US Airways 2005 Annual Report Download - page 221

Table of Contents
US Airways, Inc.
Notes to the Financial Statements — (Continued)
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. Juniper also agreed to pay a one-time bonus payment of $130 million, following the effectiveness of the merger, subject
to certain conditions. The bonus payment was made to AWA on October 3, 2005. If Juniper is not granted exclusivity to offer a co-branded credit card after
the dual branding period with Bank of America, US Airways Group must repay this bonus payment and repurchase unused prepaid miles with interest, plus
$50 million in liquidated damages. 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.
Juniper pre-purchased miles from US Airways Group for an aggregate of $325 million, subject to the same conditions as apply to the $130 million bonus
payment. 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 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 in the consolidated financial statements of AWA.
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 commence the repurchase of the pre-purchased miles before the fifth year prior to the expiration date in
the event that US Airways Group breaches its obligations under the amended credit card agreement, or upon the occurrence of certain events.
Asset Based Financings and Sales — In addition to the sale-leaseback transactions completed in June 2005 related to the GE Merger MOU described
above, US Airways also executed flight equipment asset sale and sale-leaseback transactions in the third and fourth quarters of 2005. US Airways received net
proceeds of $209 million and a reduction in aircraft related debt of $561 million. Additionally during the third quarter, US Airways received net proceeds of
$51 million in connection with an agreement to sell and leaseback certain of 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.
2. Basis of presentation and summary of significant accounting policies
(a) Nature of operations and operating environment
US Airways, a Delaware corporation, is a certificated air carrier engaged primarily in the business of transporting passengers, property and mail.
US Airways enplaned approximately 42 million passengers in 2005 and was the seventh largest U.S. air carrier, as ranked by revenue passenger miles
("RPMs") and available seat miles ("ASMs"). As of December 31, 2005, US Airways operated 232 jet aircraft and 18 regional jet aircraft. During 2005,
US Airways provided regularly scheduled service or seasonal service at 91 airports in the continental United States, Canada, Mexico, France, Germany, Italy,
Spain, Ireland, the Netherlands, the United Kingdom and the Caribbean. The US Airways Express network served 130 cities as of December 31, 2005,
including 39 cities also served by US Airways.
Most of US Airways' operations are in competitive markets. Competitors include other air carriers along with other modes of transportation. Although a
competitive strength in some regards, the 215