11-K 1 final401kpilots2003.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 11-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-8444

US Airways, Inc. 401(k) Savings Plan for Pilots

(Full title of the plan)

US Airways Group, Inc.

(Issuer of securities held pursuant to the plan noted above)

2345 Crystal Drive, Arlington, VA 22227

(Address of principal executive offices)

US Airways, Inc.

401(k) Savings Plan for Pilots

Financial Statements

And Supplemental Schedule

December 31, 2003 and 2002

(With Report of Independent Registered Public Accounting Firm Thereon)

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM 1

FINANCIAL STATEMENTS

STATEMENTS OF NET ASSETS AVAILABLE
FOR PLAN BENEFITS 2

STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS 3

NOTES TO FINANCIAL STATEMENTS 4-11

SUPPLEMENTAL SCHEDULE*

SCHEDULE OF ASSETS HELD FOR INVESTMENT
PURPOSES AT END OF YEAR 12

*All other schedules required by 29 CF 2520.103-10 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under ERISA have been omitted because they are not applicable.

Report of Independent Registered Public Accounting Firm

The Plan Administrator and Participants

US Airways, Inc. 401(k) Savings Plan for Pilots:

We have audited the accompanying statements of net assets available for plan benefits of the US Airways, Inc. 401(k) Savings Plan for Pilots (the Plan), as of December 31, 2003 and 2002, and the related statements of changes in net assets available for plan benefits for the years then ended, and the supplemental schedule as of December 31, 2003. These financial statements and supplemental schedule are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the financial statements, US Airways Group, Inc. and its subsidiaries including US Airways, Inc., the Plan's Sponsor, emerged from bankruptcy protection on March 31, 2003 and has continued to incur losses from operations. The most recently issued independent auditors' reports on the financial statements of US Airways Group, Inc. and US Airways, Inc. (the Companies) for the year ended December 31, 2003, contain an explanatory paragraph which discusses certain conditions which raise substantial doubt about the ability of the Companies to continue as a going concern.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan as of December 31, 2003 and 2002, and the changes in net assets available for plan benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held for investment purposes as of December 31, 2003 is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

KPMG LLP

McLean, VA

July 9, 2004

Statements of Net Assets Available for Plan Benefits

						December 31,
						2003		2002
Assets
	Investments
	Plan interest in Master Trust				$	417,468,915	$	353,438,676
	Participant loans					8,742,271		11,244,755
	Total investments					426,211,186		364,683,431

	Receivables:
		Participant contributions				879,012		171,324
			Total receivables			879,012		171,324

				Total assets		427,090,198		364,854,755

Liabilities
	Accrued expenses					7,404		21,108
			Total liabilities			7,404		21,108

	Net assets available for plan benefits				$	427,082,794	$	364,833,647

Statements of Changes in Net Assets Available for Plan Benefits

						Years Ended December 31,
						2003		2002
Additions to (reductions in) net assets attributable to:
	Plan interest in Master Trust - investment income (loss)				$	70,029,946	$	(116,184,222)
	Interest income on participant loans					762,487		1,052,888
			Net investment income (loss)			70,792,433		(115,131,334)

	Participant contributions					22,587,889		37,593,757
	Rollover contributions					158,089		429,507
		Total contributions				22,745,978		38,023,264

				Net additions (reductions)		93,538,411		(77,108,070)

Deductions from net assets attributable to:
	Benefits paid to participants					31,268,087		19,441,017
	Administrative expenses					21,177		44,619
		Total deductions				31,289,264		19,485,636
				Net increase (decrease)		62,249,147		(96,593,706)
Net assets available for plan benefits:
	Beginning of year					364,833,647		461,427,353
	End of year				$	427,082,794	$	364,833,647

Notes to Financial Statements

1. Description of Plan

The following description of the US Airways, Inc. 401(k) Savings Plan for Pilots (the Plan) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan's provisions.

(a) General

The Plan is a defined contribution plan intended to be a qualified cash or deferred compensation arrangement under Section 401(k) of the Internal Revenue Code (IRC), as amended, and to qualify under Section 401(a) of the IRC. In general, pilots of US Airways, Inc. (US Airways or the Company) who are covered by a collective bargaining agreement which provides for their participation in the Plan, are eligible to participate except for those individuals not covered under the United States income tax laws and those individuals who are participants in another 401(k) plan maintained by US Airways or any Related Company. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.

US Airways, the Plan Administrator, is responsible for the content and issuance of the Plan's financial statements. US Airways Group, Inc. (US Airways Group), US Airways' parent company, was the issuer of certain common stock securities that were cancelled as of March 31, 2003 and valued at $1,201,170 at December 31, 2002.

On August 11, 2002, US Airways Group and seven of its domestic subsidiaries (collectively, the Filing Entities), which account for substantially all of the operations of US Airways Group and its subsidiaries, including the Company, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (Bankruptcy Code) in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division (Bankruptcy Court). During the pendency of the Chapter 11 cases, US Airways Group continued to operate its business under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

The Filing Entities emerged from bankruptcy protection under a Bankruptcy Court approved plan of reorganization, which became effective on March 31, 2003. Among other things, the plan of reorganization provided for full payment of all allowed administrative and priority claims and the distribution of new equity in the reorganized US Airways Group to a new investor, a guarantor of a new debt arrangement, certain lenders, management and labor unions, and unsecured creditors in satisfaction of their allowed claims. Investors in equity of US Airways Group immediately prior to its emergence from bankruptcy protection, including Plan participants, were not entitled to any distribution under the plan of reorganization and their shares of common stock were cancelled.

While US Airways Group emerged from bankruptcy protection in March 2003, it has continued to incur losses from operations. Primary factors contributing to these losses include the continued downward pressure on industry pricing and significant increases in fuel prices. The pressure on industry pricing is resulting from the rapid growth of low-fare low-cost airlines, the increasing transparency of fares available through internet sources and other changes in fare structures which result in lower fares for many business and leisure travelers. Given US Airways Group's continued operating losses, US Airways Group is pursuing a transformation plan to further reduce cost per available seat mile to levels competitive with low-cost carriers. Key elements of this plan include changes in marketing and distribution techniques; employee compensation, benefits and work rules; and airline scheduling and operations. US Airways Group expects to begin implementation of the actions needed to achieve the cost reductions by mid-year 2004. However, since the plan will require changes in US Airways Group's collective bargaining agreements, there can be no assurance that the plan can be achieved. While US Airways Group's preference is to complete its transformation on a consensual basis, failure to achieve the above-described competitive cost structure will force US Airways Group to reexamine its strategic options, including but not limited to asset sales or a judicial restructuring.

The most recently issued independent auditors' reports on the financial statements of US Airways Group, Inc. and US Airways, Inc. (the Companies) for the year ended December 31, 2003, contain an explanatory paragraph which discusses certain conditions which raise substantial doubt about the ability of the Companies to continue as a going concern.

(b) Contributions

Eligible US Airways employees electing to participate in the Plan make contributions to the Plan via payroll deductions. Each year a Plan participant may contribute up to 22 percent of pre-tax and after-tax annual compensation subject to IRC limits, as defined in the Plan, unless the participant is classified as a highly compensated employee, as defined by the IRC. The contribution percentage may not exceed a certain percentage of pre-tax annual compensation, as determined by the Plan Administrator, if the participant is a highly compensated employee. The amount of contribution that may be made by a participant to the Plan shall be a whole percentage of a participant's compensation. Individual participant contributions are subject to certain limitations.

Participants are immediately vested in their contributions, plus earnings thereon.

(d) Investment Options

The Company selects the number and type of investment options available. Fidelity Institutional Retirement Services Company, the Plan's Recordkeeper, is responsible for maintaining an account balance for each participant. Fidelity Management Trust Company is the Plan Trustee. Each participant instructs the Recordkeeper how to allocate his or her contributions. Participants may invest their contributions in any combination among the investment options available in increments of five percent. If a participant fails to instruct the Recordkeeper on how to allocate the contributions, then their contributions will be invested in a cash equivalent fund.

The Recordkeeper values account balances daily. Each account balance is based on the value of the underlying investments in each account. Income and loss is allocated to the participants' accounts based on the ratio of the account balance of the individual participant to the aggregate of all account balances of all participants in the fund. Generally, participants may elect to change how future contributions are allocated or may transfer current account balances among investment options.

The Plan currently offers eleven investment options in the form of eight individual investment options and three diversified portfolio mixes, which are pre-selected combinations of mutual funds. During 2003, the Company eliminated one investment option, the Neuberger and Berman Guardian Fund.

On June 27, 2002, US Airways Group appointed Aon Fiduciary Counselors Inc. (Aon) as an independent fiduciary to manage US Airways Group's common stock held as an investment in the Plan. In its role as the independent fiduciary, Aon had the authority to continue, restrict, or terminate the investment of Plan assets in US Airways Group's common stock. Acting as the independent fiduciary, Aon made further investments in the US Airways Group common stock unavailable to participants effective August 9, 2002. On March 31, 2003, all outstanding shares of US Airways Group common stock were cancelled.

(e) Participant Withdrawals

All participants can borrow from their account, but may have only one loan outstanding at any given point in time. Participants may borrow from their accounts a minimum of $1,000 up to a maximum amount equal to the lesser of $50,000 (reduced by the highest outstanding loan balance from the Plan, during the preceding twelve month period) or 50 percent of their vested separate account balance and vested interest in all other plans maintained by the Company or a Related Company as of the date of the loan. Loan transactions are treated as transfers between the investment funds and participant loans receivable. Loan terms cannot exceed five years, except for loans obtained for the purchase of a primary residence. The loans are secured by the balance in the participant's account and bear interest at a rate commensurate with local prevailing market rates for loans made under similar circumstances, but not less than six percent per annum. Principal and interest are paid ratably through payroll deductions.

Upon approval by the Plan Administrator, a participant may withdraw his or her contributions from the account if the withdrawal is necessary to meet an immediate and heavy financial need of the participant under the deemed hardship standards set forth in the Plan.

(f) Payment of Benefits

Upon termination of service due to death, disability, retirement or other termination of employment, distributions to a participant or beneficiary are made as soon as reasonably practicable. The distribution can be deferred or provided in cash as a lump sum distribution. However, account balances of $5,000 or less may not be deferred and are automatically paid out of the Plan.

(g) Administrative expenses

Certain additional administrative expenses of the Plan are paid by US Airways. The remaining administrative expenses are paid from the US Airways Master Trust (Master Trust).

(i) Presentation

Certain amounts in previously issued financial statements have been reclassified to conform with the 2003 presentation.

2. Summary of Significant Accounting Policies

(a) Basis of Accounting

The financial statements of the Plan are prepared under the accrual method of accounting.

(b) Investment Valuation and Income Recognition

The Plan's investments are stated at fair value except for its investment contracts with insurance companies, which are valued at contract value (see Note 4). Fair values for assets were determined by quoted market values, when available. The Plan presents in the Statements of Changes in Net Assets the Plan's interest in Master Trust investment income (loss), which consists of the realized gains or losses and unrealized appreciation (depreciation), interest and dividends on those investments, as well as interest on participant loans. Purchases and sales of investments are recorded on a trade-date basis. Dividends are recognized on the ex-dividend date. Interest and dividend income is recorded on the accrual basis.

Benefits are recorded when paid.

(d) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosures of contingent assets and liabilities. Such estimates include those related to fair value of investments, liabilities, contingencies and the collectibility of participant loans. Actual results could differ from those estimates.

3. Investment in Master Trust

The Plan's specific interest in the Master Trust represents 5% or more of the Plan's net assets at December 31, 2003 and 2002. The Master Trust combines the assets of several other defined contribution plans sponsored by US Airways. In addition, the assets of certain investment options are commingled with certain assets of other defined contribution plans sponsored by US Airways that are not included in the Master Trust. The Plan's Recordkeeper separately identifies the assets of each Plan participant who has an interest in these commingled funds.

The Plan's share of the value in the Master Trust and the changes of the Master Trust have been reported to the Plan by the Trustee as having been determined through the use of fair values for all assets. Master Trust investment income and losses are allocated to the individual Plans on a pro rata basis determined by the participant directed investments.

Upon emergence from bankruptcy, as described in Note 1, US Airways Group cancelled all shares of US Airways Group stock, leaving the shares with no value. On March 31, 2003, upon the cancellation of shares, the Master Trust realized losses of $53,843,711, with the Plan's interest in the loss valued at $28,389,974. Losses recognized upon cancellation of the US Airways Group common stock were recognized as unrealized losses based on the shares' fair values.

The following table presents the fair or contract values of the investments in the Master Trust:

	December 31,
		2003		2002
Shares in registered investment companies	$	791,364,350	$	617,657,913
Shares in money market fund		82,481,726		95,166,811
Guaranteed investment contracts (See Note 4)		69,595,121		70,793,152
US government securities and US investment
grade fixed income securities		37,448,391		42,412,417
US Airways Group common stock		-		2,346,790
Total	$	980,889,588	$	828,377,083

As of December 31, 2003 and 2002, the Plan's interest in the Master Trust was approximately 42.6% and 42.7%, respectively. Investment income (loss) for the Master Trust is as follows:

Investment income (loss) for the Master Trust is as follows:

	Years Ended December 31,
		2003		2002
Net appreciation (depreciation) in fair value of investments	$	150,302,106	$	(258,011,129)
Interest		2,787,766		2,968,430
Dividends		12,955,564		10,146,919
Net investment income (loss)	$	166,045,436	$	(244,895,780)

4. Investment Contracts with Insurance Companies

The Guaranteed Investment Contracts (GICs) are fully benefit responsive because they provide reasonable access by Plan participants to invested funds. Therefore, in accordance with the American Institute of Certified Public Accountant's Statement of Position 94-4, "Application of Fair Value and Contract Value Reporting for Defined Contribution Plan Investments," the interest in these contracts is disclosed in the financial statements at contract value which equals contributions made, plus accrued interest at the specified rate, less withdrawals and administrative expenses. The Master Trust holds a specific interest in a portfolio of GICs with a total contract value at December 31, 2003 and 2002 of $131,731,913 and $132,187,301, respectively. The average portfolio crediting interest rate was approximately 3.7% and 4.3% at December 31, 2003 and 2002, respectively. The portfolio average yield was approximately 3.9% and 5.0% for the years then ended.

For GICs with variable rates (approximately 98% and 90% of the portfolio at December 31, 2003 and 2002, respectively, as measured by contract values), crediting rates are reset either quarterly or semi-annually. Crediting rates are determined based upon the yields to maturity of the underlying assets, net of certain origination fees.

No valuation reserves were recognized related to the portfolio as all insurance companies in the portfolio had received an investment grade rating from nationally recognized rating agencies as of December 31, 2003 and 2002. The fair value of the portfolio was $133,943,356 and $124,690,864 at December 31, 2003 and 2002, respectively.

5. Related Party Transactions

The Trustee manages certain Master Trust investments that total $803,963,581; therefore, these transactions qualify as party-in-interest.

6. Plan Termination

Although it has not expressed any intent to do so, the Company reserves the right to terminate the Plan at any time subject to the provisions of ERISA and applicable collective bargaining agreements. Upon termination of the Plan, the following actions shall be taken for the benefit of participants:

(a) As of the termination date, each investment fund and all separate accounts shall be valued. In determining the net worth of the Plan and Master Trust there shall be included as liabilities such amounts as shall be necessary to pay all expenses in connection with the termination of the Plan and the liquidation and distribution of the assets, as well as other expenses, whether or not accrued, and shall include as an asset all accrued income.

(b) All participant accounts must be disposed of in the forms of payment available under
the Plan.

7. Reconciliation of Financial Statements to Form 5500

The following is a reconciliation of net assets available for plan benefits per the financial statements to the Form 5500:

	December 31,
		2003		2002
Net assets available for plan benefits per the financial statements	$	427,082,794	$	364,833,647
Amounts allocated to withdrawing participants		(33,717)		(150,989)
Net assets available for plan benefits per the Form 5500	$	427,049,077	$	364,682,658

The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500:

	Year Ended
	December 31, 2003
Benefits paid to participants per the financial statements	$	31,268,087
Add: Amounts allocated to withdrawing Participants at December 31, 2003		33,717
Less: Amounts allocated to withdrawing participants at December 31, 2002		(150,989)
Benefits paid to participants per the Form 5500	$	31,150,815

Amounts allocated to withdrawing participants are recorded on the Form 5500 for benefit claims that have been processed and approved for payment prior to December 31 but not yet paid as of that date.

8. Tax Status

The Plan is in the process of obtaining a determination letter stating that the Plan and related Master Trust qualify as tax exempt organizations under the applicable provisions of the IRC and therefore are exempt from federal income taxes. The Plan Administrator believes the Plan and related Master Trust are currently designed and being operated in compliance with the applicable requirements of the IRC.

Schedule of Assets Held for Investment Purposes At End of Year

December 31, 2003
			Current
Identity of Issue		Description of Investment	Value
Participant Loans*		Interest rates range from 5.75 to 10.5 percent per annum		8,742,271
	Total Investments		$	8,742,271

* Party in interest.
See accompanying Report of Independent Registered Public Accounting Firm

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on their behalf by the undersigned hereunto duly authorized.

US Airways, Inc.

401(k) Savings Plan for Pilots

Date: July 13, 2004 By: /s/ Anita P. Beier

Anita P. Beier

Senior Vice President and Controller

(Chief Accounting Officer)

US Airways Group, Inc.