US Airways 2006 Annual Report Download - page 118

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
relating to the financed aircraft. The equipment notes were issued, at AWA or US Airways' election, either by AWA or 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 AWA or 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, AWA or US Airways. However, in the case of mortgage financings, the equipment notes issued
to the trusts are direct obligations of AWA and US Airways and in the case of leveraged lease financings, the leases are direct obligations
of AWA and US Airways. Neither US Airways Group, AWA nor US Airways guarantee or participate in any way in the residual value of
the leased aircraft. All of the AWA aircraft financed by these trusts are currently structured as leveraged lease financings, which are not
reflected as debt on the balance sheet of AWA. AWA does not provide residual value guarantees under these lease arrangements. A
portion of the US Airways aircraft financed by these trusts are mortgage financings, and as of December 31, 2006, $615 million is
reflected as debt in the accompanying balance sheets.
These leasing entities meet the criteria for variable interest entities. However, they do not meet the consolidation criteria under
FIN 46(R) because the Company is not the primary beneficiary under these arrangements.
(c) Regional Jet Capacity Purchase Agreements
The Company 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 the Company. In return, the Company agrees to pay predetermined fees to the
regional airlines for operating an agreed upon 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 the Company. The
Company controls marketing, scheduling, ticketing, pricing and seat inventories. The regional jet capacity purchase agreements have
expirations from 2012 to 2020 and provide for optional extensions at the Company's discretion. The future minimum noncancelable
commitments under the regional jet capacity purchase agreements are $1.57 billion in 2007, $1.73 billion in 2008, $1.79 billion in 2009,
$1.83 billion in 2010, $1.86 billion in 2011 and $7.57 billion thereafter.
Certain entities with which the Company 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. The Company has
determined that it is not the primary beneficiary of these variable interest entities, based on cash flow analyses. Additionally, other
carriers with which US Airways has long-term capacity purchase agreements fall under the business scope exception of FIN 46(R);
therefore, US Airways does not consolidate any of the entities with which it has jet service agreements.
(d) Legal Proceedings
On September 12, 2004, US Airways Group and its domestic subsidiaries (the "Reorganized Debtors") filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria
Division (Case Nos. 04-13819-SSM through 03-13823-SSM) (the "2004 Bankruptcy"). On September 16, 2005, the Bankruptcy Court
issued an order confirming the plan of reorganization submitted by the Reorganized Debtors and on September 27, 2005, the Reorganized
Debtors emerged from the 2004 Bankruptcy. The Bankruptcy Court's order confirming the plan included a provision called the plan
injunction, which forever bars other parties from pursuing most claims against the Reorganized Debtors that arose prior to September 27,
2005 in any forum other than the Bankruptcy Court. The great majority of these claims are pre-petition claims that, if paid out at all, will
be paid out in common stock of the post-bankruptcy US Airways Group at a fraction of the actual claim amount.
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