US Airways 2006 Annual Report Download - page 68

Table of Contents
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 rental payments to the Industrial Development Authority (the "IDA") to cover the principal and interest of the
bonds and to indemnify the IDA for any claims arising out of the issuance and sale of the bonds and the use and occupancy of the
concourses financed by these bonds and the Old Bonds. At December 31, 2006, the outstanding principal amount of the bonds was
$22 million. AWA estimates its remaining payments to cover the principal and interest of these bonds will be approximately $39 million.
AWA is also the lessee under certain long-term leases at various airports. At certain of these airports, municipalities have issued
revenue bonds to improve airport facilities that are leased by AWA and accounted for as operating leases. AWA does not guarantee the
underlying debt related to these operating leases.
US Airways
Pass Through Trusts — US Airways has also set up pass through trusts established specifically to purchase, finance and lease
aircraft for which US Airways is the lessee and the pass through trust serves as lessor. These trusts issue EETCs, allowing US Airways 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 US Airways. US Airways
reviewed 62 aircraft operating leases financed through EETCs, each of which contains a fixed-price purchase option that allows
US Airways to purchase the aircraft at predetermined prices on specified dates during the latter part of the lease term. However,
US Airways does not guarantee the residual value of the aircraft. US Airways does not believe it is the primary beneficiary under these
lease arrangements based upon its cash flow analysis.
Special Facility Revenue Bonds — US Airways guarantees the payment of principal and interest on certain special facility revenue
bonds issued by municipalities to build or improve certain airport and maintenance facilities which are leased to US Airways. Under such
leases, US Airways is required to make rental payments through 2023, sufficient to pay maturing principal and interest payments on the
related bonds. As of December 31, 2006, the principal amount outstanding on these bonds was $74 million. Remaining lease payments
guaranteeing the principal and interest on these bonds will be $124 million. US Airways also reviewed long-term operating leases at a
number of airports, including leases where US Airways is also the guarantor of the underlying debt. These leases are typically with
municipalities or other governmental entities. The arrangements are not required to be consolidated based on the provisions of FIN 46(R).
Jet Service Agreements — 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
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