US Airways 2005 Annual Report Download - page 198

Table of Contents
America West Airlines, Inc.
Notes to Consolidated Financial Statements — (Continued)
(d) Sale-Leaseback Transactions
During 2005, AWA completed fifteen separate aircraft sale-leaseback transactions and two separate aircraft engine sale-leaseback transactions. The
resulting leases have been accounted for as operating leases.
In the first and second quarter of 2005, AWA completed two of the fifteen aircraft sale-leaseback transactions resulting in losses of $4 million and
$4 million, respectively. These amounts were recorded in "Other Operating Expenses."
In the third quarter of 2005, a $27 million loss was incurred related to the sale-leaseback of six 737-300 aircraft and two 757 aircraft. The loss was
recorded as a special charge.
In the fourth quarter of 2005, AWA completed the remaining five aircraft sale-leaseback transactions, involving three Airbus A319 aircraft and two
Airbus A320 aircraft. These transactions resulted in a combined gain of $1 million that has been deferred and will be amortized to "Aircraft Rent Expense"
over the lease term of twelve years.
In the second quarter of 2005, AWA completed two separate sale-leaseback transactions both on V2524-A5 engines resulting in a combined gain of
$3 million that has been deferred and will be amortized to "Engine Rent Expense" over the lease term of seven years.
(e) Legal Proceedings
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, against
US Airways, US Airways Group and AWA, alleging that US Airways breached its frequent flier credit card contract with Bank of America by entering into a
similar, competing agreement with Juniper and allowing Juniper to issue a US Airways frequent flier credit card. Bank of America also alleges that
US Airways Group and AWA induced these breaches. Bank of America seeks an order requiring US Airways to market the Bank of America card and
prohibit Juniper from issuing a US Airways credit card, as well as unspecified damages. On October 27, 2005, Juniper, which was not originally a party to the
lawsuit, sought and later received court permission to intervene as a defendant in the case and has made counterclaims against Bank of America. Juniper seeks
an order declaring the validity of its new agreement to issue a US Airways frequent flier credit card. On November 3, 2005, Bank of America filed a motion
for partial summary judgment on the breach of contract claim against US Airways. After a series of procedural steps, Bank of America's motion, along with a
cross-motion for summary judgment filed by Juniper, was heard in the Bankruptcy Court, where the case is now pending as an adversary proceeding. On
January 30, 2006, the Bankruptcy Court ruled that Bank of America is equitably estopped from pursuing its claims that US Airways breached its agreement
with Bank of America by negotiating and entering into the agreement with Juniper. Bank of America is seeking appeal of that ruling while it continues to
pursue its claim that US Airways failed to fulfill contractual marketing obligations to Bank of America. The resolution of the final two claims that Bank of
America made in the lawsuit, which are (i) that AWA tortiously interfered with the contractual relationship between US Airways and Bank of America and
(ii) that US Airways Group and AWA tortiously interfered with Bank of America's right to future economic benefit under its agreement with US Airways, are
dependent on the outcome of the pending appeal. Bank of America will pursue those two claims only if its appeal of the January 30, 2006 order is successful.
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, Inc., Wexford Capital LLC and AWA, alleging that defendants
conspired to deceive plaintiffs into believing that MidAtlantic was a separate entity from
192