US Airways 2005 Annual Report Download - page 25

Table of Contents
Item 1A. Risk Factors
Risk Factors Relating to the Company and Industry Related Risks
Below are a series of risk factors that may affect the results of operations or financial performance of the Company. We caution the reader that these risk
factors may not be exhaustive. We operate in a continually changing business environment and new risk factors emerge from time to time. Management
cannot predict such new risk factors, nor can it assess the impact, if any, of these risk factors on our business or the extent to which any factor or combination
of factors may impact our business.
Our business is dependent on the price and availability of aircraft fuel. Continued periods of historically high fuel costs, significant disruptions in the
supply of aircraft fuel or significant further increases in fuel costs could have a significant negative impact on our operating results.
Our operating results are significantly impacted by changes in the availability or price of aircraft fuel. Fuel prices increased substantially in 2004
compared with 2003 and continued to increase through 2005 and into 2006. Due to the competitive nature of the airline industry, we generally have not been
able to increase our fares or otherwise increase revenues sufficiently to offset the rise of fuel prices in the past and we may not be able to do so in the future.
Although we are currently able to obtain adequate supplies of aircraft fuel, it is impossible to predict the future availability or price of aircraft fuel. In addition,
from time to time we enter into hedging arrangements to protect against rising fuel costs. Our ability to hedge in the future, however, may be limited. See also
the discussion in Item 7. "Quantitative and Qualitative Disclosures About Market Risk."
Our high level of fixed obligations limits our ability to fund general corporate requirements and obtain additional financing, limits our flexibility in
responding to competitive developments and increases our vulnerability to adverse economic and industry conditions.
We have a significant amount of fixed obligations, including debt, aircraft leases and financings, aircraft purchase commitments, leases of airport and
other facilities and other cash obligations. We also have guaranteed costs associated with our regional alliances and commitments to purchase aircraft from
Airbus. As a result of the substantial fixed costs associated with these obligations:
• A decrease in revenues results in a disproportionately greater percentage decrease in earnings.
• We may not have sufficient liquidity to fund all of these fixed costs if our revenues decline or costs increase.
• We may have to use our working capital to fund these fixed costs instead of funding general corporate requirements, including capital expenditures.
• We may not have sufficient liquidity to respond to competitive developments and adverse economic conditions.
Our obligations also impair our ability to obtain additional financing, if needed, and our flexibility in the conduct of our business. Our existing
indebtedness is secured by substantially all of our assets. Moreover, the terms of our secured loans restrict our ability to incur additional indebtedness or make
certain equity issuances unless we use the proceeds of those transactions to repay the loans, require us to maintain a minimum cash balance declining from
$525 million to $300 million over the term of the loans, and restrict our ability to take certain other 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 least $1 billion for the entirety of the agreement.
Our ability to pay the fixed costs associated with our contractual obligations depends on our operating performance and cash flow, which in turn depend
on general economic and political conditions. A failure to pay our fixed costs or breach of the contractual obligations could result in a variety of adverse
consequences, including the acceleration of our indebtedness, the withholding of credit card proceeds by
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