10-Q 1 d549995d10q.htm 10-Q 10-Q
Table of Contents

 

 

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 June 30, 2013

or

 

¨ 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   ¨      No   x
US Airways, Inc.    Yes   ¨      No   x

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   x      No   ¨
US Airways, Inc.    Yes   x      No   ¨

As of July 19, 2013, there were approximately 192,016,784 shares of US Airways Group, Inc. common stock outstanding.

As of July 19, 2013, US Airways, Inc. had 1,000 shares of common stock outstanding, all of which were held by US Airways Group, Inc.

 

 

 


Table of Contents

US Airways Group, Inc.

US Airways, Inc.

Form 10-Q

Quarterly Period Ended June 30, 2013

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 Financial Statements of US Airways, Inc.

  

Condensed Statements of Operations

     16   

Condensed Statements of Comprehensive Income

     17   

Condensed Balance Sheets

     18   

Condensed Statements of Cash Flows

     19   

Notes to the Condensed Financial Statements

     20   

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

     26   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     55   

Item 4. Controls and Procedures

     55   

Part II. Other Information

  

Item 1. Legal Proceedings

     56   

Item 1A. Risk Factors

     57   

Item 6. Exhibits

     77   

Signatures

     78   

 

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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 of the statements contained 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 that adversely affect our business;

 

   

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;

 

   

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;

 

   

the impact of extensive government regulation;

 

   

the impact of heavy taxation;

 

   

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;

 

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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;

 

   

the impact of changing economic and other conditions and the seasonality of our business;

 

   

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 net operating losses (“NOLs”) and certain other tax attributes;

 

   

risks relating to our anticipated merger with AMR Corporation (“AMR”);

 

   

risks relating to our common stock, market factors affecting the price of our common stock, and the rights of stockholders; and

 

   

other risks and uncertainties listed from time to time in our reports to and filings with the Securities and Exchange Commission (the “SEC”).

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.

 

 

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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 June 30,

   

Six Months

Ended June 30,

 
     2013     2012     2013     2012  

Operating revenues:

        

Mainline passenger

   $ 2,566      $ 2,446      $ 4,763      $ 4,562   

Express passenger

     882        916        1,640        1,680   

Cargo

     36        39        77        79   

Other

     381        353        765        700   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     3,865        3,754        7,245        7,021   

Operating expenses:

        

Aircraft fuel and related taxes

     872        906        1,733        1,766   

Salaries and related costs

     701        674        1,338        1,279   

Express expenses

     783        803        1,578        1,605   

Aircraft rent

     153        161        307        323   

Aircraft maintenance

     177        172        342        336   

Other rent and landing fees

     158        132        301        272   

Selling expenses

     124        126        237        237   

Special items, net

     24        9        63        11   

Depreciation and amortization

     70        61        136        122   

Other

     322        306        626        607   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,384        3,350        6,661        6,558   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     481        404        584        463   

Nonoperating income (expense):

        

Interest income

     1        —          1        1   

Interest expense, net

     (90     (85     (174     (167

Other, net

     (38     (13     (13     58   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total nonoperating expense, net

     (127     (98     (186     (108
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     354        306        398        355   

Income tax provision

     67        —          67        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 287      $ 306      $ 331      $ 355   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share:

        

Basic earnings per common share

   $ 1.66      $ 1.89      $ 1.97      $ 2.19   

Diluted earnings per common share

   $ 1.40      $ 1.54      $ 1.65      $ 1.82   

Shares used for computation (in thousands):

        

Basic

     173,215        162,310        168,058        162,220   

Diluted

     207,931        203,981        207,439        202,997   

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways Group, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)

 

    

Three Months

Ended June 30,

    

Six Months

Ended June 30,

 
     2013      2012      2013      2012  

Net income

   $ 287       $ 306       $ 331       $ 355   

Total other comprehensive income

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income

   $ 287       $ 306       $ 331       $ 355   
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways Group, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share and per share amounts)

(Unaudited)

 

     June 30,
2013
    December 31,
2012
 

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 3,622      $ 2,276   

Investments in marketable securities

     —          100   

Accounts receivable, net

     490        298   

Materials and supplies, net

     323        300   

Prepaid expenses and other

     705        608   
  

 

 

   

 

 

 

Total current assets

     5,140        3,582   

Property and equipment

    

Flight equipment

     5,852        5,188   

Ground property and equipment

     1,055        1,005   

Less accumulated depreciation and amortization

     (1,862     (1,733
  

 

 

   

 

 

 
     5,045        4,460   

Equipment purchase deposits

     262        244   
  

 

 

   

 

 

 

Total property and equipment

     5,307        4,704   

Other assets

    

Other intangibles, net of accumulated amortization of $170 million and $158 million, respectively

     527        539   

Restricted cash

     350        336   

Other assets

     274        235   
  

 

 

   

 

 

 

Total other assets

     1,151        1,110   
  

 

 

   

 

 

 

Total assets

   $ 11,598      $ 9,396   
  

 

 

   

 

 

 

LIABILITIES & STOCKHOLDERS’ EQUITY

    

Current liabilities

    

Current maturities of debt and capital leases

   $ 473      $ 417   

Accounts payable

     414        366   

Air traffic liability

     1,535        1,054   

Accrued compensation and vacation

     269        258   

Accrued taxes

     248        181   

Other accrued expenses

     1,028        1,027   
  

 

 

   

 

 

 

Total current liabilities

     3,967        3,303   

Noncurrent liabilities and deferred credits

    

Long-term debt and capital leases, net of current maturities

     5,378        4,376   

Deferred gains and credits, net

     280        290   

Postretirement benefits other than pensions

     173        172   

Employee benefit liabilities and other

     546        465   
  

 

 

   

 

 

 

Total noncurrent liabilities and deferred credits

     6,377        5,303   

Commitments and contingencies

    

Stockholders’ equity

    

Common stock, $0.01 par value; 400,000,000 shares authorized, 190,673,639 shares issued and outstanding at June 30, 2013; 162,502,692 shares issued and outstanding at December 31, 2012

     2        2   

Additional paid-in capital

     2,267        2,134   

Accumulated other comprehensive loss

     (7     (7

Accumulated deficit

     (1,008     (1,339
  

 

 

   

 

 

 

Total stockholders’ equity

     1,254        790   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 11,598      $ 9,396   
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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US Airways Group, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

    

Six Months

Ended June 30,

 
     2013     2012  

Net cash provided by operating activities

   $ 925      $ 853   

Cash flows from investing activities:

    

Purchases of property and equipment

     (713     (191

Sales of marketable securities

     100        —     

Increase in long-term restricted cash

     (14     (28
  

 

 

   

 

 

 

Net cash used in investing activities

     (627     (219

Cash flows from financing activities:

    

Repayments of debt and capital lease obligations

     (1,538     (263

Proceeds from issuance of debt

     2,628        178   

Proceeds from issuance of common stock, net

     3        —     

Deferred financing costs

     (54     (13

Airport construction obligation

     9        32   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,048        (66
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     1,346        568   

Cash and cash equivalents at beginning of period

     2,276        1,947   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 3,622      $ 2,515   
  

 

 

   

 

 

 

Non-cash investing and financing activities:

    

Conversion of 7.25% convertible senior notes

   $ 121      $ —     

Note payables issued for aircraft purchases

     35        —     

Interest payable converted to debt

     7        11   

Supplemental information:

    

Interest paid, net of amounts capitalized

   $ 120      $ 114   

Income taxes paid

     2        —     

See accompanying notes to the condensed consolidated financial statements.

 

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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, 2012. 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 accordance 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 loss balances at June 30, 2013 and December 31, 2012 related to pension and other postretirement benefits.

2. Merger Agreement

On February 13, 2013, AMR Corporation, a Delaware corporation (“AMR”), US Airways Group, and AMR Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of AMR (“Merger Sub”), entered into an Agreement and Plan of Merger (as subsequently amended, the “Merger Agreement”), providing for a business combination of AMR and US Airways Group. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into US Airways Group (the “Merger”), with US Airways Group as the surviving corporation and as a wholly owned subsidiary of AMR. The Merger Agreement and the transactions contemplated thereby are to be effected pursuant to a plan of reorganization of AMR and certain of its direct and indirect domestic subsidiaries (the “Debtors”) in connection with their currently pending cases under Chapter 11 of Title 11 of U.S. Code, 11 U.S.C. Sections 101 et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). AMR’s plan of reorganization is subject to confirmation by the Bankruptcy Court in accordance with the requirements of the Bankruptcy Code. Consummation of the Merger is subject to confirmation of AMR’s plan of reorganization and other customary closing conditions, including certain regulatory approvals. The Merger was approved by US Airways Group’s shareholders on July 12, 2013.

3. Special Items, Net

Special items, net as shown on the condensed consolidated statements of operations included the following charges for the three and six months ended June 30, 2013 and 2012 (in millions):

 

     Three Months
Ended June  30,
     Six Months
Ended June 30,
 
     2013      2012      2013      2012  

Special items, net (a)

   $ 24       $ 9       $ 63       $ 11   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) The 2013 second quarter consisted primarily of merger related costs. The 2013 six month period consisted primarily of merger related costs and charges related to the ratification of the US Airways flight attendant collective bargaining agreement.

The 2012 second quarter and six month periods consisted primarily of merger related and auction rate securities arbitration costs.

 

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In addition, other nonoperating, net in the second quarter of 2013 included $31 million primarily related to special debt extinguishment charges due to non-cash write offs of debt discount and debt issuance costs in connection with conversions of 7.25% convertible senior notes and repayment of the former Citicorp North America term loan. Other nonoperating, net in the six month period of 2013 included $31 million in special charges primarily related to debt extinguishment costs discussed above, offset in part by a $30 million special credit in connection with an award received in an arbitration related to previous investments in auction rate securities.

Other nonoperating, net in the second quarter of 2012 included $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, net in the six month period of 2012 included a $73 million special gain related to the slot transaction with Delta Air Lines, Inc., offset in part by $3 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs discussed above.

4. 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 June 30,
     Six Months
Ended June 30,
 
     2013      2012      2013      2012  

Basic EPS:

           

Net income

   $ 287       $ 306       $ 331       $ 355   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding (in thousands)

     173,215         162,310         168,058         162,220   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic EPS

   $ 1.66       $ 1.89       $ 1.97       $ 2.19   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted EPS:

           

Net income

   $ 287       $ 306       $ 331       $ 355   

Interest expense on 7.25% convertible senior notes

     4         8         10         15   

Interest expense on 7% senior convertible notes

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income for purposes of computing diluted EPS

   $ 291       $ 314       $ 341       $ 370   
  

 

 

    

 

 

    

 

 

    

 

 

 

Share computation for diluted EPS (in thousands):

           

Weighted average common shares outstanding

     173,215         162,310         168,058         162,220   

Dilutive effect of stock awards

     6,041         3,726         6,070         2,832   

Assumed conversion of 7.25% convertible senior notes

     28,533         37,746         33,140         37,746   

Assumed conversion of 7% senior convertible notes

     142         199         171         199   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding as adjusted

     207,931         203,981         207,439         202,997   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted EPS

   $ 1.40       $ 1.54       $ 1.65       $ 1.82   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following were excluded from the computation of diluted EPS because inclusion of shares would be antidilutive (in thousands):

  

Stock options, SARs and RSUs

     474         1,752         473         1,648   

 

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5. Debt

The following table details the Company’s debt (in millions). Variable interest rates listed are the rates as of June 30, 2013.

 

     June 30,
2013
    December 31,
2012
 

Secured

    

2013 Citicorp credit facility tranche B-1, variable interest rate of 4.25%, installments due through 2019

   $ 1,000      $ —     

2013 Citicorp credit facility tranche B-2, variable interest rate of 3.50%, installments due through 2016

     600        —     

Citicorp North America loan

     —          1,120   

Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.59% to 8.48%, maturing from 2013 to 2029

     1,407        1,708   

Aircraft enhanced equipment trust certificates (“EETCs”), fixed interest rates ranging from 4.625% to 11%, maturing from 2014 to 2025

     2,049        1,598   

Other secured obligations, fixed interest rate of 8%, maturing from 2018 to 2021

     26        27   
  

 

 

   

 

 

 
     5,082        4,453   

Unsecured

    

6.125% senior notes, interest only payments until due in 2018

     500        —     

Barclays prepaid miles, variable interest rate of 4.94%, interest only payments

     200        200   

7.25% convertible senior notes, interest only payments until due in 2014

     51        172   

Airbus advance, repayments through 2018

     90        83   

Industrial development bonds, fixed interest rate of 6.30%, interest only payments until due in 2023

     29        29   

7% senior convertible notes

     —          5   
  

 

 

   

 

 

 
     870        489   
  

 

 

   

 

 

 

Total long-term debt and capital lease obligations

     5,952        4,942   

Less: Total unamortized discount on debt

     (101     (149

Current maturities

     (473     (417
  

 

 

   

 

 

 

Long-term debt and capital lease obligations, net of current maturities

   $ 5,378      $ 4,376   
  

 

 

   

 

 

 

The Company was in compliance with the covenants in its debt agreements at June 30, 2013.

2013 Citicorp Credit Facility

On May 23, 2013, US Airways entered into a term loan credit facility (the “2013 Citicorp credit facility”) with Citicorp North America, Inc., as administrative agent, and a syndicate of lenders pursuant to which US Airways borrowed an aggregate principal amount of $1.6 billion. Approximately $1.3 billion of the net proceeds were applied to repay US Airways Group’s former Citicorp North America loan and certain other secured debt of US Airways with remaining net proceeds to be used for general corporate purposes. As a result of the repayment of this loan, the Company recorded approximately $8 million in special debt extinguishment charges which are included within other nonoperating expense, net on the accompanying condensed consolidated statement of operations. US Airways Group and certain other subsidiaries of US Airways Group are guarantors of the 2013 Citicorp credit facility.

The 2013 Citicorp credit facility consists of $1.0 billion of tranche B-1 term loans (“Tranche B-1”) and $600 million of tranche B-2 term loans (“Tranche B-2”). The 2013 Citicorp credit facility is prepayable at any time with a premium of 1% applicable to certain prepayments made prior to November 23, 2013.

The 2013 Citicorp credit facility bears interest at an index rate plus an applicable index margin or, at US Airways’ option, LIBOR (subject to a floor) plus an applicable LIBOR margin. The applicable index margin for Tranche B-1 and Tranche B-2 is 2.25% and 1.50%, respectively. The applicable LIBOR margin for Tranche B-1 and Tranche B-2 is 3.25% and 2.50%, respectively. The applicable index and LIBOR margins are subject to a step down of 0.25% upon the consummation of the Merger. As of June 30, 2013, the interest rate was 4.25% based on a 3.25% LIBOR margin for Tranche B-1 and 3.50% based on a 2.50% LIBOR margin for Tranche B-2.

Tranche B-1 and Tranche B-2 mature on May 23, 2019 and November 23, 2016, respectively, and each is repayable in annual 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 loans with any unpaid balance due on the maturity date of the respective tranche.

 

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The obligations of US Airways under the 2013 Citicorp credit facility are secured by liens on certain route authorities to operate between certain specified cities, certain take-off and landing rights at certain airports and certain other assets of US Airways.

Upon consummation of the Merger, AMR (or its successor) and American Airlines, Inc. will be required to join the 2013 Citicorp credit facility as obligors, at which time certain dollar-limited exceptions to restrictive covenants and certain cross-default thresholds will automatically be increased.

The 2013 Citicorp credit facility includes covenants that, among other things, (a) require US Airways to maintain (i) unrestricted liquidity of not less than $850 million prior to the Merger and AMR (or its successor) to maintain unrestricted liquidity of not less than $2 billion following the Merger, in both cases with not less than $750 million held in accounts subject to control agreements, and (ii) a minimum ratio of appraised value of collateral to the outstanding loans under the facility of 1.5 to 1.0 and (b) restrict the ability of US Airways Group and its subsidiaries party to the 2013 Citicorp credit facility (and after the Merger AMR, or its successor, and its subsidiaries party to the 2013 Citicorp credit facility) to make certain investments and restricted payments. The 2013 Citicorp credit facility contains events of default customary for similar financings, including a cross-acceleration provision to certain other material indebtedness of US Airways and the guarantors.

6.125% Senior Notes

On May 24, 2013, US Airways Group issued $500 million aggregate principal amount of 6.125% Senior Notes due 2018 (the “6.125% senior notes”), the net proceeds of which will be used for general corporate purposes. These notes bear interest at a rate of 6.125% per annum, which is payable semi-annually on each June 1 and December 1, beginning December 1, 2013. The 6.125% senior notes mature on June 1, 2018 and are fully and unconditionally guaranteed by US Airways. The 6.125% senior notes are general unsecured senior obligations of the Company.

The 6.125% senior notes may be accelerated upon the occurrence of events of default, which are customary for securities of this nature. The Company, at its option, may redeem some or all of the 6.125% senior notes at any time at a redemption price equal to the greater of (1) 100% of the principal amount of the 6.125% senior notes to be redeemed and (2) a make-whole amount based on the sum of the present values of the remaining scheduled payments of principal and interest on the 6.125% senior notes discounted to the redemption date using a rate based on comparable U.S. Treasury securities plus 50 basis points, plus in either case accrued and unpaid interest to the redemption date. In the event of a specified change in control (not including the Merger), each holder may require the Company to repurchase all or a portion of their 6.125% senior notes for cash at a price equal to 101% of the principal amount of the 6.125% senior notes to be repurchased plus any accrued and unpaid interest, if any, to (but not including) the repurchase date.

2013-1 EETCs

In April 2013, US Airways created two pass-through trusts which issued approximately $820 million aggregate face amount of Series 2013-1 Class A and Class B EETCs in connection with the financing of 18 Airbus aircraft scheduled to be delivered from September 2013 to June 2014. The 2013-1 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 balance sheet because the proceeds held by the depository are not US Airways’ assets. The escrowed proceeds will be used to purchase Series A and Series B equipment notes as the new aircraft are delivered. The Series A equipment notes will bear interest at 3.95% per annum with a final expected distribution date of November 2025. The Series B equipment notes will bear interest at 5.375% per annum with a final expected distribution date of November 2021. The equipment notes will be obligations of US Airways and will be unconditionally guaranteed by US Airways Group.

2012-2 EETCs

In June 2013, US Airways created a new pass-through trust and issued a new class of its US Airways Pass Through Certificates, Series 2012-2: Class C in the aggregate face amount of $100 million. US Airways previously issued two classes of US Airways Pass Through Certificates, Series 2012-2: Class A and Class B, pursuant to separate trusts established for each of the Class A certificates and Class B certificates at the time of the issuance thereof in December 2012.

 

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In the second quarter of 2013, US Airways issued $345 million of equipment notes in three series under its 2012-2 EETCs: Series A equipment notes in the amount of $223 million bearing interest at 4.625% per annum, Series B equipment notes in the amount of $69 million bearing interest at 6.75% per annum and Series C equipment notes in the amount of $53 million bearing interest at 5.45% per annum. Interest on the equipment notes is payable semiannually in June and December of each year and began in June 2013 for Series A and Series B, and will begin in December 2013 for Series C. Principal payments on the Series A and Series B equipment notes are scheduled to begin in December 2013. The final payments on the Series A equipment notes, Series B equipment notes and Series C equipment notes will be due in June 2025, June 2021 and June 2018, respectively. US Airways’ payment obligations under the equipment notes are fully and unconditionally guaranteed by US Airways Group. The only principal payments due on the Series C equipment notes are the principal payments that will be due on the final payment date. The net proceeds from the issuance of these equipment notes were used to finance six Airbus aircraft delivered in May 2013 through June 2013. The equipment notes are secured by liens on aircraft.

Other Aircraft Financing Transactions

In the first quarter of 2013, US Airways issued $183 million of equipment notes in three series under its 2012-1 EETCs completed in May 2012: Series A equipment notes in the amount of $111 million bearing interest at 5.90% per annum, Series B equipment notes in the amount of $37 million bearing interest at 8% per annum and Series C equipment notes in the amount of $35 million bearing interest at 9.125% per annum. The equipment notes are secured by liens on aircraft.

In the third quarter of 2012, US Airways entered into an agreement to acquire five Embraer 190 aircraft from Republic Airline, Inc. (“Republic”). US Airways took delivery of three aircraft in 2012 and the remaining two aircraft in the first quarter of 2013. In connection with this agreement, US Airways assumed the outstanding debt on these aircraft upon delivery and Republic was released from its obligations associated with the principal due under the debt.

7.25% Convertible Senior Notes

In the second quarter of 2013, holders converted approximately $121 million principal amount of the 7.25% convertible senior notes, resulting in the issuance of approximately 26.5 million shares of the Company’s common stock. In connection with the conversion of these notes, the Company recorded approximately $23 million in special debt extinguishment charges which are included within other nonoperating expense, net on the accompanying condensed consolidated statement of operations.

Fair Value of Debt

The carrying value and estimated fair value of the Company’s long-term debt was (in millions):

 

     June 30, 2013      December 31, 2012  
     Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

Long-term debt, including current maturities

   $ 5,851       $ 6,109       $ 4,793       $ 5,021   

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.

 

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6. Income Taxes

At December 31, 2012, gross net operating losses (“NOLs”) available for use by the Company were approximately $1.5 billion for federal income tax purposes. To the extent profitable, all of the Company’s NOLs are expected to be available for use in 2013. The Company will use these NOLs to reduce its cash tax obligations when profitable going forward. The NOLs expire during the years 2025 through 2031. The Company also had approximately $69 million of tax-effected state NOLs at December 31, 2012.

At December 31, 2012, the Company was in a net deferred tax asset position for financial reporting purposes, which included the NOLs, and was subject to a full valuation allowance. The federal and state valuation allowances were $118 million and $42 million, respectively, which included $32 million allocated primarily to certain federal capital loss carryforwards.

For each of the three and six months ended June 30, 2013, the Company utilized NOLs to offset its taxable income. Historically, utilization of NOLs reduced the Company’s net deferred tax asset and in turn resulted in the release of its valuation allowance, which offset the Company’s tax provision dollar for dollar. The Company’s second quarter 2013 pre-tax income resulted in the utilization of NOLs and the Company’s remaining valuation allowance associated with federal income taxes. This release of valuation allowance offset only a portion of the Company’s tax provision. Accordingly, in each of the three and six months ended June 30, 2013, the Company recorded $65 million of non-cash federal income tax expense and $2 million of state income tax expense related to certain states where NOLs were limited or unavailable to be used. As of June 30, 2013, the Company had approximately $1.1 billion of NOLs remaining for federal income tax purposes.

For each of the three and six months ended June 30, 2012, NOL usage and release of valuation allowance offset the Company’s tax provision. As a result, the Company did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs were limited or unavailable to be used.

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 for each of the three and six months ended June 30, 2013 and 2012.

7. 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
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Aircraft fuel and related taxes

   $ 261       $ 282       $ 532       $ 558   

Salaries and related costs

     76         78         153         151   

Capacity purchases

     273         275         543         552   

Aircraft rent

     13         13         26         26   

Aircraft maintenance

     27         23         54         55   

Other rent and landing fees

     33         33         65         67   

Selling expenses

     45         47         85         87   

Special items, net

     —           3         2         3   

Depreciation and amortization

     8         8         16         15   

Other expenses

     47         41         102         91   
  

 

 

    

 

 

    

 

 

    

 

 

 

Express expenses

   $ 783       $ 803       $ 1,578       $ 1,605   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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8. Legal Proceedings

The Company is party to an arbitration proceeding relating to a grievance brought by its pilots union to the effect that, annually since May 2010, this work group was entitled to an increase in wages by operation of the applicable collective bargaining agreement. The arbitrator has issued a decision in the Company’s favor, and a subsequent meeting requested by the union has been held with the arbitrator to address that decision. 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 its claims against Sabre vigorously, but there can be no assurance of the outcome of this litigation.

On March 1, 2013, a putative class action lawsuit captioned Plumbers & Steamfitters Local Union No. 248 Pension Fund v. US Airways Group, Inc., et al., No. CV2013-051605 was filed in the Superior Court of the State of Arizona in Maricopa County. On July 3, 2013, a Second Amended Complaint was filed in the above-referenced action, captioned Dennis Palkon, et al. v. US Airways Group, Inc., et al., No. CV2013-051605. The complaint names as defendants US Airways Group and the members of its board of directors, and alleges that the directors breached their fiduciary duties in connection with the Merger by failing to maximize the value of US Airways Group and ignoring or failing to protect against conflicts of interest, and that US Airways Group aided and abetted those breaches of fiduciary duty. The complaint seeks a declaration that the Merger Agreement is unenforceable, an injunction against the Merger, or rescission in the event it has been consummated, imposition of a constructive trust, an award of fees and costs, including attorneys’ and experts’ fees, and other relief. On June 20, 2013, the plaintiff in the above-referenced action moved for a temporary restraining order seeking to temporarily enjoin the Company Annual Meeting of Stockholders. On June 25, 2013, the court in the above-referenced action entered an order denying the plaintiff’s motion for a temporary restraining order. The Company believes this lawsuit is without merit and intends to vigorously defend against the allegations.

On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US Airways Group, Inc., et al., No. 13-3041-SBA was filed in the United States District Court for the Northern District of California. The complaint names as defendants US Airways Group, Inc. and US Airways, Inc., and alleges that the effect of the Merger may be to substantially lessen competition, or tend to create a monopoly, in the transportation of airline passengers in the United States and certain submarkets and in violation of Section 7 of the Clayton Antitrust Act, 15 U.S.C. Section 18. The complaint seeks a declaration that the Merger Agreement violates Section 7 of the Clayton Antitrust Act, an injunction against the Merger, or divestiture, an award of fees and costs, including attorney’s fees, and other relief. The Company believes this lawsuit is without merit and intends to vigorously defend against the allegations.

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.

9. Subsequent Event

In July 2013, the Company repaid in full the Barclays prepaid miles at their face amount of $200 million plus accrued interest.

 

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Table of Contents

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

US Airways, Inc.

Condensed Statements of Operations

(In millions)

(Unaudited)

 

    

Three Months

Ended June 30,

   

Six Months

Ended June 30,

 
     2013     2012     2013     2012  

Operating revenues:

        

Mainline passenger

   $ 2,566      $ 2,446      $ 4,763      $ 4,562   

Express passenger

     882        916        1,640        1,680   

Cargo

     36        39        77        79   

Other

     421        394        842        778   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     3,905        3,795        7,322        7,099   

Operating expenses:

        

Aircraft fuel and related taxes

     872        906        1,733        1,766   

Salaries and related costs

     701        674        1,338        1,279   

Express expenses

     814        841        1,636        1,671   

Aircraft rent

     153        161        307        323   

Aircraft maintenance

     177        172        342        336   

Other rent and landing fees

     158        132        301        272   

Selling expenses

     124        126        237        237   

Special items, net

     24        9        63        11   

Depreciation and amortization

     72        64        141        127   

Other

     333        315        645        626   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,428        3,400        6,743        6,648   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     477        395        579        451   

Nonoperating income (expense):

        

Interest income

     1        —          1        1   

Interest expense, net

     (67     (60     (125     (118

Other, net

     (8     (13     17        59   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total nonoperating expense, net

     (74     (73     (107     (58
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     403        322        472        393   

Income tax provision

     78        —          78        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 325      $ 322      $ 394      $ 393   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed financial statements.

 

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Table of Contents

US Airways, Inc.

Condensed Statements of Comprehensive Income

(In millions)

(Unaudited)

 

    

Three Months

Ended June 30,

    

Six Months

Ended June 30,

 
     2013      2012      2013      2012  

Net income

   $ 325       $ 322       $ 394       $ 393   

Total other comprehensive income

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income

   $ 325       $ 322       $ 394       $ 393   
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to the condensed financial statements.

 

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Table of Contents

US Airways, Inc.

Condensed Balance Sheets

(In millions, except share and per share amounts)

(Unaudited)

 

     June 30,
2013
    December 31,
2012
 

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 3,614      $ 2,271   

Investments in marketable securities

     —          100   

Accounts receivable, net

     487        297   

Receivables from related parties, net

     197        —     

Materials and supplies, net

     291        247   

Prepaid expenses and other

     699        601   
  

 

 

   

 

 

 

Total current assets

     5,288        3,516   

Property and equipment

    

Flight equipment

     5,698        5,035   

Ground property and equipment

     1,014        968   

Less accumulated depreciation and amortization

     (1,772     (1,648
  

 

 

   

 

 

 
     4,940        4,355   

Equipment purchase deposits

     262        244   
  

 

 

   

 

 

 

Total property and equipment

     5,202        4,599   

Other assets

    

Other intangibles, net of accumulated amortization of $157 million and $146 million, respectively

     499        510   

Restricted cash

     350        336   

Other assets

     264        223   
  

 

 

   

 

 

 

Total other assets

     1,113        1,069   
  

 

 

   

 

 

 

Total assets

   $ 11,603      $ 9,184   
  

 

 

   

 

 

 

LIABILITIES & STOCKHOLDER’S EQUITY

    

Current liabilities

    

Current maturities of debt and capital leases

   $ 380      $ 401   

Accounts payable

     388        331   

Payables to related parties, net

     76        521   

Air traffic liability

     1,535        1,054   

Accrued compensation and vacation

     260        246   

Accrued taxes

     250        183   

Other accrued expenses

     994        995   
  

 

 

   

 

 

 

Total current liabilities

     3,883        3,731   

Noncurrent liabilities and deferred credits

    

Long-term debt and capital leases, net of current maturities

     4,734        2,952   

Deferred gains and credits, net

     246        247   

Postretirement benefits other than pensions

     171        170   

Employee benefit liabilities and other

     520        429   
  

 

 

   

 

 

 

Total noncurrent liabilities and deferred credits

     5,671        3,798   

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

     13        13   

Accumulated deficit

     (409     (803
  

 

 

   

 

 

 

Total stockholder’s equity

     2,049        1,655   
  

 

 

   

 

 

 

Total liabilities and stockholder’s equity

   $ 11,603      $ 9,184   
  

 

 

   

 

 

 

See accompanying notes to the condensed financial statements.

 

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Table of Contents

US Airways, Inc.

Condensed Statements of Cash Flows

(In millions)

(Unaudited)

 

    

Six Months

Ended June 30,

 
     2013     2012  

Net cash provided by operating activities

   $ 889      $ 834   

Cash flows from investing activities:

    

Purchases of property and equipment

     (705     (186

Sales of marketable securities

     100        —     

Increase in long-term restricted cash

     (14     (28
  

 

 

   

 

 

 

Net cash used in investing activities

     (619     (214

Cash flows from financing activities:

    

Repayments of debt and capital lease obligations

     (413     (247

Proceeds from issuance of debt

     2,128        178   

Deferred financing costs

     (47     (13

Decrease in payables to related parties, net

     (604     —     

Airport construction obligation

     9        32   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,073        (50
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     1,343        570   

Cash and cash equivalents at beginning of period

     2,271        1,940   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 3,614      $ 2,510   
  

 

 

   

 

 

 

Non-cash investing and financing activities:

    

Note payables issued for aircraft purchases

   $ 35      $ —     

Interest payable converted to debt

     7        11   

Supplemental information:

    

Interest paid, net of amounts capitalized

   $ 95      $ 86   

Income taxes paid

     1        —     

See accompanying notes to the condensed financial statements.

 

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Table of Contents

US Airways, Inc.

Notes to Condensed Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed 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, 2012. 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 financial statements for the interim periods presented. The preparation of financial statements in accordance 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 June 30, 2013 and December 31, 2012 related to other postretirement benefits.

2. Merger Agreement

On February 13, 2013, AMR Corporation, a Delaware corporation (“AMR”), US Airways Group, and AMR Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of AMR (“Merger Sub”), entered into an Agreement and Plan of Merger (as subsequently amended, the “Merger Agreement”), providing for a business combination of AMR and US Airways Group. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into US Airways Group (the “Merger”), with US Airways Group as the surviving corporation and as a wholly owned subsidiary of AMR. The Merger Agreement and the transactions contemplated thereby are to be effected pursuant to a plan of reorganization of AMR and certain of its direct and indirect domestic subsidiaries (the “Debtors”) in connection with their currently pending cases under Chapter 11 of Title 11 of U.S. Code, 11 U.S.C. Sections 101 et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). AMR’s plan of reorganization is subject to confirmation by the Bankruptcy Court in accordance with the requirements of the Bankruptcy Code. Consummation of the Merger is subject to confirmation of AMR’s plan of reorganization and other customary closing conditions, including certain regulatory approvals. The Merger was approved by US Airways Group’s shareholders on July 12, 2013.

3. Special Items, Net

Special items, net as shown on the condensed statements of operations included the following charges for the three and six months ended June 30, 2013 and 2012 (in millions):

 

     Three Months
Ended June  30,
     Six Months
Ended June 30,
 
     2013      2012      2013      2012  

Special items, net (a)

   $         24       $         9       $         63       $         11   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) The 2013 second quarter consisted primarily of merger related costs. The 2013 six month period consisted primarily of merger related costs and charges related to the ratification of the US Airways flight attendant collective bargaining agreement.

The 2012 second quarter and six month periods consisted primarily of merger related and auction rate securities arbitration costs.

In addition, other nonoperating, net in the second quarter of 2013 included $2 million primarily related to special debt extinguishment charges due to non-cash write offs of debt issuance costs. Other nonoperating, net in the six month period of 2013 included a $30 million special credit in connection with an award received in an arbitration related to previous investments in auction rate securities, offset in part by $2 million in special charges primarily related to debt extinguishment costs discussed above.

 

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Other nonoperating, net in the second quarter of 2012 included $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, net in the six month period of 2012 included a $73 million special gain related to the slot transaction with Delta Air Lines, Inc., offset in part by $3 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs discussed above.

4. Debt

The following table details US Airways’ debt (in millions). Variable interest rates listed are the rates as of June 30, 2013.

 

     June 30,
2013
    December 31,
2012
 

Secured

    

2013 Citicorp credit facility tranche B-1, variable interest rate of 4.25%, installments due through 2019

   $ 1,000      $ —     

2013 Citicorp credit facility tranche B-2, variable interest rate of 3.50%, installments due through 2016

     600        —     

Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.59% to 8.48%, maturing from 2013 to 2022

     1,377        1,678   

Aircraft enhanced equipment trust certificates (“EETCs”), fixed interest rates ranging from 4.625% to 11%, maturing from 2014 to 2025

     2,049        1,598   

Other secured obligations, fixed interest rate of 8%, maturing from 2018 to 2021

     26        27   
  

 

 

   

 

 

 
     5,052        3,303   

Unsecured

    

Airbus advance, repayments through 2018

     90        83   

Industrial development bonds, fixed interest rate of 6.30%, interest only payments until due in 2023

     29        29   
  

 

 

   

 

 

 
     119        112   
  

 

 

   

 

 

 

Total long-term debt and capital lease obligations

     5,171        3,415   

Less: Total unamortized discount on debt

     (57     (62

Current maturities

     (380     (401
  

 

 

   

 

 

 

Long-term debt and capital lease obligations, net of current maturities

   $ 4,734      $ 2,952   
  

 

 

   

 

 

 

US Airways was in compliance with the covenants in its debt agreements at June 30, 2013.

2013 Citicorp Credit Facility

On May 23, 2013, US Airways entered into a term loan credit facility (the “2013 Citicorp credit facility”) with Citicorp North America, Inc., as administrative agent, and a syndicate of lenders pursuant to which US Airways borrowed an aggregate principal amount of $1.6 billion. Approximately $1.3 billion of the net proceeds were applied to repay US Airways Group’s former Citicorp North America loan and certain other secured debt of US Airways with remaining net proceeds to be used for general corporate purposes. As a result of the repayment of this loan, US Airways recorded approximately $2 million in special debt extinguishment charges which are included within other nonoperating expense, net on the accompanying condensed statement of operations. US Airways Group and certain other subsidiaries of US Airways Group are guarantors of the 2013 Citicorp credit facility.

The 2013 Citicorp credit facility consists of $1.0 billion of tranche B-1 term loans (“Tranche B-1”) and $600 million of tranche B-2 term loans (“Tranche B-2”). The 2013 Citicorp credit facility is prepayable at any time with a premium of 1% applicable to certain prepayments made prior to November 23, 2013.

The 2013 Citicorp credit facility bears interest at an index rate plus an applicable index margin or, at US Airways’ option, LIBOR (subject to a floor) plus an applicable LIBOR margin. The applicable index margin for Tranche B-1 and Tranche B-2 is 2.25% and 1.50%, respectively. The applicable LIBOR margin for Tranche B-1 and Tranche B-2 is 3.25% and 2.50%, respectively. The applicable index and LIBOR margins are subject to a step down of 0.25% upon the consummation of the Merger. As of June 30, 2013, the interest rate was 4.25% based on a 3.25% LIBOR margin for Tranche B-1 and 3.50% based on a 2.50% LIBOR margin for Tranche B-2.

Tranche B-1 and Tranche B-2 mature on May 23, 2019 and November 23, 2016, respectively, and each is repayable in annual 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 loans with any unpaid balance due on the maturity date of the respective tranche.

 

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The obligations of US Airways under the 2013 Citicorp credit facility are secured by liens on certain route authorities to operate between certain specified cities, certain take-off and landing rights at certain airports and certain other assets of US Airways.

Upon consummation of the Merger, AMR (or its successor) and American Airlines, Inc. will be required to join the 2013 Citicorp credit facility as obligors, at which time certain dollar-limited exceptions to restrictive covenants and certain cross-default thresholds will automatically be increased.

The 2013 Citicorp credit facility includes covenants that, among other things, (a) require US Airways to maintain (i) unrestricted liquidity of not less than $850 million prior to the Merger and AMR (or its successor) to maintain unrestricted liquidity of not less than $2 billion following the Merger, in both cases with not less than $750 million held in accounts subject to control agreements, and (ii) a minimum ratio of appraised value of collateral to the outstanding loans under the facility of 1.5 to 1.0 and (b) restrict the ability of US Airways Group and its subsidiaries party to the 2013 Citicorp credit facility (and after the Merger AMR, or its successor, and its subsidiaries party to the 2013 Citicorp credit facility) to make certain investments and restricted payments. The 2013 Citicorp credit facility contains events of default customary for similar financings, including a cross-acceleration provision to certain other material indebtedness of US Airways and the guarantors.

2013-1 EETCs

In April 2013, US Airways created two pass-through trusts which issued approximately $820 million aggregate face amount of Series 2013-1 Class A and Class B EETCs in connection with the financing of 18 Airbus aircraft scheduled to be delivered from September 2013 to June 2014. The 2013-1 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 balance sheet because the proceeds held by the depository are not US Airways’ assets. The escrowed proceeds will be used to purchase Series A and Series B equipment notes as the new aircraft are delivered. The Series A equipment notes will bear interest at 3.95% per annum with a final expected distribution date of November 2025. The Series B equipment notes will bear interest at 5.375% per annum with a final expected distribution date of November 2021. The equipment notes will be obligations of US Airways and will be unconditionally guaranteed by US Airways Group.

2012-2 EETCs

In June 2013, US Airways created a new pass-through trust and issued a new class of its US Airways Pass Through Certificates, Series 2012-2: Class C in the aggregate face amount of $100 million. US Airways previously issued two classes of US Airways Pass Through Certificates, Series 2012-2: Class A and Class B, pursuant to separate trusts established for each of the Class A certificates and Class B certificates at the time of the issuance thereof in December 2012.

In the second quarter of 2013, US Airways issued $345 million of equipment notes in three series under its 2012-2 EETCs: Series A equipment notes in the amount of $223 million bearing interest at 4.625% per annum, Series B equipment notes in the amount of $69 million bearing interest at 6.75% per annum and Series C equipment notes in the amount of $53 million bearing interest at 5.45% per annum. Interest on the equipment notes is payable semiannually in June and December of each year and began in June 2013 for Series A and Series B, and will begin in December 2013 for Series C. Principal payments on the Series A and Series B equipment notes are scheduled to begin in December 2013. The final payments on the Series A equipment notes, Series B equipment notes and Series C equipment notes will be due in June 2025, June 2021 and June 2018, respectively. US Airways’ payment obligations under the equipment notes are fully and unconditionally guaranteed by US Airways Group. The only principal payments due on the Series C equipment notes are the principal payments that will be due on the final payment date. The net proceeds from the issuance of these equipment notes were used to finance six Airbus aircraft delivered in May 2013 through June 2013. The equipment notes are secured by liens on aircraft.

 

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Other Aircraft Financing Transactions

In the first quarter of 2013, US Airways issued $183 million of equipment notes in three series under its 2012-1 EETCs completed in May 2012: Series A equipment notes in the amount of $111 million bearing interest at 5.90% per annum, Series B equipment notes in the amount of $37 million bearing interest at 8% per annum and Series C equipment notes in the amount of $35 million bearing interest at 9.125% per annum. The equipment notes are secured by liens on aircraft.

In the third quarter of 2012, US Airways entered into an agreement to acquire five Embraer 190 aircraft from Republic Airline, Inc. (“Republic”). US Airways took delivery of three aircraft in 2012 and the remaining two aircraft in the first quarter of 2013. In connection with this agreement, US Airways assumed the outstanding debt on these aircraft upon delivery and Republic was released from its obligations associated with the principal due under the debt.

Fair Value of Debt

The carrying value and estimated fair value of US Airways’ long-term debt was (in millions):

 

     June 30, 2013      December 31, 2012  
     Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

Long-term debt, including current maturities

   $ 5,114       $ 5,198       $ 3,353       $ 3,304   

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.

5. Related Party Transactions

The following represents the net receivables from (payables to) related parties (in millions):

 

     June 30,
2013
    December 31,
2012
 

US Airways Group

   $ 197      $ (453

US Airways Group’s wholly owned subsidiaries

     (76     (68
  

 

 

   

 

 

 
   $ 121      $ (521
  

 

 

   

 

 

 

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 decrease in the intercompany payable to US Airways Group primarily resulted from the repayment of US Airways Group’s former Citicorp North America term loan, offset in part by proceeds from the issuance of US Airways Group’s 6.125% Senior Notes.

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.

 

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6. Income Taxes

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

At December 31, 2012, gross net operating losses (“NOLs”) available for use by US Airways were approximately $1.4 billion for federal income tax purposes. To the extent profitable, all of US Airways’ NOLs are expected to be available for use in 2013. US Airways will use these NOLs to reduce its cash tax obligations when profitable going forward. The NOLs expire during the years 2025 through 2031. US Airways also had approximately $67 million of tax-effected state NOLs at December 31, 2012.

At December 31, 2012, US Airways was in a net deferred tax asset position for financial reporting purposes, which included the NOLs, and was subject to a full valuation allowance. The federal and state valuation allowances were $126 million and $42 million, respectively, which included $32 million allocated primarily to certain federal capital loss carryforwards.

For each of the three and six months ended June 30, 2013, US Airways utilized NOLs to offset its taxable income. Historically, utilization of NOLs reduced US Airways’ net deferred tax asset and in turn resulted in the release of its valuation allowance, which offset US Airways’ tax provision dollar for dollar. US Airways’ second quarter 2013 pre-tax income resulted in the utilization of NOLs and US Airways’ remaining valuation allowance associated with federal income taxes. This release of valuation allowance offset only a portion of US Airways’ tax provision. Accordingly, in each of the three and six months ended June 30, 2013, US Airways recorded $77 million of non-cash federal income tax expense and $1 million of state income tax expense related to certain states where NOLs were limited or unavailable to be used.

For each of the three and six months ended June 30, 2012, NOL usage and release of valuation allowance offset US Airways’ tax provision. As a result, US Airways did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs were limited or unavailable to be used.

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 for each of the three and six months ended June 30, 2013 and 2012.

7. Express Expenses

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

 

     Three Months
Ended June 30,
     Six Months
Ended June 30,
 
     2013      2012      2013      2012  

Aircraft fuel and related taxes

   $ 261       $ 282       $ 532       $ 559   

Salaries and related costs

     9         6         17         12   

Capacity purchases

     449         456         899         911   

Other rent and landing fees

     28         28         55         56   

Selling expenses

     45         47         85         87   

Depreciation and amortization

     2         2         5         4   

Other expenses

     20         20         43         42   
  

 

 

    

 

 

    

 

 

    

 

 

 

Express expenses

   $ 814       $ 841       $ 1,636       $ 1,671   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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8. Legal Proceedings

US Airways is party to an arbitration proceeding relating to a grievance brought by its pilots union to the effect that, annually since May 2010, this work group was entitled to an increase in wages by operation of the applicable collective bargaining agreement. The arbitrator has issued a decision in US Airways’ favor, and a subsequent meeting requested by the union has been held with the arbitrator to address that decision. 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 its claims against Sabre vigorously, but there can be no assurance of the outcome of this litigation.

On March 1, 2013, a putative class action lawsuit captioned Plumbers & Steamfitters Local Union No. 248 Pension Fund v. US Airways Group, Inc., et al., No. CV2013-051605 was filed in the Superior Court of the State of Arizona in Maricopa County. On July 3, 2013, a Second Amended Complaint was filed in the above-referenced action, captioned Dennis Palkon, et al. v. US Airways Group, Inc., et al., No. CV2013-051605. The complaint names as defendants US Airways Group and the members of its board of directors, and alleges that the directors breached their fiduciary duties in connection with the Merger by failing to maximize the value of US Airways Group and ignoring or failing to protect against conflicts of interest, and that US Airways Group aided and abetted those breaches of fiduciary duty. The complaint seeks a declaration that the Merger Agreement is unenforceable, an injunction against the Merger, or rescission in the event it has been consummated, imposition of a constructive trust, an award of fees and costs, including attorneys’ and experts’ fees, and other relief. On June 20, 2013, the plaintiff in the above-referenced action moved for a temporary restraining order seeking to temporarily enjoin the Company Annual Meeting of Stockholders. On June 25, 2013, the court in the above-referenced action entered an order denying the plaintiff’s motion for a temporary restraining order. US Airways Group believes this lawsuit is without merit and intends to vigorously defend against the allegations.

On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US Airways Group, Inc., et al., No. 13-3041-SBA was filed in the United States District Court for the Northern District of California. The complaint names as defendants US Airways Group, Inc. and US Airways, Inc., and alleges that the effect of the Merger may be to substantially lessen competition, or tend to create a monopoly, in the transportation of airline passengers in the United States and certain submarkets and in violation of Section 7 of the Clayton Antitrust Act, 15 U.S.C. Section 18. The complaint seeks a declaration that the Merger Agreement violates Section 7 of the Clayton Antitrust Act, an injunction against the Merger, or divestiture, an award of fees and costs, including attorney’s fees, and other relief. US Airways believes this lawsuit is without merit and intends to vigorously defend against the allegations.

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 financial position or results of operations.

 

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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’s and US Airways’ Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 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 2012 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, Phoenix and Washington, D.C. at Ronald Reagan Washington National Airport. We offer scheduled passenger service on more than 3,100 flights daily to 198 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 six months ended June 30, 2013, we had approximately 28 million passengers boarding our mainline flights. As of June 30, 2013, we operated 346 mainline jets and were supported by our regional airline subsidiaries and affiliates operating as US Airways Express under capacity purchase agreements, which operated 238 regional jets and 43 turboprops. Our prorate carriers operated four regional jets at June 30, 2013.

Merger Agreement with AMR Corporation; Tax Benefit Preservation Plan

On February 13, 2013, AMR, US Airways Group, and AMR Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of AMR (“Merger Sub”), entered into an Agreement and Plan of Merger (as subsequently amended, the “Merger Agreement”), providing for a business combination of AMR and US Airways Group. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into US Airways Group (the “Merger”), with US Airways Group as the surviving corporation and as a wholly owned subsidiary of AMR. The Merger Agreement and the transactions contemplated thereby are to be effected pursuant to a plan of reorganization of AMR and certain of its direct and indirect domestic subsidiaries (the “Debtors”) in connection with their currently pending cases under Chapter 11 of Title 11 of U.S. Code, 11 U.S.C. Sections 101 et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). AMR’s plan of reorganization is subject to confirmation by the Bankruptcy Court in accordance with the requirements of the Bankruptcy Code. Consummation of the Merger is subject to confirmation of AMR’s plan of reorganization and other customary closing conditions, including certain regulatory approvals. The Merger was approved by US Airways Group’s shareholders on July 12, 2013. The foregoing description of the Merger Agreement is not a complete description of all of the parties’ rights and obligations under the Merger Agreement and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 to the 2012 Form 10-K. For additional information about the Merger and the Merger Agreement, see US Airways Group’s Definitive Proxy Statement on Schedule 14A, which was filed with the SEC on June 10, 2013.

In conjunction with execution of the Merger Agreement, US Airways Group also adopted a tax benefit preservation plan designed to help preserve the value of the net operating losses and other deferred tax benefits of US Airways Group and the combined enterprise resulting from the Merger with AMR. As part of the plan, the US Airways Group’s board of directors declared a dividend of one common stock purchase right, which are referred to as “rights,” for each outstanding share of US Airways Group common stock. The rights will be exercisable if a person or group, without the approval of the US Airways Group board or other permitted exception, acquires beneficial ownership of 4.9% or more of US Airways Group’s outstanding common stock. The rights also will be exercisable if a person or group that already beneficially owns 4.9% or more of the common stock of US Airways Group, without board approval or other permitted exception, acquires additional shares (other than as a result of a dividend or a stock split). US Airways Group stockholders with ownership positions near or above the 4.9% threshold specified in the tax benefit preservation plan are urged to review its terms carefully. The foregoing description of the tax benefit preservation plan is not a complete description of all of the parties’ rights and obligations under the plan and is qualified in its entirety by reference to the Tax Benefit Preservation Plan, which is filed as Exhibit 4.10 to the 2012 Form 10-K.

 

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The U.S. Airline Industry

During the second quarter of 2013, the U.S. airline industry experienced strong load factors driven by continued capacity discipline and consumer demand for air travel. Yields decreased as compared to the second quarter of 2012 due to more difficult year-over-year comparisons. Reduced demand for corporate business travel as well as the U.S. government sequester, which drove a decline in government business travel, also contributed to the lower yields.

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.

 

2013 vs. 2012

   April     May     June  

Passenger Revenues

     (1.9 )%      0.4     3.0

Yields

     (1.8 )%      (1.6 )%      1.0

2012 vs. 2011

   April     May     June  

Passenger Revenues

     7.1     4.5     5.5

Yields

     5.9     4.4     4.7

Jet fuel prices continue to follow the price of Brent crude oil more closely than the price of West Texas Intermediate crude oil. On average, fuel costs were down slightly in the second quarter of 2013. The average daily spot price for Brent crude oil during the second quarter of 2013 was $103 per barrel as compared to an average daily spot price of $108 per barrel during the second quarter of 2012. On a daily basis, Brent crude oil prices fluctuated between a high of $110 per barrel to a low of $97 per barrel in April and closed the quarter at $102 per barrel on June 28, 2013.

While the U.S. airline industry experienced moderating fuel prices in the second quarter of 2013 as described above, fuel prices remain volatile and subject to uncertainty, principally unrest in the Middle East. Since June 28, 2013, the daily spot price for Brent Crude oil has increased and averaged $107 per barrel through July 22, 2013. 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

In the second quarter of 2013, we realized record operating income of $481 million and income before income taxes of $354 million, driven by our largest reported operating revenues in the Company’s history. Net income for the quarter was $287 million which included a $65 million non-cash federal income tax provision. This compares to operating income of $404 million and income before income taxes and net income, each in the amount of $306 million, in the second quarter of 2012. There was no tax provision in the second quarter of 2012.

Our second quarter 2013 results also included net special charges of $55 million compared to $15 million of net special charges in the second quarter of 2012. Special charges in the second quarter of 2013 consisted primarily of merger related costs and non-cash debt extinguishment charges. Excluding the effects of net special charges, we recognized record income before income taxes of $409 million and record net income of $324 million. This compares to income before income taxes and net income, each in the amount of $321 million, in the second quarter of 2012. See “US Airways Group’s Results of Operations” included in Part I, Item 2 of this report for more information on net special items.

Capacity

Total system capacity for the second quarter of 2013 increased 3.4% as compared to the second quarter of 2012 primarily due to larger gauge aircraft replacing smaller legacy 737 aircraft and more international long haul flying. For the full year, total system capacity is expected to be up approximately 3.5% due to larger gauge aircraft as well as more international long haul flying. Domestic capacity is expected to be up approximately 3.8% and international is expected to be up approximately 3.2% versus 2012.

 

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Revenue

In the second quarter of 2013, we reported record operating revenues of $3.87 billion. Mainline and express passenger revenues increased $86 million, or 2.6%, as compared to the 2012 period. Our increase in capacity coupled with record load factors more than offset decreases in yield. Revenue passenger miles increased 5.6%, as total capacity increased 3.4% as compared to 2012, resulting in a 1.7 point increase in load factor to a record 85.1%. Our mainline and express passenger revenue per available seat mile (“PRASM”) was 14.47 cents in the second quarter of 2013, a 0.9% decrease, as compared to 14.59 cents in the 2012 period. Total revenue per available seat mile (“RASM”) was 16.22 cents in the second quarter of 2013, a 0.5% decrease, as compared to 16.30 cents in the 2012 period. Total revenues include our ancillary revenue initiatives, which generated $166 million in revenues for the second quarter of 2013, an increase of $11 million over the 2012 period principally related to an increase in the volume of checked bag fees as well as our Choice Seats and PreferredAccess programs.

Fuel

Mainline and express fuel expense was $1.13 billion for the second quarter of 2013, which was $55 million, or 4.6%, lower as compared to the second quarter of 2012. A 7.8% decrease in the average price per gallon to $2.93 for the second quarter of 2013 from an average price per gallon of $3.18 for the second quarter of 2012 was offset in part by a 3.5% increase in consumption driven by a 3.4% increase in system capacity as discussed above. We have not entered into any transactions to hedge our fuel consumption.

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 0.04 cents, or 0.4%, from 8.25 cents in the second quarter of 2012 to 8.21 cents in the second quarter of 2013.

The following table details our mainline CASM for the three months ended June 30, 2013 and 2012:

 

     2013     2012     Percent
Increase
(Decrease)
 
     (In cents)        

Mainline CASM excluding special items, fuel and profit sharing:

      

Total mainline CASM

     12.88        13.14        (2.0

Special items, net

     (0.12     (0.05     nm   

Aircraft fuel and related taxes

     (4.32     (4.67     (7.7

Profit sharing

     (0.23     (0.17     37.4   
  

 

 

   

 

 

   

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

     8.21        8.25        (0.4
  

 

 

   

 

 

   

 

 

(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.

 

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Customer Service

We are committed to consistently delivering safe, reliable and convenient service to our customers in every aspect of our operation. Our second quarter 2013 operating performance was negatively impacted by more severe weather conditions as compared to the second quarter of 2012. Additionally, the month of April 2013 was impacted by operational challenges created by the sequester-related furloughs of Federal Aviation Administration employees.

We reported the following operating statistics to the Department of Transportation (“DOT”) for mainline operations for the second quarter of 2013 and 2012.

 

     2013      2012      Better (Worse) 2013-2012  
     April      May      June (e)      April      May      June      April     May     June  

On-time performance (a)

     81.0         82.0         73.0         90.6         85.5         86.2         (9.6 ) pts      (3.5 ) pts      (13.2 ) pts 

Completion factor (b)

     99.2         99.4         98.6         99.7         99.5         99.1         (0.5 ) pts      (0.1 ) pts      (0.5 ) pts 

Mishandled baggage (c)

     2.14         2.17         3.09         1.83         2.02         2.23         (16.9 )%      (7.4 )%      (38.6 )% 

Customer complaints (d)

     1.65         1.25         1.75         1.78         2.28         2.50         7.3     45.2     30.0

 

(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) June 2013 operating statistics are preliminary as the DOT has not issued its June 2013 Air Travel Consumer Report as of the date of this filing.

Liquidity Position

As of June 30, 2013, our total cash, cash equivalents, investments in marketable securities and restricted cash was $3.97 billion, of which $350 million was restricted.

 

     June 30,
2013
     December 31,
2012
 
     (In millions)  

Cash, cash equivalents and investments in marketable securities

   $ 3,622       $ 2,376   

Long-term restricted cash

     350         336   
  

 

 

    

 

 

 

Total cash, cash equivalents, investments in marketable securities and restricted cash

   $ 3,972       $ 2,712   
  

 

 

    

 

 

 

The improvement in our liquidity in the first six months of 2013 was due in part to our record profitability thus far in 2013. We also completed financing transactions in the second quarter which generated approximately $750 million of net proceeds. These transactions included the issuance of $500 million aggregate principal 6.125% Senior Notes and the issuance of a new $1.6 billion term loan. Approximately $1.3 billion of the net proceeds from the new term loan were applied to repay our former Citicorp North America term loan and certain other higher cost secured debt.

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.

 

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US Airways Group’s Results of Operations

In the three months ended June 30, 2013, we realized record operating income of $481 million and income before income taxes of $354 million, driven by our largest reported operating revenues in the Company’s history. Net income for the quarter was $287 million which included a $65 million non-cash federal income tax provision. This compares to operating income of $404 million and income before income taxes and net income, each in the amount of $306 million, in the second quarter of 2012. There was no tax provision in the second quarter of 2012.

Our second quarter 2013 results included net special charges of $55 million, while the second quarter of 2012 included $15 million of net special charges. Excluding the effects of net special charges, we recognized record income before income taxes of $409 million and record net income of $324 million. This compares to income before income taxes and net income, each in the amount of $321 million, in the second quarter of 2012.

In the six months ended June 30, 2013, we realized operating income of $584 million and income before income taxes of $398 million. Net income in the 2013 six month period was $331 million which included a $65 million non-cash federal income tax provision. This compares to operating income of $463 million and income before income taxes and net income, each in the amount of $355 million, in the 2012 period. There was no tax provision in the 2012 six month period.

Our 2013 six month period results included net special charges of $66 million, while the 2012 six month period included $56 million of net special credits. Excluding the effects of net special items, we recognized income before income taxes of $464 million and net income of $379 million. This compares to income before income taxes and net income, each in the amount of $299 million, in 2012 six month period.

The following table details our income before income taxes and net income excluding special items (in millions):

 

     Three Months Ended
June  30,
     Six Months Ended
June  30,
 
     2013     2012      2013     2012  

Income before income taxes

   $ 354      $ 306       $ 398      $ 355   

Special items:

         

Mainline operating special items, net (a)

     24        9         63        11   

Express operating special items, net

     —          3         2        3   

Nonoperating special items, net (b)

     31        3         1        (70
  

 

 

   

 

 

    

 

 

   

 

 

 

Total special items

     55        15         66        (56
  

 

 

   

 

 

    

 

 

   

 

 

 

Income before income taxes excluding special items

   $ 409      $ 321       $ 464      $ 299   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income

   $ 287      $ 306       $ 331      $ 355   

Total special items

     55        15         66        (56

Net tax effect of special items

     (18     —           (18     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income excluding special items

   $ 324      $ 321       $ 379      $ 299   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) The 2013 second quarter consisted primarily of merger related costs. The 2013 six month period consisted primarily of merger related costs and charges related to the ratification of the US Airways flight attendant collective bargaining agreement.

The 2012 second quarter and six month periods consisted primarily of merger related and auction rate securities arbitration costs.

 

(b) The 2013 second quarter consisted of $31 million primarily related to debt extinguishment charges due to non-cash write offs of debt discount and debt issuance costs in connection with conversions of our 7.25% convertible senior notes and repayment of the former Citicorp North America term loan. The 2013 six month period consisted of $31 million in charges primarily related to debt extinguishment costs discussed above, offset in part by a $30 million credit in connection with an award received in an arbitration related to previous investments in auction rate securities.

The 2012 second quarter consisted of debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft. The 2012 six month period consisted of a $73 million gain related to the slot transaction with Delta Air Lines, Inc. (“Delta”), offset in part by the $3 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs discussed above.

 

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At December 31, 2012, gross net operating losses (“NOLs”) available for use by us were approximately $1.5 billion for federal income tax purposes. To the extent profitable, all of our NOLs are expected to be available for use in 2013. We will use these NOLs to reduce our cash tax obligations when profitable going forward. The NOLs expire during the years 2025 through 2031.

At December 31, 2012, we were in a net deferred tax asset position for financial reporting purposes, which included the NOLs, and was subject to a full valuation allowance. The federal and state valuation allowances were $118 million and $42 million, respectively, which included $32 million allocated primarily to certain federal capital loss carryforwards.

For each of the three and six months ended June 30, 2013, we utilized NOLs to offset our taxable income. Historically, utilization of NOLs reduced our net deferred tax asset and in turn resulted in the release of our valuation allowance, which offset our tax provision dollar for dollar. Our second quarter 2013 pre-tax income resulted in the utilization of NOLs and our remaining valuation allowance associated with federal income taxes. This release of valuation allowance offset only a portion of our tax provision. Accordingly, in each of the three and six months ended June 30, 2013, we recorded $65 million of non-cash federal income tax expense and $2 million of state income tax expense related to certain states where NOLs were limited or unavailable to be used. As of June 30, 2013, we had approximately $1.1 billion of NOLs remaining for federal income tax purposes.

For each of the three and six months ended June 30, 2012, NOL usage and release of valuation allowance offset our tax provision. As a result, we did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs were limited or unavailable to be used.

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 for each of the three and six months ended June 30, 2013 and 2012.

 

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

 

    Three Months Ended
June  30,
    Increase     Six Months Ended
June  30,
    Increase  
    2013     2012     (Decrease)     2013     2012     (Decrease)  

Mainline

           

Revenue passenger miles (millions) (a)

    17,374        16,403        5.9     32,260        30,704        5.1

Available seat miles (millions) (b)

    20,192        19,387        4.2     38,154        37,105        2.8

Passenger load factor (percent) (c)

    86.0        84.6        1.4  pts      84.6        82.7        1.9  pts 

Yield (cents) (d)

    14.77        14.91        (0.9 )%      14.76        14.86        (0.6 )% 

Passenger revenue per available seat mile (cents) (e)

    12.71        12.62        0.7     12.48        12.30        1.5

Operating cost per available seat mile (cents) (f)

    12.88        13.14        (2.0 )%      13.32        13.35        (0.2 )% 

Passenger enplanements (thousands) (g)

    14,728        13,902        5.9     28,238        27,188        3.9

Departures (thousands)

    117        115        2.2     229        229        (0.1 )% 

Aircraft at end of period

    346        339        2.1     346        339        2.1

Block hours (thousands) (h)

    324        313        3.6     624        612        2.0

Average stage length (miles) (i)

    1,029        1,025        0.4     1,007        990        1.7

Average passenger journey (miles) (j)

    1,723        1,738        (0.8 )%      1,674        1,674        —  

Fuel consumption (gallons in millions)

    299        286        4.4     564        550        2.6

Average aircraft fuel price including related taxes (dollars per gallon)

    2.92        3.17        (7.9 )%      3.07        3.21        (4.4 )% 

Full-time equivalent employees at end of period

    32,210        31,467        2.4     32,210        31,467        2.4

Express (k)

           

Revenue passenger miles (millions) (a)

    2,902        2,803        3.5     5,506        5,262        4.6

Available seat miles (millions) (b)

    3,637        3,649        (0.3 )%      7,093        7,078        0.2

Passenger load factor (percent) (c)

    79.8        76.8        3.0  pts      77.6        74.3        3.3  pts 

Yield (cents) (d)

    30.39        32.68        (7.0 )%      29.78        31.92        (6.7 )% 

Passenger revenue per available seat mile (cents) (e)

    24.25        25.10        (3.4 )%      23.12        23.73        (2.6 )% 

Operating cost per available seat mile (cents) (f)

    21.52        22.01        (2.2 )%      22.24        22.68        (1.9 )% 

Passenger enplanements (thousands) (g)

    7,383        7,304        1.1     14,033        13,840        1.4

Aircraft at end of period

    281        288        (2.4 )%      281        288        (2.4 )% 

Fuel consumption (gallons in millions)

    88        88        0.4     172        172        0.1

Average aircraft fuel price including related taxes (dollars per gallon)

    2.96        3.20        (7.7 )%      3.09        3.25        (4.8 )% 

Total Mainline and Express

           

Revenue passenger miles (millions) (a)

    20,276        19,206        5.6     37,766        35,966        5.0

Available seat miles (millions) (b)

    23,829        23,036        3.4     45,247        44,183        2.4

Passenger load factor (percent) (c)

    85.1        83.4        1.7  pts      83.5        81.4        2.1  pts 

Yield (cents) (d)

    17.00        17.50        (2.8 )%      16.95        17.36        (2.3 )% 

Passenger revenue per available seat mile (cents) (e)

    14.47        14.59        (0.9 )%      14.15        14.13        0.2

Total revenue per available seat mile (cents) (l)

    16.22        16.30        (0.5 )%      16.01        15.89        0.8

Passenger enplanements (thousands) (g)

    22,111        21,206        4.3     42,271        41,028        3.0

Aircraft at end of period

    627        627        —       627        627        —  

Fuel consumption (gallons in millions)

    387        374        3.5     736        722        2.0

Average aircraft fuel price including related taxes (dollars per gallon)

    2.93        3.18        (7.8 )%      3.07        3.22        (4.5 )% 

 

(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.

 

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(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.

 

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Table of Contents

Three Months Ended June 30, 2013

Compared with the

Three Months Ended June 30, 2012

Operating Revenues:

 

     2013      2012      Percent
Increase
(Decrease)
 
     (In millions)         

Operating revenues:

        

Mainline passenger

   $ 2,566       $ 2,446         4.9   

Express passenger

     882         916         (3.7

Cargo

     36         39         (7.3

Other

     381         353         7.6   
  

 

 

    

 

 

    

Total operating revenues

   $ 3,865       $ 3,754         2.9   
  

 

 

    

 

 

    

Total operating revenues in the second quarter of 2013 were $3.87 billion as compared to $3.75 billion in the 2012 period, an increase of $111 million, or 2.9%. Our increase in capacity coupled with record passenger load factors more than offset decreases in yield, and we reported our highest quarterly operating revenues in our Company’s history. Significant changes in the components of operating revenues are as follows:

 

  Mainline passenger revenues were $2.57 billion in the second quarter of 2013 as compared to $2.45 billion in the 2012 period. Mainline RPMs increased 5.9% as mainline capacity, as measured by ASMs, increased 4.2%, resulting in a 1.4 point increase in load factor to a record 86.0%. Mainline passenger yield decreased 0.9% to 14.77 cents in the second quarter of 2013 from 14.91 cents in the 2012 period. Mainline PRASM increased 0.7% to 12.71 cents in the second quarter of 2013 from 12.62 cents in the 2012 period.

 

  Express passenger revenues were $882 million in the second quarter of 2013 as compared to $916 million in the 2012 period. Express RPMs increased 3.5% as express capacity, as measured by ASMs, decreased 0.3%, resulting in a 3.0 point increase in load factor to a record 79.8%. Express passenger yield decreased 7.0% to 30.39 cents in the second quarter of 2013 from 32.68 cents in the 2012 period. Express PRASM decreased 3.4% to 24.25 cents in the second quarter of 2013 from 25.10 cents in the 2012 period.

 

  Other revenues were $381 million in the second quarter of 2013, an increase of $28 million, or 7.6%, from the 2012 period. The increase in other revenues was driven primarily by an increase in the volume of passenger ticketing change fees and checked bag fees as well as the PreferredAccess program.

 

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Table of Contents

Operating Expenses:

 

     2013      2012      Percent
Increase
(Decrease)
 
     (In millions)         

Operating expenses:

        

Aircraft fuel and related taxes

   $ 872       $ 906         (3.8

Salaries and related costs

     701         674         4.2   

Aircraft rent

     153         161         (5.2

Aircraft maintenance

     177         172         2.5   

Other rent and landing fees

     158         132         19.8   

Selling expenses

     124         126         (0.9

Special items, net

     24         9         nm   

Depreciation and amortization

     70         61         13.4   

Other

     322         306         5.4   
  

 

 

    

 

 

    

Total mainline operating expenses

     2,601         2,547         2.1   

Express expenses:

        

Fuel

     261         282         (7.3

Other

     522         521         0.1   
  

 

 

    

 

 

    

Total express expenses

     783         803         (2.5
  

 

 

    

 

 

    

Total operating expenses

   $ 3,384       $ 3,350         1.0   
  

 

 

    

 

 

    

Total operating expenses were $3.38 billion in the second quarter of 2013, an increase of $34 million, or 1.0%, compared to the 2012 period.

Mainline Operating Expenses per ASM:

Our mainline CASM decreased 0.26 cents, or 2.0%, from 13.14 cents in the second quarter of 2012 to 12.88 cents in the second quarter of 2013. Excluding special items, fuel and profit sharing our mainline CASM decreased 0.04 cents, or 0.4%, from 8.25 cents in the second quarter of 2012 to 8.21 cents in the second quarter of 2013, while mainline capacity increased 4.2%.

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 June 30, 2013 and 2012:

 

     2013     2012     Percent
Increase
(Decrease)
 
     (In cents)        

Mainline CASM:

      

Aircraft fuel and related taxes

     4.32        4.67        (7.7

Salaries and related costs

     3.47        3.47        —     

Aircraft rent

     0.76        0.83        (9.0

Aircraft maintenance

     0.88        0.89        (1.6

Other rent and landing fees

     0.78        0.68        15.0   

Selling expenses

     0.62        0.65        (4.8

Special items, net

     0.12        0.05        nm   

Depreciation and amortization

     0.34        0.32        8.9   

Other

     1.60        1.58        1.2   
  

 

 

   

 

 

   

Total mainline CASM

     12.88        13.14        (2.0

Special items, net

     (0.12     (0.05  

Aircraft fuel and related taxes

     (4.32     (4.67  

Profit sharing

     (0.23     (0.17  
  

 

 

   

 

 

   

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

     8.21        8.25        (0.4
  

 

 

   

 

 

   

 

(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.

 

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

 

  Aircraft fuel and related taxes per ASM decreased 7.7% primarily due to a 7.9% decrease in the average price per gallon of fuel to $2.92 in the second quarter of 2013 from $3.17 in the 2012 period.

 

  Aircraft rent per ASM decreased 9.0% due to recent lease extensions at lower average rental rates as well as a decrease in the average number of leased aircraft in the second quarter 2013 as compared to the 2012 period.

 

  Other rent and landing fees per ASM increased 15.0% primarily due to rate increases at certain domestic airport locations, as well as the timing of receipt of a rent credit for one of our hubs in the second quarter of 2012.

 

  Depreciation and amortization per ASM increased 8.9% primarily due to an increase in owned aircraft driven by the acquisition of 20 Airbus aircraft since the second quarter of 2012.

Express Operating Expenses:

Total express expenses decreased $20 million, or 2.5%, in the second quarter of 2013 to $783 million from $803 million in the 2012 period. The period-over-period decrease was primarily due to a $21 million, or 7.3%, decrease in fuel costs. The average price per gallon of fuel decreased 7.7% to $2.96 in the second quarter of 2013 from $3.20 in the 2012 period, on a 0.4% increase in consumption.

Nonoperating Income (Expense):

 

     2013     2012     Percent
Increase
(Decrease)
 
     (In millions)        

Nonoperating income (expense):

      

Interest income

   $ 1      $  —          58.6   

Interest expense, net

     (90     (85     6.2   

Other, net

     (38     (13     nm   
  

 

 

   

 

 

   

Total nonoperating expense, net

   $ (127   $ (98     30.1   
  

 

 

   

 

 

   

Other nonoperating expense of $38 million in the second quarter of 2013 consisted primarily of $31 million in special charges principally related to non-cash write offs of debt discount and debt issuance costs in connection with conversions of our 7.25% convertible senior notes and repayment of the former Citicorp North America term loan. We also incurred $5 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the second quarter of 2013.

Other nonoperating expense of $13 million in the second quarter of 2012 consisted primarily of $10 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the second quarter 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.

 

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Table of Contents

Six Months Ended June 30, 2013

Compared with the

Six Months Ended June 30, 2012

Operating Revenues:

 

     2013      2012      Percent
Increase
(Decrease)
 
     (In millions)         

Operating revenues:

        

Mainline passenger

   $ 4,763       $ 4,562         4.4   

Express passenger

     1,640         1,680         (2.4

Cargo

     77         79         (2.1

Other

     765         700         9.3   
  

 

 

    

 

 

    

Total operating revenues

   $ 7,245       $ 7,021         3.2   
  

 

 

    

 

 

    

Total operating revenues in the first six months of 2013 were $7.25 billion as compared to $7.02 billion in the 2012 period, an increase of $224 million, or 3.2%. Significant changes in the components of operating revenues are as follows:

 

  Mainline passenger revenues were $4.76 billion in the first six months of 2013 as compared to $4.56 billion in the 2012 period. Mainline RPMs increased 5.1% as mainline capacity, as measured by ASMs, increased 2.8%, resulting in a 1.9 point increase in load factor to 84.6%. Mainline passenger yield decreased 0.6% to 14.76 cents in the first six months of 2013 from 14.86 cents in the 2012 period. Mainline PRASM increased 1.5% to 12.48 cents in the first six months of 2013 from 12.30 cents in the 2012 period.

 

  Express passenger revenues were $1.64 billion in the first six months of 2013 as compared to $1.68 billion in the 2012 period. Express RPMs increased 4.6% as express capacity, as measured by ASMs, increased 0.2%, resulting in a 3.3 point increase in load factor to 77.6%. Express passenger yield decreased 6.7% to 29.78 cents in the first six months of 2013 from 31.92 cents in the 2012 period. Express PRASM decreased 2.6% to 23.12 cents in the first six months of 2013 from 23.73 cents in the 2012 period.

 

  Other revenues were $765 million in the first six months of 2013, an increase of $65 million, or 9.3%, from the 2012 period. The increase in other revenues was driven primarily by higher revenues associated with our frequent flyer program, including increased mileage sales to business partners, an increase in the volume of passenger ticketing change fees and checked bag fees as well as the PreferredAccess program.

 

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Operating Expenses:

 

     2013      2012      Percent
Increase
(Decrease)
 
     (In millions)         

Operating expenses:

        

Aircraft fuel and related taxes

   $ 1,733       $ 1,766         (1.9

Salaries and related costs

     1,338         1,279         4.6   

Aircraft rent

     307         323         (5.0

Aircraft maintenance

     342         336         2.1   

Other rent and landing fees

     301         272         10.7   

Selling expenses

     237         237         0.3   

Special items, net

     63         11         nm   

Depreciation and amortization

     136         122         11.6   

Other

     626         607         3.2   
  

 

 

    

 

 

    

Total mainline operating expenses

     5,083         4,953         2.6   

Express expenses:

        

Fuel

     532         558         (4.7

Other

     1,046         1,047         (0.1
  

 

 

    

 

 

    

Total express expenses

     1,578         1,605         (1.7
  

 

 

    

 

 

    

Total operating expenses

   $ 6,661       $ 6,558         1.6   
  

 

 

    

 

 

    

Total operating expenses were $6.66 billion in the first six months of 2013, an increase of $103 million, or 1.6%, compared to the 2012 period.

Mainline Operating Expenses per ASM:

Our mainline CASM decreased 0.03 cents, or 0.2%, from 13.35 cents in the first six months of 2012 to 13.32 cents in the first six months of 2013. Excluding special items, fuel and profit sharing our mainline CASM increased 0.01 cents, or 0.1%, from 8.47 cents in the first six months of 2012 to 8.48 cents in the first six months of 2013, 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 six months ended June 30, 2013 and 2012:

 

     2013     2012     Percent
Increase
(Decrease)
 
     (In cents)        

Mainline CASM:

      

Aircraft fuel and related taxes

     4.54        4.76        (4.6

Salaries and related costs

     3.51        3.45        1.7   

Aircraft rent

     0.80        0.87        (7.6

Aircraft maintenance

     0.90        0.90        (0.8

Other rent and landing fees

     0.79        0.73        7.7   

Selling expenses

     0.62        0.64        (2.5

Special items, net

     0.16        0.03        nm   

Depreciation and amortization

     0.36        0.33        8.5   

Other

     1.64        1.64        0.4   
  

 

 

   

 

 

   

Total mainline CASM

     13.32        13.35        (0.2

Special items, net

     (0.16     (0.03  

Aircraft fuel and related taxes

     (4.54     (4.76  

Profit sharing

     (0.14     (0.09  
  

 

 

   

 

 

   

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

     8.48        8.47        0.1   
  

 

 

   

 

 

   

 

(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.

 

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

 

  Aircraft fuel and related taxes per ASM decreased 4.6% primarily due to a 4.4% decrease in the average price per gallon of fuel to $3.07 in the first six months of 2013 from $3.21 in the 2012 period.

 

  Aircraft rent per ASM decreased 7.6% due to recent lease extensions at lower average rental rates as well as a decrease in the average number of leased aircraft in the first six months of 2013 as compared to the 2012 period.

 

  Other rent and landing fees per ASM increased 7.7% primarily due to rate increases at certain domestic airport locations.

 

  Depreciation and amortization per ASM increased 8.5% primarily due to an increase in owned aircraft driven by the acquisition of 20 Airbus aircraft since the second quarter of 2012.

Express Operating Expenses:

Total express expenses decreased $27 million, or 1.7%, in the first six months of 2013 to $1.58 billion from $1.61 billion in the 2012 period. The period-over-period decrease was primarily due to a $26 million, or 4.7%, decrease in fuel costs. The average price per gallon of fuel decreased 4.8% to $3.09 in the first six months of 2013 from $3.25 in the 2012 period, on a 0.1% increase in consumption.

Nonoperating Income (Expense):

 

     2013     2012     Percent
Increase
(Decrease)
 
     (In millions)        

Nonoperating income (expense):

      

Interest income

   $ 1      $ 1        42.3   

Interest expense, net

     (174     (167     4.3   

Other, net

     (13     58        nm   
  

 

 

   

 

 

   

Total nonoperating expense, net

   $ (186   $ (108     71.6   
  

 

 

   

 

 

   

Other nonoperating expense of $13 million in the first six months of 2013 consisted primarily of $31 million in special charges principally related to non-cash write offs of debt discount and debt issuance costs in connection with conversions of our 7.25% convertible senior notes and repayment of the former Citicorp North America term loan. We also incurred $11 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the first six months of 2013. These charges were offset in part by a special $30 million credit in connection with an award received in an arbitration related to previous investments in auction rate securities.

Other nonoperating income of $58 million in the first six months of 2012 consisted primarily of a special $73 million gain relating to the slot transaction with Delta, offset in part by $10 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the first six 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.

 

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US Airways’ Results of Operations

In the three months ended June 30, 2013, US Airways realized operating income of $477 million and income before income taxes of $403 million, driven by US Airways’ largest reported operating revenues in its history. Net income for the quarter was $325 million which included a $77 million non-cash federal income tax provision. This compares to operating income of $395 million and income before income taxes and net income, each in the amount of $322 million, in the second quarter of 2012. There was no tax provision in the second quarter of 2012.

In the six months ended June 30, 2013, US Airways realized operating income of $579 million and income before income taxes of $472 million. Net income in the 2013 six month period was $394 million which included a $77 million non-cash federal income tax provision. This compares to operating income of $451 million and income before income taxes and net income, each in the amount of $393 million, in the 2012 period. There was no tax provision in the 2012 six month period.

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

 

     Three Months
Ended June  30,
     Six Months
Ended June  30,
 
     2013      2012      2013     2012  

Mainline operating special items, net (a)

   $ 24       $ 9       $ 63      $ 11   

Nonoperating special items, net (b)

     2         3         (28     (70
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 26       $ 12       $ 35      $ (59
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(a) The 2013 second quarter consisted primarily of merger related costs. The 2013 six month period consisted primarily of merger related costs and charges related to the ratification of the US Airways flight attendant collective bargaining agreement.

The 2012 second quarter and six month periods consisted primarily of merger related and auction rate securities arbitration costs.

 

(b) The 2013 second quarter consisted of $2 million primarily related to debt extinguishment charges due to non-cash write offs of debt issuance costs. The 2013 six month period consisted of a $30 million credit in connection with an award received in an arbitration related to previous investments in auction rate securities, offset in part by $2 million in charges primarily related to debt extinguishment costs discussed above.

The 2012 second quarter consisted of debt prepayment penalties and non-cash write offs of certain debt issuance costs related to the refinancing of two Airbus aircraft. The 2012 six month period consisted of a $73 million gain related to the slot transaction with Delta, offset in part by the $3 million in debt prepayment penalties and non-cash write offs of certain debt issuance costs discussed above.

At December 31, 2012, gross NOLs available for use by US Airways were approximately $1.4 billion for federal income tax purposes. To the extent profitable, all of US Airways’ NOLs are expected to be available for use in 2013. US Airways will use these NOLs to reduce its cash tax obligations when profitable going forward. The NOLs expire during the years 2025 through 2031.

At December 31, 2012, US Airways was in a net deferred tax asset position for financial reporting purposes, which included the NOLs, and was subject to a full valuation allowance. The federal and state valuation allowances were $126 million and $42 million, respectively, which included $32 million allocated primarily to certain federal capital loss carryforwards.

For each of the three and six months ended June 30, 2013, US Airways utilized NOLs to offset its taxable income. Historically, utilization of NOLs reduced US Airways’ net deferred tax asset and in turn resulted in the release of its valuation allowance, which offset US Airways’ tax provision dollar for dollar. US Airways’ second quarter 2013 pre-tax income resulted in the utilization of NOLs and US Airways’ remaining valuation allowance associated with federal income taxes. This release of valuation allowance offset only a portion of US Airways’ tax provision. Accordingly, in each of the three and six months ended June 30, 2013, US Airways recorded $77 million of non-cash federal income tax expense and $1 million of state income tax expense related to certain states where NOLs were limited or unavailable to be used.

For each of the three and six months ended June 30, 2012, NOL usage and release of valuation allowance offset US Airways’ tax provision. As a result, US Airways did not record federal income tax expense and recorded a nominal amount of state income tax expense related to certain states where NOLs were limited or unavailable to be used.

 

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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 for each of the three and six months ended June 30, 2013 and 2012.

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

 

     Three Months Ended
June  30,
     Increase     Six Months Ended
June  30,
     Increase  
     2013      2012      (Decrease)     2013      2012      (Decrease)  

Mainline

                

Revenue passenger miles (millions) (a)

     17,374         16,403         5.9     32,260         30,704         5.1

Available seat miles (millions) (b)

     20,192         19,387         4.2     38,154         37,105         2.8

Passenger load factor (percent) (c)

     86.0         84.6         1.4  pts      84.6         82.7         1.9  pts 

Yield (cents) (d)

     14.77         14.91         (0.9 )%      14.76         14.86         (0.6 )% 

Passenger revenue per available seat mile (cents) (e)

     12.71         12.62         0.7     12.48         12.30         1.5

Aircraft at end of period

     346         339         2.1     346         339         2.1

Fuel consumption (gallons in millions)

     299         286         4.4     564         550         2.6

Average aircraft fuel price including related taxes (dollars per gallon)

     2.92         3.17         (7.9 )%      3.07         3.21         (4.4 )% 

Express (f)

                

Revenue passenger miles (millions) (a)

     2,902         2,803         3.5     5,506         5,262         4.6

Available seat miles (millions) (b)

     3,637         3,649         (0.3 )%      7,093         7,078         0.2

Passenger load factor (percent) (c)

     79.8         76.8         3.0  pts      77.6         74.3         3.3  pts 

Yield (cents) (d)

     30.39         32.68         (7.0 )%      29.78         31.92         (6.7 )% 

Passenger revenue per available seat mile (cents) (e)

     24.25         25.10         (3.4 )%      23.12         23.73         (2.6 )% 

Aircraft at end of period

     281         288         (2.4 )%      281         288         (2.4 )% 

Fuel consumption (gallons in millions)

     88         88         0.4     172         172         0.1

Average aircraft fuel price including related taxes (dollars per gallon)

     2.96         3.21         (7.8 )%      3.09         3.25         (4.9 )% 

Total Mainline and Express

                

Revenue passenger miles (millions) (a)

     20,276         19,206         5.6     37,766         35,966         5.0

Available seat miles (millions) (b)

     23,829         23,036         3.4     45,247         44,183         2.4

Passenger load factor (percent) (c)

     85.1         83.4         1.7  pts      83.5         81.4         2.1  pts 

Yield (cents) (d)

     17.00         17.50         (2.8 )%      16.95         17.36         (2.3 )% 

Passenger revenue per available seat mile (cents) (e)

     14.47         14.59         (0.9 )%      14.15         14.13         0.2

Total revenue per available seat mile (cents) (g)

     16.39         16.47         (0.5 )%      16.18         16.07         0.7

Aircraft at end of period

     627         627         —       627         627         —  

Fuel consumption (gallons in millions)

     387         374         3.5     736         722         2.0

Average aircraft fuel price including related taxes (dollars per gallon)

     2.93         3.18         (7.9 )%      3.07         3.22         (4.5 )% 

 

(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.

 

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Three Months Ended June 30, 2013

Compared with the

Three Months Ended June 30, 2012

Operating Revenues:

 

     2013      2012      Percent
Increase
(Decrease)
 
     (In millions)         

Operating revenues:

        

Mainline passenger

   $ 2,566       $ 2,446         4.9   

Express passenger

     882         916         (3.7

Cargo

     36         39         (7.3

Other

     421         394         6.6   
  

 

 

    

 

 

    

Total operating revenues

   $ 3,905       $ 3,795         2.9   
  

 

 

    

 

 

    

Total operating revenues in the second quarter of 2013 were $3.91 billion as compared to $3.80 billion in the 2012 period, an increase of $110 million, or 2.9%. US Airways’ increase in capacity coupled with record passenger load factors more than offset decreases in yield, and US Airways reported its highest quarterly operating revenues in its history. Significant changes in the components of operating revenues are as follows:

 

   

Mainline passenger revenues were $2.57 billion in the second quarter of 2013 as compared to $2.45 billion in the 2012 period. Mainline RPMs increased 5.9% as mainline capacity, as measured by ASMs, increased 4.2%, resulting in a 1.4 point increase in load factor to a record 86.0%. Mainline passenger yield decreased 0.9% to 14.77 cents in the second quarter of 2013 from 14.91 cents in the 2012 period. Mainline PRASM increased 0.7% to 12.71 cents in the second quarter of 2013 from 12.62 cents in the 2012 period.

 

   

Express passenger revenues were $882 million in the second quarter of 2013 as compared to $916 million in the 2012 period. Express RPMs increased 3.5% as express capacity, as measured by ASMs, decreased 0.3%, resulting in a 3.0 point increase in load factor to a record 79.8%. Express passenger yield decreased 7.0% to 30.39 cents in the second quarter of 2013 from 32.68 cents in the 2012 period. Express PRASM decreased 3.4% to 24.25 cents in the second quarter of 2013 from 25.10 cents in the 2012 period.

 

   

Other revenues were $421 million in the second quarter of 2013, an increase of $27 million, or 6.6%, from the 2012 period. The increase in other revenues was driven primarily by an increase in the volume of passenger ticketing change fees and checked bag fees as well as the PreferredAccess program.

 

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Operating Expenses:

 

     2013      2012      Percent
Increase
(Decrease)
 
     (In millions)         

Operating expenses:

        

Aircraft fuel and related taxes

   $ 872       $ 906         (3.8

Salaries and related costs

     701         674         4.2   

Aircraft rent

     153         161         (5.2

Aircraft maintenance

     177         172         2.5   

Other rent and landing fees

     158         132         19.8   

Selling expenses

     124         126         (0.9

Special items, net

     24         9         nm   

Depreciation and amortization

     72         64         12.9   

Other

     333         315         5.3   
  

 

 

    

 

 

    

Total mainline operating expenses

     2,614         2,559         2.1   

Express expenses:

        

Fuel

     261         282         (7.4

Other

     553         559         (1.0
  

 

 

    

 

 

    

Total express expenses

     814         841         (3.2
  

 

 

    

 

 

    

Total operating expenses

   $ 3,428       $ 3,400         0.8   
  

 

 

    

 

 

    

Total operating expenses were $3.43 billion in the second quarter of 2013, an increase of $28 million, or 0.8%, compared to the 2012 period.

Mainline Operating Expenses:

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

 

   

Aircraft fuel and related taxes decreased 3.8% primarily due to a 7.9% decrease in the average price per gallon of fuel to $2.92 in the second quarter of 2013 from $3.17 in the 2012 period.

 

   

Aircraft rent decreased 5.2% due to recent lease extensions at lower average rental rates as well as a decrease in the average number of leased aircraft in the second quarter 2013 as compared to the 2012 period.

 

   

Other rent and landing fees increased 19.8% primarily due to rate increases at certain domestic airport locations, as well as the timing of receipt of a rent credit for one of US Airways’ hubs in the second quarter of 2012.

 

   

Depreciation and amortization increased 12.9% primarily due to an increase in owned aircraft driven by the acquisition of 20 Airbus aircraft since the second quarter of 2012.

Express Operating Expenses:

Total express expenses decreased $27 million, or 3.2%, in the second quarter of 2013 to $814 million from $841 million in the 2012 period. The period-over-period decrease was primarily due to a $21 million, or 7.4%, decrease in fuel costs. The average price per gallon of fuel decreased 7.8% to $2.96 in the second quarter of 2013 from $3.21 in the 2012 period, on a 0.4% increase in consumption.

 

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Table of Contents

Nonoperating Income (Expense):

 

     2013     2012     Percent
Increase
(Decrease)
 
     (In millions)        

Nonoperating income (expense):

      

Interest income

   $ 1      $ —          58.9   

Interest expense, net

     (67     (60     10.0   

Other, net

     (8     (13     (43.2
  

 

 

   

 

 

   

Total nonoperating expense, net

   $ (74   $ (73     0.3   
  

 

 

   

 

 

   

Other nonoperating expense of $8 million in the second quarter of 2013 consisted primarily of $2 million in special charges principally related to non-cash write offs of debt issuance costs and $5 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the second quarter of 2013.

Other nonoperating expense of $13 million in the second quarter of 2012 consisted primarily of $10 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the second quarter 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.

 

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Table of Contents

Six Months Ended June 30, 2013

Compared with the

Six Months Ended June 30, 2012

Operating Revenues:

 

     2013      2012      Percent
Increase
(Decrease)
 
     (In millions)         

Operating revenues:

        

Mainline passenger

   $ 4,763       $ 4,562         4.4   

Express passenger

     1,640         1,680         (2.4

Cargo

     77         79         (2.1

Other

     842         778         8.3   
  

 

 

    

 

 

    

Total operating revenues

   $ 7,322       $ 7,099         3.1   
  

 

 

    

 

 

    

Total operating revenues in the first six months of 2013 were $7.32 billion as compared to $7.10 billion in the 2012 period, an increase of $223 million, or 3.1%. Significant changes in the components of operating revenues are as follows:

 

   

Mainline passenger revenues were $4.76 billion in the first six months of 2013 as compared to $4.56 billion in the 2012 period. Mainline RPMs increased 5.1% as mainline capacity, as measured by ASMs, increased 2.8%, resulting in a 1.9 point increase in load factor to 84.6%. Mainline passenger yield decreased 0.6% to 14.76 cents in the first six months of 2013 from 14.86 cents in the 2012 period. Mainline PRASM increased 1.5% to 12.48 cents in the first six months of 2013 from 12.30 cents in the 2012 period.

 

   

Express passenger revenues were $1.64 billion in the first six months of 2013 as compared to $1.68 billion in the 2012 period. Express RPMs increased 4.6% as express capacity, as measured by ASMs, increased 0.2%, resulting in a 3.3 point increase in load factor to 77.6%. Express passenger yield decreased 6.7% to 29.78 cents in the first six months of 2013 from 31.92 cents in the 2012 period. Express PRASM decreased 2.6% to 23.12 cents in the first six months of 2013 from 23.73 cents in the 2012 period.

 

   

Other revenues were $842 million in the first six months of 2013, an increase of $64 million, or 8.3%, from the 2012 period. The increase in other revenues was driven primarily by higher revenues associated with US Airways’ frequent flyer program, including increased mileage sales to business partners, an increase in the volume of passenger ticketing change fees and checked bag fees as well as the PreferredAccess program.

 

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Operating Expenses:

 

     2013      2012      Percent
Increase
(Decrease)
 
     (In millions)         

Operating expenses:

        

Aircraft fuel and related taxes

   $ 1,733       $ 1,766         (1.9

Salaries and related costs

     1,338         1,279         4.6   

Aircraft rent

     307         323         (5.0

Aircraft maintenance

     342         336         2.1   

Other rent and landing fees

     301         272         10.7   

Selling expenses

     237         237         0.3   

Special items, net

     63         11         nm   

Depreciation and amortization

     141         127         11.1   

Other

     645         626         3.1   
  

 

 

    

 

 

    

Total mainline operating expenses

     5,107         4,977         2.6   

Express expenses:

        

Fuel

     532         559         (4.8

Other

     1,104         1,112         (0.7
  

 

 

    

 

 

    

Total express expenses

     1,636         1,671         (2.1
  

 

 

    

 

 

    

Total operating expenses

   $ 6,743       $ 6,648         1.4   
  

 

 

    

 

 

    

Total operating expenses were $6.74 billion in the first six months of 2013, an increase of $95 million, or 1.4%, compared to the 2012 period.

Mainline Operating Expenses:

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

 

   

Aircraft fuel and related taxes decreased 1.9% primarily due to a 4.4% decrease in the average price per gallon of fuel to $3.07 in the first six months of 2013 from $3.21 in the 2012 period.

 

   

Aircraft rent decreased 5.0% due to recent lease extensions at lower average rental rates as well as a decrease in the average number of leased aircraft in the first six months of 2013 as compared to the 2012 period.

 

   

Other rent and landing fees increased 10.7% primarily due to rate increases at certain domestic airport locations.

 

   

Depreciation and amortization increased 11.1% primarily due to an increase in owned aircraft driven by the acquisition of 20 Airbus aircraft since the second quarter of 2012.

Express Operating Expenses:

Total express expenses decreased $35 million, or 2.1%, in the first six months of 2013 to $1.64 billion from $1.67 billion in the 2012 period. The period-over-period decrease was primarily due to a $27 million, or 4.8%, decrease in fuel costs. The average price per gallon of fuel decreased 4.9% to $3.09 in the first six months of 2013 from $3.25 in the 2012 period, on a 0.1% increase in consumption.

 

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Nonoperating Income (Expense):

 

     2013     2012     Percent
Increase
(Decrease)
 
     (In millions)        

Nonoperating income (expense):

      

Interest income

   $ 1      $ 1        42.9   

Interest expense, net

     (125     (118     6.2   

Other, net

     17        59        (69.5
  

 

 

   

 

 

   

Total nonoperating expense, net

   $ (107   $ (58     81.4   
  

 

 

   

 

 

   

Other nonoperating income of $17 million in the first six months of 2013 consisted primarily of a special $30 million credit in connection with an award received in an arbitration related to previous investments in auction rate securities, offset in part by $2 million in special charges principally related to non-cash write offs of debt issuance costs. US Airways also incurred $11 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the first six months of 2013.

Other nonoperating income of $59 million in the first six months of 2012 consisted primarily of a special $73 million gain relating to the slot transaction with Delta, offset in part by $10 million in net foreign currency losses as a result of the overall strengthening of the U.S. dollar in the first six 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.

 

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Liquidity and Capital Resources

As of June 30, 2013, our total cash, cash equivalents and restricted cash was $3.97 billion, of which $350 million was restricted.

Sources and Uses of Cash

US Airways Group

Operating Activities

Net cash provided by operating activities was $925 million and $853 million for the first six months of 2013 and 2012, respectively, a period-over-period improvement of $72 million. This increase in cash flows was due principally to our record operating profitability in the second quarter of 2013 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 $627 million and $219 million for the first six months of 2013 and 2012, respectively.

Principal investing activities in the 2013 period included expenditures of $614 million for property and equipment and consisted primarily of the purchase of 10 Airbus aircraft. Investing activities also included expenditures of $99 million for pre-delivery deposits for 24 Airbus a