US Airways 2007 Annual Report Download - page 61

Table of Contents
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 on the balance sheet of US Airways.
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 mainline 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. All of AWA's obligations with respect to those pass through trusts and the leases of the
related aircraft and engines were 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 leased financings, which are not reflected as debt on the balance sheet
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
Financial Accounting Standards Board ("FASB") Interpretation No. 46 "Consolidation of Variable Interest Entities," as revised
("FIN 46(R)") because US Airways is not the primary beneficiary under these arrangements.
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, 2007, the principal amount outstanding on these bonds was $93 million. Remaining lease payments
guaranteeing the principal and interest on these bonds will be $154 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 bankruptcy, US Airways contracted with Air
Wisconsin, a related party, and Republic Airways 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 these variable interest entities, based on cash flow
analyses. Additionally, US Airways has analyzed the arrangements with other carriers with which US Airways has long-term capacity
purchase agreements and has concluded that it is not required to consolidate any of the entities.
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