Form 10-Q

0001193125-12-432399.txt : 20121024 0001193125-12-432399.hdr.sgml : 20121024 20121024080130 ACCESSION NUMBER: 0001193125-12-432399 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20120930 FILED AS OF DATE: 20121024 DATE AS OF CHANGE: 20121024 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US AIRWAYS GROUP INC CENTRAL INDEX KEY: 0000701345 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 541194634 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08444 FILM NUMBER: 121157514 BUSINESS ADDRESS: STREET 1: 111 WEST RIO SALADO PARKWAY CITY: TEMPE STATE: AZ ZIP: 85281 BUSINESS PHONE: 4806930800 MAIL ADDRESS: STREET 1: 111 WEST RIO SALADO PARKWAY CITY: TEMPE STATE: AZ ZIP: 85281 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US AIRWAYS INC CENTRAL INDEX KEY: 0000714560 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 530218143 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08442 FILM NUMBER: 121157513 BUSINESS ADDRESS: STREET 1: 111 WEST RIO SALADO PARKWAY CITY: TEMPE STATE: AZ ZIP: 85281 BUSINESS PHONE: 4806930800 MAIL ADDRESS: STREET 1: 111 WEST RIO SALADO PARKWAY CITY: TEMPE STATE: AZ ZIP: 85281 10-Q 1 d407566d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2012

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

US Airways Group, Inc.

(Exact name of registrant as specified in its charter)

(Commission File No. 1-8444)

54-1194634 (IRS Employer Identification No.)

111 West Rio Salado Parkway, Tempe, Arizona 85281

(Address of principal executive offices, including zip code)

US Airways, Inc.

(Exact name of registrant as specified in its charter)

(Commission File No. 1-8442)

53-0218143 (IRS Employer Identification No.)

111 West Rio Salado Parkway, Tempe, Arizona 85281

(Address of principal executive offices, including zip code)

(480) 693-0800

(Registrants’ telephone number, including area code)

Delaware

(State of Incorporation of all Registrants)

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether each registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


US Airways Group, Inc.	Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
US Airways, Inc.	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

US Airways Group, Inc.

Yes

US Airways, Inc.

Yes

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

US Airways Group, Inc.

Yes

US Airways, Inc.

Yes

As of October 19, 2012, there were approximately 162,442,970 shares of US Airways Group, Inc. common stock outstanding.

As of October 19, 2012, US Airways, Inc. had 1,000 shares of common stock outstanding, all of which were held by US Airways Group, Inc.

US Airways Group, Inc.

US Airways, Inc.

Form 10-Q

Quarterly Period Ended September 30, 2012

Table of Contents


	Page
Part I. Financial Information
Item 1A. Condensed Consolidated Financial Statements of US Airways Group, Inc.
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statements of Comprehensive Income		6
Condensed Consolidated Balance Sheets		7
Condensed Consolidated Statements of Cash Flows		8
Notes to the Condensed Consolidated Financial Statements		9
Item 1B. Condensed Consolidated Financial Statements of US Airways, Inc.
Condensed Consolidated Statements of Operations		15
Condensed Consolidated Statements of Comprehensive Income		16
Condensed Consolidated Balance Sheets		17
Condensed Consolidated Statements of Cash Flows		18
Notes to the Condensed Consolidated Financial Statements		19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3. Quantitative and Qualitative Disclosures about Market Risk		52
Item 4. Controls and Procedures		52
Part II. Other Information
Item 1. Legal Proceedings		53
Item 1A. Risk Factors		53
Item 6. Exhibits		66
Signatures		67

This combined Quarterly Report on Form 10-Q is filed by US Airways Group, Inc. (“US Airways Group”) and its wholly owned subsidiary US Airways, Inc. (“US Airways”). References in this Quarterly Report on Form 10-Q to “we,” “us,” “our” and the “Company” refer to US Airways Group and its consolidated subsidiaries.

Note Concerning Forward-Looking Statements

Certain statements in this report should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “would,” “continue” and similar terms used in connection with statements regarding, among 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 and other statements that are not historical facts. These statements are based upon the current beliefs and expectations of management and are subject to significant risks and uncertainties that could cause our actual results and financial position to differ materially from these statements. These risks and uncertainties include, but are not limited to, those described below under Part II, Item 1A, “Risk Factors,” and the following:

•

the impact of significant operating losses in the future;

•

downturns in economic conditions and their impact on passenger demand, booking practices and related revenues;

•

the impact of the price and availability of fuel and significant disruptions in the supply of aircraft fuel;

•

competitive practices in the industry, including the impact of industry consolidation;

•

increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates;

•

our high level of fixed obligations and our ability to fund general corporate requirements, obtain additional financing and respond to competitive developments;

•

any failure to comply with the liquidity covenants contained in our financing arrangements;

•

provisions in our credit card processing and other commercial agreements that may affect our liquidity;

•

the impact of union disputes, employee strikes and other labor-related disruptions;

•

our inability to maintain labor costs at competitive levels;

•

interruptions or disruptions in service at one or more of our hub airports or our focus city;

•

regulatory changes affecting the allocation of slots;

•

our reliance on third-party regional operators or third-party service providers;

•

our reliance on and costs, rights and functionality of third-party distribution channels, including those provided by global distribution systems, conventional travel agents and online travel agents;

•

changes in government regulation;

•

the impact of changes to our business model;

•

the loss of key personnel or our ability to attract and retain qualified personnel;

•

the impact of conflicts overseas or terrorist attacks, and the impact of ongoing security concerns;

•

our ability to operate and grow our route network;

•

the impact of environmental regulation;

•

our reliance on technology and automated systems and the impact of any failure or disruption of, or delay in, these technologies or systems;

•

costs of ongoing data security compliance requirements and the impact of any significant data security breach;

•

the impact of any accident involving our aircraft or the aircraft of our regional operators;

•

delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity;

•

our dependence on a 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 insurance coverage;

•

the impact of 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 the Securities and Exchange Commission.

All of the forward-looking statements are qualified in their entirety by reference to the factors discussed in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. There may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. We assume no obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these estimates other than as required by law. Any forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q or as of the dates indicated in the statements.

Part I. Financial Information

This combined Quarterly Report on Form 10-Q is filed by US Airways Group and US Airways and includes the condensed consolidated financial statements of each company in Item 1A and Item 1B, respectively.

Item 1A. Condensed Consolidated Financial Statements of US Airways Group, Inc.

US Airways Group, Inc.

Condensed Consolidated Statements of Operations

(In millions, except share and per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Operating revenues:
Mainline passenger	$	2,319		$	2,267		$	6,881		$	6,447
Express passenger		844			796			2,523			2,316
Cargo		35			40			114			126
Other		335			333			1,035			1,011

Total operating revenues		3,533			3,436			10,553			9,900
Operating expenses:
Aircraft fuel and related taxes		893			905			2,659			2,587
Salaries and related costs		609			577			1,888			1,726
Express expenses		781			794			2,386			2,376
Aircraft rent		160			160			483			486
Aircraft maintenance		171			163			506			508
Other rent and landing fees		148			144			419			418
Selling expenses		122			123			359			343
Special items, net		14			13			25			22
Depreciation and amortization		60			58			182			178
Other		307			319			915			938

Total operating expenses		3,265			3,256			9,822			9,582

Operating income		268			180			731			318
Nonoperating income (expense):
Interest income		—			1			1			4
Interest expense, net		(89	)		(85	)		(256	)		(241	)
Other, net		67			1			125			(7	)

Total nonoperating expense, net		(22	)		(83	)		(130	)		(244	)

Income before income taxes		246			97			601			74
Income tax provision		1			21			1			21

Net income	$	245		$	76		$	600		$	53

Earnings per common share:
Basic earnings per common share	$	1.51		$	0.47		$	3.70		$	0.33
Diluted earnings per common share	$	1.24		$	0.41		$	3.06		$	0.33
Shares used for computation (in thousands):
Basic		162,418			162,090			162,286			161,999
Diluted		204,603			201,278			203,532			163,916

See accompanying notes to the condensed consolidated financial statements.

US Airways Group, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012		2011
Net income	$	245	$	76		$	600	$	53
Other comprehensive income:
Reversal of tax provision in other comprehensive income		—		21			—		21
Reversal of net unrealized gains on available-for-sale securities		—		—			—		(3	)
Pension and other postretirement benefits		—		(1	)		—		(2	)

Total other comprehensive income		—		20			—		16

Total comprehensive income	$	245	$	96		$	600	$	69

See accompanying notes to the condensed consolidated financial statements.

US Airways Group, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share and per share amounts)

(Unaudited)


	September 30, 2012			December 31, 2011
ASSETS
Current assets
Cash and cash equivalents	$	2,435		$	1,947
Accounts receivable, net		423			327
Materials and supplies, net		297			235
Prepaid expenses and other		671			540

Total current assets		3,826			3,049
Property and equipment
Flight equipment		4,817			4,591
Ground property and equipment		985			907
Less accumulated depreciation and amortization		(1,674	)		(1,501	)

		4,128			3,997
Equipment purchase deposits		241			153

Total property and equipment		4,369			4,150
Other assets
Other intangibles, net of accumulated amortization of $152 million and $134 million, respectively		545			543
Restricted cash		347			365
Other assets		233			228

Total other assets		1,125			1,136

Total assets	$	9,320		$	8,335

LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities
Current maturities of debt and capital leases	$	417		$	436
Accounts payable		391			386
Air traffic liability		1,220			910
Accrued compensation and vacation		268			176
Accrued taxes		183			163
Other accrued expenses		989			1,089

Total current liabilities		3,468			3,160
Noncurrent liabilities and deferred credits
Long-term debt and capital leases, net of current maturities		4,152			4,130
Deferred gains and credits, net		301			307
Postretirement benefits other than pensions		163			160
Employee benefit liabilities and other		477			428

Total noncurrent liabilities and deferred credits		5,093			5,025
Commitments and contingencies
Stockholders’ equity
Common stock, $0.01 par value; 400,000,000 shares authorized, 162,442,970 shares issued and outstanding at September 30, 2012; 162,116,902 shares issued and outstanding at December 31, 2011		2			2
Additional paid-in capital		2,131			2,122
Accumulated other comprehensive income		2			2
Accumulated deficit		(1,376	)		(1,976	)

Total stockholders’ equity		759			150

Total liabilities and stockholders’ equity	$	9,320		$	8,335

See accompanying notes to the condensed consolidated financial statements.

US Airways Group, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Nine Months Ended September 30,
	2012			2011
Net cash provided by operating activities	$	887		$	465
Cash flows from investing activities:
Purchases of property and equipment		(428	)		(316	)
Purchases of marketable securities		—			(30	)
Sales of marketable securities		—			82
Decrease (increase) in long-term restricted cash		18			(20	)
Proceeds from dispositions of property and equipment		—			1

Net cash used in investing activities		(410	)		(283	)
Cash flows from financing activities:
Repayments of debt and capital lease obligations		(370	)		(516	)
Proceeds from issuance of debt		353			531
Deferred financing costs		(14	)		(13	)
Other		42			—

Net cash provided by financing activities		11			2

Net increase in cash and cash equivalents		488			184
Cash and cash equivalents at beginning of period		1,947			1,859

Cash and cash equivalents at end of period	$	2,435		$	2,043

Non-cash investing and financing activities:
Interest payable converted to debt	$	15		$	25
Supplemental information:
Interest paid, net of amounts capitalized	$	157		$	151
Income taxes paid		1			—

See accompanying notes to the condensed consolidated financial statements.

US Airways Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of US Airways Group, Inc. (“US Airways Group” or the “Company”) should be read in conjunction with the consolidated financial statements contained in US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2011. The accompanying unaudited condensed consolidated financial statements include the accounts of US Airways Group and its wholly owned subsidiaries. Wholly owned subsidiaries include US Airways, Inc. (“US Airways”), Piedmont Airlines, Inc. (“Piedmont”), PSA Airlines, Inc. (“PSA”), Material Services Company, Inc. (“MSC”) and Airways Assurance Limited (“AAL”). All significant intercompany accounts and transactions have been eliminated.

Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of long-lived and intangible assets, the frequent traveler program and the deferred tax asset valuation allowance. The Company’s accumulated other comprehensive income balances at September 30, 2012 and December 31, 2011 related to pension and other postretirement benefits.

2. Special Items, Net

Special items, net as shown on the condensed consolidated statements of operations included the following charges for the three and nine months ended September 30, 2012 and 2011 (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Special items, net	$	14	$	13	$	25	$	22

The 2012 and 2011 third quarter and nine month periods consisted primarily of corporate transaction and auction rate securities arbitration costs.

3. Earnings Per Common Share

Basic earnings per common share (“EPS”) is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed on the basis of the weighted average number of shares of common stock plus the effect of potentially dilutive shares of common stock outstanding during the period using the treasury stock method. Potentially dilutive shares include 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):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Basic EPS:
Net income	$	245	$	76	$	600	$	53

Weighted average common shares outstanding (in thousands)		162,418		162,090		162,286		161,999

Basic EPS	$	1.51	$	0.47	$	3.70	$	0.33

Diluted EPS:
Net income	$	245	$	76	$	600	$	53
Interest expense on 7.25% convertible senior notes		8		7		23		—
Interest expense on 7% senior convertible notes		—		—		—		—

Net income for purposes of computing diluted EPS	$	253	$	83	$	623	$	53

Share computation for diluted EPS (in thousands):
Weighted average common shares outstanding		162,418		162,090		162,286		161,999
Dilutive effect of stock awards		4,240		1,243		3,301		1,917
Assumed conversion of 7.25% convertible senior notes		37,746		37,746		37,746		—
Assumed conversion of 7% senior convertible notes		199		199		199		—

Weighted average common shares outstanding as adjusted		204,603		201,278		203,532		163,916

Diluted EPS	$	1.24	$	0.41	$	3.06	$	0.33


The following were excluded from the computation of diluted EPS because inclusion of shares would be antidilutive (in thousands):
Stock options, SARs and RSUs		1,626		1,796		1,641		1,578
7.25% convertible senior notes		—		—		—		37,746
7% senior convertible notes		—		—		—		199

4. Debt

The following table details the Company’s debt (in millions). Variable interest rates listed are the rates as of September 30, 2012.


	September 30, 2012			December 31, 2011
Secured
Citicorp North America loan, variable interest rate of 2.72%, installments due through 2014	$	1,120		$	1,136
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.62% to 10.46%, maturing from 2012 to 2029		1,707			1,729
Aircraft enhanced equipment trust certificates (“EETCs”), fixed interest rates ranging from 5.90% to 11%, maturing from 2014 to 2024		1,372			1,279
Other secured obligations, fixed interest rate of 8%, maturing from 2018 to 2021		27			30

		4,226			4,174

Unsecured
Barclays prepaid miles, variable interest rate of 4.96%, interest only payments		200			200
Airbus advance, repayments through 2018		99			142
7.25% convertible senior notes, interest only payments until due in 2014		172			172
7% senior convertible notes, interest only payments until due in 2020		5			5
Industrial development bonds, fixed interest rate of 6.30%, interest only payments until due in 2023		29			29
Other unsecured obligations		—			10

		505			558

Total long-term debt and capital lease obligations		4,731			4,732
Less: Total unamortized discount on debt		(162	)		(166	)
Current maturities		(417	)		(436	)

Long-term debt and capital lease obligations, net of current maturities	$	4,152		$	4,130

The Company was in compliance with the covenants in its debt agreements at September 30, 2012.

2012 Barclays Amendment

In February 2012, US Airways Group 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 reduce commencing in January 2012 will now be reduced commencing in January 2014 over a period of up to approximately two years.

2012 Slot Financing

In April 2012, US Airways entered into a loan agreement pursuant to which US Airways borrowed an aggregate principal amount of $100 million. The net proceeds after fees were approximately $98 million. The loan is payable in full at maturity on March 23, 2014. The loan bears interest at an index rate plus an applicable index margin or, at US Airways’ option, LIBOR plus an applicable LIBOR margin. US Airways has agreed to maintain a level of unrestricted cash in the same amount required by the Citicorp credit facility and has also agreed to maintain certain collateral coverage ratios. The loan is collateralized by certain airport take-off and landing slots.

2012-1 EETC Financing Transactions

In May 2012, US Airways created three pass-through trusts which issued approximately $623 million aggregate face amount of Series 2012-1 Class A, Class B and Class C Enhanced Equipment Trust Certificates in connection with the refinancing of two Airbus aircraft owned by US Airways and the financing of 12 Airbus aircraft scheduled to be delivered from September 2012 to March 2013 (the “2012 EETCs”). The 2012 EETCs represent fractional undivided interests in the respective pass-through trusts and are not obligations of US Airways. Proceeds received from the sale of EETCs are initially held by a depository in escrow for the benefit of the certificate holders until US Airways issues equipment notes to the trust, which purchases the notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by US Airways and are not reported as debt on US Airways’ condensed consolidated balance sheet because the proceeds held by the depositary are not US Airways’ assets.

As of September 30, 2012, $168 million of the escrowed proceeds from the 2012 EETCs have been used to purchase equipment notes issued by US Airways in three series: Series A equipment notes in an aggregate principal amount of $103 million bearing interest at 5.90% per annum, Series B equipment notes in an aggregate principal amount of $34 million bearing interest at 8% per annum and Series C equipment notes in an aggregate principal amount of $31 million bearing interest at 9.125% per annum. Interest on the equipment notes is payable semiannually in April and October of each year, beginning in October 2012. Principal payments on the equipment notes are scheduled to begin in April 2013. The final payments on the Series A equipment notes, Series B equipment notes and Series C equipment notes will be due in October 2024, October 2019 and October 2015, respectively. US Airways’ payment obligations under the equipment notes are fully and unconditionally guaranteed by US Airways Group. The net proceeds from the issuance of these equipment notes were used in part to repay the existing debt associated with the two Airbus aircraft and to finance two Airbus aircraft delivered in September 2012, with the balance used for general corporate purposes. The equipment notes are secured by liens on aircraft. The remaining $455 million of escrowed proceeds will be used to purchase equipment notes as the new aircraft are delivered.

Other 2012 Financing Transactions

In the third quarter of 2012, US Airways borrowed $85 million to finance new Airbus aircraft deliveries. These financings bear interest at a rate of LIBOR plus an applicable margin and contain default provisions and other covenants that are typical in the industry.

In the third quarter of 2012, US Airways entered into an agreement to acquire five Embraer 190 aircraft from Republic Airline, Inc. (“Republic”). In October 2012, US Airways took delivery of the first aircraft and the remaining four aircraft are scheduled to be delivered in the fourth quarter of 2012 through the first quarter of 2013. In connection with this agreement, US Airways will assume the outstanding debt on these aircraft and Republic will be released from its obligations associated with the principal due under the debt.

Fair Value of Debt

The fair value of the Company’s long-term debt was approximately $4.42 billion and $4.23 billion at September 30, 2012 and December 31, 2011, 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 borrowing arrangements. If the Company’s long-term debt was measured at fair value, it would have been categorized as Level 2 in the fair value hierarchy.

5. Income Taxes

At December 31, 2011, the Company had approximately $1.95 billion of gross net operating losses (“NOLs”) to reduce future federal taxable income. All of the Company’s NOLs are expected to be available to reduce federal taxable income in the calendar year 2012. The NOLs expire during the years 2024 through 2031. The Company’s net deferred tax assets, which include $1.87 billion of the NOLs, are subject to a full valuation allowance. The Company also had approximately $82 million of tax-effected state NOLs at December 31, 2011. At December 31, 2011, the federal and state valuation allowances were $347 million and $61 million, respectively. In accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), utilization of the NOLs will result in a corresponding decrease in the valuation allowance and offset the Company’s tax provision dollar for dollar.

For each of the three and nine month periods ended September 30, 2012 and 2011, the Company did not record federal income tax expense. In each of the three and nine month periods ended September 30, 2012, the Company recorded $1 million of state income tax expense related to certain states where NOLs were limited.

When profitable, the Company is ordinarily subject to Alternative Minimum Tax (“AMT”). However as the result of a special tax election made in 2009, the Company was able to utilize AMT NOLs to fully offset its AMT taxable income in each of the three and nine month periods ended September 30, 2012 and 2011.

In connection with the sale of the Company’s final remaining investment in auction rate securities, the Company recorded a special non-cash tax charge of $21 million in the third quarter of 2011. In the fourth quarter of 2009, the Company had recorded in other comprehensive income (“OCI”), a subset of stockholders’ equity, a non-cash tax provision of $21 million. This provision resulted from $56 million of unrealized gains recorded in OCI due to an increase in the fair value of certain investments in auction rate securities.

The Company has a net deferred tax asset that is subject to a full valuation allowance. Typically, in accordance with GAAP, the reversal of a valuation allowance on a net deferred tax asset reduces any tax provision generated. However, under GAAP, an exception to the above described tax accounting is applicable when a company has the following: (1) a net deferred tax asset that is subject to valuation allowance, (2) an income statement loss and (3) net gains in OCI. In this situation, tax benefits derived from the presence of net gains held in OCI are required to be included in income from operations.

The Company met all three of these conditions in the fourth quarter of 2009. As a result, the $21 million tax benefit resulting from the reversal of the valuation allowance was recorded in income from operations rather than as an offset to the $21 million tax provision recorded in OCI. Accordingly, in connection with the sale of the Company’s final remaining investment in auction rate securities, the Company recorded a $21 million special non-cash tax charge in the third quarter of 2011, which recognized in the statement of operations the tax provision recorded in OCI.

6. Express Expenses

Expenses associated with the Company’s wholly owned regional airlines and affiliate regional airlines operating as US Airways Express are classified as express expenses on the condensed consolidated statements of operations. Express expenses consist of the following (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Aircraft fuel and related taxes	$	272	$	273	$	830	$	803
Salaries and related costs		72		67		223		204
Capacity purchases		267		255		819		782
Aircraft rent		13		13		39		39
Aircraft maintenance		28		55		83		151
Other rent and landing fees		33		35		100		104
Selling expenses		45		45		132		135
Special items, net		—		—		3		1
Depreciation and amortization		8		6		23		18
Other expenses		43		45		134		139

Express expenses	$	781	$	794	$	2,386	$	2,376

7. Slot Transaction

In May 2011, US Airways Group and US Airways entered into an Amended and Restated Mutual Asset Purchase and Sale Agreement (the “Mutual APA”) with Delta Air Lines, Inc. (“Delta”). The Mutual APA amended and restated the Mutual Asset Purchase and Sale Agreement dated August 11, 2009 by and among the parties. Pursuant to the Mutual APA, Delta agreed to acquire 132 slot pairs at LaGuardia from US Airways and US Airways agreed to acquire from Delta 42 slot pairs at Washington National and the rights to operate additional daily service to Sao Paulo, Brazil in 2015, and Delta agreed to pay US Airways $66.5 million in cash. One slot equals one take-off or landing, and each pair of slots equals one round-trip flight. The Mutual APA was structured as two simultaneous asset sales.

On October 11, 2011, the U.S. Department of Transportation (“DOT”) and the Federal Aviation Administration each granted their approval to the transaction. The DOT’s approval was conditioned on the divestiture of 16 slot pairs at LaGuardia and eight slot pairs at Washington National to airlines with limited or no service at those airports as well as the full cooperation of US Airways and Delta to enable the startup of the operations by the airlines purchasing the divested slots. Additionally, to allow the airlines who purchased the divested slots to establish competitive service, the DOT prohibited US Airways and Delta from operating any of the newly acquired slots during the first 90 days after the closing date of the sale of the divested slots and from operating more than 50 percent of the total number of slots between the 91st day and 210th day following the closing date of the sale of the divested slots.

In December 2011, the slot divestitures described above were completed by Delta and on December 13, 2011, the transaction closed and ownership of the respective slots was transferred between the airlines. Accordingly as of December 31, 2011, the Company’s balance sheet reflected the transfer of the LaGuardia slots to Delta and the receipt of the Washington National slots, which were included within other intangible assets on the accompanying condensed consolidated balance sheet. The newly acquired Washington National slots serve as collateral under the Company’s Citicorp credit facility.

The fair value of the LaGuardia slots transferred to Delta in exchange for the Washington National slots and related cash payment was $223 million, which resulted in a gain that was initially projected as $147 million. 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 was included within other current liabilities on the accompanying condensed consolidated balance sheet. The gain on the transaction was recognized as the DOT restrictions lapsed in 2012. The Company recognized $73 million of the gain in the first quarter of 2012 and the remaining gain, which approximated $69 million, in the third quarter of 2012. The third quarter 2012 gain is less than originally projected due to higher than anticipated facility and relocation costs incurred during the quarter. The gain is classified as a special credit and is included within other nonoperating expense, net on the accompanying condensed consolidated statement of operations.

8. Legal Proceedings

The Company is party to an arbitration proceeding relating to a grievance brought by its pilots union to the effect that, retroactive to January 1, 2010, this work group was entitled to a significant increase in wages by operation of the applicable collective bargaining agreement. The arbitrator has issued two decisions in the Company’s favor, and the union has requested a meeting with the arbitrator to address those decisions. The Company believes 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 (collectively, “Sabre”) in Federal District Court for the Southern District of New York. The lawsuit alleges, among other things, that Sabre has engaged in anticompetitive practices that illegally restrain US Airways’ ability to distribute its products to its customers. The lawsuit also alleges that these actions have prevented US Airways from employing new competing technologies and have allowed Sabre to continue to charge US Airways supracompetitive fees. The lawsuit seeks both injunctive relief and money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011 allowing two of the four counts in the complaint to proceed. The Company intends to pursue these claims vigorously, but there can be no assurance of the outcome of this litigation.

The Company and/or its subsidiaries are defendants in various other pending lawsuits and proceedings, and from time to time are subject to other claims arising in the normal course of its business, many of which are covered in whole or in part by insurance. The outcome of those matters cannot be predicted with certainty at this time, but the Company, having consulted with outside counsel, believes that the ultimate disposition of these contingencies will not materially affect its consolidated financial position or results of operations.

Item 1B. Condensed Consolidated Financial Statements of US Airways, Inc.

US Airways, Inc.

Condensed Consolidated Statements of Operations

(In millions)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Operating revenues:
Mainline passenger	$	2,319		$	2,267		$	6,881		$	6,447
Express passenger		844			796			2,523			2,316
Cargo		35			40			114			126
Other		377			373			1,155			1,124

Total operating revenues		3,575			3,476			10,673			10,013
Operating expenses:
Aircraft fuel and related taxes		893			905			2,659			2,587
Salaries and related costs		609			577			1,888			1,726
Express expenses		817			824			2,487			2,449
Aircraft rent		160			160			483			486
Aircraft maintenance		171			163			506			508
Other rent and landing fees		148			144			419			418
Selling expenses		122			123			359			343
Special items, net		14			13			25			22
Depreciation and amortization		62			61			190			185
Other		317			329			944			963

Total operating expenses		3,313			3,299			9,960			9,687

Operating income		262			177			713			326
Nonoperating income (expense):
Interest income		—			1			1			4
Interest expense, net		(65	)		(58	)		(182	)		(166	)
Other, net		67			1			125			(7	)

Total nonoperating income (expense), net		2			(56	)		(56	)		(169	)

Income before income taxes		264			121			657			157
Income tax provision		1			21			1			21

Net income	$	263		$	100		$	656		$	136

See accompanying notes to the condensed consolidated financial statements.

US Airways, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012			2011
Net income	$	263	$	100		$	656		$	136
Other comprehensive income (loss):
Reversal of tax provision in other comprehensive income		—		21			—			21
Reversal of net unrealized gains on available-for-sale securities		—		—			—			(3	)
Other postretirement benefits		—		(1	)		(1	)		(2	)

Total other comprehensive income (loss)		—		20			(1	)		16

Total comprehensive income	$	263	$	120		$	655		$	152

See accompanying notes to the condensed consolidated financial statements.

US Airways, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share and per share amounts)

(Unaudited)


	September 30, 2012			December 31, 2011
ASSETS
Current assets
Cash and cash equivalents	$	2,431		$	1,940
Accounts receivable, net		422			325
Materials and supplies, net		258			199
Prepaid expenses and other		662			527

Total current assets		3,773			2,991
Property and equipment
Flight equipment		4,664			4,441
Ground property and equipment		949			873
Less accumulated depreciation and amortization		(1,592	)		(1,428	)

		4,021			3,886
Equipment purchase deposits		241			153

Total property and equipment		4,262			4,039
Other assets
Other intangibles, net of accumulated amortization of $140 million and $124 million, respectively		516			512
Restricted cash		347			365
Other assets		220			209

Total other assets		1,083			1,086

Total assets	$	9,118		$	8,116

LIABILITIES & STOCKHOLDER’S EQUITY
Current liabilities
Current maturities of debt and capital leases	$	401		$	420
Accounts payable		357			305
Payables to related parties, net		530			601
Air traffic liability		1,220			910
Accrued compensation and vacation		257			167
Accrued taxes		184			165
Other accrued expenses		956			1,058

Total current liabilities		3,905			3,626
Noncurrent liabilities and deferred credits
Long-term debt and capital leases, net of current maturities		2,739			2,698
Deferred gains and credits, net		254			280
Postretirement benefits other than pensions		161			158
Employee benefit liabilities and other		442			392

Total noncurrent liabilities and deferred credits		3,596			3,528
Commitments and contingencies
Stockholder’s equity
Common stock, $1 par value, 1,000 shares issued and outstanding		—			—
Additional paid-in capital		2,445			2,445
Accumulated other comprehensive income		21			22
Accumulated deficit		(849	)		(1,505	)

Total stockholder’s equity		1,617			962

Total liabilities and stockholder’s equity	$	9,118		$	8,116

See accompanying notes to the condensed consolidated financial statements.

US Airways, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Nine Months Ended September 30,
	2012			2011
Net cash provided by operating activities	$	867		$	439
Cash flows from investing activities:
Purchases of property and equipment		(421	)		(305	)
Purchases of marketable securities		—			(30	)
Sales of marketable securities		—			82
Decrease (increase) in long-term restricted cash		18			(20	)
Proceeds from dispositions of property and equipment		—			1

Net cash used in investing activities		(403	)		(272	)
Cash flows from financing activities:
Repayments of debt and capital lease obligations		(354	)		(500	)
Proceeds from issuance of debt		353			531
Deferred financing costs		(14	)		(13	)
Other		42			—

Net cash provided by financing activities		27			18

Net increase in cash and cash equivalents		491			185
Cash and cash equivalents at beginning of period		1,940			1,856

Cash and cash equivalents at end of period	$	2,431		$	2,041

Non-cash investing and financing activities:
Interest payable converted to debt	$	15		$	25
Supplemental information:
Interest paid, net of amounts capitalized	$	118		$	107
Income taxes paid		1			—

See accompanying notes to the condensed consolidated financial statements.

US Airways, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of US Airways, Inc. (“US Airways”) should be read in conjunction with the consolidated financial statements contained in US Airways’ Annual Report on Form 10-K for the year ended December 31, 2011. US Airways is a wholly owned subsidiary of US Airways Group, Inc. (“US Airways Group”).

Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of long-lived and intangible assets, the frequent traveler program and the deferred tax asset valuation allowance. US Airways’ accumulated other comprehensive income balances at September 30, 2012 and December 31, 2011 related to other postretirement benefits.

2. Special Items, Net

Special items, net as shown on the condensed consolidated statements of operations included the following charges for the three and nine months ended September 30, 2012 and 2011 (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Special items, net	$	14	$	13	$	25	$	22

The 2012 and 2011 third quarter and nine month periods consisted primarily of corporate transaction and auction rate securities arbitration costs.

3. Debt

The following table details US Airways’ debt (in millions). Variable interest rates listed are the rates as of September 30, 2012.


	September 30, 2012			December 31, 2011
Secured
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.62% to 10.46%, maturing from 2012 to 2022	$	1,677		$	1,699
Aircraft enhanced equipment trust certificates (“EETCs”), fixed interest rates ranging from 5.90% to 11%, maturing from 2014 to 2024		1,372			1,279
Other secured obligations, fixed interest rate of 8%, maturing from 2018 to 2021		27			30

		3,076			3,008
Unsecured
Airbus advance, repayments through 2018		99			142
Industrial development bonds, fixed interest rate of 6.30%, interest only payments until due in 2023		29			29
Other unsecured obligations		—			10

		128			181

Total long-term debt and capital lease obligations		3,204			3,189
Less: Total unamortized discount on debt		(64	)		(71	)
Current maturities		(401	)		(420	)

Long-term debt and capital lease obligations, net of current maturities	$	2,739		$	2,698

US Airways was in compliance with the covenants in its debt agreements at September 30, 2012.

2012 Slot Financing

In April 2012, US Airways entered into a loan agreement pursuant to which US Airways borrowed an aggregate principal amount of $100 million. The net proceeds after fees were approximately $98 million. The loan is payable in full at maturity on March 23, 2014. The loan bears interest at an index rate plus an applicable index margin or, at US Airways’ option, LIBOR plus an applicable LIBOR margin. US Airways has agreed to maintain a level of unrestricted cash in the same amount required by US Airways Group’s Citicorp credit facility and has also agreed to maintain certain collateral coverage ratios. The loan is collateralized by certain airport take-off and landing slots.

2012-1 EETC Financing Transactions

Other 2012 Financing Transactions

Fair Value of Debt

The fair value of US Airways’ long-term debt was approximately $2.93 billion and $2.92 billion at September 30, 2012 and December 31, 2011, 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 borrowing arrangements. If US Airways’ long-term debt was measured at fair value, it would have been categorized as Level 2 in the fair value hierarchy.

4. Related Party Transactions

The following represents the net payable balances to related parties (in millions):


	September 30, 2012		December 31, 2011
US Airways Group	$	461	$	514
US Airways Group’s wholly owned subsidiaries		69		87

	$	530	$	601

US Airways Group has the ability to move funds freely between its operating subsidiaries to support operations. These transfers are recognized as intercompany transactions.

The net payable to US Airways Group’s wholly owned subsidiaries consists of amounts due under regional capacity agreements with the other airline subsidiaries and fuel purchase arrangements with a non-airline subsidiary.

5. Income Taxes

US Airways is part of the US Airways Group consolidated income tax return.

At December 31, 2011, US Airways had approximately $1.85 billion of gross net operating losses (“NOLs”) to reduce future federal taxable income. All of US Airways’ NOLs are expected to be available to reduce federal taxable income in the calendar year 2012. The NOLs expire during the years 2024 through 2031. US Airways’ net deferred tax assets, which include $1.78 billion of the NOLs, are subject to a full valuation allowance. US Airways also had approximately $79 million of tax-effected state NOLs at December 31, 2011. At December 31, 2011, the federal and state valuation allowances were $349 million and $61 million, respectively. In accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), utilization of the NOLs will result in a corresponding decrease in the valuation allowance and offset US Airways’ tax provision dollar for dollar.

For each of the three and nine month periods ended September 30, 2012 and 2011, US Airways did not record federal income tax expense. In each of the three and nine month periods ended September 30, 2012, US Airways recorded $1 million of state income tax expense related to certain states where NOLs were limited.

When profitable, US Airways is ordinarily subject to Alternative Minimum Tax (“AMT”). However as the result of a special tax election made in 2009, US Airways was able to utilize AMT NOLs to fully offset its AMT taxable income in each of the three and nine month periods ended September 30, 2012 and 2011.

In connection with the sale of US Airways’ final remaining investment in auction rate securities, US Airways recorded a special non-cash tax charge of $21 million in the third quarter of 2011. In the fourth quarter of 2009, US Airways had recorded in other comprehensive income (“OCI”), a subset of stockholder’s equity, a non-cash tax provision of $21 million. This provision resulted from $56 million of unrealized gains recorded in OCI due to an increase in the fair value of certain investments in auction rate securities.

US Airways has a net deferred tax asset that is subject to a full valuation allowance. Typically, in accordance with GAAP, the reversal of a valuation allowance on a net deferred tax asset reduces any tax provision generated. However, under GAAP, an exception to the above described tax accounting is applicable when a company has the following: (1) a net deferred tax asset that is subject to valuation allowance, (2) an income statement loss and (3) net gains in OCI. In this situation, tax benefits derived from the presence of net gains held in OCI are required to be included in income from operations.

US Airways met all three of these conditions in the fourth quarter of 2009. As a result, the $21 million tax benefit resulting from the reversal of the valuation allowance was recorded in income from operations rather than as an offset to the $21 million tax provision recorded in OCI. Accordingly, in connection with the sale of US Airways’ final remaining investment in auction rate securities, US Airways recorded a $21 million special non-cash tax charge in the third quarter of 2011, which recognized in the statement of operations the tax provision recorded in OCI.

6. Express Expenses

Expenses associated with affiliate regional airlines operating as US Airways Express are classified as express expenses on the condensed consolidated statements of operations. Express expenses consist of the following (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Aircraft fuel and related taxes	$	272	$	273	$	830	$	804
Salaries and related costs		6		6		18		18
Capacity purchases		445		450		1,356		1,342
Other rent and landing fees		27		29		83		86
Selling expenses		45		45		132		135
Depreciation and amortization		2		—		6		—
Other expenses		20		21		62		64

Express expenses	$	817	$	824	$	2,487	$	2,449

7. Slot Transaction

In December 2011, the slot divestitures described above were completed by Delta and on December 13, 2011, the transaction closed and ownership of the respective slots was transferred between the airlines. Accordingly as of December 31, 2011, US Airways’ balance sheet reflected the transfer of the LaGuardia slots to Delta and the receipt of the Washington National slots, which were included within other intangible assets on the accompanying condensed consolidated balance sheet. The newly acquired Washington National slots serve as collateral under US Airways Group’s Citicorp credit facility.

The fair value of the LaGuardia slots transferred to Delta in exchange for the Washington National slots and related cash payment was $223 million, which resulted in a gain that was initially projected as $147 million. 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 was included within other current liabilities on the accompanying condensed consolidated balance sheet. The gain on the transaction was recognized as the DOT restrictions lapsed in 2012. US Airways recognized $73 million of the gain in the first quarter of 2012 and the remaining gain, which approximated $69 million, in the third quarter of 2012. The third quarter 2012 gain is less than originally projected due to higher than anticipated facility and relocation costs incurred during the quarter. The gain is classified as a special credit and is included within other nonoperating expense, net on the accompanying condensed consolidated statement of operations.

8. Legal Proceedings

US Airways is party to an arbitration proceeding relating to a grievance brought by its pilots union to the effect that, retroactive to January 1, 2010, this work group was entitled to a significant increase in wages by operation of the applicable collective bargaining agreement. The arbitrator has issued two decisions in US Airways’ favor, and the union has requested a meeting with the arbitrator to address those decisions. US Airways believes 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 (collectively, “Sabre”) in Federal District Court for the Southern District of New York. The lawsuit alleges, among other things, that Sabre has engaged in anticompetitive practices that illegally restrain US Airways’ ability to distribute its products to its customers. The lawsuit also alleges that these actions have prevented US Airways from employing new competing technologies and have allowed Sabre to continue to charge US Airways supracompetitive fees. The lawsuit seeks both injunctive relief and money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011 allowing two of the four counts in the complaint to proceed. US Airways intends to pursue these claims vigorously, but there can be no assurance of the outcome of this litigation.

US Airways is a defendant in various other pending lawsuits and proceedings, and from time to time is subject to other claims arising in the normal course of its business, many of which are covered in whole or in part by insurance. The outcome of those matters cannot be predicted with certainty at this time, but US Airways, having consulted with outside counsel, believes that the ultimate disposition of these contingencies will not materially affect its consolidated financial position or results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of US Airways Group, Inc.’s and US Airways, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”). The information contained herein is not a comprehensive discussion and analysis of the financial condition and results of operations of the Company, but rather updates disclosures made in the 2011 Form 10-K.

Background

US Airways Group 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. (“MSC”) and Airways Assurance Limited (“AAL”).

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. We offer scheduled passenger service on more than 3,000 flights daily to 195 communities in the United States, Canada, Mexico, Europe, the Middle East, the Caribbean, and Central and South America. We also have an established East Coast route network, including the US Airways Shuttle service. For the nine months ended September 30, 2012, we had approximately 41 million passengers boarding our mainline flights. As of September 30, 2012, we operated 338 mainline jets and are supported by our regional airline subsidiaries and affiliates operating as US Airways Express under capacity purchase agreements, which operated 238 regional jets and 44 turboprops. Our prorate carriers operated four regional jets at September 30, 2012.

The U.S. Airline Industry

During the third quarter of 2012, the U.S. airline industry experienced moderate year-over-year growth in passenger revenues driven by ongoing industry capacity discipline and consumer demand for air travel. Additionally, the industry benefited from a slight decline in the average price of fuel during the quarter.

In its most recent data available, Airlines for America, the trade association for U.S. airlines, reported the following changes in U.S. industry passenger revenues and yields. Year-over-year growth continued during the third quarter of 2012 although at lower rates due to moderating demand, particularly for business travel, and more difficult year-over-year comparisons. The temporary expiration in August 2011 of certain Federal Aviation Administration (“FAA”) ticket taxes on domestic and international air travel contributed in part to the difficult year-over-year comparisons.


2012 vs. 2011	July			August			September
Passenger Revenues		1.3	%		2.1	%		(1.8	)%
Yields		2.5	%		0.5	%		(0.8	)%

2011 vs. 2010	July			August			September
Passenger Revenues		9.2	%		9.9	%		12.3	%
Yields		7.0	%		9.9	%		11.4	%

With respect to international versus domestic revenue performance, Airlines for America reported that in the third quarter of 2012, Latin and Pacific international markets outperformed domestic markets. However, domestic markets outperformed the Atlantic international market which experienced weaker demand due to the economic uncertainty in Europe.

Jet fuel prices continue to follow the price of Brent crude oil more closely than the price of West Texas Intermediate crude oil. On a daily basis, Brent crude oil prices continue to be volatile. In the third quarter of 2012, daily spot prices fluctuated between a low of $95 per barrel in July 2012 to a high of $117 in September 2012, and closed the quarter at $111 per barrel on September 28, 2012. However despite this volatility, for the third quarter of 2012 fuel prices declined slightly overall. The average daily spot price for Brent crude oil during the third quarter of 2012 was $110 per barrel as compared to an average daily spot price of $113 per barrel during the third quarter of 2011.

While the U.S. airline industry is currently benefiting from a favorable revenue environment and fuel prices that declined slightly during the period described above, uncertainty exists regarding the economic conditions driving these factors. See Part II, Item 1A, Risk Factors – “Downturns in economic conditions adversely affect our business” and “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 supply of aircraft fuel could have a significant negative impact on our operating results and liquidity.”

US Airways Group

The significant actions we have taken over the last few years to align capacity with demand, focus our network on our four key markets, introduce new revenue streams, control costs and continue our exceptional operating reliability have positioned us well. As described in more detail below, we are reporting strong profits and achieving our best operational performance in the Company’s history. For the full year 2012, we expect to be profitable.

In the third quarter of 2012, we realized operating income of $268 million driven by year-over-year growth in revenues. Income before income taxes was $246 million in the third quarter of 2012 and included the recognition of a $69 million non-operating special gain related to the slot transaction with Delta Air Lines, Inc. (“Delta”). See Note 7 to the condensed consolidated financial statements included in Part I, Item 1A of this report for more information on the Delta transaction. This compares to operating income of $180 million and income before income taxes of $97 million in the 2011 period.

Revenue

Mainline and express passenger revenues increased $100 million, or 3.3% as compared to the 2011 period. The growth in revenues was driven by a 2.6% increase in revenue passenger miles and a 0.6% increase in yield, as total capacity increased 2.7% as compared to the 2011 period. Our mainline and express passenger revenue per available seat mile (“PRASM”) was 13.63 cents in the third quarter of 2012, a 0.5% increase, as compared to 13.56 cents in the 2011 period. Total revenue per available seat mile (“RASM”) was relatively flat versus the prior period at 15.22 cents in the third quarter of 2012. Total revenues include our ancillary revenue initiatives, which generated $146 million in revenues for the third quarter of 2012, an increase of $10 million over the 2011 period principally related to our Choice Seats program.

Fuel

We have not entered into any transactions to hedge our fuel consumption. Mainline and express fuel expense decreased $13 million to $1.17 billion for the third quarter of 2012, which was 1.1% lower than the 2011 period, on a 1.3% increase in consumption. The average mainline and express price per gallon of fuel was $3.07 for the third quarter of 2012 as compared to an average cost per gallon of $3.14 in the third quarter of 2011, a decrease of 2.4%.

Capacity

Total system capacity for the third quarter of 2012 increased 2.7% as compared to the third quarter of 2011. The increase in capacity is driven by our strong operating performance, which has led to higher completion factors, and larger gauge Airbus A321 aircraft replacing smaller gauge legacy Boeing 737-300 aircraft. For the full year 2012, total system capacity is expected to be up approximately 2% versus 2011. Domestic capacity is expected to be up approximately 2% and international capacity is expected to be up approximately 1%.

Cost Control

We remain committed to maintaining a 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 decreased 0.11 cents, or 1.4%, from 8.06 cents in the third quarter of 2011 to 7.95 cents in the third quarter of 2012.

The following table details our mainline CASM for the three months ended September 30, 2012 and 2011:


	2012			2011			Percent Increase (Decrease)
	(In cents)
Mainline CASM excluding special items, fuel and profit sharing:
Total mainline CASM		12.70			12.93			(1.8	)
Special items, net		(0.07	)		(0.07	)		6.2
Aircraft fuel and related taxes		(4.57	)		(4.75	)		(3.9	)
Profit sharing		(0.11	)		(0.05	)		nm

Total mainline CASM excluding special items, fuel and profit sharing ⁽¹⁾		7.95			8.06			(1.4	)

(1)

We believe that the presentation of mainline CASM excluding fuel is useful to investors as both the cost and availability of fuel are subject to many economic and political factors beyond our control, and excluding special items and profit sharing provides investors the 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 not recalculate due to rounding.

Customer Service

We are committed to consistently delivering safe, reliable and convenient service to our customers in every aspect of our operation. Outstanding efforts from our 32,000 employees continue to drive very strong operational performance. On a year-to-date basis through September 2012, we have achieved our best on-time performance, completion factor and baggage handling performance in our Company’s history.

For the third quarter of 2012, we achieved our best ever third quarter performance in baggage handling. Additionally, for the month of July we ranked first in on-time performance among the big hub-and-spoke carriers as reported by the Department of Transportation (“DOT”) Air Travel Consumer Report. This marked our third monthly first place DOT ranking for on-time performance during 2012.

We reported the following operating statistics to the DOT for mainline operations for the third quarter of 2012 and 2011:


	2012						2011						Better (Worse) 2012-2011
	July		August		September (e)		July		August		September		July			August			September
On-time performance (a)		82.0		83.5		87.3		75.5		74.2		80.7		6.5	pts		9.3	pts		6.6	pts
Completion factor (b)		99.1		99.0		99.6		98.3		96.5		99.1		0.8	pts		2.5	pts		0.5	pts
Mishandled baggage (c)		2.46		2.26		1.83		3.14		3.21		2.66		21.7	%		29.6	%		31.2	%
Customer complaints (d)		2.83		2.05		1.08		2.32		2.95		2.19		(22.0	)%		30.3	%		50.7	%

(a)	Percentage of reported flight operations arriving on time as defined by the DOT.

(b)	Percentage of scheduled flight operations completed.

(c)	Rate of mishandled baggage reports per 1,000 passengers.

(d)	Rate of customer complaints filed with the DOT per 100,000 enplanements.

(e)	September 2012 operating statistics are preliminary as the DOT has not issued its September 2012 Air Travel Consumer Report as of the date of this filing.

Liquidity Position

As of September 30, 2012, our total cash, cash equivalents and restricted cash was $2.78 billion, of which $347 million was restricted.


	September 30, 2012		December 31, 2011
	(In millions)
Cash and cash equivalents	$	2,435	$	1,947
Long-term restricted cash		347		365

Total cash, cash equivalents and restricted cash	$	2,782	$	2,312

The improvement in our liquidity in the first nine months of 2012 was due primarily to the strong revenue environment and seasonal factors. An April 2012 loan agreement, pursuant to which US Airways borrowed an aggregate principal amount of $100 million, also contributed to the improvement.

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.

US Airways Group’s Results of Operations

In the third quarter of 2012, we realized operating income of $268 million and income before income taxes of $246 million. This compares to operating income of $180 million and income before income taxes of $97 million in the 2011 period.

In the first nine months of 2012, we realized operating income of $731 million and income before income taxes of $601 million. This compares to operating income of $318 million and income before income taxes of $74 million in the 2011 period.

Our results for the third quarter and first nine months of 2012 were driven by year-over-year growth in revenues resulting from ongoing industry capacity discipline and consumer demand for air travel.

Our results have been impacted by the following pre-tax net special charges (credits) (in millions):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Mainline operating special items, net (a)	$	14		$	13		$	25		$	22
Express operating special items, net (b)		—			—			3			1
Nonoperating special items, net (c)		(67	)		(15	)		(137	)		(7	)

Total	$	(53	)	$	(2	)	$	(109	)	$	16

(a)	The 2012 and 2011 third quarter and nine month periods consisted primarily of corporate transaction and auction rate securities arbitration costs.

(b)	The 2012 nine month period consisted of charges related to ratification of a new Piedmont fleet and passenger services contract.

(c)	The 2012 third quarter primarily consisted of a $69 million gain related to the slot transaction with Delta. See Note 7 to the condensed consolidated financial statements included in Part I, Item 1A of this report for more information on the Delta transaction.

The 2012 nine month period primarily consisted of a $142 million gain related to the slot transaction with Delta, offset in part by $3 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft.

The 2011 third quarter and nine month periods each consisted of a $15 million credit in connection with an award received in an arbitration involving investments in auction rate securities. The 2011 nine month period also included $6 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of five Airbus aircraft as well as $2 million of losses related to investments in auction rate securities.

At December 31, 2011, we had approximately $1.95 billion of gross net operating losses (“NOLs”) to reduce future federal taxable income. All of our NOLs are expected to be available to reduce federal taxable income in the calendar year 2012. The NOLs expire during the years 2024 through 2031. Our net deferred tax assets, which include $1.87 billion of the NOLs, are subject to a full valuation allowance. We also had approximately $82 million of tax-effected state NOLs at December 31, 2011. At December 31, 2011, the federal and state valuation allowances were $347 million and $61 million, respectively. In accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), utilization of the NOLs will result in a corresponding decrease in the valuation allowance and offset our tax provision dollar for dollar.

For each of the three and nine month periods ended September 30, 2012 and 2011, we did not record federal income tax expense. In each of the three and nine month periods ended September 30, 2012, we recorded $1 million of state income tax expense related to certain states where NOLs were limited.

When profitable, we are ordinarily subject to Alternative Minimum Tax (“AMT”). However as the result of a special tax election made in 2009, we were able to utilize AMT NOLs to fully offset our AMT taxable income in each of the three and nine month periods ended September 30, 2012 and 2011.

In the third quarter of 2011, we completed the liquidation of our entire investment in auction rate securities. As a result of the sale of the final remaining investment in auction rate securities, we recorded a special non-cash tax charge of $21 million which recognized in the statement of operations for the three and nine month periods ended September 30, 2011, the tax provision that was recorded in other comprehensive income, a subset of stockholders’ equity, in the fourth quarter of 2009.

The table below sets forth our selected mainline and express operating data:


	Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
	2012		2011		(Decrease)			2012		2011		(Decrease)
Mainline
Revenue passenger miles (millions) (a)		16,860		16,471		2.4	%		47,564		46,301		2.7	%
Available seat miles (millions) (b)		19,560		19,033		2.8	%		56,665		55,184		2.7	%
Passenger load factor (percent) (c)		86.2		86.5		(0.3	)pts		83.9		83.9		—	pts
Yield (cents) (d)		13.75		13.76		(0.1	)%		14.47		13.92		3.9	%
Passenger revenue per available seat mile (cents) (e)		11.85		11.91		(0.5	)%		12.14		11.68		3.9	%
Operating cost per available seat mile (cents) (f)		12.70		12.93		(1.8	)%		13.12		13.06		0.5	%
Passenger enplanements (thousands) (g)		13,739		13,520		1.6	%		40,927		39,823		2.8	%
Departures (thousands)		112		112		(0.6	)%		341		340		0.2	%
Aircraft at end of period		338		339		(0.3	)%		338		339		(0.3	)%
Block hours (thousands) (h)		310		311		(0.5	)%		922		925		(0.3	)%
Average stage length (miles) (i)		1,051		1,033		1.8	%		1,010		999		1.1	%
Average passenger journey (miles) (j)		1,829		1,808		1.2	%		1,726		1,710		0.9	%
Fuel consumption (gallons in millions)		291		289		0.8	%		841		833		1.1	%
Average aircraft fuel price including related taxes (dollars per gallon)		3.06		3.13		(2.0	)%		3.16		3.11		1.7	%
Full-time equivalent employees at end of period		30,845		31,327		(1.5	)%		30,845		31,327		(1.5	)%

Express (k)
Revenue passenger miles (millions) (a)		2,850		2,737		4.1	%		8,112		8,025		1.1	%
Available seat miles (millions) (b)		3,644		3,559		2.4	%		10,722		10,739		(0.2	)%
Passenger load factor (percent) (c)		78.2		76.9		1.3	pts		75.7		74.7		1.0	pts
Yield (cents) (d)		29.59		29.07		1.8	%		31.10		28.86		7.8	%
Passenger revenue per available seat mile (cents) (e)		23.15		22.35		3.6	%		23.54		21.56		9.2	%
Operating cost per available seat mile (cents) (f)		21.42		22.29		(3.9	)%		22.25		22.12		0.6	%
Passenger enplanements (thousands) (g)		7,326		7,135		2.7	%		21,166		20,892		1.3	%
Aircraft at end of period		282		281		0.4	%		282		281		0.4	%
Fuel consumption (gallons in millions)		89		86		3.1	%		261		257		1.5	%
Average aircraft fuel price including related taxes (dollars per gallon)		3.07		3.18		(3.5	)%		3.18		3.13		1.8	%

Total Mainline and Express
Revenue passenger miles (millions) (a)		19,710		19,208		2.6	%		55,676		54,326		2.5	%
Available seat miles (millions) (b)		23,204		22,592		2.7	%		67,387		65,923		2.2	%
Passenger load factor (percent) (c)		84.9		85.0		(0.1	)pts		82.6		82.4		0.2	pts
Yield (cents) (d)		16.04		15.94		0.6	%		16.89		16.13		4.7	%
Passenger revenue per available seat mile (cents) (e)		13.63		13.56		0.5	%		13.96		13.29		5.0	%
Total revenue per available seat mile (cents) (l)		15.22		15.21		0.1	%		15.66		15.02		4.3	%
Passenger enplanements (thousands) (g)		21,065		20,655		2.0	%		62,093		60,715		2.3	%
Aircraft at end of period		620		620		—	%		620		620		—	%
Fuel consumption (gallons in millions)		380		375		1.3	%		1,102		1,090		1.2	%
Average aircraft fuel price including related taxes (dollars per gallon)		3.07		3.14		(2.4	)%		3.17		3.11		1.7	%

(a)	Revenue passenger mile (“RPM”) — A basic measure of sales volume. One RPM represents one passenger flown one mile.

(b)	Available seat mile (“ASM”) — A basic measure of production. One ASM represents one seat flown one mile.

(c)	Passenger load factor — The percentage of available seats that are filled with revenue passengers.

(d)	Yield — A measure of airline revenue derived by dividing passenger revenue by RPMs.

(e)	Passenger revenue per available seat mile (“PRASM”) — Passenger revenues divided by ASMs.

(f)	Operating cost per available seat mile (“CASM”) — Operating expenses divided by ASMs.

(g)	Passenger enplanements — The number of passengers on board an aircraft, including local, connecting and through passengers.

(h)	Block hours — The hours measured from the moment an aircraft first moves under its own power, including taxi time, for the purposes of flight until the aircraft is docked at the next point of landing and its power is shut down.

(i)	Average stage length — The average of the distances flown on each segment of every route.

(j)	Average passenger journey — The average one-way trip measured in miles for one passenger origination.

(k)	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., Chautauqua Airlines, Inc. and SkyWest Airlines, Inc.

(l)	Total revenue per available seat mile (“RASM”) — Total revenues divided by total mainline and express ASMs.

Three Months Ended September 30, 2012

Compared with the

Three Months Ended September 30, 2011

Operating Revenues:


	2012		2011		Percent Increase (Decrease)
	(In millions)
Operating revenues:
Mainline passenger	$	2,319	$	2,267		2.3
Express passenger		844		796		6.0
Cargo		35		40		(13.3	)
Other		335		333		0.9

Total operating revenues	$	3,533	$	3,436		2.8

Total operating revenues in the third quarter of 2012 were $3.53 billion as compared to $3.44 billion in the 2011 period, an increase of $97 million, or 2.8%. Significant changes in the components of operating revenues are as follows:

•

Mainline passenger revenues were $2.32 billion in the third quarter of 2012 as compared to $2.27 billion in the 2011 period. Mainline RPMs increased 2.4% as mainline capacity, as measured by ASMs, increased 2.8%, resulting in a 0.3 point decrease in load factor to 86.2%. Mainline passenger yield was relatively flat versus the prior period at 13.75 cents in the third quarter of 2012. Mainline PRASM decreased 0.5% to 11.85 cents in the third quarter of 2012 from 11.91 cents in the 2011 period. Mainline yield and PRASM were impacted by moderating demand, particularly for business travel, and more difficult year-over-year comparisons. The temporary expiration in August 2011 of certain FAA ticket taxes on domestic and international air travel contributed in part to the difficult year-over-year comparisons.

•

Express passenger revenues were $844 million in the third quarter of 2012 as compared to $796 million in the 2011 period. Express RPMs increased 4.1% as express capacity, as measured by ASMs, increased 2.4%, resulting in a 1.3 point increase in load factor to 78.2%. Express passenger yield increased 1.8% to 29.59 cents in the third quarter of 2012 from 29.07 cents in the 2011 period. Express PRASM increased 3.6% to 23.15 cents in the third quarter of 2012 from 22.35 cents in the 2011 period. Although express yield and PRASM were impacted by the same moderating demand and difficult year-over-year comparisons discussed in mainline passenger revenues above, express yield and PRASM benefited from the availability of first class seating on certain US Airways Express regional jets during the 2012 period.

•

Cargo revenues were $35 million in the third quarter of 2012, a decrease of $5 million, or 13.3%, from the 2011 period. The decrease in cargo revenues was primarily due to decreases in international freight volumes driven by uncertainty surrounding the European economy.

Operating Expenses:


	2012		2011		Percent Increase (Decrease)
	(In millions)
Operating expenses:
Aircraft fuel and related taxes	$	893	$	905		(1.3	)
Salaries and related costs		609		577		5.5
Aircraft rent		160		160		0.4
Aircraft maintenance		171		163		4.5
Other rent and landing fees		148		144		2.5
Selling expenses		122		123		(1.0	)
Special items, net		14		13		9.2
Depreciation and amortization		60		58		2.3
Other		307		319		(3.6	)

Total mainline operating expenses		2,484		2,462		0.9
Express expenses:
Fuel		272		273		(0.5	)
Other		509		521		(2.2	)

Total express expenses		781		794		(1.6	)

Total operating expenses	$	3,265	$	3,256		0.3

Total operating expenses were relatively flat at $3.27 billion in the third quarter of 2012, an increase of $9 million, or 0.3%, compared to the 2011 period.

Mainline Operating Expenses per ASM:

Our mainline CASM decreased 0.23 cents, or 1.8%, from 12.93 cents in the third quarter of 2011 to 12.70 cents in the third quarter of 2012. Excluding special items, fuel and profit sharing our mainline CASM decreased 0.11 cents, or 1.4%, from 8.06 cents in the third quarter of 2011 to 7.95 cents in the third quarter of 2012, while mainline capacity increased 2.8%.

The table below sets forth the major components of our total mainline CASM and our mainline CASM excluding special items, fuel and profit sharing for the three months ended September 30, 2012 and 2011:


	2012			2011			Percent Increase (Decrease)
	(In cents)
Mainline CASM:
Aircraft fuel and related taxes		4.57			4.75			(3.9	)
Salaries and related costs		3.11			3.03			2.7
Aircraft rent		0.82			0.84			(2.3	)
Aircraft maintenance		0.87			0.86			1.7
Other rent and landing fees		0.75			0.76			(0.2	)
Selling expenses		0.62			0.65			(3.6	)
Special items, net		0.07			0.07			6.2
Depreciation and amortization		0.31			0.31			(0.5	)
Other		1.57			1.68			(6.2	)

Total mainline CASM		12.70			12.93			(1.8	)
Special items, net		(0.07	)		(0.07	)
Aircraft fuel and related taxes		(4.57	)		(4.75	)
Profit sharing		(0.11	)		(0.05	)

Total mainline CASM excluding special items, fuel and profit sharing ⁽¹⁾		7.95			8.06			(1.4	)

(1)

Significant changes in the components of mainline operating expense per ASM are as follows:

•

Aircraft fuel and related taxes per ASM decreased 3.9% primarily due to a 2.0% decrease in the average price per gallon of fuel to $3.06 in the third quarter of 2012 from $3.13 in the 2011 period.

•

Salaries and related costs per ASM increased 2.7% primarily due to profit sharing and other incentive compensation expense driven by our profitability and strong operational performance.

•

Other expenses per ASM decreased 6.2% primarily due to lower passenger inconvenience fees driven by our outstanding operational performance and a decrease in the incremental cost of travel awards associated with our frequent traveler program, principally as a result of lower fuel prices.

Express Operating Expenses:

Total express expenses decreased $13 million, or 1.6%, in the third quarter of 2012 to $781 million from $794 million in the 2011 period. The period-over-period decrease included a $12 million, or 2.2%, decrease in other express expenses and a $1 million, or 0.5%, decrease in fuel costs. The decrease in other express expenses was driven by lower maintenance costs primarily due to fewer engine overhauls performed in the 2012 period.

Nonoperating Income (Expense):


	2012			2011			Percent Increase (Decrease)
	(In millions)
Nonoperating income (expense):
Interest income	$	—		$	1			(62.9	)
Interest expense, net		(89	)		(85	)		5.8
Other, net		67			1			nm

Total nonoperating expense, net	$	(22	)	$	(83	)		(73.3	)

Other nonoperating income of $67 million in the third quarter of 2012 consisted primarily of a $69 million special gain related to the slot transaction with Delta. See Note 7 to the condensed consolidated financial statements included in Part I, Item 1A of this report for more information on the Delta transaction.

Other nonoperating income of $1 million in the third quarter of 2011 consisted primarily of a $15 million special credit in connection with an award received in an arbitration involving investments in auction rate securities, offset in part by $14 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar during the third quarter of 2011.

Nine Months Ended September 30, 2012

Compared with the

Nine Months Ended September 30, 2011

Operating Revenues:


	2012		2011		Percent Increase (Decrease)
	(In millions)
Operating revenues:
Mainline passenger	$	6,881	$	6,447		6.7
Express passenger		2,523		2,316		9.0
Cargo		114		126		(10.0	)
Other		1,035		1,011		2.4

Total operating revenues	$	10,553	$	9,900		6.6

Total operating revenues in the first nine months of 2012 were $10.55 billion as compared to $9.90 billion in the 2011 period, an increase of $653 million, or 6.6%. Significant changes in the components of operating revenues are as follows:

•

Mainline passenger revenues were $6.88 billion in the first nine months of 2012 as compared to $6.45 billion in the 2011 period. Mainline RPMs increased 2.7% as mainline capacity, as measured by ASMs, increased 2.7%, resulting in a load factor of 83.9% which was flat compared to the 2011 period. Mainline passenger yield increased 3.9% to 14.47 cents in the first nine months of 2012 from 13.92 cents in the 2011 period. Mainline PRASM increased 3.9% to 12.14 cents in the first nine months of 2012 from 11.68 cents in the 2011 period. These increases in mainline yield and PRASM were due principally to the strong revenue environment resulting from ongoing industry capacity discipline and consumer demand for air travel.

•

Express passenger revenues were $2.52 billion in the first nine months of 2012 as compared to $2.32 billion in the 2011 period. Express RPMs increased 1.1% as express capacity, as measured by ASMs, decreased 0.2%, resulting in a 1.0 point increase in load factor to 75.7%. Express passenger yield increased 7.8% to 31.10 cents in the first nine months of 2012 from 28.86 cents in the 2011 period. Express PRASM increased 9.2% to 23.54 cents in the first nine months of 2012 from 21.56 cents in the 2011 period. These increases in express yield and PRASM were the result of the same strong revenue environment discussed in mainline passenger revenues above. The availability of first class seating on certain US Airways Express regional jets during the 2012 period also contributed to the increase.

•

Cargo revenues were $114 million in the first nine months of 2012, a decrease of $12 million, or 10.0%, from the 2011 period. The decrease in cargo revenues was primarily due to decreases in international freight volumes driven by uncertainty surrounding the European economy.

Operating Expenses:


	2012		2011		Percent Increase (Decrease)
	(In millions)
Operating expenses:
Aircraft fuel and related taxes	$	2,659	$	2,587		2.8
Salaries and related costs		1,888		1,726		9.4
Aircraft rent		483		486		(0.7	)
Aircraft maintenance		506		508		(0.3	)
Other rent and landing fees		419		418		0.3
Selling expenses		359		343		4.4
Special items, net		25		22		14.2
Depreciation and amortization		182		178		2.7
Other		915		938		(2.5	)

Total mainline operating expenses		7,436		7,206		3.2
Express expenses:
Fuel		830		803		3.4
Other		1,556		1,573		(1.1	)

Total express expenses		2,386		2,376		0.4

Total operating expenses	$	9,822	$	9,582		2.5

Total operating expenses were $9.82 billion in the first nine months of 2012, an increase of $240 million, or 2.5%, compared to the 2011 period. The increase in operating expenses was primarily driven by a $162 million, or 9.4%, increase in salaries and related costs as well as a $99 million, or 2.9%, increase in mainline and express fuel costs. The increase in salaries and related costs was primarily due to profit sharing and other incentive compensation costs driven by our profitability and the 106% increase in the price of our common stock during the first nine months of 2012. Fuel costs increased as the average price per gallon of fuel increased 1.7% to $3.17 in the first nine months of 2012 from $3.11 in the 2011 period, on a 1.2% increase in consumption.

Mainline Operating Expenses per ASM:

Our mainline CASM increased 0.06 cents, or 0.5%, from 13.06 cents in the first nine months of 2011 to 13.12 cents in the first nine months of 2012. Excluding special items, fuel and profit sharing our mainline CASM decreased 0.02 cents, or 0.3%, from 8.31 cents in the first nine months of 2011 to 8.29 cents in the first nine months of 2012, while mainline capacity increased 2.7%.

The table below sets forth the major components of our total mainline CASM and our mainline CASM excluding special items, fuel and profit sharing for the nine months ended September 30, 2012 and 2011:


	2012			2011			Percent Increase (Decrease)
	(In cents)
Mainline CASM:
Aircraft fuel and related taxes		4.69			4.69			0.1
Salaries and related costs		3.33			3.13			6.5
Aircraft rent		0.85			0.88			(3.3	)
Aircraft maintenance		0.89			0.92			(2.9	)
Other rent and landing fees		0.74			0.76			(2.3	)
Selling expenses		0.63			0.62			1.7
Special items, net		0.04			0.04			11.2
Depreciation and amortization		0.32			0.32			0.1
Other		1.61			1.70			(5.1	)

Total mainline CASM		13.12			13.06			0.5
Special items, net		(0.04	)		(0.04	)
Aircraft fuel and related taxes		(4.69	)		(4.69	)
Profit sharing		(0.10	)		(0.02	)

Total mainline CASM excluding special items, fuel and profit sharing ⁽¹⁾		8.29			8.31			(0.3	)

(1)

Significant changes in the components of mainline operating expense per ASM are as follows:

•

Aircraft fuel and related taxes per ASM increased 0.1% primarily due to a 1.7% increase in the average price per gallon of fuel to $3.16 in the first nine months of 2012 from $3.11 in the 2011 period.

•

Salaries and related costs per ASM increased 6.5% during the first nine months of 2012 primarily due to profit sharing and other incentive compensation expense driven by our profitability and a 106% increase in the price of our common stock from $5.07 to $10.46 during the first nine months of 2012.

•

Other expenses per ASM decreased 5.1% primarily due to lower passenger inconvenience fees driven by our outstanding operational performance, lower third party reservation fees resulting from the insourcing of our domestic call centers and a decrease in the incremental cost of travel awards associated with our frequent traveler program, principally as a result of lower fuel prices.

Express Operating Expenses:

Total express expenses increased $10 million, or 0.4%, in the first nine months of 2012 to $2.39 billion from $2.38 billion in the 2011 period. The period-over-period increase included a $27 million, or 3.4%, increase in fuel costs, offset in part by a $17 million, or 1.1%, decrease in other express expenses. The average price per gallon of fuel increased 1.8% to $3.18 in the first nine months of 2012 from $3.13 in the 2011 period, on a 1.5% increase in fuel consumption. The decrease in other express expenses was driven by lower maintenance costs primarily due to fewer engine overhauls performed in the 2012 period.

Nonoperating Income (Expense):


	2012			2011			Percent Increase (Decrease)
	(In millions)
Nonoperating income (expense):
Interest income	$	1		$	4			(70.8	)
Interest expense, net		(256	)		(241	)		6.6
Other, net		125			(7	)		nm

Total nonoperating expense, net	$	(130	)	$	(244	)		(46.6	)

Other nonoperating income of $125 million in the first nine months of 2012 consisted primarily of a $142 million special gain related to the slot transaction with Delta. See Note 7 to the condensed consolidated financial statements included in Part I, Item 1A of this report for more information on the Delta transaction. This gain was offset in part by $8 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the first nine months of 2012 and $3 million in special charges for debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft.

Other nonoperating expense of $7 million in the first nine months of 2011 consisted primarily of $13 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar during the 2011 period, offset by $7 million in net special credits. The net special credits included a $15 million credit in connection with an award received in an arbitration involving investments in auction rate securities, offset in part by $6 million for debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of five Airbus aircraft as well as $2 million for losses related to investments in auction rate securities.

US Airways’ Results of Operations

In the third quarter of 2012, US Airways realized operating income of $262 million and income before income taxes of $264 million. This compares to operating income of $177 million and income before income taxes of $121 million in the 2011 period.

In the first nine months of 2012, US Airways realized operating income of $713 million and income before income taxes of $657 million. This compares to operating income of $326 million and income before income taxes of $157 million in the 2011 period.

US Airways’ results for the third quarter and first nine months of 2012 were driven by year-over-year growth in revenues resulting from ongoing industry capacity discipline and consumer demand for air travel.

US Airways’ results have been impacted by the following pre-tax net special charges (credits) (in millions):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Mainline operating special items, net (a)	$	14		$	13		$	25		$	22
Nonoperating special items, net (b)		(67	)		(15	)		(137	)		(7	)

Total	$	(53	)	$	(2	)	$	(112	)	$	15

(a)	The 2012 and 2011 third quarter and nine month periods consisted primarily of corporate transaction and auction rate securities arbitration costs.

(b)	The 2012 third quarter primarily consisted of a $69 million gain related to the slot transaction with Delta. See Note 7 to the condensed consolidated financial statements included in Part I, Item 1B of this report for more information on the Delta transaction.

At December 31, 2011, US Airways had approximately $1.85 billion of gross NOLs to reduce future federal taxable income. All of US Airways’ NOLs are expected to be available to reduce federal taxable income in the calendar year 2012. The NOLs expire during the years 2024 through 2031. US Airways’ net deferred tax assets, which include $1.78 billion of the NOLs, are subject to a full valuation allowance. US Airways also had approximately $79 million of tax-effected state NOLs at December 31, 2011. At December 31, 2011, the federal and state valuation allowances were $349 million and $61 million, respectively. In accordance with GAAP, utilization of the NOLs will result in a corresponding decrease in the valuation allowance and offset US Airways’ tax provision dollar for dollar.

When profitable, US Airways is ordinarily subject to AMT. However as the result of a special tax election made in 2009, US Airways was able to utilize AMT NOLs to fully offset its AMT taxable income in each of the three and nine month periods ended September 30, 2012 and 2011.

In the third quarter of 2011, US Airways completed the liquidation of its entire investment in auction rate securities. As a result of the sale of the final remaining investment in auction rate securities, US Airways recorded a special non-cash tax charge of $21 million which recognized in the statement of operations for the three and nine month periods ended September 30, 2011, the tax provision that was recorded in other comprehensive income, a subset of stockholder’s equity, in the fourth quarter of 2009.

The table below sets forth US Airways’ selected mainline and express operating data:


	Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
	2012		2011		(Decrease)			2012		2011		(Decrease)
Mainline
Revenue passenger miles (millions) (a)		16,860		16,471		2.4	%		47,564		46,301		2.7	%
Available seat miles (millions) (b)		19,560		19,033		2.8	%		56,665		55,184		2.7	%
Passenger load factor (percent) (c)		86.2		86.5		(0.3	) pts		83.9		83.9		— pt	s
Yield (cents) (d)		13.75		13.76		(0.1	)%		14.47		13.92		3.9	%
Passenger revenue per available seat mile (cents) (e)		11.85		11.91		(0.5	)%		12.14		11.68		3.9	%
Aircraft at end of period		338		339		(0.3	)%		338		339		(0.3	)%
Fuel consumption (gallons in millions)		291		289		0.8	%		841		833		1.1	%
Average aircraft fuel price including related taxes (dollars per gallon)		3.06		3.13		(2.0	)%		3.16		3.11		1.7	%

Express (f)
Revenue passenger miles (millions) (a)		2,850		2,737		4.1	%		8,112		8,025		1.1	%
Available seat miles (millions) (b)		3,644		3,559		2.4	%		10,722		10,739		(0.2	)%
Passenger load factor (percent) (c)		78.2		76.9		1.3	pts		75.7		74.7		1.0	pts
Yield (cents) (d)		29.59		29.07		1.8	%		31.10		28.86		7.8	%
Passenger revenue per available seat mile (cents) (e)		23.15		22.35		3.6	%		23.54		21.56		9.2	%
Aircraft at end of period		282		281		0.4	%		282		281		0.4	%
Fuel consumption (gallons in millions)		89		86		3.1	%		261		257		1.5	%
Average aircraft fuel price including related taxes (dollars per gallon)		3.07		3.18		(3.5	)%		3.19		3.13		1.7	%

Total Mainline and Express
Revenue passenger miles (millions) (a)		19,710		19,208		2.6	%		55,676		54,326		2.5	%
Available seat miles (millions) (b)		23,204		22,592		2.7	%		67,387		65,923		2.2	%
Passenger load factor (percent) (c)		84.9		85.0		(0.1	) pts		82.6		82.4		0.2	pts
Yield (cents) (d)		16.04		15.94		0.6	%		16.89		16.13		4.7	%
Passenger revenue per available seat mile (cents) (e)		13.63		13.56		0.5	%		13.96		13.29		5.0	%
Total revenue per available seat mile (cents) (g)		15.40		15.38		0.1	%		15.84		15.19		4.3	%
Aircraft at end of period		620		620		—	%		620		620		—	%
Fuel consumption (gallons in millions)		380		375		1.3	%		1,102		1,090		1.2	%
Average aircraft fuel price including related taxes (dollars per gallon)		3.07		3.14		(2.4	)%		3.17		3.11		1.7	%

(a)	Revenue passenger mile (“RPM”) — A basic measure of sales volume. One RPM represents one passenger flown one mile.

(b)	Available seat mile (“ASM”) — A basic measure of production. One ASM represents one seat flown one mile.

(c)	Passenger load factor — The percentage of available seats that are filled with revenue passengers.

(d)	Yield — A measure of airline revenue derived by dividing passenger revenue by RPMs.

(e)	Passenger revenue per available seat mile (“PRASM”) — Passenger revenues divided by ASMs.

(f)	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., Chautauqua Airlines, Inc. and SkyWest Airlines, Inc.

(g)	Total revenue per available seat mile (“RASM”) — Total revenues divided by total mainline and express ASMs.

Three Months Ended September 30, 2012

Compared with the

Three Months Ended September 30, 2011

Operating Revenues:


	2012		2011		Percent Increase (Decrease)
	(In millions)
Operating revenues:
Mainline passenger	$	2,319	$	2,267		2.3
Express passenger		844		796		6.0
Cargo		35		40		(13.3	)
Other		377		373		1.1

Total operating revenues	$	3,575	$	3,476		2.8

Total operating revenues in the third quarter of 2012 were $3.58 billion as compared to $3.48 billion in the 2011 period, an increase of $99 million, or 2.8%. Significant changes in the components of operating revenues are as follows:

•

Operating Expenses:


	2012		2011		Percent Increase (Decrease)
	(In millions)
Operating expenses:
Aircraft fuel and related taxes	$	893	$	905		(1.3	)
Salaries and related costs		609		577		5.5
Aircraft rent		160		160		0.4
Aircraft maintenance		171		163		4.5
Other rent and landing fees		148		144		2.5
Selling expenses		122		123		(1.0	)
Special items, net		14		13		9.2
Depreciation and amortization		62		61		2.2
Other		317		329		(3.4	)

Total mainline operating expenses		2,496		2,475		0.9
Express expenses:
Fuel		272		273		(0.8	)
Other		545		551		(1.1	)

Total express expenses		817		824		(1.0	)

Total operating expenses	$	3,313	$	3,299		0.4

Total operating expenses were relatively flat at $3.31 billion in the third quarter of 2012, an increase of $14 million, or 0.4%, compared to the 2011 period.

Mainline Operating Expenses:

Significant changes in the components of mainline operating expenses are as follows:

•

Aircraft fuel and related taxes decreased 1.3% primarily due to a 2.0% decrease in the average price per gallon of fuel to $3.06 in the third quarter of 2012 from $3.13 in the 2011 period.

•

Salaries and related costs increased 5.5% primarily due to profit sharing and other incentive compensation expense driven by US Airways’ profitability and strong operational performance.

•

Other expenses decreased 3.4% primarily due to lower passenger inconvenience fees driven by US Airways’ outstanding operational performance and a decrease in the incremental cost of travel awards associated with US Airways’ frequent traveler program, principally as a result of lower fuel prices.

Express Operating Expenses:

Total express expenses decreased $7 million, or 1.0%, in the third quarter of 2012 to $817 million from $824 million in the 2011 period. The period-over-period decrease included a $1 million, or 0.8%, decrease in fuel costs.

Nonoperating Income (Expense):


	2012			2011			Percent Increase (Decrease)
	(In millions)
Nonoperating income (expense):
Interest income	$	—		$	1			(62.7	)
Interest expense, net		(65	)		(58	)		11.2
Other, net		67			1			nm

Total nonoperating income (expense), net	$	2		$	(56	)		nm

Other nonoperating income of $67 million in the third quarter of 2012 consisted primarily of a $69 million special gain related to the slot transaction with Delta. See Note 7 to the condensed consolidated financial statements included in Part I, Item 1B of this report for more information on the Delta transaction.

Nine Months Ended September 30, 2012

Compared with the

Nine Months Ended September 30, 2011

Operating Revenues:


	2012		2011		Percent Increase (Decrease)
	(In millions)
Operating revenues:
Mainline passenger	$	6,881	$	6,447		6.7
Express passenger		2,523		2,316		9.0
Cargo		114		126		(10.0	)
Other		1,155		1,124		2.7

Total operating revenues	$	10,673	$	10,013		6.6

Total operating revenues in the first nine months of 2012 were $10.67 billion as compared to $10.01 billion in the 2011 period, an increase of $660 million, or 6.6%. Significant changes in the components of operating revenues are as follows:

•

Operating Expenses:


	2012		2011		Percent Increase (Decrease)
	(In millions)
Operating expenses:
Aircraft fuel and related taxes	$	2,659	$	2,587		2.8
Salaries and related costs		1,888		1,726		9.4
Aircraft rent		483		486		(0.7	)
Aircraft maintenance		506		508		(0.3	)
Other rent and landing fees		419		418		0.3
Selling expenses		359		343		4.4
Special items, net		25		22		14.2
Depreciation and amortization		190		185		2.6
Other		944		963		(2.0	)

Total mainline operating expenses		7,473		7,238		3.2
Express expenses:
Fuel		830		804		3.3
Other		1,657		1,645		0.7

Total express expenses		2,487		2,449		1.6

Total operating expenses	$	9,960	$	9,687		2.8

Total operating expenses were $9.96 billion in the first nine months of 2012, an increase of $273 million, or 2.8%, compared to the 2011 period. The increase in operating expenses was primarily driven by a $162 million, or 9.4%, increase in salaries and related costs as well as a $98 million, or 2.9%, increase in mainline and express fuel costs. The increase in salaries and related costs was primarily due to profit sharing and other incentive compensation costs driven by US Airways’ profitability and the 106% increase in the price of US Airways Group’s common stock during the first nine months of 2012. Fuel costs increased as the average price per gallon of fuel increased 1.7% to $3.17 in the first nine months of 2012 from $3.11 in the 2011 period, on a 1.2% increase in consumption.

Mainline Operating Expenses:

Significant changes in the components of mainline operating expenses are as follows:

•

Aircraft fuel and related taxes increased 2.8% primarily due to a 1.7% increase in the average price per gallon of fuel to $3.16 in the first nine months of 2012 from $3.11 in the 2011 period.

•

Salaries and related costs increased 9.4% during the first nine months of 2012 primarily due to profit sharing and other incentive compensation expense driven by US Airways’ profitability and a 106% increase in the price of US Airways Group’s common stock from $5.07 to $10.46 during the first nine months of 2012.

•

Other expenses decreased 2.0% primarily due to lower passenger inconvenience fees driven by US Airways’ outstanding operational performance, lower third party reservation fees resulting from the insourcing of US Airways’ domestic call centers and a decrease in the incremental cost of travel awards associated with US Airways’ frequent traveler program, principally as a result of lower fuel prices.

Express Operating Expenses:

Total express expenses increased $38 million, or 1.6%, in the first nine months of 2012 to $2.49 billion from $2.45 billion in the 2011 period. The period-over-period increase included a $26 million, or 3.3%, increase in fuel costs. The average price per gallon of fuel increased 1.7% to $3.19 in the first nine months of 2012 from $3.13 in the 2011 period, on a 1.5% increase in fuel consumption.

Nonoperating Income (Expense):


	2012			2011			Percent Increase (Decrease)
	(In millions)
Nonoperating income (expense):
Interest income	$	1		$	4			(70.9	)
Interest expense, net		(182	)		(166	)		10.4
Other, net		125			(7	)		nm

Total nonoperating expense, net	$	(56	)	$	(169	)		(66.8	)

Other nonoperating income of $125 million in the first nine months of 2012 consisted primarily of a $142 million special gain related to the slot transaction with Delta. See Note 7 to the condensed consolidated financial statements included in Part I, Item 1B of this report for more information on the Delta transaction. This gain was offset in part by $8 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the first nine months of 2012 and $3 million in special charges for debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft.

Liquidity and Capital Resources

As of September 30, 2012, our total cash, cash equivalents and restricted cash was $2.78 billion, of which $347 million was restricted.

Sources and Uses of Cash

US Airways Group

Operating Activities

Net cash provided by operating activities was $887 million and $465 million for the first nine months of 2012 and 2011, respectively, a period-over-period improvement of $422 million. This increase was due principally to our strong profits in the first nine months of 2012 resulting from the growth in revenues driven by ongoing industry capacity discipline and consumer demand for air travel.

Investing Activities

Net cash used in investing activities was $410 million and $283 million for the first nine months of 2012 and 2011, respectively.

Principal investing activities in the 2012 period included expenditures of $310 million for property and equipment and consisted primarily of the purchase of four aircraft and costs related to the installation of the Envoy Suite on wide-body Airbus A330-300 aircraft. Investing activities also included expenditures of $118 million for pre-delivery deposits for 29 Airbus aircraft on order. These expenditures were offset in part by an $18 million decrease in restricted cash. 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 had not yet provided air transportation.

Principal investing activities in the 2011 period included expenditures of $238 million for property and equipment and consisted primarily of the purchase of three Airbus aircraft and various additions related to information technology, rotable parts, ground service and other flight equipment. Investing activities also included expenditures of $78 million for pre-delivery deposits for 16 Airbus aircraft on order, purchases of marketable securities of $30 million and a $20 million increase in restricted cash due to a change in the amount of holdback held by certain credit card processors. These cash outflows were offset in part by cash proceeds of $82 million from sales of marketable securities, which included $52 million related to the liquidation of our remaining investments in auction rate securities.

Financing Activities

Net cash provided by financing activities was $11 million and $2 million for the first nine months of 2012 and 2011, respectively.

Principal financing activities in the 2012 period included proceeds of $395 million and consisted primarily of the issuance of debt of $353 million. This included $168 million related to the issuance of equipment notes associated with the May 2012 EETC transactions and $100 million related to the slot financing transaction completed in April 2012. These cash inflows were offset in part by debt repayments of $370 million, including the repayment of $60 million in existing debt associated with two Airbus aircraft refinanced by the May 2012 EETC issuance.

Principal financing activities in the 2011 period included proceeds from the issuance of debt of $531 million and consisted primarily of $478 million related to the issuance of equipment notes associated with the June 2011 EETC transactions. These cash inflows were offset in part by debt repayments of $516 million, including the repayment of $206 million in existing debt associated with five Airbus aircraft refinanced by the June 2011 EETC issuance.

US Airways

Operating Activities

Net cash provided by operating activities was $867 million and $439 million for the first nine months of 2012 and 2011, respectively, a period-over-period improvement of $428 million. This increase was due principally to US Airways’ strong profits in the first nine months of 2012 resulting from the growth in revenues driven by ongoing industry capacity discipline and consumer demand for air travel.

Investing Activities

Net cash used in investing activities was $403 million and $272 million for the first nine months of 2012 and 2011, respectively.

Principal investing activities in the 2012 period included expenditures of $303 million for property and equipment and consisted primarily of the purchase of four aircraft and costs related to the installation of the Envoy Suite on wide-body Airbus A330-300 aircraft. Investing activities also included expenditures of $118 million for pre-delivery deposits for 29 Airbus aircraft on order. These expenditures were offset in part by an $18 million decrease in restricted cash. 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 had not yet provided air transportation.

Principal investing activities in the 2011 period included expenditures of $227 million for property and equipment and consisted primarily of the purchase of three Airbus aircraft and various additions related to information technology, rotable parts, ground service and other flight equipment. Investing activities also included expenditures of $78 million for pre-delivery deposits for 16 Airbus aircraft on order, purchases of marketable securities of $30 million and a $20 million increase in restricted cash due to a change in the amount of holdback held by certain credit card processors. These cash outflows were offset in part by cash proceeds of $82 million from sales of marketable securities, which included $52 million related to the liquidation of US Airways’ remaining investments in auction rate securities.

Financing Activities

Net cash provided by financing activities was $27 million and $18 million for the first nine months of 2012 and 2011, respectively.

Principal financing activities in the 2012 period included proceeds of $395 million and consisted primarily of the issuance of debt of $353 million. This included $168 million related to the issuance of equipment notes associated with the May 2012 EETC transactions and $100 million related to the slot financing transaction completed in April 2012. These cash inflows were offset in part by debt repayments of $354 million, including the repayment of $60 million in existing debt associated with two Airbus aircraft refinanced by the May 2012 EETC issuance.

Principal financing activities in the 2011 period included proceeds from the issuance of debt of $531 million and consisted primarily of $478 million related to the issuance of equipment notes associated with the June 2011 EETC transactions. These cash inflows were offset in part by debt repayments of $500 million, including the repayment of $206 million in existing debt associated with five Airbus aircraft refinanced by the June 2011 EETC issuance.

Commitments

As of September 30, 2012, we had $4.73 billion of long-term debt and capital leases (including current maturities and before discount on debt). The information contained herein is not a comprehensive discussion and analysis of our commitments, but rather updates disclosures made in the 2011 Form 10-K.

Citicorp Credit Facility

On March 23, 2007, US Airways Group entered into a term loan credit facility (the “Citicorp credit facility”) with Citicorp North America, Inc., as administrative agent, and a syndicate of lenders pursuant to which US Airways Group borrowed an aggregate principal amount of $1.6 billion. US Airways and certain other subsidiaries of US Airways Group are guarantors of the Citicorp credit facility.

The Citicorp credit facility bears interest at an index rate plus an applicable index margin or, at our option, LIBOR plus an applicable LIBOR margin for interest periods of one, two, three or six months. The applicable index margin, subject to adjustment, is 1.00%, 1.25% or 1.50% if the adjusted loan balance is less than $600 million, between $600 million and $1 billion, or greater than $1 billion, respectively. The applicable LIBOR margin, subject to adjustment, is 2.00%, 2.25% or 2.50% if the adjusted loan balance is less than $600 million, between $600 million and $1 billion, or greater than $1 billion, respectively. In addition, interest on the Citicorp credit facility may be adjusted based on the credit rating for the Citicorp credit facility as follows: (i) if the credit ratings of the Citicorp credit facility by Moody’s and S&P in effect as of the last day of the most recently ended fiscal quarter are both at least one subgrade better than the credit ratings in effect on March 23, 2007, then (A) the applicable LIBOR margin will be the lower of 2.25% and the rate otherwise applicable based upon the adjusted Citicorp credit facility balance and (B) the applicable index margin will be the lower of 1.25% and the rate otherwise applicable based upon the Citicorp credit facility principal balance, and (ii) if the credit ratings of the Citicorp credit facility by Moody’s and S&P in effect as of the last day of the most recently ended fiscal quarter are both at least two subgrades better than the credit ratings in effect on March 23, 2007, then (A) the applicable LIBOR margin will be 2.00% and (B) the applicable index margin will be 1.00%. As of September 30, 2012, the interest rate on the Citicorp credit facility was 2.72% based on a 2.50% LIBOR margin.

The Citicorp credit facility matures on March 23, 2014, and is repayable in seven annual installments with each of the first six installments to be paid on each anniversary of the closing date in an amount equal to 1% of the initial aggregate principal amount of the loan and the final installment to be paid on the maturity date in the amount of the full remaining balance of the loan.

In addition, the Citicorp credit facility requires certain mandatory prepayments upon the occurrence of specified events, establishes certain financial covenants, including minimum cash requirements and maintenance of certain minimum ratios, contains customary affirmative covenants and negative covenants and contains customary events of default. The Citicorp credit facility requires 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, 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 under the Citicorp credit facility. The principal amount outstanding under the Citicorp credit facility was $1.12 billion as of September 30, 2012. As of September 30, 2012, we were in compliance with all debt covenants under the Citicorp credit facility.

2012 Financing Transactions

In April 2012, US Airways entered into a loan agreement pursuant to which US Airways borrowed an aggregate principal amount of $100 million. The net proceeds after fees were approximately $98 million. The loan is payable in full at maturity on March 23, 2014. The loan bears interest at an index rate plus an applicable index margin or, at US Airways’ option, LIBOR plus an applicable LIBOR margin. US Airways has agreed to maintain a level of unrestricted cash in the same amount required by our Citicorp credit facility and has also agreed to maintain certain collateral coverage ratios. The loan is collateralized by certain airport take-off and landing slots.

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 processors have financial risk associated with tickets purchased for travel because, although the processor generally forwards the cash related to the purchase to us soon after the purchase is completed, the air travel generally occurs after that time, and the processor may have liability if we do not ultimately provide the air travel. Our agreements allow these processing companies, under certain conditions, to hold an amount of our cash (referred to as a “holdback”) equal to a portion of advance ticket sales that have been processed by that company, but for which we have not yet provided the air transportation. These holdback requirements can be modified at the discretion of the processing companies, up to the estimated liability for future air travel purchased with the respective credit cards, upon the occurrence of specified events, including material adverse changes in our financial condition. The amount that the processing companies may withhold also varies as a result of changes in financial risk due to seasonal fluctuations in ticket volume. Additional holdback requirements will reduce our liquidity in the form of unrestricted cash by the amount of the holdbacks. These holdback amounts are reflected on our condensed consolidated balance sheet as restricted cash.

In June 2012, we entered into the Fourth Amendment to the Merchant Services Bankcard Agreement with First Data Services, LLC and Bank of America, N.A. (collectively, Bank of America Merchant Services or “BAMS”), which extends the term of the agreement between us and BAMS for an additional five years. In accordance with the terms of this agreement, we reduced our collateral requirement and received a release of $45 million from our reserve account in the third quarter of 2012. Collateral held in the reserve account is classified as restricted cash on our condensed consolidated balance sheets.

Aircraft and Engine Purchase Commitments

US Airways has definitive purchase agreements with Airbus for the acquisition of 134 aircraft, including 97 single-aisle A320 family aircraft and 37 widebody aircraft (comprised of 22 A350 XWB aircraft and 15 A330-200 aircraft). Since 2008, when deliveries commenced under the purchase agreements, US Airways has taken delivery of 52 aircraft through September 30, 2012, which includes four A320 aircraft, 41 A321 aircraft and seven A330-200 aircraft. US Airways plans to take delivery of six A321 aircraft in the fourth quarter of 2012, with the remaining 46 A320 family aircraft scheduled to be delivered between 2013 and 2015. In addition, US Airways plans to take delivery of the eight remaining A330-200 aircraft in 2013 and 2014. Deliveries of the 22 A350 XWB aircraft are scheduled to begin in 2017 and extend through 2019.

US Airways has agreements for the purchase of eight new IAE V2500-A5 spare engines scheduled for delivery through 2014 for use on the A320 family fleet, three new Trent 700 spare engines scheduled for delivery through 2013 for use on the A330-200 fleet and three new Trent XWB spare engines 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 three of the V2500-A5 spare engines through September 30, 2012.

Under all of our aircraft and engine purchase agreements, our total future commitments as of September 30, 2012 are expected to be approximately $5.26 billion through 2019, which includes predelivery deposits and payments. We have financing commitments for all Airbus aircraft scheduled for delivery in 2012. See Part II, Item 1A, Risk Factors – “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” and “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.”

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 also generally contain cross-default provisions, which may be triggered by defaults by us under other agreements relating to indebtedness. See Part II, Item 1A, Risk Factors – “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” and “Any failure to comply with the liquidity covenants contained in our financing arrangements would likely have a material adverse effect on our business, financial condition and results of operations.” As of September 30, 2012, 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 September 30, 2012:


	S&P Local Issuer Credit Rating	Fitch Issuer Default Rating	Moody’s Corporate Family Rating
US Airways Group	B-	B-	Caa1
US Airways	B-	B-	*

(*)	The credit agency does not rate this category for US Airways.

A decrease in our credit ratings could cause our borrowing costs to increase, which would increase our interest expense and could affect our net income, and our credit ratings could adversely affect our ability to obtain additional financing. If our financial performance or industry conditions worsen, we may face future downgrades, which could negatively impact our borrowing costs and the prices of our equity or debt securities. In addition, any downgrade of our credit ratings may indicate a decline in our business and in our ability to satisfy our obligations under our indebtedness.

Labor Agreements

In August 2012, we reached a tentative agreement with the Association of Flight Attendants-CWA for a single labor agreement applicable to both premerger US Airways and America West flight attendants. In September 2012, the flight attendants voted to not ratify the proposed five-year collective bargaining agreement. The flight attendants will continue to work under the terms of their respective US Airways or America West collective bargaining agreements, as modified by transition agreements reached in connection with th