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US AIRWAYS GROUP INC (LCC)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 02/23/2011
Filed Period 12/31/2010

Table of contents

  • Page 1
    US AIRWAYS GROUP INC (LCC) 10-K Annual report pursuant to section 13 and 15(d) Filed on 02/23/2011 Filed Period 12/31/2010

  • Page 2
    ...to US Airways Group, Inc.'s 2011 Annual Meeting of Stockholders, which proxy statement will be filed under the Securities Exchange Act of 1934 within 120 days of the end of US Airways Group, Inc.'s fiscal year ended December 31, 2010, are incorporated by reference into Part III of this Annual Report...

  • Page 3
    ...of US Airways, Inc. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and...

  • Page 4
    ...in economic conditions and their impact on passenger demand and related revenues; increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates; the impact of the price and availability of fuel and significant disruptions in the supply of aircraft fuel...

  • Page 5
    ... global events that affect travel behavior, such as an outbreak of a contagious disease; the impact of foreign currency exchange rate fluctuations; our ability to use NOLs and certain other tax attributes; and other risks and uncertainties listed from time to time in our reports to and filings with...

  • Page 6
    ... executive offices are located at 111 West Rio Salado Parkway, Tempe, Arizona 85281. Our telephone number is (480) 693-0800, and our internet address is www.usairways.com. Information contained on our website is not and should not be deemed a part of this report or any other report or filing filed...

  • Page 7
    ... airline in the United States as measured by domestic revenue passenger miles ("RPMs") and available seat miles ("ASMs"). We have hubs in Charlotte, Philadelphia and Phoenix and a focus city in Washington, D.C. at Ronald Reagan Washington National Airport ("Washington National"). We offer scheduled...

  • Page 8
    ... costs, such as airport landing fees and passenger liability insurance, will be reimbursed 100% by us. We control marketing, scheduling, ticketing, pricing and seat inventories. Under the prorate agreements, the prorate carriers receive a prorated share of ticket revenue and pay certain service fees...

  • Page 9
    ..., on-time performance, type of equipment, cabin configuration, amenities provided to passengers, frequent flyer programs, the automation of travel agent reservation systems, on-board products, markets served and other services. We compete with both major full service airlines and low-cost airlines...

  • Page 10
    ... costs, and these restrictions could limit the ability of our airline subsidiaries to expand their operations at the affected airports. Authorities at other airports may adopt similar noise regulations. International The availability of international routes to domestic air carriers is regulated...

  • Page 11
    ... restrictions on the number of flights between the U.S. and EU. One result of the Open Skies Agreement has been applications before the DOT for antitrust immunity between various domestic and international airlines. The DOT approved two such transatlantic immunities in 2010 involving other carriers...

  • Page 12
    ... by this rule in the future, currently none of our facilities meet the threshold for reporting. On February 3, 2009, the EPA adopted regulations implementing changes to the renewable fuel standard program, which require an increasing amount of renewable fuels in the nation's transportation fuel mix...

  • Page 13
    ...major domestic employee groups. Union Class or Craft Contract Employees (1) Amendable Date Integrated labor agreements: International Association of Machinists & Aerospace Workers ("IAM") Airline Customer Service Employee Association - IBT and CWA (the "Association") IAM IAM Transport Workers Union...

  • Page 14
    ..., we incur fuel expenses related to our Express operations. Total fuel expenses for US Airways Group's wholly owned regional airlines and affiliate regional airlines operating under capacity purchase agreements as US Airways Express for the years ended December 31, 2010, 2009 and 2008 were $769...

  • Page 15
    ... in the Dividend Miles program. Mileage credits can be redeemed for travel awards on US Airways, Star Alliance carriers or other participating airlines. We and the other participating airline partners limit the number of seats per flight that are available for redemption by award recipients by using...

  • Page 16
    ... in the capital markets. As a result of these market conditions, the cost and availability of credit have been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. These changes in the domestic and global financial markets may increase our costs of financing...

  • Page 17
    ... futures markets, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events may result in fuel supply shortages, additional fuel price volatility and cost increases in the future. Historically, we have from time to time entered into hedging arrangements...

  • Page 18
    ... costs. If our financial condition worsens, provisions in our credit card processing and other commercial agreements may adversely affect our liquidity. We have agreements with companies that process customer credit card transactions for the sale of air travel and other services. These agreements...

  • Page 19
    ..., financial condition and results of operations. In January 2010, Mesa Air Group, Inc. and certain of its subsidiaries, including Mesa Airlines, Inc., filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. At December 31, 2010, Mesa operated 51 aircraft for our Express...

  • Page 20
    ... and services required for our operations, including Express flight operations, aircraft maintenance, ground services and facilities, reservations and baggage handling. Similar agreements may be entered into in any new markets we decide to serve. These agreements are generally subject to termination...

  • Page 21
    ... through the reservations process, at the airport and on board the aircraft. The comment period on the proposed rules ended in September 2010. We anticipate that any new rules will take effect in 2011. Finally, the ability of U.S. carriers to operate international routes is subject to change because...

  • Page 22
    ... aircraft on order for delivery in the next few years. These low-cost carriers are expected to continue to increase their market share through growth and, potentially, further consolidation, and could continue to have an impact on the overall performance of US Airways Group. Additionally, as mergers...

  • Page 23
    ... regulations become more restrictive or widespread. Ongoing data security compliance requirements could increase our costs, and any significant data breach could harm our business, financial condition or results of operations. Our business requires the appropriate and secure utilization of customer...

  • Page 24
    ... factors and seasonal variations in airline travel, which cause our results to fluctuate. Our operations are vulnerable to severe weather conditions in parts of our network that could disrupt service, create air traffic control problems, decrease revenue and increase costs, such as during hurricane...

  • Page 25
    ... the value of our assets and liabilities located outside of the United States. The use of US Airways Group's net operating losses and certain other tax attributes could be limited in the future. When a corporation undergoes an ownership change, as defined in Section 382 of the Internal Revenue Code...

  • Page 26
    ...; public sales of a substantial number of shares of our common stock; and general market conditions. Conversion of our convertible notes will dilute the ownership interest of existing stockholders and could adversely affect the market price of our common stock. The conversion of some or all of US...

  • Page 27
    ... extent required to ensure that we are in compliance with applicable provisions of law and regulations relating to ownership or control of a United States air carrier. In the event that we determine that the equity securities registered on the foreign stock record or the stock records of the Company...

  • Page 28
    ... secured financing agreements. (2) The terms of the leases expire between 2011 and 2024. As of December 31, 2010, our wholly owned regional airline subsidiaries operated the following regional jet and turboprop aircraft: Aircraft Type Average Seat Capacity Owned Leased (1) Total Average Age (years...

  • Page 29
    ... associated with our hubs and focus city, which are located at the following airports: Charlotte Douglas International, Philadelphia International, Phoenix Sky Harbor International and Washington National. At those locations and in other cities we serve, we maintain administrative offices, terminal...

  • Page 30
    ... impact on our financial position or results of operations. We presently expect the bankruptcy case to be closed during 2011. We are party to an arbitration proceeding relating to a grievance brought by our pilots union to the effect that, effective January 1, 2010, this work group was entitled to...

  • Page 31
    ... 2011, there were 1,758 holders of record of our common stock. Market Prices of Common Stock The following table sets forth, for the periods indicated, the high and low sale prices of our common stock on the NYSE: Year Ended December 31 2010 Period High Low 2009 Fourth Quarter Third Quarter Second...

  • Page 32
    ...of dividends. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance. 12/31/2005 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 US Airways Group, Inc. Amex Airline Index S&P 500 $ 100...

  • Page 33
    ...in conjunction with US Airways Group's consolidated financial statements for the respective periods, the related notes and the related reports of KPMG LLP, an independent registered public accounting firm. Year Ended December 31, 2010 2009 2008 2007 2006 (In millions, except share and per share data...

  • Page 34
    ... Boeing 737 aircraft fleet and, as a result of capacity reductions, $14 million in aircraft costs and $9 million in severance charges. The 2007 period included $187 million of net unrealized gains on fuel hedging instruments, $7 million in tax credits due to an IRS rule change allowing us to recover...

  • Page 35
    ... assets associated with international routes, $11 million in severance and other charges and $6 million in costs incurred related to the 2009 liquidity improvement program. The 2008 period included a $622 million non-cash charge to write off all of the goodwill created by the merger of US Airways...

  • Page 36
    ... in prior years. US Airways also recognized a $3 million tax benefit related to the reversal of the deferred tax liability associated with the indefinite lived intangible assets that were impaired during 2009. The 2008 period included $214 million in other-than-temporary non-cash impairment charges...

  • Page 37
    ..., 2005, US Airways Group merged with America West Holdings, with US Airways Group as the surviving corporation. We operate the fifth largest airline in the United States as measured by domestic RPMs and ASMs. We have hubs in Charlotte, Philadelphia and Phoenix and a focus city in Washington, D.C. at...

  • Page 38
    ... costs per available seat mile ("CASM") for the year ended December 31, 2010 and 2009: Percent Increase (Decrease) 2010 2009 (In cents) Mainline CASM excluding special items, fuel and profit sharing: Total mainline CASM Special items, net Aircraft fuel and related taxes Loss on fuel hedging...

  • Page 39
    ... investments. Long-term restricted cash primarily includes cash collateral to secure workers' compensation claims and credit card processing holdback requirements for advance ticket sales for which US Airways has not yet provided air transportation. The decrease in restricted cash during 2010 was...

  • Page 40
    ... merger of US Airways Group and America West Holdings in September 2005. Our 2008 results were also impacted by recognition of the following special items: • • $496 million of net unrealized losses resulting from the application of mark-to-market accounting for changes in the fair value of fuel...

  • Page 41
    ... paid in prior years. We also recognized a $3 million tax benefit related to the reversal of the deferred tax liability associated with the indefinite lived intangible assets that were impaired during 2009. For the year ended December 31, 2008, we reported a loss, which increased our NOLs, and...

  • Page 42
    ... aircraft fuel price including related taxes (dollars per gallon) Full time equivalent employees at end of period Express (k) Revenue passenger miles (millions) (a) Available seat miles (millions) (b) Passenger load factor (percent) (c) Yield (cents) (d) Passenger revenue per available seat mile...

  • Page 43
    ...of the increase. The remaining increase is primarily related to higher revenues associated with our frequent flyer program, including increased marketing revenues related to miles sold to business partners and increased revenues from partner airline frequent flyer award redemptions on US Airways. 42...

  • Page 44
    ... fair value of certain indefinite lived intangible assets associated with international routes, $11 million in severance and other charges and $6 million in costs incurred related to the 2009 liquidity improvement program. Our mainline CASM excluding special items, fuel and profit sharing, decreased...

  • Page 45
    ... special items, fuel and profit sharing for the years ended December 31, 2010 and 2009: Percent Increase (Decrease) 2010 2009 (In cents) Mainline CASM: Aircraft fuel and related taxes Loss on fuel hedging instruments, net Salaries and related costs Aircraft rent Aircraft maintenance Other rent and...

  • Page 46
    ... The sales of auction rate securities are discussed in more detail under "Liquidity and Capital Resources." 2009 Compared With 2008 Operating Revenues: Percent Increase (Decrease) 2009 (In millions) 2008 Operating revenues: Mainline passenger Express passenger Cargo Other Total operating revenues...

  • Page 47
    ...and second checked bag fees, which were implemented in the second and third quarters of 2008. This increase was offset in part by a decline in the volume of passenger ticketing change fees and declines in fuel sales to our pro-rate carriers through our MSC subsidiary due to lower fuel prices in 2009...

  • Page 48
    ... performed in 2009 as a result of the timing of maintenance cycles. Selling expenses per ASM decreased 8.8% due to lower credit card fees, booking fees and commissions paid as a result of a decline in the number and value of tickets sold resulting from the weakened demand and pricing environment...

  • Page 49
    ... and two Airbus A330 aircraft in 2009, which increased depreciation expense on owned aircraft. Total Express expenses decreased $530 million, or 17.4%, in 2009 to $2.52 billion from $3.05 billion in 2008. The year-over-year decrease was primarily driven by a $528 million decrease in fuel costs. The...

  • Page 50
    ... merger of US Airways Group and America West Holdings in September 2005. US Airways' 2008 results were also impacted by recognition of the following special items: • • $496 million of net unrealized losses resulting from the application of mark-to-market accounting for changes in the fair value...

  • Page 51
    ... Express statistics include Piedmont and PSA, as well as operating and financial results from capacity purchase agreements with Air Wisconsin Airlines Corporation, Republic Airline Inc., Mesa Airlines, Inc. and Chautauqua Airlines, Inc. Total revenue per available seat mile ("RASM") - Total revenues...

  • Page 52
    ... increase. The remaining increase is primarily related to higher revenues associated with US Airways' frequent flyer program, including increased marketing revenues related to miles sold to business partners and increased revenues from partner airline frequent flyer award redemptions on US Airways...

  • Page 53
    ... aircraft engines undergoing maintenance, which carried lower overhaul costs as well as a decrease in the number of engine overhauls performed. Selling expenses increased 10.3% due to higher credit card fees and commissions paid as a result of the 13.1% increase in passenger revenues in 2010. Total...

  • Page 54
    ... The sales of auction rate securities are discussed in more detail under "Liquidity and Capital Resources." 2009 Compared With 2008 Operating Revenues: Percent Increase (Decrease) 2009 (In millions) 2008 Operating revenues: Mainline passenger Express passenger Cargo Other Total operating revenues...

  • Page 55
    ... of passenger ticketing change fees. • Operating Expenses: Percent Increase (Decrease) 2009 (In millions) 2008 Operating expenses: Aircraft fuel and related taxes Loss (gain) on fuel hedging instruments, net: Realized Unrealized Salaries and related costs Aircraft rent Aircraft maintenance...

  • Page 56
    ... overhauls performed in 2009 as a result of the timing of maintenance cycles. Selling expenses decreased 13% due to lower credit card fees, booking fees and commissions paid as a result of a decline in the number and value of tickets sold resulting from the weakened demand and pricing environment...

  • Page 57
    ... of Airbus aircraft and payments of equipment purchase deposits for certain aircraft on order. Restricted cash decreased primarily due to a change in the amount of holdback held by certain credit card processors for advance ticket sales for which US Airways has not yet provided air transportation...

  • Page 58
    ... Flight 1549 accident and sale-leaseback transactions involving four aircraft and five engines. Restricted cash decreased during 2009 due to a change in the amount of holdback held by certain credit card processors for advance ticket sales for which US Airways has not yet provided air transportation...

  • Page 59
    ... of Airbus aircraft and payments of equipment purchase deposits for certain aircraft on order. Restricted cash decreased primarily due to a change in the amount of holdback held by certain credit card processors for advance ticket sales for which US Airways has not yet provided air transportation...

  • Page 60
    ... in total operating revenues. In addition, operating cash flows in 2009 improved by $321 million principally as a result of the wind down of US Airways' fuel hedging program. In the latter part of 2008, US Airways recognized unrealized losses on certain open fuel hedge transactions as the price of...

  • Page 61
    ... in cash to satisfy the aggregate repurchase price. The principal amount of the remaining 7% notes outstanding as of December 31, 2010 was $5 million. 2010 Financing Transactions In 2010, US Airways borrowed $181 million to finance Airbus aircraft deliveries. These financings bear interest at a rate...

  • Page 62
    ... debt associated with eight Airbus aircraft, with the balance used for general corporate purposes. The equipment notes are secured by liens on aircraft. Credit Card Processing Agreements We have agreements with companies that process customer credit card transactions for the sale of air travel and...

  • Page 63
    ... conditions." Covenants and Credit Rating In addition to the minimum cash balance requirements, our long-term debt agreements contain various negative covenants that restrict or limit our actions, including our ability to pay dividends or make other restricted payments. Our long-term debt agreements...

  • Page 64
    ... with market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates US Airways to absorb decreases in value or entitles US Airways to participate in increases in the value of the aircraft. US Airways does...

  • Page 65
    ...US Airways' consolidated financial statements in Item 8A and 8B of this report, respectively. (8) Represents minimum payments under capacity purchase agreements with third-party Express carriers. (9) Represents operating lease commitments entered into by US Airways Group's other airline subsidiaries...

  • Page 66
    ... to market rates and transactions. Changes in industry capacity and demand for air transportation can significantly impact the fair value of aircraft and related assets. We performed the annual impairment test on our international route authorities and trademarks during the fourth quarter of 2010...

  • Page 67
    ... in marketable securities. Frequent Traveler Program The Dividend Miles frequent traveler program awards mileage credits to passengers who fly on US Airways and Star Alliance carriers and certain other partner airlines that participate in the program. Mileage credits can be redeemed for travel on US...

  • Page 68
    ...changes in estimates are recorded in the statement of operations. The liability for outstanding mileage credits is valued based on the estimated incremental cost of carrying one additional passenger. Incremental cost includes unit costs incurred for fuel, credit card fees, insurance, denied boarding...

  • Page 69
    ...Deliverable Revenue Arrangements," to any new or materially modified business partner agreements entered into on or after January 1, 2011. Refer to the "Recent Accounting Pronouncements" section below for more information. Deferred Tax Asset Valuation Allowance At December 31, 2010, US Airways Group...

  • Page 70
    ... had any fuel hedging contracts outstanding since the third quarter of 2009. Interest Rate Risk Our exposure to interest rate risk relates primarily to our cash equivalents, investment portfolios and variable-rate debt obligations. At December 31, 2010, our variable-rate long-term debt obligations...

  • Page 71
    ... of US Airways Group, Inc. Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders US Airways Group, Inc.: We have audited the accompanying consolidated balance sheets of US Airways Group, Inc. and subsidiaries (the Company) as of December 31, 2010 and 2009...

  • Page 72
    ...US Airways Group, Inc. Consolidated Statements of Operations For the Years Ended December 31, 2010, 2009 and 2008 2010 2009 2008 (In millions, except share and per share amounts) Operating revenues: Mainline passenger $ 7,645 $ Express passenger 2,821 Cargo 149 Other 1,293 Total operating revenues...

  • Page 73
    ... Balance Sheets December 31, 2010 and 2009 2010 2009 (In millions, except share and per share amounts) ASSETS Current assets Cash and cash equivalents Accounts receivable, net Materials and supplies, net Prepaid expenses and other Total current assets Property and equipment Flight equipment...

  • Page 74
    ... on sale of investments Goodwill impairment Auction rate security impairment Asset impairment Non-cash tax benefits Change in fair value of fuel hedging instruments, net Amortization of deferred credits and rent Amortization of debt discount and issuance costs Amortization of actuarial gains Stock...

  • Page 75
    ... stock pursuant to employee stock plans Stock-based compensation expense Net unrealized gain on available-for-sale securities, net of tax Pension and other postretirement benefits Balance at December 31, 2009 Net income Issuance of 771,923 shares of common stock pursuant to employee stock plans...

  • Page 76
    ... ("America West Holdings"), with US Airways Group as the surviving corporation. The Company operates the fifth largest airline in the United States as measured by domestic revenue passenger miles ("RPMs") and available seat miles ("ASMs"). US Airways has hubs in Charlotte, Philadelphia and Phoenix...

  • Page 77
    ... years ended December 31, 2010 and 2009. The Company recorded a $13 million impairment charge in 2008 related to the decline in the fair value of Boeing 737 rotable parts included in flight equipment on its consolidated balance sheet. (h) Income Taxes Income taxes are accounted for under the asset...

  • Page 78
    ... goodwill created by the merger of US Airways Group and America West Holdings in September 2005. The Company performed an interim goodwill impairment test during 2008 as a result of a significant increase in fuel prices, declines in the Company's stock price and mainline capacity reductions, which...

  • Page 79
    ...41 million thereafter to aircraft rent expense related to these leasehold interests. (k) Frequent Traveler Program The Dividend Miles frequent traveler program awards mileage credits to passengers who fly on US Airways and Star Alliance carriers and certain other partner airlines that participate in...

  • Page 80
    ... balance sheets. For the years ended December 31, 2010, 2009 and 2008, the marketing component of mileage sales recognized at the time of sale in other revenues was approximately $144 million, $112 million and $126 million, respectively. The Company is required to adopt and apply Accounting...

  • Page 81
    ...tickets sold for flights on other airlines and sales of tour packages by the US Airways Vacations division, which are recognized when the services are provided. Other revenues also include processing fees for travel awards issued through the Dividend Miles frequent traveler program and the marketing...

  • Page 82
    ... airlines operating as US Airways Express are classified as Express expenses on the consolidated statements of operations. Express expenses consist of the following (in millions): Year Ended December 31, 2010 Year Ended December 31, 2009 Year Ended December 31, 2008 Aircraft fuel and related taxes...

  • Page 83
    ... consolidated statements of operations include the following charges (credits) (in millions): 2010 Year Ended December 31, 2009 2008 Aviation Security Infrastructure Fee ("ASIF") refund (a) Other costs(b) Asset impairment charges (c) Aircraft costs (d) Severance and other charges (e) Merger-related...

  • Page 84
    ... outstanding employee stock options, employee stock appreciation rights ("SARs"), employee restricted stock units ("RSUs") and convertible debt. The following table presents the computation of basic and diluted EPS (in millions, except share and per share amounts): Year Ended December 31, 2010 2009...

  • Page 85
    ... December 31, 2010 2009 Secured Citicorp North America loan, variable interest rate of 2.79%, installments due through 2014 (a) $ Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.66% to 10.29%, maturing from 2011 to 2029 (b) Aircraft enhanced equipment trust...

  • Page 86
    ... debt associated with eight Airbus aircraft, with the balance used for general corporate purposes. The equipment notes are secured by liens on aircraft. US Airways Group is a party to a co-branded credit card agreement with Barclays Bank Delaware. The co-branded credit card agreement provides...

  • Page 87
    .... The Company may repurchase any or all of the pre-purchased miles at any time, from time to time, without penalty. The agreement expires in 2017. On October 20, 2008, US Airways and Airbus entered into amendments to the A320 Family Aircraft Purchase Agreement, the A330 Aircraft Purchase Agreement...

  • Page 88
    ... closing price of US Airways Group common stock has exceeded 115% of the conversion price for at least 20 trading days in the 30 consecutive trading day period ending on the trading day before the date on which the Company mails the optional redemption notice. As the 7% notes can be settled in cash...

  • Page 89
    ... landing slots. At December 31, 2010, the maturities of long-term debt and capital leases are as follows (in millions): 2011 2012 2013 2014 2015 Thereafter $ 397 455 417 1,555 279 1,514 4,617 $ Certain of the Company's long-term debt agreements contain significant minimum cash balance requirements...

  • Page 90
    ...of Contents For the year ended December 31, 2008, the Company reported a loss, which increased its NOLs, and it did not record a tax provision. The components of the provision (benefit) for income taxes are as follows (in millions): 2010 Year Ended December 31, 2009 2008 Current provision: Federal...

  • Page 91
    ... benefit costs, employee-related accruals and leasing transactions. The Company files tax returns in the U.S. federal jurisdiction, and in various states and foreign jurisdictions. All federal and state tax filings for US Airways Group and its subsidiaries for fiscal years through December 31, 2009...

  • Page 92
    ... in 2009. (b) Credit Risk Cash, Cash Equivalents and Investments in Marketable Securities The Company invests available cash in money market securities, certificates of deposit and highly liquid debt instruments. As of December 31, 2010, the Company held auction rate securities with a fair value of...

  • Page 93
    ... 31, 2010 and 2009, respectively. The fair values were estimated using quoted market prices where available. For long-term debt not actively traded, fair values were estimated using a discounted cash flow analysis, based on the Company's current incremental borrowing rates for similar types of...

  • Page 94
    ... quarter of 2010. The fair values of international route authorities were assessed using the market approach. The market approach took into consideration relevant supply and demand factors at the related airport locations as well as available market sale and lease data. As a result of the Company...

  • Page 95
    ... in the Company's consolidated balance sheets as of December 31, 2010 and 2009 (in millions). Defined Benefit Pension Plans Other Postretirement Benefits Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2010 2009 2010 2009 Fair value of plan assets at...

  • Page 96
    ... Year Ended Year Ended December 31, December 31, December 31, 2010 2009 2008 Other Postretirement Benefits Year Ended Year Ended Year Ended December 31, December 31, December 31, 2010 2009 2008 Service cost Interest cost Expected return on plan assets Amortization of actuarial loss (gain) (1) Total...

  • Page 97
    ... non-executive employees of US Airways are eligible to participate in a profit sharing plan. Awards are paid as a lump sum after the end of each fiscal year. The Company recorded $47 million for profit sharing in 2010, which is recorded in salaries and related costs on the consolidated statement of...

  • Page 98
    ... scheduled for delivery in 2017 through 2019 for use on the A350 XWB aircraft. US Airways has taken delivery of two of the Trent 700 spare engines and one of the V2500-A5 spare engines through December 31, 2010. Under all of the Company's aircraft and engine purchase agreements, the Company's total...

  • Page 99
    ... of aircraft, without regard to the number of passengers on board. 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...

  • Page 100
    ... financial position or results of operations. (f) Guarantees and Indemnifications 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...

  • Page 101
    ... benefit from an integrated revenue pricing and route network that includes US Airways, Piedmont, PSA and third-party carriers that fly under capacity purchase or prorate agreements as part of the Company's Express operations. The flight equipment of all these carriers is combined to form one fleet...

  • Page 102
    ... financial results, not the individual results of US Airways, Piedmont and PSA. Information concerning operating revenues in principal geographic areas is as follows (in millions): Year Ended December 31, 2010 Year Ended December 31, 2009 Year Ended December 31, 2008 United States Foreign Total...

  • Page 103
    ... related to cash settled awards in 2008. Restricted Stock Unit Awards - As of December 31, 2010, the Company has outstanding restricted stock unit awards ("RSUs") with service conditions, which are classified as equity awards. The grant-date fair value of RSUs is equal to the market price of the...

  • Page 104
    ... exercise results in payment of cash by the Company. Stock option and SARs activity for the years ending December 31, 2010, 2009 and 2008 is as follows (stock options and SARs in thousands): Weighted Average Remaining Contractual Term (years) Stock Options and SARs Weighted Average Exercise Price...

  • Page 105
    Table of Contents Stock Options and SARs Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (In millions) 2005 Equity Incentive Plan Balance at December 31, 2007 Granted Exercised Forfeited Expired Balance at December 31, 2008 Granted ...

  • Page 106
    ..., respectively. Cash received from stock option exercises during each of the years ended December 31, 2010 and 2008 was $0.1 million. There were no stock options or SARs exercised during 2009. As of December 31, 2010, the average fair market value of outstanding CSARs was $7.99 per share and the...

  • Page 107
    ...purchase and sale agreement with Delta Airlines, Inc. ("Delta"). Pursuant to the agreement, US Airways would transfer to Delta certain assets related to flight operations at LaGuardia Airport in New York ("LaGuardia"), including 125 pairs of slots currently used to provide US Airways Express service...

  • Page 108
    ... associated with international routes, $5 million in aircraft costs as a result of capacity reductions, $6 million in severance charges, $6 million in costs related to the 2009 liquidity improvement program and $3 million in non-cash charges related to the decline in market value of certain Express...

  • Page 109
    ... cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), US Airways' internal control...

  • Page 110
    ... US Airways, Inc. Consolidated Statements of Operations For the Years Ended December 31, 2010, 2009 and 2008 2010 2009 (In millions) 2008 Operating revenues: Mainline passenger Express passenger Cargo Other Total operating revenues Operating expenses: Aircraft fuel and related taxes Loss on fuel...

  • Page 111
    ... Balance Sheets December 31, 2010 and 2009 2010 2009 (In millions, except share and per share amounts) ASSETS Current assets Cash and cash equivalents Accounts receivable, net Materials and supplies, net Prepaid expenses and other Total current assets Property and equipment Flight equipment...

  • Page 112
    ... dispositions of property and equipment Gain on forgiveness of debt Gain on sale of investments Goodwill impairment Auction rate security impairment Asset impairment Non-cash tax benefits Change in fair value of fuel hedging instruments, net Amortization of deferred credits and rent Amortization of...

  • Page 113
    ...' accounting for other postretirement benefit plans Other postretirement benefits Balance at December 31, 2008 Net loss Forgiveness of intercompany payable to US Airways Group Net unrealized gain on available-for-sale securities, net of tax Other postretirement benefits Balance at December 31, 2009...

  • Page 114
    ... statements include the accounts of US Airways and its wholly owned subsidiary, FTCHP LLC. US Airways operates the fifth largest airline in the United States as measured by domestic revenue passenger miles ("RPMs") and available seat miles ("ASMs"). US Airways has hubs in Charlotte, Philadelphia...

  • Page 115
    ...the years ended December 31, 2010 and 2009. US Airways recorded a $13 million impairment charge in 2008 related to the decline in the fair value of Boeing 737 rotable parts included in flight equipment on its consolidated balance sheet. (h) Income Taxes Income taxes are accounted for under the asset...

  • Page 116
    ... the goodwill created by the merger of US Airways Group and America West Holdings in September 2005. US Airways performed an interim goodwill impairment test during 2008 as a result of a significant increase in fuel prices, declines in US Airways Group's stock price and mainline capacity reductions...

  • Page 117
    ...41 million thereafter to aircraft rent expense related to these leasehold interests. (k) Frequent Traveler Program The Dividend Miles frequent traveler program awards mileage credits to passengers who fly on US Airways and Star Alliance carriers and certain other partner airlines that participate in...

  • Page 118
    ... balance sheets. For the years ended December 31, 2010, 2009 and 2008, the marketing component of mileage sales recognized at the time of sale in other revenues was approximately $144 million, $112 million and $126 million, respectively. US Airways is required to adopt and apply Accounting...

  • Page 119
    ...tickets sold for flights on other airlines and sales of tour packages by the US Airways Vacations division, which are recognized when the services are provided. Other revenues also include processing fees for travel awards issued through the Dividend Miles frequent traveler program and the marketing...

  • Page 120
    ... airlines operating as US Airways Express are classified as Express expenses on the consolidated statements of operations. Express expenses consist of the following (in millions): Year Ended December 31, 2010 Year Ended December 31, 2009 Year Ended December 31, 2008 Aircraft fuel and related taxes...

  • Page 121
    ... consolidated statements of operations include the following charges (credits) (in millions): 2010 Year Ended December 31, 2009 2008 Aviation Security Infrastructure Fee ("ASIF") refund (a) Other costs(b) Asset impairment charges (c) Aircraft costs (d) Severance and other charges (e) Merger-related...

  • Page 122
    ... US Airways' debt (in millions). Variable interest rates listed are the rates as of December 31, 2010. December 31, December 31, 2009 2010 Secured Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.66% to 10.29%, maturing from 2011 to 2021 (a) $ Aircraft...

  • Page 123
    ... landing slots. At December 31, 2010, the maturities of long-term debt and capital leases are as follows (in millions): 2011 2012 2013 2014 2015 Thereafter $ 381 339 301 279 279 1,479 3,058 $ Certain of US Airways' long-term debt agreements contain significant minimum cash balance requirements and...

  • Page 124
    ... assets that were impaired during 2009. For the year ended December 31, 2008, US Airways reported a loss, which increased its NOLs, and it did not record a tax provision. The components of the provision (benefit) for income taxes are as follows (in millions): 2010 Year Ended December 31, 2009 2008...

  • Page 125
    ... tax positions have been recorded. 5. Risk Management and Financial Instruments US Airways' economic prospects are heavily dependent upon two variables it cannot control: the health of the economy and the price of fuel. Due to the discretionary nature of business and leisure travel spending, airline...

  • Page 126
    ... in 2009. (b) Credit Risk Cash, Cash Equivalents and Investments in Marketable Securities US Airways invests available cash in money market securities, certificates of deposit and highly liquid debt instruments. As of December 31, 2010, US Airways held auction rate securities with a fair value of...

  • Page 127
    ...December 31, 2010 and 2009, respectively. The fair values were estimated using quoted market prices where available. For long-term debt not actively traded, fair values were estimated using a discounted cash flow analysis, based on US Airways' current incremental borrowing rates for similar types of...

  • Page 128
    ... market sale and lease data. As a result of US Airways' annual impairment test on international route authorities, no impairment was indicated. In 2009, US Airways recorded $16 million in non-cash impairment charges related to the decline in fair value of certain international routes. 7. Employee...

  • Page 129
    ... which the timing and cash outflows approximate the estimated benefit payments of the other postretirement benefit plans. As of December 31, 2010, the assumed health care cost trend rates are 9% in 2011 and 8.5% in 2012, decreasing to 5.0% in 2019 and thereafter. As of December 31, 2009, the assumed...

  • Page 130
    ...the consolidated balance sheet. In 2009 and 2008, no amounts were recorded for profit sharing. 8. Commitments and Contingencies (a) Commitments to Purchase Flight Equipment and Maintenance Services Aircraft and Engine Purchase Commitments US Airways has definitive purchase agreements with Airbus for...

  • Page 131
    ... payments. US Airways has financing commitments for all Airbus aircraft scheduled for delivery in 2011 and 2012. (b) Leases US Airways leases certain aircraft, engines and ground equipment, in addition to the majority of its ground facilities and terminal space. As of December 31, 2010, US Airways...

  • Page 132
    ... of aircraft, without regard to the number of passengers on board. 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...

  • Page 133
    ... financial position or results of operations. (f) Guarantees and Indemnifications 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...

  • Page 134
    ... flow information and non-cash investing and financing activities are as follows (in millions): Year Ended December 31, 2010 2009 2008 Non-cash transactions: Note payables issued for aircraft purchases Interest payable converted to debt Net unrealized loss (gain) on available-for-sale securities...

  • Page 135
    ... aircraft to these regional airline subsidiaries. US Airways recognized other operating revenues of $78 million related to these arrangements for each of the years ended December 31, 2010, 2009 and 2008, respectively. US Airways purchases a portion of its aviation fuel from US Airways Group's wholly...

  • Page 136
    ...related to cash settled awards in 2008. Restricted Stock Unit Awards - As of December 31, 2010, US Airways Group has outstanding restricted stock unit awards ("RSUs") with service conditions, which are classified as equity awards. The grant-date fair value of RSUs is equal to the market price of the...

  • Page 137
    ... with an exercise price equal to the underlying common stock's fair market value at the date of each grant. Stock options and stock appreciation rights have service conditions, become exercisable over a three-year vesting period and expire if unexercised at the end of their term, which ranges from...

  • Page 138
    ... for the years ending December 31, 2010, 2009 and 2008 is as follows (stock options and SARs in thousands): Stock Options and SARs Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (In millions) 1994 Incentive Equity Plan Balance at...

  • Page 139
    Table of Contents Stock Options and SARs Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (In millions) 2005 Equity Incentive Plan Balance at December 31, 2007 Granted Exercised Forfeited Expired Balance at December 31, 2008 Granted ...

  • Page 140
    ..., respectively. Cash received from stock option exercises during each of the years ended December 31, 2010 and 2008 was $0.1 million. There were no stock options or SARs exercised during 2009. As of December 31, 2010, the average fair market value of outstanding CSARs was $7.99 per share and the...

  • Page 141
    ...purchase and sale agreement with Delta Airlines, Inc. ("Delta"). Pursuant to the agreement, US Airways would transfer to Delta certain assets related to flight operations at LaGuardia Airport in New York ("LaGuardia"), including 125 pairs of slots currently used to provide US Airways Express service...

  • Page 142
    ...Fourth quarter 2009 operating expenses included $33 million of net special charges consisting of $16 million in non-cash impairment charges due to the decline in fair value of certain indefinite lived intangible assets associated with international routes, $5 million in aircraft costs as a result of...

  • Page 143
    ... registered public accounting firm are included herein. Disclosure Controls and Procedures An evaluation was performed under the supervision and with the participation of US Airways Group's and US Airways' management, including the Chief Executive Officer (the "CEO") and Chief Financial Officer (the...

  • Page 144
    ..., management concludes that US Airways Group maintained effective internal control over financial reporting as of December 31, 2010. US Airways Group's independent registered public accounting firm has issued an audit report on the effectiveness of US Airways Group's internal control over financial...

  • Page 145
    ... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of US Airways Group and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the...

  • Page 146
    ...management concludes that US Airways maintained effective internal control over financial reporting as of December 31, 2010. US Airways' independent registered public accounting firm has issued an audit report on the effectiveness of US Airways' internal control over financial reporting. That report...

  • Page 147
    ... the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of US Airways, Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholder's equity (deficit) and cash flows for each of the...

  • Page 148
    Table of Contents Item 9B. Other Information None. 147

  • Page 149
    ... to Regulation 14A relating to US Airways Group's Annual Meeting of Stockholders on June 9, 2011 and is incorporated herein by reference. US Airways Group will file with the SEC a definitive proxy statement within 120 days of the end of its fiscal year. Item 10. Directors, Executive Officers and...

  • Page 150
    ... financial statements of US Airways Group, Inc. are included in Part II, Item 8A of this report: - - - - - Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008 Consolidated Balance Sheets as of December 31, 2010 and 2009 Consolidated Statements of Cash Flows...

  • Page 151
    ... registrants have duly caused this report to be signed on their behalf by the undersigned, hereunto duly authorized. US Airways Group, Inc. By: /s/ W. Douglas Parker W. Douglas Parker Chairman and Chief Executive Officer Date: February 22, 2011 US Airways, Inc. By: /s/ W. Douglas Parker W. Douglas...

  • Page 152
    ... J. Kerr Derek J. Kerr Chairman and Chief Executive Officer (Principal Executive Officer) February 22, 2011 Executive Vice February 22, 2011 President and Chief Financial Officer (Principal Financial and Accounting Officer) Director February 22, 2011 /s/ Bruce R. Lakefield Bruce R. Lakefield...

  • Page 153
    ...2.5 Mutual Asset Purchase and Sale Agreement dated as of August 11, 2009 among Delta Air Lines, Inc., US Airways, Inc. and US Airways Group, Inc. (incorporated by reference to Exhibit 2.1 to US Airways Group's Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (Commission File No...

  • Page 154
    ... by reference to Exhibit 10.3 to US Airways Group's Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 1-8444)).* 10.4 Amendment No. 1 dated as of January 11, 2008 to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement dated as of October 2, 2007...

  • Page 155
    ...10.18 to US Airways Group's Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 1-8444)).* 10.22 Amended and Restated Airbus A350 XWB Purchase Agreement, dated as of October 2, 2007, among AVSA, S.A.R.L. and US Airways, Inc., AWA and US Airways Group (incorporated by...

  • Page 156
    ...to the Purchase Agreement (incorporated by reference to Exhibit 10.23 to US Airways Group's Annual Report on Form 10-K for the year ended December 31, 2008 (Commission File No. 1-8444)).* 10.24 Letter Agreement dated September 16, 2005 by and among US Airways Group, America West Holdings Corporation...

  • Page 157
    ... the quarter ended March 31, 2006 (Commission File No. 1-8444)).†10.45 Form of Stock Bonus Award Agreement for Non-Employee Directors under US Airways Group's 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.96 to US Airways Group's Annual Report on Form 10-K for the year ended...

  • Page 158
    ... Long Term Incentive Program under the US Airways Group 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.84 to US Airways Group's Annual Report on Form 10-K for the year ended December 31, 2008 (Commission File No. 1-8444)).†10.56 Form of Executive Change in Control Agreement...

  • Page 159
    ... Purchase Agreement dated as of October 2, 2007 between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.97 to US Airways Group's Annual Report on Form 10-K for the year ended December 31, 2009 (Commission File No. 1-8444)).* 10.78 2010 Annual Incentive Program Under 2008...

  • Page 160
    ...of US Airways Group and US Airways. 23.1 Consents of KPMG LLP, Independent Registered Public Accounting Firm of US Airways Group. 24.1 Powers of Attorney (included in signature page of this Annual Report on Form 10-K). 31.1 Certification of US Airways Group's Chief Executive Officer pursuant to Rule...

  • Page 161
    ... Material Services Company, Inc. Incorporated under the laws of the State of Delaware Piedmont Airlines, Inc. (operates under the trade name "US Airways Express") Incorporated under the laws of the State of Maryland PSA Airlines, Inc. (operates under the trade name "US Airways Express") Incorporated...

  • Page 162
    ... balance sheets of the Company as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2010, and the effectiveness of internal control over financial...

  • Page 163
    ...), and cash flows for each of the years in the three-year period ended December 31, 2010, and the effectiveness of internal control over financial reporting as of December 31, 2010, which reports appear in the December 31, 2010 annual report on Form 10-K of US Airways. /s/ KPMG LLP Phoenix, Arizona...

  • Page 164
    ... information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 22, 2011 /s/ W. Douglas Parker Name: Title: W. Douglas Parker Chief Executive Officer

  • Page 165
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer...

  • Page 166
    ... information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 22, 2011 /s/ W. Douglas Parker Name: Title: W. Douglas Parker Chief Executive Officer

  • Page 167
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer...

  • Page 168
    ...10-K of US Airways Group, Inc. (the "Company") for the year ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), W. Douglas Parker, as Chief Executive Officer of the Company, and Derek J. Kerr, as Chief Financial Officer of the Company, each...

  • Page 169
    ... the Annual Report on Form 10-K of US Airways, Inc. (the "Company") for the year ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), W. Douglas Parker, as Chief Executive Officer of the Company, and Derek J. Kerr, as Chief Financial Officer...