US Airways 2008 Annual Report Download - page 101

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
transaction. These transactions were accounted for as secured financings. Installments are due monthly through 2015. In December
2006, Republic and US Airways modified terms of the agreement to conform to subsequent regulatory changes at LaGuardia, and the
LaGuardia slots were returned to US Airways. The need for a subsequent modification was fully contemplated in the original
agreement.
(e) Capital lease obligations consist principally of certain airport maintenance and facility leases which expire in 2018 and 2021.
(f) On December 27, 2004, AWA raised additional capital by financing its Phoenix maintenance facility and flight training center. The
flight training center was previously unencumbered, and the maintenance facility became unencumbered earlier in 2004 when AWA
refinanced its term loan. Using its leasehold interest in these two facilities as collateral, AWA, through a wholly owned subsidiary
named FTCHP LLC, raised $31 million through the issuance of senior secured discount notes. The notes were issued by FTCHP at a
discount pursuant to the terms of a senior secured term loan agreement among AWA, FTCHP, Heritage Bank SSB, as administrative
agent, Citibank, N.A., as the initial lender, and the other lenders from time to time party thereto. Citibank, N.A. subsequently
assigned all of its interests in the notes to third party lenders.
AWA fully and unconditionally guaranteed the payment and performance of FTCHP's obligations under the notes and the loan
agreement. The notes require aggregate principal payments of $36 million with principal payments of $2 million due on each of the
first two anniversary dates and the remaining principal amount due on the fifth anniversary date. The notes may be prepaid in full at
any time (subject to customary LIBOR breakage costs) and in partial amounts of $2 million on the third and fourth anniversary
dates. The unpaid principal amount of the notes bears interest based on LIBOR plus a margin subject to adjustment based on a loan
to collateral value ratio.
The loan agreement contains customary covenants applicable to loans of this type, including obligations relating to the preservation
of the collateral and restrictions on the activities of FTCHP. In addition, the loan agreement contains events of default, including
payment defaults, cross-defaults to other debt of FTCHP, if any, breach of covenants, bankruptcy and insolvency defaults and
judgment defaults.
In connection with this financing, AWA sold all of its leasehold interests in the maintenance facility and flight training center to
FTCHP and entered into subleases for the facilities with FTCHP at lease rates expected to approximate the interest payments due
under the notes. In addition, AWA agreed to make future capital contributions to FTCHP in amounts sufficient to cover principal
payments and other amounts owing pursuant to the notes and the loan agreement. 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, AWA assigned its subleases for the facilities with FTCHP to US Airways. In addition,
US Airways assumed all of the obligations of AWA in connection with the financing and joined the guarantee of the payment and
performance of FTCHP's obligations under the notes and the loan agreement.
(g) Effective as of October 20, 2008, US Airways Group entered into an amendment to its co-branded credit card agreement with
Barclays Bank Delaware. The amendment provides for, among other things, the pre-purchase of frequent flyer miles in an amount
totaling $200 million, which amount was paid by Barclays in October 2008. The amendment also provides that so long as any pre-
purchased miles are outstanding, the Company will pay interest to Barclays on the outstanding dollar amount of the pre-purchased
miles at the rate of LIBOR plus a margin. This transaction was treated as a financing transaction for accounting purposes using an
effective interest rate commensurate with the Company's credit rating.
The amendment to the co-branded credit card agreement provides that Barclays will compensate us for fees earned using pre-
purchased miles. In addition, the amendment provides that for each month that certain conditions are met, Barclays will pre-
purchase additional miles on a monthly basis in an amount equal to the difference between $200 million and the amount of unused
miles then outstanding. The conditions include a requirement that the Company maintains an unrestricted cash balance, subject to
certain circumstances, of at least $1.5 billion each month, which was reduced to $1.4 billion for January 2009 and $1.45 billion for
99