US Airways 2007 Annual Report Download - page 168

Table of Contents
US Airways, Inc.
Notes to Consolidated Financial Statements — (Continued)
the purchase or delivery of the relevant aircraft. The trusts were 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.
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 US Airways' election, either by 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 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 or US Airways. However, in the case of
mortgage financings, the equipment notes issued to the trusts are direct obligations of US Airways. As of December 31, 2007,
$576 million associated with these mortgage financings is reflected as debt in the accompanying balance sheet.
AWA also had 18 pass through trusts that have issued over $1.4 billion of EETCs covering the financing of 54 aircraft and three
engines that were leased to AWA. As part of the transfer of substantially all of AWA's assets and liabilities to US Airways in connection
with the combination of all airline operations under one FAA operating certificate on September 26, 2007, all off-balance sheet
commitments of AWA were also transferred to US Airways. As of September 26, 2007, approximately $714 million of principal amount
of pass through certificates was outstanding under these pass through trusts. All of AWA's obligations with respect to those pass through
trusts and the leases of the related aircraft and engines have now been transferred to US Airways. As a result of the transfer of AWA's
obligations, the leases are now direct obligations of US Airways. As of December 31, 2007, the total amount of US Airways' obligations
with respect to pass through trusts and leases of the related aircraft and engines, including those transferred from AWA, was
$1.85 billion.
Neither US Airways Group nor US Airways guarantee or participate in any way in the residual value of the leased aircraft. All
leased aircraft financed by these trusts are structured as leveraged lease financings, which are not reflected as debt on the balance sheets
of either US Airways Group or US Airways. US Airways does not provide residual value guarantees under these lease arrangements.
Each lease contains a purchase option that allows US Airways 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) "Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51" because US Airways is not the primary
beneficiary under these arrangements.
(d) Regional Jet Capacity Purchase Agreements
US Airways 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 US Airways. In return, US Airways 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 airport landing fees, will be reimbursed 100% by US Airways. US Airways
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 US Airways' discretion. The future minimum noncancellable commitments
under the regional jet capacity purchase agreements are $1.06 billion in 2008, $1.11 billion in 2009, $1.13 billion in 2010, $1.16 billion in
2011, $1.02 billion in 2012 and $4.68 billion thereafter.
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 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. US Airways has determined
that it is not the primary beneficiary of
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