US Airways 2011 Annual Report Download - page 20

Table of Contents
Increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates could adversely affect our liquidity,
operating expenses and results.
Concerns about the systemic impact of inflation, the availability and cost of credit, energy costs and geopolitical issues, combined with continued
changes in business activity levels and consumer confidence, increased unemployment and volatile oil prices, have contributed to unprecedented levels of
volatility 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 and
adversely affect our ability to obtain financing needed for the acquisition of aircraft that we have contractual commitments to purchase and for other types of
financings we may seek in order to refinance debt maturities, raise capital or fund other types of obligations. Any downgrades to our credit rating may
likewise increase the cost and reduce the availability of financing.
In addition, we have substantial non-cancelable commitments for capital expenditures, including the acquisition of new aircraft and related spare
engines. We have not yet secured financing commitments for some of the aircraft we have on order, commencing with deliveries scheduled for 2013, and
cannot assure you of the availability or cost of that financing. If we are not able to arrange financing for such aircraft at customary advance rates and on terms
and conditions acceptable to us, we expect we would seek to negotiate deferrals of aircraft deliveries with the manufacturer or financing at lower than
customary advance rates, or, if required, use cash from operations or other sources to purchase the aircraft.
Further, a substantial portion of our indebtedness bears interest at fluctuating interest rates, primarily based on the London interbank offered rate for
deposits of U.S. dollars ("LIBOR"). LIBOR tends to fluctuate based on general economic conditions, general interest rates, federal reserve rates and the
supply of and demand for credit in the London interbank market. We have not hedged our interest rate exposure and, accordingly, our interest expense for any
particular period may fluctuate based on LIBOR and other variable interest rates. To the extent these interest rates increase, our interest expense will increase,
in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate
requirements may be adversely affected. See also the discussion of interest rate risk in Part II, Item 7A, "Quantitative and Qualitative Disclosures About
Market Risk."
Our high level of fixed obligations limits our ability to fund general corporate requirements and obtain additional financing, limits our flexibility in
responding to competitive developments and increases our vulnerability to adverse economic and industry conditions.
We have a significant amount of fixed obligations, including debt, aircraft leases and financings, aircraft purchase commitments, leases and
developments of airport and other facilities and other cash obligations. We also have certain guaranteed costs associated with our Express operations. Our
existing indebtedness is secured by substantially all of our assets.
As a result of the substantial fixed costs associated with these obligations:
• a decrease in revenues results in a disproportionately greater percentage decrease in earnings;
• we may not have sufficient liquidity to fund all of these fixed costs if our revenues decline or costs increase; and
• we may have to use our working capital to fund these fixed costs instead of funding general corporate requirements, including capital
expenditures.
These obligations also impact our ability to obtain additional financing, if needed, and our flexibility in the conduct of our business.
Any failure to comply with the liquidity covenants contained in our financing arrangements would likely have a material adverse effect on our
business, results of operations or financial condition.
The terms of our Citicorp credit facility and certain of our other financing arrangements require us to maintain consolidated unrestricted cash and cash
equivalents of not less than $850 million, with not less than $750 million (subject to partial reductions upon certain reductions in the outstanding principal
amount of the loan) of that amount held in accounts subject to control agreements.
17