US Airways 2006 Annual Report Download - page 64

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US Airways Group, subject to certain exceptions, for each year after Juniper becomes the exclusive issuer of the co-branded credit card.
The one-time bonus was paid to US Airways Group on October 3, 2005. If Juniper is not granted exclusivity to offer a co-branded credit
card after the dual branding period with Bank of America, US Airways Group must repay this bonus payment and repurchase unused pre-
paid miles with interest, plus repay a $20 million bonus payment AWA received under the original credit card agreement with Juniper
and pay $50 million in liquidated damages. As of December 31, 2006 we have not recorded income from the bonus payments and have a
deferred liability of $150 million recorded in other long-term liabilities.
On October 3, 2005, Juniper pre-paid for miles from US Airways Group totaling $325 million, subject to the same conditions as
apply to the $130 million bonus payment described above. To the extent that these miles are not used by Juniper as allowed under the co-
branded credit card program in certain circumstances, US Airways Group will repurchase these miles in 12 equal quarterly installments
beginning on the fifth year prior to the expiration date of the co-branded credit card agreement with Juniper, until paid in full.
US Airways Group makes monthly interest payments at LIBOR plus 4.75% to Juniper, beginning on November 1, 2005, based on the
amount of pre-purchased miles that have not been used by Juniper in connection with the co-branded credit card program and have not
been repurchased by US Airways Group. US Airways Group will be required to repurchase pre-purchased miles under certain reductions
in the collateral held under the credit card processing agreement with JPMorgan Chase Bank, N.A. Accordingly, the prepayment has been
recorded as additional indebtedness in the consolidated financial statements of AWA and US Airways Group.
Juniper requires US Airways Group 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. Further, the agreement requires US Airways Group to maintain certain financial
ratios beginning January 1, 2006. As of December 31, 2006, we were in compliance with these ratios. Juniper may, at its option,
terminate the amended credit card agreement, make payments to US Airways Group under the amended credit card agreement in the form
of pre-purchased miles rather than cash, or require US Airways Group to repurchase the pre-purchased miles before the fifth year prior to
the expiration date in the event that US Airways Group breaches its obligations under the amended credit card agreement, or upon the
occurrence of certain events.
Restructuring of Credit Card Processing Agreement
In connection with the merger, on August 8, 2005, AWA, JPMorgan Chase Bank, N.A., successor-in-interest to JPMorgan Chase
Bank, and Chase Merchant Services, L.L.C. (collectively, "Chase"), entered into the First Amendment to the Merchant Services Bankcard
Agreement. Pursuant to this amended card processing agreement, Chase performs authorization, processing and settlement services for
U.S. Dollars ("USD") sales on Visa and MasterCard for AWA and US Airways following the merger. The original card processing
agreement is guaranteed by America West Holdings, and US Airways Group executed a guarantee of the amended card processing
agreement on the effective date of the merger.
Prior to the merger, US Airways' USD Visa and MasterCard credit card processing was administered by Bank of America, and
those processing services were transferred to Chase in July 2006. US Airways is now a party to the amended card processing agreement,
effective as of the transfer of the services to Chase.
The amended card processing agreement took effect at the effective time of the merger and continues until the expiration of the
initial term, which is three years from the effective date. Upon expiration of the initial term, the amended card processing agreement will
automatically renew for successive one-year periods pursuant to the terms of the agreement.
Under the amended card processing agreement, AWA and US Airways will pay to Chase fees in connection with card processing
services such as sales authorization, settlement services and customer service. AWA and US Airways will also be required to maintain a
reserve account to secure Chase's exposure to outstanding air traffic liability. As of December 31, 2006, $390 million in cash collateral is
classified as restricted cash on US Airways Group's consolidated balance sheet to secure credit card sales under its various processing
agreements.
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