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US AIRWAYS GROUP INC (LCC)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 02/22/2012
Filed Period 12/31/2011

Table of contents

  • Page 1
    US AIRWAYS GROUP INC (LCC) 10-K Annual report pursuant to section 13 and 15(d) Filed on 02/22/2012 Filed Period 12/31/2011

  • Page 2
    ...) 111 West Rio Salado Parkway, Tempe, Arizona 85281 (Address of principal executive offices, including zip code) (480) 693-0800 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, $0.01 par value Name of...

  • Page 3
    ... aggregate market value of common stock held by non-affiliates of US Airways Group, Inc. as of June 30, 2011 was approximately $1.44 billion. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange...

  • Page 4
    ... Group, Inc. Item 8B. Consolidated Financial Statements and Supplementary Data of US Airways, Inc. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers...

  • Page 5

  • Page 6
    ... others, our outlook, expected fuel costs, the revenue and pricing environment, and our expected financial performance and liquidity position. These statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions...

  • Page 7
    ...limited number of suppliers for aircraft, aircraft engines and parts; our ability to operate profitably out of Philadelphia International Airport; the impact of weather conditions and seasonality of airline travel; the impact of possible future increases in insurance costs or reductions in available...

  • Page 8
    ... Overview US Airways Group, a Delaware corporation, is a holding company whose primary business activity is the operation of a major network air carrier through its wholly owned subsidiaries US Airways, Piedmont Airlines, Inc. ("Piedmont"), PSA Airlines, Inc. ("PSA"), Material Services Company, Inc...

  • Page 9
    ... We operate the fifth largest 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...

  • Page 10
    ... 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 to us. The...

  • Page 11
    ... less profitable domestic fares with more profitable international fares. We also compete on the basis of scheduling (frequency and flight times), availability of nonstop flights, on-time performance, type of equipment, cabin configuration, amenities provided to passengers, frequent flyer programs...

  • Page 12
    ..., at the airport and on board the aircraft. US Airways is in compliance with these rules which took effect in August 2011 and others which took effect in January 2012. These rules require airlines to display all fares in an "all in" basis with the price of the air travel and all taxes and government...

  • Page 13
    ... in operating 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...

  • Page 14
    ... 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 15
    ...Employee Association - IBT and CWA (the "Association") IAM IAM Transport Workers Union ("TWU") TWU TWU US Airline Pilots Association ("USAPA") Association of Flight Attendants-CWA ("AFA") USAPA AFA (1) (2) Class or Craft Fleet Service Passenger Service Mechanics, Stock Clerks and Related Maintenance...

  • Page 16
    ...1.74 $ Aircraft Fuel Expense (1) 3,400 2,403 1,863 Percentage of Total Operating Expenses 35.8% 28.6% 23.8% Includes fuel taxes and excludes the impact of fuel hedges. The impact of fuel hedges for 2009 is described in Part II, Item 7 under "US Airways Group's Results of Operations" and "US Airways...

  • Page 17
    ... flight operations arriving on time as defined by the DOT. Percentage of scheduled flight operations completed. Rate of mishandled baggage reports per 1,000 passengers. Rate of customer complaints filed with the DOT per 100,000 passengers. 14 79.8 98.4 2.70 1.91 2010 83.0 98.5 2.56 1.54 Better...

  • Page 18
    ...encourage travel on their respective airlines and customer loyalty. Our Dividend Miles frequent flyer program allows participants to earn mileage credits for each paid flight segment on US Airways, Star Alliance carriers and certain other airlines that participate in the program. Participants flying...

  • Page 19
    ...be able to optimize the number of aircraft in operation in response to a decrease in passenger demand for air travel. Our business is dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the...

  • Page 20
    ... 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 21
    ... agreement with the union representing our flight attendants which has not yet been ratified by the union membership. Our Express subsidiaries, Piedmont and PSA, are currently in negotiations with the unions representing their pilots, their flight attendants and their passenger service employees...

  • Page 22
    ... have other operational restrictions as well. In the United States, the FAA currently regulates the allocation of slot or slot exemptions at Reagan National serving Washington, D.C., and three New York City airports - Newark, JFK and LaGuardia. Our operations at these airports generally require the...

  • Page 23
    ...finalized rules on pilot flight and duty times, which could increase our costs and reduce staffing flexibility. Our airline subsidiaries are obligated to collect a federal excise tax, commonly referred to as the "ticket tax," on domestic and international air transportation. Our airline subsidiaries...

  • Page 24
    ..., at the airport and on board the aircraft. US Airways is in compliance with these rules which took effect in August 2011 and others which took effect in January 2012. These rules require airlines to display all fares in an "all in" basis with the price of the air travel and all taxes and government...

  • Page 25
    ...-established airlines. Some low cost carriers, which have cost structures lower than ours, have better financial performance and significant numbers of 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...

  • Page 26
    ... adequate gates, ticketing facilities, operations areas, slots (where applicable) and office space. For example, at our largest hub airport, we are seeking to increase international service despite challenging airport space constraints. The nation's aging air traffic control infrastructure presents...

  • Page 27
    ... low operating costs. These technologies and systems include our computerized airline reservation system, flight operations system, financial planning, management and accounting systems, telecommunications systems, website, maintenance systems and check-in kiosks. In order for our operations to work...

  • Page 28
    ... result in customer avoidance or in actions by the FAA resulting in an inability to operate our aircraft. Our inability to operate profitably out of Philadelphia International Airport, which is one of our hubs, could harm our business, financial condition and results of operations. Markets served...

  • Page 29
    ... 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 30
    ... of which are beyond our control, including our operating results failing to meet the expectations of securities analysts or investors; changes in financial estimates or recommendations by securities analysts; material announcements by us or our competitors; movements in fuel prices; new regulatory...

  • Page 31
    ... 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 32
    ...agreements. The terms of the leases expire between 2012 and 2024. As of December 31, 2011, our wholly owned regional airline subsidiaries operated the following regional jet and turboprop aircraft: Aircraft Type CRJ-700 CRJ-200 De Havilland Dash 8-300 De Havilland Dash 8-100 Total (1) Average Seat...

  • Page 33
    ... airlines. Our main operational facilities are 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...

  • Page 34
    ... which is scheduled for March 6, 2012. We believe that the union's position is without merit and that the possibility of an adverse outcome is remote. On April 21, 2011, US Airways filed an antitrust lawsuit against Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited...

  • Page 35
    ... board of directors. Foreign Ownership Restrictions Under current federal law, non-U.S. citizens cannot own or control more than 25% of the outstanding voting securities of a domestic air carrier. We believe that we were in compliance with this statute during the time period covered by this report...

  • Page 36
    Table of Contents US Airways Group, Inc. Amex Airline Index S&P 500 $ 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 100 $ 27 $ 14 $ 9 $ 19 $ 9 100 59 42 58 81 56 100 104 64 79 89 89 33

  • Page 37
    ...) Earnings (loss) per common share: Basic Diluted Shares used for computation (in thousands): Basic Diluted Consolidated balance sheet data (at end of period): Total assets Long-term obligations, less current maturities (a) Total stockholders' equity (deficit) Consolidated statements of operations...

  • Page 38
    ... in value of certain Express spare parts. The 2008 period included a $622 million non-cash charge to write off all of the goodwill created by the merger of US Airways Group and America West Holdings in September 2005, as well as $496 million of net unrealized losses on fuel hedging instruments...

  • Page 39
    ...cash tax charge of $21 million in connection with the sale of our final investment in auction rate securities in July 2011. This charge recognizes in the statement of operations the tax provision that was recorded in other comprehensive income, a subset of stockholders' equity, in the fourth quarter...

  • Page 40
    ... registered public accounting firm. 2011 Consolidated statements of operations data: Operating revenues Operating expenses Operating income (loss) Net income (loss) Consolidated balance sheet data (at end of period): Total assets Long-term obligations, less current maturities (a) Total stockholder...

  • Page 41
    ..., 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 42
    ... low cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control: the health of the economy and the price of fuel. Our mainline costs per available seat mile ("CASM") excluding special items, fuel and profit sharing...

  • Page 43
    ... Suite, the airline's fully lie-flat business-class seats with an on-demand in-flight entertainment system, on our fleet of wide-body Airbus A330-300 aircraft. Our 2011 operating performance was affected by a pilot job action campaign in the form of increased taxi times and maintenance write ups...

  • Page 44
    ..., investments in marketable securities and restricted cash 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...

  • Page 45
    ... connection with the Delta Slot transaction and auction rate securities arbitration as well as $3 million in severance costs. The 2010 period consisted of $6 million in non-cash charge related to the decline in value of certain spare parts, $5 million in aircraft costs related to capacity reductions...

  • Page 46
    ...other comprehensive income during 2009 due to an increase in the fair value of certain investments in auction rate securities. In addition, we recorded a $14 million tax benefit related to a legislation change allowing us to carry back 100% of 2008 AMT net operating losses, resulting in the recovery...

  • Page 47
    ...(d) Passenger revenue per available seat mile (cents) (e) Operating cost per available seat mile (cents) (f) Passenger enplanements (thousands) (g) Aircraft at end of period Fuel consumption (gallons in millions) Average aircraft fuel price including related taxes (dollars per gallon) Total Mainline...

  • Page 48
    ... 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., Chautauqua Airlines, Inc. and SkyWest Airlines, Inc. Total revenue per available seat mile ("RASM") - Total revenues...

  • Page 49
    ...increase in cargo revenues was driven primarily by an increase in yield due to fuel surcharges. Other revenues were $1.32 billion in 2011, an increase of $30 million, or 2.4%, from 2010. The increase in other revenues was driven primarily by increases in the volume of passenger ticketing change fees...

  • Page 50
    ... ability to measure financial performance in a way that is more indicative of our ongoing performance and is more comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items, fuel and profit sharing to evaluate our operating performance. Amounts may...

  • Page 51
    ... Aircraft fuel and related taxes per ASM increased 39.5% primarily due to a 38.7% increase in the average price per gallon of fuel to $3.11 in 2011 from $2.24 in 2010. Selling expenses per ASM increased 6.2% primarily due to higher credit card fees as a result of the increase in passenger revenues...

  • Page 52
    ... from 2009. Ancillary revenues, principally checked bag fees, comprised approximately half 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...

  • Page 53
    ... related taxes Loss (gain) on fuel hedging instruments, net: Realized Unrealized Salaries and related costs Aircraft rent Aircraft maintenance Other rent and landing fees Selling expenses Special items, net Depreciation and amortization Other Total mainline operating expenses Express expenses: Fuel...

  • Page 54
    ... ability to measure financial performance in a way that is more indicative of our ongoing performance and is more comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items, fuel and profit sharing to evaluate our operating performance. Amounts may...

  • Page 55
    ... debt discount and issuance costs, a $14 million loss on the sale of certain aircraft equipment, $10 million in other-thantemporary non-cash impairment charges for investments in auction rate securities, $3 million in foreign currency losses and a $2 million non-cash asset impairment charge. 52

  • Page 56
    ... income taxes of $199 million. US Airways experienced higher revenues in 2011 due to the strong pricing environment resulting from ongoing industry capacity discipline and robust consumer demand for air travel, which substantially offset a significant increase in fuel costs. US Airways' 2011 results...

  • Page 57
    ... comprehensive income during 2009 due to an increase in fair value of certain investments in auction rate securities. In addition, US Airways recorded a $14 million tax benefit related to a legislation change allowing it to carry back 100% of 2008 AMT net operating losses, resulting in the recovery...

  • Page 58
    ... - A measure of airline revenue derived by dividing passenger revenue by RPMs. Passenger revenue per available seat mile ("PRASM") - Passenger revenues divided by ASMs. Express statistics include Piedmont and PSA, as well as operating and financial results from capacity purchase agreements with Air...

  • Page 59
    ... Aircraft fuel and related taxes increased 41.4% primarily due to a 38.7% increase in the average price per gallon of fuel to $3.11 in 2011 from $2.24 in 2010. Selling expenses increased 7.7% primarily due to higher credit card fees as a result of the increase in passenger revenues in 2011. Express...

  • Page 60
    ... non-cash write offs of certain debt issuance costs and $2 million of losses related to investments in auction rate securities. These nonoperating expenses in the 2011 period were offset in part by a $15 million credit in connection with an award received in an arbitration involving investments in...

  • Page 61
    ... 2009. Ancillary revenues, principally checked bag fees, comprised approximately half of the 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...

  • Page 62
    ... in the mix of 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 increase in passenger revenues in 2010...

  • Page 63
    ... debt discount and issuance costs, a $14 million loss on the sale of certain aircraft equipment, $10 million in other-thantemporary non-cash impairment charges for investments in auction rate securities, $3 million in foreign currency losses and a $2 million non-cash asset impairment charge. 60

  • Page 64
    ...the purchase of new Airbus aircraft and payments of aircraft pre-delivery deposits. Changes in restricted cash in 2010 reflect adjustments to the amount of holdback held by certain credit card processors for advance ticket sales for which US Airways has not yet provided air transportation. Financing...

  • Page 65
    ... in the Flight 1549 accident and sale-leaseback transactions involving four aircraft and five engines. Changes in restricted cash reflect adjustments to 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 66
    ...the purchase of new Airbus aircraft and payments of aircraft pre-delivery deposits. Changes in restricted cash in 2010 reflect adjustments to the amount of holdback held by certain credit card processors for advance ticket sales for which US Airways has not yet provided air transportation. Financing...

  • Page 67
    ... and Express fuel expense, which was $701 million, or 28.4% higher than the 2009 period on a 0.9% increase in total system capacity. In addition, US Airways' 2009 operating cash flows also benefited from $257 million of net intercompany cash transfers received from US Airways Group. US Airways' 2010...

  • Page 68
    ... held in accounts subject to control agreements, which would become restricted for use by us if certain adverse events occur per the terms of the agreement. In addition, the Citicorp credit facility provides that we may issue debt in the future with a second lien on the assets pledged as collateral...

  • Page 69
    ... US Airways Group's consolidated financial statements in Item 8A of this report for additional information on this agreement. Credit Card Processing Agreements We have agreements with companies that process customer credit card transactions for the sale of air travel and other services. Credit card...

  • Page 70
    ..., results of operations or financial condition." As of December 31, 2011, we and our subsidiaries were in compliance with the covenants in our long-term debt agreements. The following table details our credit ratings as of December 31, 2011: S&P Local Issuer credit rating US Airways Group US Airways...

  • Page 71
    ...EETCs, issued by pass through trusts. These trusts are off-balance sheet entities, the primary purpose of which is to finance the acquisition of flight equipment. Rather than finance each aircraft separately when such aircraft is purchased, delivered or refinanced, these trusts allowed US Airways to...

  • Page 72
    ... capacity purchase agreements and our actual payments could differ materially. Represents operating lease commitments entered into by US Airways Group's other airline subsidiaries, Piedmont and PSA. In light of our significant financial commitments related to, among other things, new aircraft and...

  • Page 73
    ... 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 2011...

  • Page 74
    ...be redeemed for travel on US Airways or other participating partner airlines, in which case we pay a fee. We use the incremental cost method to account for the portion of the frequent traveler program liability related to mileage credits earned by Dividend Miles members through purchased flights. We...

  • Page 75
    ... 4% of US Airways' total mainline and Express RPMs during that period. The use of inventory management techniques minimizes the displacement of revenue passengers by passengers traveling on award tickets. We adopted Accounting Standards Update ("ASU") No. 2009-13, "Revenue Recognition (Topic...

  • Page 76
    ...in aviation fuel price results in a $15 million increase in annual expense. Since the third quarter of 2008, we have not entered into any new transactions to hedge our fuel consumption, and we have not had any fuel hedging contracts outstanding since the third quarter of 2009. Interest Rate Risk Our...

  • Page 77
    ... Statements and Supplementary Data 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...

  • Page 78
    ... US Airways Group, Inc. Consolidated Statements of Operations For the Years Ended December 31, 2011, 2010 and 2009 (In millions, except share and per share amounts) 2011 Operating revenues: Mainline passenger Express passenger Cargo Other Total operating revenues Operating expenses: Aircraft fuel...

  • Page 79
    ...Contents US Airways Group, Inc. Consolidated Balance Sheets December 31, 2011 and 2010 (In millions, except share and per share amounts) 2011 ASSETS Current assets Cash and cash equivalents Accounts receivable, net Materials and supplies, net Prepaid expenses and other Total current assets Property...

  • Page 80
    ... taxes Increase (decrease) in other liabilities Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Purchases of marketable securities Sales of marketable securities Net cash proceeds from slot transaction Decrease (increase) in long...

  • Page 81
    ... 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 82
    ... ("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...

  • Page 83
    ... 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. (f) Materials and Supplies, Net Material and supplies, net includes aircraft fuel...

  • Page 84
    ...non-cash impairment charges related to the decline in fair value of certain international routes. The Company will perform its next annual impairment test on October 1, 2012. (j) Frequent Traveler Program The Dividend Miles frequent traveler program awards mileage credits to passengers who fly on US...

  • Page 85
    ... 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 compensation, food and beverages as well as fees incurred when travel awards are redeemed on partner airlines...

  • Page 86
    .... Other revenues also include processing fees for travel awards issued through the Dividend Miles frequent traveler program and the marketing component earned from selling mileage credits to partners, as discussed in Note 1(j). (n) Maintenance and Repair Costs Maintenance and repair costs for owned...

  • Page 87
    ..., crew travel, aircraft food and catering, US Airways' frequent flier program, passenger reaccommodation, airport security, international navigation fees and certain general and administrative expenses. (s) Express Expenses Expenses associated with the Company's wholly owned regional airlines and...

  • Page 88
    ...-deliverable revenue arrangements consist principally of sales of frequent flyer program mileage credits to business partners, which are comprised of two components, transportation and marketing. See Note 1(j) for more information on the Company's frequent traveler program. The Company was required...

  • Page 89
    ...): 2011 Other costs (a) Aviation Security Infrastructure Fee ("ASIF") refund (b) Severance and other charges Asset impairment charges (c) Aircraft costs (d) Total $ Year Ended December 31, 2010 2009 21 $ 10 $ 6 - (16) - 3 - 11 - 6 16 - 5 22 24 $ 5 $ 55 $ (a) (b) (c) (d) In 2011, the Company...

  • Page 90
    ... 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, 2011 2010 2009 Basic earnings (loss) per share...

  • Page 91
    ... in accounts subject to control agreements, which would become restricted for use by the Company if certain adverse events occur per the terms of the agreement. In addition, the Citicorp credit facility provides that the Company may issue debt in the future with a second lien on the assets pledged...

  • Page 92
    ..., Airbus advanced US Airways $200 million in consideration of aircraft deliveries under the various related purchase agreements. Under the terms of each of the amendments, US Airways has agreed to maintain a level of unrestricted cash in the same amount required by the Citicorp credit facility...

  • Page 93
    ... shares of US Airways Group common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of $4.57 per share). Such conversion rate is subject to adjustment in certain events. If the Company undergoes a fundamental change, holders may require the Company to purchase...

  • Page 94
    ... 31, 2011. Certain of the Company's long-term debt agreements contain cross-default provisions, which may be triggered by defaults by US Airways or US Airways Group under other agreements relating to indebtedness. 5. Income Taxes The Company accounts for income taxes using the asset and liability...

  • Page 95
    ...-cash income tax benefit related to gains recorded within OCI during 2009 described above. In addition, for the year ended December 31, 2009, the Company recorded a $14 million benefit related to a legislation change allowing the Company to carry back 100% of 2008 AMT net operating losses, resulting...

  • Page 96
    ...'s results of operations, financial performance and liquidity. (a) Fuel Price Risk Since the third quarter of 2008, the Company has not entered into any new transactions to hedge its fuel consumption, and the Company has not had any fuel hedging contracts outstanding since the third quarter of 2009...

  • Page 97
    ... 31, 2011 and 2010, 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 98
    ... of the recovery rates in the event of default for each security. As of December 31, 2011, the Company has liquidated its entire investment in auction rate securities. Refer to Note 6(b) for further discussion of the Company's investments in marketable securities. Assets measured at fair value on...

  • Page 99
    ... - - Discount rate Rate of compensation increase As of December 31, 2011 and 2010, the Company discounted its pension obligations based on the current rates earned on high quality Aa rated longterm bonds. The Company assumed discount rates for measuring its other postretirement benefit obligations...

  • Page 100
    ...12 66 $ Defined Benefit Pension Plans 2012 2013 2014 2015 2016 2017 to 2021 $ Medicare Subsidy - - - - - (2) The Company assumed that its pension plans' assets would generate a long-term rate of return of 7.5% at December 31, 2011. The expected long-term rate of return assumption was developed by...

  • Page 101
    ...workers' compensation benefits for certain employees. The Company accrues for the cost of such benefit expenses once an appropriate triggering event has occurred. (d) Profit Sharing Plans Most non-executive employees of US Airways are eligible to participate in a profit sharing plan. Awards are paid...

  • Page 102
    ... 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 two of the V2500-A5 spare engines through December 31, 2011. Under all of the Company's aircraft and engine purchase agreements, the Company's total...

  • Page 103
    ... 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 104
    ... balance sheet. US Airways assigned to Delta a lease agreement with the Port Authority of New York and New Jersey related to the East End Terminal at LaGuardia airport. A portion of the rental payments under the lease are used to repay special revenue bonds issued by the Port Authority. The revenue...

  • Page 105
    ... cash flow information and non-cash investing and financing activities are as follows (in millions): 2011 Non-cash transactions: Interest payable converted to debt Note payables issued for aircraft purchases Net unrealized loss (gain) on available-for-sale securities Prepayment applied to equipment...

  • Page 106
    ... air transportation for passengers and cargo. This allows it to 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...

  • Page 107
    .... Restricted Stock Unit Awards - As of December 31, 2011, the Company has outstanding restricted stock unit awards with service conditions and a three-year vesting period. The grant-date fair value of restricted stock unit awards is equal to the market price of the underlying shares of common stock...

  • Page 108
    ... exercise results in payment of cash by the Company. Stock option and SAR award activity for all plans for the years ending December 31, 2011, 2010 and 2009 is as follows (stock options and SARs in thousands): Weighted Average Remaining Contractual Term (years) Balance at December 31, 2008 Granted...

  • Page 109
    ... option pricing model, which requires several assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the award at the time of grant. The dividend yield is assumed to be zero as the Company does not pay dividends and has no current plans...

  • Page 110
    ...intangible assets on the accompanying consolidated balance sheet. The newly acquired Washington National slots serve as collateral under the Company's Citicorp credit facility. See Note 4(a) for discussion on the Citicorp credit facility. The fair value of the LaGuardia slots transferred to Delta in...

  • Page 111
    ...in non-cash charges related to the write off of debt issuance costs. 18. Subsequent Event In February 2012, the Company amended its co-branded credit card agreement with Barclays Bank Delaware. This amendment provides that the $200 million pre-purchase of frequent flier miles previously scheduled to...

  • Page 112
    ... accordance with the standards of the Public Company Accounting Oversight Board (United States), US Airways' internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations...

  • Page 113
    ... US Airways, Inc. Consolidated Statements of Operations For the Years Ended December 31, 2011, 2010 and 2009 (In millions) 2011 Operating revenues: Mainline passenger Express passenger Cargo Other Total operating revenues Operating expenses: Aircraft fuel and related taxes Loss on fuel hedging...

  • Page 114
    ... US Airways, Inc. Consolidated Balance Sheets December 31, 2011 and 2010 (In millions, except share and per share amounts) 2011 ASSETS Current assets Cash and cash equivalents Accounts receivable, net Materials and supplies, net Prepaid expenses and other Total current assets Property and equipment...

  • Page 115
    ... taxes Increase (decrease) in other liabilities Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Purchases of marketable securities Sales of marketable securities Net cash proceeds from slot transaction Decrease (increase) in long...

  • Page 116
    ... 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 Net income Recognition of net realized gains on sale of available-for-sale securities Net unrealized...

  • Page 117
    ... stock, par value $1 per share. The accompanying consolidated financial 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...

  • Page 118
    ... 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. (f) Materials and Supplies, Net Material and supplies, net includes aircraft fuel...

  • Page 119
    ... non-cash impairment charges related to the decline in fair value of certain international routes. US Airways will perform its next annual impairment test on October 1, 2012. (j) Frequent Traveler Program The Dividend Miles frequent traveler program awards mileage credits to passengers who fly on US...

  • Page 120
    ... incremental cost of carrying one additional passenger. Incremental cost includes unit costs incurred for fuel, credit card fees, insurance, denied boarding compensation, food and beverages as well as fees incurred when travel awards are redeemed on partner airlines. In addition, US Airways also...

  • Page 121
    ... 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 component earned from selling mileage credits to partners, as...

  • Page 122
    ..., crew travel, aircraft food and catering, US Airways' frequent flier program, passenger reaccommodation, airport security, international navigation fees and certain general and administrative expenses. (s) Express Expenses Expenses associated with affiliate regional airlines operating as US Airways...

  • Page 123
    ...-deliverable revenue arrangements consist principally of sales of frequent flyer program mileage credits to business partners, which are comprised of two components, transportation and marketing. See Note 1(j) for more information on US Airways' frequent traveler program. US Airways was required to...

  • Page 124
    ... 2009, US Airways recorded $16 million in non-cash impairment charges due to the decline in fair value of certain indefinite lived intangible assets associated with international routes. In 2010 and 2009, US Airways recorded $5 million and $22 million, respectively, in aircraft costs as a result of...

  • Page 125
    ... (81) (381) 2,596 $ (a) (b) The following are the significant equipment financing agreements entered into in 2011: In 2011, US Airways borrowed $168 million to finance new Airbus aircraft deliveries. These financings bear interest at a rate of LIBOR plus an applicable margin and contain default...

  • Page 126
    ..., Airbus advanced US Airways $200 million in consideration of aircraft deliveries under the various related purchase agreements. Under the terms of each of the amendments, US Airways has agreed to maintain a level of unrestricted cash in the same amount required by US Airways Group's Citicorp credit...

  • Page 127
    ... recorded in OCI. Accordingly, in connection with the sale of US Airways' final investments in auction rate securities, US Airways recorded a $21 million special non-cash tax charge in 2011, which recognizes in the statement of operations the tax provision recorded in OCI. In addition, for the...

  • Page 128
    ...' results of operations, financial performance and liquidity. (a) Fuel Price Risk Since the third quarter of 2008, US Airways has not entered into any new transactions to hedge its fuel consumption, and US Airways has not had any fuel hedging contracts outstanding since the third quarter of 2009...

  • Page 129
    ...December 31, 2011 and 2010, 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 130
    ... of the recovery rates in the event of default for each security. As of December 31, 2011, US Airways has liquidated its entire investment in auction rate securities. Refer to Note 5(b) for further discussion of US Airways' investments in marketable securities. Assets measured at fair value on...

  • Page 131
    ... in US Airways' consolidated balance sheets as of December 31, 2011 and 2010 (in millions). Year Ended December 31, 2011 Fair value of plan assets at beginning of period Actual return on plan assets Employer contributions Plan participants' contributions Gross benefits paid Fair value of plan assets...

  • Page 132
    ...fiscal year. US Airways recorded $12 million and $47 million for profit sharing in 2011 and 2010, respectively, which is recorded in salaries and related costs on the consolidated statement of operations and included in accrued compensation and vacation on the consolidated balance sheet. In 2009, no...

  • Page 133
    ... all Airbus aircraft scheduled for delivery in 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, 2011, US Airways had 283 aircraft under operating leases, with remaining terms...

  • Page 134
    ... 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 135
    ... balance sheet. US Airways assigned to Delta a lease agreement with the Port Authority of New York and New Jersey related to the East End Terminal at LaGuardia airport. A portion of the rental payments under the lease are used to repay special revenue bonds issued by the Port Authority. The revenue...

  • Page 136
    ... cash flow information and non-cash investing and financing activities are as follows (in millions): 2011 Non-cash transactions: Interest payable converted to debt Note payables issued for aircraft purchases Net unrealized loss (gain) on available-for-sale securities Prepayment applied to equipment...

  • Page 137
    ... and Express flights. 12. Operating Segments and Related Disclosures US Airways is managed as a single business unit that provides air transportation for passengers and cargo. This allows it to benefit from an integrated revenue pricing and route network that includes US Airways, US Airways Group...

  • Page 138
    ...Restricted Stock Unit Awards - As of December 31, 2011, US Airways Group has outstanding restricted stock unit awards with service conditions and a three-year vesting period. The grant-date fair value of restricted stock unit awards is equal to the market price of the underlying shares of US Airways...

  • Page 139
    ... of shares of US Airways Group's common stock. Cash-settled stock appreciation rights ("CSARs") are classified as liability awards as the exercise results in payment of cash by US Airways. Stock option and SAR award activity for all plans for the years ending December 31, 2011, 2010 and 2009 is...

  • Page 140
    ... pricing model, which requires several assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the award at the time of grant. The dividend yield is assumed to be zero as US Airways Group does not pay dividends and has no current plans...

  • Page 141
    ... intangible assets on the accompanying consolidated balance sheet. The newly acquired Washington National slots serve as collateral under US Airways Group's Citicorp credit facility. See Note 4(a) to the consolidated financial statements of US Airways Group included in Item 8A of this report for...

  • Page 142
    ..., which resulted in a $147 million gain. Due to the DOT restrictions preventing operating use of the LaGuardia slots acquired by Delta, the gain was fully deferred as of December 31, 2011 and is included within other current liabilities on the accompanying consolidated balance sheet. US Airways will...

  • Page 143
    ... financial reporting. Management's annual report on internal control over financial reporting and the related attestation report from US Airways Group's and US Airways' independent registered public accounting firm are included herein. Disclosure Controls and Procedures An evaluation was performed...

  • Page 144
    ..., management concludes that US Airways Group maintained effective internal control over financial reporting as of December 31, 2011. 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
    ... standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of US Airways Group, Inc. and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of...

  • Page 146
    ...management concludes that US Airways maintained effective internal control over financial reporting as of December 31, 2011. 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
    ...responsibility is to express an opinion on US Airways' internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to...

  • Page 148
    Table of Contents Item 9B. None. Other Information 145

  • Page 149
    ... "Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Information About Our Board of Directors and Corporate Governance" in US Airways Group's Proxy Statement and is incorporated by reference into this Annual Report on Form 10-K. US Airways Group has adopted a Code of...

  • Page 150
    ... consolidated 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, 2011, 2010 and 2009 Consolidated Balance Sheets as of December 31, 2011 and 2010 Consolidated Statements of Cash Flows...

  • Page 151
    ...the Securities Exchange Act of 1934, as amended, the 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 21, 2012 US...

  • Page 152
    ... and all capacities, to sign any and all amendments to the Registrants' Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and to file the same with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto...

  • Page 153
    ...reference to Exhibit 2.2 to US Airways Group's Current Report on Form 8-K filed on September 22, 2005 (Commission File No. 1-8444)). Amended and Restated Mutual Asset Purchase and Sale Agreement, dated as of May 20, 2011, by and among US Airways, Inc., US Airways Group, Inc. and Delta Air Lines, Inc...

  • Page 154
    ... among US Airways, US Airways Group, America West Holdings, Inc., AWA, General Electric Capital Corporation, acting through its agent GE Commercial Aviation Services LLC, GE Engine Services, Inc., GE Engine Services - Dallas, LP and General Electric Company, GE Transportation Component (incorporated...

  • Page 155
    ...Airways Group and US Airways and Airbus North America Sales Inc. (incorporated by reference to Exhibit 99.1 to US Airways Group's Current Report on Form 8-K filed on February 9, 2005 (Commission File No. 1-8444)). 10.20 Amendment No. 10 dated September 2005 to the Airbus A330/A340 Purchase Agreement...

  • Page 156
    ... Barbell Acquisition Corp., ACE Aviation America West Holdings, Inc., Eastshore Aviation, LLC, Par Investment Partners, L.P., Peninsula Investment Partners, L.P. and Wellington Management Company, LLP (incorporated by reference to Exhibit 10.11 to US Airways Group's Quarterly Report on Form 10-Q for...

  • Page 157
    ... Form 10-Q for 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...

  • Page 158
    ... Number Description 10.47 Form of Restricted Stock Unit Award Agreement under the US Airways Group, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to US Airways Group's Current Report on Form 8-K filed August 7, 2008 (Commission File No. 1-8444)).†10.48 Form of Stock...

  • Page 159
    ... to Exhibit 10.7 to US Airways Group's Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (Commission File No. 1-8444)).* 10.70 Form of Stock Appreciation Right (Cash-Settled) Award Agreement under the US Airways Group, Inc. 2008 Equity Incentive Plan (incorporated by reference to...

  • Page 160
    ...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)).* 10.77 2010 Long Term Incentive Performance Program Under 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to US Airways Group's Quarterly Report on Form 10...

  • Page 161
    ... to US Airways Group's Registration Statement on Form S-8 filed on July 1, 2011 (Registration No. 333-175323)).†10.89 Form of Restricted Stock Unit (Cash-Settled) Award Grant Notice and Restricted Stock Unit (Cash-Settled) Award Agreement under the US Airways Group, Inc. 2011 Incentive Award Plan...

  • Page 162
    ... Purchase and Sale Agreement. US Airways Group and US Airways hereby agree to furnish to the Securities and Exchange Commission, upon its request, any or all of such omitted exhibits or schedules. Confidential treatment has been granted with respect to certain portions of this agreement. Management...

  • Page 163
    ...Airways Group, Inc: Airways Assurance Limited Organized under the laws of Bermuda 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...

  • Page 164
    ... of Independent Registered Public Accounting Firm The Board of Directors US Airways Group, Inc.: We consent to the incorporation by reference in Registration Statement Nos. 333-163463, 333-129896, 333-129899, and 333-130063 on Form S-3 of US Airways Group, Inc. and subsidiaries (the Company) and to...

  • Page 165
    ... Public Accounting Firm The Board of Directors US Airways, Inc.: We consent to the incorporation by reference in Registration Statement No. 333-163463 on Form S-3 of US Airways, Inc. and subsidiaries (US Airways) of our reports dated February 21, 2012, with respect to the consolidated balance sheets...

  • 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 21, 2012 /s/ W. Douglas Parker Name: Title: W. Douglas Parker Chief Executive Officer

  • Page 167
    ... financial 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 21, 2012 /s/ Derek J. Kerr Name: Title: Derek J. Kerr Chief Financial Officer

  • Page 168
    ... 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 21, 2012 /s/ W. Douglas Parker Name: Title: W. Douglas Parker Chief Executive Officer

  • Page 169
    ... financial 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 21, 2012 /s/ Derek J. Kerr Name: Title: Derek J. Kerr Chief Financial Officer

  • Page 170
    ... the Annual Report on Form 10-K of US Airways Group, Inc. (the "Company") for the year ended December 31, 2011 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...

  • Page 171
    ... the Annual Report on Form 10-K of US Airways, Inc. (the "Company") for the year ended December 31, 2011 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...