US Airways 2008 Annual Report Download - page 116

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
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 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, the Company 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, 2008, $540 million
associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet.
With respect to leveraged leases, US Airways evaluated whether the leases had characteristics of a variable interest entity as defined
by FIN No. 46(R). US Airways concluded the leasing entities met the criteria for variable interest entities. US Airways then evaluated
whether or not it was the primary beneficiary by evaluating whether or not it was exposed to the majority of the risks (expected losses) or
whether it receives the majority of the economic benefits (expected residual returns) from the trusts' activities. US Airways does not
provide residual value guarantees to the bondholders or equity participants in the trusts. Each lease does have a fixed price purchase
option that allows US Airways to purchase the aircraft near the end of the lease term. However, the option price approximates an estimate
of the aircraft's fair value at the option date. Under this feature, US Airways does not participate in any increases in the value of the
aircraft. US Airways concluded it was not the primary beneficiary under these arrangements. Therefore, US Airways accounts for its
EETC leverage lease financings as operating leases under the criteria of SFAS No. 13, "Accounting for Leases." US Airways' total
obligations under these leveraged lease financings are $3.57 billion as of December 31, 2008, which are included in the future minimum
lease payments table in (b) above.
(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 and passenger liability insurance, 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 $1.01 billion in 2009, $1.01 billion in 2010,
$1.03 billion in 2011, $902 million in 2012, $731 million in 2013 and $2.71 billion thereafter.
Certain entities with which US Airways has capacity purchase agreements are considered variable interest entities under
FIN No. 46(R). In connection with its restructuring and emergence from bankruptcy, US Airways contracted with Air Wisconsin 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 it is not required to consolidate any of the entities.
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