US Airways 2008 Annual Report Download - page 69

Table of Contents
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, 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, 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 FASB Interpretation ("FIN") No. 46(R), "Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51." 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 leveraged 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.
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,
2008, the principal amount outstanding on these bonds was $90 million. Remaining lease payments guaranteeing the principal and
interest on these bonds are $145 million.
US Airways has long-term operating leases at a number of airports, including leases where US Airways is also the guarantor of the
underlying debt. Such leases are typically with municipalities or other governmental entities. The arrangements are not required to be
consolidated based on the provisions of FIN No. 46(R).
Jet Service Agreements
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 that it is not required to consolidate any of the entities.
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