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US AIRWAYS GROUP INC

10-K

Annual report pursuant to section 13 and 15(d)

Filed on 03/15/2006

Filed Period 12/31/2005

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US AIRWAYS GROUP INC 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/15/2006 Filed Period 12/31/2005

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... proxy statement will be filed under the Securities Exchange Act of 1934 within 120 days of the end of US Airways Group, Inc.'s fiscal year ended December 31, 2005, are incorporated by reference into Part III of this Annual Report on Form 10-K. America West Airlines, Inc. meets the conditions set...

Page 3
... Ã¾ No Ã¾ 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. America West Airlines, Inc. US Airways, Inc. The aggregate market value of common stock held by non-affiliates of America West Holdings Corporation, the...

Page 4
... of America West Airlines, Inc. Financial Statements and Supplementary Data of US Airways, Inc. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Item 10. Directors and Executive Officers of the Registrants Item 11...

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... involving America West Holdings and US Airways Group, including future financial and operating results, the Company's 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...

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... our ability to operate pursuant to the terms of our financing facilities (particularly the financial covenants); â€¢ our ability to attract and retain customers; â€¢ the cyclical nature of the airline industry; â€¢ our ability to attract and retain qualified personnel; â€¢ economic conditions; and...

Page 7
... the merger was the operation of a major network air carrier through its ownership of the common stock of US Airways, Piedmont, PSA, Material Services Company and Airways Assurance Limited. US Airways, along with a network of US Airways Group's regional airline subsidiaries, affiliated carriers and...

Page 8
... New York's LaGuardia Airport ("LaGuardia") and the Washington, D.C. area's Ronald Reagan Washington National Airport ("Reagan National"). Starting in December 2005, we expanded our route network to include Hawaii. As of December 31, 2005, US Airways Group's two principal subsidiaries operate...

Page 9
... flights of another air carrier, which is referred to generically as its code share partner. US Airways Express carriers are an integral component of US Airways Group's operating network. US Airways relies heavily on feeder traffic from its US Airways Express partners, who carry passengers from low...

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...forth US Airways Express code share agreements and the number and type of aircraft operated under those agreements at December 31, 2005. Carrier Agreement Type Number/Type of Aircraft PSA(1) Piedmont(1) Chautauqua Airlines, Inc. ("Chautauqua") Mesa Air Wisconsin Airlines Corporation ("Air Wisconsin...

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... the merger. This agreement permits passengers to travel throughout the combined route networks of both carriers. The code share is fully implemented except in a few international markets. US Airways US Airways has entered into a number of bilateral and multilateral alliances with other airlines. In...

Page 12
..., on-time performance, type of equipment, cabin configuration, amenities provided to passengers, frequent flyer programs, the automation of travel agent reservation systems, on-board products, markets served and other services. The Company competes with both major full service airlines and low-cost...

Page 13
...Airways, Piedmont, PSA and non-owned affiliates for whom AWA and US Airways pay ASIF. The passenger fee, which is collected by air carriers from their passengers, is currently set at $2.50 per flight segment but not more than $10.00 per round trip. A proposal is currently before Congress to increase...

Page 14
... a rule-making on this issue in spring 2006. In the future, takeoff and landing time restrictions and other restrictions on the use of various airports and their facilities may result in further curtailment of services by, and increased operating costs for, individual airlines, including the Company...

Page 15
... carriers than currently is allowed. These changes could result in new competition and/or new airlines starting service. Additionally, the United States and the European Union have agreed on a significant liberalization of transatlantic air service rights. If implemented, US Airways could face new...

Page 16
... passenger service employees would transition to the US Airways-CWA collective bargaining agreement and thus AWA's separate contract negotiations with IBT were terminated. Since the merger, the Company has been in the process of integrating the labor unions of its two principal airline subsidiaries...

Page 17
...% from 2004 to 2005. Because the operations of the airlines are dependent upon aviation fuel, increases in aviation fuel costs could materially and adversely affect liquidity, results of operations and financial condition. The following table shows aircraft fuel consumption and costs for US Airways...

Page 18
..., US Airways and AWA operated separate frequent flyer programs, known as "Dividend Miles" and "FlightFund," respectively. FlightFund AWA's FlightFund program allows members to earn mileage credit by flying AWA and America West Express, by flying on certain partner airlines and by using the services...

Page 19
... Miles frequent flyer program allows participants to earn mileage credits for each paid flight segment on US Airways, US Airways Shuttle, US Airways Express, Star Alliance carriers, and certain other airlines that participate in the program. Participants flying on first class or Envoy class tickets...

Page 20
... enhance customer service and control costs for ticketing services supported by the airline and distribution partners. The shift of consumer bookings that began several years ago from traditional travel agents, airline ticket offices and reservation centers to online travel agent sites (e.g., Orbitz...

Page 21
... agreements. Pre-merger US Airways Group aggressively sought the necessary agreements to allow full implementation of the transformation plan without the need for filing new Chapter 11 cases, but was unable to do so in a timely manner. As a result of the recurring losses, declining available cash...

Page 22
... the Bankruptcy Court in January 2005. Each of these agreements is discussed in detail below in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." In connection with the merger, US Airways Group and America West Holdings...

Page 23
... from the sale of certain designated assets on which the ATSB held liens. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for a complete discussion of the secured loan. Claims Resolution The plan of reorganization...

Page 24
... effective date of the plan of reorganization; and (iii) 70%, or 4,873,485 shares, of the common stock of US Airways Group issued to the unsecured creditors, net of shares allocated to ALPA. Agreements with ALPA - On September 14, 2005, pre-merger US Airways Group, US Airways, America West Holdings...

Page 25
... actions, including mergers and acquisitions, investments and asset sales. The Company's affinity credit card partner agreement with Juniper Bank, a subsidiary of Barclays PLC, requires the Company to maintain an average quarterly balance of cash, cash equivalents and short-term investments of at...

Page 26
... make required lease payments or otherwise cover our fixed costs. We may not perform as well financially as we expect following the merger. In deciding to enter into the merger agreement, US Airways Group and America West Holdings considered the benefits of operating as a combined company, including...

Page 27
... National Mediation Board carriers and unions are free to engage in self-help measures such as strikes and lock-outs. None of the US Airways labor agreements becomes amendable until December 31, 2009. Of the AWA labor agreements, three are currently amendable, and a fourth becomes amendable in 2006...

Page 28
...substantial costs on airlines. Additional laws, regulations, taxes and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce revenues. The ability of U.S. carriers to operate international routes is subject to change...

Page 29
... the merger. Although US Airways Group continues as the publicly traded parent entity following the merger, each of America West Holdings and US Airways Group underwent an "ownership change," as defined in Internal Revenue Code Section 382, in connection with the merger. When a company undergoes...

Page 30
...prior results of America West Holdings and US Airways Group are not necessarily indicative of the Company's future results. Employee benefit plans represent significant continuing costs to the sponsoring employers. US Airways Group and its subsidiaries sponsor employee benefit plans and arrangements...

Page 31
...US Airways Group's plan of reorganization, the approximately 4.9 million shares of common stock issued to the PBGC could not be sold, assigned, transferred or pledged prior to the end of five months after September 27, 2005. This restriction expired on February 27, 2006. Sales of any of these shares...

Page 32
... of its international network, the merged company will begin accepting deliveries of A350 aircraft in 2011. As of December 31, 2005, US Airways Group had the following jet and regional jet aircraft: AWA A/C Type Avg. Seats Owned/ Mortgaged Leased Total Avg. Age 737-300 A319 A320 757-200 Total 133...

Page 33
...Item 1. "Business - US Airways Express Network" above, AWA and US Airways have code share agreements with certain regional jet affiliate operators. Collectively, these affiliate operators flew 255 regional jet aircraft and 107 turboprop aircraft as part of America West Express and US Airways Express...

Page 34
...under Civil Reserve Air Fleet. AWA is reimbursed during peacetime proportionally to its commitment. US Airways Flight Equipment Prior to the merger, US Airways Group had 19 A320-family aircraft on firm order with Airbus scheduled for delivery in the years 2008 through 2010. US Airways Group also had...

Page 35
...GE. In December 2004, pre-merger US Airways Group reached aircraft leasing and financing agreements with Embraer and Bombardier. These agreements were approved by the Bankruptcy Court in January 2005. Pursuant to the agreement reached with Embraer, US Airways purchased and took delivery of three EMB...

Page 36
... purchase and delivery of any aircraft. During 2005, the pre-merger US Airways returned 50 aircraft from its fleet: twenty-nine 737-300s, five 737-400, twelve A319s and four A320s in 2005. Ten more 737-300 aircraft are expected to be returned in 2006. As of December 31, 2005, US Airways Group owned...

Page 37
... frequently require airlines to execute long-term leases to assist in obtaining financing for terminal and facility construction. Any future requirements for new or improved airport facilities and passenger terminals at airports in which US Airways Group's airline subsidiaries operate could result...

Page 38
... Delta Air Lines and Continental Airlines, Inc., and had filed a suit against AMR Group, Inc., the parent company of American Airlines, along with its airline subsidiaries, in December 2003. This action has been stayed as to US Airways Group and its wholly owned subsidiaries as a result of the 2004...

Page 39
... in the Bankruptcy Court related to the claims in the 2002 Bankruptcy remain stayed by the 2004 Bankruptcy filing. US Airways Group and US Airways have been named as defendants in two lawsuits filed in federal district court for the Eastern District of Michigan in May 1999. Delta Air Lines is...

Page 40
...on its financial condition, results of operations or liquidity. On October 7, 2005, 240 pilots employed by the MidAtlantic division of US Airways filed a complaint in the federal district court for the Eastern District of New York against ALPA, US Airways, US Airways Group, Republic Airways Holdings...

Page 41
... at this time. On October 12, 2005, Bank of America, N.A., which is the issuing bank of the US Airways frequent flier program credit card and also acts as the processing bank for most airline ticket purchases paid for with credit cards, filed suit in the Delaware Chancery Court in New Castle County...

Page 42
... March 1, 2006, the closing price of our common stock on the NYSE was $32.80. As of March 1, 2006, there were 2,930 holders of record of the common stock. Prior to the 2004 Bankruptcy, pre-merger US Airways Group's then outstanding Class A common stock was traded on the NASDAQ National Market under...

Page 43
...securities of a domestic air carrier. We believe that we were in compliance with this statute during the time period covered by this report. Recent Sales of Unregistered Securities Completion of the merger between US Airways Group and America West Holdings on September 27, 2005 constituted a "change...

Page 44
...consolidated financial statements for the respective periods, the related notes and the related reports of US Airways Group's independent registered public accounting firms. 2005 Year Ended December 31, 2004 2003 2002 (In millions except per share amounts) 2001 Consolidated statements of operations...

Page 45
.... The Airbus restructuring fee was paid by means of set-off against existing equipment purchase deposits held by Airbus. AWA's 2004 results include a $16 million net credit associated with the termination of the rate per engine hour agreement with General Electric Engine Services for overhaul...

Page 46
...-than-planned return of seven leased aircraft and severance expenses following a reduction-in-force in 2001. See Note 7, "Special Charges" in US Airways Group's notes to consolidated financial statements included in Item 8A of this report. Nonoperating income (expense) in the 2005 period includes...

Page 47
... to policies for former officers and directors, $5 million in salaries and related benefits for severance, retention payments and stock awards, $1 million of aircraft livery costs, $1 million of programming service expense and $1 million in other expenses. â€¢ The operating results for the nine...

Page 48
... In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the carrying values were reduced to fair market value. â€¢ A curtailment credit of $120 million related to certain postretirement benefit plans and a $30 million...

Page 49
... network air carrier through its ownership of the common stock of US Airways, Piedmont, PSA, Material Services Company and Airways Assurance Limited. US Airways, along with a network of US Airways Group's regional airline subsidiaries and affiliated carriers flying as US Airways Express, was a hub...

Page 50
... the board of directors; and (3) America West Holdings' Chairman and Chief Executive Officer prior to the merger became the Chairman and Chief Executive Officer of the combined company. As a result of the reverse acquisition, the 2005 consolidated statement of operations for the new US Airways Group...

Page 51
... Airbus S.A.S. ("Airbus"), US Airways Group, US Airways and AWA. The key aspects of the Airbus Memorandum of Understanding are as follows: â€¢ On September 27, 2005, US Airways and AWA entered into two loan agreements with Airbus Financial Services, as Initial Lender and Loan Agent, Wells Fargo Bank...

Page 52
Table of Contents Airbus. US Airways recorded its restructuring fee of $39 million as a reorganization item in the third quarter of 2005. The America West Holdings restructuring fee of $50 million was recorded as a special charge in the accompanying consolidated statement of operations, along with ...

Page 53
...market an airline mileage award credit card program to the general public to participate in US Airways Group's Dividend Miles program through the use of a co-branded credit card. US Airways Group's credit card program is currently administered by Bank of America, N.A. (USA). On December 28, 2005, US...

Page 54
... card processing agreement is guaranteed by America West Holdings, and US Airways Group executed a guaranty of the amended card processing agreement on the effective date of the merger. US Airways' credit card processing is currently administered by Bank of America and these processing services...

Page 55
... effective date of the plan of reorganization; and (iii) 70%, or 4,873,485 shares, of common stock of US Airways Group issued to the unsecured creditors, net of the shares allocated to ALPA. Agreements with ALPA - On September 14, 2005, pre-merger US Airways Group, US Airways, America West Holdings...

Page 56
... using aircraft that would otherwise be parked at a gate, which increases daily utilization of aircraft. In addition to cost saving initiatives already undertaken at the individual companies, we believe the combination of America West Holdings and US Airways Group may result in significant annual...

Page 57
...the merger created one of the industry's most financially stable airlines with approximately $1.7 billion in new liquidity coming from investments, the offering of US Airways Group common stock, new cash infusions from commercial partners, asset sales and the release of currently restricted cash. As...

Page 58
...by increasing hiring in Winston-Salem, North Carolina and Reno, Nevada; â€¢ reached transition agreements with US Airways' and AWA's pilots and flight attendants; â€¢ reached a transition agreement with a new labor alliance between CWA and IBT, which represents US Airways' and AWA's customer service...

Page 59
... benefits from the merger, including the implementation of a code share agreement between AWA and US Airways that helped each airline sell more tickets, an improved and combined frequent flyer program and a rationalized route network that eliminated capacity on our weakest routes. Customer Service...

Page 60
... above, the 2005 statement of operations presented includes the results of America West Holdings for the 269 days through September 27, 2005, the effective date of the merger, and the consolidated results of US Airways Group and its subsidiaries, including US Airways, America West Holdings and AWA...

Page 61
... ATSB. US Airways Group did not record an income tax benefit for the years ended December 31, 2005, 2004 and 2003 as it currently expects to continue to record a full valuation allowance on any future tax benefits until it has achieved several consecutive quarters of profitable results coupled with...

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Table of Contents AMERICA WEST AIRLINES, INC. Consolidated Statements of Operations For the Years Ended December 31, 2005, 2004 and 2003 2005 2004 (In millions) 2003 Operating revenues: Mainline passenger Express passenger Cargo Other Total operating revenues Operating expenses: Aircraft fuel and ...

Page 63
...to the consolidated financial statements in Item 8B of this report), an operating gain of $4 million related to the purchase and subsequent exchange of an A320 airframe and a $3 million operating gain related to the settlement of disputed billings under AWA's frequent flyer program. These gains were...

Page 64
...mile - Total operating revenues divided by total available seat miles. Passenger enplanements - The number of passengers on board an aircraft including local, connecting and through passengers. Average daily aircraft utilization - The average number of block hours per day for all aircraft in service...

Page 65
... with the sale of tour packages by the America West Vacations division and an increase in ticket change and service fees. Total operating expenses were $3.37 billion in 2005, an increase of $611 million or 22.1% compared to 2004. Mainline operating expenses were $2.83 billion in 2005, an increase of...

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... TSA for passenger security fees. The 2004 period included a $6 million charge resulting from the settlement of pending litigation and a $5 million loss on the sale and leaseback of two new aircraft. A $4 million gain resulting from the settlement of a claim in bankruptcy for amounts earned under an...

Page 67
... Other operating expenses per ASM decreased 2.5% in 2004. Decreases in catering costs ($6 million), bad debt expense ($3 million) and traffic liability insurance ($2 million) were offset by increases in passenger traffic related expenses ($4 million), legal fees ($4 million), airport guard services...

Page 68
... date of the plan of reorganization and the merger was September 27, 2005, the results of operations for US Airways during the four day period from September 27 through September 30, 2005 are not material to the financial statement presentation. References to "Successor Company" refer to US Airways...

Page 69
... and net income was $1.45 billion. US Airways' results from operations and the net income (loss) in 2005, 2004 and 2003 were significantly impacted by the first and second bankruptcy proceedings and the 2005 operating results also reflect the impact of the merger with America West Holdings. 63

Page 70
... volume. Other revenues increased 7.3% in 2005 primarily due to revenue generated through airline partner travel after US Airways joined the Star Alliance in May 2004 and an increase in marketing revenue related to miles sold to credit card and other partners. Total operating expenses for full year...

Page 71
...and lower book values on the continuing fleet as a result of fresh-start reporting. â€¢ Other operating expenses increased primarily as a result of increases to expenses associated with the redemption of Dividend Miles on partner airlines and future travel on US Airways as well as increases in costs...

Page 72
...to 2004 as a result of an increase in service fee revenue from the wholly owned airline subsidiaries of US Airways Group and affiliate carriers and from revenue associated with certain marketing arrangements, including revenue generated through airline partner travel after US Airways joined the Star...

Page 73
... reservations fees. â€¢ US Airways recorded $34 million of special charges in 2003 primarily related to aircraft order cancellation penalties. See note 4 to US Airways' financial statements in Item 8C of this report. â€¢ Depreciation and amortization per ASM decreased 2.4% due to lower book values...

Page 74
... of Reorganization items Reorganization items, net represent amounts incurred as a direct result of US Airways' Chapter 11 filings and are presented separately in the statements of operations. Such items consist of the following (in millions): Predecessor Company Nine Months Ended September 30, 2005...

Page 75
... of certain aircraft scheduled for future delivery. In connection with the Airbus MOU, the accrual for these penalties were reversed (see also notes 1 and 4 to US Airways' financial statements included in Item 8C of this report). As the result of US Airways' bankruptcy filing in September 2004, it...

Page 76
... or sales of aircraft, net after prepayments of US Airways' ATSB loan. Net cash provided by operating activities was $46 million and $21 million in 2005 and 2004, respectively. The 2005 period included the receipt of a $150 million one-time bonus payment from an affinity credit card partner and...

Page 77
...effective January 1, 2005. See note 4, "Change in Accounting Policy for Maintenance Costs," in the notes to consolidated financial statements in Item 8A of this report. AWA At December 31, 2005, AWA's total cash, cash equivalents, short-term investments, and restricted cash balance was $1.18 billion...

Page 78
... Airways Group's emergence from bankruptcy and merger with America West Holdings. Net cash used in operating activities was $421 million and $106 million in 2005 and 2004, respectively. Cash flows during 2005 were adversely affected by higher interest expense and significant increases in fuel prices...

Page 79
... 2005 to GE. Under certain agreements among GE and US Airways Group, GE agreed, in consideration for the early return of 51 aircraft and six engines, the assumption of certain modified leases and the payment of $125 million in cash by September 30, 2005, to (1) retire an existing bridge loan...

Page 80
... for deferred charges under its rate per hour engine agreements, which resulted in a remaining balance due of $54 million. Airbus Term Loans On September 27, 2005, US Airways and AWA entered into two loan agreements with Airbus Financial Services ("AFS"), an affiliate of Airbus, with commitments in...

Page 81
... each scheduled amortization payment. The AWA loan also requires prepayments from the proceeds of specified asset sales. Under the loans, US Airways Group is required to maintain consolidated unrestricted cash and cash equivalents, less: (a) the amount of all outstanding advances by credit card...

Page 82
...market an airline mileage award credit card program to the general public to participate in US Airways Group's Dividend Miles program through the use of a co-branded credit card. US Airways Group's credit card program is currently administered by Bank of America, N.A. (USA). On December 28, 2005, US...

Page 83
... card processing agreement is guaranteed by America West Holdings, and US Airways Group executed a guaranty of the amended card processing agreement on the effective date of the merger. US Airways' credit card processing is currently administered by Bank of America and those processing services...

Page 84
... and US Airways will also be required to maintain a reserve account to secure Chase's exposure to outstanding air traffic liability. As of December 31, 2005, $543 million in cash collateral is classified as restricted cash on US Airways Group's consolidated balance sheet to secure credit card sales...

Page 85
... recorded as a reorganization item in the third quarter of 2005. The restructuring fees were paid by means of set-off against existing equipment purchase deposits held by Airbus. Embraer Purchase Commitments On February 16, 2006, the Bankruptcy Court approved a settlement and assumption term sheet...

Page 86
... term loan with Mizuho Corporate Bank, Ltd. and certain other lenders and to pay certain costs associated with this transaction. AWA used the remaining proceeds for general corporate purposes. The new term loan financing consists of two secured term loan facilities: a $76 million term loan facility...

Page 87
... senior notes is fully and unconditionally guaranteed by AWA and US Airways Group. America West Holdings may redeem 7.5% convertible senior notes, in whole or in part, at the following redemption prices (which are expressed as percentages of the principal amount of the notes), if redeemed during...

Page 88
...guarantees that US Airways Group, AWA, and US Airways do not expect to have a material current or future effect on financial condition, liquidity or results of operations are disclosed in note 12(e) to the consolidated financial statements of US Airways Group included in Item 8A of this report, note...

Page 89
..., and as a result, reduce the cost of aircraft financing to US Airways. US Airways reviewed 62 aircraft operating leases financed through EETCs, each of which contains a fixed-price purchase option that allows US Airways to purchase the aircraft at predetermined prices on specified dates during the...

Page 90
... for the Airbus loans. Commitments listed separately under US Airways or AWA represent commitments under agreements entered into separately by those companies. Represents operating lease commitments entered into by US Airways Group's other airline subsidiaries Piedmont and PSA. The Company expects...

Page 91
... from bankruptcy and its issuance of new common stock. Internal Revenue Code Section 382 substantially limits the annual usage of remaining tax attributes that were generated prior to the change in ownership. In addition, as a result of America West Holdings merger with US Airways Group, AWA...

Page 92
... recorded a $124 million reduction to its air traffic liability to conform its accounting policies for recognizing revenue from expired tickets to those of America West Holdings. US Airways experienced changes in customer travel patterns resulting from various factors, including new airport security...

Page 93
... the fair value of aircraft and related assets. Frequent traveler programs US Airways' Dividend Miles frequent traveler program awards miles to passengers who fly on US Airways, US Airways Express, Star Alliance carriers and certain other airlines that participate in the program. US Airways also...

Page 94
... traveling on award tickets. In addition to the awards issued for travel on AWA, approximately 5.6% of the total awards redeemed in 2005 were for travel on partner airlines. Following the merger, the two frequent flyer programs were modified to allow customers of each airline to earn and use miles...

Page 95
... for employee participants in the case of pension plans and expected annual increases in the cost of medical and other health care costs in the case of other postretirement benefit obligations. These long-term assumptions are subject to revision based on changes in interest rates, financial market...

Page 96
... US Airways' notes to financial statements included in Item 8C of this report for additional information about these terminated plans. US Airways' postretirement benefit obligations: During hearings in late 2004 and January 2005, the Bankruptcy Court approved various settlement agreements between US...

Page 97
... of America West Holdings' stock option plans. US Airways outstanding stock options were cancelled as part of the plan of reorganization. Accordingly, as of January 1, 2006, only unvested director stock options, employee stock options, and stock appreciation rights granted subsequent to the merger...

Page 98
... fuel costs materially and adversely affect the Company's liquidity, results of operations and financial condition. Forecasted fuel consumption for the Company is approximately 1.57 billion gallons per year, and a one cent per gallon increase in fuel price results in a $16 million annual increase...

Page 99
.... Changes in interest rates will impact the cost of such financings. Equity Price Risk The Company holds Sabre Holdings Corporation ("Sabre") stock options that have a fair value and carrying value of $10 million as of December 31, 2005. Fair value is computed using the Black-Scholes stock option...

Page 100
.... Financial information for periods prior to the merger include the accounts and activities of America West Holdings. America West Holdings is the holding company that owns all of the stock of AWA. Management's Annual Report on Internal Control over Financial Reporting Management of US Airways Group...

Page 101
... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of US Airways Group and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of...

Page 102
.... In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of US Airways Group, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in...

Page 103
... except share and per share data) 2005 2004 2003 Operating revenues: Mainline passenger Express passenger Cargo Other Total operating revenues Operating expenses: Aircraft fuel and related taxes Gain on fuel hedging instruments, net Salaries and related costs Express expenses Aircraft rent Aircraft...

Page 104
Table of Contents US Airways Group, Inc. Consolidated Balance Sheets December 31, 2005 and 2004 (in millions, except share and per share amounts) 2005 2004 ASSETS Current assets Cash and cash equivalents Short-term investments Restricted cash Accounts receivable, net Materials and supplies, net ...

Page 105
... fees Amortization of bond discount Amortization of investment discount and premium, net Stock-based compensation Special charges (credits), net Gain on sale of investment Other Changes in operating assets and liabilities: Decrease (increase) in restricted cash Decrease (increase) in accounts...

Page 106
... Ended December 31, 2005, 2004 and 2003 (in millions except share amounts) Accumulated Class A Class B Additional Retained Other Class B Common Common Common Paid-In Earnings/ Comprehensive Treasury Treasury Stock Stock Stock Capital (Deficit) Income Stock Stock Total $ Balance at December 31, 2002...

Page 107
... Airways Group, Inc. Notes to Consolidated Financial Statements 1. Merger with America West Holdings Corporation On September 12, 2004, US Airways Group, Inc. ("US Airways Group" or the "Company") and its domestic subsidiaries, US Airways, Inc. ("US Airways"), Piedmont Airlines, Inc., PSA Airlines...

Page 108
...Airbus"), US Airways Group, US Airways and America West Airlines, Inc. ("AWA"). The key aspects of the Airbus MOU are as follows: â€¢ On September 27, 2005, US Airways and AWA entered into two loan agreements with Airbus Financial Services ("AFS"), as Initial Lender and Loan Agent, Wells Fargo Bank...

Page 109
...market an airline mileage award credit card program to the general public to participate in US Airways Group's Dividend Miles program through the use of a co-branded credit card. US Airways Group's credit card program is currently administered by Bank of America, N.A. (USA). On December 28, 2005, US...

Page 110
... card processing agreement is guaranteed by America West Holdings, and US Airways Group executed a guaranty of the amended card processing agreement on the effective date of the merger. US Airways' credit card processing is currently administered by Bank of America, and these processing services...

Page 111
... its commuter slots at Ronald Reagan Washington National Airport and New York LaGuardia Airport. US Airways was required to use proceeds totaling $156 million to pay down the US Airways ATSB Loan. For 2005, AWA executed flight equipment asset sale and leaseback transactions resulting in net proceeds...

Page 112
...to the merger became the Chairman and Chief Executive Officer of the combined company. As a result of the reverse acquisition, the statements of operations presented include the results of America West Holdings for the year ended December 31, 2005 and consolidated results of US Airways Group for the...

Page 113
..." ("SFAS 115"). Held to maturity investments are carried at amortized cost, which approximates fair value. The Company classifies securities other than debt underlying its cash equivalents and short-term investments as "available-for-sale" in accordance with SFAS 115. Cash equivalents are stated at...

Page 114
... debt issuance costs, long-term investments and leasehold interests in aircraft. In connection with fresh-start reporting for US Airways, aircraft operating leases were adjusted to fair value and $101 million of assets were established for leasehold interests in aircraft for aircraft leases with...

Page 115
... increase to aircraft rent expense over the applicable remaining lease periods, generally 17 years. (j) Frequent traveler program US Airways Group's principal operating subsidiaries, AWA and US Airways, maintain frequent travel award programs known as "FlightFund" and "Dividend Miles," respectively...

Page 116
Table of Contents US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) (l) Deferred gains and credits, net In connection with fresh-start reporting and purchase accounting, US Airways' aircraft operating leases were adjusted to fair value and deferred credits of $190 ...

Page 117
... financial statements. Compensation expense, calculated using the provisions of APB 25, has been recorded for stock appreciation rights and restricted stock units granted to US Airways Group employees. Had US Airways Group determined compensation cost based on the fair value at the grant date...

Page 118
...did not materially affect US Airways Group's, AWA's or US Airways' financial statements. In the fourth quarter of 2005, as a result of entering into new jet service agreements, US Airways determined that certain entities with which the Company has capacity purchase agreements are considered variable...

Page 119
... of America West Holdings' stock option plans. US Airways outstanding stock options were cancelled as part of the plan of reorganization. Accordingly, as of January 1, 2006, only unvested director stock options, employee stock options, and stock appreciation rights granted subsequent to the merger...

Page 120
...the results of operations of the Company. 3. New equity structure and conversion Pursuant to US Airways Group's plan of reorganization, all securities of US Airways Group outstanding prior to September 27, 2005 were cancelled upon emergence from Chapter 11. In connection with the merger, US Airways...

Page 121
... ticket sales is classified as mainline passenger revenue and the marketing portion of the affinity partner revenue is classified as other revenue. AWA has a regional airline alliance agreement with Mesa (the "Mesa Agreement") that commenced in February 2001. Mesa, operating as America West Express...

Page 122
... (v) shares with Mesa a percentage of the revenue allocated to the flight segments flown by Mesa on a pro rata basis. To improve the visibility of mainline and America West Express operating results, effective in the first quarter of 2005, America West Holdings changed its method of accounting for...

Page 123
... million credit related to fuel hedging activity from nonoperating to operating expenses. Reclassification of $38 million related to the sale of frequent flier miles and related marketing services to affinity partners from "Operating expenses - Other" to "Operating revenues - Mainline passenger" and...

Page 124
... market price for the reporting period. The following table presents the computation of basic and diluted EPS (in millions, except per share amounts): 2005 Year Ended December 31, 2004 2003 Basic earnings (loss) per share: Income (loss) before cumulative effect of change in accounting principle...

Page 125
...Contents US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) Year Ended December 31, 2005 2004 2003 Diluted earnings (loss) per share: Earnings (loss) before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle Earnings...

Page 126
...): 2005 Year Ended December 31, 2004 2003 Airbus restructuring Merger related transition expenses Sale leaseback transactions Power by the hour program penalties Severance due to change in control Aircraft returns Termination of V2500 power by the hour agreement Elimination of hub operations...

Page 127
... all of which were operated by Chautauqua Airlines under the America West Express banner, were phased out of the fleet. In addition, the hub was downsized from 49 daily departures to 15 destinations to four flights per day to Phoenix and Las Vegas. Service to New York City LaGuardia Airport was also...

Page 128
... Contents US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) provision, if US Airways elects to terminate its information technology service agreement with Sabre it will be required to pay Sabre an amount equal to the gain multiplied by the ratio of the remaining months...

Page 129
...for-sale securities are greater than 10 years with a reset date approximately every 28 days. US Airways Group had no long-term investments in debt securities as of December 31, 2005 and had $30 million as of December 31, 2004. At December 31, 2004, long-term investments consisted of cash invested in...

Page 130
Table of Contents US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) December 31, 2005 December 31, 2004 Unsecured AWA ATSB Loan, reclassified as secured in 2005(a) 7% senior convertible notes, interest only payments until due in 2020(i) 103/4% senior unsecured notes, ...

Page 131
... US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) bear interest at a rate per annum equal to LIBOR plus 840 basis points increasing by 5 basis points on January 18 of each year, beginning January 18, 2006 through the end of the loan term, payable on a quarterly...

Page 132
...on January 26, 2005. On September 27, 2005, US Airways and AWA entered into two loan agreements with Airbus Financial Services ("AFS"), an affiliate of Airbus, with commitments in initial aggregate amounts of up to $161 million and up to $89 million. The Airbus loans bear interest at a rate of LIBOR...

Page 133
...subject to payment of the quarterly guarantee fee. All other terms associated with this loan remain unchanged. As a result of the sale of the loan, the US Airways ATSB Loan is now referred to as the US Airways Citibank Loan, and had an outstanding balance of $551 million at December 31, 2005. Ninety...

Page 134
... with these specified asset sales completed during 2005. In September 2005, US Airways entered into an agreement to sell and leaseback certain of its commuter slots at Ronald Reagan Washington National Airport and New York LaGuardia Airport. US Airways continues to hold the right to repurchase the...

Page 135
... unless earlier converted or redeemed. The payment of principal, premium and interest on the 7.5% convertible senior notes is fully and unconditionally guaranteed by AWA and US Airways Group. For financial reporting purposes, America West Holdings recorded the convertible senior notes at their fair...

Page 136
...agreement, Juniper agreed to offer and market an airline mileage award credit card program to the general public to participate in US Airways Group's Dividend Miles program through the use of a cobranded credit card. US Airways Group's credit card program is currently administered by Bank of America...

Page 137
... held under the credit card processing agreement with JP Morgan Chase Bank, N.A. Accordingly, the prepayment has been recorded as additional indebtedness. Juniper requires US Airways Group to maintain an average quarterly balance of cash, cash equivalents and short-term investments of at least...

Page 138
...2006 2007 2008 2009 2010 Thereafter $ 211 269 450 554 470 1,167 3,121 Certain of US Airways Group's long-term debt agreements contain minimum cash balance requirements and other covenants with which the Company was in compliance at December 31, 2005. Certain of US Airways' long-term debt agreements...

Page 139
... Financial Statements - (Continued) (a) Defined benefit and other postretirement benefit plans Prior to the merger, America West Holdings had no obligations for defined benefit or other postretirement benefit plans. The following table sets forth changes in the fair value of plan assets, benefit...

Page 140
...on amounts reported for retiree health care plans. A one-percentage point change in the health care cost trend rates would have the following effects on other postretirement benefits as of September 30, 2005 (in millions): 1% Increase 1% Decrease Effect on total service and interest costs Effect on...

Page 141
... Contents US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) Components of the net and total periodic cost for other postretirement benefits (in millions): Year Ended Dec. 31, 2005 Service cost Interest cost Total periodic cost $ $ 1 3 4 In 2006, the Company expects...

Page 142
...31, 2004 and for the period beginning January 1, 2005 ending on September 27, 2005, the date of the merger. America West Holdings and AWA, as part of the merger, became members of the consolidated US Airways Group on September 28, 2005. Income tax expense in the accompanying statements of operations...

Page 143
... 382 of the Internal Revenue Code) that occurred as a result of America West Holdings' merger with US Airways Group on September 27, 2005, US Airways Group's ability to utilize its NOLs and tax credit carryforwards may be restricted. AWA and the IRS favorably reached an agreement to carryforward all...

Page 144
... components of US Airways Group's deferred tax assets and liabilities are a result of the temporary differences related to the items described as follows (in millions): 2005 2004 Deferred tax assets: Net operating loss carryforwards Aircraft leases Employee benefits Frequent flyer accrual...

Page 145
... for delivery through 2007 for use on certain of the Airbus A320 fleet. At December 31, 2005, the five engines have an estimated gross cost of $34 million. Embraer Purchase Commitments On February 16, 2006, the Bankruptcy Court approved a settlement and assumption term sheet between the Company and...

Page 146
... on the part of US Airways Group or Bombardier with respect to the purchase and delivery of any aircraft. Engine Maintenance Commitments In connection with the merger, US Airways and AWA restructured their rate per engine hour agreements with General Electric Engine Services for overhaul maintenance...

Page 147
...to nine months written notice. The Company also has options to purchase certain of the aircraft at fair market values at the end of the lease terms. Certain of the agreements require security deposits, minimum return provisions and supplemental rent payments. The following amounts related to capital...

Page 148
... upon number of aircraft, without regard to the number of passengers onboard. In addition, these agreements provide that certain variable costs, such as fuel and airport landing fees, will be reimbursed 100% by the Company. The Company controls marketing, scheduling, ticketing, pricing and seat...

Page 149
... Delta Air Lines and Continental Airlines, Inc., and had filed a suit against AMR Group, Inc., the parent company of American Airlines, along with its airline subsidiaries, in December 2003. This action has been stayed as to US Airways Group and its wholly owned subsidiaries as a result of the 2004...

Page 150
... are challenging on appeal various rulings of the Bankruptcy Court, including the amount of the claim and its status as an unsecured claim. US Airways has also filed an appeal regarding the denial of its right to offset the claims with asserted backcharges. Limbach Company and the joint venture have...

Page 151
... petition, US Airways Group and US Airways believe the claims are without merit and intend to pursue a vigorous defense. The action was stayed as to US Airways during the 2002 Bankruptcy and again during the 2004 Bankruptcy. On April 29, 2005, Northwest Airlines and Delta Air Lines filed a renewed...

Page 152
... at this time. On October 12, 2005, Bank of America, N.A., which is the issuing bank of the US Airways frequent flier program credit card and also acts as the processing bank for most airline ticket purchases paid for with credit cards, filed suit in the Delaware Chancery Court in New Castle County...

Page 153
... to leased real estate and operated aircraft. The Company cannot estimate the potential amount of future payments under the foregoing indemnities and guarantees The Company reviewed its long-term operating leases at a number of airports, including leases where the Company is also the guarantor of...

Page 154
... US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) (e) Concentration of credit risks The Company invests available cash in money market securities of various banks, commercial paper and asset-backed securities of various financial institutions, other companies...

Page 155
...in the agreement, into the US Airways Express network. The amount paid to Air Wisconsin in 2005 was approximately $55 million. Robert A. Milton, a member of the board of directors of US Airways Group, is the Chairman, President and Chief Executive Officer of ACE. ACE purchased 5,000,000 shares of US...

Page 156
...Notes to Consolidated Financial Statements - (Continued) Richard P. Schifter, a member of the board of directors of US Airways Group, is a partner of Texas Pacific Group, which was a controlling stockholder of America West Holdings prior to the completion of the merger. An affiliate of Texas Pacific...

Page 157
... fourth quarter. (b) Pro forma information The following information is presented assuming the merger and the conversion of America West Holdings' Class A and Class B common stock had been completed as of January 1, 2004. The pro forma consolidated results of operations include purchase accounting...

Page 158
...unit that provides air transportation for passengers and cargo. This allows it to benefit from an integrated revenue pricing and route network that includes US Airways, AWA, Piedmont, PSA and third-party carriers that fly under capacity purchase agreements as part of the Company's Express operations...

Page 159
... AWA ATSB Loan as an increase to interest expense. 19. Stock options and awards At the effective time of the merger all outstanding options to purchase America West Holdings Class B common stock under America West Holdings' stock-based benefit plans and under individual employment agreements were...

Page 160
... right, and (ii) three shares for each share of stock issued pursuant to a stock purchase award, stock bonus award, stock unit award, and other full-value types of stock awards. Stock awards that are terminated, forfeited or repurchased will result in an increase in the share reserve of the 2005...

Page 161
... of Contents US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) Stock option and award activity during the years indicated is as follows: Number of Shares Weighted Average Exercise Price 1994 Plan Balance at December 31, 2002: Granted Exercised Canceled Balance at...

Page 162
... of Contents US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) 2005 Plan Number of Shares Weighted Average Exercise Price Balance at December 31, 2004: Options Granted Awards Granted Exercised Options Canceled Awards Canceled Balance at December 31, 2005: - 2,034...

Page 163
... the sale of frequent flier miles and related marketing services to affinity partners from other operating expenses to operating revenues and reclassing Express expenses from operating revenues to operating expenses. See also Note 5 "Change in method of reporting for America West Express results and...

Page 164
Table of Contents US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) comparable information relating to the effect of the change in accounting policy for maintenance costs. See also Note 4. Summarized quarterly financial data for 2005 and 2004, before the cumulative ...

Page 165
... the sale of frequent flier miles and related marketing services to affinity partners from "Other" expenses to "Mainline passenger" and "Other" revenues. Reflects $17 million additional maintenance expense, resulting from the accounting policy change from the deferral method for maintenance costs to...

Page 166
...US Airways Group, Inc. Notes to Consolidated Financial Statements - (Continued) The following pro forma amounts show the effect of the retroactive application of the change from the deferral to the direct expense method (in millions, except share and per share amounts): Year Ended December 31, 2005...

Page 167
..., US Airways executed an agreement to purchase three Boeing 757-200 aircraft for delivery on February 24, 2006. US Airways purchased the aircraft for cash and anticipates arranging financing for all three aircraft through asset-based financing or sale leasebacks at a later date. The Company plans to...

Page 168
..., the financial position of America West Airlines, Inc. and subsidiary as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles...

Page 169
... of Contents America West Airlines, Inc. Consolidated Statements of Operations For the Years Ended December 31, 2005, 2004 and 2003 (in millions) 2005 2004 2003 Operating revenues: Mainline passenger Express revenue Cargo Other Total operating revenues Operating expenses: Aircraft fuel and related...

Page 170
Table of Contents America West Airlines, Inc. Consolidated Balance Sheets December 31, 2005 and 2004 (in millions, except share amounts) 2005 2004 ASSETS Current assets Cash and cash equivalents Short-term investments Restricted cash Accounts receivable, net Materials and supplies, net Prepaid ...

Page 171
...debt issue costs and guarantee fees Amortization of bond discount Amortization of investment discount and premium, net Gain on sale of investments Special charges, net Other Changes in operating assets and liabilities: Decrease (increase) in restricted cash Decrease (increase) in accounts receivable...

Page 172
... of Contents America West Airlines, Inc. Consolidated Statements of Stockholder's Equity (Deficiency) and Comprehensive Income For the Years Ended December 31, 2005, 2004 and 2003 (in millions) Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Balance at...

Page 173
... Financial Statements 1. Merger Agreement between US Airways Group and America West Holdings On May 19, 2005, US Airways Group signed a merger agreement with America West Holdings pursuant to which America West Holdings merged with a wholly owned subsidiary of US Airways Group upon US Airways Group...

Page 174
... co-branded credit card agreement with Juniper, dated January 25, 2005. Pursuant to the amended credit card agreement, Juniper agreed to offer and market an airline mileage award credit card program to the general public to participate in US Airways Group's Dividend Miles program through the use of...

Page 175
...Contents America West Airlines, Inc. Notes to Consolidated Financial Statements - (Continued) US Airways Group's credit card program is currently administered by Bank of America, N.A. (USA). On December 28, 2005, US Airways issued a notice of termination under its agreement with Bank of America and...

Page 176
..., settlement services and customer service. AWA and US Airways are also required to maintain a reserve account to secure Chase's exposure to outstanding air traffic liability. Asset Based Financings - For 2005, AWA also executed flight equipment asset sale and leaseback transactions resulting in net...

Page 177
...during the reporting period. Actual results could differ from those estimates. The principal areas of judgment relate to impairment of long-lived assets and intangible assets, passenger revenue recognition and the frequent traveler program. (c) Cash, Cash Equivalents and Short-term Investments Cash...

Page 178
... debt issuance costs and long-term investments. (i) Frequent Traveler Program AWA maintains a frequent travel award program known as "FlightFund" that provides a variety of awards to program members based on accumulated mileage. The estimated cost of providing the free travel, using the incremental...

Page 179
... ticket sales are recorded as an air traffic liability and are subsequently relieved either through carriage of the passenger, refund to the passenger, expiration of the passenger ticket or billing from another air carrier that provided the service. Passenger traffic commissions and related fees...

Page 180
... financial statements. Compensation expense, calculated using the provisions of APB 25, has been recorded for stock appreciation rights and restricted stock units granted to AWA employees. Had US Airways Group determined compensation cost based on the fair value at the grant date for its stock...

Page 181
... operating cash flows and increase net financing cash flows in periods after the effective date. These future amounts cannot be estimated, because they depend on, among other things, when employees exercise stock options. America West Holdings and AWA employee stock options outstanding at the time...

Page 182
... America West Airlines, Inc. Notes to Consolidated Financial Statements - (Continued) option plans. US Airways outstanding stock options were cancelled as part of the plan of reorganization. Accordingly, as of January 1, 2006, only unvested director stock options, employee stock options, and stock...

Page 183
... establishing the routes, scheduling Express flights, pricing of the tickets, marketing and selling the tickets, collecting all sales amounts, paying all costs of sales and marketing and taking inventory risk on the inventory of seats for sale on Mesa. The ground handling of aircraft is performed by...

Page 184
... million credit related to fuel hedging activity from nonoperating to operating expenses. Reclassification of $38 million related to the sale of frequent flier miles and related marketing services to affinity partners from "Operating expenses - Other" to "Operating revenues - Mainline passenger" and...

Page 185
...): 2005 Year Ended December 31, 2004 2003 Airbus restructuring Sale leaseback transactions Merger related transition expenses Power by the hour program penalties Severance due to change in control Aircraft returns Termination of V2500 power by the hour agreement Elimination of hub operations...

Page 186
... America West Airlines, Inc. Notes to Consolidated Financial Statements - (Continued) (c) In the fourth quarter of 2005, AWA recorded $13 million of merger related expenses related to transitioning the employees, systems and facilities of AWA and US Airways into one consolidated company. The...

Page 187
... performance-based cash awards. During 2005, certain of AWA's employees received restricted stock units and stock appreciation rights to be settled in stock under the 2005 Incentive Plan. Compensation expense related to these awards totaled $3 million in 2005. 7. (a) Financial Instruments Fair Value...

Page 188
... rate terms that approximate market interest rates for similar debt instruments. The fair value of AWA's other long-term debt is determined based on quoted market prices if available or market prices for comparable debt instruments. (b) Fuel Price Risk Management Under its fuel hedging program...

Page 189
... at a rate per annum equal to LIBOR plus 840 basis points increasing by 5 basis points on January 18 of each year, beginning January 18, 2006 through the end of the loan term, payable on a quarterly basis. All other terms associated with this loan remain unchanged. As a result of the sale 183

Page 190
... specified asset sales by US Airways Group and the other loan parties, and US Airways Group is required to maintain consolidated unrestricted cash and cash equivalents, less: (a) the amount of all outstanding advances by credit card processors and clearing houses in excess of 20% of the air traffic...

Page 191
...on January 26, 2005. On September 27, 2005, US Airways and AWA entered into two loan agreements with Airbus Financial Services ("AFS"), an affiliate of Airbus, with commitments in initial aggregate amounts of up to $161 million and up to $89 million. The Airbus loans bear interest at a rate of LIBOR...

Page 192
... notes is fully and unconditionally guaranteed by AWA and US Airways Group. For financial reporting purposes, America West Holdings recorded the convertible senior notes at their fair market value on the date of issuance. The balance at December 31, 2005 is net of an unamortized discount of $18...

Page 193
...market an airline mileage award credit card program to the general public to participate in US Airways Group's Dividend Miles program through the use of a co-branded credit card. US Airways Group's credit card program is currently administered by Bank of America, N.A. (USA). On December 28, 2005, US...

Page 194
... of Contents America West Airlines, Inc. Notes to Consolidated Financial Statements - (Continued) by Juniper in connection with the co-branded credit card program and have not been repurchased by US Airways Group. US Airways Group will be required to repurchase pre-purchased miles under certain...

Page 195
...lease arrangements. Each lease contains a purchase option that allows AWA to purchase the aircraft at a fixed price, which at the inception of the lease approximated the aircraft's expected fair market value at the option date, near the end of the lease term. These leasing entities meet the criteria...

Page 196
... services Airbus Purchase Commitments On September 27, 2005, US Airways Group, US Airways and AWA entered into an Airbus A350 Purchase Agreement with Airbus. This agreement provides for the delivery of 20 A350 aircraft during the period 2011 through 2014. The agreement contains terms and conditions...

Page 197
... adjustments and changes in the delivery schedule of the equipment (in millions). 2006 2007 2008 2009 $ 86 20 48 413 567 $ Engine Maintenance Commitments In connection with the merger, US Airways and AWA restructured their rate per engine hour agreements with General Electric Engine Services for...

Page 198
...of America, N.A., which is the issuing bank of the US Airways frequent flier program credit card and also acts as the processing bank for most airline ticket purchases paid for with credit cards, filed suit in the Delaware Chancery Court in New Castle County, against US Airways, US Airways Group and...

Page 199
... the use of major credit cards or from tickets sold by other airlines and used by passengers on AWA. These receivables are short-term, generally being settled shortly after the sale. 10. Income Taxes AWA is a wholly owned subsidiary of America West Holdings. AWA is included in America West Holdings...

Page 200
... of Contents America West Airlines, Inc. Notes to Consolidated Financial Statements - (Continued) members of the consolidated US Airways Group on September 28, 2005. Income tax expense in the accompanying statements of operations has been determined on a separate company basis. Amounts recorded for...

Page 201
... it has achieved several quarters of consecutive profitable results coupled with an expectation of continued profitability. As of December 2005 and 2004, the valuation allowance totaled $284 million and $127 million, respectively. 11. Employee Benefit Plan America West Holdings has a 401(k) defined...

Page 202
... resulting in the issuance of approximately 1.6 million shares of America West Holdings' Class B common stock. In the fourth quarter of 2005, US Airways Group announced an agreement to repurchase all of the replacement warrants issued to the ATSB in connection with the merger with America West...

Page 203
...Financial Statements - (Continued) In addition, as of December 31, 2005, AWA had a net payable to affiliate of $443 million, which was classified in "Current Liabilities" on AWA's condensed balance sheet. The net payable to affiliate is primarily comprised of a net payable to US Airways Group and US...

Page 204
..., President and Chief Executive Officer of ACE. ACE purchased 5,000,000 shares of US Airways Group common stock at a purchase price of $15.00 per share, for a total investment of $75 million. ACE or its subsidiaries entered into commercial agreements with US Airways Group and America West Holdings...

Page 205
..., the sale of frequent flier miles and related marketing services to affinity partner from other operating expenses to operating revenues and Express expenses from operating revenues to operating expenses. See also Note 4 "Change in Method of Reporting for America West Express Results and Other...

Page 206
... Statements - (Continued) Summarized quarterly financial data for 2005 and 2004, before the cumulative effect of the change in accounting policy, is as follows (in millions of dollars): 1st Quarter (As adjusted) (As reported) 2nd Quarter (As adjusted) (As reported) 2005 Operating revenues Operating...

Page 207
... the sale of frequent flier miles and related marketing services to affinity partners from "Other" expenses to "Mainline passenger" and "Other" revenues. Reflects $17 million additional maintenance expense, resulting from the accounting policy change from the deferral method for maintenance costs to...

Page 208
Table of Contents America West Airlines, Inc. Notes to Consolidated Financial Statements - (Continued) Year Ended December 31, 2004 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter Total Net income (loss) using the deferral method Effect of change to direct expense method Pro forma net income (...

Page 209
...Contents Item 8C. Financial Statements and Supplementary Data of US Airways, Inc. Management's Annual Report on Internal Control over Financial Reporting Management of US Airways is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules...

Page 210
... Accounting Firm The Board of Directors and Stockholder US Airways, Inc.: We have audited management's assessment, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting that US Airways, Inc. ("US Airways" or the "Company") maintained effective internal...

Page 211
... of the Public Company Accounting Oversight Board (United States), the balance sheets of US Airways as of December 31, 2005 for the Successor Company and December 31, 2004 for the Predecessor Company, and the related statements of operations, stockholders' equity (deficit) and cash flows for the...

Page 212
... to Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" as of September 27, 2005 and March 31, 2003. In addition, as discussed in Note 1, on September 27, 2005, upon emergence from the second bankruptcy, US Airways Group merged with America West...

Page 213
... accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the US Airways' internal control over financial reporting as of December 31, 2005, based on criteria established in "Internal Control-Integrated Framework" issued by the Committee of...

Page 214
... 31, 2003 Operating revenues Mainline passenger Express passenger Cargo Other Total operating revenues Operating expenses Aircraft fuel and related taxes Salaries and related costs Express expenses Aircraft rent Aircraft maintenance Other rent and landing fees Selling expenses Special items, net...

Page 215
Table of Contents US Airways, Inc. Balance Sheets December 31, 2005 and 2004 (in millions, except share and per share amounts) Successor Company 2005 Predecessor Company 2004 ASSETS Current assets Cash and cash equivalents Short-term investments Restricted cash Accounts receivable, net Materials ...

Page 216
...(used for) operating activities Cash flows from investing activities Purchases of property and equipment Proceeds from sales of property Decrease (increase) in short-term investments Decrease (increase) in restricted cash and investments Proceeds from repayment of parent company loans Other Net cash...

Page 217
... reorganization Repayment of parent company's loan Deferred compensation related to labor groups Total comprehensive income Balance as of March 31, 2003 Amortization of deferred compensation Unrealized gain on fuel cash flow hedges, net of reclassification adjustment Minimum pension liability change...

Page 218
...US Airways Group"), US Airways' parent company, and three of its other subsidiaries (collectively with US Airways, the "Debtors") also filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. On May 19, 2005, US Airways Group signed a merger agreement with America West Holdings...

Page 219
...Airbus"), US Airways Group, US Airways and America West Airlines, Inc. ("AWA"). The key aspects of the Airbus MOU are as follows: â€¢ On September 27, 2005, US Airways and AWA entered into two loan agreements with Airbus Financial Services ("AFS"), as Initial Lender and Loan Agent, Wells Fargo Bank...

Page 220
...market an airline mileage award credit card program to the general public to participate in US Airways Group's Dividend Miles program through the use of a co-branded credit card. US Airways Group's credit card program is currently administered by Bank of America, N.A. (USA). On December 28, 2005, US...

Page 221
...Ronald Reagan Washington National Airport and New York LaGuardia Airport. US Airways was required to use proceeds totaling $156 million to pay down the US Airways ATSB Loan. 2. (a) Basis of presentation and summary of significant accounting policies Nature of operations and operating environment US...

Page 222
... and purchase accounting. References in the financial statements and the notes to the financial statements to "Predecessor Company" refer to US Airways prior to September 30, 2005. While the effective date of the plan of reorganization and the merger was September 27, 2005, the results of operations...

Page 223
...cash used for reorganization items is disclosed separately in the statements of cash flows. (c) Cash equivalents and short-term investments Cash equivalents and short-term investments consist primarily of cash in money market securities of various banks, commercial paper and asset-backed securities...

Page 224
... West Holdings on September 27, 2005. Since that time, there have been no events or changes that would indicate an impairment to goodwill. US Airways will perform its next annual impairment test on October 1, 2006. At December 31, 2004, goodwill represents the excess reorganization value resulting...

Page 225
...be below market rates. These leasehold interests are amortized on a straight-line basis as an increase to aircraft rent expense over the applicable remaining lease periods, generally 17 years. (i) Frequent traveler program US Airways accrues the estimated incremental cost of travel awards earned by...

Page 226
... to changes in aircraft fuel prices. The agreements generally qualify as cash flow hedges under SFAS 133. US Airways does not purchase or hold any derivative financial instruments for trading purposes. US Airways records the fair market value of its fuel hedge contracts on its balance sheets. On...

Page 227
... conform its accounting policies for recognizing revenue from forfeited tickets to those of America West Holdings. US Airways purchases capacity (available seat miles) generated by US Airways Group's wholly owned regional air carriers and the capacity of Air Wisconsin Airlines Corp., ("Air Wisconsin...

Page 228
... of Contents US Airways, Inc. Notes to the Financial Statements - (Continued) ("SFAS 148"). Accordingly, the fair value of all Predecessor Company stock option and warrant grants, as determined on the date of grant, were amortized as compensation expense in the Statements of Operations over the...

Page 229
...did not materially affect US Airways Group's, AWA's or US Airways' financial statements. In the fourth quarter of 2005, as a result of entering into new jet service agreements, US Airways determined that certain entities with which it has capacity purchase agreements are considered variable interest...

Page 230
... of America West Holdings' stock option plans. US Airways outstanding stock options were cancelled as part of the plan of reorganization. Accordingly, as of January 1, 2006, only unvested director stock options, employee stock options, and stock appreciation rights granted subsequent to the merger...

Page 231
... unsecured claims and the value of shares of the new common stock of US Airways Group in the marketplace at the time of distribution. The effects of these distributions were reflected in US Airways' financial statements upon emergence and will not have any further impact on the results of operations...

Page 232
... upon America West Holdings' traded market price per share due to the fact that US Airways Group was operating under bankruptcy protection. The $4.82 per share value was based on the five-day average share price of America West Holdings common stock, with May 19, 2005, the merger announcement date...

Page 233
... of the purchase price among US Airways and the other acquired subsidiaries of US Airways Group and fair value adjustments for assets and liabilities such as its air traffic liability, tax liabilities, and accrued expenses. Accrued expenses may change based on identification of final fees and costs...

Page 234
... by the hour program penalties associated with the return of certain aircraft, and a retroactive Transportation Security Administration ("TSA") assessment received in the fourth quarter. As a result of the adoption of fresh-start reporting, US Airways' post-emergence financial statements are not...

Page 235
Table of Contents US Airways, Inc. Notes to the Financial Statements - (Continued) The effects of the Plan of Reorganization, fresh-start reporting and purchase accounting through December 31, 2005 on the balance sheet as of September 27, 2005 are as follows (in millions): Predecessor Company Debt ...

Page 236
... Predecessor Company's equity accounts. In conjunction with the merger and application of purchase accounting, US Airways adjusted certain balances to conform its accounting policies to those of America West Holdings. (c) Reorganization items, net SOP 90-7 requires that the financial statements for...

Page 237
...' bankruptcy filing in September 2004, US Airways was not able to secure the financing necessary to take on-time delivery of three scheduled regional jet aircraft and therefore accrued penalties of $3 million until delivery of these aircraft was made to a US Airways Express affiliate in August 2005...

Page 238
... fair value adjustments to assets at certain US Airways Group subsidiaries other than US Airways. In connection with filing for bankruptcy on September 12, 2004, US Airways achieved cost-savings agreements with its principal collective bargaining groups. In connection with the new labor agreements...

Page 239
... America West Holdings, US Airways incurred $15 million of transition and merger integration costs in the fourth quarter of 2005. These items included $7 million in insurance premiums related to policies for former officers and directors, $5 million for severance, retention payments and stock awards...

Page 240
... aircraft fuel expense. The remaining US Airways $5 million was recognized as a gain in reorganization items, net as part of fresh-start reporting. (b) Fair value of financial instruments The carrying amount of cash equivalents, restricted cash and short-term investments approximates fair value. US...

Page 241
...; brackets denote a liability): December 31, 2005 Carrying Estimated Amount Fair Value December 31, 2004 Carrying Estimated Amount Fair Value Cash equivalents Short-term investments(a) Restricted cash Notes receivable(b) SHC Stock Options(c) Long-term debt (excludes capital lease obligations...

Page 242
...subject to payment of the quarterly guarantee fee. All other terms associated with this loan remain unchanged. As a result of the sale of the loan, the US Airways ATSB Loan is now referred to as the US Airways Citibank Loan, and had an outstanding balance of $551 million at December 31, 2005. Ninety...

Page 243
... with these specified asset sales completed during 2005. In September 2005, US Airways entered into an agreement to sell and leaseback certain of its commuter slots at Ronald Reagan Washington National Airport and New York LaGuardia Airport. US Airways continues to hold the right to repurchase the...

Page 244
... upon return conditions. On September 27, 2005, US Airways and AWA entered into two loan agreements with Airbus Financial Services ("AFS"), an affiliate of Airbus, with commitments in initial aggregate amounts of up to $161 million and up to $89 million. The Airbus loans bear interest at a rate of...

Page 245
... in reorganization items, net in the statements of operations. Upon emergence from bankruptcy on September 27, 2005, the Bankruptcy Court approved a settlement agreement between US Airways and the PBGC which required the PBGC to release all claims against US Airways in return for US Airways issuing...

Page 246
.... This gain is included in reorganization items, net in the statements of operations. During hearings in late 2004 and January 2005, the Bankruptcy Court approved various settlement agreements between US Airways and its unions, and between US Airways and the court-appointed Section 1114 Committee...

Page 247
... to the Financial Statements - (Continued) The following table sets forth changes in the fair value of plan assets, benefit obligations and the funded status of the plans as of the measurement date of September 30, 2005 and 2004, in addition to the amounts recognized in US Airways' balance sheets as...

Page 248
... in US Airways' balance sheets (in millions): Defined Benefit Pension Plans(1) Successor Predecessor Company Company Dec. 31, Sept. 30, Dec. 31, 2005 2005 2004 Other Postretirement Benefits Successor Company Predecessor Company Dec. 31, Sept. 30, Dec. 31, 2005 2005 2004 Accrued benefit cost...

Page 249
...timing and cash outflows approximate the estimated benefit payments of the other postretirement benefit plans. US Airways' discounted both its pension obligations and its other postretirement benefit obligations using a rate of 6.00% at September 30, 2004, based the current rates earned on long-term...

Page 250
... 30, 2005 Predecessor Company Nine Months Year Ended Ended Dec. 31, 2004 Dec. 31, 2003 Three Months Ended March 31, 2003 Service cost Interest cost Expected return on plan assets Amortization of: Prior service cost Actuarial loss Net periodic cost Curtailment/settlement gains Fresh start loss Total...

Page 251
...multi-employer plan for certain employees. Cash contributions are a function of hours worked times a negotiated contribution rate. Company contributions as a percentage of compensation were generally reduced in late 2004 in connection with US Airways' restructured labor agreements and non-union wage...

Page 252
... from bankruptcy in September 2005, most non-executive employees of US Airways are eligible to participate in the 2005 Profit Sharing Plan, an annual bonus program. Annual bonus awards are paid from a profit-sharing pool equal to (i) ten percent of the annual profits of US Airways Group (excluding...

Page 253
...No. 109, "Accounting for Income Taxes." US Airways files a consolidated federal income tax return with its parent company, US Airways Group. US Airways Group and its wholly owned subsidiaries allocate tax and tax items, such as net operating losses ("NOL") and net tax credits, between members of the...

Page 254
... December 31, December 31, 2004 2003 Nine Months Ended September 30, 2005 Three Months Ended March 31, 2003 Tax provision (credit) computed at federal statutory rate Book expenses not deductible for tax purposes State income tax provision, net of federal benefit Increase (decrease) in the federal...

Page 255
... of new common stock. Section 382 substantially limits the annual usage of tax attributes that were generated prior to the change in ownership date. The federal income tax returns of US Airways through 2002 have been examined and settled with the Internal Revenue Service. US Airways is not currently...

Page 256
... services Airbus Purchase Commitments On September 27, 2005, US Airways Group, US Airways and AWA entered into an Airbus A350 Purchase Agreement with Airbus. This agreement provides for the delivery of 20 A350 aircraft during the period 2011 through 2014. The agreement contains terms and conditions...

Page 257
... on the part of US Airways Group or Bombardier with respect to the purchase and delivery of any aircraft. Engine Maintenance Commitments In connection with the merger, US Airways and AWA restructured their rate per engine hour agreements with General Electric Engine Services for overhaul maintenance...

Page 258
Table of Contents US Airways, Inc. Notes to the Financial Statements - (Continued) The following amounts related to capital leases are included in property and equipment as of December 31, 2005 and 2004 (in millions): 2005 2004 Ground property Less accumulated amortization Total Net Book Value of ...

Page 259
... number of aircraft, without regard to the number of passengers onboard. In addition, these agreements provide that certain variable costs, such as fuel and airport landing fees, will be reimbursed 100% by US Airways. US Airways controls marketing, scheduling, ticketing, pricing and seat inventories...

Page 260
...the actual claim value. On February 26, 2004, a company called I.A.P. Intermodal, LLC filed suit against US Airways Group and its wholly owned airline subsidiaries in the United States District Court for the Eastern District of Texas alleging that the defendants' computer scheduling system infringes...

Page 261
... are challenging on appeal various rulings of the Bankruptcy Court, including the amount of the claim and its status as an unsecured claim. US Airways has also filed an appeal regarding the denial of its right to offset the claims with asserted backcharges. Limbach Company and the joint venture have...

Page 262
... petition, US Airways Group and US Airways believe the claims are without merit and intend to pursue a vigorous defense. The action was stayed as to US Airways during the 2002 Bankruptcy and again during the 2004 Bankruptcy. On April 29, 2005, Northwest Airlines and Delta Air Lines filed a renewed...

Page 263
... at this time. On October 12, 2005, Bank of America, N.A., which is the issuing bank of the US Airways frequent flier program credit card and also acts as the processing bank for most airline ticket purchases paid for with credit cards, filed suit in the Delaware Chancery Court in New Castle County...

Page 264
... value of assets securing such indebtedness. (f) Concentration of credit risk US Airways invests available cash in money market securities of various banks, commercial paper and asset-backed securities of various financial institutions, other companies with high credit ratings and securities backed...

Page 265
... the Financial Statements - (Continued) As of December 31, 2005, most of US Airways' receivables related to tickets sold to individual passengers through the use of major credit cards or to tickets sold by other airlines and used by passengers on US Airways or its regional airline affiliates. These...

Page 266
...(available seat miles or ASMs) generated by US Airways Group's wholly owned regional airline subsidiaries at a rate per ASM that is periodically determined by US Airways and, concurrently, recognizes revenues that result primarily from passengers being carried by these affiliated companies. The rate...

Page 267
... with interest payments of $2 million for the nine months ended December 31, 2003. In connection with US Airways' emergence from bankruptcy and merger with America West Holdings on September 27, 2005, any stock held by RSA and their board seats were cancelled. RSA no longer has the right to elect...

Page 268
... unit that provides air transportation for passengers and cargo. This allows it to benefit from an integrated revenue pricing and route network that includes US Airways, AWA, Piedmont, PSA and third-party carriers that fly under capacity purchase agreements as part of US Airways Express. The flight...

Page 269
...,240 each of Class A-1 warrants and Class A Preferred Stock, and 354,350 options to purchase Class A Common Stock were granted to US Airways' management. Grants of Class A Common Stock, stock options and warrants generally vested over four years. The Predecessor Company recorded compensation expense...

Page 270
...31, 2003. Compensation expense of $1 million, calculated using the provisions of APB 25, has been recorded for stock appreciation rights and restricted stock units granted to US Airways employees in the fourth quarter of 2005. 15. 2003 Fresh-start reporting In connection with its emergence from the...

Page 271
... US Airways received third party appraisals for certain assets and liabilities subsequent to March 31, 2003. Changes in the fair value of these assets and liabilities from the previously estimated values impacted the reported value of goodwill. 16. Supplemental information to statement of cash flows...

Page 272
... - See Notes 3(c) and 4. Allowance for obsolescence of inventories eliminated upon adoption of fresh-start reporting. See Notes 3(b) and 15. In connection with purchase accounting, US Airways accrued severance and benefits related to planned reductions in force for its non union employees. See Note...

Page 273
... 2005. See also Notes 3 and 4 for additional information related to the fresh-start reporting and unusual items. The sum of the four quarters may not equal the totals for the year due to rounding. 19. Subsequent event Purchase of 757 aircraft On February 23, 2006, US Airways executed an agreement...

Page 274
... quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, US Airways Group's, AWA's or US Airways' internal control over financial reporting other than controls established to properly account for the merger and consolidation of acquired operations...

Page 275
... at America West Holdings Corporation, 111 West Rio Salado Parkway, Tempe, Arizona 85281. If US Airways Group makes substantive amendments to the Code or grants any waiver, including any implicit waiver, to its principal executive officer, principal financial officer, principal accounting officer or...

Page 276
... financial statements of US Airways Group, Inc. are included in Part II, Item 8A of this report: - Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003 - Consolidated Balance Sheets as of December 31, 2005 and 2004 - Consolidated Statements of Cash Flows...

Page 277
... respect to such long-term debt. Exhibit Number Description 2.1 Agreement and Plan of Merger, dated May 19, 2005, by and among US Airways Group and America West Holdings Corporation (incorporated by reference to Exhibit 2.1 to US Airways Group's Registration Statement on Form S-4 filed on June 28...

Page 278
...among America West Holdings Corporation, US Airways Group and U.S. Bank National Association (incorporated by reference to Exhibit 10.2 to US Airways Group's Current Report on Form 8-K filed on October 3, 2005). 4.7 Stock Option Agreement, dated as of December 31, 1996, between America West Holdings...

Page 279
... reference to Exhibit 4.16 to America West Holdings' and AWA's Current Report on Form 8-K dated January 31, 2002). 4.21 Registration Rights Agreement, dated January 18, 2002, with respect to shares of Class B Common Stock underlying the America West Holdings Corporation 7.5% Convertible Senior Notes...

Page 280
...'s Current Report on Form 8-K filed on October 3, 2005). 10.1 Loan Agreement dated March 31, 2003 among US Airways and Phoenix American Financial Services, Inc., Bank of America, N.A. and the Air Transportation Stabilization Board (incorporated by reference to Exhibit 10.5 to US Airways' Quarterly...

Page 281
... Current Report on Form 8-K dated January 13, 2005). 10.12 Master Merger Memorandum of Understanding, dated as of June 13, 2005, among US Airways, US Airways Group, America West Holdings Corporation, AWA, General Electric Capital Corporation, acting through its agent GE Commercial Aviation Services...

Page 282
...2004 to the Airbus A319/A320/A321 Purchase Agreement dated October 31, 1997 between US Airways Group and AVSA, S.A.R.L. (incorporated by reference to Exhibit 10.4 to US Airways Group's Quarterly Report on Form 10-Q for the quarter ended March 31, 2005).* 10.28 Amendment No. 15 dated January 17, 2005...

Page 283
....7 to US Airways Group's Quarterly Report on Form 10-Q for the quarter ended March 31, 2005).* 10.39 Letter Agreement dated December 17, 2004 between US Airways Group and US Airways and Airbus North America Sales Inc. (incorporated by reference to Exhibit 99.2 to US Airways Group's Current Report on...

Page 284
... to Exhibit 10.7 to US Airways Group's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).* 10.53 Contract Change Order 3 dated February 26, 2004 to Bombardier CRJ Aircraft Master Purchase Agreement dated as of May 9, 2003 between US Airways Group and Bombardier, Inc. (incorporated...

Page 285
... the US Airways Unfunded Executive Defined Contribution Plan (incorporated by reference to Exhibit 10.9 to US Airways' Quarterly Report for the quarter ended June 30, 2004).â€ 10.66 Employment Agreement between US Airways Group and US Airways and its President and Chief Executive Officer effective...

Page 286
...America West Airlines, Inc.'s Quarterly Report for the quarter ending March 31, 2005).â€ 10.87 US Airways Group, Inc. Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to US Airways Group's Current Report on Form 8-K filed January 23, 2006).â€ 10.88 Investment Agreement, dated...

Page 287
... Investment Partners, L.P. and Wellington Management Company, LLP. 10.97 Junior Secured Debtor-in-Possession Credit Facility Agreement dated as of February 18, 2005 among US Airways, as Debtor and Debtor-inPossession under Chapter 11 of the Bankruptcy Code as Borrower, US Airways Group, PSA Airlines...

Page 288
... Bank, Arizona N.A. (incorporated by reference to Exhibit 10.30 to America West Holdings' Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 10.110 Second Amendment to Airport Use Agreement, dated as of August 25, 1995 (incorporated by reference to Exhibit 10.34 to AWA's Annual...

Page 289
... I, L.P. and Air Partners II, L.P. for the benefit of the Air Transportation Stabilization Board (incorporated by reference to Exhibit 10.53 to America West Holdings' and AWA's Current Report on Form 8-K dated January 31, 2002). 10.130 Second Amendment to Code Share and Revenue Sharing Agreement, as...

Page 290
...10.14 to America West Holdings' and AWA's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004). 10.147 $30,790,000 Senior Secured Term Loan Agreement, dated December 23, 2004, among FTCHP LLC, as Borrower, AWA, as Guarantor, Heritage Bank, SSB, as Administrative Agent and Citibank...

Page 291
... 10.2 to US Airways Group's Quarterly Report on Form 10-Q for the quarter ended September 30, 2005). 10.153 Loan Agreement, dated as of September 27, 2005, by and among US Airways, AWA, US Airways Group, as guarantor, Airbus Financial Services, as Initial Lender and Loan Agent, and Wells Fargo Bank...

Page 292
...be filed, is included on the signature pages of this Annual Report on Form 10-K 31.1 Certification of US Airways Group's Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. 31.2 Certification of US Airways Group's Chief Financial Officer pursuant...

Page 293
... have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. US AIRWAYS GROUP, INC. By: /s/ W. Douglas Parker W. Douglas Parker Chairman, President and Chief Executive Officer Date: March 14, 2006 AMERICA WEST AIRLINES, INC. By: /s/ W. Douglas Parker...

Page 294
..., President and Chief Executive Officer (Principal Executive Officer) Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Director March 14, 2006 March 14, 2006 March 14, 2006 Director March 14, 2006 Director March 14, 2006 Director March 14, 2006...

Page 295

Page 296
... 2, 2005).â€ Summary of Director Compensation and Benefits.â€ Letter from KPMG LLP regarding change in accounting principle. Consents of KPMG LLP, Independent Registered Public Accounting Firm of US Airways Group. Certification of US Airways Group's Chief Executive Officer pursuant to Rule 13a...

Page 297
... PLAN STOCK UNIT AWARD AGREEMENT Pursuant to the Stock Unit Award Grant Notice ("Grant Notice") and this Stock Unit Award Agreement ("Award Agreement"), US Airways Group, Inc. (the "Company") has awarded you a Stock Unit Award under its 2005 Equity Incentive Plan (the "Plan") for the number of stock...

Page 298
... that you are subject to its policy regarding trading of the Company's stock by its officers and directors and any shares of Common Stock subject to your Award are scheduled to be delivered on a day (the "Original Distribution Date") that does not occur during a "window period" applicable to you, as...

Page 299
... with any applicable legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you pursuant to your Award a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of distribution, not...

Page 300
... which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your Award and those of the Plan, the provisions of the Plan shall control. ***** This Stock Unit Award Agreement shall be deemed to be signed by the Company and the...

Page 301
...") and this Stock Appreciation Right Award Agreement ("Award Agreement"), US Airways Group, Inc. (the "Company") has awarded you a Stock Appreciation Right Award under its 2005 Equity Incentive Plan (the "Plan") for the number of stock appreciation rights ("Stock Appreciation Rights") as indicated...

Page 302
... tenth (10th) anniversary of the Date of Grant. 6. PAYMENT. Subject to Section 10, the amount payable upon exercise of the Award shall be settled in shares of Common Stock based on the Fair Market Value of such shares at the time of exercise. 7. SECURITIES LAW COMPLIANCE. Notwithstanding anything to...

Page 303
... any applicable legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your Award a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not...

Page 304
... from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your Award and those of the Plan, the provisions of the Plan shall control. ***** This Stock Appreciation Right Award Agreement shall be deemed to be signed by the Company and...

Page 305
...Group, Inc. Performance-Based Award Plan (the "Plan") is to â€¢ â€¢ Focus management efforts on the creation of long-term stockholder value. Encourage strategic decision-making by providing rewards for the long-term achievement of Company goals. The Plan, formerly known as the America West Airlines...

Page 306
...IV) will result in no cash award. The maximum award for any performance cycle is two times the target award, and the maximum award for any transition performance cycle is the target award, subject in both cases to further limitations contained in the US Airways Group, Inc. 2005 Equity Incentive Plan...

Page 307
..., and United. Such competitive peer group is subject to modification, in the Committee's sole discretion, to take account of unforeseen events such as mergers, dispositions, bankruptcies and other significant business changes. Award payout percentages will be based on the TSR of the Company relative...

Page 308
... to a Transition Performance Cycle, the Company shall pay to the Participant (or the Participant's estate in the case of death), on the award payment date, if any, next following the Participant's termination of employment, the cash award, if any, that the Participant would have earned and received...

Page 309
...laws rules. The Committee reserves the right to amend or terminate the Plan at any time, with or without prior notice; provided, however, that all amendments to the Plan shall preserve the qualification of awards under the Plan as "performance-based" compensation under Section 162(m) of the Internal...

Page 310
EXHIBIT 10.83 SUMMARY OF DIRECTOR COMPENSATION AND BENEFITS Non-employee directors of US Airways Group, Inc. ("US Airways Group"), America West Airlines, Inc. ("AWA") and US Airways, Inc. ("US Airways") currently receive the following compensation for their Board service. Annual Retainer: $20,000 ...

Page 311
... the consolidated balance sheets of US Airways Group, Inc. ("Group") and its indirect wholly-owned subsidiary America West Airlines, Inc. ("AWA") as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for...

Page 312
... of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005, Annual Report on Form 10-K of US Airways Group, Inc. As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for major scheduled...

Page 313
...-128766 on Form S-8 of US Airways Group, Inc. of our report dated March 14, 2006, with respect to the consolidated balance sheets of America West Airlines, Inc. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of operations, cash flows and stockholder's equity...

Page 314
...of our reports dated March 14, 2006, relating to the balance sheets of US Airways, Inc. ("US Airways") as of December 31, 2005 for the Successor Company and December 31, 2004 for the Predecessor Company, and the related statements of operations, stockholders' equity (deficit), and cash flows for the...

Page 315
..., the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer...

Page 316
..., the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer...

Page 317
..., the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer...

Page 318
..., the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer...

Page 319
..., the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer...

Page 320
..., the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer...

Page 321
... Annual Report on Form 10-K of US Airways Group, Inc. (the Company) for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), W. Douglas Parker, as Chief Executive Officer of the Company, and Derek J. Kerr, as Chief Financial Officer...

Page 322
...with the Annual Report on Form 10-K of America West Airlines, Inc. for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), W. Douglas Parker, as Chief Executive Officer of the Company, and Derek J. Kerr, as Chief Financial Officer of...

Page 323
... the Annual Report on Form 10-K of US Airways, Inc. (the Company) for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), W. Douglas Parker, as Chief Executive Officer of the Company, and Derek J. Kerr, as Chief Financial Officer of...

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