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.
In the third quarter of 2010, US Airways Group borrowed $30 million to finance airport
construction activities in Philadelphia. These notes bear interest at fixed rates and are secured
by certain US Airways leasehold interests. The notes payable mature from 2020 to 2029.
Fair Value of Debt
The fair value of the Companys long-term debt and capital lease obligations was approximately
$3.95 billion at each of September 30, 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.
11
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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, are 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
allowances were $546 million and $77 million, respectively.
During the three and nine months ended September 30, 2010, the Company utilized NOLs to reduce
its income tax obligation. Utilization of these NOLs results in a corresponding decrease in the
valuation allowance. As this valuation allowance was established through the recognition of tax
expense, the decrease in the valuation allowance offsets the Companys tax provision dollar for
dollar. During the three and nine months ended September 30, 2010, the Company recorded $1 million
of state income tax expense related to certain states where NOLs were either limited or not
available to be used.
The Company reported a loss in the nine months ended September 30, 2009, and the Company did
not record a tax benefit in any 2009 period as its net deferred tax assets which include the NOLs
are subject to a full valuation allowance.
6. Express Expenses
Expenses associated with the Companys wholly owned regional airlines and affiliate regional
airlines operating as US Airways Express are classified as Express expenses on the condensed
consolidated statements of operations. Express expenses consist of the following (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Aircraft fuel and related taxes |
$ | 197 | $ | 171 | $ | 562 | $ | 438 | ||||||||
Salaries and related costs |
63 | 63 | 189 | 187 | ||||||||||||
Capacity purchases |
272 | 271 | 809 | 802 | ||||||||||||
Aircraft rent |
13 | 13 | 39 | 39 | ||||||||||||
Aircraft maintenance |
19 | 19 | 55 | 62 | ||||||||||||
Other rent and landing fees |
33 | 30 | 96 | 91 | ||||||||||||
Selling expenses |
48 | 41 | 128 | 115 | ||||||||||||
Special items, net (a) |
| | (1 | ) | | |||||||||||
Depreciation and amortization |
6 | 6 | 18 | 18 | ||||||||||||
Other expenses |
43 | 40 | 132 | 130 | ||||||||||||
Express expenses |
$ | 694 | $ | 654 | $ | 2,027 | $ | 1,882 | ||||||||
(a) | In the nine months ended September 30, 2010, the Company recorded a $1 million refund for its
Express subsidiaries of ASIF paid to the TSA during the years 2005 to 2009. |
7. Derivative Instruments
Since the third quarter of 2008, the Company has not entered into any new transactions to
hedge its fuel consumption, and the Company has not had any fuel hedging contracts outstanding
since the third quarter of 2009. In the three and nine months ended September 30, 2009, the Company
recognized $50 million and $382 million, respectively, of net realized losses on settled fuel
hedging transactions, offset by $48 million and $375 million, respectively, 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.
12
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8. Investments in Marketable Securities
Current
As of September 30, 2010, the Company held $55 million of investments in debt securities,
which are classified as held-to-maturity. Held-to-maturity investments are carried at amortized
cost, which approximates fair value. These debt securities consist of investments in treasury bills
with original maturity dates of six months or less.
Noncurrent
As of September 30, 2010, the Company held auction rate securities with a fair value of $59
million ($93 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 23 to 42 years, with 81% of the Companys portfolio
maturing within the next 30 years (2033 2036) and 19% maturing thereafter (2052). As a result of
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. Refer to Note 9 for
discussion on how the Company determines the fair value of its investments in auction rate
securities.
In the nine months ended September 30, 2010, the Company sold certain investments in auction
rate securities for net proceeds of $143 million, resulting in a $53 million net realized gain
recorded in nonoperating expense, net, of which $52 million represents the reclassification of
prior period net unrealized gains from other comprehensive income as determined on a
specific-identification basis. Net proceeds for all of these sale transactions approximated the
carrying amount of the Companys investments. Additionally, in the nine months ended September 30,
2010, the Company recorded net unrealized losses of $1 million in other comprehensive income, all
of which was recognized in the first quarter of 2010 and offset previously recognized unrealized
gains, related to the decline in fair value of certain investments in auction rate securities.
In the three and nine months ended September 30, 2009, the Company recorded $3 million and $10
million, respectively, 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 remaining investments in these securities. If the current
market conditions deteriorate, the Company may be required to record additional impairment charges
in other nonoperating expense, net in future periods.
9. Fair Value Measurements
Assets measured at fair value on a recurring basis are as follows (in millions):
Quoted Prices in | Significant Other | Significant | ||||||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||||||
Identical Assets | Inputs | Inputs | Valuation | |||||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | Technique | ||||||||||||||||
At September 30, 2010 |
||||||||||||||||||||
Investments in marketable securities (noncurrent) |
$ | 59 | $ | | $ | | $ | 59 | (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. |
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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 |
(143 | ) | ||
Net unrealized losses recorded to other comprehensive income |
(1 | ) | ||
Balance at September 30, 2010 |
$ | 59 | ||
10. Other Comprehensive Income (Loss)
The Companys other comprehensive income (loss) consisted of the following (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 240 | $ | (80 | ) | $ | 475 | $ | (125 | ) | ||||||
Recognition of net realized gains on sale of available-for-sale securities |
| | (52 | ) | | |||||||||||
Net unrealized gains (losses) on available-for-sale securities |
| 17 | (1 | ) | 51 | |||||||||||
Pension and other postretirement benefits |
(1 | ) | (2 | ) | (3 | ) | (7 | ) | ||||||||
Total comprehensive income (loss) |
$ | 239 | $ | (65 | ) | $ | 419 | $ | (81 | ) | ||||||
The components of accumulated other comprehensive income were as follows (in millions):
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Pension and other postretirement benefits |
$ | 52 | $ | 55 | ||||
Available-for-sale securities |
(18 | ) | 35 | |||||
Accumulated other comprehensive income |
$ | 34 | $ | 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
(LaGuardia), 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 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.
In February 2010, the FAA issued a proposed order conditionally approving the transaction.
However, the proposed order required the divestiture of 20 of the 125 slot pairs involved at
LaGuardia and 14 of the 42 slot pairs at Washington National. In March 2010, Delta and US Airways
announced a proposed alternative transaction which contemplated fewer divestitures than required by
the FAAs February 2010 proposed order. In a final decision dated May 4, 2010, the FAA rejected the
alternative transaction proposed by Delta and US Airways, and affirmed its proposed order. In
connection with this action by the FAA, Delta and US Airways were obligated to advise the FAA no
later than July 2, 2010 whether they intended to proceed with the transaction as described in the
FAAs May 4, 2010 action. On July 2, 2010, Delta and US Airways jointly advised the FAA that they
did not intend to proceed with the transaction under the conditions imposed by the FAA, and that
Delta and US Airways were prepared to complete the transaction without those conditions. Also on
July 2, 2010, Delta and US Airways jointly filed with the United States Circuit Court of Appeals
for the District of Columbia Circuit a notice of appeal of the FAAs order seeking to set the FAAs
order aside. The Company cannot predict the outcome of this judicial proceeding or whether a slot
transaction with Delta will be completed.
12. Subsequent Event
In October 2010, US Airways and Mesa Air Group, Inc. (Mesa) have signed a non-binding term sheet which outlines
an agreement in principle for the extension of 39 months from the current scheduled expiration of June 30, 2012, for
the operation of 38 CRJ900 aircraft under the companies codeshare and revenue sharing agreement. The term sheet also
includes a reduction in the rates paid by US Airways to Mesa to operate those aircraft. The transaction contemplated by
the term sheet is subject to a number of conditions, including the negotiation and execution of definitive documents,
approval by the US Airways and Mesa boards of directors, US Airways approval of Mesas Plan of Reorganization, and
approval by the U.S. Bankruptcy Court.
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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 | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Operating revenues: |
||||||||||||||||
Mainline passenger |
$ | 2,066 | $ | 1,757 | $ | 5,800 | $ | 5,092 | ||||||||
Express passenger |
746 | 662 | 2,114 | 1,856 | ||||||||||||
Cargo |
37 | 23 | 107 | 67 | ||||||||||||
Other |
368 | 316 | 1,089 | 930 | ||||||||||||
Total operating revenues |
3,217 | 2,758 | 9,110 | 7,945 | ||||||||||||
Operating expenses: |
||||||||||||||||
Aircraft fuel and related taxes |
625 | 534 | 1,775 | 1,353 | ||||||||||||
Loss on fuel hedging instruments, net |
| 2 | | 7 | ||||||||||||
Salaries and related costs |
579 | 553 | 1,708 | 1,653 | ||||||||||||
Express expenses |
727 | 689 | 2,123 | 1,975 | ||||||||||||
Aircraft rent |
168 | 171 | 508 | 523 | ||||||||||||
Aircraft maintenance |
160 | 174 | 479 | 532 | ||||||||||||
Other rent and landing fees |
143 | 148 | 413 | 422 | ||||||||||||
Selling expenses |
118 | 99 | 320 | 291 | ||||||||||||
Special items, net |
3 | 15 | (1 | ) | 22 | |||||||||||
Depreciation and amortization |
67 | 65 | 196 | 192 | ||||||||||||
Other |
316 | 307 | 927 | 879 | ||||||||||||
Total operating expenses |
2,906 | 2,757 | 8,448 | 7,849 | ||||||||||||
Operating income |
311 | 1 | 662 | 96 | ||||||||||||
Nonoperating income (expense): |
||||||||||||||||
Interest income |
2 | 5 | 11 | 17 | ||||||||||||
Interest expense, net |
(59 | ) | (64 | ) | (179 | ) | (189 | ) | ||||||||
Other, net |
10 | (10 | ) | 42 | (18 | ) | ||||||||||
Total nonoperating expense, net |
(47 | ) | (69 | ) | (126 | ) | (190 | ) | ||||||||
Income (loss) before income taxes |
264 | (68 | ) | 536 | (94 | ) | ||||||||||
Income tax provision |
1 | | 1 | | ||||||||||||
Net income (loss) |
$ | 263 | $ | (68 | ) | $ | 535 | $ | (94 | ) | ||||||
See accompanying notes to the condensed consolidated financial statements.
15
Table of Contents
US Airways, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share and per share amounts)
(Unaudited)
(Unaudited)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 1,823 | $ | 1,209 | ||||
Investments in marketable securities |
55 | | ||||||
Accounts receivable, net |
369 | 282 | ||||||
Materials and supplies, net |
189 | 188 | ||||||
Prepaid expenses and other |
514 | 507 | ||||||
Total current assets |
2,950 | 2,186 | ||||||
Property and equipment |
||||||||
Flight equipment |
3,959 | 3,710 | ||||||
Ground property and equipment |
795 | 856 | ||||||
Less accumulated depreciation and amortization |
(1,189 | ) | (1,098 | ) | ||||
3,565 | 3,468 | |||||||
Equipment purchase deposits |
91 | 112 | ||||||
Total property and equipment |
3,656 | 3,580 | ||||||
Other assets |
||||||||
Other intangibles, net of accumulated amortization of $124 million and $106 million, respectively |
449 | 467 | ||||||
Restricted cash |
389 | 480 | ||||||
Investments in marketable securities |
59 | 203 | ||||||
Other assets |
204 | 207 | ||||||
Total other assets |
1,101 | 1,357 | ||||||
Total assets |
$ | 7,707 | $ | 7,123 | ||||
LIABILITIES & STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Current maturities of debt and capital leases |
$ | 425 | $ | 418 | ||||
Accounts payable |
356 | 319 | ||||||
Payables to related parties, net |
586 | 642 | ||||||
Air traffic liability |
1,036 | 778 | ||||||
Accrued compensation and vacation |
247 | 171 | ||||||
Accrued taxes |
154 | 142 | ||||||
Other accrued expenses |
752 | 815 | ||||||
Total current liabilities |
3,556 | 3,285 | ||||||
Noncurrent liabilities and deferred credits |
||||||||
Long-term debt and capital leases, net of current maturities |
2,589 | 2,667 | ||||||
Deferred gains and credits, net |
295 | 317 | ||||||
Postretirement benefits other than pensions |
127 | 129 | ||||||
Employee benefit liabilities and other |
406 | 470 | ||||||
Total noncurrent liabilities and deferred credits |
3,417 | 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 |
38 | 94 | ||||||
Accumulated deficit |
(1,749 | ) | (2,284 | ) | ||||
Total stockholders equity |
734 | 255 | ||||||
Total liabilities and stockholders equity |
$ | 7,707 | $ | 7,123 | ||||
See accompanying notes to the condensed consolidated financial statements.
16
Table of Contents
US Airways, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
Net cash provided by operating activities |
$ | 749 | $ | 211 | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(122 | ) | (727 | ) | ||||
Purchases of marketable securities |
(180 | ) | | |||||
Sales of marketable securities |
268 | 20 | ||||||
Decrease in long-term restricted cash |
91 | 10 | ||||||
Proceeds from sale-leaseback transactions and dispositions of property and equipment |
3 | 55 | ||||||
Net cash provided by (used in) investing activities |
60 | (642 | ) | |||||
Cash flows from financing activities: |
||||||||
Repayments of debt and capital lease obligations |
(282 | ) | (255 | ) | ||||
Proceeds from issuance of debt |
90 | 631 | ||||||
Deferred financing costs |
(3 | ) | (6 | ) | ||||
Net cash provided by (used in) financing activities |
(195 | ) | 370 | |||||
Net increase (decrease) in cash and cash equivalents |
614 | (61 | ) | |||||
Cash and cash equivalents at beginning of period |
1,209 | 1,026 | ||||||
Cash and cash equivalents at end of period |
$ | 1,823 | $ | 965 | ||||
Non-cash investing and financing activities: |
||||||||
Note payables issued for aircraft purchases |
$ | 111 | $ | 136 | ||||
Interest payable converted to debt |
33 | 29 | ||||||
Net unrealized loss (gain) on available-for-sale securities |
1 | (51 | ) | |||||
Deposit applied to principal repayment on debt |
(31 | ) | | |||||
Forgiveness of intercompany payable to US Airways Group |
| 600 | ||||||
Maintenance payable converted to debt |
| 13 | ||||||
Supplemental information: |
||||||||
Interest paid, net of amounts capitalized |
$ | 132 | $ | 126 | ||||
Income taxes paid |
1 | |
See accompanying notes to the condensed consolidated financial statements.
17
Table of Contents
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 consolidated 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.
18
Table of Contents
2. Special Items, Net
Special items, net as shown on the condensed consolidated statements of operations included
the following charges (credits) for the three and nine months ended September 30, 2010 and 2009 (in
millions):
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Aviation Security Infrastructure Fee (ASIF) refund (a) |
$ | | $ | | $ | (16 | ) | $ | | |||||||
Other costs (b) |
3 | | 10 | | ||||||||||||
Aircraft costs (c) |
| 10 | 5 | 16 | ||||||||||||
Severance and other charges (d) |
| 5 | | 6 | ||||||||||||
Special items, net |
$ | 3 | $ | 15 | $ | (1 | ) | $ | 22 | |||||||
(a) | In the nine months ended September 30, 2010, US Airways recorded a $16 million refund of ASIF
paid to the Transportation Security Administration (TSA) during the years 2005 to 2009. |
|
(b) | In the three months ended September 30, 2010, US Airways recorded $3 million in other net
special charges. In the nine months ended September 30, 2010, US Airways recorded other net
special charges of $10 million, which included a settlement and corporate transaction costs. |
|
(c) | In the nine months ended September 30, 2010, US Airways recorded $5 million in aircraft costs
as a result of previously announced capacity reductions. |
|
In the three and nine months ended September 30, 2009, US Airways recorded $10 million and $16
million in aircraft costs, respectively, as a result of capacity reductions. |
||
(d) | In the three and nine months ended September 30, 2009, US Airways recorded $5 million and $6
million in severance and other charges, respectively. |
19
Table of Contents
3. Debt
The following table details US Airways debt (in millions). Variable interest rates listed are
the rates as of September 30, 2010.
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Secured |
||||||||
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.66% to
10.52%, maturing from 2010 to 2021 |
$ | 2,256 | $ | 2,201 | ||||
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 7.08%
to 9.01%, maturing from 2015 to 2022 |
469 | 505 | ||||||
Other secured obligations, fixed interest rates ranging from 8% to 8.08%, maturing from 2015 to 2021 |
79 | 84 | ||||||
Senior secured discount notes |
| 32 | ||||||
2,804 | 2,822 | |||||||
Unsecured |
||||||||
Airbus advance, repayments through 2018 |
238 | 247 | ||||||
Industrial development bonds, fixed interest rate of 6.3%, interest only payments until due in 2023 |
29 | 29 | ||||||
Other unsecured obligations, maturing from 2011 to 2012 |
27 | 81 | ||||||
294 | 357 | |||||||
Total long-term debt and capital lease obligations |
3,098 | 3,179 | ||||||
Less: Total unamortized discount on debt |
(84 | ) | (94 | ) | ||||
Current maturities, less $4 million of unamortized discount on debt at December 31, 2009 |
(425 | ) | (418 | ) | ||||
Long-term debt and capital lease obligations, net of current maturities |
$ | 2,589 | $ | 2,667 | ||||
US Airways was in compliance with the covenants in its debt agreements at September 30, 2010.
2010 Financing Transactions
In the first quarter of 2010, US Airways borrowed $181 million 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 and capital lease obligations was approximately
$2.63 billion and $2.83 billion at September 30, 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.
4. Related Party Transactions
The following represents the net payable balances to related parties (in millions):
September 30, 2010 |
December 31, 2009 |
|||||||
US Airways Group |
$ | 543 | $ | 607 | ||||
US Airways Groups wholly owned subsidiaries |
43 | 35 | ||||||
$ | 586 | $ | 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.
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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, are 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
allowances were $575 million and $78 million, respectively.
During the three and nine months ended September 30, 2010, US Airways utilized NOLs to reduce
its income tax obligation. Utilization of these NOLs results in a corresponding decrease in the
valuation allowance. As this valuation allowance was established through the recognition of tax
expense, the decrease in the valuation allowance offsets US Airways tax provision dollar for
dollar. During the three and nine months ended September 30, 2010, US Airways recorded $1 million
of state income tax expense related to certain states where NOLs were either limited or not
available to be used.
US Airways reported a loss in the nine months ended September 30, 2009, and US Airways did not
record a tax benefit in any 2009 period as its net deferred tax assets which include the NOLs are
subject to a full valuation allowance.
6. Express Expenses
Expenses associated with affiliate regional airlines operating as US Airways Express are
classified as Express expenses on the condensed consolidated statements of operations. Express
expenses consist of the following (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Aircraft fuel and related taxes |
$ | 197 | $ | 171 | $ | 563 | $ | 438 | ||||||||
Salaries and related costs |
6 | 6 | 18 | 18 | ||||||||||||
Capacity purchases |
428 | 425 | 1,267 | 1,261 | ||||||||||||
Other rent and landing fees |
27 | 24 | 80 | 75 | ||||||||||||
Selling expenses |
48 | 41 | 128 | 115 | ||||||||||||
Other expenses |
21 | 22 | 67 | 68 | ||||||||||||
Express expenses |
$ | 727 | $ | 689 | $ | 2,123 | $ | 1,975 | ||||||||
7. Derivative Instruments
Since the third quarter of 2008, US Airways has not entered into any new transactions to hedge
its fuel consumption, and US Airways has not had any fuel hedging contracts outstanding since the
third quarter of 2009. In the three and nine months ended September 30, 2009, US Airways recognized
$50 million and $382 million, respectively, of net realized losses on settled fuel hedging
transactions, offset by $48 million and $375 million, respectively, 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.
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8. Investments in Marketable Securities
Current
As of September 30, 2010, US Airways held $55 million of investments in debt securities, which
are classified as held-to-maturity. Held-to-maturity investments are carried at amortized cost,
which approximates fair value. These debt securities consist of investments in treasury bills with
original maturity dates of six months or less.
Noncurrent
As of September 30, 2010, US Airways held auction rate securities with a fair value of $59
million ($93 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 23 to 42 years, with 81% of US Airways portfolio maturing
within the next 30 years (2033 2036) and 19% maturing thereafter (2052). As a result of 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. Refer to Note 9 for discussion
on how US Airways determines the fair value of its investments in auction rate securities.
In the nine months ended September 30, 2010, US Airways sold certain investments in auction
rate securities for net proceeds of $143 million, resulting in a $53 million net realized gain
recorded in nonoperating expense, net, of which $52 million represents the reclassification of
prior period net unrealized gains from other comprehensive income as determined on a
specific-identification basis. Net proceeds for all of these sale transactions approximated the
carrying amount of US Airways investments. Additionally, in the nine months ended September 30,
2010, US Airways recorded net unrealized losses of $1 million in other comprehensive income, all of
which was recognized in the first quarter of 2010 and offset previously recognized unrealized
gains, related to the decline in fair value of certain investments in auction rate securities.
In the three and nine months ended September 30, 2009, US Airways recorded $3 million and $10
million, respectively, 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 remaining investments in these securities. 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 September 30, 2010 |
||||||||||||||||||||
Investments in marketable securities (noncurrent) |
$ | 59 | $ | | $ | | $ | 59 | (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. |
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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 |
(143 | ) | ||
Net unrealized losses recorded to other comprehensive income |
(1 | ) | ||
Balance at September 30, 2010 |
$ | 59 | ||
10. Other Comprehensive Income (Loss)
US Airways other comprehensive income (loss) consisted of the following (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 263 | $ | (68 | ) | $ | 535 | $ | (94 | ) | ||||||
Recognition of net realized gains on sale of available-for-sale securities |
| | (52 | ) | | |||||||||||
Net unrealized gains (losses) on available-for-sale securities |
| 17 | (1 | ) | 51 | |||||||||||
Other postretirement benefits |
(1 | ) | (2 | ) | (3 | ) | (7 | ) | ||||||||
Total comprehensive income (loss) |
$ | 262 | $ | (53 | ) | $ | 479 | $ | (50 | ) | ||||||
The components of accumulated other comprehensive income were as follows (in millions):
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Other postretirement benefits |
$ | 56 | $ | 59 | ||||
Available-for-sale securities |
(18 | ) | 35 | |||||
Accumulated other comprehensive income |
$ | 38 | $ | 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
(LaGuardia), 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 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.
In February 2010, the FAA issued a proposed order conditionally approving the transaction.
However, the proposed order required the divestiture of 20 of the 125 slot pairs involved at
LaGuardia and 14 of the 42 slot pairs at Washington National. In March 2010, Delta and US Airways
announced a proposed alternative transaction which contemplated fewer divestitures than required by
the FAAs February 2010 proposed order. In a final decision dated May 4, 2010, the FAA rejected the
alternative transaction proposed by Delta and US Airways, and affirmed its proposed order. In
connection with this action by the FAA, Delta and US Airways were obligated to advise the FAA no
later than July 2, 2010 whether they intended to proceed with the transaction as described in the
FAAs May 4, 2010 action. On July 2, 2010, Delta and US Airways jointly advised the FAA that they
did not intend to proceed with the transaction under the conditions imposed by the FAA, and that
Delta and US Airways were prepared to complete the transaction without those conditions. Also on
July 2, 2010, Delta and US Airways jointly filed with the United States Circuit Court of Appeals
for the District of Columbia Circuit a notice of appeal of the FAAs order seeking to set the FAAs
order aside. US Airways cannot predict the outcome of this judicial proceeding or whether a slot
transaction with Delta will be completed.
12. Subsequent Event
In October 2010, US Airways and Mesa Air Group, Inc. (Mesa) have signed a non-binding term sheet which outlines
an agreement in principle for the extension of 39 months from the current scheduled expiration of June 30, 2012, for
the operation of 38 CRJ900 aircraft under the companies codeshare and revenue sharing agreement. The term sheet also
includes a reduction in the rates paid by US Airways to Mesa to operate those aircraft. The transaction contemplated by
the term sheet is subject to a number of conditions, including the negotiation and execution of definitive documents,
approval by the US Airways and Mesa boards of directors, US Airways approval of Mesas Plan of Reorganization, and
approval by the U.S. Bankruptcy Court.
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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 3,100 flights daily to
more than 200 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 a substantial presence at Washington National. For
the nine months ended September 30, 2010, we had approximately 39 million passengers boarding our
mainline flights. As of September 30, 2010, we operated 339 mainline jets and were supported by our
regional airline subsidiaries and affiliates operating as US Airways Express either under capacity
purchase or prorate agreements, which operate approximately 234 regional jets and 60 turboprops.
The U.S. Airline Industry
Industry analysts have maintained predictions that 2010 will be a profitable year for the U.S.
airline industry. Profitability has been driven by large increases in year-over-year revenue
resulting from improved economic conditions and industry capacity discipline, as well as moderate
fuel costs. In its most recent data available, the Air Transport Association of America (ATA)
reported that passenger revenues increased 20% and 17% on a year-over-year basis in July and August
2010, respectively, with August 2010 marking the eighth consecutive month of revenue growth.
Increased yields of 17% and 14% on a year-over-year basis in July and August 2010, respectively,
were the key contributor to revenue growth. While analysts expect revenue to continue to increase
on a year-over-year basis in the fourth quarter of 2010, the percentage increase is expected to be
smaller. The revenue comparisons will become more difficult as the revenue recovery began in the
third quarter of 2009 and accelerated in the fourth quarter of 2009.
International markets again outperformed domestic markets with respect to year-over-year
improvements in revenue. ATA reported that U.S. airline international passenger revenues increased
36% and 27% on a year-over-year basis in July and August 2010, respectively. 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. Cargo demand, which was also significantly impacted by the contraction of business
spending in 2009, also showed ongoing improvement in the third quarter of 2010 as compared to 2009.
On average, the cost of fuel remained relatively constant during the third quarter of 2010.
The average price of crude oil was $76.06 per barrel for the third quarter of 2010 as compared to
$77.82 per barrel for the second quarter of 2010. Volatility in fuel costs did persist as the price
of crude oil ranged from a high of $82.52 to a low of $71.24 per barrel. Accordingly, 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.
Liquidity risk for the industry currently appears relatively low. However, risk remains that
the economy could slow down, the industry may add back capacity at levels which could depress
yields or fuel costs may significantly rise.
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US Airways
In the third quarter of 2010, we experienced year-over-year growth in revenues as a result of
the improved economy and industry capacity discipline, while fuel costs remained moderate. Mainline
and Express passenger revenues in the third quarter of 2010 increased $393 million, or 16.2%, on a
1.6% increase in total system capacity as compared to the 2009 period, which more than offset a
$117 million increase in mainline and Express fuel costs. Similar to other U.S. carriers, we
expect to be profitable for the full year 2010.
Revenue
The increase in mainline and Express passenger revenues was driven by a 13.6% increase in
yields as compared to the 2009 period. Our mainline and Express passenger revenue per available
seat mile (PRASM) was 12.3 cents in the third quarter of 2010, a 14.4% increase as compared to
10.75 cents in the 2009 period. Our revenues also benefited from our ancillary revenue initiatives,
which generated $133 million in revenues for the third quarter of 2010, an increase of $23 million
over the 2009 period. As a result of our ancillary revenues, our total revenue per available seat
mile (RASM) increased by a greater amount. RASM was 13.9 cents in the third quarter of 2010, as
compared to 12.08 cents in the 2009 period, representing a 15% improvement.
Fuel
The average mainline and Express price per gallon of fuel was $2.18 for the third quarter of
2010 as compared to an average cost per gallon of $1.90 in the third quarter of 2009, an increase
of 14.8%. Accordingly, our mainline and Express fuel expense for the third quarter of 2010 was $117
million, or 16.7% higher than the 2009 period on a 1.6% increase in total system capacity.
Since the third quarter of 2008, we have not entered into any new transactions to hedge our
fuel consumption, and we have not had any fuel hedging contracts outstanding since the third
quarter of 2009.
Cost Control
We remain committed to maintaining a low cost structure, which we believe is necessary in an
industry whose economic prospects are heavily dependent upon two variables we cannot control: the
health of the economy and the price of fuel. We continue to focus on matching capacity to demand.
For the third quarter of 2010, our mainline and total system capacity were up 2.3% and 1.6%,
respectively, as compared to the third quarter of 2009. For the full year 2010, mainline capacity
is expected to be up approximately 1%, while total system capacity is expected to be up slightly.
The following table presents our mainline costs per available seat mile (CASM) for the three
months ended September 30, 2010 and 2009:
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In cents) | ||||||||||||
Mainline CASM excluding special items, fuel and profit sharing: |
||||||||||||
Total mainline CASM |
11.34 | 11.00 | 3.1 | |||||||||
Special items, net |
(0.01 | ) | (0.08 | ) | (82.4 | ) | ||||||
Aircraft fuel and related taxes |
(3.26 | ) | (2.85 | ) | 14.4 | |||||||
Loss on fuel hedging instruments, net |
| (0.01 | ) | nm | ||||||||
Profit sharing |
(0.13 | ) | | nm | ||||||||
Total mainline CASM excluding special items, fuel and profit sharing (1) |
7.93 | 8.06 | (1.6 | ) | ||||||||
(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 and profit sharing 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, fuel and profit sharing to evaluate our operating
performance. Amounts may not recalculate due to rounding. |
Our mainline CASM excluding special items, fuel and profit sharing, decreased 0.13 cents, or
1.6%, from 8.06 cents in the third quarter of 2009 to 7.93 cents in the third quarter of 2010. The
decrease in the 2010 period was primarily due to our ability to keep costs flat while increasing
mainline capacity by 2.3%.
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Table of Contents
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.
The third quarter of 2010 marked another quarter of strong operational performance for US
Airways. In July and August 2010, we ranked first in baggage handling among the big five
hub-and-spoke carriers as measured by the U.S. Department of Transportation (DOT). Additionally,
in July and August 2010, we achieved a top-three ranking in on-time performance and in August 2010,
achieved a top-three ranking in customer satisfaction among these same carriers.
We reported the following combined operating statistics to the DOT for mainline operations for
the third quarter of 2010 and 2009:
2010 | 2009 | Percent Better (Worse) 2010-2009 | ||||||||||||||||||||||||||||||||||
July | August | September (e) | July | August | September | July | August | September | ||||||||||||||||||||||||||||
On-time performance (a) |
82.1 | 84.9 | 87.1 | 80.6 | 81.4 | 87.9 | 1.9 | 4.3 | (0.9 | ) | ||||||||||||||||||||||||||
Completion factor (b) |
98.9 | 99.2 | 99.4 | 98.9 | 99.0 | 99.5 | | 0.2 | (0.1 | ) | ||||||||||||||||||||||||||
Mishandled baggage (c) |
2.60 | 2.36 | 2.00 | 2.75 | 2.90 | 2.14 | 5.5 | 18.6 | 6.5 | |||||||||||||||||||||||||||
Customer complaints (d) |
1.71 | 1.92 | 1.25 | 1.20 | 1.10 | 0.88 | (42.5 | ) | (74.5 | ) | (42.0 | ) |
(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) | September 2010 operating statistics are preliminary as the DOT has not issued its September
2010 Air Travel Consumer Report as of the date of this filing. |
Liquidity Position
As of September 30, 2010, our cash, cash equivalents, investments in marketable securities and
restricted cash were $2.39 billion, of which $389 million was restricted. Our investments in
marketable securities included $59 million of auction rate securities that are classified as
noncurrent assets on our condensed consolidated balance sheets.
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(In millions) | ||||||||
Cash and cash equivalents and short-term investments in marketable securities |
$ | 1,940 | $ | 1,299 | ||||
Long-term restricted cash |
389 | 480 | ||||||
Long-term investments in marketable securities |
59 | 203 | ||||||
Total cash, cash equivalents, investments in marketable securities and restricted cash |
$ | 2,388 | $ | 1,982 | ||||
During the first nine months of 2010, our liquidity position improved by $406 million as a
result of the large increases in year-over-year revenue. This improvement is net of a repurchase of
$69 million of our 7% Senior Convertible Notes (the 7% notes) in the third quarter of 2010.
During 2010, we sold a portion of our investments in auction rate securities for net proceeds
of $143 million, leaving us with a remaining investment of $59 million. Net proceeds for all
auction rate sale transactions approximated the carrying amount of our investments.
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Table of Contents
US Airways Groups Results of Operations
In the three months ended September 30, 2010, we realized operating income of $315 million and
income before income taxes of $241 million. We experienced year-over-year growth in revenues as a
result of the improved economy and improved pricing environment as the industry continued to
maintain capacity discipline. We also experienced moderate fuel costs. Our third quarter 2010
results were also impacted by recognition of $3 million in other net special charges.
In the three months ended September 30, 2009, we realized operating income of $6 million and a
loss before income taxes of $80 million. We experienced significant declines in revenues in the
third quarter of 2009 as a result of the global economic recession. Our third quarter 2009 results
were also impacted by recognition of the following special items:
| $48 million of net unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments. These unrealized gains
were due primarily to the reversal of unrealized losses recognized in prior periods as hedge
transactions settled in the 2009 period; |
| $15 million of net special charges, consisting of $10 million in aircraft costs as a
result of capacity reductions and $5 million in severance and other charges; and |
| $3 million in other-than-temporary non-cash impairment charges for investments in auction
rate securities, included in nonoperating expense, net. |
In the first nine months of 2010, we realized operating income of $676 million and income
before income taxes of $476 million, which was driven by the economic improvement and other factors
described above. Our results for the first nine months of 2010 were also impacted by recognition of
the following special items:
| $1 million of net special credits, consisting of a $16 million refund of Aviation Security
Infrastructure Fees (ASIF) paid to the Transportation Security Administration (TSA)
during the years 2005 to 2009, offset by other net special charges of $10 million, which
included a settlement and corporate transaction costs, and $5 million in aircraft costs as a
result of previously announced capacity reductions; |
| $1 million refund for our Express subsidiaries of ASIF paid to the TSA during the years
2005 to 2009; and |
| $53 million of net realized gains related to sales of certain investments in auction rate
securities, included in nonoperating expense, net. |
In the first nine months of 2009, we realized operating income of $103 million and a loss
before income taxes of $125 million. We experienced significant declines in revenues in the first
nine months of 2009 as a result of the global economic recession. Our results for the first nine
months of 2009 were also impacted by recognition of the following special items:
| $375 million of net unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments; |
| $22 million of net special charges, consisting of $16 million in aircraft costs as a
result of capacity reductions and $6 million in severance and other charges; and |
| $10 million in other-than-temporary non-cash impairment charges for investments in auction
rate securities as well as a $2 million non-cash asset impairment charge, all 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, are 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 allowances were $546
million and $77 million, respectively.
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During the three and nine months ended September 30, 2010, we utilized NOLs to reduce our
income tax obligation. Utilization of these NOLs results in a corresponding decrease in the
valuation allowance. As this valuation allowance was established through the recognition of tax
expense, the decrease in the valuation allowance offsets our tax provision dollar for dollar.
During the three and nine months ended September 30, 2010, we recorded $1 million of state income
tax expense related to certain states where NOLs were either limited or not available to be used.
We reported a loss in the nine months ended September 30, 2009, and we did not record a tax
benefit in any 2009 period as our net deferred tax assets which include the NOLs are subject to a
full valuation allowance.
The table below sets forth our selected mainline and Express operating data:
Percent | Percent | |||||||||||||||||||||||
Three Months Ended | Change | Nine Months Ended | Change | |||||||||||||||||||||
September 30, | Increase | September 30, | Increase | |||||||||||||||||||||
2010 | 2009 | (Decrease) | 2010 | 2009 | (Decrease) | |||||||||||||||||||
Mainline |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
16,159 | 15,719 | 2.8 | 44,742 | 44,553 | 0.4 | ||||||||||||||||||
Available seat miles (millions) (b) |
19,143 | 18,718 | 2.3 | 54,162 | 54,007 | 0.3 | ||||||||||||||||||
Passenger load factor (percent) (c) |
84.4 | 84.0 | 0.4 | pts | 82.6 | 82.5 | 0.1 | pts | ||||||||||||||||
Yield (cents) (d) |
12.79 | 11.18 | 14.4 | 12.96 | 11.43 | 13.4 | ||||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
10.79 | 9.39 | 15.0 | 10.71 | 9.43 | 13.6 | ||||||||||||||||||
Operating cost per available seat mile (cents) (f) |
11.34 | 11.00 | 3.1 | 11.63 | 10.82 | 7.4 | ||||||||||||||||||
Passenger enplanements (thousands) (g) |
13,487 | 13,049 | 3.4 | 38,853 | 38,899 | (0.1 | ) | |||||||||||||||||
Departures (thousands) |
115 | 115 | | 337 | 350 | (3.7 | ) | |||||||||||||||||
Aircraft at end of period |
339 | 348 | (2.6 | ) | 339 | 348 | (2.6 | ) | ||||||||||||||||
Block hours (thousands) (h) |
311 | 313 | (0.8 | ) | 902 | 934 | (3.4 | ) | ||||||||||||||||
Average stage length (miles) (i) |
1,014 | 1,013 | 0.1 | 990 | 977 | 1.3 | ||||||||||||||||||
Average passenger journey (miles) (j) |
1,779 | 1,766 | 0.7 | 1,697 | 1,650 | 2.8 | ||||||||||||||||||
Fuel consumption (gallons in millions) |
288 | 282 | 2.2 | 811 | 818 | (0.8 | ) | |||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
2.17 | 1.89 | 14.6 | 2.19 | 1.65 | 32.4 | ||||||||||||||||||
Full-time equivalent employees at end of period |
30,455 | 31,592 | (3.6 | ) | 30,455 | 31,592 | (3.6 | ) | ||||||||||||||||
Express (k) |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
2,858 | 2,873 | (0.5 | ) | 7,906 | 8,055 | (1.9 | ) | ||||||||||||||||
Available seat miles (millions) (b) |
3,729 | 3,785 | (1.5 | ) | 10,639 | 10,917 | (2.5 | ) | ||||||||||||||||
Passenger load factor (percent) (c) |
76.6 | 75.9 | 0.7 | pts | 74.3 | 73.8 | 0.5 | pts | ||||||||||||||||
Yield (cents) (d) |
26.11 | 23.06 | 13.2 | 26.74 | 23.04 | 16.1 | ||||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
20.01 | 17.50 | 14.3 | 19.87 | 17.00 | 16.9 | ||||||||||||||||||
Operating cost per available seat mile (cents) (f) |
18.61 | 17.27 | 7.8 | 19.05 | 17.24 | 10.5 | ||||||||||||||||||
Passenger enplanements (thousands) (g) |
7,381 | 7,235 | 2.0 | 20,589 | 20,264 | 1.6 | ||||||||||||||||||
Aircraft at end of period |
281 | 288 | (2.4 | ) | 281 | 288 | (2.4 | ) | ||||||||||||||||
Fuel consumption (gallons in millions) |
88 | 89 | (0.1 | ) | 251 | 256 | (2.0 | ) | ||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
2.23 | 1.93 | 15.6 | 2.24 | 1.71 | 30.9 | ||||||||||||||||||
Total Mainline and Express |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
19,017 | 18,592 | 2.3 | 52,648 | 52,608 | 0.1 | ||||||||||||||||||
Available seat miles (millions) (b) |
22,872 | 22,503 | 1.6 | 64,801 | 64,924 | (0.2 | ) | |||||||||||||||||
Passenger load factor (percent) (c) |
83.1 | 82.6 | 0.5 | pts | 81.2 | 81.0 | 0.2 | pts | ||||||||||||||||
Yield (cents) (d) |
14.79 | 13.01 | 13.6 | 15.03 | 13.21 | 13.8 | ||||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
12.30 | 10.75 | 14.4 | 12.21 | 10.70 | 14.1 | ||||||||||||||||||
Total revenue per available seat mile (cents) (l) |
13.90 | 12.08 | 15.0 | 13.89 | 12.06 | 15.1 | ||||||||||||||||||
Passenger enplanements (thousands) (g) |
20,868 | 20,284 | 2.9 | 59,442 | 59,163 | 0.5 | ||||||||||||||||||
Aircraft at end of period |
620 | 636 | (2.5 | ) | 620 | 636 | (2.5 | ) | ||||||||||||||||
Fuel consumption (gallons in millions) |
376 | 371 | 1.6 | 1,062 | 1,074 | (1.1 | ) | |||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
2.18 | 1.90 | 14.8 | 2.20 | 1.67 | 32.0 |
(a) | Revenue passenger mile (RPM) A basic measure of sales volume. One RPM represents one
passenger flown one mile. |
28
Table of Contents
(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. |
|
(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. |
29
Table of Contents
Three Months Ended September 30, 2010
Compared with the
Three Months Ended September 30, 2009
Compared with the
Three Months Ended September 30, 2009
Operating Revenues:
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Operating revenues: |
||||||||||||
Mainline passenger |
$ | 2,066 | $ | 1,757 | 17.6 | |||||||
Express passenger |
746 | 662 | 12.7 | |||||||||
Cargo |
37 | 23 | 60.5 | |||||||||
Other |
330 | 277 | 19.3 | |||||||||
Total operating revenues |
$ | 3,179 | $ | 2,719 | 16.9 | |||||||
Total operating revenues in the third quarter of 2010 were $3.18 billion as compared to $2.72
billion in the 2009 period, an increase of $460 million, or 16.9%. Significant changes in the
components of operating revenues are as follows:
| Mainline passenger revenues were $2.07 billion in the third quarter of 2010 as compared to
$1.76 billion in the 2009 period. Mainline RPMs increased 2.8% as mainline capacity, as
measured by ASMs, increased 2.3%, resulting in a 0.4 point increase in load factor to 84.4%.
Mainline passenger yield increased 14.4% to 12.79 cents in the third quarter of 2010 from
11.18 cents in the 2009 period. Mainline PRASM increased 15% to 10.79 cents in the third
quarter of 2010 from 9.39 cents in the 2009 period. These increases in mainline yield and
PRASM were due principally to an improved pricing environment driven by the improved economy
and continued industry capacity discipline. |
| Express passenger revenues were $746 million in the third quarter of 2010, an increase of
$84 million from the 2009 period. Express RPMs decreased 0.5% as Express capacity, as
measured by ASMs, decreased 1.5%, resulting in a 0.7 point increase in load factor to 76.6%.
Express passenger yield increased by 13.2% to 26.11 cents in the third quarter of 2010 from
23.06 cents in the 2009 period. Express PRASM increased 14.3% to 20.01 cents in the third
quarter of 2010 from 17.5 cents in the 2009 period. The increases in Express yield and PRASM
were the result of the same improved pricing environment discussed in mainline passenger
revenues above. |
| Cargo revenues were $37 million in the third quarter of 2010, an increase of $14 million,
or 60.5%, from the 2009 period. The increase in cargo revenues was driven primarily by an
increase in international freight volume as a result of the improved economic environment in
the 2010 period. |
| Other revenues were $330 million in the third quarter of 2010, an increase of $53 million,
or 19.3%, from the 2009 period. Ancillary revenues, principally checked bag fees, comprised
approximately half of the increase. The remaining increase is primarily related to higher
revenues associated with our frequent flyer program, including increased marketing revenues
related to miles sold to business partners and increased revenues from partner airline
frequent flyer award redemptions on US Airways. |
30
Table of Contents
Operating Expenses:
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Operating expenses: |
||||||||||||
Aircraft fuel and related taxes |
$ | 625 | $ | 534 | 17.0 | |||||||
Loss (gain) on fuel hedging instruments, net: |
||||||||||||
Realized |
| 50 | nm | |||||||||
Unrealized |
| (48 | ) | nm | ||||||||
Salaries and related costs |
579 | 553 | 4.7 | |||||||||
Aircraft rent |
168 | 171 | (1.8 | ) | ||||||||
Aircraft maintenance |
160 | 174 | (8.1 | ) | ||||||||
Other rent and landing fees |
143 | 148 | (3.4 | ) | ||||||||
Selling expenses |
118 | 99 | 18.8 | |||||||||
Special items, net |
3 | 15 | (82.0 | ) | ||||||||
Depreciation and amortization |
65 | 63 | 3.2 | |||||||||
Other |
309 | 300 | 3.3 | |||||||||
Total mainline operating expenses |
2,170 | 2,059 | 5.4 | |||||||||
Express expenses: |
||||||||||||
Fuel |
197 | 171 | 15.5 | |||||||||
Other |
497 | 483 | 2.9 | |||||||||
Total Express expenses |
694 | 654 | 6.2 | |||||||||
Total operating expenses |
$ | 2,864 | $ | 2,713 | 5.6 | |||||||
Total operating expenses were $2.86 billion in the third quarter of 2010, an increase of $151
million, or 5.6%, compared to the 2009 period. Mainline operating expenses were $2.17 billion in
the third quarter of 2010, an increase of $111 million, or 5.4%, from the 2009 period, while
mainline capacity increased 2.3%.
The 2010 period included $3 million in other net special charges. The 2009 period included net
special charges of $15 million, consisting of $10 million in aircraft costs as a result of capacity
reductions and $5 million in severance and other charges.
Our mainline CASM excluding special items, fuel and profit sharing, decreased 0.13 cents, or
1.6%, from 8.06 cents in the third quarter of 2009 to 7.93 cents in the third quarter of 2010. The
decrease in the 2010 period was primarily due to our ability to keep costs flat while increasing
mainline capacity by 2.3%.
The table below sets forth the major components of our total mainline CASM and our mainline
CASM excluding special items, fuel and profit sharing for the three months ended September 30, 2010
and 2009:
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In cents) | ||||||||||||
Mainline CASM: |
||||||||||||
Aircraft fuel and related taxes |
3.26 | 2.85 | 14.4 | |||||||||
Loss on fuel hedging instruments, net |
| 0.01 | nm | |||||||||
Salaries and related costs |
3.03 | 2.96 | 2.4 | |||||||||
Aircraft rent |
0.88 | 0.91 | (4.0 | ) | ||||||||
Aircraft maintenance |
0.83 | 0.93 | (10.1 | ) | ||||||||
Other rent and landing fees |
0.75 | 0.79 | (5.6 | ) | ||||||||
Selling expenses |
0.62 | 0.53 | 16.2 | |||||||||
Special items, net |
0.01 | 0.08 | (82.4 | ) | ||||||||
Depreciation and amortization |
0.34 | 0.34 | | |||||||||
Other |
1.62 | 1.60 | 1.0 | |||||||||
Total mainline CASM |
11.34 | 11.00 | 3.1 | |||||||||
Special items, net |
(0.01 | ) | (0.08 | ) | ||||||||
Aircraft fuel and related taxes |
(3.26 | ) | (2.85 | ) | ||||||||
Loss on fuel hedging instruments, net |
| (0.01 | ) | |||||||||
Profit sharing |
(0.13 | ) | | |||||||||
Total mainline CASM excluding special items, fuel and profit sharing (1) |
7.93 | 8.06 | (1.6 | ) | ||||||||
(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 and profit sharing 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, fuel and profit sharing to evaluate our operating performance. Amounts may not
recalculate due to rounding. |
31
Table of Contents
Significant changes in the components of mainline operating expense per ASM are as follows:
| Aircraft fuel and related taxes per ASM increased 14.4% primarily due to a 14.6% increase
in the average price per gallon of fuel to $2.17 in the third quarter of 2010 from $1.89 in
the 2009 period. A 2.2% increase in gallons of fuel consumed in the 2010 period also
contributed to the increase. |
| Salaries and related costs per ASM increased 2.4% primarily due to the accrual of $25
million for profit sharing. |
| Aircraft maintenance expense per ASM decreased 10.1% in the 2010 period as compared to
the 2009 period due principally to a shift in the mix of aircraft engines undergoing
maintenance, which carried lower overhaul costs. |
| Selling expenses per ASM increased 16.2% due to higher credit card fees and commissions
paid as a result of the 17.6% increase in passenger revenues in the 2010 period. |
Total Express expenses increased $40 million, or 6.2%, in the third quarter of 2010 to $694
million from $654 million in the 2009 period. The period-over-period increase was primarily driven
by a $26 million increase in fuel costs. The average fuel price per gallon was $2.23 in the 2010
period, which was 15.6% higher than the average fuel price per gallon of $1.93 in the 2009 period.
Other Express expenses increased $14 million, or 2.9%, despite a 1.5% decrease in Express ASMs due
to an increase in selling expenses as a result of the 12.7% increase in passenger revenues in the
2010 period and certain fixed costs associated with capacity purchase agreements.
Nonoperating Income (Expense):
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Nonoperating income (expense): |
||||||||||||
Interest income |
$ | 2 | $ | 5 | (53.2 | ) | ||||||
Interest expense, net |
(83 | ) | (81 | ) | 2.9 | |||||||
Other, net |
7 | (10 | ) | nm | ||||||||
Total nonoperating expense, net |
$ | (74 | ) | $ | (86 | ) | (13.9 | ) | ||||
Net nonoperating expense was $74 million in the third quarter of 2010 as compared to $86
million in the 2009 period.
Other nonoperating expense, net in the 2010 period included $9 million in foreign currency
gains principally related to foreign sales and cash balances denominated in foreign currencies as
the U.S. dollar weakened during the third quarter of 2010. Other nonoperating expense, net in the
2009 period included a $6 million loss on the sale of certain aircraft equipment and $3 million in
other-than-temporary non-cash impairment charges for investments in auction rate securities.
32
Table of Contents
Nine Months Ended September 30, 2010
Compared with the
Nine Months Ended September 30, 2009
Compared with the
Nine Months Ended September 30, 2009
Operating Revenues:
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Operating revenues: |
||||||||||||
Mainline passenger |
$ | 5,800 | $ | 5,092 | 13.9 | |||||||
Express passenger |
2,114 | 1,856 | 13.9 | |||||||||
Cargo |
107 | 67 | 58.7 | |||||||||
Other |
980 | 817 | 19.9 | |||||||||
Total operating revenues |
$ | 9,001 | $ | 7,832 | 14.9 | |||||||
Total operating revenues in the first nine months of 2010 were $9 billion as compared to $7.83
billion in the 2009 period, an increase of $1.17 billion, or 14.9%. Significant changes in the
components of operating revenues are as follows:
| Mainline passenger revenues were $5.8 billion in the first nine months of 2010 as compared
to $5.09 billion in the 2009 period. Mainline RPMs increased 0.4% as mainline capacity, as
measured by ASMs, increased 0.3%, resulting in a 0.1 point increase in load factor to 82.6%.
Mainline passenger yield increased 13.4% to 12.96 cents in the first nine months of 2010 from
11.43 cents in the 2009 period. Mainline PRASM increased 13.6% to 10.71 cents in the first
nine months of 2010 from 9.43 cents in the 2009 period. These increases in mainline yield and
PRASM were due principally to an improved pricing environment driven by the improved economy
and continued industry capacity discipline. |
| Express passenger revenues were $2.11 billion in the first nine months of 2010, an
increase of $258 million from the 2009 period. Express RPMs decreased 1.9% as Express
capacity, as measured by ASMs, decreased 2.5%, resulting in a 0.5 point increase in load
factor to 74.3%. Express passenger yield increased by 16.1% to 26.74 cents in the first nine
months of 2010 from 23.04 cents in the 2009 period. Express PRASM increased 16.9% to 19.87
cents in the first nine months of 2010 from 17 cents in the 2009 period. The increases in
Express yield and PRASM were the result of the same improved pricing environment discussed in
mainline passenger revenues above. |
| Cargo revenues were $107 million in the first nine months of 2010, an increase of $40
million, or 58.7%, from the 2009 period. The increase in cargo revenues was driven primarily
by an increase in international freight volume as a result of the improved economic
environment in the 2010 period. |
| Other revenues were $980 million in the first nine months of 2010, an increase of $163
million, or 19.9%, from the 2009 period. Ancillary revenues, principally checked bag fees,
comprised approximately half of the increase. The remaining increase is primarily related to
higher revenues associated with our frequent flyer program, including increased marketing
revenues related to miles sold to business partners and increased revenues from partner
airline frequent flyer award redemptions on US Airways. |
33
Table of Contents
Operating Expenses:
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Operating expenses: |
||||||||||||
Aircraft fuel and related taxes |
$ | 1,775 | $ | 1,353 | 31.3 | |||||||
Loss (gain) on fuel hedging instruments, net: |
||||||||||||
Realized |
| 382 | nm | |||||||||
Unrealized |
| (375 | ) | nm | ||||||||
Salaries and related costs |
1,708 | 1,653 | 3.3 | |||||||||
Aircraft rent |
508 | 523 | (2.9 | ) | ||||||||
Aircraft maintenance |
479 | 532 | (10.1 | ) | ||||||||
Other rent and landing fees |
413 | 422 | (2.1 | ) | ||||||||
Selling expenses |
320 | 291 | 9.8 | |||||||||
Special items, net |
(1 | ) | 22 | nm | ||||||||
Depreciation and amortization |
189 | 185 | 2.3 | |||||||||
Other |
907 | 859 | 5.7 | |||||||||
Total mainline operating expenses |
6,298 | 5,847 | 7.7 | |||||||||
Express expenses: |
||||||||||||
Fuel |
562 | 438 | 28.3 | |||||||||
Other |
1,465 | 1,444 | 1.4 | |||||||||
Total Express expenses |
2,027 | 1,882 | 7.7 | |||||||||
Total operating expenses |
$ | 8,325 | $ | 7,729 | 7.7 | |||||||
Total operating expenses were $8.33 billion in the first nine months of 2010, an increase of
$596 million, or 7.7%, compared to the 2009 period. Mainline operating expenses were $6.3 billion
in the first nine months of 2010, an increase of $451 million, or 7.7%, from the 2009 period, while
mainline capacity increased 0.3%.
The 2010 period included $1 million of net special credits, consisting of a $16 million refund
of ASIF paid to the TSA during the years 2005 to 2009, offset by other net special charges of $10
million, which included a settlement and corporate transaction costs, and $5 million in aircraft
costs as a result of previously announced capacity reductions. This compares to net special charges
of $22 million in the 2009 period, consisting of $16 million in aircraft costs as a result of
capacity reductions and $6 million in severance and other charges.
Our mainline CASM excluding special items, fuel and profit sharing, was flat in the first nine
months of 2010 while mainline capacity increased by 0.3%.
The table below sets forth the major components of our total mainline CASM and our mainline
CASM excluding special items, fuel and profit sharing for the nine months ended September 30, 2010
and 2009:
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In cents) | ||||||||||||
Mainline CASM: |
||||||||||||
Aircraft fuel and related taxes |
3.28 | 2.50 | 30.9 | |||||||||
Loss on fuel hedging instruments, net |
| 0.01 | nm | |||||||||
Salaries and related costs |
3.15 | 3.06 | 3.0 | |||||||||
Aircraft rent |
0.94 | 0.97 | (3.2 | ) | ||||||||
Aircraft maintenance |
0.88 | 0.99 | (10.3 | ) | ||||||||
Other rent and landing fees |
0.76 | 0.78 | (2.3 | ) | ||||||||
Selling expenses |
0.59 | 0.54 | 9.5 | |||||||||
Special items, net |
| 0.04 | nm | |||||||||
Depreciation and amortization |
0.35 | 0.34 | 2.0 | |||||||||
Other |
1.68 | 1.59 | 5.4 | |||||||||
Total mainline CASM |
11.63 | 10.82 | 7.4 | |||||||||
Special items, net |
| (0.04 | ) | |||||||||
Aircraft fuel and related taxes |
(3.28 | ) | (2.50 | ) | ||||||||
Loss on fuel hedging instruments, net |
| (0.01 | ) | |||||||||
Profit sharing |
(0.08 | ) | | |||||||||
Total mainline CASM excluding special items, fuel and profit sharing (1) |
8.27 | 8.27 | | |||||||||
(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 and profit sharing 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, fuel and profit sharing to evaluate our operating
performance. Amounts may not recalculate due to rounding. |
34
Table of Contents
Significant changes in the components of mainline operating expense per ASM are as follows:
| Aircraft fuel and related taxes per ASM increased 30.9% primarily due to a 32.4% increase
in the average price per gallon of fuel to $2.19 in the first nine months of 2010 from $1.65
in the 2009 period. A 0.8% decrease in gallons of fuel consumed in the 2010 period partially
offset the increase. |
| Salaries and related costs per ASM increased 3% primarily due to the accrual of $43
million for profit sharing. |
| Aircraft maintenance expense per ASM decreased 10.3% in the 2010 period as compared to
the 2009 period due to a shift in the mix of aircraft engines undergoing maintenance, which
carried lower overhaul costs as well as a decrease in the number of engine overhauls
performed. |
| Selling expenses per ASM increased 9.5% due to higher credit card fees and commissions
paid as a result of the 13.9% increase in passenger revenues in the 2010 period. |
| Other expense per ASM increased 5.4% primarily due to higher costs associated with our
frequent traveler program, principally an increase in the incremental cost of providing
transportation for travel awards as a result of higher fuel costs in the 2010 period. |
Total Express expenses increased $145 million, or 7.7%, in the first nine months of 2010 to
$2.03 billion from $1.88 billion in the 2009 period. The period-over-period increase was primarily
driven by a $124 million increase in fuel costs. The average fuel price per gallon was $2.24 in the
2010 period, which was 30.9% higher than the average fuel price per gallon of $1.71 in the 2009
period. Other Express expenses increased $21 million, or 1.4%, despite a 2.5% decrease in Express
ASMs due to an increase in selling expenses as a result of the 13.9% increase in passenger revenues
in the 2010 period and certain contractual rate increases and fixed costs associated with capacity
purchase agreements.
Nonoperating Income (Expense):
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Nonoperating income (expense): |
||||||||||||
Interest income |
$ | 11 | $ | 17 | (36.9 | ) | ||||||
Interest expense, net |
(252 | ) | (229 | ) | 9.8 | |||||||
Other, net |
41 | (16 | ) | nm | ||||||||
Total nonoperating expense, net |
$ | (200 | ) | $ | (228 | ) | (12.2 | ) | ||||
Net nonoperating expense was $200 million in the first nine months of 2010 as compared to $228
million in the 2009 period. Interest expense, net increased $23 million due to an increase in the
average debt balance outstanding in 2010 primarily as a result of liquidity raising initiatives
completed throughout 2009.
Other nonoperating expense, net in the 2010 period included $53 million of net realized gains
related to sales of certain investments in auction rate securities, offset by $12 million in net
foreign currency losses as a result of the overall strengthening of the U.S. dollar during the
first nine months of 2010. Other nonoperating expense, net in the 2009 period included $10 million
in other-than-temporary non-cash impairment charges for investments in auction rate securities, a
$6 million loss on the sale of certain aircraft equipment and a $2 million non-cash asset
impairment charge. The sales of auction rate securities are discussed in more detail under
Liquidity and Capital Resources.
35
Table of Contents
US Airways Results of Operations
In the three months ended September 30, 2010, US Airways realized operating income of $311
million and income before income taxes of $264 million. US Airways experienced year-over-year
growth in revenues as a result of the improved economy and improved pricing environment as the
industry continued to maintain capacity discipline. US Airways also experienced moderate fuel
costs. US Airways third quarter 2010 results were also impacted by recognition of $3 million in
other net special charges.
In the three months ended September 30, 2009, US Airways realized operating income of $1
million and a loss before income taxes of $68 million. US Airways experienced significant declines
in revenues in the third quarter of 2009 as a result of the global economic recession. US Airways
third quarter 2009 results were also impacted by recognition of the following special items:
| $48 million of net unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments. These unrealized gains
were due primarily to the reversal of unrealized losses recognized in prior periods as hedge
transactions settled in the 2009 period; |
| $15 million of net special charges, consisting of $10 million in aircraft costs as a
result of capacity reductions and $5 million in severance and other charges; and |
| $3 million in other-than-temporary non-cash impairment charges for investments in auction
rate securities, included in nonoperating expense, net. |
In the first nine months of 2010, US Airways realized operating income of $662 million and
income before income taxes of $536 million, which was driven by the economic improvement and other
factors described above. US Airways results for the first nine months of 2010 were also impacted
by recognition of the following special items:
| $1 million of net special credits, consisting of a $16 million refund of Aviation Security
Infrastructure Fees (ASIF) paid to the Transportation Security Administration (TSA)
during the years 2005 to 2009, offset by other net special charges of $10 million, which
included a settlement and corporate transaction costs, and $5 million in aircraft costs as a
result of previously announced capacity reductions; and |
| $53 million of net realized gains related to sales of certain investments in auction rate
securities, included in nonoperating expense, net. |
In the first nine months of 2009, US Airways realized operating income of $96 million and a
loss before income taxes of $94 million. US Airways experienced significant declines in revenues in
the first nine months of 2009 as a result of the global economic recession. US Airways results for
the first nine months of 2009 were also impacted by recognition of the following special items:
| $375 million of net unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments; |
| $22 million of net special charges, consisting of $16 million in aircraft costs as a
result of capacity reductions and $6 million in severance and other charges; and |
| $10 million in other-than-temporary non-cash impairment charges for investments in auction
rate securities as well as a $2 million non-cash asset impairment charge, all 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, are 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 allowances were
$575 million and $78 million, respectively.
During the three and nine months ended September 30, 2010, US Airways utilized NOLs to reduce
its income tax obligation. Utilization of these NOLs results in a corresponding decrease in the
valuation allowance. As this valuation allowance was established through the recognition of tax
expense, the decrease in the valuation allowance offsets US Airways tax provision dollar for
dollar. During the three and nine months ended September 30, 2010, US Airways recorded $1 million
of state income tax expense related to certain states where NOLs were either limited or not
available to be used.
US Airways reported a loss in the nine months ended September 30, 2009, and US Airways did not
record a tax benefit in any 2009 period
as its net deferred tax assets which include the NOLs are subject to a full valuation
allowance.
36
Table of Contents
The table below sets forth US Airways selected mainline and Express operating data:
Percent | Percent | |||||||||||||||||||||||
Three Months Ended | Change | Nine Months Ended | Change | |||||||||||||||||||||
September 30, | Increase | September 30, | Increase | |||||||||||||||||||||
2010 | 2009 | (Decrease) | 2010 | 2009 | (Decrease) | |||||||||||||||||||
Mainline |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
16,159 | 15,719 | 2.8 | 44,742 | 44,553 | 0.4 | ||||||||||||||||||
Available seat miles (millions) (b) |
19,143 | 18,718 | 2.3 | 54,162 | 54,007 | 0.3 | ||||||||||||||||||
Passenger load factor (percent) (c) |
84.4 | 84.0 | 0.4 | pts | 82.6 | 82.5 | 0.1 | pts | ||||||||||||||||
Yield (cents) (d) |
12.79 | 11.18 | 14.4 | 12.96 | 11.43 | 13.4 | ||||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
10.79 | 9.39 | 15.0 | 10.71 | 9.43 | 13.6 | ||||||||||||||||||
Aircraft at end of period |
339 | 348 | (2.6 | ) | 339 | 348 | (2.6 | ) | ||||||||||||||||
Fuel consumption (gallons in millions) |
288 | 282 | 2.2 | 811 | 818 | (0.8 | ) | |||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
2.17 | 1.89 | 14.6 | 2.19 | 1.65 | 32.4 | ||||||||||||||||||
Express (f) |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
2,858 | 2,873 | (0.5 | ) | 7,906 | 8,055 | (1.9 | ) | ||||||||||||||||
Available seat miles (millions) (b) |
3,729 | 3,785 | (1.5 | ) | 10,639 | 10,917 | (2.5 | ) | ||||||||||||||||
Passenger load factor (percent) (c) |
76.6 | 75.9 | 0.7 | pts | 74.3 | 73.8 | 0.5 | pts | ||||||||||||||||
Yield (cents) (d) |
26.11 | 23.06 | 13.2 | 26.74 | 23.04 | 16.1 | ||||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
20.01 | 17.50 | 14.3 | 19.87 | 17.00 | 16.9 | ||||||||||||||||||
Aircraft at end of period |
281 | 288 | (2.4 | ) | 281 | 288 | (2.4 | ) | ||||||||||||||||
Fuel consumption (gallons in millions) |
88 | 89 | (0.1 | ) | 251 | 256 | (2.0 | ) | ||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
2.23 | 1.93 | 15.8 | 2.24 | 1.71 | 31.2 | ||||||||||||||||||
Total Mainline and Express |
||||||||||||||||||||||||
Revenue passenger miles (millions) (a) |
19,017 | 18,592 | 2.3 | 52,648 | 52,608 | 0.1 | ||||||||||||||||||
Available seat miles (millions) (b) |
22,872 | 22,503 | 1.6 | 64,801 | 64,924 | (0.2 | ) | |||||||||||||||||
Passenger load factor (percent) (c) |
83.1 | 82.6 | 0.5 | pts | 81.2 | 81.0 | 0.2 | pts | ||||||||||||||||
Yield (cents) (d) |
14.79 | 13.01 | 13.6 | 15.03 | 13.21 | 13.8 | ||||||||||||||||||
Passenger revenue per available seat mile (cents) (e) |
12.30 | 10.75 | 14.4 | 12.21 | 10.70 | 14.1 | ||||||||||||||||||
Total revenue per available seat mile (cents) (g) |
14.06 | 12.26 | 14.7 | 14.06 | 12.24 | 14.9 | ||||||||||||||||||
Aircraft at end of period |
620 | 636 | (2.5 | ) | 620 | 636 | (2.5 | ) | ||||||||||||||||
Fuel consumption (gallons in millions) |
376 | 371 | 1.6 | 1,062 | 1,074 | (1.1 | ) | |||||||||||||||||
Average aircraft fuel price including related taxes
(dollars per gallon) |
2.18 | 1.90 | 14.8 | 2.20 | 1.67 | 32.1 |
(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 September 30, 2010
Compared with the
Three Months Ended September 30, 2009
Compared with the
Three Months Ended September 30, 2009
Operating Revenues:
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Operating revenues: |
||||||||||||
Mainline passenger |
$ | 2,066 | $ | 1,757 | 17.6 | |||||||
Express passenger |
746 | 662 | 12.7 | |||||||||
Cargo |
37 | 23 | 60.5 | |||||||||
Other |
368 | 316 | 16.3 | |||||||||
Total operating revenues |
$ | 3,217 | $ | 2,758 | 16.6 | |||||||
Total operating revenues in the third quarter of 2010 were $3.22 billion as compared to $2.76
billion in the 2009 period, an increase of $459 million, or 16.6%. Significant changes in the
components of operating revenues are as follows:
| Mainline passenger revenues were $2.07 billion in the third quarter of 2010 as compared to
$1.76 billion in the 2009 period. Mainline RPMs increased 2.8% as mainline capacity, as
measured by ASMs, increased 2.3%, resulting in a 0.4 point increase in load factor to 84.4%.
Mainline passenger yield increased 14.4% to 12.79 cents in the third quarter of 2010 from
11.18 cents in the 2009 period. Mainline PRASM increased 15% to 10.79 cents in the third
quarter of 2010 from 9.39 cents in the 2009 period. These increases in mainline yield and
PRASM were due principally to an improved pricing environment driven by the improved economy
and continued industry capacity discipline. |
| Express passenger revenues were $746 million in the third quarter of 2010, an increase of
$84 million from the 2009 period. Express RPMs decreased 0.5% as Express capacity, as
measured by ASMs, decreased 1.5%, resulting in a 0.7 point increase in load factor to 76.6%.
Express passenger yield increased by 13.2% to 26.11 cents in the third quarter of 2010 from
23.06 cents in the 2009 period. Express PRASM increased 14.3% to 20.01 cents in the third
quarter of 2010 from 17.5 cents in the 2009 period. The increases in Express yield and PRASM
were the result of the same improved pricing environment discussed in mainline passenger
revenues above. |
| Cargo revenues were $37 million in the third quarter of 2010, an increase of $14 million,
or 60.5%, from the 2009 period. The increase in cargo revenues was driven primarily by an
increase in international freight volume as a result of the improved economic environment in
the 2010 period. |
| Other revenues were $368 million in the third quarter of 2010, an increase of $52 million,
or 16.3%, from the 2009 period. Ancillary revenues, principally checked bag fees, comprised
approximately half of the increase. The remaining increase is primarily related to higher
revenues associated with US Airways frequent flyer program, including increased marketing
revenues related to miles sold to business partners and increased revenues from partner
airline frequent flyer award redemptions on US Airways. |
38
Table of Contents
Operating Expenses:
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Operating expenses: |
||||||||||||
Aircraft fuel and related taxes |
$ | 625 | $ | 534 | 17.0 | |||||||
Loss (gain) on fuel hedging instruments, net: |
||||||||||||
Realized |
| 50 | nm | |||||||||
Unrealized |
| (48 | ) | nm | ||||||||
Salaries and related costs |
579 | 553 | 4.7 | |||||||||
Aircraft rent |
168 | 171 | (1.8 | ) | ||||||||
Aircraft maintenance |
160 | 174 | (8.1 | ) | ||||||||
Other rent and landing fees |
143 | 148 | (3.4 | ) | ||||||||
Selling expenses |
118 | 99 | 18.8 | |||||||||
Special items, net |
3 | 15 | (82.0 | ) | ||||||||
Depreciation and amortization |
67 | 65 | 3.0 | |||||||||
Other |
316 | 307 | 3.0 | |||||||||
Total mainline operating expenses |
2,179 | 2,068 | 5.3 | |||||||||
Express expenses: |
||||||||||||
Fuel |
197 | 171 | 15.8 | |||||||||
Other |
530 | 518 | 2.4 | |||||||||
Total Express expenses |
727 | 689 | 5.7 | |||||||||
Total operating expenses |
$ | 2,906 | $ | 2,757 | 5.4 | |||||||
Total operating expenses were $2.91 billion in the third quarter of 2010, an increase of $149
million, or 5.4%, compared to the 2009 period. Mainline operating expenses were $2.18 billion in
the third quarter of 2010, an increase of $111 million, or 5.3%, from the 2009 period.
The 2010 period included $3 million in other net special charges. The 2009 period included net
special charges of $15 million, consisting of $10 million in aircraft costs as a result of capacity
reductions and $5 million in severance and other charges.
Significant changes in the components of mainline operating expenses are as follows:
| Aircraft fuel and related taxes increased 17% primarily due to a 14.6% increase in the
average price per gallon of fuel to $2.17 in the third quarter of 2010 from $1.89 in the
2009 period. A 2.2% increase in gallons of fuel consumed in the 2010 period also contributed
to the increase. |
| Salaries and related costs increased 4.7% primarily due to the accrual of $25 million for
profit sharing. |
| Aircraft maintenance expense decreased 8.1% in the 2010 period as compared to the 2009
period due principally to a shift in the mix of aircraft engines undergoing maintenance,
which carried lower overhaul costs. |
| Selling expenses increased 18.8% due to higher credit card fees and commissions paid as a
result of the 17.6% increase in passenger revenues in the 2010 period. |
Total Express expenses increased $38 million, or 5.7%, in the third quarter of 2010 to $727
million from $689 million in the 2009 period. The period-over-period increase was primarily driven
by a $26 million increase in fuel costs. The average fuel price per gallon was $2.23 in the 2010
period, which was 15.8% higher than the average fuel price per gallon of $1.93 in the 2009 period.
Other Express expenses increased $12 million, or 2.4%, despite a 1.5% decrease in Express ASMs due
to an increase in selling expenses as a result of the 12.7% increase in passenger revenues in the
2010 period and certain fixed costs associated with capacity purchase agreements.
39
Table of Contents
Nonoperating Income (Expense):
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Nonoperating income (expense): |
||||||||||||
Interest income |
$ | 2 | $ | 5 | (53.2 | ) | ||||||
Interest expense, net |
(59 | ) | (64 | ) | (7.8 | ) | ||||||
Other, net |
10 | (10 | ) | nm | ||||||||
Total nonoperating expense, net |
$ | (47 | ) | $ | (69 | ) | (31.7 | ) | ||||
Net nonoperating expense was $47 million in the third quarter of 2010 as compared to $69
million in the 2009 period. Interest expense, net decreased $5 million due to a reduction in
interest-bearing intercompany payable balances.
Other nonoperating expense, net in the 2010 period included $9 million in foreign currency
gains principally related to foreign sales and cash balances denominated in foreign currencies as
the U.S. dollar weakened during the third quarter of 2010. Other nonoperating expense, net in the
2009 period included a $6 million loss on the sale of certain aircraft equipment and $3 million in
other-than-temporary non-cash impairment charges for investments in auction rate securities.
40
Table of Contents
Nine Months Ended September 30, 2010
Compared with the
Nine Months Ended September 30, 2009
Compared with the
Nine Months Ended September 30, 2009
Operating Revenues:
Percent Change |
||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Operating revenues: |
||||||||||||
Mainline passenger |
$ | 5,800 | $ | 5,092 | 13.9 | |||||||
Express passenger |
2,114 | 1,856 | 13.9 | |||||||||
Cargo |
107 | 67 | 58.7 | |||||||||
Other |
1,089 | 930 | 17.0 | |||||||||
Total operating revenues |
$ | 9,110 | $ | 7,945 | 14.7 | |||||||
Total operating revenues in the first nine months of 2010 were $9.11 billion as compared to
$7.95 billion in the 2009 period, an increase of $1.17 billion, or 14.7%. Significant changes in
the components of operating revenues are as follows:
| Mainline passenger revenues were $5.8 billion in the first nine months of 2010 as compared
to $5.09 billion in the 2009 period. Mainline RPMs increased 0.4% as mainline capacity, as
measured by ASMs, increased 0.3%, resulting in a 0.1 point increase in load factor to 82.6%.
Mainline passenger yield increased 13.4% to 12.96 cents in the first nine months of 2010 from
11.43 cents in the 2009 period. Mainline PRASM increased 13.6% to 10.71 cents in the first
nine months of 2010 from 9.43 cents in the 2009 period. These increases in mainline yield and
PRASM were due principally to an improved pricing environment driven by the improved economy
and continued industry capacity discipline. |
| Express passenger revenues were $2.11 billion in the first nine months of 2010, an
increase of $258 million from the 2009 period. Express RPMs decreased 1.9% as Express
capacity, as measured by ASMs, decreased 2.5%, resulting in a 0.5 point increase in load
factor to 74.3%. Express passenger yield increased by 16.1% to 26.74 cents in the first nine
months of 2010 from 23.04 cents in the 2009 period. Express PRASM increased 16.9% to 19.87
cents in the first nine months of 2010 from 17 cents in the 2009 period. The increases in
Express yield and PRASM were the result of the same improved pricing environment discussed in
mainline passenger revenues above. |
| Cargo revenues were $107 million in the first nine months of 2010, an increase of $40
million, or 58.7%, from the 2009 period. The increase in cargo revenues was driven primarily
by an increase in international freight volume as a result of the improved economic
environment in the 2010 period. |
| Other revenues were $1.09 billion in the first nine months of 2010, an increase of $159
million, or 17%, from the 2009 period. Ancillary revenues, principally checked bag fees,
comprised approximately half of the increase. The remaining increase is primarily related to
higher revenues associated with US Airways frequent flyer program, including increased
marketing revenues related to miles sold to business partners and increased revenues from
partner airline frequent flyer award redemptions on US Airways. |
41
Table of Contents
Operating Expenses:
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Operating expenses: |
||||||||||||
Aircraft fuel and related taxes |
$ | 1,775 | $ | 1,353 | 31.3 | |||||||
Loss (gain) on fuel hedging instruments, net: |
||||||||||||
Realized |
| 382 | nm | |||||||||
Unrealized |
| (375 | ) | nm | ||||||||
Salaries and related costs |
1,708 | 1,653 | 3.3 | |||||||||
Aircraft rent |
508 | 523 | (2.9 | ) | ||||||||
Aircraft maintenance |
479 | 532 | (10.1 | ) | ||||||||
Other rent and landing fees |
413 | 422 | (2.1 | ) | ||||||||
Selling expenses |
320 | 291 | 9.8 | |||||||||
Special items, net |
(1 | ) | 22 | nm | ||||||||
Depreciation and amortization |
196 | 192 | 2.2 | |||||||||
Other |
927 | 879 | 5.4 | |||||||||
Total mainline operating expenses |
6,325 | 5,874 | 7.7 | |||||||||
Express expenses: |
||||||||||||
Fuel |
563 | 438 | 28.6 | |||||||||
Other |
1,560 | 1,537 | 1.5 | |||||||||
Total Express expenses |
2,123 | 1,975 | 7.5 | |||||||||
Total operating expenses |
$ | 8,448 | $ | 7,849 | 7.6 | |||||||
Total operating expenses were $8.45 billion in the first nine months of 2010, an increase of
$599 million, or 7.6%, compared to the 2009 period. Mainline operating expenses were $6.33 billion
in the first nine months of 2010, an increase of $451 million, or 7.7%, from the 2009 period.
The 2010 period included $1 million of net special credits, consisting of a $16 million refund
of ASIF paid to the TSA during the years 2005 to 2009, offset by other net special charges of $10
million, which included a settlement and corporate transaction costs, and $5 million in aircraft
costs as a result of previously announced capacity reductions. This compares to net special charges
of $22 million in the 2009 period, consisting of $16 million in aircraft costs as a result of
capacity reductions and $6 million in severance and other charges.
Significant changes in the components of mainline operating expenses are as follows:
| Aircraft fuel and related taxes increased 31.3% primarily due to a 32.4% increase in the
average price per gallon of fuel to $2.19 in the first nine months of 2010 from $1.65 in the
2009 period. A 0.8% decrease in gallons of fuel consumed in the 2010 period partially offset
the increase. |
| Salaries and related costs increased 3.3% primarily due to the accrual of $43 million for
profit sharing. |
| Aircraft maintenance expense decreased 10.1% in the 2010 period as compared to the 2009
period due to a shift in the mix of aircraft engines undergoing maintenance, which carried
lower overhaul costs as well as a decrease in the number of engine overhauls performed. |
| Selling expenses increased 9.8% due to higher credit card fees and commissions paid as a
result of the 13.9% increase in passenger revenues in the 2010 period. |
| Other expense increased 5.4% primarily due to higher costs associated with US Airways
frequent traveler program, principally an increase in the incremental cost of providing
transportation for travel awards as a result of higher fuel costs in the 2010 period. |
Total Express expenses increased $148 million, or 7.5%, in the first nine months of 2010 to
$2.12 billion from $1.98 billion in the 2009 period. The period-over-period increase was primarily
driven by a $125 million increase in fuel costs. The average fuel price per gallon was $2.24 in the
2010 period, which was 31.2% higher than the average fuel price per gallon of $1.71 in the 2009
period. Other Express expenses increased $23 million, or 1.5%, despite a 2.5% decrease in Express
ASMs due to an increase in selling expenses as a result of the 13.9% increase in passenger revenues
in the 2010 period and certain contractual rate increases and fixed costs associated with capacity
purchase agreements.
42
Table of Contents
Nonoperating Income (Expense):
Percent | ||||||||||||
Change | ||||||||||||
Increase | ||||||||||||
2010 | 2009 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Nonoperating income (expense): |
||||||||||||
Interest income |
$ | 11 | $ | 17 | (36.9 | ) | ||||||
Interest expense, net |
(179 | ) | (189 | ) | (5.0 | ) | ||||||
Other, net |
42 | (18 | ) | nm | ||||||||
Total nonoperating expense, net |
$ | (126 | ) | $ | (190 | ) | (33.2 | ) | ||||
Net nonoperating expense was $126 million in the first nine months of 2010 as compared to $190
million in the 2009 period. Interest expense, net decreased $10 million due to a reduction in
interest-bearing intercompany payable balances, offset by an increase in the average debt balance
outstanding in 2010 primarily as a result of liquidity raising initiatives completed throughout
2009.
Other nonoperating expense, net in the 2010 period included $53 million of net realized gains
related to sales of certain investments in auction rate securities, offset by $12 million in net
foreign currency losses as a result of the overall strengthening of the U.S. dollar during the
first nine months of 2010. Other nonoperating expense, net in the 2009 period included $10 million
in other-than-temporary non-cash impairment charges for investments in auction rate securities, a
$6 million loss on the sale of certain aircraft equipment and a $2 million non-cash asset
impairment charge. The sales of auction rate securities are discussed in more detail under
Liquidity and Capital Resources.
43
Table of Contents
Liquidity and Capital Resources
As of September 30, 2010, our cash, cash equivalents, investments in marketable securities and
restricted cash were $2.39 billion, of which $389 million was restricted. Our investments in
marketable securities included $59 million of auction rate securities at fair value ($93 million
par value) that are classified as noncurrent assets on our condensed consolidated balance sheets.
Investments in Marketable Securities
Current
As of September 30, 2010, we held $55 million of investments in debt securities, which are
classified as held-to-maturity. Held-to-maturity investments are carried at amortized cost, which
approximates fair value. These debt securities consist of investments in treasury bills with
original maturity dates of six months or less.
Noncurrent
As of September 30, 2010, we held auction rate securities with a fair value of $59 million
($93 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 23 to 42 years, with 81% of our portfolio maturing within the next 30 years
(2033 2036) and 19% maturing thereafter (2052). As a result of the liquidity issues experienced
in the global credit and capital markets, all of our auction rate securities have experienced
failed auctions since August 2007.
In the nine months ended September 30, 2010, we sold certain investments in auction rate
securities for net proceeds of $143 million, resulting in a $53 million net realized gain recorded
in nonoperating expense, net. We have now sold more than 75% of our investments in auction rate
securities which have experienced failed auctions since August of 2007.
We continue to monitor the market for auction rate securities and consider its impact (if any)
on the fair value of our remaining investments in these securities. 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, cash equivalents and short-term
investments in marketable securities balances at September 30, 2010, the current lack of liquidity
in our remaining 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 $789 million and $130 million for the first nine
months of 2010 and 2009, respectively, an improvement of $659 million. Net income for the first
nine months of 2010 was $475 million as compared to a net loss of $125 million in the 2009 period,
an improvement of $600 million.
Net cash provided by investing activities was $49 million for the first nine months of 2010 as
compared to net cash used in investing activities of $646 million for the first nine months of
2009. Principal investing activities in the 2010 period included net proceeds from sales of
marketable securities of $268 million, including sales of auction rate securities of $143 million,
and a $91 million decrease in restricted cash, offset by purchases of marketable securities of $180
million and expenditures for property and equipment totaling $133 million. Expenditures for
property and equipment related primarily to the purchase of Airbus aircraft. Restricted cash
decreased primarily due to a change 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 $731 million, primarily related to the purchase of Airbus aircraft and a $55 million
increase in equipment purchase deposits for certain aircraft on order. These cash outflows were
offset by $55 million in proceeds from dispositions of property and equipment and net sales of
investments in marketable securities of $20 million. The $55 million in proceeds from dispositions
of property and equipment 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.
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Net cash used in financing activities was $252 million for the first nine months of 2010 as
compared to net cash provided by financing activities of $724 million for the first nine months of
2009. Principal financing activities in the 2010 period included debt repayments of $367 million,
including the repurchase of $69 million aggregate principal amount of our 7% notes. Proceeds from
the issuance of debt were $120 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 $803 million, which primarily included
the issuance of $172 million of convertible notes, additional loans under a spare parts loan
agreement, a loan secured by certain airport landing slots, an unsecured financing with one of our
third party Express carriers and the financing associated with the purchase of Airbus aircraft.
Debt repayments totaled $271 million in the 2009 period. Financing activities in the 2009 period
also included net proceeds from the issuance of common stock of $66 million from a May 2009 public
offering of 17.5 million shares and $137 million from a September 2009 public offering of 29
million shares.
US Airways
Net cash provided by operating activities was $749 million and $211 million for the first nine
months of 2010 and 2009, respectively, an improvement of $538 million. Net income for the first
nine months of 2010 was $535 million as compared to a net loss of $94 million in the 2009 period,
an improvement of $629 million. US Airways operating cash flow was also impacted by net
intercompany cash transfers to US Airways Group.
Net cash provided by investing activities was $60 million for the first nine months of 2010 as
compared to net cash used in investing activities of $642 million for the first nine months of
2009. Principal investing activities in the 2010 period included net proceeds from sales of
marketable securities of $268 million, including sales of auction rate securities of $143 million,
and a $91 million decrease in restricted cash, offset by purchases of marketable securities of $180
million and expenditures for property and equipment totaling $122 million. Expenditures for
property and equipment related primarily to the purchase of Airbus aircraft. Restricted cash
decreased primarily due to a change 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 $727 million, primarily related to the purchase of Airbus aircraft and a $55 million
increase in equipment purchase deposits for certain aircraft on order. These cash outflows were
offset by $55 million in proceeds from dispositions of property and equipment and net sales of
investments in marketable securities of $20 million. The $55 million in proceeds from dispositions
of property and equipment 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 $195 million for the first nine months of 2010 as
compared to net cash provided by financing activities of $370 million for the first nine months of
2009. Principal financing activities in the 2010 period included debt repayments of $282 million
and proceeds from the issuance of debt of $90 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 $631 million, which primarily 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 $255 million in the 2009
period.
Commitments
As of September 30, 2010, we had $4.66 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 September 30, 2010, the interest rate on the Citicorp credit facility
was 2.76% based on a 2.50% LIBOR margin.
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The Citicorp credit facility matures on March 23, 2014, and is repayable in seven annual
installments with each of the first six installments to be paid on each anniversary of the closing
date in an amount equal to 1% of the initial aggregate principal amount of the loan and the final
installment to be paid on the maturity date in the amount of the full remaining balance of the
loan.
In addition, the Citicorp credit facility requires certain mandatory prepayments upon the
occurrence of 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 September 30, 2010. As of September 30, 2010, we were in compliance with all debt
covenants under the amended credit facility.
7% Senior Convertible Notes
Prior to September 30, 2010, we had $74 million of principal amount outstanding under our 7%
notes. Holders had the right to require us to purchase for cash or shares or a combination thereof,
at our election, all or a portion of their 7% notes on September 30, 2010 at a purchase price equal
to 100% of the principal amount of the 7% notes to be repurchased plus accrued and unpaid interest,
if any, to the purchase date. As of September 30, 2010, $69 million of the 7% notes outstanding
were validly surrendered for purchase and we paid $69 million in cash to satisfy the aggregate
purchase price. The principal amount of the remaining 7% notes outstanding as of September 30, 2010
was $5 million.
2010 Financing Transactions
In the first quarter of 2010, US Airways borrowed $181 million 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.
In the third quarter of 2010, US Airways Group borrowed $30 million to finance airport
construction activities in Philadelphia. These notes bear interest at fixed rates and are secured
by certain US Airways leasehold interests. The notes payable mature from 2020 to 2029.
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.
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Under all of our aircraft and engine purchase agreements, our total future commitments as of
September 30, 2010 are expected to be approximately $5.9 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.
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 September 30, 2010, we and our subsidiaries
were in compliance with the covenants in our long-term debt agreements.
The following table details our credit ratings as of September 30, 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
September 30, 2010 (in millions):
Payments Due by Period | ||||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
US Airways Group (1) |
||||||||||||||||||||||||||||
Debt (2) |
$ | | $ | 16 | $ | 116 | $ | 116 | $ | 1,276 | $ | 35 | $ | 1,559 | ||||||||||||||
Interest obligations (3) |
14 | 57 | 54 | 48 | 24 | 26 | 223 | |||||||||||||||||||||
US Airways (4) |
||||||||||||||||||||||||||||
Debt and capital lease obligations (5) (6) |
111 | 397 | 332 | 271 | 281 | 1,706 | 3,098 | |||||||||||||||||||||
Interest obligations (3) (6) |
40 | 147 | 146 | 114 | 97 | 408 | 952 | |||||||||||||||||||||
Aircraft purchase and operating lease commitments (7) |
251 | 1,524 | 1,450 | 1,867 | 1,578 | 5,770 | 12,440 | |||||||||||||||||||||
Regional capacity purchase agreements (8) |
256 | 1,050 | 915 | 783 | 783 | 2,148 | 5,935 | |||||||||||||||||||||
Other US Airways Group subsidiaries (9) |
3 | 9 | 9 | 7 | 6 | 1 | 35 | |||||||||||||||||||||
Total |
$ | 675 | $ | 3,200 | $ | 3,022 | $ | 3,206 | $ | 4,045 | $ | 10,094 | $ | 24,242 | ||||||||||||||
(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 $145 million of unamortized debt discount as of September 30, 2010. |
|
(3) | For variable-rate debt, future interest obligations are shown above using interest rates in
effect as of September 30, 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 $84 million of unamortized debt discount as of September 30, 2010. |
|
(6) | Includes $469 million of future principal payments and $190 million of future interest
payments as of September 30, 2010, respectively, related to pass through trust certificates or
EETCs associated with mortgage financings for the purchase of certain aircraft. |
|
(7) | Includes $2.98 billion of future minimum lease payments related to EETC leveraged leased
financings of certain aircraft as of September 30, 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 third quarter of 2010, there were no changes to our critical accounting policies and
estimates from those disclosed in the consolidated 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 based on this forecast, a one cent per gallon increase in aviation fuel price results
in a $14 million increase in annual expense. Since the third quarter of 2008, we have not entered
into any new transactions to hedge our fuel consumption, and we have not had any fuel hedging
contracts outstanding since the third quarter of 2009.
Interest rate risk
Our exposure to interest rate risk relates primarily to our cash equivalents, investment
portfolios and variable-rate debt obligations. At September 30, 2010, our variable-rate long-term
debt obligations of approximately $3.34 billion represented approximately 72% 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 September 30, 2010, included within our investment portfolio are investments in auction
rate securities with a fair value of $59 million ($93 million par value). As a result of the
liquidity issues experienced in the global credit and capital markets, all of our auction rate
securities have experienced failed auctions since August 2007. 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, cash equivalents and short-term
investments in marketable securities balances at September 30, 2010, the current lack of liquidity
in our remaining 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 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 September 30, 2010. Based on that evaluation, our management, including the
CEO and CFO, concluded that our disclosure controls and procedures were effective as of September
30, 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 September 30, 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 September 30,
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
our financial statements upon emergence from bankruptcy and will not have any further impact on our
financial position or results of operations. We presently expect 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 result in
the future, in decreased passenger demand for air travel and changes in booking practices, both of
which in turn have had, and may have in the future, 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 labor agreements to which we are a party limit our ability to reduce the
number of aircraft in operation, and the utilization of such aircraft, 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 refinance debt maturities, raise
capital or fund other types of obligations. Any downgrades to our credit rating may likewise
increase the cost and reduce the availability of financing.
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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, 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 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, we have from time to time entered into hedging arrangements designed to protect
against rising fuel costs. Since the third quarter of 2008, we have not entered into any new
transactions to hedge our fuel consumption, and we have not had any fuel hedging contracts
outstanding since the third quarter of 2009. 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.
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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.
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.
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We are currently in negotiations with unions representing our pilots and flight attendants,
and both negotiations are being overseen by the NMB. As a result, these unions presently 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.
The inability to maintain labor costs at competitive levels would harm our financial performance.
Currently, our labor costs are very competitive relative to the other big five hub-and-spoke
carriers. However, we cannot provide assurance 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. 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. 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 January 2010, Mesa Air Group, Inc. and its subsidiary Mesa Airlines filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code. 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 October 2010, we signed a
non-binding term sheet which outlines an agreement in principle for an extension of 39 months from the current
scheduled expiration of June 30, 2012, for the operation of 38 CRJ900 aircraft by Mesa Airlines under the companies
codeshare and revenue sharing agreement. The transaction contemplated by the term sheet is subject to a number of
conditions, including the negotiation and execution of definitive documents, approval by the US Airways and Mesa boards
of directors, US Airways approval of Mesas Plan of Reorganization, and approval by the U.S. Bankruptcy Court. We
cannot predict whether Mesa Airlines will be successfully reorganized or any other aspect of the pending bankruptcy
case, including whether or not the term sheet will be finalized as a definitive binding agreement.
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.
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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 if weakened economic conditions continue to make our
customers more sensitive to increased travel costs or provide a significant competitive advantage
to other carriers which determine not to institute similar charges.
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,
potentially, further consolidation, and could continue to have an impact on the overall performance
of US Airways Group.
Additionally, as mergers and 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 will grow
and that growth will 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.
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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 TSA and the Department of Homeland Security have issued
a number of directives and other regulations. These requirements impose substantial costs on
airlines. On October 10, 2008, the FAA finalized new rules governing flight operations at the three
major New York airports. These rules did not take effect because of a legal challenge, but the FAA
has pushed forward with a reduction in the number of flights per hour at LaGuardia. The FAA is
attempting to work with carriers on a voluntary basis to implement its new lower operations cap at
LaGuardia. If this is not successful, the FAA may resort to other methods to reduce congestion in
New York. Additionally, the DOT recently finalized a policy change that will permit airports to
charge differentiated landing fees during congested periods, which could impact our ability to
serve certain markets in the future. This decision was recently upheld by the District of Columbia
Circuit Court of Appeals. The Obama Administration has not yet indicated how it intends to move
forward on the issue of congestion management in the New York region.
The FAA from time to time issues directives and other regulations relating to the maintenance
and operation of aircraft that require significant expenditures or operational restrictions. Some
FAA requirements cover, among other things, retirement of older aircraft, security measures,
collision avoidance systems, airborne windshear avoidance systems, noise abatement, other
environmental concerns, fuel tank inerting, crew scheduling, 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.
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 that could increase the cost of airline operations or reduce revenues. The DOT has been
aggressively investigating alleged violations of the new rules. In addition, the DOT released a
second set of proposed new rules addressing concerns about how airlines handle interactions with
passengers through the reservations process, at the airport and on board the aircraft. The comment
period on the proposed rules ended in September 2010. We anticipate that any new rules will take
effect in 2011.
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.
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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 and 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 U.S., 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.
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 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.
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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.
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 an optimum
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 December 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 claims paying ability 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 a result of our international operations, we 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.
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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.
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% notes 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; |
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| 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 any amendment of our amended and restated bylaws
submitted to stockholders for approval; and |
| super-majority voting requirements to modify or amend specified provisions of US Airways
Groups amended and restated certificate of incorporation. |
These provisions are not intended to prevent a takeover, but are intended to protect and
maximize the value of US Airways Groups stockholders interests. While these provisions have the
effect of encouraging persons seeking to acquire control of our company to negotiate with our board
of directors, they could enable our board of directors to prevent a transaction that some, or a
majority, of our stockholders might believe to be in their best interests and, in that case, may
prevent or discourage attempts to remove and replace incumbent directors. In addition, US Airways
Group is subject to the provisions of Section 203 of the Delaware General Corporation Law, which
prohibits business combinations with interested stockholders. Interested stockholders do not
include stockholders 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 DOT, its predecessors and
successors, from time to time), including any agent, trustee or representative of such person or
entity (a non-citizen), shall not own (beneficially or of record) and/or control more than
(a) 24.9% of the aggregate votes of all of our outstanding equity securities (as defined, which
definition includes our capital stock, securities convertible into or exchangeable for shares of
our capital stock, including our outstanding convertible notes, and any options, warrants or other
rights to acquire capital stock) (the voting cap amount) or (b) 49.9% of our outstanding equity
securities (the absolute cap amount). If non-citizens nonetheless at any time own and/or control
more than the voting cap amount, the voting rights of the equity securities in excess of the voting
cap amount shall be automatically suspended in accordance with the provisions of our bylaws. Voting
rights of equity securities, if any, owned (beneficially or of record) by non-citizens shall be
suspended in reverse chronological order based upon the date of registration in the foreign stock
record. Further, if at any time a transfer of equity securities to a non-citizen would result in
non-citizens owning more than the absolute cap amount, such transfer shall be void and of no
effect, in accordance with provisions of our bylaws. Certificates for our equity securities must
bear a legend set forth in our amended and restated certificate of incorporation stating that such
equity securities are subject to the foregoing restrictions. Under our bylaws, it is the duty of
each stockholder who is a non-citizen to register his, her or its equity securities on our foreign
stock record. In addition, our bylaws provide that in the event that non-citizens shall own
(beneficially or of record) or have voting control over any equity securities, the voting rights of
such persons shall be subject to automatic suspension to the extent required to ensure that we are
in compliance with applicable provisions of law and regulations relating to ownership or control of
a United States air carrier. In the event that we determine that the equity securities registered
on the foreign stock record or the stock records of the Company exceed the absolute cap amount,
sufficient shares shall be removed from the foreign stock record and the stock records of the
Company so that the number of shares entered therein does not exceed the absolute cap amount.
Shares of equity securities shall be removed from the foreign stock record and the stock records of
the Company in reverse chronological order based on the date of registration in the foreign stock
record and the stock records of the Company.
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Item 6. Exhibits
Exhibit No. | Description | |||
10.1 | Letter
Agreement by and among US Airways
Group, Inc., US Airways, Inc. and C.A. Howlett dated September 13, 2010. |
|||
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. |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly
caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
US Airways Group, Inc. (Registrant) |
||||
Date: October 19, 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: October 19, 2010 | By: | /s/ Derek J. Kerr | ||
Derek J. Kerr | ||||
Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
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Exhibit Index
Exhibit No. | Description | |||
10.1 | Letter
Agreement by and among US Airways
Group, Inc., US Airways, Inc. and C.A. Howlett dated September 13, 2010. |
|||
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. |
64