US Airways 2005 Annual Report Download - page 175

Table of 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 that notice will become effective on December 28, 2007. Pending termination of the Bank of
America agreement, both Juniper and Bank of America will run separate credit card programs for US Airways Group. The amended credit card agreement is
the subject of pending litigation filed by Bank of America against US Airways Group, US Airways and AWA (See Note 9(e)).
The amended credit card agreement took effect at the effective time of the merger. The credit card services provided by Juniper under the amended credit
card agreement began in January 2006, and will continue until the expiration date, which is the later of December 31, 2012 or seven years from the date on
which Juniper commences marketing to the general public.
Under the amended credit card agreement, Juniper will pay to US Airways Group fees for each mile awarded to each credit card account administered by
Juniper, subject to certain exceptions. Pursuant to the original credit card agreement, Juniper paid to AWA a bonus of $20 million. Juniper also agreed to pay
a one-time bonus payment of $130 million, following the effectiveness of the merger, subject to certain conditions. The $130 million bonus payment was
made to AWA on October 3, 2005. The entire $150 million balance for bonus payments are included in "Deferred gains and other liabilities" in the
accompanying consolidated balance sheet as of December 31, 2005. US Airways Group will not recognize any revenue from the bonus payments until the
dual branding period has expired, approximately February 2008. At that time the Company expects to begin recognizing revenue from the bonus payments on
a straight-line basis through December 2012, the expiration date of the Juniper agreement. Further, if Juniper is not granted exclusivity to offer a co-branded
credit card after the dual branding period, US Airways Group must repay the bonus payments and repurchase unused pre-paid miles with interest, plus
$50 million in liquidated changes. Juniper will pay an annual bonus of $5 million to US Airways Group, subject to certain exceptions, for each year after
Juniper becomes the exclusive issuer of the co-branded credit card.
On October 3, 2005, Juniper pre-paid for miles from US Airways Group totaling $325 million, subject to the same conditions as apply to the $130 million
bonus payment. The $325 million was received by AWA. To the extent that these miles are not used by Juniper as allowed under the co-branded credit card
program in certain circumstances, US Airways Group will repurchase these miles in 12 equal quarterly installments beginning on the fifth year prior to the
expiration date of the co-branded credit card agreement with Juniper until paid in full. US Airways Group makes monthly interest payments at LIBOR plus
4.75% to Juniper, beginning on November 1, 2005, based on the amount of pre-purchased miles that have not been used 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 reductions in the collateral held under the credit card processing agreement with JPMorgan 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 $1 billion for
the entirety of the agreement. Further, the agreement requires US Airways Group to maintain certain financial ratios beginning January 1, 2006. Juniper may,
at its option, terminate the amended credit card agreement, make payments to US Airways Group under the amended credit card agreement in the form of pre-
purchased miles rather than cash, or require US Airways Group to repurchase the pre-purchased miles before the fifth year prior to the expiration date of the
co-branded credit card agreement with Juniper in the event that US Airways Group breaches its obligations under the amended credit card agreement, or upon
the occurrence of certain events.
Restructuring of Credit Card Processing Agreement — In connection with the merger, AWA, JPMorgan Chase Bank, N.A., successor-in-interest to
JPMorgan Chase Bank, and Chase Merchant 169