US AIRWAYS GROUP INC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - US AIRWAYS GROUP INC	Financial_Report.xls
EX-31.3 - EX-31.3 - US AIRWAYS GROUP INC	d505866dex313.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2013

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

US Airways Group, Inc.

(Exact name of registrant as specified in its charter)

(Commission File No. 1-8444)

54-1194634 (IRS Employer Identification No.)

111 West Rio Salado Parkway, Tempe, Arizona 85281

(Address of principal executive offices, including zip code)

US Airways, Inc.

(Exact name of registrant as specified in its charter)

(Commission File No. 1-8442)

53-0218143 (IRS Employer Identification No.)

111 West Rio Salado Parkway, Tempe, Arizona 85281

(Address of principal executive offices, including zip code)

(480) 693-0800

(Registrants’ telephone number, including area code)

Delaware

(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 x No ¨

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 x No ¨

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 x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
US Airways, Inc.	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

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 ¨	No x
US Airways, Inc.	Yes ¨	No x

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 x	No ¨
US Airways, Inc.	Yes x	No ¨

As of April 19, 2013, there were approximately 163,763,824 shares of US Airways Group, Inc. common stock outstanding.

As of April 19, 2013, US Airways, Inc. had 1,000 shares of common stock outstanding, all of which were held by US Airways Group, Inc.

US Airways Group, Inc.

US Airways, Inc.

Form 10-Q

Quarterly Period Ended March 31, 2013

Table of Contents


	Page
Part I. Financial Information
Item 1A. Condensed Consolidated Financial Statements of US Airways Group, Inc.
Condensed Consolidated Statements of Operations		8
Condensed Consolidated Statements of Comprehensive Income		9
Condensed Consolidated Balance Sheets		10
Condensed Consolidated Statements of Cash Flows		11
Notes to the Condensed Consolidated Financial Statements		12
Item 1B. Condensed Financial Statements of US Airways, Inc.
Condensed Statements of Operations		17
Condensed Statements of Comprehensive Income		18
Condensed Balance Sheets		19
Condensed Statements of Cash Flows		20
Notes to the Condensed Financial Statements		21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures about Market Risk		45
Item 4. Controls and Procedures		45
Part II. Other Information
Item 1. Legal Proceedings		46
Item 1A. Risk Factors		46
Item 6. Exhibits		66
Signatures

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,” “would,” “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 that adversely affect our business;

•

the impact of the price and availability of fuel and significant disruptions in the supply of aircraft fuel;

•

competitive practices in the industry, including the impact of industry consolidation;

•

increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates;

•

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;

•

interruptions or disruptions in service at one or more of our hub airports;

•

regulatory changes affecting the allocation of slots;

•

our reliance on third-party regional operators or third-party service providers;

•

our reliance on, and costs, rights and functionality of, third-party distribution channels, including those provided by global distribution systems, conventional travel agents and online travel agents;

•

the impact of extensive government regulation;

•

the impact of heavy taxation;

•

the impact of changes to our business model;

•

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;

•

our ability to operate and grow our route network;

•

the impact of environmental regulation;

•

our reliance on technology and automated systems and the impact of any failure or disruption of, or delay in, these technologies or systems;

•

costs of ongoing data security compliance requirements and the impact of any significant data security breach;

•

the impact of any accident involving our aircraft or the aircraft of our regional operators;

•

delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity;

•

our dependence on a limited number of suppliers for aircraft, aircraft engines and parts;

•

the impact of changing economic and other conditions and the seasonality of our business;

•

the impact of possible future increases in insurance costs or reductions in available insurance coverage;

•

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 net operating losses (“NOLs”) and certain other tax attributes;

•

risks relating to our anticipated merger with AMR Corporation (“AMR”);

•

risks relating to our common stock, market factors affecting the price of our common stock, and the rights of stockholders; 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.

Recent Developments

Merger Agreement with AMR Corporation

On February 13, 2013, AMR Corporation, a Delaware corporation (“AMR”), US Airways Group, and AMR Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of AMR (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), providing for a business combination of AMR and US Airways Group. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into US Airways Group (the “Merger”), with US Airways Group as the surviving corporation and as a wholly owned subsidiary of AMR. The Merger Agreement and the transactions contemplated thereby, including the Merger, are subject to the approval of the Bankruptcy Court (as defined below), and are to be effected pursuant to a plan of reorganization (the “Plan”) of AMR and certain of its direct and indirect domestic subsidiaries (the “Debtors”) in connection with their currently pending cases under Chapter 11 of Title 11 of U.S. Code, 11 U.S.C. Sections 101 et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Plan is subject to confirmation and consummation in accordance with the requirements of the Bankruptcy Code.

Subject to the terms and conditions of the Merger Agreement, which has been approved by the boards of directors of the respective parties, if the Merger is completed, US Airways Group stockholders will receive one share of common stock of AMR (“New American Common Stock”) for each share of US Airways Group common stock. The aggregate number of shares of New American Common Stock issuable to holders of US Airways Group equity instruments (including stockholders, holders of convertible notes, optionees and holders of restricted stock units) will represent 28% of the diluted capitalization of AMR after giving effect to the Plan. The remaining 72% equity ownership of AMR will be distributable, pursuant to the Plan, to the Debtors’ stakeholders, labor unions and certain employees.

All of the equity interests in the reorganized AMR will be issued solely pursuant to the Merger Agreement or the Plan. All existing AMR common stock and other equity interests in AMR will be cancelled pursuant to the Plan, although such AMR equity holders are expected to receive a recovery in the form of New American Common Stock.

The Merger is intended to qualify, for federal income tax purposes, as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

The Merger Agreement provides that, upon consummation of the Merger, the board of directors of the combined company will initially consist of 12 members, composed of (i) Thomas W. Horton, AMR’s current chairman, chief executive officer and president, who will serve as chairman of the combined company until the earlier of (A) one year after the closing of the Merger and (B) the day immediately prior to the first annual meeting of stockholders of the combined company (provided that such meeting will not occur prior to May 1, 2014), (ii) W. Douglas Parker, US Airways Group’s current chief executive officer, who will serve as chief executive officer of the combined company and will serve as chairman of the combined company following the end of Mr. Horton’s term, (iii) two independent directors designated by AMR, (iv) three independent directors designated by US Airways Group, and (v) five independent directors designated by a search committee consisting of representatives of the Official Committee of Unsecured Creditors of the Debtors and certain representatives of creditors signatory to support agreements with AMR, one of whom will serve as lead independent director. Subject to applicable law, prior to the Merger, Messrs. Horton and Parker will engage in a planning process for integration purposes. The combined company will have its corporate headquarters at AMR’s current corporate headquarters in Ft. Worth, Texas. Immediately after the effective time of the Merger, AMR will change its name to “American Airlines Group Inc.”

AMR and US Airways Group have each made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants (i) to conduct their businesses in the ordinary and usual course between the execution of the Merger Agreement and the consummation of the Merger and (ii) not to solicit alternative business combination transactions. In addition, the Merger Agreement contains “no shop” provisions that restrict each party’s ability to initiate, solicit or knowingly encourage or facilitate competing third-party proposals for any transaction involving a merger of such party or the acquisition of a significant portion of its stock or assets, although each party may consider competing, unsolicited proposals and enter into discussions or negotiations regarding such proposals, if its board of directors determines that any such acquisition proposal constitutes, or is reasonably likely to lead to, a superior proposal and that the failure to take such action is reasonably likely to be inconsistent with its fiduciary duties under applicable law.

US Airways Group has agreed to certain additional customary covenants in the Merger Agreement, including, among others, subject to certain exceptions, (i) to cause a stockholder meeting to be held to consider adoption of the Merger Agreement and (ii) for its board of directors to recommend adoption of the Merger Agreement by US Airways Group’s stockholders. AMR has also agreed to certain additional customary covenants in the Merger Agreement, including, among others, subject to certain exceptions, (i) to pursue confirmation of the Plan and (ii) for its board of directors to recommend adoption of the Merger Agreement by the Debtors’ stakeholders.

Consummation of the Merger is subject to customary conditions, including, among others, (i) approval of the stockholders of US Airways Group, (ii) expiration or termination of the applicable Hart-Scott-Rodino Act waiting period and the receipt of certain other regulatory approvals, (iii) absence of any order or injunction prohibiting the consummation of the Merger, (iv) Bankruptcy Court confirmation of the Plan, which shall contain certain specified provisions agreed to pursuant to the Merger Agreement, (v) subject to certain exceptions, the accuracy of representations and warranties with respect to the business of AMR or US Airways Group, as applicable, (vi) each of AMR and US Airways Group having performed their respective obligations pursuant to the Merger Agreement, and (vii) receipt by each of AMR and US Airways Group of a customary tax opinion.

The Merger Agreement contains certain termination rights for AMR and US Airways Group, and further provides that, upon termination of the Merger Agreement under specified circumstances, (i) AMR may be required to pay US Airways Group a termination fee of $135 million in the event it terminates the agreement to enter into a superior proposal and $195 million if US Airways Group terminates the Merger Agreement in the event of a knowing and deliberate breach of the Merger Agreement by AMR and (ii) US Airways Group may be required to pay AMR a termination fee of $55 million in the event it terminates the agreement to enter into a superior proposal and $195 million if AMR terminates the Merger Agreement in the event of a knowing and deliberate breach of the Merger Agreement by US Airways Group.

The foregoing description of the Merger Agreement is not a complete description of all of the parties’ rights and obligations under the Merger Agreement and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 to the 2012 Form 10-K and is incorporated herein by reference. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of that agreement and as of specific dates; were solely for the benefit of the parties to the Merger Agreement; may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures made by each contracting party to the other for the purposes of allocating contractual risk between them that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of AMR, US Airways Group or any of their respective subsidiaries, affiliates or businesses. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by AMR or US Airways Group. Accordingly, investors should read the representations and warranties in the Merger Agreement not in isolation but only in conjunction with the other information about AMR or US Airways Group and their respective subsidiaries that the respective companies include in reports, statements and other filings they make with the SEC.

Tax Benefit Preservation Plan

In conjunction with execution of the Merger Agreement, US Airways Group also adopted a tax benefit preservation plan designed to help preserve the value of the net operating losses and other deferred tax benefits of US Airways Group and the combined enterprise resulting from the Merger with AMR. As part of the plan, the US Airways Group’s board of directors declared a dividend of one common stock purchase right, which are referred to as “rights,” for each outstanding share of US Airways Group common stock. The rights will be exercisable if a person or group, without the approval of the US Airways Group board or other permitted exception, acquires beneficial ownership of 4.9% or more of US Airways Group’s outstanding common stock. The rights also will be exercisable if a person or group that already beneficially owns 4.9% or more of the common stock of US Airways Group, without board approval or other permitted exception, acquires additional shares (other than as a result of a dividend or a stock split).

US Airways Group stockholders with ownership positions near or above the 4.9% threshold specified in the tax benefit preservation plan are urged to review its terms carefully. The foregoing description of the tax benefit preservation plan is not a complete description of all of the parties’ rights and obligations under the plan and is qualified in its entirety by reference to the Tax Benefit Preservation Plan which is filed as Exhibit 4.10 to the 2012 Form 10-K.

Additional Information and Where to Find It

This Form 10-Q does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. The proposed merger transaction between AMR and US Airways Group will be submitted to the stockholders of US Airways Group for their consideration. AMR has filed with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-4, which includes a preliminary proxy statement of US Airways Group that also constitutes a prospectus of AMR. US Airways Group expects to file with the SEC a definitive proxy statement on Schedule 14A, and AMR and US Airways Group also plan to file other documents with the SEC regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS OF US AIRWAYS GROUP ARE URGED TO READ THE PRELIMINARY PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS THAT WILL BE FILED WITH THE SEC (INCLUDING THE DEFINITIVE PROXY STATEMENT/PROSPECTUS) CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of the preliminary proxy statement/prospectus and other documents containing important information about AMR and US Airways Group (including the definitive proxy statement/prospectus), once such documents are filed with the SEC, through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by US Airways Group, when and if available, can be obtained free of charge on US Airways Group’s website at www.usairways.com or by directing a written request to US Airways Group, Inc., 111 West Rio Salado Parkway, Tempe, Arizona 85281, Attention: Vice President, Legal Affairs. Copies of the documents filed with the SEC by AMR, when and if available, can be obtained free of charge on AMR’s website at www.aa.com or by directing a written request to AMR Corporation, P.O. Box 619616, MD 5675, Dallas/Fort Worth International Airport, Texas 75261-9616, Attention: Investor Relations or by emailing investor.relations@aa.com.

US Airways Group, AMR and certain of their respective directors, executive officers and certain members of management may be deemed to be participants in the solicitation of proxies from the stockholders of US Airways Group in connection with the proposed transaction. Information about the directors and executive officers of US Airways Group is set forth in its Annual Report on Form 10-K/A, which was filed with the SEC on April 16, 2013, and the preliminary proxy statement/prospectus related to the proposed transaction, which was filed with the SEC on April 15, 2013. Information about the directors and executive officers of AMR is set forth in its Annual Report on Form 10-K/A, which was filed with the SEC on April 16, 2013, and the preliminary proxy statement/prospectus related to the proposed transaction, which was filed with the SEC on April 15, 2013. These documents can be obtained free of charge from the sources indicated above. Other information regarding the participants in the proxy solicitation may also be included in the definitive proxy statement/prospectus and other relevant materials when and if filed with the SEC in connection with the proposed transaction.

Information regarding US Airways Group and US Airways contained in this Form 10-Q is provided for the quarter ended March 31, 2013. Except as otherwise expressly noted herein, the information contained herein assumes that the Merger has not been consummated and does not describe or discuss the potential impact of the proposed Merger on US Airways Group, US Airways, their respective consolidated subsidiaries or their business, operations, financial performance, or future prospects. Any such information will be contained only in the proxy and/or registration statement that may be filed with the SEC and, if so, may be obtained as described above. Readers are cautioned to read such documents carefully if and when they are filed.

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.

Item 1A. Condensed Consolidated Financial Statements of US Airways Group, Inc.

US Airways Group, Inc.

Condensed Consolidated Statements of Operations

(In millions, except share and per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2013			2012
Operating revenues:
Mainline passenger	$	2,197		$	2,117
Express passenger		758			764
Cargo		41			40
Other		384			345

Total operating revenues		3,380			3,266
Operating expenses:
Aircraft fuel and related taxes		861			859
Salaries and related costs		636			606
Express expenses		795			802
Aircraft rent		154			162
Aircraft maintenance		166			163
Other rent and landing fees		143			140
Selling expenses		113			111
Special items, net		39			3
Depreciation and amortization		67			61
Other		303			300

Total operating expenses		3,277			3,207

Operating income		103			59
Nonoperating income (expense):
Interest income		—			—
Interest expense, net		(84	)		(82	)
Other, net		25			71

Total nonoperating expense, net		(59	)		(11	)

Income before income taxes		44			48
Income tax provision		—			—

Net income	$	44		$	48

Earnings per common share:
Basic earnings per common share	$	0.27		$	0.30
Diluted earnings per common share	$	0.26		$	0.28
Shares used for computation (in thousands):
Basic		162,902			162,130
Diluted		206,748			201,814

See accompanying notes to the condensed consolidated financial statements.

US Airways Group, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2013		2012
Net income	$	44	$	48
Total other comprehensive income		—		—

Total comprehensive income	$	44	$	48

See accompanying notes to the condensed consolidated financial statements.

US Airways Group, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share and per share amounts)

(Unaudited)


	March 31, 2013			December 31, 2012
ASSETS
Current assets
Cash and cash equivalents	$	2,428		$	2,276
Investments in marketable securities		100			100
Accounts receivable, net		490			298
Materials and supplies, net		335			300
Prepaid expenses and other		715			608

Total current assets		4,068			3,582
Property and equipment
Flight equipment		5,453			5,188
Ground property and equipment		1,032			1,005
Less accumulated depreciation and amortization		(1,795	)		(1,733	)

		4,690			4,460
Equipment purchase deposits		269			244

Total property and equipment		4,959			4,704
Other assets
Other intangibles, net of accumulated amortization of $164 million and $158 million, respectively		534			539
Restricted cash		352			336
Other assets		234			235

Total other assets		1,120			1,110

Total assets	$	10,147		$	9,396

LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities
Current maturities of debt and capital leases	$	1,616		$	417
Accounts payable		389			366
Air traffic liability		1,537			1,054
Accrued compensation and vacation		198			258
Accrued taxes		267			181
Other accrued expenses		1,095			1,027

Total current liabilities		5,102			3,303
Noncurrent liabilities and deferred credits
Long-term debt and capital leases, net of current maturities		3,278			4,376
Deferred gains and credits, net		281			290
Postretirement benefits other than pensions		172			172
Employee benefit liabilities and other		473			465

Total noncurrent liabilities and deferred credits		4,204			5,303
Commitments and contingencies
Stockholders’ equity
Common stock, $0.01 par value; 400,000,000 shares authorized, 163,231,675 shares issued and outstanding at March 31, 2013; 162,502,692 shares issued and outstanding at December 31, 2012		2			2
Additional paid-in capital		2,141			2,134
Accumulated other comprehensive loss		(7	)		(7	)
Accumulated deficit		(1,295	)		(1,339	)

Total stockholders’ equity		841			790

Total liabilities and stockholders’ equity	$	10,147		$	9,396

See accompanying notes to the condensed consolidated financial statements.

US Airways Group, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2013			2012
Net cash provided by operating activities	$	405		$	417
Cash flows from investing activities:
Purchases of property and equipment		(291	)		(87	)
Decrease (increase) in long-term restricted cash		(16	)		18

Net cash used in investing activities		(307	)		(69	)
Cash flows from financing activities:
Repayments of debt and capital lease obligations		(134	)		(115	)
Proceeds from issuance of debt		183			—
Proceeds from issuance of common stock, net		3			—
Deferred financing costs		(3	)		—
Airport construction obligation		5			10

Net cash provided by (used in) financing activities		54			(105	)

Net increase in cash and cash equivalents		152			243
Cash and cash equivalents at beginning of period		2,276			1,947

Cash and cash equivalents at end of period	$	2,428		$	2,190

Non-cash investing and financing activities:
Interest payable converted to debt	$	3		$	6
Note payables issued for aircraft purchases		35			—
Supplemental information:
Interest paid, net of amounts capitalized	$	39		$	45
Income taxes paid		1			—

See accompanying notes to the condensed consolidated financial statements.

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 Group’s Annual Report on Form 10-K for the year ended December 31, 2012. 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 accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of long-lived and intangible assets, the frequent traveler program and the deferred tax asset valuation allowance. The Company’s accumulated other comprehensive loss balances at March 31, 2013 and December 31, 2012 related to pension and other postretirement benefits.

2. Merger Agreement

On February 14, 2013, US Airways Group announced its intention to merge with AMR, the parent company of American Airlines, Inc. Under the terms of the Merger Agreement, US Airways Group will become a wholly owned subsidiary of AMR and the merged company will be operated under the single brand name of American Airlines. The Merger is to be effected pursuant to a plan of reorganization in AMR’s currently pending cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Merger is conditioned on, among other things, the approval by the Bankruptcy Court, regulatory approvals, approval by US Airways Group shareholders, other customary closing conditions, and confirmation and consummation of the plan of reorganization.

3. Special Items, Net

Special items, net as shown on the condensed consolidated statements of operations included the following charges for the three months ended March 31, 2013 and 2012 (in millions):


	Three Months Ended March 31,
	2013		2012
Special items, net (a)	$	39	$	3

(a)	The 2013 first quarter consisted primarily of merger related costs and charges related to the ratification of the US Airways flight attendant collective bargaining agreement.

In addition, other nonoperating, net in the first quarter of 2013 included a $30 million special credit in connection with an award received in an arbitration related to previous investments in auction rate securities.

Other nonoperating, net in the first quarter of 2012 included a $73 million special gain related to the slot transaction with Delta Air Lines, Inc. (“Delta”). In December 2011, US Airways closed a slot transaction with Delta in which Delta agreed to acquire 132 slot pairs at LaGuardia from US Airways and US Airways agreed to acquire from Delta 42 slot pairs at Washington National and the rights to operate additional daily service to Sao Paulo, Brazil in 2015, and Delta agreed to pay US Airways $66.5 million in cash. The fair value of the LaGuardia slots transferred to Delta in exchange for the Washington National slots and related cash payment was $223 million, which resulted in a gain of $142 million. Due to the DOT restrictions preventing operating use of the LaGuardia slots acquired by Delta, the gain was fully deferred until the DOT restrictions lapsed in 2012. During the three months ended March 31, 2012, the Company recognized $73 million of the gain. The remaining gain, which approximated $69 million, was recognized in the third quarter of 2012.

4. Earnings Per Common Share

Basic earnings 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
	March 31, 2013		March 31, 2012
Basic EPS:
Net income	$	44	$	48

Weighted average common shares outstanding (in thousands)		162,902		162,130

Basic EPS	$	0.27	$	0.30

Diluted EPS:
Net income	$	44	$	48
Interest expense on 7.25% convertible senior notes		9		8

Net income for purposes of computing diluted EPS	$	53	$	56

Share computation for diluted EPS (in thousands):
Weighted average common shares outstanding		162,902		162,130
Dilutive effect of stock awards		6,100		1,938
Assumed conversion of 7.25% convertible senior notes		37,746		37,746

Weighted average common shares outstanding as adjusted		206,748		201,814

Diluted EPS	$	0.26	$	0.28

The following were excluded from the computation of diluted EPS because inclusion of shares would be antidilutive (in thousands):


Stock options, SARs and RSUs	473	1,544
7% senior convertible notes	199	199

5. Debt

The following table details the Company’s debt (in millions). Variable interest rates listed are the rates as of March 31, 2013.


	March 31, 2013			December 31, 2012
Secured
Citicorp North America loan, variable interest rate of 2.70%, installments due through 2014	$	1,104		$	1,120
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.60% to 10.30%, maturing from 2013 to 2029		1,659			1,708
Aircraft enhanced equipment trust certificates (“EETCs”), fixed interest rates ranging from 5.90% to 11%, maturing from 2014 to 2024		1,747			1,598
Other secured obligations, fixed interest rate of 8%, maturing from 2018 to 2021		26			27

		4,536			4,453
Unsecured
Barclays prepaid miles, variable interest rate of 4.95%, interest only payments		200			200
Airbus advance, repayments through 2018		87			83
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		5			5
Industrial development bonds, fixed interest rate of 6.30%, interest only payments until due in 2023		29			29

		493			489

Total long-term debt and capital lease obligations		5,029			4,942
Less: Total unamortized discount on debt		(135	)		(149	)
Current maturities		(1,616	)		(417	)

Long-term debt and capital lease obligations, net of current maturities	$	3,278		$	4,376

The Company was in compliance with the covenants in its debt agreements at March 31, 2013.

The Company’s Citicorp North America loan becomes due on March 23, 2014 and, accordingly, the $1.10 billion balance is classified as current maturities of debt and capital leases on the condensed consolidated balance sheet as of March 31, 2013. The Company intends to refinance this debt prior to its maturity.

Aircraft Financing Transactions

In the first quarter of 2013, US Airways issued $183 million of equipment notes in three series under its 2012-1 EETCs completed in May 2012: Series A equipment notes in the amount of $111 million bearing interest at 5.90% per annum, Series B equipment notes in the amount of $37 million bearing interest at 8% per annum and Series C equipment notes in the amount of $35 million bearing interest at 9.125% per annum. The equipment notes are secured by liens on aircraft.

In the third quarter of 2012, US Airways entered into an agreement to acquire five Embraer 190 aircraft from Republic Airline, Inc. (“Republic”). US Airways took delivery of three aircraft in 2012 and the remaining two aircraft in the first quarter of 2013. In connection with this agreement, US Airways assumed the outstanding debt on these aircraft upon delivery and Republic was released from its obligations associated with the principal due under the debt.

Fair Value of Debt

The carrying value and estimated fair value of the Company’s long-term debt was (in millions):


	March 31, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	4,894	$	5,259	$	4,793	$	5,021

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 Company’s current incremental borrowing rates for similar types of borrowing arrangements. If the Company’s long-term debt was measured at fair value, it would have been categorized as Level 2 in the fair value hierarchy.

6. Income Taxes

At December 31, 2012, the Company had approximately $1.50 billion of gross net operating losses (“NOLs”) to reduce future federal taxable income. To the extent profitable, all of the Company’s NOLs are expected to be available to reduce federal taxable income in the calendar year 2013. The NOLs expire during the years 2025 through 2031. The Company’s net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. The Company also had approximately $69 million of tax-effected state NOLs at December 31, 2012. At December 31, 2012, the federal and state valuation allowances were $118 million and $42 million, respectively, which included $32 million allocated primarily to certain federal capital loss carryforwards.

For each of the three months ended March 31, 2013 and 2012, the Company utilized NOLs to reduce its income tax obligation. Utilization of NOLs reduces the Company’s deferred tax asset and in turn results in the release of its valuation allowance which offsets the Company’s tax provision dollar for dollar. Accordingly, the Company did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs were limited or unavailable to be used.

When profitable, the Company is ordinarily subject to Alternative Minimum Tax (“AMT”). However as the result of a special tax election made in 2009, the Company was able to utilize AMT NOLs to fully offset its AMT taxable income for each of the three months ended March 31, 2013 and 2012.

7. Express Expenses

Expenses associated with the Company’s wholly owned regional airlines and affiliate regional airlines operating as US Airways Express are classified as express expenses on the condensed consolidated statements of operations. Express expenses consist of the following (in millions):


	Three Months Ended March 31,
	2013		2012
Aircraft fuel and related taxes	$	271	$	277
Salaries and related costs		77		73
Capacity purchases		270		277
Aircraft rent		13		13
Aircraft maintenance		27		32
Other rent and landing fees		32		34
Selling expenses		40		40
Special items, net		2		—
Depreciation and amortization		8		7
Other expenses		55		49

Express expenses	$	795	$	802

8. Legal Proceedings

The Company is party to an arbitration proceeding relating to a grievance brought by its pilots union to the effect that, annually since May 2010, this work group was entitled to an increase in wages by operation of the applicable collective bargaining agreement. The arbitrator has issued a decision in the Company’s favor, and a subsequent meeting requested by the union has been held with the arbitrator to address that decision. The Company believes that the union’s position is without merit and that the possibility of an adverse outcome is remote.

On April 21, 2011, US Airways filed an antitrust lawsuit against Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited (collectively, “Sabre”) in Federal District Court for the Southern District of New York. The lawsuit alleges, among other things, that Sabre has engaged in anticompetitive practices that illegally restrain US Airways’ ability to distribute its products to its customers. The lawsuit also alleges that these actions have prevented US Airways from employing new competing technologies and have allowed Sabre to continue to charge US Airways supracompetitive fees. The lawsuit seeks both injunctive relief and money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011, allowing two of the four counts in the complaint to proceed. The Company intends to pursue its claims against Sabre vigorously and to vigorously defend any claims Sabre is permitted to file against the Company, but there can be no assurance of the outcome of this litigation.

On March 1, 2013, a putative class action lawsuit captioned Plumbers & Steamfitters Local Union No. 248 Pension Fund v. US Airways Group, Inc., et al., No. CV2013-051605 was filed in the Superior Court of the State of Arizona in Maricopa County. The complaint names as defendants US Airways Group and the members of its board of directors, and alleges that the directors breached their fiduciary duties in connection with the AMR Merger by failing to maximize the value of US Airways Group and ignoring or failing to protect against conflicts of interest, and that US Airways Group aided and abetted those breaches of fiduciary duty. The complaint seeks a declaration that the Merger Agreement is unenforceable, an injunction against the Merger, or rescission in the event it has been consummated, imposition of a constructive trust, an award of fees and costs, including attorneys’ and experts’ fees, and other relief. The Company believes this lawsuit is without merit and intends to vigorously defend against the allegations.

The Company and/or its subsidiaries are defendants in various other 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.

9. Subsequent Event

In April 2013, US Airways announced an offering of Series 2013-1 Class A and Class B EETCs. The 2013-1 EETCs are expected to be issued on April 24, 2013, subject to customary closing conditions. US Airways intends to use the proceeds from the offering to finance the purchase of 18 Airbus aircraft scheduled to be delivered from September 2013 to June 2014, with the balance, if any, to be used for general corporate purposes. The Class A EETCs are expected to issue an aggregate face amount of equipment notes of approximately $620 million, bearing interest at 3.95% per annum with a final expected distribution date of November 2025. The Class B EETCs are expected to issue an aggregate face amount of equipment notes of approximately $200 million, bearing interest at 5.375% per annum with a final expected distribution date of November 2021.

Item 1B. Condensed Financial Statements of US Airways, Inc.

US Airways, Inc.

Condensed Statements of Operations

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2013			2012
Operating revenues:
Mainline passenger	$	2,197		$	2,117
Express passenger		758			764
Cargo		41			40
Other		422			383

Total operating revenues		3,418			3,304
Operating expenses:
Aircraft fuel and related taxes		861			859
Salaries and related costs		636			606
Express expenses		822			830
Aircraft rent		154			162
Aircraft maintenance		166			163
Other rent and landing fees		143			140
Selling expenses		113			111
Special items, net		39			3
Depreciation and amortization		69			63
Other		313			311

Total operating expenses		3,316			3,248

Operating income		102			56
Nonoperating income (expense):
Interest income		—			—
Interest expense, net		(58	)		(57	)
Other, net		25			72

Total nonoperating income (expense), net		(33	)		15

Income before income taxes		69			71
Income tax provision		—			—

Net income	$	69		$	71

See accompanying notes to the condensed financial statements.

US Airways, Inc.

Condensed Statements of Comprehensive Income

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2013		2012
Net income	$	69	$	71
Total other comprehensive income		—		—

Total comprehensive income	$	69	$	71

See accompanying notes to the condensed financial statements.

US Airways, Inc.

Condensed Balance Sheets

(In millions, except share and per share amounts)

(Unaudited)


	March 31, 2013			December 31, 2012
ASSETS
Current assets
Cash and cash equivalents	$	2,425		$	2,271
Investments in marketable securities		100			100
Accounts receivable, net		488			297
Materials and supplies, net		299			247
Prepaid expenses and other		708			601

Total current assets		4,020			3,516
Property and equipment
Flight equipment		5,301			5,035
Ground property and equipment		992			968
Less accumulated depreciation and amortization		(1,708	)		(1,648	)

		4,585			4,355
Equipment purchase deposits		269			244

Total property and equipment		4,854			4,599
Other assets
Other intangibles, net of accumulated amortization of $152 million and $146 million, respectively		505			510
Restricted cash		352			336
Other assets		224			223

Total other assets		1,081			1,069

Total assets	$	9,955		$	9,184

LIABILITIES & STOCKHOLDER’S EQUITY
Current liabilities
Current maturities of debt and capital leases	$	487		$	401
Accounts payable		362			331
Payables to related parties, net		513			521
Air traffic liability		1,537			1,054
Accrued compensation and vacation		186			246
Accrued taxes		269			183
Other accrued expenses		1,057			995

Total current liabilities		4,411			3,731
Noncurrent liabilities and deferred credits
Long-term debt and capital leases, net of current maturities		2,972			2,952
Deferred gains and credits, net		242			247
Postretirement benefits other than pensions		170			170
Employee benefit liabilities and other		436			429

Total noncurrent liabilities and deferred credits		3,820			3,798
Commitments and contingencies
Stockholder’s equity
Common stock, $1 par value, 1,000 shares issued and outstanding		—			—
Additional paid-in capital		2,445			2,445
Accumulated other comprehensive income		13			13
Accumulated deficit		(734	)		(803	)

Total stockholder’s equity		1,724			1,655

Total liabilities and stockholder’s equity	$	9,955		$	9,184

See accompanying notes to the condensed financial statements.

US Airways, Inc.

Condensed Statements of Cash Flows

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2013			2012
Net cash provided by operating activities	$	390		$	402
Cash flows from investing activities:
Purchases of property and equipment		(287	)		(84	)
Decrease (increase) in long-term restricted cash		(16	)		18

Net cash used in investing activities		(303	)		(66	)
Cash flows from financing activities:
Repayments of debt and capital lease obligations		(118	)		(99	)
Proceeds from issuance of debt		183			—
Deferred financing costs		(3	)		—
Airport construction obligation		5			10

Net cash provided by (used in) financing activities		67			(89	)

Net increase in cash and cash equivalents		154			247
Cash and cash equivalents at beginning of period		2,271			1,940

Cash and cash equivalents at end of period	$	2,425		$	2,187

Non-cash investing and financing activities:
Interest payable converted to debt	$	3		$	6
Note payables issued for aircraft purchases		35			—
Supplemental information:
Interest paid, net of amounts capitalized	$	30		$	35
Income taxes paid		—			—

See accompanying notes to the condensed financial statements.

US Airways, Inc.

Notes to Condensed Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed 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, 2012. US Airways is a wholly owned subsidiary of US Airways Group, Inc. (“US Airways Group”).

Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed financial statements for the interim periods presented. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of long-lived and intangible assets, the frequent traveler program and the deferred tax asset valuation allowance. US Airways’ accumulated other comprehensive income balances at March 31, 2013 and December 31, 2012 related to other postretirement benefits.

2. Merger Agreement

3. Special Items, Net

Special items, net as shown on the condensed statements of operations included the following charges for the three months ended March 31, 2013 and 2012 (in millions):


	Three Months Ended March 31,
	2013		2012
Special items, net (a)	$	39	$	3

(a)	The 2013 first quarter consisted primarily of merger related costs and charges related to the ratification of the US Airways flight attendant collective bargaining agreement.

Other nonoperating, net in the first quarter of 2012 included a $73 million special gain related to the slot transaction with Delta Air Lines, Inc. (“Delta”). In December 2011, US Airways closed a slot transaction with Delta in which Delta agreed to acquire 132 slot pairs at LaGuardia from US Airways and US Airways agreed to acquire from Delta 42 slot pairs at Washington National and the rights to operate additional daily service to Sao Paulo, Brazil in 2015, and Delta agreed to pay US Airways $66.5 million in cash. The fair value of the LaGuardia slots transferred to Delta in exchange for the Washington National slots and related cash payment was $223 million, which resulted in a gain of $142 million. Due to the DOT restrictions preventing operating use of the LaGuardia slots acquired by Delta, the gain was fully deferred until the DOT restrictions lapsed in 2012. During the three months ended March 31, 2012, US Airways recognized $73 million of the gain. The remaining gain, which approximated $69 million, was recognized in the third quarter of 2012.

4. Debt

The following table details US Airways’ debt (in millions). Variable interest rates listed are the rates as of March 31, 2013.


	March 31, 2013			December 31, 2012
Secured
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.60% to 10.30%, maturing from 2013 to 2022	$	1,629		$	1,678
Aircraft enhanced equipment trust certificates (“EETCs”), fixed interest rates ranging from 5.90% to 11%, maturing from 2014 to 2024		1,747			1,598
Other secured obligations, fixed interest rate of 8%, maturing from 2018 to 2021		26			27

		3,402			3,303
Unsecured
Airbus advance, repayments through 2018		87			83
Industrial development bonds, fixed interest rate of 6.30%, interest only payments until due in 2023		29			29

		116			112

Total long-term debt and capital lease obligations		3,518			3,415
Less: Total unamortized discount on debt		(59	)		(62	)
Current maturities		(487	)		(401	)

Long-term debt and capital lease obligations, net of current maturities	$	2,972		$	2,952

US Airways was in compliance with the covenants in its debt agreements at March 31, 2013.

Aircraft Financing Transactions

Fair Value of Debt

The carrying value and estimated fair value of US Airways’ long-term debt was (in millions):


	March 31, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	3,459	$	3,499	$	3,353	$	3,304

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. If US Airways’ long-term debt was measured at fair value, it would have been categorized as Level 2 in the fair value hierarchy.

5. Related Party Transactions

The following represents the net payable balances to related parties (in millions):


	March 31, 2013		December 31, 2012
US Airways Group	$	434	$	453
US Airways Group’s wholly owned subsidiaries		79		68

	$	513	$	521

US Airways Group has the ability to move funds freely between its operating subsidiaries to support operations. These transfers are recognized as intercompany transactions.

The net payable to US Airways Group’s 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.

6. Income Taxes

US Airways is part of the US Airways Group consolidated income tax return.

At December 31, 2012, US Airways had approximately $1.44 billion of gross net operating losses (“NOLs”) to reduce future federal taxable income. To the extent profitable, all of US Airways’ NOLs are expected to be available to reduce federal taxable income in the calendar year 2013. The NOLs expire during the years 2025 through 2031. US Airways’ net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. US Airways also had approximately $67 million of tax-effected state NOLs at December 31, 2012. At December 31, 2012, the federal and state valuation allowances were $126 million and $42 million, respectively, which included $32 million allocated primarily to certain federal capital loss carryforwards.

For each of the three months ended March 31, 2013 and 2012, US Airways utilized NOLs to reduce its income tax obligation. Utilization of NOLs reduces US Airways’ deferred tax asset and in turn results in the release of its valuation allowance which offsets US Airways’ tax provision dollar for dollar. Accordingly, US Airways did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs were limited or unavailable to be used.

When profitable, US Airways is ordinarily subject to Alternative Minimum Tax (“AMT”). However as the result of a special tax election made in 2009, US Airways was able to utilize AMT NOLs to fully offset its AMT taxable income for each of the three months ended March 31, 2013 and 2012.

7. Express Expenses

Expenses associated with affiliate regional airlines operating as US Airways Express are classified as express expenses on the condensed statements of operations. Express expenses consist of the following (in millions):


	Three Months Ended March 31,
	2013		2012
Aircraft fuel and related taxes	$	271	$	277
Salaries and related costs		8		6
Capacity purchases		450		455
Other rent and landing fees		27		28
Selling expenses		40		40
Depreciation and amortization		2		2
Other expenses		24		22

Express expenses	$	822	$	830

8. Legal Proceedings

US Airways is party to an arbitration proceeding relating to a grievance brought by its pilots union to the effect that, annually since May 2010, this work group was entitled to an increase in wages by operation of the applicable collective bargaining agreement. The arbitrator has issued a decision in US Airways’ favor, and a subsequent meeting requested by the union has been held with the arbitrator to address that decision. US Airways believes that the union’s position is without merit and that the possibility of an adverse outcome is remote.

On April 21, 2011, US Airways filed an antitrust lawsuit against Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited (collectively, “Sabre”) in Federal District Court for the Southern District of New York. The lawsuit alleges, among other things, that Sabre has engaged in anticompetitive practices that illegally restrain US Airways’ ability to distribute its products to its customers. The lawsuit also alleges that these actions have prevented US Airways from employing new competing technologies and have allowed Sabre to continue to charge US Airways supracompetitive fees. The lawsuit seeks both injunctive relief and money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011, allowing two of the four counts in the complaint to proceed. US Airways intends to pursue its claims against Sabre vigorously and to vigorously defend any claims Sabre is permitted to file against US Airways, but there can be no assurance of the outcome of this litigation.

On March 1, 2013, a putative class action lawsuit captioned Plumbers & Steamfitters Local Union No. 248 Pension Fund v. US Airways Group, Inc., et al., No. CV2013-051605 was filed in the Superior Court of the State of Arizona in Maricopa County. The complaint names as defendants US Airways Group and the members of its board of directors, and alleges that the directors breached their fiduciary duties in connection with the AMR Merger by failing to maximize the value of US Airways Group and ignoring or failing to protect against conflicts of interest, and that US Airways Group aided and abetted those breaches of fiduciary duty. The complaint seeks a declaration that the Merger Agreement is unenforceable, an injunction against the Merger, or rescission in the event it has been consummated, imposition of a constructive trust, an award of fees and costs, including attorneys’ and experts’ fees, and other relief. US Airways Group believes this lawsuit is without merit and intends to vigorously defend against the allegations.

US Airways is a defendant in various other pending lawsuits and proceedings, and from time to time is 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 US Airways, having consulted with outside counsel, believes that the ultimate disposition of these contingencies will not materially affect its financial position or results of operations.

9. Subsequent Event

Item 2. Management’s 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, 2012 (the “2012 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 2012 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, Phoenix and Washington, D.C. at Ronald Reagan Washington National Airport. We offer scheduled passenger service on more than 3,100 flights daily to 198 communities in the United States, Canada, Mexico, Europe, the Middle East, the Caribbean, and Central and South America. We also have an established East Coast route network, including the US Airways Shuttle service. For the three months ended March 31, 2013, we had approximately 14 million passengers boarding our mainline flights. As of March 31, 2013, we operated 346 mainline jets and were supported by our regional airline subsidiaries and affiliates operating as US Airways Express under capacity purchase agreements, which operated 238 regional jets and 44 turboprops. Our prorate carriers operated four regional jets at March 31, 2013.

Merger Agreement with AMR Corporation

In February 2013, US Airways Group announced its intention to merge with AMR, the parent company of American Airlines, Inc. Under the terms of the Merger Agreement, US Airways Group will become a wholly owned subsidiary of AMR and the merged company will be operated under the single brand name of American Airlines. The Merger is to be effected pursuant to a plan of reorganization in AMR’s currently pending cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Merger is conditioned on the approval by the Bankruptcy Court, regulatory approvals, approval by US Airways Group shareholders, other customary closing conditions, and confirmation and consummation of the plan of reorganization. See “Recent Developments” on page 4 of this report for more information on the Merger.

The U.S. Airline Industry

During the first quarter of 2013, the U.S. airline industry experienced modest year-over-year growth in passenger revenues driven by ongoing industry capacity discipline and consumer demand for air travel.

In its most recent data available, Airlines for America, the trade association for U.S. airlines, reported the following changes in U.S. industry passenger revenues and yields. Year-over-year growth rates were lower in the first quarter of 2013 as compared to 2012 due primarily to more difficult year-over-year comparisons.


2013 vs. 2012	January			February			March
Passenger Revenues		3.5	%		(0.4	)%		2.5	%
Yields		1.6	%		0.8	%		0.8	%


2012 vs. 2011	January			February			March
Passenger Revenues		8.6	%		10.9	%		7.2	%
Yields		9.0	%		5.7	%		5.2	%

Jet fuel prices continue to follow the price of Brent crude oil more closely than the price of West Texas Intermediate crude oil. On average, fuel costs were down slightly in the first quarter of 2013. The average daily spot price for Brent crude oil during the first quarter of 2013 was $112 per barrel as compared to an average daily spot price of $119 per barrel during the first quarter of 2012. On a daily basis, Brent crude oil prices fluctuated between a high in February of $119 per barrel to a low of $106 per barrel in March and closed the quarter at $108 per barrel on March 28, 2013.

While the U.S. airline industry is currently experiencing moderating fuel prices as described above, uncertainty exists regarding the driving economic conditions. See Part II, Item 1A, Risk Factors – “Downturns in economic conditions adversely affect our business” and “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.”

US Airways Group

Led by record operating revenues, we realized operating income of $103 million and net income of $44 million in the first quarter of 2013. This compares to operating income of $59 million and net income of $48 million in the first quarter of 2012. Our first quarter 2013 net income included net special charges of $11 million, while the first quarter of 2012 included $70 million of net special credits. Excluding the effects of net special items, we recognized net income of $55 million which was our largest first quarter profit in our Company’s history. This compares to a net loss excluding special items of $22 million in the first quarter of 2012. See “US Airways Group’s Results of Operations” included in Part I, Item 2 of this report for more information on net special items.

Revenue

In the first quarter of 2013, we reported operating revenues of $3.38 billion, our highest first quarter operating revenues in our Company’s history. Mainline and express passenger revenues increased $74 million, or 2.6%, as compared to the 2012 period. The growth in revenues was driven by a strong demand environment leading to a 4.4% increase in revenue passenger miles, as total capacity increased 1.3% as compared to 2012, resulting in a 2.4 point increase in load factor to a record 81.7%. Our mainline and express passenger revenue per available seat mile (“PRASM”) was 13.80 cents in the first quarter of 2013, a 1.3% increase, as compared to 13.62 cents in the 2012 period. Total revenue per available seat mile (“RASM”) was 15.78 cents in the first quarter of 2013, a 2.2% increase, as compared to 15.45 cents in the 2012 period. Total revenues include our ancillary revenue initiatives, which generated $153 million in revenues for the first quarter of 2013, an increase of $15 million over the 2012 period principally related to checked bag fees and our Choice Seats Program.

Fuel

Mainline and express fuel expense was $1.13 billion for the first quarter of 2013, which was relatively flat as compared to the first quarter of 2012. A 0.9% decrease in the average price per gallon to $3.24 for the first quarter of 2013 from an average price per gallon of $3.27 for the first quarter of 2012 was offset by a 0.5% increase in consumption driven by a 1.3% increase in system capacity as discussed below. We have not entered into any transactions to hedge our fuel consumption.

Capacity

Total system capacity for the first quarter of 2013 increased 1.3% as compared to the first quarter of 2012 primarily due to larger gauge aircraft replacing smaller legacy 737 aircraft. For the full year, total system capacity is expected to be up approximately 3.5% due to larger gauge aircraft as well as more international long haul flying. Domestic capacity is expected to be up approximately 3.4% and international is expected to be up approximately 3.8% versus 2012.

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. Our mainline costs per available seat mile (“CASM”) excluding special items, fuel and profit sharing increased 0.06 cents, or 0.7%, from 8.71 cents in the first quarter of 2012 to 8.77 cents in the first quarter of 2013. The increase was primarily due to higher salaries and related costs from variable compensation programs driven by our record profitability and a 26% increase in the price of our common stock from $13.50 to $16.97 during the first quarter of 2013.

The following table details our mainline CASM for the three months ended March 31, 2013 and 2012:


	2013			2012			Percent Increase (Decrease)
	(In cents)
Mainline CASM excluding special items, fuel and profit sharing:
Total mainline CASM		13.82			13.57			1.8
Special items, net		(0.22	)		(0.01	)		nm
Aircraft fuel and related taxes		(4.79	)		(4.85	)		(1.2	)
Profit sharing		(0.03	)		—			nm

Total mainline CASM excluding special items, fuel and profit sharing ⁽¹⁾		8.77			8.71			0.7

(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.

Customer Service

We are committed to consistently delivering safe, reliable and convenient service to our customers in every aspect of our operation. For the second consecutive year, we ranked second in the annual Airline Quality Rating (“AQR”) among the “Big Four” hub-and-spoke network carriers. The AQR is an industry benchmark that measures airline reliability and service. We improved 23% since last year’s AQR and showed improvement in all four categories tracked including on-time performance, mishandled baggage, customer complaints, and denied boarding.

We reported the following operating statistics to the Department of Transportation (“DOT”) for mainline operations for the first quarter of 2013 and 2012:


	2013						2012						Better (Worse) 2013-2012
	January		February		March (e)		January		February		March		January			February			March
On-time performance (a)		83.0		82.0		82.1		85.0		89.3		87.3		(2.0	) pts		(7.3	) pts		(5.2	) pts
Completion factor (b)		99.2		98.3		98.6		99.2		99.7		99.4		—	pts		(1.4	) pts		(0.8	) pts
Mishandled baggage (c)		2.65		2.29		2.19		2.49		1.85		2.17		(6.4	)%		(23.8	)%		(0.9	)%
Customer complaints (d)		1.33		1.29		1.31		1.79		1.33		1.51		25.7	%		3.0	%		13.2	%

Overall we continued to deliver strong operating performance in the first quarter of 2013 and achieved our best first quarter customer complaints performance in our Company’s history. More challenging winter weather in the first quarter of 2013 drove a decline in our monthly on-time performance, completion factor and mishandled baggage metrics when compared to the 2012 period.

(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 enplanements.

(e)	March 2013 operating statistics are preliminary as the DOT has not issued its March 2013 Air Travel Consumer Report as of the date of this filing.

Liquidity Position

As of March 31, 2013, our total cash, cash equivalents, investments in marketable securities and restricted cash was $2.88 billion, of which $352 million was restricted.


	March 31, 2013		December 31, 2012
	(In millions)
Cash, cash equivalents and investments in marketable securities	$	2,528	$	2,376
Long-term restricted cash		352		336

Total cash, cash equivalents, investments in marketable securities and restricted cash	$	2,880	$	2,712

The improvement in our liquidity in the first quarter of 2013 was due primarily to our first quarter profitability and seasonal factors.

Long-term restricted cash primarily includes cash collateral to secure workers’ compensation claims and credit card processing holdback requirements for advance ticket sales for which US Airways has not yet provided air transportation.

US Airways Group’s Results of Operations

In the three months ended March 31, 2013, we realized operating income of $103 million and net income of $44 million. This compares to operating income of $59 million and net income of $48 million in the 2012 period. Our first quarter 2013 net income included net special charges of $11 million, while the first quarter of 2012 included $70 million of net special credits. Excluding the effects of net special items, we recognized net income of $55 million which was our largest first quarter profit in our Company’s history.

The following table details our net income (loss) excluding special items (in millions):


	Three Months Ended March 31,
	2013			2012
Net income	$	44		$	48
Special items:
Mainline operating special items, net (a)		39			3
Express operating special items, net		2			—
Nonoperating special items, net (b)		(30	)		(73	)

Total special items		11			(70	)

Net income (loss) excluding special items	$	55		$	(22	)

(a)	The 2013 first quarter consisted primarily of merger related costs and charges related to the ratification of the US Airways flight attendant collective bargaining agreement.

(b)	The 2013 first quarter consisted of a $30 million credit in connection with an award received in an arbitration related to previous investments in auction rate securities. The 2012 first quarter consisted of a $73 million gain related to the slot transaction with Delta Air Lines, Inc. (“Delta”).

At December 31, 2012, we had approximately $1.50 billion of gross net operating losses (“NOLs”) to reduce future federal taxable income. To the extent profitable, all of our NOLs are expected to be available to reduce federal taxable income in the calendar year 2013. The NOLs expire during the years 2025 through 2031. Our net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At December 31, 2012, the federal and state valuation allowances were $118 million and $42 million, respectively, which included $32 million allocated primarily to certain federal capital loss carryforwards.

For each of the three months ended March 31, 2013 and 2012, we utilized NOLs to reduce our income tax obligation. Utilization of NOLs reduces our deferred tax asset and in turn results in the release of our valuation allowance which offsets our tax provision dollar for dollar. Accordingly, we did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs were limited or unavailable to be used.

When profitable, we are ordinarily subject to AMT. However as the result of a special tax election made in 2009, we were able to utilize AMT NOLs to fully offset our AMT taxable income for each of the three months ended March 31, 2013 and 2012.

To the extent profitable for the full year 2013, we will use NOLs to reduce our federal and state taxable income. We presently estimate that achieving an income level of approximately $250 million in 2013 will utilize NOLs in an amount that will result in the full release of our remaining valuation allowance associated with federal income taxes. Accordingly, we may recognize non-cash federal income tax expense in 2013.

The table below sets forth our selected mainline and express operating data:


	Three Months Ended March 31,				Increase
	2013		2012		(Decrease)
Mainline
Revenue passenger miles (millions) (a)		14,885		14,300		4.1	%
Available seat miles (millions) (b)		17,961		17,718		1.4	%
Passenger load factor (percent) (c)		82.9		80.7		2.2	pts
Yield (cents) (d)		14.76		14.80		(0.3	)%
Passenger revenue per available seat mile (cents) (e)		12.23		11.95		2.4	%
Operating cost per available seat mile (cents) (f)		13.82		13.57		1.8	%
Passenger enplanements (thousands) (g)		13,510		13,286		1.7	%
Departures (thousands)		112		115		(2.3	)%
Aircraft at end of period		346		340		1.8	%
Block hours (thousands) (h)		300		299		0.3	%
Average stage length (miles) (i)		984		954		3.1	%
Average passenger journey (miles) (j)		1,620		1,606		0.9	%
Fuel consumption (gallons in millions)		266		264		0.7	%
Average aircraft fuel price including related taxes (dollars per gallon)		3.24		3.26		(0.6	)%
Full-time equivalent employees at end of period		32,138		31,186		3.1	%
Express (k)
Revenue passenger miles (millions) (a)		2,604		2,459		5.9	%
Available seat miles (millions) (b)		3,456		3,429		0.8	%
Passenger load factor (percent) (c)		75.4		71.7		3.7	pts
Yield (cents) (d)		29.11		31.06		(6.3	)%
Passenger revenue per available seat mile (cents) (e)		21.94		22.28		(1.6	)%
Operating cost per available seat mile (cents) (f)		23.00		23.39		(1.7	)%
Passenger enplanements (thousands) (g)		6,650		6,536		1.7	%
Aircraft at end of period		282		288		(2.1	)%
Fuel consumption (gallons in millions)		84		84		(0.2	)%
Average aircraft fuel price including related taxes (dollars per gallon)		3.23		3.29		(1.8	)%
Total Mainline and Express
Revenue passenger miles (millions) (a)		17,489		16,759		4.4	%
Available seat miles (millions) (b)		21,417		21,147		1.3	%
Passenger load factor (percent) (c)		81.7		79.3		2.4	pts
Yield (cents) (d)		16.89		17.19		(1.7	)%
Passenger revenue per available seat mile (cents) (e)		13.80		13.62		1.3	%
Total revenue per available seat mile (cents) (l)		15.78		15.45		2.2	%
Passenger enplanements (thousands) (g)		20,160		19,822		1.7	%
Aircraft at end of period		628		628		—	%
Fuel consumption (gallons in millions)		350		348		0.5	%
Average aircraft fuel price including related taxes (dollars per gallon)		3.24		3.27		(0.9	)%

(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.

(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 Airline Inc., Mesa Airlines, Inc., Chautauqua Airlines, Inc. and SkyWest Airlines, Inc.

(l)	Total revenue per available seat mile (“RASM”) — Total revenues divided by total mainline and express ASMs.

Three Months Ended March 31, 2013

Compared with the

Three Months Ended March 31, 2012

Operating Revenues:


	2013		2012		Percent Increase (Decrease)
	(In millions)
Operating revenues:
Mainline passenger	$	2,197	$	2,117		3.8
Express passenger		758		764		(0.8	)
Cargo		41		40		3.0
Other		384		345		11.1

Total operating revenues	$	3,380	$	3,266		3.5

Total operating revenues in the first quarter of 2013 were $3.38 billion as compared to $3.27 billion in the 2012 period, an increase of $114 million, or 3.5%. Driven by a strong demand environment and record passenger load factors, we reported our highest first quarter operating revenues in our Company’s history. Significant changes in the components of operating revenues are as follows:

•

Mainline passenger revenues were $2.20 billion in the first quarter of 2013 as compared to $2.12 billion in the 2012 period. Mainline RPMs increased 4.1% as mainline capacity, as measured by ASMs, increased 1.4%, resulting in a 2.2 point increase in load factor to 82.9%. Mainline passenger yield decreased 0.3% to 14.76 cents in the first quarter of 2013 from 14.80 cents in the 2012 period. Mainline PRASM increased 2.4% to 12.23 cents in the first quarter of 2013 from 11.95 cents in the 2012 period.

•

Express passenger revenues were $758 million in the first quarter of 2013 as compared to $764 million in the 2012 period. Express RPMs increased 5.9% as express capacity, as measured by ASMs, increased 0.8%, resulting in a 3.7 point increase in load factor to 75.4%. Express passenger yield decreased 6.3% to 29.11 cents in the first quarter of 2013 from 31.06 cents in the 2012 period. Express PRASM decreased 1.6% to 21.94 cents in the first quarter of 2013 from 22.28 cents in the 2012 period.

•

Other revenues were $384 million in the first quarter of 2013, an increase of $39 million, or 11.1%, from the 2012 period. The increase in other revenues was driven primarily by higher revenues associated with our frequent flyer program, including increased mileage sales to business partners, and increases in the volume of passenger ticketing change fees.

Operating Expenses:


	2013		2012		Percent Increase (Decrease)
	(In millions)
Operating expenses:
Aircraft fuel and related taxes	$	861	$	859		0.2
Salaries and related costs		636		606		5.0
Aircraft rent		154		162		(4.8	)
Aircraft maintenance		166		163		1.5
Other rent and landing fees		143		140		2.2
Selling expenses		113		111		1.6
Special items, net		39		3		nm
Depreciation and amortization		67		61		9.7
Other		303		300		0.9

Total mainline operating expenses		2,482		2,405		3.2
Express expenses:
Fuel		271		277		(2.1	)
Other		524		525		(0.3	)

Total express expenses		795		802		(0.9	)

Total operating expenses	$	3,277	$	3,207		2.2

Total operating expenses were $3.28 billion in the first quarter of 2013, an increase of $70 million, or 2.2%, compared to the 2012 period.

Mainline Operating Expenses per ASM:

Our mainline CASM increased 0.25 cents, or 1.8%, from 13.57 cents in the first quarter of 2012 to 13.82 cents in the first quarter of 2013. Excluding special items, fuel and profit sharing our mainline CASM increased 0.06 cents, or 0.7%, from 8.71 cents in the first quarter of 2012 to 8.77 cents in the first quarter of 2013, while mainline capacity increased 1.4%. The increase was primarily due to higher salaries and related costs from variable compensation programs driven by our record profitability and a 26% increase in the price of our common stock from $13.50 to $16.97 during the first quarter of 2013.

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 March 31, 2013 and 2012:


	2013			2012			Percent Increase (Decrease)
	(In cents)
Mainline CASM:
Aircraft fuel and related taxes		4.79			4.85			(1.2	)
Salaries and related costs		3.54			3.42			3.6
Aircraft rent		0.86			0.91			(6.0	)
Aircraft maintenance		0.92			0.92			0.2
Other rent and landing fees		0.80			0.79			0.8
Selling expenses		0.63			0.63			0.2
Special items, net		0.22			0.01			nm
Depreciation and amortization		0.37			0.34			8.2
Other		1.69			1.70			(0.4	)

Total mainline CASM		13.82			13.57			1.8
Special items, net		(0.22	)		(0.01	)
Aircraft fuel and related taxes		(4.79	)		(4.85	)
Profit sharing		(0.03	)		—

Total mainline CASM excluding special item, fuel and profit sharing ⁽¹⁾		8.77			8.71			0.7

(1)

Significant changes in the components of mainline operating expense per ASM are as follows:

•

Aircraft fuel and related taxes per ASM decreased 1.2% primarily due to a 0.6% decrease in the average price per gallon of fuel to $3.24 in the first quarter of 2013 from $3.26 in the 2012 period. The addition of larger more fuel efficient Airbus aircraft to our fleet replacing older aircraft also contributed to this decrease on a per ASM basis.

•

Salaries and related costs per ASM increased 3.6% primarily due to profit sharing and expenses associated with other variable compensation programs as discussed above.

•

Aircraft rent per ASM decreased 6.0% due to recent lease extensions at lower average rental rates as well as a decrease in the average number of leased aircraft in the first quarter 2013 as compared to the 2012 period.

•

Depreciation and amortization per ASM increased 8.2% primarily due to an increase in owned aircraft driven by the acquisition of 10 Airbus A321 aircraft in the second half of 2012.

Express Operating Expenses:

Total express expenses decreased $7 million, or 0.9%, in the first quarter of 2013 to $795 million from $802 million in the 2012 period. The period-over-period decrease was primarily due to a $6 million, or 2.1%, decrease in fuel costs. The average price per gallon of fuel decreased 1.8% to $3.23 in the first quarter of 2013 from $3.29 in the 2012 period, on a 0.2% decrease in consumption.

Nonoperating Income (Expense):


	2013			2012			Percent Increase (Decrease)
	(In millions)
Nonoperating income (expense):
Interest income	$	—		$	—			27.7
Interest expense, net		(84	)		(82	)		2.2
Other, net		25			71			(64.7	)

Total nonoperating expense, net	$	(59	)	$	(11	)		nm

Other nonoperating income of $25 million in the first quarter of 2013 consisted of a special $30 million credit in connection with an award received in an arbitration related to previous investments in auction rate securities, offset in part by $5 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar during the first quarter of 2013.

Other nonoperating income of $71 million in the first quarter of 2012 consisted primarily of a special $73 million gain relating to the slot transaction with Delta.

US Airways’ Results of Operations

In the three months ended March 31, 2013, US Airways realized operating income of $102 million and net income of $69 million. This compares to operating income of $56 million and net income of $71 million in the 2012 period.

US Airways’ results have been impacted by the following special charges (credits) (in millions):


	Three Months Ended March 31,
	2013			2012
Mainline operating special items, net (a)	$	39		$	3
Nonoperating special items, net (b)		(30	)		(73	)

Total	$	9		$	(70	)

(a)	The 2013 first quarter consisted primarily of merger related costs and charges related to the ratification of the US Airways flight attendant collective bargaining agreement.

(b)	The 2013 first quarter consisted of a $30 million credit in connection with an award received in an arbitration related to previous investments in auction rate securities. The 2012 first quarter consisted of a $73 million gain related to the slot transaction with Delta.

At December 31, 2012, US Airways had approximately $1.44 billion of gross NOLs to reduce future federal taxable income. To the extent profitable, all of US Airways’ NOLs are expected to be available to reduce federal taxable income in the calendar year 2013. The NOLs expire during the years 2025 through 2031. US Airways’ net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At December 31, 2012, the federal and state valuation allowances were $126 million and $42 million, respectively, which included $32 million allocated primarily to certain federal capital loss carryforwards.

When profitable, US Airways is ordinarily subject to AMT. However as the result of a special tax election made in 2009, US Airways was able to utilize AMT NOLs to fully offset its AMT taxable income for each of the three months ended March 31, 2013 and 2012.

To the extent profitable for the full year 2013, US Airways will use NOLs to reduce its federal and state taxable income. US Airways presently estimates that achieving an income level of approximately $250 million in 2013 will utilize NOLs in an amount that will result in the full release of its remaining valuation allowance associated with federal income taxes. Accordingly, US Airways may recognize non-cash federal income tax expense in 2013.

The table below sets forth US Airways’ selected mainline and express operating data:


	Three Months Ended March 31,				Increase
	2013		2012		(Decrease)
Mainline
Revenue passenger miles (millions) (a)		14,885		14,300		4.1	%
Available seat miles (millions) (b)		17,961		17,718		1.4	%
Passenger load factor (percent) (c)		82.9		80.7		2.2	pts
Yield (cents) (d)		14.76		14.80		(0.3	)%
Passenger revenue per available seat mile (cents) (e)		12.23		11.95		2.4	%
Aircraft at end of period		346		340		1.8	%
Fuel consumption (gallons in millions)		266		264		0.7	%
Average aircraft fuel price including related taxes (dollars per gallon)		3.24		3.26		(0.6	)%
Express (f)
Revenue passenger miles (millions) (a)		2,604		2,459		5.9	%
Available seat miles (millions) (b)		3,456		3,429		0.8	%
Passenger load factor (percent) (c)		75.4		71.7		3.7	pts
Yield (cents) (d)		29.11		31.06		(6.3	)%
Passenger revenue per available seat mile (cents) (e)		21.94		22.28		(1.6	)%
Aircraft at end of period		282		288		(2.1	)%
Fuel consumption (gallons in millions)		84		84		(0.2	)%
Average aircraft fuel price including related taxes (dollars per gallon)		3.23		3.29		(2.0	)%
Total Mainline and Express
Revenue passenger miles (millions) (a)		17,489		16,759		4.4	%
Available seat miles (millions) (b)		21,417		21,147		1.3	%
Passenger load factor (percent) (c)		81.7		79.3		2.4	pts
Yield (cents) (d)		16.89		17.19		(1.7	)%
Passenger revenue per available seat mile (cents) (e)		13.80		13.62		1.3	%
Total revenue per available seat mile (cents) (g)		15.96		15.62		2.1	%
Aircraft at end of period		628		628		—	%
Fuel consumption (gallons in millions)		350		348		0.5	%
Average aircraft fuel price including related taxes (dollars per gallon)		3.24		3.27		(0.9	)%

(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.

(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 Airline Inc., Mesa Airlines, Inc., Chautauqua Airlines, Inc. and SkyWest Airlines, Inc.

(g)	Total revenue per available seat mile (“RASM”) — Total revenues divided by total mainline and express ASMs.

Three Months Ended March 31, 2013

Compared with the

Three Months Ended March 31, 2012

Operating Revenues:


	2013		2012		Percent Increase (Decrease)
	(In millions)
Operating revenues:
Mainline passenger	$	2,197	$	2,117		3.8
Express passenger		758		764		(0.8	)
Cargo		41		40		3.0
Other		422		383		10.0

Total operating revenues	$	3,418	$	3,304		3.4

Total operating revenues in the first quarter of 2013 were $3.42 billion as compared to $3.30 billion in the 2012 period, an increase of $114 million, or 3.4%. Driven by a strong demand environment and record passenger load factors, US Airways reported its highest first quarter operating revenues in US Airways’ history. Significant changes in the components of operating revenues are as follows:

•

Other revenues were $422 million in the first quarter of 2013, an increase of $39 million, or 10.0%, from the 2012 period. The increase in other revenues was driven primarily by higher revenues associated with US Airways’ frequent flyer program, including increased mileage sales to business partners, and increases in the volume of passenger ticketing change fees.

Operating Expenses:


	2013		2012		Percent Increase (Decrease)
	(In millions)
Operating expenses:
Aircraft fuel and related taxes	$	861	$	859		0.2
Salaries and related costs		636		606		5.0
Aircraft rent		154		162		(4.8	)
Aircraft maintenance		166		163		1.5
Other rent and landing fees		143		140		2.2
Selling expenses		113		111		1.6
Special items, net		39		3		nm
Depreciation and amortization		69		63		9.3
Other		313		311		0.9

Total mainline operating expenses		2,494		2,418		3.2
Express expenses:
Fuel		271		277		(2.2	)
Other		551		553		(0.4	)

Total express expenses		822		830		(1.0	)

Total operating expenses	$	3,316	$	3,248		2.1

Total operating expenses were $3.32 billion in the first quarter of 2013, an increase of $68 million, or 2.1%, compared to the 2012 period.

Mainline Operating Expenses:

Significant changes in the components of mainline operating expenses are as follows:

•

Aircraft fuel and related taxes increased 0.2% primarily due to a 0.7% increase in consumption driven by a 1.4% increase in capacity, offset in part by a 0.6% decrease in the average price per gallon of fuel to $3.24 in the first quarter of 2013 from $3.26 in the 2012 period.

•

Salaries and related costs increased 5.0% primarily due to profit sharing and expenses associated with other variable compensation programs driven by US Airways’ record profitability and a 26% increase in the price of US Airways Group’s common stock from $13.50 to $16.97 during the first quarter of 2013.

•

Aircraft rent decreased 4.8% due to recent lease extensions at lower average rental rates as well as a decrease in the average number of leased aircraft in the first quarter 2013 as compared to the 2012 period.

•

Depreciation and amortization increased 9.3% primarily due to an increase in owned aircraft driven by the acquisition of 10 Airbus A321 aircraft in the second half of 2012.

Express Operating Expenses:

Total express expenses decreased $8 million, or 1.0%, in the first quarter of 2013 to $822 million from $830 million in the 2012 period. The period-over-period decrease was primarily due to a $6 million, or 2.2%, decrease in fuel costs. The average price per gallon of fuel decreased 2.0% to $3.23 in the first quarter of 2013 from $3.29 in the 2012 period, on a 0.2% decrease in consumption.

Nonoperating Income (Expense):


	2013			2012			Percent Increase (Decrease)
	(In millions)
Nonoperating income (expense):
Interest income	$	—		$	—			28.5
Interest expense, net		(58	)		(57	)		2.3
Other, net		25			72			(64.7	)

Total nonoperating income (expense), net	$	(33	)	$	15			nm

Other nonoperating income of $72 million in the first quarter of 2012 consisted primarily of a special $73 million gain relating to the slot transaction with Delta.

Liquidity and Capital Resources

As of March 31, 2013, our total cash, cash equivalents, investments in marketable securities and restricted cash was $2.88 billion, of which $352 million was restricted.

Sources and Uses of Cash

US Airways Group

Operating Activities

Net cash provided by operating activities was relatively flat at $405 million compared to $417 million for the first three months of 2013 and 2012, respectively.

Investing Activities

Net cash used in investing activities was $307 million and $69 million for the first three months of 2013 and 2012, respectively.

Principal investing activities in the 2013 period included expenditures of $242 million for property and equipment and consisted primarily of the purchase of four Airbus aircraft. Investing activities also included expenditures of $49 million for pre-delivery deposits for 20 Airbus aircraft on order and a $16 million increase in restricted cash. Restricted cash increased primarily due to a change in the amount of holdback held by certain credit card processors for advance ticket sales for which US Airways had not yet provided air transportation.

Principal investing activities in the 2012 period included expenditures of $40 million for property and equipment and consisted primarily of costs related to the installation of the Envoy Suite on wide-body Airbus A330-300 aircraft. Investing activities also included expenditures of $47 million for pre-delivery deposits for 17 Airbus aircraft on order. These expenditures were offset in part by an $18 million decrease in restricted cash due to a change in the amount of holdback held by certain credit card processors.

Financing Activities

Net cash provided by financing activities was $54 million for the first three months of 2013 as compared to net cash used in financing activities of $105 million for the first three months of 2012.

Principal financing activities in the 2013 period included proceeds from the issuance of debt of $183 million related to the issuance of Enhanced Equipment Trust Certificate (“EETC”) equipment notes associated with aircraft deliveries in the first quarter. These cash inflows were offset in part by debt repayments of $134 million.

Principal financing activities in the 2012 period included debt repayments of $115 million.

US Airways

Operating Activities

Net cash provided by operating activities was relatively flat at $390 million compared to $402 million for the first three months of 2013 and 2012, respectively.

Investing Activities

Net cash used in investing activities was $303 million and $66 million for the first three months of 2013 and 2012, respectively.

Principal investing activities in the 2013 period included expenditures of $238 million for property and equipment and consisted primarily of the purchase of four Airbus aircraft. Investing activities also included expenditures of $49 million for pre-delivery deposits for 20 Airbus aircraft on order and a $16 million increase in restricted cash. Restricted cash increased primarily due to a change in the amount of holdback held by certain credit card processors for advance ticket sales for which US Airways had not yet provided air transportation.

Principal investing activities in the 2012 period included expenditures of $37 million for property and equipment and consisted primarily of costs related to the installation of the Envoy Suite on wide-body Airbus A330-300 aircraft. Investing activities also included expenditures of $47 million for pre-delivery deposits for 17 Airbus aircraft on order. These expenditures were offset in part by an $18 million decrease in restricted cash due to a change in the amount of holdback held by certain credit card processors.

Financing Activities

Net cash provided by financing activities was $67 million for the first three months of 2013 as compared to net cash used in financing activities of $89 million for the first three months of 2012.

Principal financing activities in the 2013 period included proceeds from the issuance of debt of $183 million related to the issuance of EETC equipment notes associated with aircraft deliveries in the first quarter. These cash inflows were offset in part by debt repayments of $118 million.

Principal financing activities in the 2012 period included debt repayments of $99 million.

Commitments

As of March 31, 2013, we had $5.03 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 2012 Form 10-K.

Citicorp Credit Facility

On March 23, 2007, US Airways Group entered into a term loan credit facility (the “Citicorp 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 Moody’s 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 Moody’s and S&P in effect as of the last day of the most recently ended fiscal quarter are both at least two subgrades better than the credit ratings in effect on March 23, 2007, then (A) the applicable LIBOR margin will be 2.00% and (B) the applicable index margin will be 1.00%. As of March 31, 2013, the interest rate on the Citicorp credit facility was 2.70% based on a 2.50% LIBOR margin.

The Citicorp credit facility matures on March 23, 2014, and is repayable in seven annual installments with each of the first six installments to be paid on each anniversary of the closing date in an amount equal to 1% of the initial aggregate principal amount of the loan and the final installment to be paid on the maturity date in the amount of the full remaining balance of the loan.

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 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 $1.10 billion as of March 31, 2013. As of March 31, 2013, we were in compliance with all debt covenants under the Citicorp credit facility.

Our Citicorp credit facility becomes due on March 23, 2014 and accordingly, the $1.10 billion balance is classified as current maturities of debt and capital leases on our condensed consolidated balance sheet as of March 31, 2013. We intend to refinance this debt prior to its maturity.

Aircraft Financing Transactions

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 by the amount of the holdbacks. These holdback amounts are reflected on our condensed consolidated balance sheet as restricted cash.

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). Since 2008, when deliveries commenced under the purchase agreements, US Airways has taken delivery of 62 aircraft through March 31, 2013, which includes four A320 aircraft, 51 A321 aircraft and seven A330-200 aircraft. US Airways plans to take delivery of 12 A321 aircraft in the remainder of 2013, with the remaining 30 A320 family aircraft scheduled to be delivered between 2014 and 2015. In addition, US Airways plans to take delivery of five A330-200 aircraft in 2013, with the remaining three A330-200 aircraft scheduled to be delivered in 2014. Deliveries of the 22 A350 XWB aircraft are presently 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 A320 family fleet, three new Trent 700 spare engines scheduled for delivery through 2013 for use on the A330-200 fleet and three new Trent XWB spare engines scheduled for delivery in 2017 through 2019 for use on the A350 XWB aircraft. US Airways has taken delivery of two of the Trent 700 spare engines and four of the V2500-A5 spare engines through March 31, 2013.

Under all of our aircraft and engine purchase agreements, our total future commitments as of March 31, 2013 are expected to be approximately $4.65 billion through 2019, which includes predelivery deposits and payments. We have financing commitments for all future Airbus aircraft deliveries except for four aircraft scheduled for delivery after November 2013. 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 March 31, 2013, 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 March 31, 2013:


	S&P Local Issuer Credit Rating	Fitch Issuer Default Credit Rating	Moody’s Corporate Family Rating
US Airways Group	B-	B-	B3
US Airways	B-	B-	*

(*)	The credit agency does not rate this category for US Airways.

In April 2013, Fitch upgraded the Issuer Default Rating to B+ from B- for US Airways Group and 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 worsen, we may face future downgrades, which could 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.

Labor Agreements

In February 2013, the US Airways pilots represented by US Airline Pilots Association voted to ratify a memorandum of understanding (“MOU”) that will become effective in the event a merger with AMR is consummated. If the Merger is completed, the MOU provides a six-year agreement for the pilots of the combined post-Merger carrier.

In February 2013, the US Airways flight attendants represented by the Association of Flight Attendants voted to ratify a new collective bargaining agreement. We estimate that over the five-year term of the contract, the economic cost is approximately $40 million per year.

In March 2013, pilots at Piedmont Airlines and PSA Airlines, represented by the Air Line Pilots Association (“ALPA”), each voted to ratify a new five-year collective bargaining agreement. These agreements are not expected to have a material impact on our results of operations.

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 2012 Form 10-K.

Contractual Obligations

The following table provides details of our future cash contractual obligations as of March 31, 2013 (in millions):


	Payments Due by Period
	2013		2014		2015		2016		2017		Thereafter		Total
US Airways Group (1)
Debt (2)	$	—	$	1,376	$	100	$	—	$	—	$	35	$	1,511
Interest obligations (3)		41		31		5		3		3		17		100
US Airways (4)
Debt and capital lease obligations (5) (6)		296		563		394		341		345		1,579		3,518
Interest obligations (3) (6)		145		164		134		141		127		252		963
Aircraft purchase and operating lease commitments (7)		1,583		1,794		1,113		711		1,378		3,048		9,627
Regional capacity purchase agreements (8)		808		1,019		901		578		440		559		4,305
Other US Airways Group subsidiaries (9)		8		10		8		8		7		6		47

Total	$	2,881	$	4,957	$	2,655	$	1,782	$	2,300	$	5,496	$	20,071

(1)	These commitments represent those entered into by US Airways Group.

(2)	Excludes $76 million of unamortized debt discount as of March 31, 2013.

(3)	For variable-rate debt, future interest obligations are shown above using interest rates in effect as of March 31, 2013.

(4)	These commitments represent those entered into by US Airways.

(5)	Excludes $59 million of unamortized debt discount as of March 31, 2013.

(6)	Includes $1.75 billion of future principal payments and $629 million of future interest payments as of March 31, 2013, respectively, related to EETCs associated with mortgage financings for the purchase of certain aircraft.

(7)	Includes $2.21 billion of future minimum lease payments related to EETC leveraged leased financings of certain aircraft as of March 31, 2013.

(8)	Represents minimum payments under capacity purchase agreements with third-party express carriers. These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and our actual payments could differ materially.

(9)	Represents operating lease commitments entered into by US Airways Group’s other airline subsidiaries, Piedmont and PSA.

In light of our significant financial commitments related to, among other things, new aircraft and the servicing and amortization of existing debt and equipment leasing arrangements, we regularly consider and enter into negotiations related to capital raising activity, which may include the entry into leasing transactions and future issuances of secured or unsecured debt obligations or additional equity securities, in public or private offerings or otherwise. The cash available to us from operations and 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 Bank Delaware 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.

Critical Accounting Policies and Estimates

In the first quarter of 2013, 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 2012 Form 10-K.

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 2012 Form 10-K except as updated below.

Commodity price risk

Our 2013 forecasted mainline and express fuel consumption is presently approximately 1.48 billion gallons, and based on this forecast, a one cent per gallon increase in aviation fuel price results in a $15 million increase in annual expense. We have not entered into any transactions to hedge our fuel consumption. As a result, we fully realize the effects of any increase or decrease in fuel prices.

Interest rate risk

Our exposure to interest rate risk relates primarily to our variable-rate debt obligations. At March 31, 2013, our variable-rate long-term debt obligations of approximately $2.70 billion represented approximately 54% of our total long-term debt. If interest rates increased 10% in 2013, the impact on our results of operations would be approximately $9 million of additional interest expense.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of US Airways Group’s and US Airways’ management, including the Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the rules promulgated under the Securities Exchange Act of 1934, as amended) as of March 31, 2013. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of March 31, 2013.

Changes in Internal Control over Financial Reporting

There has been no change to US Airways Group’s or US Airways’ internal control over financial reporting that occurred during the quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, US Airways Group’s or US Airways’ internal control over financial reporting.

Limitation on the Effectiveness of Controls

We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the CEO and CFO believe that our disclosure controls and procedures were effective at the “reasonable assurance” level as of March 31, 2013.

Part II. Other Information

Item 1. Legal Proceedings

We are a party to an arbitration proceeding relating to a grievance brought by our pilots union to the effect that, annually since May 2010, this work group was entitled to an increase in wages by operation of the applicable collective bargaining agreement. The arbitrator has issued a decision in our favor, and a subsequent meeting requested by the union has been held with the arbitrator to address that decision. We believe that the union’s position is without merit and that the possibility of an adverse outcome is remote.

On April 21, 2011, US Airways filed an antitrust lawsuit against Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited (collectively, “Sabre”) in Federal District Court for the Southern District of New York. The lawsuit alleges, among other things, that Sabre has engaged in anticompetitive practices that illegally restrain US Airways’ ability to distribute its products to its customers. The lawsuit also alleges that these actions have prevented US Airways from employing new competing technologies and have allowed Sabre to continue to charge US Airways supracompetitive fees. The lawsuit seeks both injunctive relief and money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011, allowing two of the four counts in the complaint to proceed. We intend to pursue our claims against Sabre vigorously and to vigorously defend any claims Sabre is permitted to file against us, but there can be no assurance of the outcome of this litigation.

On March 1, 2013, a putative class action lawsuit captioned Plumbers & Steamfitters Local Union No. 248 Pension Fund v. US Airways Group, Inc., et al., No. CV2013-051605 was filed in the Superior Court of the State of Arizona in Maricopa County. The complaint names as defendants US Airways Group and the members of its board of directors, and alleges that the directors breached their fiduciary duties in connection with the AMR Merger by failing to maximize the value of US Airways Group and ignoring or failing to protect against conflicts of interest, and that US Airways Group aided and abetted those breaches of fiduciary duty. The complaint seeks a declaration that the Merger Agreement is unenforceable, an injunction against the Merger, or rescission in the event it has been consummated, imposition of a constructive trust, an award of fees and costs, including attorneys’ and experts’ fees, and other relief. We believe this lawsuit is without merit and intend to vigorously defend against the allegations.

We are defendants in various other pending lawsuits and proceedings, and from time to time are subject to other claims arising in the normal course of our business, many of which are covered in whole or in part by insurance. The outcome of those matters cannot be predicted with certainty at this time, but we, having consulted with outside counsel, believe that the ultimate disposition of these contingencies will not materially affect our consolidated financial position or results of operations.

Item 1A. Risk Factors

Below are certain risk factors that may affect our business, results of operations or financial condition, or the trading price of our common stock or other securities. We caution the reader that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risks and uncertainties emerge from time to time. Management cannot predict such new risks and uncertainties, nor can it assess the extent to which any of the risk factors below or any such new risks and uncertainties, or any combination thereof, may impact our business.

Risk Factors Relating to the Company and Industry-Related Risks

We could experience significant operating losses in the future.

For a number of reasons, including those addressed in these risk factors, we might fail to achieve profitability and might experience significant losses. In particular, the 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.

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 materially 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. Jet fuel market prices have fluctuated substantially over the past several years with market spot prices ranging from a low of approximately $1.87 per gallon to a high of approximately $3.38 per gallon during the period from January 1, 2010 to March 31, 2013.

Because of the amount of fuel needed to operate our airline, even a relatively small increase in the price of fuel can have a material 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, changes in access to petroleum product pipelines and terminals, 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. Currently, we are not a party to any transactions to hedge our fuel consumption. 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 projected price of fuel at a time when we have fuel hedging contracts in place could adversely impact our short-term liquidity, because hedge counterparties could require that we post collateral in the form of cash or letters of credit. See also the discussion in Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk.”

The airline industry is intensely competitive and dynamic.

Our competitors include other major domestic airlines and foreign, regional and new entrant airlines, many of which have more financial resources or lower cost structures than ours, as well as 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 the actions of other carriers in many areas including pricing, scheduling, capacity and promotions, which 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, consolidation, and could continue to have an impact on our overall performance.

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.

See also the risk factors provided under the caption “Risk Factors Relating to the Merger and the Combined Company.”

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.

Concerns about the systemic impact of inflation, the availability and cost of credit, energy costs and geopolitical issues, combined with continued changes in 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.

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 four Airbus aircraft scheduled for delivery after November 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 (“LIBOR”). LIBOR tends to fluctuate based on general economic conditions, general interest rates, Federal Reserve rates and the supply of and demand for credit in the London interbank market. We have not hedged our interest rate exposure and, accordingly, our interest expense for any particular period may fluctuate based on LIBOR and other variable interest rates. To the extent these interest rates increase, our interest expense will increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected. See also the discussion of interest rate risk in Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk.”

Our high level of fixed obligations limits our ability to fund general corporate requirements and obtain additional financing, limits our flexibility in responding to competitive developments and increases our vulnerability to adverse economic and industry conditions.

We have a significant amount of fixed obligations, including debt, aircraft leases and financings, aircraft purchase commitments, leases and developments of airport and other facilities and other cash obligations. We also have certain guaranteed costs associated with our express operations. Our existing indebtedness is secured by substantially all of our assets.

As a result of the substantial fixed costs associated with these obligations:

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a decrease in revenues results in a disproportionately greater percentage decrease in earnings;

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we may not have sufficient liquidity to fund all of these fixed costs if our revenues decline or costs increase; and

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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 some or all of the advance ticket sales that have been processed by that company, but for which we have not yet provided the air transportation. We are currently subject to certain holdback requirements. 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 that the NMB 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 materially adversely affect our ability to conduct our business and our financial performance.

We are currently in negotiations with the unions representing our fleet service employees, our passenger service employees, our mechanic, stock clerk and related employees, our maintenance training instructors, our flight crew training instructors and our flight simulator engineers. On February 8, 2013, the US Airways pilots represented by the US Airline Pilots Association (“USAPA”) voted to ratify a memorandum of understanding (“MOU”) that will become effective in the event a merger with AMR is consummated. If the Merger is completed, the MOU provides a six-year agreement for the pilots of the combined post-Merger carrier. In addition, our express subsidiary, Piedmont, is in negotiations with the unions representing its flight attendants and its mechanics. All negotiations except those involving the Piedmont mechanics are being overseen by the NMB. None of these unions presently may lawfully engage in concerted refusals to work, such as strikes, slow-downs, sick-outs or other similar activity, against us. Nonetheless, 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. For example, on September 28, 2011, the U.S. District Court in Charlotte granted a preliminary injunction, which was subsequently converted to a permanent injunction, enjoining the labor union representing our pilots from engaging in an illegal work slowdown.

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 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 or future labor negotiations. Approximately 83% 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, including related to wages. Unions may also bring court actions and may seek to compel us to engage in bargaining processes where we believe we have no such obligation. If successful, there is a risk these judicial or arbitral avenues could create material additional costs that we did not anticipate.

Interruptions or disruptions in service at one of our hub airports could have a material adverse impact on our operations.

We operate principally through hubs in Charlotte, Philadelphia, Phoenix and Washington, D.C. 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, facility disruptions, 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.

Regulatory changes affecting the allocation of slots could have a material adverse impact on our operations.

Operations at four major domestic airports, certain smaller domestic airports and certain foreign airports served by us are regulated by governmental entities through the use of “slots” or similar regulatory mechanisms which limit the rights of carriers to conduct operations at those airports. Each slot represents the authorization to land at or take off from the particular airport during a specified time period and may have other operational restrictions as well. In the United States, the Federal Aviation Administration (“FAA”) currently regulates the allocation of slot or slot exemptions at Ronald Reagan Washington National Airport (“Washington National”) and three New York City airports: Newark, JFK and LaGuardia. Our operations at these airports generally require the allocation of slots or similar regulatory authority. Similarly, our operations at international airports in Frankfurt, London Heathrow, Paris and other airports outside the United States are regulated by local slot authorities pursuant to the International Air Transport Association’s Worldwide Scheduling Guidelines and applicable local law.

We currently have sufficient slots or similar authority to operate our existing flight schedule and have generally been able to acquire the necessary rights to expand flights and to change our schedules, although some airports are more challenging than others in terms of the cost and availability of additional authority necessary to expand operations. There is no assurance, however, that we will be able to do so in the future because, among other reasons, such allocations are subject to changes in government policy. The FAA is planning a new rulemaking in 2013 to update the current rules governing the New York City airports. As the new proposal has not been released yet, we cannot state that the new proposed rules, if finalized, would not have a material impact on our operations.

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 adverse economic conditions, and other risk factors, such as a bankruptcy restructuring of any 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, results of operations and financial performance.

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 on third-party distribution channels and must manage effectively the costs, rights and functionality of these channels.

We rely on third-party distribution channels, including those provided by or through global distribution systems, or GDSs (e.g., Amadeus, Sabre and Travelport), conventional travel agents and online travel agents, or OTAs (e.g., Expedia, Orbitz and Travelocity), to distribute a significant portion of our airline tickets and we expect in the future to continue to rely on these channels and hope to expand their ability to distribute and collect revenues for ancillary products (e.g., fees for selective seating). These distribution channels are more expensive and at present have less functionality in respect of ancillary product offerings than those we operate ourselves, such as our call centers and our website. Certain of these distribution channels also effectively restrict the manner in which we distribute our products generally. To remain competitive, we will need to manage successfully our distribution costs and rights, increase our distribution flexibility and improve the functionality of third-party distribution channels, while maintaining an industry-competitive cost structure. Any inability to manage our third-party distribution costs, rights and functionality at a competitive level or any material diminishment or disruption in the distribution of our tickets could have a material adverse effect on our competitive position and our results of operations.

Further, on April 21, 2011, we filed an antitrust lawsuit against Sabre in Federal District Court for the Southern District of New York. The lawsuit, as amended to date, alleges, among other things, that Sabre has engaged in anticompetitive practices to preserve its monopoly power by restricting our ability to distribute our products to our customers. The lawsuit also alleges that these actions have prevented us from employing new competing technologies and has allowed Sabre to continue to charge us supracompetitive fees. The lawsuit seeks both injunctive relief and money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011 allowing two of the four counts in the complaint to proceed. We intend to pursue our claims against Sabre vigorously and to vigorously defend any claims Sabre is permitted to file against us, but there can be no assurance of the outcome of this litigation.

Our business is subject to extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages.

Airlines are subject to extensive domestic and international regulatory requirements. In the last several years, Congress has passed laws, and the U.S. Department of Transportation (“DOT”), the FAA, the Transportation Security Administration (“TSA”) and the Department of Homeland Security have issued a number of directives and other regulations that affect the airline industry. These requirements impose substantial costs on us and restrict the ways we may conduct our business.

For example, 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. Our failure to timely comply with these requirements has in the past and may in the future result in fines and other enforcement actions by the FAA or other regulators. In addition, the FAA recently issued its final regulations governing pilot rest periods and work hours for all airlines certificated under Part 121 of the Federal Aviation Regulations. The rule, which is effective January 14, 2014, impacts the required amount and timing of rest periods for pilots between work assignments and modifies duty and rest requirements based on the time of day, number of scheduled segments, flight types, time zones, and other factors. These regulations could have a material adverse impact on us and the industry upon implementation.

Recent DOT consumer rules require new procedures for customer handling during long onboard delays, further regulate airline interactions with passengers through the reservations process, at the airport, and on board the aircraft, and require new disclosures concerning airline fares and ancillary fees such as baggage fees. The DOT has been aggressively investigating alleged violations of these new rules. Other DOT rules apply to post-ticket purchase price increases and an expansion of tarmac delay regulations to international airlines.

The Aviation and Transportation Security Act mandates the federalization of certain airport security procedures and imposes additional security requirements on airports and airlines, most of which are funded by a per-ticket tax on passengers and a tax on airlines.

The results of our operations, demand for air travel, and the manner in which we conduct business each may be affected by changes in law and future actions taken by governmental agencies, including:

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changes in law which affect the services that can be offered by airlines in particular markets and at particular airports, or the types of fees that can be charged to passengers;

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the granting and timing of certain governmental approvals (including antitrust or foreign government approvals) needed for codesharing alliances and other arrangements with other airlines;

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restrictions on competitive practices (for example, court orders, or agency regulations or orders, that would curtail an airline’s ability to respond to a competitor);

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the adoption of new passenger security standards or regulations that impact customer service standards (for example, a “passenger bill of rights”);

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restrictions on airport operations, such as restrictions on the use of takeoff and landing slots at airports or the auction or reallocation of slot rights currently held by US Airways Group; and

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the adoption of more restrictive locally-imposed noise restrictions.

Each additional regulation or other form of regulatory oversight increases costs and adds greater complexity to airline operations and, in some cases, may reduce the demand for air travel. There can be no assurance that our compliance with new rules, anticipated rules or other forms of regulatory oversight will not have a material adverse effect on us.

The FAA has announced the imposition of furloughs that will result in reduced staffing, including among air traffic controllers, in connection with its implementation of budget reductions related to the federal government’s response to the so-called “sequester” of government funding. The first day affected by these furloughs was April 21, 2013. Accordingly, we cannot predict the impact of any such furloughs on our business, however any significant reduction in air traffic capacity in key airports in the U.S. could have a material adverse effect on our operations and financial results.

In addition, the air traffic control system is not successfully managing the growing demand for U.S. air travel. Air traffic controllers rely on outdated technologies that routinely overwhelm the system and compel airlines to fly inefficient, indirect routes. On February 14, 2012, the FAA Modernization and Reform Act of 2012 was signed. The law provides funding for the FAA to rebuild its air traffic control system, including switching from radar to a GPS-based system. It is uncertain when any improvements to the air traffic control system will take effect. Failure to update the air traffic control system in a timely manner and the substantial funding requirements that may be imposed on airlines of a modernized air traffic control system may have a material adverse effect on our business.

The ability of U.S. airlines 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 and appropriate slots or facilities may not be made available. We currently operate on a number of international routes under government arrangements that limit the number of airlines permitted to operate on the route, the capacity of the airlines providing services on the route, or the number of airlines allowed access to particular airports. If an open skies policy were to be adopted for any of these routes, such an event could have a material adverse impact on us and could result in the impairment of material amounts of our related tangible and intangible assets. In addition, competition from revenue-sharing joint ventures, joint business agreements, and other alliance arrangements by and among other airlines could impair the value of our business and assets on the open skies routes. For example, the open skies air services agreement between the U.S. and the European Union (“EU”), which took effect in March 2008, provides airlines from the U.S. and EU member states open access to each other’s markets, with freedom of pricing and unlimited rights to fly from the U.S. to any airport in the EU, including London’s Heathrow Airport. As a result of the agreement, we face increased competition in these markets, including Heathrow Airport. In addition, the open skies agreement between the U.S. and Brazil, which was signed in 2010 and takes full effect in 2015, has resulted in increased competition in the U.S./Brazil market.

The airline industry is heavily taxed.

The airline industry is subject to extensive government fees and taxation that will negatively impact our revenue. The U.S. airline industry is one of the most heavily taxed of all industries. These fees and taxes have grown significantly in the past decade for domestic flights, and various U.S. fees and taxes also are assessed on international flights. For example, as permitted by federal legislation, most major U.S. airports impose a passenger facility charge per passenger on us. In addition, the governments of foreign countries in which we operate impose on U.S. airlines, including us, various fees and taxes, and these assessments have been increasing in number and amount in recent years. Moreover, we are obligated to collect a federal excise tax, commonly referred to as the “ticket tax,” on domestic and international air transportation. We will collect the excise tax, along with certain other U.S. and foreign taxes and user fees on air transportation (such as a per-ticket tax on passengers to fund the TSA), and pass along the collected amounts to the appropriate governmental agencies. Although these taxes are not operating expenses, they represent an additional cost to our customers. There are continuing efforts in Congress and in other countries to raise different portions of the various taxes, fees, and charges imposed on airlines and their passengers. Increases in such taxes, fees, and charges could negatively impact our business, financial condition, and results of operations.

Under recent DOT regulations, all governmental taxes and fees must be included in the fares we quote or advertise to our customers. Due to the competitive revenue environment, many increases in these fees and taxes have been absorbed by the airline industry rather than being passed on to the customer. Further increases in fees and taxes may reduce demand for air travel, and thus our revenues.

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 that determine not to institute similar charges.

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. 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, 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 and Transportation Security Act mandated 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.

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 and, at some airports, adequate slots.

In order to operate our existing and proposed flight schedule and, where appropriate, add service along new or existing routes, we must be able to maintain and/or obtain adequate gates, ticketing facilities, operations areas, slots (where applicable), and office space. Also, as airports around the world become more congested, we will not 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. Further, our operating costs at airports at which we operate, including our hubs, may increase significantly because of capital improvements at such airports that we may be required to fund, directly or indirectly. In some circumstances, such costs could be imposed by the relevant airport authority without our approval.

Access to slots at several major U.S. and foreign airports to be served by us are subject to government regulation. There is no assurance that we will be able to retain or acquire the necessary rights to operate our desired schedule and change our schedule in the future because, among other reasons, such allocations are subject to changes in government policy. For example, the FAA is planning a new rulemaking in 2013 to modify the current rules limiting flight operations at New York City’s JFK and LaGuardia airports. Any limitation on our ability to acquire or maintain adequate gates, ticketing facilities, operations areas, slots (where applicable), or office space could severely constrain our operations and have a material adverse effect on us.

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, and violations can lead to significant fines and penalties.

The U.S. Environmental Protection Agency (“EPA”) has proposed effluent limitation guidelines for airport de-icing fluid. This proposed technology-based rule would require the mitigation of spent de-icing fluid (glycol) discharges through collection and treatment. Airports meeting threshold requirements would have to construct or reconfigure de-icing facilities to capture and treat the fluid. Additionally, the EPA has proposed changes to underground storage tank regulations that could affect certain airport fuel hydrant systems. Airport systems that fall within threshold requirements would need to be modified to meet regulations. Neither rule has been finalized, and cost estimates have not been defined, but US Airways along with other airlines would share a portion of these costs at applicable airports. In addition to the proposed EPA regulations, several U.S. airport authorities are actively engaged in efforts to limit discharges of de-icing fluid 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. Liability under these laws is often strict, joint and several, meaning that we could be liable for the costs of cleaning up environmental contamination regardless of fault or the amount of wastes directly attributable to us. 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 effect on our business.

We have various leases and agreements with respect to real property, tanks and pipelines with airports and other operators. Under these leases and agreements, we have agreed to indemnify 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. For example, the EU has established the ETS, the mechanism by which emissions of CO2 are currently regulated in the EU. Since the beginning of 2012, the ETS has required airlines to have emission allowances equal to the amount of carbon dioxide emissions from flights to and from EU member states. In November 2012, the EU announced an intent to suspend payments and other aspects of the ETS through October 2013 for flights between the EU and countries outside the EU. In addition, President Obama recently signed legislation that will allow the Secretary of Transportation to prohibit U.S. airlines from participating in the ETS. Although the details of the suspension and prohibition have not yet been finalized, US Airways does not anticipate any significant emissions credit expenditures in 2013. Beyond 2013, compliance with the EU ETS could significantly increase our operating costs. However, whether US Airways will ever be required to purchase and redeem emissions credits under the EU scheme is still unknown. Further, the potential impact of ETS on costs will ultimately depend on a number of factors, including baseline emissions, the price of emission credits and the number of future flights subject to ETS. These costs have not been completely defined and will fluctuate. In the U.S., there is an increasing trend toward regulating greenhouse gas emissions directly under the Clean Air Act, and while the EPA’s recent regulatory activity in this area has focused on industries other than aviation, it is possible that future EPA regulations or new legislation could impact airlines. Several states are also considering initiatives 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. These regulatory efforts, both internationally and in the U.S. at the federal and state levels, are still developing and 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. However, such climate change-related regulatory activity in the future may adversely affect our business and financial results by requiring us to reduce our emissions, purchase allowances or otherwise pay for our emissions. Such activity may also impact us indirectly by increasing our operating costs, including fuel costs.

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.

We rely heavily on technology and automated systems to operate our business, and any failure of these technologies or systems could harm our business, financial condition or results of operations.

We are highly dependent on technology and automated systems to operate and achieve low operating costs. These technologies and systems include our computerized airline reservation system, flight operations system, financial planning, management and accounting systems, telecommunications systems, website, maintenance systems and check-in kiosks. In order for our operations to work efficiently, our website and reservation system must be able to accommodate a high volume of traffic, maintain secure information and deliver flight information. Substantially all of our tickets are issued to passengers as electronic tickets. We depend on our reservation system, which is hosted and maintained under a long-term contract by a third-party service provider, to be able to issue, track and accept these electronic tickets. If our automated systems are not functioning or if our third-party service providers were to fail to adequately provide technical support, system maintenance or timely software upgrades for any one of our key existing systems, we could experience service disruptions or delays, which could harm our business and result in the loss of important data, increase our expenses and decrease our revenues. In the event that one or more of our primary technology or systems vendors goes into bankruptcy, ceases operations or fails to perform as promised, replacement services may not be readily available on a timely basis, at competitive rates or at all, and any transition time to a new system may be significant. Our automated systems cannot be completely protected against other events that are beyond our control, including natural disasters, computer viruses or telecommunications failures. Substantial or sustained system failures could cause service delays or failures and result in our customers purchasing tickets from other airlines. We cannot assure you that our security measures, change control procedures or disaster recovery plans are adequate to prevent disruptions or delays. Disruption in or changes to these systems could result in a disruption to our business and the loss of important data. Any of the foregoing could result in a material adverse effect on our business, results of operations or financial condition.

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 (including cyber attacks or cyber intrusions over the Internet, malware, computer viruses and the like), discovery of new vulnerabilities or attempts to exploit existing vulnerabilities in our systems, other 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 sensitive information. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. 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.

In addition, 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 and could increase our costs.

Failure to comply with the Payment Card Industry Standards discussed above or other privacy and data use and security requirements of our partners or related laws, rules and regulations to which we are subject may expose us to claims for contract breach, 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.

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.

We are dependent on a limited number of suppliers for aircraft, aircraft engines and parts.

We are dependent on a limited number of suppliers for aircraft, aircraft engines and many aircraft and engine parts. As a result, we are vulnerable to any problems associated with the supply of those aircraft, parts and engines, including design defects, mechanical problems, contractual performance by the suppliers, or adverse perception by the public that would result in customer avoidance or in actions by the FAA resulting in an inability to operate our aircraft.

Our business will be affected by many changing economic and other conditions beyond our control, and our results of operations could be volatile and fluctuate due to seasonality.

Our business, financial condition, and results of operations will be affected by many changing economic and other conditions beyond our control, including, among others:

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actual or potential changes in international, national, regional, and local economic, business and financial conditions, including recession, inflation, higher interest rates, wars, terrorist attacks, or political instability;

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changes in consumer preferences, perceptions, spending patterns, or demographic trends;

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changes in the competitive environment due to industry consolidation, changes in airline alliance affiliations, and other factors;

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actual or potential disruptions to the air traffic control systems, including as a result of “sequestration” or any other interruption in government funding;

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increases in costs of safety, security, and environmental measures;

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outbreaks of diseases that affect travel behavior; and

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weather and natural disasters.

Thus, our results of operations could be volatile and subject to rapid and unexpected change. In addition, due to generally weaker demand for air travel during the winter, our revenues in the first and fourth quarters of the year could be weaker than revenues in the second and third quarters of the year.

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 September 30, 2013. 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.

The use of our 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 (“Section 382”) of the Internal Revenue Code of 1986, as amended (“the Code”), a limitation is imposed on the corporation’s future ability to utilize any net operating losses (“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 US Airways Group underwent an “ownership change” as defined in Section 382 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 Group’s common stock could result in new Section 382 limitations on the use of our NOLs as of the date of an additional “ownership change.” US Airways Group expects to undergo an ownership change in connection with the Merger with AMR.

See also “Risk Factors Relating to the Merger and the Combined Company – The use of our and AMR’s respective pre-Merger NOL carryforwards and certain other tax attributes may be limited following the consummation of the Merger.”

Risk Factors Relating to the Merger and the Combined Company

On February 13, 2013, US Airways Group and AMR entered into the Merger Agreement, as described under “Recent Developments” on page 4 of this report.

The Merger is subject to a number of conditions to our and AMR’s obligations, which, if not fulfilled, may result in termination of the Merger Agreement.

The Merger Agreement contains a number of customary conditions to consummation of the Merger, including that certain representations and warranties be accurate, that certain covenants be fulfilled, that certain consents and regulatory approvals have been obtained, that there are no legal prohibitions against consummation of the Merger, that our stockholders have adopted the Merger Agreement, that an order from the Bankruptcy Court confirming AMR’s reorganization plan is in effect, that AMR’s reorganization plan conforms to the requirements of the Merger Agreement, that secured indebtedness of the Debtors and certain other claims against the Debtors not exceed specified levels, and certain other conditions. Many of the conditions to consummation of the Merger are not within either AMR’s or our control and neither of us can predict when or if these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to October 14, 2013, which date may be extended to December 13, 2013 under certain circumstances, it is possible that the Merger will not be consummated in the expected time frame or that the Merger Agreement may be terminated.

The Merger is subject to the receipt of consents and clearances from certain domestic and foreign regulatory authorities that may impose conditions that could have a material and adverse effect on the combined company, or that could delay or, if not obtained, prevent the completion of the Merger.

Before the Merger can be completed, applicable waiting periods must expire or terminate under antitrust laws and various approvals, consents or clearances must be obtained from certain domestic and foreign regulatory entities, including those regulating the provision of commercial aviation services. In deciding whether to grant antitrust or regulatory clearances, the relevant antitrust authorities will consider the effect of the Merger on competition within their relevant jurisdictions. The terms and conditions of approvals that are granted may impose requirements, limitations, costs or restrictions on the conduct of the combined company’s business following the Merger. There can be no assurance that regulators will not impose terms, conditions, requirements, limitations, costs or restrictions that would delay completion of the Merger, impose additional material costs on or limit the revenues of the combined company, or limit some or all of the synergies and other benefits we anticipate following the Merger. In addition, we cannot provide any assurance that any such terms, conditions, requirements, limitations, costs, or restrictions will not result in a material delay in, or the abandonment of, the Merger.

The Merger is subject to the receipt of numerous approvals, including approvals from US Airways Group’s stockholders and confirmation of AMR’s reorganization plan by the Bankruptcy Court. Failure to obtain any of these approvals would prevent the consummation of the Merger.

Before the Merger can be completed, US Airways Group’s stockholders must adopt the Merger Agreement and the Bankruptcy Court must enter an order confirming AMR’s reorganization plan. In addition, unless and until a merger support order approving the Merger Agreement and certain related matters in the form required by the Merger Agreement is entered, the Merger Agreement is not binding on or enforceable against any party. A merger support order meeting the requirements of the Merger Agreement must be entered by the Bankruptcy Court on or before May 14, 2013 or the Merger Agreement may be terminated in accordance with its termination provisions. There can be no assurance that any of these approvals will be obtained. Based on the Bankruptcy Court hearing on March 27, 2013 to consider the merger support motion, which seeks approval of the Merger Agreement and any related objections and the memorandum of decision issued by the Bankruptcy Court on April 11, 2013, we and AMR anticipate that the Bankruptcy Court will enter an order that fails to meet all of the requirements of the Merger Agreement. We and AMR are discussing how to address this anticipated issue. Failure to obtain these required approvals within the expected time frame, or having to make significant changes to the structure, terms, or conditions of the Merger to obtain such approvals, may result in a material delay in, or the abandonment of, the Merger.

A lawsuit has been filed against US Airways Group challenging the Merger and an adverse ruling may prevent the Merger from being completed.

US Airways Group, as well as the members of US Airways Group’s board of directors, were named as defendants in a lawsuit brought by a purported class of US Airways Group’s stockholders challenging the proposed Merger and seeking a declaration that the Merger Agreement is unenforceable, an injunction against the proposed Merger (or rescission in the event it has been consummated), imposition of a constructive trust, an award of fees and costs, including attorneys’ and experts’ fees, and other relief.

Additional lawsuits may be filed against us, AMR, and/or our or AMR’s directors in connection with the Merger. One of the conditions to the closing of the Merger is that no order, writ, injunction, decree, or any other legal rules, regulations, directives, or policies will be in effect that prevent completion of the Merger. Consequently, if a settlement or other resolution is not reached in the lawsuit referenced above and the plaintiffs secure injunctive or other relief prohibiting, delaying, or otherwise adversely affecting the defendants’ ability to complete the Merger, then such injunctive or other relief may prevent the Merger from becoming effective within the expected time frame or at all.

Any delay in completing the Merger could delay the benefits expected to be achieved thereunder.

The need to satisfy conditions and obtain consents, clearances, and approvals for the Merger, as well as any lawsuits related to the Merger, and other events, could delay the consummation of the Merger for a significant period of time or prevent it from occurring. Any delay in consummation of the Merger could cause the combined company to be delayed in realizing some of the synergies and other benefits that the parties anticipate if the Merger is successfully completed within its expected time frame.

Failure to complete the Merger could negatively impact our stock price and our future business and financial results.

If the Merger is not completed, our ongoing business may be adversely affected, and we will be subject to several risks, including the following:

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we may be required to pay termination fees of $55 million or $195 million under certain circumstances provided in the Merger Agreement;

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unless and until it is terminated, we will be prohibited by the Merger Agreement from seeking certain strategic alternatives, such as transactions with third parties other than AMR, and could therefore miss attractive alternatives to the Merger;

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prior to any termination of the Merger Agreement, our operations will be restricted by the terms of the Merger Agreement, which may cause us to forego otherwise attractive business opportunities;

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we will be required to pay certain costs relating to the Merger, whether or not it is consummated, such as legal, accounting, financial adviser and printing fees, which costs could be substantial; and

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our management will have focused its attention on negotiating and preparing for the Merger instead of on pursuing other opportunities that could have been beneficial to us.

If the Merger is not completed, we cannot assure you that these risks will not materialize and will not materially and adversely affect our business, financial results, and stock price.

The Merger Agreement contains customary restrictions on our ability to seek other strategic alternatives.

The Merger Agreement contains “no shop” provisions that restrict our ability to initiate, solicit, or knowingly encourage or facilitate competing third-party proposals for any business combination transaction involving a Merger of us with another entity or the acquisition of a significant portion of our stock or assets, although we may consider competing, unsolicited proposals and enter into discussions or negotiations regarding such proposals if our board of directors determines that any such acquisition proposal constitutes, or is reasonably likely to lead to, a superior proposal and that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of the board of directors to us and our stockholders under applicable law. In addition, AMR generally has an opportunity to offer to modify the terms of the Merger in response to any competing acquisition proposal. If we were to terminate the Merger Agreement to accept a superior proposal, we would be required to pay a termination fee of $55 million to AMR.

These provisions, although customary for these types of transactions, could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of our company from proposing any such acquisition, even if the potential third-party acquirer were prepared to pay consideration with a higher cash or market value than the market value proposed to be received or realized in the Merger or might result in a potential third-party acquirer proposing to pay a lower consideration to our stockholders than it might otherwise have proposed to pay because of the added expense of the $55 million termination fee that would become payable in connection with the termination of the Merger Agreement by us.

If the Merger Agreement is terminated and we decide to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger.

The combined company may be unable to integrate our and AMR’s businesses successfully and realize the anticipated benefits of the Merger.

The Merger involves the combination of two companies that currently operate as independent public companies, each of which operates its own international network airline. Historically, the integration of separate airlines has often proven to be more time consuming and to require more resources than initially estimated. The combined company will be required to devote significant management attention and resources to integrating our and AMR’s business practices, cultures, and operations. Potential difficulties the combined company may encounter as part of the integration process include the following:

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the inability to successfully combine our business with that of AMR in a manner that permits the combined company to achieve the synergies and other benefits anticipated to result from the Merger;

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the challenge of integrating complex systems, operating procedures, regulatory compliance programs, technology, aircraft fleets, networks, and other assets of the two companies in a manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies;

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diversion of the attention of the combined company’s management and other key employees;

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the challenge of integrating the workforces of the two companies while maintaining focus on providing consistent, high quality customer service and running an efficient operation;

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disruption of, or the loss of momentum in, the combined company’s ongoing business; and

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potential unknown liabilities, liabilities that are significantly larger than we currently anticipate and unforeseen increased expenses or delays associated with the Merger, including transition costs to integrate the two businesses that may exceed the approximately $1.2 billion of cash transition costs that we currently anticipate.

Accordingly, even if the Merger is consummated, the contemplated benefits may not be realized fully, or at all, or may take longer to realize than expected.

The use of AMR’s and our respective pre-Merger NOL carryforwards and certain other tax attributes may be limited following the consummation of the Merger.

Under the Code, a corporation is generally allowed a deduction in any taxable year for NOL carryforwards. As of December 31, 2012, AMR had available NOL carryforwards of approximately $6.6 billion for regular U.S. federal income tax purposes, which will expire, if unused, beginning in 2022, and for state income tax purposes of $3.6 billion, which will expire, if unused, in 2013 through 2027. The amount of AMR’s NOL carryforwards for state income tax purposes that will expire, if unused, in 2013 is $105 million. AMR’s NOL carryforwards could be subject to limitation as a result of the Chapter 11 bankruptcy cases and certain related transactions. As of December 31, 2012, we had available NOL carryforwards of approximately $1.5 billion for regular U.S. federal income tax purposes, which will expire, if unused, beginning in 2025, and for state income tax purposes, of approximately $722 million, which will expire, if unused, in 2013 through 2031. The amount of our NOL carryforwards for state income tax purposes that will expire, if unused, in 2013 is $13 million. Our NOL carryforwards may also be subject to limitation as a result of the Merger. In addition, both our and AMR’s NOL carryforwards are subject to adjustment on audit by the U.S. Internal Revenue Service.

A corporation’s ability to deduct its federal NOL carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 of the Code if it undergoes an “ownership change” as defined in Section 382 of the Code (generally where cumulative stock ownership changes among certain shareholders exceed 50 percentage points during a rolling three-year period). We and AMR each expect to undergo an “ownership change” in connection with AMR’s emergence from its Chapter 11 bankruptcy cases and the Merger, respectively. The general limitation rules for a debtor in a bankruptcy case such as AMR are liberalized where the ownership change occurs upon emergence from bankruptcy. In addition, under certain circumstances, special rules may apply to allow AMR to utilize substantially all of its pre-emergence NOL carryforwards without regard to the general limitations of Section 382 of the Code, and similar rules also may apply to state NOL carryforwards. However, there can be no assurance that these special rules under Section 382 of the Code (or any similar rules under applicable state law) will apply to AMR’s ownership change. Accordingly, the utilization of each of AMR’s and our respective NOL carryforwards and certain other tax attributes could be significantly constrained following AMR’s emergence from its Chapter 11 bankruptcy cases and the Merger. Moreover, an ownership change subsequent to consummation of the Merger could further limit or effectively eliminate the combined company’s ability to utilize such NOL carryforwards and other tax attributes.

The combined company’s ability to use NOL carryforwards will also depend on the amount of taxable income generated in future periods. The NOL carryforwards may expire before the combined company can generate sufficient taxable income to use the NOL carryforwards.

The combined company will require significant liquidity to fund its emergence from Chapter 11 and to achieve successful integration and achieve targeted synergies post-closing.

At emergence from Chapter 11, AMR will be required to or may deem it advisable to settle in cash certain obligations (such as professional fees, certain accrued and unpaid interest, and debt obligations) that matured during the Chapter 11 bankruptcy cases. At this point in the proceedings, AMR cannot predict the amount of cash that could be required to settle such obligations at emergence, but its present estimate is that such costs will be at least $1.3 billion. In addition, the transition costs to integrate the two businesses may exceed the approximately $1.2 billion of cash transition costs that we and AMR currently anticipate. An inability to obtain necessary funding on acceptable terms would have a material adverse impact on the combined company and on its ability to sustain its operations.

Each of our and AMR’s indebtedness and other obligations are, and the combined company’s indebtedness and other obligations following the consummation of the Merger will continue to be, substantial and could adversely affect the combined company’s business and liquidity.

We and AMR have each, and the combined company is expected to continue to have, significant amounts of indebtedness and other obligations, including pension obligations, obligations to make future payments on aircraft equipment and property leases, and obligations under aircraft purchase agreements. Moreover, currently all but a very limited quantity of our and AMR’s assets are pledged to secure their respective indebtedness. Although AMR has substantially reduced its pre-filing debt and lease obligations as a result of the Chapter 11 cases, the combined company is expected to incur substantial additional debt (including secured debt) and lease obligations in the future. If incurred, substantial indebtedness and other obligations could have important consequences. For example, they may:

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limit the combined company’s ability to obtain additional funding for working capital, to withstand operating risks that are customary in the industry, capital expenditures, acquisitions, investments, integration costs, and general corporate purposes, and adversely affect the terms on which such funding can be obtained;

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require the combined company to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness and other obligations, thereby reducing the funds available for other purposes;

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make the combined company more vulnerable to economic downturns and catastrophic external events;

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contain restrictive covenants that could:

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limit the combined company’s ability to merge, consolidate, sell assets, incur additional indebtedness, issue preferred stock, make investments and pay dividends; and

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significantly constrain the combined company’s ability to respond, or respond quickly, to unexpected disruptions in its own operations, the U.S. or global economy, or the businesses in which it operates, or to take advantage of opportunities that would improve its business, operations, or competitive position versus other airlines; and

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limit the combined company’s ability to withstand competitive pressures and reduce its flexibility in responding to changing business and economic conditions.

In addition, increases in the cost of financing could adversely affect the combined company’s liquidity, business, financial condition, and results of operations.

Neither we nor AMR have yet secured financing for all of our scheduled aircraft deliveries, which will be utilized in the fleet of the combined company after the Merger.

Neither we nor AMR have yet secured financing commitments for some of the aircraft that it has on order, commencing with certain deliveries scheduled for 2013, and neither we nor AMR can be assured of the availability or the cost of that financing. If either we or AMR are unable to arrange financing for such aircraft at customary advance rates and on terms and conditions acceptable to it, either company, prior to the Merger, and the combined company thereafter, may need to use cash from operations to purchase such aircraft or may seek to negotiate deferrals for such aircraft with the aircraft manufacturers.

The combined company will have significant pension and other post-employment benefit funding obligations, which may adversely affect its liquidity, financial condition, and results of operations.

The combined company will have significant pension funding obligations, the amount of which will be dependent on the performance of investments held in trust by the pension plans, interest rates for determining liabilities, and actuarial experience. Currently, the combined company’s minimum funding obligation for its pension plans is subject to temporary, favorable rules that are scheduled to expire at the end of 2017. Upon the expiration of those rules, the combined company’s funding obligations are likely to increase materially. In addition, the combined company may have significant obligations for other post-employment benefits depending on the outcome of the adversary proceeding related to the retiree medical and life insurance obligations filed in the Chapter 11 cases. The foregoing post-employment benefit obligations could materially adversely affect the combined company’s liquidity, financial condition, and results of operations.

The combined company will need to obtain sufficient financing or other capital to operate successfully.

We and AMR currently plan to increase the combined company’s revenue in part by investing heavily in renewing and optimizing the combined company’s fleet and integrating the companies. Significant capital resources will be required to achieve these goals and, as a result, we and AMR estimate that the combined company’s planned aggregate capital expenditures on a consolidated basis for calendar years 2013-2017 would be in excess of $20 billion. Accordingly, the combined company will need substantial financing or other capital resources, some of which may be obtained prior to AMR’s emergence from the Chapter 11 cases and thus may be subject to Bankruptcy Court approval. Depending on numerous factors, many of which are out of our and AMR’s, and will be out of the combined company’s, control, such as the state of the domestic and global economy, the credit market’s view of the combined company’s prospects and the airline industry in general, and the general availability of debt and equity capital at the time the combined company seeks capital, the financing and other capital that the combined company will need may not be available to it, or may only be available on onerous terms and conditions. There can be no assurance that the combined company will be successful in obtaining financing or other needed sources of capital to operate successfully.

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:

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our operating results failing to meet the expectations of securities analysts or investors;

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changes in financial estimates or recommendations by securities analysts;

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material announcements by us or our competitors;

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movements in fuel prices;

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new regulatory pronouncements and changes in regulatory guidelines;

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general and industry-specific economic conditions;

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public sales of a substantial number of shares of our common stock; and

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general market conditions.

The market price of the combined company’s common stock may be volatile.

The combined company’s common stock will be a new issue of securities, which issue is expected to be approved for listing on the NYSE or NASDAQ to be effective upon issuance of the combined company’s common stock. However, an active public market for the combined company’s common stock may not develop or be sustained after the consummation of the Merger, and no assurance can be given that there will be any liquidity in any such market. If a market for the combined company’s common stock develops, the price at which a holder of the combined company’s common stock could sell its shares may be higher or lower than the implied valuation for the combined company’s common stock provided in the Registration Statement on Form S-4 filed with the SEC by AMR on April 15, 2013. The market price of the combined company’s common stock may fluctuate significantly in response to a number of factors, some of which are beyond our and AMR’s control, including:

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variations in operating results;

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changes in financial estimates by securities analysts;

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changes in market values of airline companies;

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announcements by the combined company’s competitors of significant acquisitions, strategic partnerships, changes in routes, or capital commitments;

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the success or failure in managing the combined company, including the integration of our and AMR’s separate operations;

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increases or decreases in reported holdings by insiders or other significant stockholders;

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additions or departures of key personnel;

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future sales of the combined company’s common stock or issuance of the combined company’s common stock upon the exercise or conversion of convertible securities, options, warrants, RSUs, SARs, or similar rights; and

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fluctuations in trading volume.

Conversion of US Airways Group’s convertible notes will dilute the ownership interest of existing stockholders and could adversely affect the market price of US Airways Group’s common stock.

The conversion of some or all of US Airways Group’s 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 US Airways Group’s common stock. In addition, the existence of the convertible notes may encourage short selling by market participants executing hedging strategies.

Certain provisions of US Airways Group’s amended and restated certificate of incorporation and amended and restated bylaws make it difficult for stockholders to change the composition of US Airways Group’s board of directors and may discourage takeover attempts that some of US Airways Group’s 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 US Airways Group’s 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:

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a classified board of directors with three-year staggered terms;

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advance notice procedures for stockholder proposals to be considered at stockholders’ meetings;

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the ability of US Airways Group’s board of directors to fill vacancies on the board;

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a prohibition against stockholders taking action by written consent;

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a prohibition against stockholders calling special meetings of stockholders;

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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

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super-majority voting requirements to modify or amend specified provisions of US Airways Group’s 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 the interests of US Airways Group’s stockholders. 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 Group’s securities is approved by the board of directors prior to the investment under Section 203.

The market price of the combined company’s common stock after the Merger may be affected by factors different from those currently affecting US Airways Group’s shares.

Upon the consummation of the Merger, holders of US Airways Group’s common stock will become holders of the combined company’s common stock. Our businesses prior to the Merger differ from those of the combined company, and accordingly the results of operations of the combined company may be affected by factors different from those currently affecting our results of operations, including the uncertainty of the market’s ability to value the combined company as it emerges from the Chapter 11 cases.

The percentage ownership interests of US Airways Group stockholders will be reduced as a result of the Merger.

The aggregate number of shares of the combined company’s common stock issuable to holders of US Airways Group’s equity instruments (including stockholders, holders of convertible notes, optionees, and holders of stock-settled SARs and RSUs) in the Merger will represent 28% of the diluted equity ownership of the combined company. The remaining 72% equity ownership of the combined company will be distributable, pursuant to the AMR’s reorganization plan, to stakeholders, labor unions, and certain employees of AMR and the other Debtors. Therefore, each of the US Airways Group stockholders will have a percentage ownership of the combined company that is smaller than the stockholder’s prior percentage ownership of US Airways Group. As a result, the US Airways Group stockholders will have less influence on the management and policies of the combined company than they now have on the management and policies of US Airways Group.

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.

In connection with AMR’s emergence from the Chapter 11 cases, the combined company will establish certain limitations on transfers of its common stock which may serve to limit the post-emergence liquidity of its common stock.

To reduce the risk of a potential adverse effect of an “ownership change” as defined in Section 382 of the Code on the combined company’s ability to use its NOL carryforwards and certain other tax attributes and to avoid violation of federal statutory limitations on equity ownership of U.S. commercial airlines by foreign nationals, the combined company’s Certificate of Incorporation will contain certain restrictions on the transfer of the combined company’s common stock. These transfer restrictions may adversely affect the ability of certain holders of the combined company’s common stock to dispose of, acquire, or vote shares of the combined company’s common stock. No assurance can be given that an ownership change will not occur even with tax-related and other restrictions in place or that these provisions will assure compliance with the applicable restrictions on foreign ownership.

Item 6. Exhibits

The exhibits listed in the Exhibit Index following the signature pages to this report are filed as part of this report.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.


	US Airways Group, Inc. (Registrant)

Date: April 23, 2013	By:	/s/ Derek J. Kerr

		Derek J. Kerr
		Executive Vice President and
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

	US Airways, Inc. (Registrant)

Date: April 23, 2013	By:	/s/ Derek J. Kerr

		Derek J. Kerr
		Executive Vice President and
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

Exhibit Index


Exhibit No.		Description

2.1		Agreement and Plan of Merger among AMR Corporation, AMR Merger Sub, Inc. and US Airways Group, Inc., dated as of February 13, 2013 (incorporated by reference to Exhibit 2.1 to US Airways Group’s Current Report on Form 8-K/A filed on February 14, 2013 (Commission File No. 1-8444)).#

4.1		Tax Benefit Preservation Plan, dated as of February 13, 2013, between US Airways Group, Inc. and American Stock Transfer & Trust Company, LLC, including the Form of Right Certificate as Exhibit A and the Summary of Rights to Purchase Common Stock as Exhibit B (incorporated by reference to Exhibit 4.1 to US Airways Group’s Current Report on Form 8-K filed on February 14, 2013 (Commission File No. 1-8444)).

10.1		Form of letter agreement regarding equity awards by and between US Airways Group, Inc. and each executive officer of US Airways Group, Inc.

31.1		Certification of US Airways Group’s 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 Group’s 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 Group’s 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.

101		Interactive data files pursuant to Rule 405 of Regulation S-T.

#	Pursuant to Item 601(b)(2) of Regulation S-K promulgated by the SEC, certain exhibits and schedules to this agreement have been omitted. US Airways Group hereby agrees to furnish supplementally to the SEC, upon its request, any or all of such omitted exhibits or schedules.

US AIRWAYS GROUP INC - FORM 10-Q - April 23, 2013

Attached files

US AIRWAYS GROUP INC Reports