US Airways 2005 Annual Report Download - page 259

Table of Contents
US Airways, Inc.
Notes to the Financial Statements — (Continued)
finance each aircraft separately when such aircraft is purchased or delivered, these trusts allow US Airways to raise the financing for several aircraft at one
time and place the funds in escrow pending the purchase or delivery of the relevant aircraft. The trusts are also structured to provide for certain credit
enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks to the purchasers of the trust certificates and, as a result,
reduce the cost of aircraft financings to US Airways.
Each trust covered a set amount of aircraft scheduled to be delivered within a specific period of time. At the time of each covered aircraft financing, the
relevant trust used the funds in escrow to purchase equipment notes relating to the financed aircraft. The equipment notes were issued, at US Airways'
election, either by US Airways in connection with a mortgage financing of the aircraft or by a separate owner trust in connection with a leveraged lease
financing of the aircraft. In the case of a leveraged lease financing, the owner trust then leased the aircraft to US Airways. In both cases, the equipment notes
are secured by a security interest in the aircraft. The pass through trust certificates are not direct obligations of, nor are they guaranteed by, US Airways Group
or US Airways. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of US Airways. As of
December 31, 2005, $652 million is reflected as debt in the accompanying balance sheet.
In addition, neither US Airways Group nor US Airways guarantee or participate in any way in the residual value of the leased aircraft. All aircraft
financed by these trusts are currently structured as leveraged lease financings, which are not reflected as debt on the balance sheets of either US Airways
Group or US Airways. US Airways does not provide residual value guarantees under these lease arrangements. Each lease contains a purchase option that
allows US Airways 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 for variable interest entities. However, they do not meet the consolidation
criteria under FIN 46(R) because US Airways is not the primary beneficiary under these arrangements.
(c) Regional jet capacity purchase agreements
US Airways has entered into capacity purchase agreements with certain regional jet operators. The capacity purchase agreements provide that all revenues
(passenger, mail and freight) go to US Airways. In return, US Airways agrees to pay predetermined fees to the regional airlines for operating an agreed
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. The
regional jet capacity purchase agreements have expirations from 2008 to 2015 and provide for optional extensions at US Airways' discretion. The future
minimum noncancelable commitments under the regional jet capacity purchase agreements are $597 million in 2006, $604 million in 2007, $616 million in
2006, $628 million in 2009, $641 million in 2010 and $2.92 billion thereafter.
Certain entities with which US Airways has capacity purchase agreements are considered variable interest entities under FIN 46(R). In connection with its
restructuring and emergence from bankruptcy, US Airways contracted with Air Wisconsin, a related party, and Republic to purchase a significant portion of
these companies' regional jet capacity for a period of ten years. US Airways has determined that it is not the primary beneficiary of these variable interest
entities, based on cash flow analyses. Additionally, US Airways has analyzed the arrangements with other carriers with which US Airways has long-term
capacity purchase agreements and has concluded it is not required to consolidated any of the entities.
(d) Legal proceedings
On September 12, 2004, US Airways Group and its domestic subsidiaries (the "Debtors") filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code in the United States bankruptcy 253