US Airways 2006 Annual Report Download - page 158

Table of Contents
America West Airlines, Inc.
Notes to Consolidated Financial Statements — (Continued)
end of the lease terms. Certain of the agreements require security deposits, minimum return provisions and supplemental rent payments.
AWA has set up pass through trusts, which have issued pass through trust certificates (also known as "Enhanced Equipment Trust
Certificates" or "EETCs") covering the financing of 54 leased 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 are they guaranteed by 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, AWA does not 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, and therefore are not reflected as debt on the balance sheet of AWA. AWA
does not provide residual value guarantees under these lease arrangements. Each lease contains a purchase option that allows AWA 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 Group is not the primary beneficiary under these arrangements.
(c) Regional Jet Capacity Purchase Agreements
AWA has entered into capacity purchase agreements with Mesa. The capacity purchase agreements provide that all revenues
(passenger, mail and freight) go to AWA. In return, AWA agrees to pay predetermined fees to Mesa 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 AWA. AWA controls marketing, scheduling, ticketing, pricing and seat
inventories. The current regional jet capacity purchase agreements with Mesa expire in 2012 and provide for optional extensions at
US Airways Group's discretion. The future minimum noncancelable commitments under the regional jet capacity purchase agreements
are $538 million in 2007, $530 million in 2008, $541 million in 2009, $552 million in 2010, $563 million in 2011 and $287 million
thereafter.
(d) Legal Proceedings
On October 12, 2005, Bank of America, N.A., which is one of the issuing banks of the US Airways frequent flyer program credit
card and which also acts as the processing bank for most airline ticket purchases paid for with credit cards, filed suit in the Delaware
Chancery Court in New Castle County against US Airways, US Airways Group and AWA, alleging that US Airways breached its
frequent flyer credit card contract with Bank of America by entering into a similar, competing agreement with Juniper and allowing
Juniper to issue a US Airways frequent flyer credit card. Bank of America also alleges that US Airways Group and AWA induced these
breaches. Bank of America seeks an order requiring US Airways to market the Bank of America card and prohibit Juniper from issuing
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