US Airways 2005 Annual Report Download - page 88

Table of Contents
financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the
company.
US Airways Group, AWA and US Airways have no off-balance sheet arrangements of the types described in the first three categories above that they
believe may have a material current or future effect on financial condition, liquidity or results of operations. Certain guarantees that US Airways Group,
AWA, and US Airways do not expect to have a material current or future effect on financial condition, liquidity or results of operations are disclosed in
note 12(e) to the consolidated financial statements of US Airways Group included in Item 8A of this report, note 9(f) to the consolidated financial statements
of AWA included in Item 8B of this report, and note 9(e) to the financial statements of US Airways included in Item 8C of this report.
In 2003, US Airways Group, AWA and US Airways adopted Financial Accounting Standards Board Interpretation No. 46(R) "Consolidation of Variable
Interest Entities" ("FIN 46(R)"). The adoption of FIN 46(R) did not materially affect US Airways Group's, AWA's or US Airways' financial statements.
AWA
Pass Through Trusts — Since AWA's restructuring in 1994, AWA has set up 19 pass through trusts, which have issued over $1.4 billion of pass through
trust certificates (also known as "Enhanced Equipment Trust Certificates" or "EETCs") covering the financing of 54 aircraft. These trusts are off-balance sheet
entities, the primary purpose of which is to finance the acquisition of aircraft. Rather than finance each aircraft separately when such aircraft is purchased or
delivered, these trusts allow AWA to raise the financing for several aircraft at one time and place such 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 financing to AWA.
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 AWA's election,
either by AWA 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 AWA. 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 guaranteed by, America West Holdings or AWA. However,
in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of AWA and in the case of leveraged lease financings, the
leases are direct obligations of AWA. In addition, neither America West Holdings nor AWA 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 AWA or America West Holdings.
Special Facility Revenue Bonds — In June 1999, Series 1999 special facility revenue bonds (the "New Bonds"), were issued by a municipality to fund the
retirement of the Series 1994A bonds (the "Old Bonds"), and the construction of a new concourse with 14 gates at Terminal 4 in Phoenix Sky Harbor
International Airport in support of AWA's strategic growth plan. The New Bonds are due June 2019 with interest accruing at 6.25% per annum payable
semiannually on June 1 and December 1, commencing on December 1, 1999. The New Bonds are subject to optional redemption prior to the maturity date on
or after June 1, 2009 in whole or in part, on any interest payment date at the following redemption prices: 101% on June 1 or December 1, 2009; 100.5% on
June 1 or December 1, 2010; and 100% on June 1, 2011 and thereafter. In accordance with Emerging Issues Task Force ("EITF") Issue No. 97-10, "The Effect
of Lessee Involvement in Asset Construction," AWA accounts for this as an operating lease.
In connection with these bonds, AWA entered into an Amended and Restated Airport Use Agreement, pursuant to which AWA agreed to make sufficient
payments to the Industrial Development Authority (the "IDA"), to cover the principal and interest of the bonds and to indemnify the IDA for any
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