Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
|
|
|
þ |
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2011
or
|
|
|
o |
|
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 þ No o
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 þ No o
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 þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
US Airways, Inc.
|
|
Large accelerated filer o
|
|
Accelerated filer o
|
|
Non-accelerated filer þ
|
|
Smaller reporting company o |
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 o
|
|
No þ |
US Airways, Inc.
|
|
Yes o
|
|
No þ |
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 þ
|
|
No o |
US Airways, Inc.
|
|
Yes þ
|
|
No o |
As of April 22, 2011, there were approximately 161,997,642 shares of US Airways Group, Inc. common
stock outstanding.
As of April 22, 2011, US Airways, Inc. had 1,000 shares of common stock outstanding, all of which
were held by US Airways Group, Inc.
US Airways Group, Inc.
US Airways, Inc.
Form 10-Q
Quarterly Period Ended March 31, 2011
Table of Contents
2
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, and continue and
similar terms used in connection with statements regarding, among others, our outlook, expected
fuel costs, the revenue and pricing environment, and our expected financial performance and
liquidity position. These statements include, but are not limited to, statements about future
financial and operating results, our plans, objectives, expectations and intentions and other
statements that are not historical facts. These statements are based upon the current beliefs and
expectations of management and are subject to significant risks and uncertainties that could cause
our actual results and financial position to differ materially from these statements. These risks
and uncertainties include, but are not limited to, those described below under Part II, Item 1A,
Risk Factors, and the following:
|
|
|
the impact of significant operating losses in the future; |
|
|
|
downturns in economic conditions and their impact on passenger demand and related revenues; |
|
|
|
increased costs of financing, a reduction in the availability of financing and fluctuations
in interest rates; |
|
|
|
the impact of the price and availability of fuel and significant disruptions in the supply
of aircraft fuel; |
|
|
|
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; |
|
|
|
our reliance on third-party regional operators or third-party service providers; |
|
|
|
our reliance on and costs of third-party distribution channels, including those
provided by global distribution systems and online travel agents; |
|
|
|
changes in government legislation and regulation; |
|
|
|
our reliance on automated systems and the impact of any failure or disruption of these
systems; |
|
|
|
the impact of changes to our business model; |
|
|
|
competitive practices in the industry, including the impact of industry consolidation; |
|
|
|
the loss of key personnel or our ability to attract and retain qualified personnel; |
|
|
|
the impact of conflicts overseas or terrorist attacks, and the impact of ongoing security
concerns; |
|
|
|
our ability to operate and grow our route network; |
3
|
|
|
the impact of environmental laws and regulations; |
|
|
|
costs of ongoing data security compliance requirements and the impact of any 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; |
|
|
|
the impact of weather conditions and seasonality of airline travel; |
|
|
|
the impact of possible future increases in insurance costs and disruptions to insurance
markets; |
|
|
|
the impact of global events that affect travel behavior, such as an outbreak of a
contagious disease; |
|
|
|
the impact of foreign currency exchange rate fluctuations; |
|
|
|
our ability to use NOLs and certain other tax attributes; and |
|
|
|
other risks and uncertainties listed from time to time in our reports to and filings with
the Securities and Exchange Commission. |
All of the forward-looking statements are qualified in their entirety by reference to the
factors discussed in Part II, Item 1A, Risk Factors and elsewhere in this Quarterly Report on
Form 10-Q. There may be other factors of which we are not currently aware that may affect matters
discussed in the forward-looking statements and may also cause actual results to differ materially
from those discussed. We assume no obligation to publicly update or supplement any forward-looking
statement to reflect actual results, changes in assumptions or changes in other factors affecting
these estimates other than as required by law. Any forward-looking statements speak only as of the
date of this Quarterly Report on Form 10-Q or as of the dates indicated in the statements.
Part I. Financial Information
This combined Quarterly Report on Form 10-Q is filed by US Airways Group and US Airways and
includes the condensed consolidated financial statements of each company in Item 1A and Item 1B,
respectively.
4
|
|
|
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 March 31, |
|
|
|
2011 |
|
|
2010 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
Mainline passenger |
|
$ |
1,900 |
|
|
$ |
1,698 |
|
Express passenger |
|
|
685 |
|
|
|
601 |
|
Cargo |
|
|
43 |
|
|
|
33 |
|
Other |
|
|
333 |
|
|
|
319 |
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
2,961 |
|
|
|
2,651 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes |
|
|
734 |
|
|
|
534 |
|
Salaries and related costs |
|
|
573 |
|
|
|
556 |
|
Express expenses |
|
|
770 |
|
|
|
650 |
|
Aircraft rent |
|
|
164 |
|
|
|
171 |
|
Aircraft maintenance |
|
|
163 |
|
|
|
157 |
|
Other rent and landing fees |
|
|
129 |
|
|
|
134 |
|
Selling expenses |
|
|
100 |
|
|
|
95 |
|
Special items, net |
|
|
3 |
|
|
|
5 |
|
Depreciation and amortization |
|
|
60 |
|
|
|
61 |
|
Other |
|
|
304 |
|
|
|
298 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
3,000 |
|
|
|
2,661 |
|
|
|
|
|
|
|
|
Operating loss |
|
|
(39 |
) |
|
|
(10 |
) |
Nonoperating income (expense): |
|
|
|
|
|
|
|
|
Interest income |
|
|
1 |
|
|
|
5 |
|
Interest expense, net |
|
|
(77 |
) |
|
|
(82 |
) |
Other, net |
|
|
1 |
|
|
|
42 |
|
|
|
|
|
|
|
|
Total nonoperating expense, net |
|
|
(75 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(114 |
) |
|
|
(45 |
) |
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(114 |
) |
|
$ |
(45 |
) |
|
|
|
|
|
|
|
Loss per common share: |
|
|
|
|
|
|
|
|
Basic loss per common share |
|
$ |
(0.71 |
) |
|
$ |
(0.28 |
) |
Diluted loss per common share |
|
$ |
(0.71 |
) |
|
$ |
(0.28 |
) |
Shares used for computation (in thousands): |
|
|
|
|
|
|
|
|
Basic |
|
|
161,890 |
|
|
|
161,115 |
|
Diluted |
|
|
161,890 |
|
|
|
161,115 |
|
See accompanying notes to the condensed consolidated financial statements.
5
US Airways Group, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,073 |
|
|
$ |
1,859 |
|
Accounts receivable, net |
|
|
457 |
|
|
|
311 |
|
Materials and supplies, net |
|
|
236 |
|
|
|
231 |
|
Prepaid expenses and other |
|
|
588 |
|
|
|
508 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,354 |
|
|
|
2,909 |
|
Property and equipment |
|
|
|
|
|
|
|
|
Flight equipment |
|
|
4,144 |
|
|
|
4,134 |
|
Ground property and equipment |
|
|
856 |
|
|
|
843 |
|
Less accumulated depreciation and amortization |
|
|
(1,355 |
) |
|
|
(1,304 |
) |
|
|
|
|
|
|
|
|
|
|
3,645 |
|
|
|
3,673 |
|
Equipment purchase deposits |
|
|
133 |
|
|
|
123 |
|
|
|
|
|
|
|
|
Total property and equipment |
|
|
3,778 |
|
|
|
3,796 |
|
Other assets |
|
|
|
|
|
|
|
|
Other intangibles, net of accumulated amortization of $145 million and $139 million, respectively |
|
|
471 |
|
|
|
477 |
|
Restricted cash |
|
|
345 |
|
|
|
364 |
|
Investments in marketable securities |
|
|
45 |
|
|
|
57 |
|
Other assets |
|
|
224 |
|
|
|
216 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
1,085 |
|
|
|
1,114 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,217 |
|
|
$ |
7,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Current maturities of debt and capital leases |
|
$ |
408 |
|
|
$ |
397 |
|
Accounts payable |
|
|
479 |
|
|
|
386 |
|
Air traffic liability |
|
|
1,361 |
|
|
|
861 |
|
Accrued compensation and vacation |
|
|
161 |
|
|
|
245 |
|
Accrued taxes |
|
|
237 |
|
|
|
149 |
|
Other accrued expenses |
|
|
812 |
|
|
|
802 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,458 |
|
|
|
2,840 |
|
Noncurrent liabilities and deferred credits |
|
|
|
|
|
|
|
|
Long-term debt and capital leases, net of current maturities |
|
|
3,885 |
|
|
|
4,003 |
|
Deferred gains and credits, net |
|
|
338 |
|
|
|
336 |
|
Postretirement benefits other than pensions |
|
|
142 |
|
|
|
141 |
|
Employee benefit liabilities and other |
|
|
424 |
|
|
|
415 |
|
|
|
|
|
|
|
|
Total noncurrent liabilities and deferred credits |
|
|
4,789 |
|
|
|
4,895 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders equity (deficit) |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 400,000,000 shares authorized, 161,896,598 shares issued and
outstanding at March 31, 2011; 161,874,756 shares issued and outstanding at December 31, 2010 |
|
|
2 |
|
|
|
2 |
|
Additional paid-in capital |
|
|
2,116 |
|
|
|
2,115 |
|
Accumulated other comprehensive income |
|
|
13 |
|
|
|
14 |
|
Accumulated deficit |
|
|
(2,161 |
) |
|
|
(2,047 |
) |
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
(30 |
) |
|
|
84 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit) |
|
$ |
8,217 |
|
|
$ |
7,819 |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
6
US Airways Group, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Net cash provided by operating activities |
|
$ |
345 |
|
|
$ |
199 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(40 |
) |
|
|
(78 |
) |
Sales of marketable securities |
|
|
12 |
|
|
|
132 |
|
Decrease in long-term restricted cash |
|
|
19 |
|
|
|
38 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(9 |
) |
|
|
92 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repayments of debt and capital lease obligations |
|
|
(128 |
) |
|
|
(135 |
) |
Proceeds from issuance of debt |
|
|
6 |
|
|
|
80 |
|
Deferred financing costs |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(122 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
214 |
|
|
|
233 |
|
Cash and cash equivalents at beginning of period |
|
|
1,859 |
|
|
|
1,299 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
2,073 |
|
|
$ |
1,532 |
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Interest payable converted to debt |
|
$ |
9 |
|
|
$ |
11 |
|
Note payables issued for aircraft purchases |
|
|
|
|
|
|
111 |
|
Net unrealized loss on available-for-sale securities |
|
|
|
|
|
|
1 |
|
Supplemental information: |
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized |
|
$ |
57 |
|
|
$ |
67 |
|
Income taxes paid |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
7
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 Groups Annual Report on Form 10-K for the year ended
December 31, 2010. The accompanying unaudited condensed consolidated financial statements include
the accounts of US Airways Group and its wholly owned subsidiaries. Wholly owned subsidiaries
include US Airways, Inc. (US Airways), Piedmont Airlines, Inc. (Piedmont), PSA Airlines, Inc.
(PSA), Material Services Company, Inc. (MSC) and Airways Assurance Limited (AAL). All
significant intercompany accounts and transactions have been eliminated.
Management believes that all adjustments necessary for the fair presentation of results,
consisting of normally recurring items, have been included in the unaudited condensed consolidated
financial statements for the interim periods presented. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States requires management
to make certain estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the
date of the financial statements. Actual results could differ from those estimates. The principal
areas of judgment relate to passenger revenue recognition, impairment of long-lived and intangible
assets, valuation of investments in marketable securities, the frequent traveler program and the
deferred tax asset valuation allowance.
Recent Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue
Arrangements. ASU No. 2009-13 addresses the accounting for multiple-deliverable arrangements to
enable vendors to account for products or services (deliverables) separately rather than as a
combined unit. This guidance establishes a selling price hierarchy for determining the selling
price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party
evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and
requires that arrangement consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. In addition, this guidance significantly
expands required disclosures related to a vendors multiple-deliverable revenue arrangements. The
Companys multiple-deliverable revenue arrangements consist principally of sales of frequent flyer
program mileage credits to business partners, which are comprised of two components, transportation
and marketing. The Company was required to adopt and apply ASU No. 2009-13 to any new or materially
modified multiple deliverable revenue arrangements entered into on or after January 1, 2011. The
Company adopted ASU No. 2009-13 on January 1, 2011, and its application has had no material impact
on the Companys condensed consolidated financial statements.
8
2. Special Items, Net
Special items, net as shown on the condensed consolidated statements of operations included
the following charges (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Other costs |
|
$ |
3 |
|
|
$ |
|
|
Aircraft costs (a) |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
Special items, net |
|
$ |
3 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In the three months ended March 31, 2010, the Company recorded $5 million in aircraft
costs as a result of capacity reductions. |
3. Loss Per Common Share
Basic earnings (loss) 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 |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Basic and diluted loss per share: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(114 |
) |
|
$ |
(45 |
) |
|
|
|
|
|
|
|
Weighted average common shares outstanding (in thousands) |
|
|
161,890 |
|
|
|
161,115 |
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(0.71 |
) |
|
$ |
(0.28 |
) |
|
|
|
|
|
|
|
For the three months ended March 31, 2011 and 2010, 1,457,208 and 1,753,540 shares,
respectively, underlying stock options, SARs and RSUs were not included in the computation of
diluted EPS because inclusion of such shares would be antidilutive and 2,690,529 and 6,580,551
SARs, respectively, were not included in the computation of diluted EPS because their exercise
prices were greater than the average market price of common stock for the period. In addition, for
the three months ended March 31, 2011 and 2010, 199,379 and 3,048,914 incremental shares,
respectively, from the assumed conversion of the 7% Senior Convertible Notes (the 7% notes) were
excluded from the computation of diluted EPS due to their antidilutive effect. For each of the
three months ended March 31, 2011 and 2010, 37,746,174 incremental shares, respectively, from the
assumed conversion of the 7.25% Convertible Senior Notes (the 7.25% notes) were excluded from the
computation of diluted EPS due to their antidilutive effect.
9
4. Debt
The following table details the Companys debt (in millions). Variable interest rates listed
are the rates as of March 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Secured |
|
|
|
|
|
|
|
|
Citicorp North America loan, variable interest rate of 2.75%, installments due through 2014 |
|
$ |
1,136 |
|
|
$ |
1,152 |
|
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.65% to
10.31%, maturing from 2011 to 2029 |
|
|
1,865 |
|
|
|
1,920 |
|
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 6.25%
to 9.01%, maturing from 2015 to 2023 |
|
|
783 |
|
|
|
809 |
|
Other secured obligations, fixed interest rate of 8%, maturing from 2015 to 2021 |
|
|
79 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
3,863 |
|
|
|
3,966 |
|
Unsecured |
|
|
|
|
|
|
|
|
Barclays prepaid miles, variable interest rate of 4.99%, interest only payments |
|
|
200 |
|
|
|
200 |
|
Airbus advance, repayments through 2018 |
|
|
210 |
|
|
|
222 |
|
7.25% convertible senior notes, interest only payments until due in 2014 |
|
|
172 |
|
|
|
172 |
|
7% senior convertible notes, interest only payments until due in 2020 |
|
|
5 |
|
|
|
5 |
|
Industrial development bonds, fixed interest rate of 6.30%, interest only payments until due in 2023 |
|
|
29 |
|
|
|
29 |
|
Other unsecured obligations, maturing from 2011 to 2012 |
|
|
20 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
636 |
|
|
|
651 |
|
|
|
|
|
|
|
|
Total long-term debt and capital lease obligations |
|
|
4,499 |
|
|
|
4,617 |
|
Less: Total unamortized discount on debt |
|
|
(206 |
) |
|
|
(217 |
) |
Current maturities |
|
|
(408 |
) |
|
|
(397 |
) |
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, net of current maturities |
|
$ |
3,885 |
|
|
$ |
4,003 |
|
|
|
|
|
|
|
|
The Company was in compliance with the covenants in its debt agreements at March 31,
2011.
Fair Value of Debt
The fair value of the Companys long-term debt and capital lease obligations was approximately
$4.14 billion and $4.37 billion at March 31, 2011 and December 31, 2010, respectively. The fair
values were estimated using quoted market prices where available. For long-term debt not actively
traded, fair values were estimated using a discounted cash flow analysis, based on the Companys
current incremental borrowing rates for similar types of borrowing arrangements.
5. Income Taxes
At December 31, 2010, the Company had approximately $1.92 billion of gross net operating
losses (NOLs) to reduce future federal taxable income. All of the Companys NOLs are expected to
be available to reduce federal taxable income in the calendar year 2011. The NOLs expire during the
years 2024 through 2029. The Companys net deferred tax assets, which include $1.85 billion of the
NOLs, are subject to a full valuation allowance. The Company also had approximately $82 million of
tax-effected state NOLs at December 31, 2010. At December 31, 2010, the federal and state valuation
allowances were $368 million and $62 million, respectively.
The Company reported a loss before income taxes in the first quarter of each of 2011 and 2010,
and the Company did not record a tax provision in either period.
10
6. Express Expenses
Expenses associated with the Companys 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 |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Aircraft fuel and related taxes |
|
$ |
242 |
|
|
$ |
170 |
|
Salaries and related costs |
|
|
70 |
|
|
|
63 |
|
Capacity purchases |
|
|
266 |
|
|
|
264 |
|
Aircraft rent |
|
|
13 |
|
|
|
13 |
|
Aircraft maintenance |
|
|
47 |
|
|
|
19 |
|
Other rent and landing fees |
|
|
34 |
|
|
|
31 |
|
Selling expenses |
|
|
41 |
|
|
|
36 |
|
Special items, net |
|
|
1 |
|
|
|
|
|
Depreciation and amortization |
|
|
6 |
|
|
|
6 |
|
Other expenses |
|
|
50 |
|
|
|
48 |
|
|
|
|
|
|
|
|
Express expenses |
|
$ |
770 |
|
|
$ |
650 |
|
|
|
|
|
|
|
|
7. Investments in Marketable Securities
As of March 31, 2011, the Company held auction rate securities with a fair value of $45
million ($69 million par value), which are classified as available-for-sale securities and
noncurrent assets on the Companys condensed consolidated balance sheets. Contractual maturities
for these auction rate securities range from 22 to 25 years. As a result of the liquidity issues
experienced in the global credit and capital markets, all of the Companys auction rate securities
have experienced failed auctions since August 2007. The estimated fair value of these auction rate
securities no longer approximates par value. Refer to Note 8 for discussion on how the Company
determines the fair value of its investments in auction rate securities.
In the three months ended March 31, 2011, the Company sold certain investments in auction rate
securities for proceeds of $12 million. Proceeds from the auction rate security sale transactions
approximated the carrying amount of the investments.
In the three months ended March 31, 2010, the Company sold certain investments in auction rate
securities for proceeds of $132 million, resulting in $49 million of net realized gains recorded in
nonoperating expense, net, of which $48 million represents the reclassification of prior period net
unrealized gains from other comprehensive income as determined on a specific-identification basis.
Additionally, in the first quarter of 2010, the Company recorded net unrealized losses of $1
million in other comprehensive income related to the decline in fair value of certain investments
in auction rate securities, which offset previously recognized unrealized gains.
The Company continues to monitor the market for auction rate securities and consider its
impact (if any) on the fair value of its remaining investments in these securities. If the current
market conditions deteriorate, the Company may be required to record additional impairment charges
in other nonoperating expense, net in future periods.
11
8. Fair Value Measurements
Assets measured at fair value on a recurring basis are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
Valuation |
|
|
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Technique |
|
At March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable securities (noncurrent) |
|
$ |
45 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
45 |
|
|
|
(1 |
) |
At December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable securities (noncurrent) |
|
$ |
57 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
57 |
|
|
|
(1 |
) |
|
|
|
(1) |
|
The Company estimated the fair value of its auction rate securities based on the following:
(i) the underlying structure of each security; (ii) the present value of future principal and
interest payments discounted at rates considered to reflect current market conditions; (iii)
consideration of the probabilities of default, passing a future auction, or repurchase at par
for each period; and (iv) estimates of the recovery rates in the event of default for each
security. These estimated fair values could change significantly based on future market
conditions. Refer to Note 7 for further discussion of the Companys investments in marketable
securities. |
Assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) are as follows (in millions):
|
|
|
|
|
|
|
Investments in |
|
|
|
Marketable |
|
|
|
Securities |
|
|
|
(Noncurrent) |
|
Balance at December 31, 2010 |
|
$ |
57 |
|
Sales of marketable securities |
|
|
(12 |
) |
|
|
|
|
Balance at March 31, 2011 |
|
$ |
45 |
|
|
|
|
|
9. Other Comprehensive Income (Loss)
The Companys other comprehensive loss consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Net loss |
|
$ |
(114 |
) |
|
$ |
(45 |
) |
Recognition of net realized gains on sale of available-for-sale securities |
|
|
|
|
|
|
(48 |
) |
Net unrealized losses on available-for-sale securities |
|
|
|
|
|
|
(1 |
) |
Pension and other postretirement benefits |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
Total comprehensive loss |
|
$ |
(115 |
) |
|
$ |
(95 |
) |
|
|
|
|
|
|
|
The components of accumulated other comprehensive income were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Pension and other postretirement benefits |
|
$ |
31 |
|
|
$ |
32 |
|
Available-for-sale securities |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
$ |
13 |
|
|
$ |
14 |
|
|
|
|
|
|
|
|
12
10. Slot Transaction
In August 2009, US Airways Group and US Airways entered into a mutual asset purchase and sale
agreement with Delta Airlines, Inc. (Delta). Pursuant to the agreement, US Airways would transfer
to Delta certain assets related to flight operations at LaGuardia Airport in New York
(LaGuardia), including 125 pairs of slots currently used to provide US Airways Express service at
LaGuardia. Delta would transfer to US Airways certain assets related to flight operations at
Washington National, including 42 pairs of slots, and the authority to serve Sao Paulo, Brazil and
Tokyo, Japan. The closing of the transactions under the agreement is subject to certain closing
conditions, including approvals from a number of government agencies. In a final decision dated May
4, 2010, the Federal Aviation Administration (FAA) rejected an alternative transaction proposed
by Delta and US Airways. On July 2, 2010, US Airways and Delta jointly filed with the United States
Circuit Court of Appeals for the District of Columbia Circuit a notice of appeal of the regulatory
action taken by the FAA with respect to this transaction. The Company is presently in discussions
with Delta and the relevant government agencies regarding a possible resolution that would allow a
slot transaction with Delta to proceed. However, the Company cannot predict the outcome of these
discussions or the related judicial proceeding, or whether a slot transaction with Delta will be
completed.
11. Legal Proceedings
On September 12, 2004, US Airways Group and its domestic subsidiaries (collectively, the
Reorganized Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division
(Case Nos. 04-13819-SSM through 03-13823-SSM) (the 2004 Bankruptcy). On September 16, 2005, the
Bankruptcy Court issued an order confirming the plan of reorganization submitted by the Reorganized
Debtors and on September 27, 2005, the Reorganized Debtors emerged from the 2004 Bankruptcy. The
Bankruptcy Courts order confirming the plan included a provision called the plan injunction, which
forever bars other parties from pursuing most claims against the Reorganized Debtors that arose
prior to September 27, 2005 in any forum other than the Bankruptcy Court. Substantially all of the
claims in the 2004 Bankruptcy have been settled and the allowed claims have been paid out in common
stock of the post-bankruptcy US Airways Group at a small fraction of the actual claim amount.
However, the effects of these common stock distributions were already reflected in the Companys
consolidated financial statements upon emergence from bankruptcy and will not have any further
impact on its financial position or results of operations. The Company presently expects the
bankruptcy case to be closed during 2011.
The Company is party to an arbitration proceeding relating to a grievance brought by its
pilots union to the effect that, effective January 1, 2010, this work group was entitled to a
significant increase in wages by operation of the applicable collective bargaining agreement. A
hearing was conducted and the parties are awaiting the ruling of the arbitrator. An adverse ruling
by the arbitrator could require a material increase in the wages of the Companys pilots and a
material back payment to make the wage increase retroactive to January 1, 2010. The Company
believes that the unions 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
and certain of its affiliates (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 to
preserve its monopoly power by restricting 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
has allowed Sabre to continue to charge US Airways supracompetitive fees. The
lawsuit seeks both injunctive relief and money damages. US Airways intends to
pursue these claims vigorously, but there can be no assurance of the outcome of
this litigation.
The Company and/or its subsidiaries are defendants in various other pending lawsuits and
proceedings, and from time to time are subject to other claims arising in the normal course of its
business, many of which are covered in whole or in part by insurance. The outcome of those matters
cannot be predicted with certainty at this time, but the Company, having consulted with outside
counsel, believes that the ultimate disposition of these contingencies will not materially affect
its consolidated financial position or results of operations.
13
|
|
|
Item 1B. |
|
Condensed Consolidated Financial Statements of US Airways, Inc. |
US Airways, Inc.
Condensed Consolidated Statements of Operations
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
Mainline passenger |
|
$ |
1,900 |
|
|
$ |
1,698 |
|
Express passenger |
|
|
685 |
|
|
|
601 |
|
Cargo |
|
|
43 |
|
|
|
33 |
|
Other |
|
|
366 |
|
|
|
353 |
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
2,994 |
|
|
|
2,685 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes |
|
|
734 |
|
|
|
534 |
|
Salaries and related costs |
|
|
573 |
|
|
|
556 |
|
Express expenses |
|
|
787 |
|
|
|
675 |
|
Aircraft rent |
|
|
164 |
|
|
|
171 |
|
Aircraft maintenance |
|
|
163 |
|
|
|
157 |
|
Other rent and landing fees |
|
|
129 |
|
|
|
134 |
|
Selling expenses |
|
|
100 |
|
|
|
95 |
|
Special items, net |
|
|
3 |
|
|
|
5 |
|
Depreciation and amortization |
|
|
62 |
|
|
|
63 |
|
Other |
|
|
309 |
|
|
|
305 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
3,024 |
|
|
|
2,695 |
|
|
|
|
|
|
|
|
Operating loss |
|
|
(30 |
) |
|
|
(10 |
) |
Nonoperating income (expense): |
|
|
|
|
|
|
|
|
Interest income |
|
|
1 |
|
|
|
5 |
|
Interest expense, net |
|
|
(53 |
) |
|
|
(59 |
) |
Other, net |
|
|
(1 |
) |
|
|
41 |
|
|
|
|
|
|
|
|
Total nonoperating expense, net |
|
|
(53 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(83 |
) |
|
|
(23 |
) |
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(83 |
) |
|
$ |
(23 |
) |
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
14
US Airways, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,067 |
|
|
$ |
1,856 |
|
Accounts receivable, net |
|
|
452 |
|
|
|
309 |
|
Materials and supplies, net |
|
|
203 |
|
|
|
184 |
|
Prepaid expenses and other |
|
|
553 |
|
|
|
480 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,275 |
|
|
|
2,829 |
|
Property and equipment |
|
|
|
|
|
|
|
|
Flight equipment |
|
|
3,996 |
|
|
|
3,985 |
|
Ground property and equipment |
|
|
826 |
|
|
|
812 |
|
Less accumulated depreciation and amortization |
|
|
(1,290 |
) |
|
|
(1,238 |
) |
|
|
|
|
|
|
|
|
|
|
3,532 |
|
|
|
3,559 |
|
Equipment purchase deposits |
|
|
133 |
|
|
|
123 |
|
|
|
|
|
|
|
|
Total property and equipment |
|
|
3,665 |
|
|
|
3,682 |
|
Other assets |
|
|
|
|
|
|
|
|
Other intangibles, net of accumulated amortization of $136
million and $130 million, respectively |
|
|
437 |
|
|
|
443 |
|
Restricted cash |
|
|
345 |
|
|
|
364 |
|
Investments in marketable securities |
|
|
45 |
|
|
|
57 |
|
Other assets |
|
|
200 |
|
|
|
190 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
1,027 |
|
|
|
1,054 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,967 |
|
|
$ |
7,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Current maturities of debt and capital leases |
|
$ |
367 |
|
|
$ |
381 |
|
Accounts payable |
|
|
421 |
|
|
|
343 |
|
Payables to related parties, net |
|
|
608 |
|
|
|
626 |
|
Air traffic liability |
|
|
1,361 |
|
|
|
861 |
|
Accrued compensation and vacation |
|
|
151 |
|
|
|
236 |
|
Accrued taxes |
|
|
237 |
|
|
|
149 |
|
Other accrued expenses |
|
|
775 |
|
|
|
766 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,920 |
|
|
|
3,362 |
|
Noncurrent liabilities and deferred credits |
|
|
|
|
|
|
|
|
Long-term debt and capital leases, net of current maturities |
|
|
2,510 |
|
|
|
2,596 |
|
Deferred gains and credits, net |
|
|
300 |
|
|
|
293 |
|
Postretirement benefits other than pensions |
|
|
140 |
|
|
|
140 |
|
Employee benefit liabilities and other |
|
|
401 |
|
|
|
394 |
|
|
|
|
|
|
|
|
Total noncurrent liabilities and deferred credits |
|
|
3,351 |
|
|
|
3,423 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Common stock, $1 par value, 1,000 shares issued and outstanding |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
2,445 |
|
|
|
2,445 |
|
Accumulated other comprehensive income |
|
|
19 |
|
|
|
20 |
|
Accumulated deficit |
|
|
(1,768 |
) |
|
|
(1,685 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
696 |
|
|
|
780 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
7,967 |
|
|
$ |
7,565 |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
15
US Airways, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Net cash provided by operating activities |
|
$ |
324 |
|
|
$ |
231 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(38 |
) |
|
|
(74 |
) |
Sales of marketable securities |
|
|
12 |
|
|
|
132 |
|
Decrease in long-term restricted cash |
|
|
19 |
|
|
|
38 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(7 |
) |
|
|
96 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repayments of debt and capital lease obligations |
|
|
(112 |
) |
|
|
(119 |
) |
Proceeds from issuance of debt |
|
|
6 |
|
|
|
80 |
|
Deferred financing costs |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(106 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
211 |
|
|
|
285 |
|
Cash and cash equivalents at beginning of period |
|
|
1,856 |
|
|
|
1,209 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
2,067 |
|
|
$ |
1,494 |
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Interest payable converted to debt |
|
$ |
9 |
|
|
$ |
11 |
|
Note payables issued for aircraft purchases |
|
|
|
|
|
|
111 |
|
Net unrealized loss on available-for-sale securities |
|
|
|
|
|
|
1 |
|
Supplemental information: |
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized |
|
$ |
41 |
|
|
$ |
49 |
|
Income taxes paid |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
16
US Airways, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of US Airways, Inc.
(US Airways) should be read in conjunction with the consolidated financial statements contained
in US Airways Annual Report on Form 10-K for the year ended December 31, 2010. US Airways is a
wholly owned subsidiary of US Airways Group, Inc. (US Airways Group). The accompanying unaudited
condensed consolidated financial statements include the accounts of US Airways and its wholly owned
subsidiary, FTCHP LLC. All significant intercompany accounts and transactions between US Airways
and its wholly owned subsidiary have been eliminated.
Management believes that all adjustments necessary for the fair presentation of results,
consisting of normally recurring items, have been included in the unaudited condensed consolidated
financial statements for the interim periods presented. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States requires management
to make certain estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the
date of the financial statements. Actual results could differ from those estimates. The principal
areas of judgment relate to passenger revenue recognition, impairment of long-lived and intangible
assets, valuation of investments in marketable securities, the frequent traveler program and the
deferred tax asset valuation allowance.
Recent Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue
Arrangements. ASU No. 2009-13 addresses the accounting for multiple-deliverable arrangements to
enable vendors to account for products or services (deliverables) separately rather than as a
combined unit. This guidance establishes a selling price hierarchy for determining the selling
price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party
evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and
requires that arrangement consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. In addition, this guidance significantly
expands required disclosures related to a vendors multiple-deliverable revenue arrangements. US
Airways multiple-deliverable revenue arrangements consist principally of sales of frequent flyer
program mileage credits to business partners, which are comprised of two components, transportation
and marketing. US Airways was required to adopt and apply ASU No. 2009-13 to any new or materially
modified multiple deliverable revenue arrangements entered into on or after January 1, 2011. US
Airways adopted ASU No. 2009-13 on January 1, 2011, and its application has had no material impact
on US Airways condensed consolidated financial statements.
2. Special Items, Net
Special items, net as shown on the condensed consolidated statements of operations included
the following charges (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Other costs |
|
$ |
3 |
|
|
$ |
|
|
Aircraft costs (a) |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
Special items, net |
|
$ |
3 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In the three months ended March 31, 2010, US Airways recorded $5 million in aircraft costs
as a result of capacity reductions. |
17
3. Debt
The following table details US Airways debt (in millions). Variable interest rates listed are
the rates as of March 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Secured |
|
|
|
|
|
|
|
|
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.65% to
10.31%, maturing from 2011 to 2021 |
|
$ |
1,835 |
|
|
$ |
1,890 |
|
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 6.25%
to 9.01%, maturing from 2015 to 2023 |
|
|
783 |
|
|
|
809 |
|
Other secured obligations, fixed interest rate of 8%, maturing from 2015 to 2021 |
|
|
79 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
2,697 |
|
|
|
2,784 |
|
Unsecured |
|
|
|
|
|
|
|
|
Airbus advance, repayments through 2018 |
|
|
210 |
|
|
|
222 |
|
Industrial development bonds, fixed interest rate of 6.30%, interest only payments until due in 2023 |
|
|
29 |
|
|
|
29 |
|
Other unsecured obligations, maturing from 2011 to 2012 |
|
|
20 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
259 |
|
|
|
274 |
|
|
|
|
|
|
|
|
Total long-term debt and capital lease obligations |
|
|
2,956 |
|
|
|
3,058 |
|
Less: Total unamortized discount on debt |
|
|
(79 |
) |
|
|
(81 |
) |
Current maturities |
|
|
(367 |
) |
|
|
(381 |
) |
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, net of current maturities |
|
$ |
2,510 |
|
|
$ |
2,596 |
|
|
|
|
|
|
|
|
US Airways was in compliance with the covenants in its debt agreements at March 31, 2011.
Fair Value of Debt
The fair value of US Airways long-term debt and capital lease obligations was approximately
$2.72 billion and $2.85 billion at March 31, 2011 and December 31, 2010, respectively. The fair
values were estimated using quoted market prices where available. For long-term debt not actively
traded, fair values were estimated using a discounted cash flow analysis, based on US Airways
current incremental borrowing rates for similar types of borrowing arrangements.
4. Related Party Transactions
The following represents the net payable balances to related parties (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
US Airways Group |
|
$ |
521 |
|
|
$ |
571 |
|
US Airways Groups wholly owned subsidiaries |
|
|
87 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
$ |
608 |
|
|
$ |
626 |
|
|
|
|
|
|
|
|
US Airways Group has the ability to move funds freely between its operating subsidiaries to
support operations. These transfers are recognized as intercompany transactions.
The net payable to US Airways Groups 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.
18
5. Income Taxes
US Airways and its wholly owned subsidiary are part of the US Airways Group consolidated
income tax return.
At December 31, 2010, US Airways had approximately $1.84 billion of gross net operating losses
(NOLs) to reduce future federal taxable income. All of US Airways NOLs are expected to be
available to reduce federal taxable income in the calendar year 2011. The NOLs expire during the
years 2024 through 2029. US Airways net deferred tax assets, which include $1.77 billion of the
NOLs, are subject to a full valuation allowance. US Airways also had approximately $78 million of
tax-effected state NOLs at December 31, 2010. At December 31, 2010, the federal and state valuation
allowances were $388 million and $62 million, respectively.
US Airways reported a loss before income taxes in the first quarter of each of 2011 and 2010,
and US Airways did not record a tax provision in either period.
6. Express Expenses
Expenses associated with affiliate regional airlines operating as US Airways Express are
classified as Express expenses on the condensed consolidated statements of operations. Express
expenses consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Aircraft fuel and related taxes |
|
$ |
243 |
|
|
$ |
170 |
|
Salaries and related costs |
|
|
6 |
|
|
|
6 |
|
Capacity purchases |
|
|
447 |
|
|
|
412 |
|
Other rent and landing fees |
|
|
28 |
|
|
|
26 |
|
Selling expenses |
|
|
41 |
|
|
|
36 |
|
Other expenses |
|
|
22 |
|
|
|
25 |
|
|
|
|
|
|
|
|
Express expenses |
|
$ |
787 |
|
|
$ |
675 |
|
|
|
|
|
|
|
|
7. Investments in Marketable Securities
As of March 31, 2011, US Airways held auction rate securities with a fair value of $45 million
($69 million par value), which are classified as available-for-sale securities and noncurrent
assets on US Airways condensed consolidated balance sheets. Contractual maturities for these
auction rate securities range from 22 to 25 years. As a result of the liquidity issues experienced
in the global credit and capital markets, all of US Airways auction rate securities have
experienced failed auctions since August 2007. The estimated fair value of these auction rate
securities no longer approximates par value. Refer to Note 8 for discussion on how US Airways
determines the fair value of its investments in auction rate securities.
In the three months ended March 31, 2011, US Airways sold certain investments in auction rate
securities for proceeds of $12 million. Proceeds from the auction rate security sale transactions
approximated the carrying amount of the investments.
In the three months ended March 31, 2010, US Airways sold certain investments in auction rate
securities for proceeds of $132 million, resulting in $49 million of net realized gains recorded in
nonoperating expense, net, of which $48 million represents the reclassification of prior period net
unrealized gains from other comprehensive income as determined on a specific-identification basis.
Additionally, in the first quarter of 2010, US Airways recorded net unrealized losses of $1 million
in other comprehensive income related to the decline in fair value of certain investments in
auction rate securities, which offset previously recognized unrealized gains.
US Airways continues to monitor the market for auction rate securities and consider its impact
(if any) on the fair value of its remaining investments in these securities. If the current market
conditions deteriorate, US Airways may be required to record additional impairment charges in other
nonoperating expense, net in future periods.
19
8. Fair Value Measurements
Assets measured at fair value on a recurring basis are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
Valuation |
|
|
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Technique |
|
At March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable securities (noncurrent) |
|
$ |
45 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
45 |
|
|
|
(1 |
) |
At December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable securities (noncurrent) |
|
$ |
57 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
57 |
|
|
|
(1 |
) |
|
|
|
(1) |
|
US Airways estimated the fair value of its auction rate securities based on the following:
(i) the underlying structure of each security; (ii) the present value of future principal and
interest payments discounted at rates considered to reflect current market conditions; (iii)
consideration of the probabilities of default, passing a future auction, or repurchase at par
for each period; and (iv) estimates of the recovery rates in the event of default for each
security. These estimated fair values could change significantly based on future market
conditions. Refer to Note 7 for further discussion of US Airways investments in marketable
securities. |
Assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) are as follows (in millions):
|
|
|
|
|
|
|
Investments in |
|
|
|
Marketable |
|
|
|
Securities |
|
|
|
(Noncurrent) |
|
Balance at December 31, 2010 |
|
$ |
57 |
|
Sales of marketable securities |
|
|
(12 |
) |
|
|
|
|
Balance at March 31, 2011 |
|
$ |
45 |
|
|
|
|
|
9. Other Comprehensive Income (Loss)
US Airways other comprehensive loss consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Net loss |
|
$ |
(83 |
) |
|
$ |
(23 |
) |
Recognition of net realized gains on sale of available-for-sale securities |
|
|
|
|
|
|
(48 |
) |
Net unrealized losses on available-for-sale securities |
|
|
|
|
|
|
(1 |
) |
Other postretirement benefits |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
Total comprehensive loss |
|
$ |
(84 |
) |
|
$ |
(73 |
) |
|
|
|
|
|
|
|
The components of accumulated other comprehensive income were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Other postretirement benefits |
|
$ |
37 |
|
|
$ |
38 |
|
Available-for-sale securities |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
$ |
19 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
20
10. Slot Transaction
In August 2009, US Airways Group and US Airways entered into a mutual asset purchase and sale
agreement with Delta Airlines, Inc. (Delta). Pursuant to the agreement, US Airways would transfer
to Delta certain assets related to flight operations at LaGuardia Airport in New York
(LaGuardia), including 125 pairs of slots currently used to provide US Airways Express service at
LaGuardia. Delta would transfer to US Airways certain assets related to flight operations at
Washington National, including 42 pairs of slots, and the authority to serve Sao Paulo, Brazil and
Tokyo, Japan. The closing of the transactions under the agreement is subject to certain closing
conditions, including approvals from a number of government agencies. In a final decision dated May
4, 2010, the Federal Aviation Administration (FAA) rejected an alternative transaction proposed
by Delta and US Airways. On July 2, 2010, US Airways and Delta jointly filed with the United States
Circuit Court of Appeals for the District of Columbia Circuit a notice of appeal of the regulatory
action taken by the FAA with respect to this transaction. US Airways is presently in discussions
with Delta and the relevant government agencies regarding a possible resolution that would allow a
slot transaction with Delta to proceed. However, US Airways cannot predict the outcome of these
discussions or the related judicial proceeding, or whether a slot transaction with Delta will be
completed.
11. Legal Proceedings
On September 12, 2004, US Airways Group and its domestic subsidiaries (collectively, the
Reorganized Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division
(Case Nos. 04-13819-SSM through 03-13823-SSM) (the 2004 Bankruptcy). On September 16, 2005, the
Bankruptcy Court issued an order confirming the plan of reorganization submitted by the Reorganized
Debtors and on September 27, 2005, the Reorganized Debtors emerged from the 2004 Bankruptcy. The
Bankruptcy Courts order confirming the plan included a provision called the plan injunction, which
forever bars other parties from pursuing most claims against the Reorganized Debtors that arose
prior to September 27, 2005 in any forum other than the Bankruptcy Court. Substantially all of the
claims in the 2004 Bankruptcy have been settled and the allowed claims have been paid out in common
stock of the post-bankruptcy US Airways Group at a small fraction of the actual claim amount.
However, the effects of these common stock distributions were already reflected in US Airways
consolidated financial statements upon emergence from bankruptcy and will not have any further
impact on its financial position or results of operations. US Airways presently expects the
bankruptcy case to be closed during 2011.
US Airways is party to an arbitration proceeding relating to a grievance brought by its pilots
union to the effect that, effective January 1, 2010, this work group was entitled to a significant
increase in wages by operation of the applicable collective bargaining agreement. A hearing was
conducted and the parties are awaiting the ruling of the arbitrator. An adverse ruling by the
arbitrator could require a material increase in the wages of US Airways pilots and a material back
payment to make the wage increase retroactive to January 1, 2010. US Airways believes that the
unions 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
and certain of its affiliates (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 to
preserve its monopoly power by restricting 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
has allowed Sabre to continue to charge US Airways supracompetitive fees. The
lawsuit seeks both injunctive relief and money damages. US Airways intends to
pursue these claims vigorously, but there can be no assurance of the outcome of
this litigation.
US Airways is a defendant in various other pending lawsuits and proceedings, and from time to
time is subject to other claims arising in the normal course of its business, many of which are
covered in whole or in part by insurance. The outcome of those matters cannot be predicted with
certainty at this time, but US Airways, having consulted with outside counsel, believes that the
ultimate disposition of these contingencies will not materially affect its consolidated financial
position or results of operations.
21
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of US Airways
Group, Inc.s and US Airways, Inc.s Annual Report on Form 10-K for the year ended December 31,
2010 (the 2010 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 2010 Form 10-K.
Background
US Airways Group is a holding company whose primary business activity is the operation of a
major network air carrier through its wholly owned subsidiaries US Airways, Piedmont Airlines, Inc.
(Piedmont), PSA Airlines, Inc. (PSA), Material Services Company, Inc. (MSC) and Airways
Assurance Limited (AAL).
We operate the fifth largest airline in the United States as measured by domestic revenue
passenger miles (RPMs) and available seat miles (ASMs). We have hubs in Charlotte, Philadelphia
and Phoenix and a focus city in Washington, D.C. at Ronald Reagan Washington National Airport. We
offer scheduled passenger service on more than 3,200 flights daily to more than 200 communities in
the United States, Canada, Mexico, Europe, the Middle East, the Caribbean, Central and South
America. We also have an established East Coast route network, including the US Airways Shuttle
service. For the three months ended March 31, 2011, we had approximately 12 million passengers
boarding our mainline flights. As of March 31, 2011, we operated 340 mainline jets and are
supported by our regional airline subsidiaries and affiliates operating as US Airways Express under
capacity purchase agreements, which operated 231 regional jets and 50 turboprops. Our prorate
carriers operated 14 turboprops and six regional jets at March 31, 2011.
The U.S. Airline Industry
In the first quarter of 2011, the U.S. airline industry faced an unexpected challenge when
political unrest in the Middle East and North Africa substantially increased the cost of crude oil.
Since mid-March 2011, the daily spot price for crude has consistently exceeded $100 per barrel and
in April 2011 peaked as high as $112 per barrel for West Texas Intermediate (WTI) crude oil and
$126 per barrel for Brent Crude oil. Accordingly, market prices for jet fuel, one of an airlines
largest expenses, surged as well. In the first half of April 2011, the average U.S. Gulf Coast spot
market price for jet fuel was $3.25 per gallon. The Air Transport Association of America (ATA)
estimates that if a $3 per gallon jet fuel price was sustained for 2011, it would increase the U.S.
airlines 2011 fuel costs by $15 billion over their 2010 fuel costs of $39 billion. ATA reports
that in 2010, U.S. airlines reported an estimated net profit of $3 billion representing a 2% profit
margin.
The industry is responding to the significant spike in fuel costs by increasing fares. The
economic recovery, which started in 2010 and continues to drive strong consumer demand for air
travel, as well as the industrys continued capacity discipline, resulted in a robust pricing
environment in the first quarter of 2011. Since December 2010, U.S. airlines have been able to
raise ticket prices through several major fare increases. In its most recent data available, the
ATA reported that industry passenger revenues increased 10% and 13% on a year-over-year basis in
January and February 2011, respectively, with February 2011 marking the 14th consecutive
month of revenue growth. Increased industry yields of 7.2% and 10.8% on a year-over-year basis in
January and February 2011, respectively, were the key contributors to revenue growth.
Despite the major earthquake in Japan and tsunami, which resulted in a significant drop in
passenger traffic in that region, international markets continued to outperform domestic markets
with respect to year-over-year improvements in revenue. ATA reported international passenger
revenues grew 16% and 17% in January and February 2011, respectively, as compared to domestic
revenue growth of 6.7% and 11.5%, respectively, in January and February 2011. Cargo revenues were
also up in the first quarter of 2011 with greater growth internationally.
The industry also has responded to the significant spike in fuel costs by reducing capacity.
Since the beginning of the year, many U.S. airlines have implemented or announced capacity
reductions for 2011.
Unlike 2008, the U.S. airline industry has been able to pass on at least some of these higher
costs to customers thus far in 2011. However, significant uncertainty exists as to whether the
economic conditions driving passenger demand and the capacity discipline that permitted the
industry to increase revenues in the first quarter of 2011 will be sufficient to continue to absorb
high fuel prices. See Part II, Item 1A, Risk Factors 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.
22
US Airways Group
In the first quarter of 2011, the year-over-year growth in revenues driven by the
strong pricing environment substantially offset higher costs, principally rising fuel costs. In the
three months ended March 31, 2011, we realized an operating loss of $39 million as compared to an
operating loss of $10 million in the 2010 period. Additionally, we continued to run one of the
industrys most reliable operations as measured by the Department of Transportations rankings in
on-time performance, baggage handling and customer complaints ratios.
Capacity
In response to rising fuel costs, in March 2011 we announced we would reduce capacity in the
fourth quarter of 2011. System capacity is now expected to be up approximately one to two percent
in 2011. Mainline is forecast to be up approximately two percent, with domestic capacity expected
to be up slightly and international up five percent. Express capacity is expected to be down
approximately one percent.
Revenue
Mainline and Express passenger revenues increased $286 million, or 12.4%, as compared to the
2010 period. The increase in passenger revenues was driven by a 7.6% increase in yield as compared
to the 2010 period. Our mainline and Express passenger revenue per available seat mile (PRASM)
was 12.59 cents in 2011, an 8.7% increase, as compared to 11.58 cents in the 2010 period. Total
revenue per available seat mile (RASM) was 14.42 cents in 2011 as compared to 13.35 cents in the
2010 period, representing an 8.1% improvement. Total revenues include our ancillary revenue
initiatives, which generated $126 million in revenues for the first quarter of 2011, an increase of
$8 million over the 2010 period.
Fuel
The average mainline and Express price per gallon of fuel was $2.88 for the first quarter of
2011 as compared to an average cost per gallon of $2.18 in the first quarter of 2010, an increase
of 32.5%. Accordingly, our mainline and Express fuel expense was $976 million for the first quarter
of 2011, which was 38.7% higher than the 2010 period, on a 3.4% increase in total system capacity.
Since the third quarter of 2008, we have not entered into any new transactions to hedge our
fuel consumption, and we have not had any fuel hedging contracts outstanding since the third
quarter of 2009.
Cost Control
We remained 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 CASM excluding special items and fuel
decreased 0.12 cents, or 1.3%, from 8.88 cents in first quarter of 2010 to 8.76 cents in the first
quarter of 2011. The decrease in the 2011 period was primarily due to our strong operational
performance and continued cost diligence.
The following table details our mainline costs per available seat mile (CASM) for the three
months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
|
(In cents) |
|
|
|
|
Mainline CASM excluding special items and fuel: |
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline CASM |
|
|
13.09 |
|
|
|
12.13 |
|
|
|
7.9 |
|
Special items, net |
|
|
(0.02 |
) |
|
|
(0.03 |
) |
|
|
(42.8 |
) |
Aircraft fuel and related taxes |
|
|
(4.31 |
) |
|
|
(3.22 |
) |
|
|
33.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline CASM excluding special items and fuel (1) |
|
|
8.76 |
|
|
|
8.88 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 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 and fuel to evaluate our operating performance. Amounts may not
recalculate due to rounding. |
23
Customer Service
The first quarter of 2011 was another quarter of outstanding operational performance for US
Airways as measured by the Department of Transportations (DOT) monthly operating performance
metrics. Through February 2011, the most recently issued monthly DOT Air Travel Consumer Report, we
have received two first place rankings in baggage handling and one first place ranking in on-time
performance.
In addition, in April 2011, we received a first place ranking among the nations big hub-and
spoke carriers in the annual Airline Quality Report (AQR). The AQR is published by teams of
researchers at Wichita State University in Kansas and Purdue University in Indiana. US Airways
improved its ranking among the big hub-and-spoke carriers for the fifth consecutive year, and
received a 6th place overall ranking, which was up from 8th place a year ago.
We reported the following operating statistics to the DOT for mainline operations for the
first quarter of 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
Percent Better (Worse) 2011-2010 |
|
|
|
January |
|
|
February |
|
|
March (e) |
|
|
January |
|
|
February |
|
|
March |
|
|
January |
|
|
February |
|
|
March |
|
On-time performance (a) |
|
|
78.6 |
|
|
|
80.5 |
|
|
|
82.8 |
|
|
|
79.4 |
|
|
|
75.3 |
|
|
|
80.9 |
|
|
|
(1.0 |
) |
|
|
6.9 |
|
|
|
2.3 |
|
Completion factor (b) |
|
|
95.0 |
|
|
|
97.9 |
|
|
|
99.3 |
|
|
|
97.0 |
|
|
|
92.9 |
|
|
|
98.6 |
|
|
|
(2.1 |
) |
|
|
5.4 |
|
|
|
0.7 |
|
Mishandled baggage (c) |
|
|
3.04 |
|
|
|
2.52 |
|
|
|
2.42 |
|
|
|
3.45 |
|
|
|
3.22 |
|
|
|
2.92 |
|
|
|
11.9 |
|
|
|
21.7 |
|
|
|
17.1 |
|
Customer complaints (d) |
|
|
1.51 |
|
|
|
1.59 |
|
|
|
1.24 |
|
|
|
2.03 |
|
|
|
1.69 |
|
|
|
1.83 |
|
|
|
25.6 |
|
|
|
5.9 |
|
|
|
32.2 |
|
|
|
|
(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 passengers. |
|
(e) |
|
March 2011 operating statistics are preliminary as the DOT has not issued its March 2011 Air
Travel Consumer Report as of the date of this filing. |
Liquidity Position
As of March 31, 2011, our cash, cash equivalents, investments in marketable securities and
restricted cash were $2.46 billion, of which $345 million was restricted.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions) |
|
Cash and cash equivalents |
|
$ |
2,073 |
|
|
$ |
1,859 |
|
Long-term restricted cash |
|
|
345 |
|
|
|
364 |
|
Long-term investments in marketable securities |
|
|
45 |
|
|
|
57 |
|
|
|
|
|
|
|
|
Total cash, cash equivalents, investments in marketable securities and restricted cash |
|
$ |
2,463 |
|
|
$ |
2,280 |
|
|
|
|
|
|
|
|
In the first quarter of 2011, a strong pricing environment and seasonal factors drove a $183
million improvement in our liquidity position.
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.
As of March 31, 2011, our investments in marketable securities included $45 million ($69
million par value) of auction rate securities that are classified as noncurrent assets on our
condensed consolidated balance sheets. The reduction in long-term investments during the first
quarter of 2011 was due principally to sales of $12 million of auction rate securities. Proceeds
from our auction rate security sale transactions approximated the carrying amount of the
investments.
24
2011 Outlook
Looking forward it is difficult to predict the price of oil, the pace at which the economy may
continue to recover or the capacity actions of other airlines, which may impact our ability to be
profitable in 2011. Over the past few years we have taken significant and decisive actions to
maintain capacity that is in line with demand, realign our network to focus on key markets,
introduce new revenue streams, control costs and continue our commitment to exceptional operating
reliability. We will continue to evaluate our planned capacity in light of fuel prices, the state
of the economy and general industry conditions.
25
US Airways Groups Results of Operations
In the three months ended March 31, 2011, we realized an operating loss of $39 million and a
loss before income taxes of $114 million. We experienced year-over-year growth in revenues driven
by the strong pricing environment, which substantially offset higher costs, primarily rising fuel
costs. Our first quarter 2011 results were also impacted by recognition of $4 million in special
charges.
In the three months ended March 31, 2010, we realized an operating loss of $10 million and a
loss before income taxes of $45 million. Our first quarter 2010 results were also impacted by
recognition of $44 million in net special credits as follows:
|
|
|
$5 million of net special charges for aircraft costs as a result of capacity
reductions; and |
|
|
|
$49 million of net realized gains related to the sale of certain investments in
auction rate securities, included in nonoperating expense, net. |
At December 31, 2010, we had approximately $1.92 billion of gross net operating losses
(NOLs) to reduce future federal taxable income. All of our NOLs are expected to be available to
reduce federal taxable income in the calendar year 2011. The NOLs expire during the years 2024
through 2029. Our net deferred tax assets, which include $1.85 billion of the NOLs, are subject to
a full valuation allowance. We also had approximately $82 million of tax-effected state NOLs at
December 31, 2010. At December 31, 2010, the federal and state valuation allowances were $368
million and $62 million, respectively.
We reported a loss before income taxes in the first quarter of each of 2011 and 2010, and we
did not record a tax provision in either period.
26
The table below sets forth our selected mainline and Express operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
Mainline |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) (a) |
|
|
13,570 |
|
|
|
13,053 |
|
|
|
4.0 |
% |
Available seat miles (millions) (b) |
|
|
17,035 |
|
|
|
16,579 |
|
|
|
2.8 |
% |
Passenger load factor (percent) (c) |
|
|
79.7 |
|
|
|
78.7 |
|
|
1.0 |
pts |
Yield (cents) (d) |
|
|
14.00 |
|
|
|
13.01 |
|
|
|
7.6 |
% |
Passenger revenue per available seat mile (cents) (e) |
|
|
11.15 |
|
|
|
10.24 |
|
|
|
8.9 |
% |
Operating cost per available seat mile (cents) (f) |
|
|
13.09 |
|
|
|
12.13 |
|
|
|
7.9 |
% |
Passenger enplanements (thousands) (g) |
|
|
12,504 |
|
|
|
11,985 |
|
|
|
4.3 |
% |
Departures (thousands) |
|
|
112 |
|
|
|
108 |
|
|
|
3.7 |
% |
Aircraft at end of period |
|
|
340 |
|
|
|
347 |
|
|
|
(2.0 |
)% |
Block hours (thousands) (h) |
|
|
294 |
|
|
|
286 |
|
|
|
2.7 |
% |
Average stage length (miles) (i) |
|
|
946 |
|
|
|
959 |
|
|
|
(1.3 |
)% |
Average passenger journey (miles) (j) |
|
|
1,593 |
|
|
|
1,599 |
|
|
|
(0.4 |
)% |
Fuel consumption (gallons in millions) |
|
|
256 |
|
|
|
247 |
|
|
|
3.7 |
% |
Average aircraft fuel price including related taxes (dollars per gallon) |
|
|
2.87 |
|
|
|
2.17 |
|
|
|
32.5 |
% |
Full-time equivalent employees at end of period |
|
|
30,621 |
|
|
|
30,439 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Express (k) |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) (a) |
|
|
2,438 |
|
|
|
2,270 |
|
|
|
7.4 |
% |
Available seat miles (millions) (b) |
|
|
3,492 |
|
|
|
3,279 |
|
|
|
6.5 |
% |
Passenger load factor (percent) (c) |
|
|
69.8 |
|
|
|
69.2 |
|
|
0.6 |
pts |
Yield (cents) (d) |
|
|
28.08 |
|
|
|
26.49 |
|
|
|
6.0 |
% |
Passenger revenue per available seat mile (cents) (e) |
|
|
19.60 |
|
|
|
18.34 |
|
|
|
6.9 |
% |
Operating cost per available seat mile (cents) (f) |
|
|
22.06 |
|
|
|
19.80 |
|
|
|
11.4 |
% |
Passenger enplanements (thousands) (g) |
|
|
6,347 |
|
|
|
5,946 |
|
|
|
6.7 |
% |
Aircraft at end of period |
|
|
281 |
|
|
|
282 |
|
|
|
(0.4 |
)% |
Fuel consumption (gallons in millions) |
|
|
83 |
|
|
|
77 |
|
|
|
7.6 |
% |
Average aircraft fuel price including related taxes (dollars per gallon) |
|
|
2.92 |
|
|
|
2.20 |
|
|
|
32.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mainline and Express |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) (a) |
|
|
16,008 |
|
|
|
15,323 |
|
|
|
4.5 |
% |
Available seat miles (millions) (b) |
|
|
20,527 |
|
|
|
19,858 |
|
|
|
3.4 |
% |
Passenger load factor (percent) (c) |
|
|
78.0 |
|
|
|
77.2 |
|
|
0.8 |
pts |
Yield (cents) (d) |
|
|
16.14 |
|
|
|
15.01 |
|
|
|
7.6 |
% |
Passenger revenue per available seat mile (cents) (e) |
|
|
12.59 |
|
|
|
11.58 |
|
|
|
8.7 |
% |
Total revenue per available seat mile (cents) (l) |
|
|
14.42 |
|
|
|
13.35 |
|
|
|
8.1 |
% |
Passenger enplanements (thousands) (g) |
|
|
18,851 |
|
|
|
17,931 |
|
|
|
5.1 |
% |
Aircraft at end of period |
|
|
621 |
|
|
|
629 |
|
|
|
(1.3 |
)% |
Fuel consumption (gallons in millions) |
|
|
339 |
|
|
|
324 |
|
|
|
4.6 |
% |
Average aircraft fuel price including related taxes (dollars per gallon) |
|
|
2.88 |
|
|
|
2.18 |
|
|
|
32.5 |
% |
|
|
|
(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 and
expressed in cents per mile. |
|
(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. |
27
|
|
|
(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. and Chautauqua Airlines, Inc. |
|
(l) |
|
Total revenue per available seat mile (RASM) Total revenues divided by total mainline
and Express ASMs. |
Three Months Ended March 31, 2011
Compared with the
Three Months Ended March 31, 2010
Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
|
(In millions) |
|
|
|
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Mainline passenger |
|
$ |
1,900 |
|
|
$ |
1,698 |
|
|
|
11.9 |
|
Express passenger |
|
|
685 |
|
|
|
601 |
|
|
|
13.8 |
|
Cargo |
|
|
43 |
|
|
|
33 |
|
|
|
30.2 |
|
Other |
|
|
333 |
|
|
|
319 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
2,961 |
|
|
$ |
2,651 |
|
|
|
11.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues in the first quarter of 2011 were $2.96 billion as compared to $2.65
billion in the 2010 period, an increase of $310 million, or 11.7%. Significant changes in the
components of operating revenues are as follows:
|
|
|
Mainline passenger revenues were $1.90 billion in the first quarter of 2011 as
compared to $1.70 billion in the 2010 period. Mainline RPMs increased 4.0% as mainline
capacity, as measured by ASMs, increased 2.8%, resulting in a 1.0 point increase in load
factor to 79.7%. Mainline passenger yield increased 7.6% to 14.00 cents in the first quarter
of 2011 from 13.01 cents in the 2010 period. Mainline PRASM increased 8.9% to 11.15 cents in
the first quarter of 2011 from 10.24 cents in the 2010 period. These increases in mainline
yield and PRASM were due principally to the strong pricing environment driven by the economic
recovery and continued industry capacity discipline. |
|
|
|
Express passenger revenues were $685 million in the first quarter of 2011, an
increase of $84 million from the 2010 period. Express RPMs increased 7.4% as Express
capacity, as measured by ASMs, increased 6.5%, resulting in a 0.6 point increase in load
factor to 69.8%. Express passenger yield increased by 6.0% to 28.08 cents in the first
quarter of 2011 from 26.49 cents in the 2010 period. Express PRASM increased 6.9% to 19.60
cents in the first quarter of 2011 from 18.34 cents in the 2010 period. The increases in
Express yield and PRASM were the result of the same strong pricing environment discussed in
mainline passenger revenues above. |
|
|
|
Cargo revenues were $43 million in the first quarter of 2011, an increase of $10
million, or 30.2%, from the 2010 period. The increase in cargo revenues was driven primarily
by an increase in yield as well as an increase in international freight volume as a result of
the improved economic environment. |
28
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
|
(In millions) |
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes |
|
$ |
734 |
|
|
$ |
534 |
|
|
|
37.4 |
|
Salaries and related costs |
|
|
573 |
|
|
|
556 |
|
|
|
3.1 |
|
Aircraft rent |
|
|
164 |
|
|
|
171 |
|
|
|
(4.1 |
) |
Aircraft maintenance |
|
|
163 |
|
|
|
157 |
|
|
|
4.2 |
|
Other rent and landing fees |
|
|
129 |
|
|
|
134 |
|
|
|
(4.2 |
) |
Selling expenses |
|
|
100 |
|
|
|
95 |
|
|
|
5.8 |
|
Special items, net |
|
|
3 |
|
|
|
5 |
|
|
|
(41.2 |
) |
Depreciation and amortization |
|
|
60 |
|
|
|
61 |
|
|
|
(1.2 |
) |
Other |
|
|
304 |
|
|
|
298 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline operating expenses |
|
|
2,230 |
|
|
|
2,011 |
|
|
|
10.8 |
|
Express expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Fuel |
|
|
242 |
|
|
|
170 |
|
|
|
42.7 |
|
Other |
|
|
528 |
|
|
|
480 |
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Express expenses |
|
|
770 |
|
|
|
650 |
|
|
|
18.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
3,000 |
|
|
$ |
2,661 |
|
|
|
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses were $3.00 billion in the first quarter of 2011, an increase of $339
million, or 12.8%, compared to the 2010 period.
Mainline Operating Expenses:
Mainline operating expenses were $2.23 billion in the first quarter of 2011, an increase of
$219 million, or 10.8%, from the 2010 period, while mainline capacity increased 2.8%.
Our mainline CASM excluding special items and fuel decreased 0.12 cents, or 1.3%, from 8.88
cents in the first quarter of 2010 to 8.76 cents in the first quarter of 2011. The decrease in the
2011 period was primarily due to our strong operational performance and continued cost diligence.
The table below sets forth the major components of our total mainline CASM and our mainline
CASM excluding special items and fuel for the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
|
(In cents) |
|
|
|
|
Mainline CASM: |
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes |
|
|
4.31 |
|
|
|
3.22 |
|
|
|
33.7 |
|
Salaries and related costs |
|
|
3.36 |
|
|
|
3.35 |
|
|
|
0.3 |
|
Aircraft rent |
|
|
0.96 |
|
|
|
1.03 |
|
|
|
(6.7 |
) |
Aircraft maintenance |
|
|
0.96 |
|
|
|
0.95 |
|
|
|
1.4 |
|
Other rent and landing fees |
|
|
0.76 |
|
|
|
0.81 |
|
|
|
(6.7 |
) |
Selling expenses |
|
|
0.59 |
|
|
|
0.57 |
|
|
|
3.0 |
|
Special items, net |
|
|
0.02 |
|
|
|
0.03 |
|
|
|
(42.8 |
) |
Depreciation and amortization |
|
|
0.35 |
|
|
|
0.37 |
|
|
|
(3.9 |
) |
Other |
|
|
1.78 |
|
|
|
1.80 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total mainline CASM |
|
|
13.09 |
|
|
|
12.13 |
|
|
|
7.9 |
|
Special items, net |
|
|
(0.02 |
) |
|
|
(0.03 |
) |
|
|
|
|
Aircraft fuel and related taxes |
|
|
(4.31 |
) |
|
|
(3.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline CASM excluding special items and fuel (1) |
|
|
8.76 |
|
|
|
8.88 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 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 and fuel to evaluate our operating performance. Amounts may not
recalculate due to rounding. |
29
Significant changes in the components of mainline operating expense per ASM are as
follows:
|
|
|
Aircraft fuel and related taxes per ASM increased 33.7% primarily due to a 32.5%
increase in the average price per gallon of fuel to $2.87 in the first quarter of 2011 from
$2.17 in the 2010 period. |
|
|
|
Aircraft rent per ASM decreased 6.7% primarily due to a decrease in the average
number of leased aircraft in the first quarter of 2011 as compared to the 2010 period. |
|
|
|
Other rent and landing fees per ASM decreased 6.7% primarily due to the timing of
annually determined rent credits received at certain airport stations. |
Express Operating Expenses:
Total Express expenses increased $120 million, or 18.7%, in the first quarter of 2011 to $770
million from $650 million in the 2010 period. The period-over-period increase was primarily due to
a $72 million, or 42.7%, increase in fuel costs. Increased fuel costs were primarily the result of
a 32.6% increase in the average price per gallon of fuel to $2.92 in the first quarter of 2011 from
$2.20 in the 2010 period. Other Express expenses increased $48 million, or 10.2%, while Express
capacity increased 6.5%, due primarily to an increase in maintenance expenses due principally to
increases in the number of engine overhauls performed.
Nonoperating Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
|
(In millions) |
|
|
|
|
Nonoperating income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
1 |
|
|
$ |
5 |
|
|
|
(74.6 |
) |
Interest expense, net |
|
|
(77 |
) |
|
|
(82 |
) |
|
|
(6.0 |
) |
Other, net |
|
|
1 |
|
|
|
42 |
|
|
|
(98.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net |
|
$ |
(75 |
) |
|
$ |
(35 |
) |
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
Net nonoperating expense increased $40 million in the first quarter of 2011 to $75 million
from $35 million in the 2010 period. The period-over-period increase was primarily due to $49
million of net realized gains related to the sale of certain investments in auction rate securities
recorded in the 2010 period.
30
US Airways Results of Operations
In the three months ended March 31, 2011, US Airways realized an operating loss of $30
million and a loss before income taxes of $83 million. US Airways experienced year-over-year growth
in revenues driven by the strong pricing environment, which substantially offset higher costs,
primarily rising fuel costs. US Airways first quarter 2011 results were also impacted by
recognition of $3 million in special charges.
In the three months ended March 31, 2010, US Airways realized an operating loss of $10 million
and a loss before income taxes of $23 million. US Airways first quarter 2010 results were also
impacted by recognition of $44 million in net special credits as follows:
|
|
|
$5 million of net special charges for aircraft costs as a result of capacity
reductions; and |
|
|
|
$49 million of net realized gains related to the sale of certain investments in
auction rate securities, included in nonoperating expense, net. |
At December 31, 2010, US Airways had approximately $1.84 billion of gross NOLs to reduce
future federal taxable income. All of US Airways NOLs are expected to be available to reduce
federal taxable income in the calendar year 2011. The NOLs expire during the years 2024 through
2029. US Airways net deferred tax assets, which include $1.77 billion of the NOLs, are subject to
a full valuation allowance. US Airways also had approximately $78 million of tax-effected state
NOLs at December 31, 2010. At December 31, 2010, the federal and state valuation allowances were
$388 million and $62 million, respectively.
US Airways reported a loss before income taxes in the first quarter of each of 2011 and 2010,
and US Airways did not record a tax provision in either period.
31
The table below sets forth US Airways selected mainline and Express operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
Mainline |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) (a) |
|
|
13,570 |
|
|
|
13,053 |
|
|
|
4.0 |
% |
Available seat miles (millions) (b) |
|
|
17,035 |
|
|
|
16,579 |
|
|
|
2.8 |
% |
Passenger load factor (percent) (c) |
|
|
79.7 |
|
|
|
78.7 |
|
|
1.0 |
pts |
Yield (cents) (d) |
|
|
14.00 |
|
|
|
13.01 |
|
|
|
7.6 |
% |
Passenger revenue per available seat mile (cents) (e) |
|
|
11.15 |
|
|
|
10.24 |
|
|
|
8.9 |
% |
Aircraft at end of period |
|
|
340 |
|
|
|
347 |
|
|
|
(2.0 |
)% |
Fuel consumption (gallons in millions) |
|
|
256 |
|
|
|
247 |
|
|
|
3.7 |
% |
Average aircraft fuel price including related taxes (dollars per gallon) |
|
|
2.87 |
|
|
|
2.17 |
|
|
|
32.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Express (f) |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) (a) |
|
|
2,438 |
|
|
|
2,270 |
|
|
|
7.4 |
% |
Available seat miles (millions) (b) |
|
|
3,492 |
|
|
|
3,279 |
|
|
|
6.5 |
% |
Passenger load factor (percent) (c) |
|
|
69.8 |
|
|
|
69.2 |
|
|
0.6 |
pts |
Yield (cents) (d) |
|
|
28.08 |
|
|
|
26.49 |
|
|
|
6.0 |
% |
Passenger revenue per available seat mile (cents) (e) |
|
|
19.60 |
|
|
|
18.34 |
|
|
|
6.9 |
% |
Aircraft at end of period |
|
|
281 |
|
|
|
282 |
|
|
|
(0.4 |
)% |
Fuel consumption (gallons in millions) |
|
|
83 |
|
|
|
77 |
|
|
|
7.6 |
% |
Average aircraft fuel price including related taxes (dollars per gallon) |
|
|
2.92 |
|
|
|
2.20 |
|
|
|
32.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mainline and Express |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) (a) |
|
|
16,008 |
|
|
|
15,323 |
|
|
|
4.5 |
% |
Available seat miles (millions) (b) |
|
|
20,527 |
|
|
|
19,858 |
|
|
|
3.4 |
% |
Passenger load factor (percent) (c) |
|
|
78.0 |
|
|
|
77.2 |
|
|
0.8 |
pts |
Yield (cents) (d) |
|
|
16.14 |
|
|
|
15.01 |
|
|
|
7.6 |
% |
Passenger revenue per available seat mile (cents) (e) |
|
|
12.59 |
|
|
|
11.58 |
|
|
|
8.7 |
% |
Total revenue per available seat mile (cents) (g) |
|
|
14.58 |
|
|
|
13.52 |
|
|
|
7.9 |
% |
Aircraft at end of period |
|
|
621 |
|
|
|
629 |
|
|
|
(1.3 |
)% |
Fuel consumption (gallons in millions) |
|
|
339 |
|
|
|
324 |
|
|
|
4.6 |
% |
Average aircraft fuel price including related taxes (dollars per gallon) |
|
|
2.89 |
|
|
|
2.18 |
|
|
|
32.5 |
% |
|
|
|
(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 and
expressed in cents per mile. |
|
(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. and Chautauqua Airlines, Inc. |
|
(g) |
|
Total revenue per available seat mile (RASM) Total revenues divided by total mainline
and Express ASMs. |
32
Three Months Ended March 31, 2011
Compared with the
Three Months Ended March 31, 2010
Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
|
(In millions) |
|
|
|
|
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Mainline passenger |
|
$ |
1,900 |
|
|
$ |
1,698 |
|
|
|
11.9 |
|
Express passenger |
|
|
685 |
|
|
|
601 |
|
|
|
13.8 |
|
Cargo |
|
|
43 |
|
|
|
33 |
|
|
|
30.2 |
|
Other |
|
|
366 |
|
|
|
353 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
2,994 |
|
|
$ |
2,685 |
|
|
|
11.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues in the first quarter of 2011 were $2.99 billion as compared to $2.69
billion in the 2010 period, an increase of $309 million, or 11.5%. Significant changes in the
components of operating revenues are as follows:
|
|
|
Mainline passenger revenues were $1.90 billion in the first quarter of 2011 as
compared to $1.70 billion in the 2010 period. Mainline RPMs increased 4.0% as mainline
capacity, as measured by ASMs, increased 2.8%, resulting in a 1.0 point increase in load
factor to 79.7%. Mainline passenger yield increased 7.6% to 14.00 cents in the first quarter
of 2011 from 13.01 cents in the 2010 period. Mainline PRASM increased 8.9% to 11.15 cents in
the first quarter of 2011 from 10.24 cents in the 2010 period. These increases in mainline
yield and PRASM were due principally to the strong pricing environment driven by the economic
recovery and continued industry capacity discipline. |
|
|
|
Express passenger revenues were $685 million in the first quarter of 2011, an
increase of $84 million from the 2010 period. Express RPMs increased 7.4% as Express
capacity, as measured by ASMs, increased 6.5%, resulting in a 0.6 point increase in load
factor to 69.8%. Express passenger yield increased by 6.0% to 28.08 cents in the first
quarter of 2011 from 26.49 cents in the 2010 period. Express PRASM increased 6.9% to 19.60
cents in the first quarter of 2011 from 18.34 cents in the 2010 period. The increases in
Express yield and PRASM were the result of the same strong pricing environment discussed in
mainline passenger revenues above. |
|
|
|
Cargo revenues were $43 million in the first quarter of 2011, an increase of $10
million, or 30.2%, from the 2010 period. The increase in cargo revenues was driven primarily
by an increase in yield as well as an increase in international freight volume as a result of
the improved economic environment. |
33
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
|
(In millions) |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes |
|
$ |
734 |
|
|
$ |
534 |
|
|
|
37.4 |
|
Salaries and related costs |
|
|
573 |
|
|
|
556 |
|
|
|
3.1 |
|
Aircraft rent |
|
|
164 |
|
|
|
171 |
|
|
|
(4.1 |
) |
Aircraft maintenance |
|
|
163 |
|
|
|
157 |
|
|
|
4.2 |
|
Other rent and landing fees |
|
|
129 |
|
|
|
134 |
|
|
|
(4.2 |
) |
Selling expenses |
|
|
100 |
|
|
|
95 |
|
|
|
5.8 |
|
Special items, net |
|
|
3 |
|
|
|
5 |
|
|
|
(41.2 |
) |
Depreciation and amortization |
|
|
62 |
|
|
|
63 |
|
|
|
(1.2 |
) |
Other |
|
|
309 |
|
|
|
305 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline operating expenses |
|
|
2,237 |
|
|
|
2,020 |
|
|
|
10.7 |
|
Express expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Fuel |
|
|
243 |
|
|
|
170 |
|
|
|
42.6 |
|
Other |
|
|
544 |
|
|
|
505 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Express expenses |
|
|
787 |
|
|
|
675 |
|
|
|
16.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
3,024 |
|
|
$ |
2,695 |
|
|
|
12.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses were $3.02 billion in the first quarter of 2011, an increase of $329
million, or 12.2%, compared to the 2010 period.
Mainline Operating Expenses:
Mainline operating expenses were $2.24 billion in the first quarter of 2011, an increase of
$217 million, or 10.7%, from the 2010 period, while mainline capacity increased 2.8%.
Significant changes in the components of mainline operating expenses are as follows:
|
|
|
Aircraft fuel and related taxes increased 37.4% primarily due to a 32.5% increase
in the average price per gallon of fuel to $2.87 in the first quarter of 2011 from $2.17 in
the 2010 period. |
|
|
|
Selling expenses increased 5.8% primarily due to higher credit card fees and
commissions paid as a result of the increase in passenger revenues in 2011. |
Express Operating Expenses:
Total Express expenses increased $112 million, or 16.7%, in the first
quarter of 2011 to $787 million from $675 million in the 2010 period. The
period-over-period increase was primarily due to a $73 million, or 42.6%, increase in
fuel costs. Increased fuel costs were primarily the result of a 32.5% increase in the average price
per gallon of fuel to $2.92 in the first quarter of 2011 from $2.20 in the 2010 period.
Other Express expenses increased $39 million, or 7.9%, while Express capacity
increased 6.5%, due primarily to an increase in amounts paid under capacity purchase
agreements with US Airways Groups wholly owned Express carriers.
34
Nonoperating Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
|
(In millions) |
|
|
|
|
|
Nonoperating income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
1 |
|
|
$ |
5 |
|
|
|
(74.6 |
) |
Interest expense, net |
|
|
(53 |
) |
|
|
(59 |
) |
|
|
(9.5 |
) |
Other, net |
|
|
(1 |
) |
|
|
41 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net |
|
$ |
(53 |
) |
|
$ |
(13 |
) |
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
Net nonoperating expense increased $40 million in the first quarter of 2011 to $53 million
from $13 million in the 2010 period. The period-over-period increase was primarily due to $49
million of net realized gains related to the sale of certain investments in auction rate securities
recorded in the 2010 period.
35
Liquidity and Capital Resources
As of March 31, 2011, our cash, cash equivalents, investments in marketable securities and
restricted cash were $2.46 billion, of which $345 million was restricted. Our investments in
marketable securities included $45 million of auction rate securities at fair value ($69 million
par value) that are classified as noncurrent assets on our condensed consolidated balance sheets.
Refer to Note 7, Investments in Marketable Securities in Part I, Items 1A and 1B, respectively,
of this report for additional information on our auction rate securities.
Sources and Uses of Cash
US Airways Group
Net cash provided by operating activities was $345 million and $199 million for the first
three months of 2011 and 2010, respectively, a period-over-period improvement of $146 million. A
strong pricing environment and seasonal factors drove the improvement in operating cash flows.
Net cash used in investing activities was $9 million for the first three months of 2011 as
compared to net cash provided by investing activities of $92 million for the first three months of
2010. Principal investing activities in the 2011 period included expenditures for property and
equipment totaling $40 million, offset in part by a $19 million decrease in restricted cash and
proceeds from sales of auction rate securities of $12 million. Principal investing activities in
the 2010 period included proceeds from sales of auction rate securities of $132 million and a $38
million decrease in restricted cash. These cash inflows were offset in part by expenditures for
property and equipment totaling $78 million, primarily related to the purchase of Airbus aircraft.
Restricted cash decreased primarily due to a change in the amount of holdback held by certain
credit card processors for advance ticket sales for which US Airways had not yet provided air
transportation.
Net cash used in financing activities was $122 million and $58 million for the first three
months of 2011 and 2010, respectively. Principal financing activities in the 2011 period included
debt repayments of $128 million. Principal financing activities in the 2010 period included debt
repayments of $135 million and proceeds from the issuance of debt of $80 million, which primarily
included the financing associated with the purchase of Airbus aircraft.
US Airways
Net cash provided by operating activities was $324 million and $231 million for the first
three months of 2011 and 2010, respectively, a period-over-period improvement of $93 million. A
strong pricing environment and seasonal factors drove the improvement in operating cash flows. US
Airways operating cash flow was also impacted by net intercompany cash transfers to US Airways
Group.
Net cash used in investing activities was $7 million for the first three months of 2011 as
compared to net cash provided by investing activities of $96 million for the first three months of
2010. Principal investing activities in the 2011 period included expenditures for property and
equipment totaling $38 million, offset in part by a $19 million decrease in restricted cash and
proceeds from sales of auction rate securities of $12 million. Principal investing activities in
the 2010 period included proceeds from sales of auction rate securities of $132 million and a $38
million decrease in restricted cash. These cash inflows were offset in part by expenditures for
property and equipment totaling $74 million, primarily related to the purchase of Airbus aircraft.
Restricted cash decreased primarily due to a change in the amount of holdback held by certain
credit card processors for advance ticket sales for which US Airways had not yet provided air
transportation.
Net cash used in financing activities was $106 million and $42 million for the first three
months of 2011 and 2010, respectively. Principal financing activities in the 2011 period included
debt repayments of $112 million. Principal financing activities in the 2010 period included debt
repayments of $119 million and proceeds from the issuance of debt of $80 million, which primarily
included the financing associated with the purchase of Airbus aircraft.
36
Commitments
As of March 31, 2011, we had $4.50 billion of long-term debt and capital leases (including
current maturities and before discount on debt). The information contained herein is not a
comprehensive discussion and analysis of our commitments, but rather updates disclosures made in
the 2010 Form 10-K.
Citicorp Credit Facility
On March 23, 2007, US Airways Group entered into a term loan credit facility (the Citicorp
credit facility) with Citicorp North America, Inc., as administrative agent, and a syndicate of
lenders pursuant to which US Airways Group borrowed an aggregate principal amount of $1.6 billion.
US Airways and certain other subsidiaries of US Airways Group are guarantors of the Citicorp credit
facility.
The Citicorp credit facility bears interest at an index rate plus an applicable index margin
or, at our option, LIBOR plus an applicable LIBOR margin for interest periods of one, two, three or
six months. The applicable index margin, subject to adjustment, is 1.00%, 1.25% or 1.50% if the
adjusted loan balance is less than $600 million, between $600 million and $1 billion, or greater
than $1 billion, respectively. The applicable LIBOR margin, subject to adjustment, is 2.00%, 2.25%
or 2.50% if the adjusted loan balance is less than $600 million, between $600 million and $1
billion, or greater than $1 billion, respectively. In addition, interest on the Citicorp credit
facility may be adjusted based on the credit rating for the Citicorp credit facility as follows:
(i) if the credit ratings of the Citicorp credit facility by Moodys and S&P in effect as of the
last day of the most recently ended fiscal quarter are both at least one subgrade better than the
credit ratings in effect on March 23, 2007, then (A) the applicable LIBOR margin will be the lower
of 2.25% and the rate otherwise applicable based upon the adjusted Citicorp credit facility balance
and (B) the applicable index margin will be the lower of 1.25% and the rate otherwise applicable
based upon the Citicorp credit facility principal balance, and (ii) if the credit ratings of the
Citicorp credit facility by Moodys and S&P in effect as of the last day of the most recently ended
fiscal quarter are both at least two subgrades better than the credit ratings in effect on March
23, 2007, then (A) the applicable LIBOR margin will be 2.00% and (B) the applicable index margin
will be 1.00%. As of March 31, 2011, the interest rate on the Citicorp credit facility was 2.75%
based on a 2.50% LIBOR margin.
The Citicorp credit facility matures on March 23, 2014, and is repayable in seven annual
installments with each of the first six installments to be paid on each anniversary of the closing
date in an amount equal to 1% of the initial aggregate principal amount of the loan and the final
installment to be paid on the maturity date in the amount of the full remaining balance of the
loan.
In addition, the Citicorp credit facility requires certain mandatory prepayments upon the
occurrence of specified events, establishes certain financial covenants, including minimum cash
requirements and maintenance of certain minimum ratios, contains customary affirmative covenants
and negative covenants and contains customary events of default. The Citicorp credit facility
requires us to maintain consolidated unrestricted cash and cash equivalents of not less than $850
million, with not less than $750 million (subject to partial reductions upon certain reductions in
the outstanding principal amount of the loan) of that amount held in accounts subject to control
agreements, which would become restricted for use by us if certain adverse events occur per the
terms of the agreement. In addition, the Citicorp credit facility provides that we may issue debt
in the future with a second lien on the assets pledged as collateral under the Citicorp credit
facility. The principal amount outstanding under the Citicorp credit facility was $1.14 billion as
of March 31, 2011. As of March 31, 2011, we were in compliance with all debt covenants under the
Citicorp credit facility.
Credit Card Processing Agreements
We have agreements with companies that process customer credit card transactions for the sale
of air travel and other services. Credit card processors have financial risk associated with
tickets purchased for travel because, although the processor generally forwards the cash related to
the purchase to us soon after the purchase is completed, the air travel generally occurs after that
time, and the processor may have liability if we do not ultimately provide the air travel. Our
agreements allow these processing companies, under certain conditions, to hold an amount of our
cash (referred to as a holdback) equal to a portion of advance ticket sales that have been
processed by that company, but for which we have not yet provided the air transportation. These
holdback requirements can be modified at the discretion of the processing companies, up to the
estimated liability for future air travel purchased with the respective credit cards, upon the
occurrence of specified events, including material adverse changes in our financial condition. The
amount that the processing companies may withhold also varies as a result of changes in financial
risk due to seasonal fluctuations in ticket volume. Additional holdback requirements will reduce
our liquidity in the form of unrestricted cash and short-term investments by the amount of the
holdbacks. These holdback amounts are reflected on our condensed consolidated balance sheet as
restricted cash.
37
Aircraft and Engine Purchase Commitments
US Airways has definitive purchase agreements with Airbus for the acquisition of 134 aircraft,
including 97 single-aisle A320 family aircraft and 37 widebody aircraft (comprised of 22 A350 XWB
aircraft and 15 A330-200 aircraft). Since 2008, when deliveries commenced under the purchase
agreements, we have taken delivery of 34 aircraft through March 31, 2011, which includes four A320
aircraft, 23 A321 aircraft and seven A330-200 aircraft. US Airways plans to take delivery of 12
A320 family aircraft in the second half of 2011 and an additional 12 A320 family aircraft in 2012.
The remaining 46 A320 family aircraft are scheduled to be delivered between 2013 and 2015. In
addition, US Airways plans to take delivery of the eight remaining A330-200 aircraft in 2013 and
2014. Deliveries of the 22 A350 XWB aircraft are scheduled to begin in 2017 and extend through
2019.
US Airways has agreements for the purchase of eight new IAE V2500-A5 spare engines scheduled
for delivery through 2014 for use on the A320 family fleet, three new Trent 700 spare engines
scheduled for delivery through 2013 for use on the A330-200 fleet and three new Trent XWB spare
engines scheduled for delivery in 2017 through 2019 for use on the A350 XWB aircraft. US Airways
has taken delivery of two of the Trent 700 spare engines and one of the V2500-A5 spare engines
through March 31, 2011.
Under all of our aircraft and engine purchase agreements, our total future commitments as of
March 31, 2011 are expected to be approximately $5.94 billion through 2019, which includes
predelivery deposits and payments. We have financing commitments for all Airbus aircraft scheduled
for delivery in 2011 and 2012. See Part II, Item 1A, Risk Factors Increased costs of financing,
a reduction in the availability of financing and fluctuations in interest rates could adversely
affect our liquidity, operating expenses and results and Our high level of fixed obligations
limits our ability to fund general corporate requirements and obtain additional financing, limits
our flexibility in responding to competitive developments and increases our vulnerability to
adverse economic and industry conditions.
Covenants and Credit Rating
In addition to the minimum cash balance requirements, our long-term debt agreements contain
various negative covenants that restrict or limit our actions, including our ability to pay
dividends or make other restricted payments. Our long-term debt agreements also generally contain
cross-default provisions, which may be triggered by defaults by us under other agreements relating
to indebtedness. See Part II, Item 1A, Risk Factors Our high level of fixed obligations limits
our ability to fund general corporate requirements and obtain additional financing, limits our
flexibility in responding to competitive developments and increases our vulnerability to adverse
economic and industry conditions and Any failure to comply with the liquidity covenants contained
in our financing arrangements would likely have a material adverse effect on our business,
financial condition and results of operations. As of March 31, 2011, we and our subsidiaries were
in compliance with the covenants in our long-term debt agreements.
The following table details our credit ratings as of March 31, 2011:
|
|
|
|
|
|
|
|
|
S&P |
|
Fitch |
|
Moodys |
|
|
Local Issuer |
|
Issuer Default |
|
Corporate |
|
|
Credit Rating |
|
Credit Rating |
|
Family Rating |
US Airways Group |
|
B- |
|
CCC |
|
Caa1 |
US Airways |
|
B- |
|
* |
|
* |
|
|
|
(*) |
|
The credit agencies do not rate these categories for US Airways. |
A decrease in our credit ratings could cause our borrowing costs to increase, which would
increase our interest expense and could affect our net income, and our credit ratings could
adversely affect our ability to obtain additional financing. If our financial performance or
industry conditions worsen, we may face future downgrades, which could negatively impact our
borrowing costs and the prices of our equity or debt securities. In addition, any downgrade of our
credit ratings may indicate a decline in our business and in our ability to satisfy our obligations
under our indebtedness.
38
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual
arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a
retained or a contingent interest in transferred assets, (3) an obligation under derivative
instruments classified as equity or (4) any obligation arising out of a material variable interest
in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support
to us, or that engages in leasing, hedging or research and development arrangements with us.
There have been no material changes in our off-balance sheet arrangements as set forth in our
2010 Form 10-K.
39
Contractual Obligations
The following table provides details of our future cash contractual obligations as of March
31, 2011 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
US Airways Group (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt (2) |
|
$ |
|
|
|
$ |
116 |
|
|
$ |
116 |
|
|
$ |
1,276 |
|
|
$ |
|
|
|
$ |
35 |
|
|
$ |
1,543 |
|
Interest obligations (3) |
|
|
42 |
|
|
|
54 |
|
|
|
48 |
|
|
|
24 |
|
|
|
3 |
|
|
|
23 |
|
|
|
194 |
|
US Airways (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and capital lease obligations (5) (6) |
|
|
269 |
|
|
|
348 |
|
|
|
307 |
|
|
|
279 |
|
|
|
279 |
|
|
|
1,474 |
|
|
|
2,956 |
|
Interest obligations (3) (6) |
|
|
111 |
|
|
|
138 |
|
|
|
117 |
|
|
|
99 |
|
|
|
101 |
|
|
|
308 |
|
|
|
874 |
|
Aircraft purchase and operating lease commitments (7) |
|
|
1,225 |
|
|
|
1,563 |
|
|
|
1,902 |
|
|
|
1,608 |
|
|
|
1,021 |
|
|
|
4,766 |
|
|
|
12,085 |
|
Regional capacity purchase agreements (8) |
|
|
739 |
|
|
|
993 |
|
|
|
995 |
|
|
|
1,000 |
|
|
|
882 |
|
|
|
1,361 |
|
|
|
5,970 |
|
Other US Airways Group subsidiaries (9) |
|
|
8 |
|
|
|
9 |
|
|
|
8 |
|
|
|
6 |
|
|
|
1 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,394 |
|
|
$ |
3,221 |
|
|
$ |
3,493 |
|
|
$ |
4,292 |
|
|
$ |
2,287 |
|
|
$ |
7,967 |
|
|
$ |
23,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These commitments represent those entered into by US Airways Group. |
|
(2) |
|
Excludes $127 million of unamortized debt discount as of March 31, 2011. |
|
(3) |
|
For variable-rate debt, future interest obligations are shown above using interest rates in
effect as of March 31, 2011. |
|
(4) |
|
These commitments represent those entered into by US Airways. |
|
(5) |
|
Excludes $79 million of unamortized debt discount as of March 31, 2011. |
|
(6) |
|
Includes $783 million of future principal payments and $323 million of future interest
payments as of March 31, 2011, respectively, related to pass through trust certificates, or
EETCs, associated with mortgage financings for the purchase of certain aircraft. |
|
(7) |
|
Includes $2.83 billion of future minimum lease payments related to EETC leveraged leased
financings of certain aircraft as of March 31, 2011. |
|
(8) |
|
Represents minimum payments under capacity purchase agreements with third-party Express
carriers. |
|
(9) |
|
Represents operating lease commitments entered into by US Airways Groups other airline
subsidiaries, Piedmont and PSA. |
We expect to fund these cash obligations from funds provided by operations and future
financings, if necessary. The cash available to us from these sources, however, may not be
sufficient to cover these cash obligations because economic factors may reduce the amount of cash
generated by operations or increase our costs. For instance, an economic downturn or general global
instability caused by military actions, terrorism, disease outbreaks and natural disasters could
reduce the demand for air travel, which would reduce the amount of cash generated by operations. An
increase in our costs, either due to an increase in borrowing costs caused by a reduction in our
credit rating or a general increase in interest rates or due to an increase in the cost of fuel,
maintenance, aircraft and aircraft engines and parts, could decrease the amount of cash available
to cover the cash obligations. Moreover, the Citicorp credit facility, our amended credit card
agreement with Barclays Bank Delaware and certain of our other financing arrangements contain
significant minimum cash balance requirements. As a result, we cannot use all of our available cash
to fund operations, capital expenditures and cash obligations without violating these requirements.
40
Critical Accounting Policies and Estimates
In the first quarter of 2011, there were no changes to our critical accounting policies and
estimates from those disclosed in the consolidated financial statements and accompanying notes
contained in our 2010 Form 10-K.
Recent Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue
Arrangements. ASU No. 2009-13 addresses the accounting for multiple-deliverable arrangements to
enable vendors to account for products or services (deliverables) separately rather than as a
combined unit. This guidance establishes a selling price hierarchy for determining the selling
price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party
evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and
requires that arrangement consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. In addition, this guidance significantly
expands required disclosures related to a vendors multiple-deliverable revenue arrangements. Our
multiple-deliverable revenue arrangements consist principally of sales of frequent flyer program
mileage credits to business partners, which are comprised of two components, transportation and
marketing. We were required to adopt and apply ASU No. 2009-13 to any new or materially modified
multiple deliverable revenue arrangements entered into on or after January 1, 2011. We adopted ASU
No. 2009-13 on January 1, 2011, and its application has had no material impact on our condensed
consolidated financial statements.
41
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Sensitive Instruments
Our primary market risk exposures include commodity price risk (i.e., the price paid to obtain
aviation fuel) and interest rate risk. Our exposure to market risk from changes in commodity prices
and interest rates has not changed materially from our exposure discussed in our 2010 Form 10-K
except as updated below.
Commodity price risk
Our 2011 forecasted mainline and Express fuel consumption is approximately 1.43 billion
gallons, and based on this forecast, a one cent per gallon increase in aviation fuel price results
in a $14 million increase in annual expense. Since the third quarter of 2008, we have not entered
into any new transactions to hedge our fuel consumption, and we have not had any fuel hedging
contracts outstanding since the third quarter of 2009.
Interest rate risk
Our exposure to interest rate risk relates primarily to our cash equivalents, investment
portfolios and variable-rate debt obligations. At March 31, 2011, our variable-rate long-term debt
obligations of approximately $2.90 billion represented approximately 65% of our total long-term
debt. If interest rates increased 10% in 2011, the impact on our results of operations would be
approximately $11 million of additional interest expense.
42
|
|
|
Item 4. |
|
Controls and Procedures |
Evaluation of disclosure controls and procedures.
An evaluation was performed under the supervision and with the participation of US Airways
Groups and US Airways management, including the Chief Executive Officer (the CEO) and Chief
Financial Officer (the CFO), of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in the rules promulgated under the Securities Exchange Act of
1934, as amended) as of March 31, 2011. Based on that evaluation, our management, including the CEO
and CFO, concluded that our disclosure controls and procedures were effective as of March 31, 2011.
Changes in internal control over financial reporting.
There has been no change to US Airways Groups or US Airways internal control over financial
reporting that occurred during the quarter ended March 31, 2011 that has materially affected, or is
reasonably likely to materially affect, US Airways Groups or US Airways internal control over
financial reporting.
Limitation on the effectiveness of controls.
We believe that a controls system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the controls system are met and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and the CEO and CFO believe that our disclosure
controls and procedures were effective at the reasonable assurance level as of March 31, 2011.
43
Part II. Other Information
|
|
|
Item 1. |
|
Legal Proceedings |
On September 12, 2004, US Airways Group and its domestic subsidiaries (collectively, the
Reorganized Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division
(Case Nos. 04-13819-SSM through 03-13823-SSM) (the 2004 Bankruptcy). On September 16, 2005, the
Bankruptcy Court issued an order confirming the plan of reorganization submitted by the Reorganized
Debtors and on September 27, 2005, the Reorganized Debtors emerged from the 2004 Bankruptcy. The
Bankruptcy Courts order confirming the plan included a provision called the plan injunction, which
forever bars other parties from pursuing most claims against the Reorganized Debtors that arose
prior to September 27, 2005 in any forum other than the Bankruptcy Court. Substantially all of the
claims in the 2004 Bankruptcy have been settled and the allowed claims have been paid out in common
stock of the post-bankruptcy US Airways Group at a small fraction of the actual claim amount.
However, the effects of these common stock distributions were already reflected in our consolidated
financial statements upon emergence from bankruptcy and will not have any further impact on our
financial position or results of operations. We presently expect the bankruptcy case to be closed
during 2011.
We are party to an arbitration proceeding relating to a grievance brought by our pilots union
to the effect that, effective January 1, 2010, this work group was entitled to a significant
increase in wages by operation of the applicable collective bargaining agreement. A hearing was
conducted and the parties are awaiting the ruling of the arbitrator. An adverse ruling by the
arbitrator could require a material increase in the wages of our pilots and a material back payment
to make the wage increase retroactive to January 1, 2010. We believe that the unions 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
and certain of its affiliates (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 to
preserve its monopoly power by restricting 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
has allowed Sabre to continue to charge US Airways supracompetitive fees. The
lawsuit seeks both injunctive relief and money damages. US Airways intends to
pursue these claims vigorously, but there can be no assurance of the outcome of
this litigation.
We 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 our 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 we, having consulted with outside counsel, believe that the ultimate disposition of
these contingencies will not materially affect our consolidated financial position or results of
operations.
Below are a series of risk factors that may affect our results of operations or financial
performance. We caution the reader that these risk factors may not be exhaustive. We operate in a
continually changing business environment, and new risk factors emerge from time to time.
Management cannot predict such new risk factors, nor can it assess the impact, if any, of these
risk factors on our business or the extent to which any factor or combination of factors may impact
our business.
Risk Factors Relating to the Company and Industry Related Risks
US Airways Group could experience significant operating losses in the future.
There are several reasons, including those addressed in these risk factors, why US Airways
Group might fail to achieve profitability and might experience significant losses. In particular,
the weakened condition of the economy and the high volatility of fuel prices have had and continue
to have an impact on our operating results, and increase the risk that we will experience losses.
Downturns in economic conditions adversely affect our business.
Due to the discretionary nature of business and leisure travel spending, airline industry
revenues are heavily influenced by the condition of the U.S. economy and economies in other regions
of the world. Unfavorable conditions in these broader economies have resulted, and may result in
the future, in decreased passenger demand for air travel and changes in booking practices, both of
which in turn have had, and may have in the future, a strong negative effect on our revenues. In
addition, during challenging economic times, actions by our competitors to increase their revenues
can have an adverse impact on our revenues. See The airline industry is intensely competitive and
dynamic below. Certain labor agreements to which we are a party limit our ability to reduce the
number of aircraft in operation, and the utilization of such aircraft, below certain levels. As a
result, we may not be able to optimize the number of aircraft in operation in response to a
decrease in passenger demand for air travel.
44
Increased costs of financing, a reduction in the availability of financing and fluctuations in
interest rates could adversely affect our liquidity, operating expenses and results.
Concerns about the systemic impact of inflation, the availability and cost of credit, energy
costs and geopolitical issues, combined with declining business activity levels and consumer
confidence, increased unemployment and volatile oil prices, have contributed to unprecedented
levels of volatility in the capital markets. As a result of these market conditions, the cost and
availability of credit have been and may continue to be adversely affected by illiquid credit
markets and wider credit spreads. These changes in the domestic and global financial markets may
increase our costs of financing and adversely affect our ability to obtain financing needed for the
acquisition of aircraft that we have contractual commitments to purchase and for other types of
financings we may seek in order to refinance debt maturities, raise capital or fund other types of
obligations. Any downgrades to our credit rating may likewise increase the cost and reduce the
availability of financing.
In addition, we have substantial non-cancelable commitments for capital expenditures,
including the acquisition of new aircraft and related spare engines. We have not yet secured
financing commitments for some of the aircraft we have on order, commencing with deliveries
scheduled for 2013, and cannot assure you of the availability or cost of that financing. If we are
not able to arrange financing for such aircraft at customary advance rates and on terms and
conditions acceptable to us, we expect we would seek to negotiate deferrals of aircraft deliveries
with the manufacturer or financing at lower than customary advance rates, or, if required, use cash
from operations or other sources to purchase the aircraft.
Further, a substantial portion of our indebtedness bears interest at fluctuating interest
rates, primarily based on the London interbank offered rate for deposits of U.S. dollars (LIBOR).
LIBOR tends to fluctuate based on general economic conditions, general interest rates, federal
reserve rates and the supply of and demand for credit in the London interbank market. We have not
hedged our interest rate exposure and, accordingly, our interest expense for any particular period
may fluctuate based on LIBOR and other variable interest rates. To the extent these interest rates
increase, our interest expense will increase, in which event we may have difficulties making
interest payments and funding our other fixed costs, and our available cash flow for general
corporate requirements may be adversely affected. See also the discussion of interest rate risk in
Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk.
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.
Our operating results are significantly impacted by changes in the availability, price
volatility and cost of aircraft fuel, which represents one of the largest single cost items in our
business. Fuel prices have fluctuated substantially over the past several years and sharply in the
last three years.
Because of the amount of fuel needed to operate our airline, even a relatively small increase
in the price of fuel can have a significant adverse aggregate effect on our costs and liquidity.
Due to the competitive nature of the airline industry and unpredictability of the market, we can
offer no assurance that we may be able to increase our fares, impose fuel surcharges or otherwise
increase revenues sufficiently to offset fuel price increases.
Although we are currently able to obtain adequate supplies of aircraft fuel, we cannot predict
the future availability, price volatility or cost of aircraft fuel. Natural disasters, political
disruptions or wars involving oil-producing countries, changes in fuel-related governmental policy,
the strength of the U.S. dollar against foreign currencies, speculation in the energy futures
markets, changes in aircraft fuel production capacity, environmental concerns and other
unpredictable events may result in fuel supply shortages, additional fuel price volatility and cost
increases in the future.
Historically, we have from time to time entered into hedging arrangements designed to protect
against rising fuel costs. Since the third quarter of 2008, we have not entered into any new
transactions to hedge our fuel consumption, and we have not had any fuel hedging contracts
outstanding since the third quarter of 2009. Our ability to hedge in the future may be limited,
particularly if our financial condition provides insufficient liquidity to meet counterparty
collateral requirements. Our future fuel hedging arrangements, if any, may not completely protect
us against price increases and may be limited in both volume of fuel and duration. Also, a rapid
decline in the price of fuel could adversely impact our short-term liquidity as our hedge
counterparties could require that we post collateral in the form of cash or letters of credit when
the projected future market price of fuel drops below the strike price. See also the discussion in
Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk.
45
Our high level of fixed obligations limits our ability to fund general corporate requirements and
obtain additional financing, limits our flexibility in responding to competitive developments and
increases our vulnerability to adverse economic and industry conditions.
We have a significant amount of fixed obligations, including debt, aircraft leases and
financings, aircraft purchase commitments, leases and developments of airport and other facilities
and other cash obligations. We also have certain guaranteed costs associated with our regional
alliances. Our existing indebtedness is secured by substantially all of our assets.
As a result of the substantial fixed costs associated with these obligations:
|
|
|
a decrease in revenues results in a disproportionately greater percentage decrease in
earnings; |
|
|
|
we may not have sufficient liquidity to fund all of these fixed costs if our revenues
decline or costs increase; and |
|
|
|
we may have to use our working capital to fund these fixed costs instead of funding
general corporate requirements, including capital expenditures. |
These obligations also impact our ability to obtain additional financing, if needed, and our
flexibility in the conduct of our business.
Any failure to comply with the liquidity covenants contained in our financing arrangements would
likely have a material adverse effect on our business, financial condition and results of
operations.
The terms of our Citicorp credit facility and certain of our other financing arrangements
require us to maintain consolidated unrestricted cash and cash equivalents of not less than $850
million, with not less than $750 million (subject to partial reductions upon certain reductions in
the outstanding principal amount of the loan) of that amount held in accounts subject to control
agreements.
Our ability to comply with these covenants while paying the fixed costs associated with our
contractual obligations and our other expenses will depend on our operating performance and cash
flow, which are seasonal, as well as factors including fuel costs and general economic and
political conditions.
The factors affecting our liquidity (and our ability to comply with related covenants) will
remain subject to significant fluctuations and uncertainties, many of which are outside our
control. Any breach of our liquidity covenants or failure to timely pay our obligations could
result in a variety of adverse consequences, including the acceleration of our indebtedness, the
withholding of credit card proceeds by our credit card processors and the exercise of remedies by
our creditors and lessors. In such a situation, it is unlikely that we would be able to fulfill our
contractual obligations, repay the accelerated indebtedness, make required lease payments or
otherwise cover our fixed costs.
If our financial condition worsens, provisions in our credit card processing and other commercial
agreements may adversely affect our liquidity.
We have agreements with companies that process customer credit card transactions for the sale
of air travel and other services. These agreements allow these processing companies, under certain
conditions, to hold an amount of our cash (referred to as a holdback) equal to a portion of
advance ticket sales that have been processed by that company, but for which we have not yet
provided the air transportation. We are currently subject to certain holdback requirements. These
holdback requirements can be modified at the discretion of the processing companies upon the
occurrence of specific events, including material adverse changes in our financial condition. An
increase in the current holdback balances to higher percentages up to and including 100% of
relevant advanced ticket sales could materially reduce our liquidity. Likewise, other of our
commercial agreements contain provisions that allow other entities to impose less favorable terms,
including the acceleration of amounts due, in the event of material adverse changes in our
financial condition.
Union disputes, employee strikes and other labor-related disruptions may adversely affect our
operations.
Relations between air carriers and labor unions in the United States are governed by the
Railway Labor Act (RLA). Under the RLA, collective bargaining agreements generally contain
amendable dates rather than expiration dates, and the RLA requires that a carrier maintain the
existing terms and conditions of employment following the amendable date through a multi-stage and
usually lengthy series of bargaining processes overseen by the National Mediation Board (NMB).
46
If no agreement is reached during direct negotiations between the parties, either party may
request the NMB to appoint a federal mediator. The RLA prescribes no timetable for the direct
negotiation and mediation processes, and it is not unusual for those processes to last for many
months or even several years. If no agreement is reached in mediation, the NMB in its discretion
may declare that an impasse exists and proffer binding arbitration to the parties. Either party may
decline to submit to arbitration, and if arbitration is rejected by either party, a 30-day cooling
off period commences. During or after that period, a Presidential Emergency Board (PEB) may be
established, which examines the parties positions and recommends a solution. The PEB process lasts
for 30 days and is followed by another 30-day cooling off period. At the end of a cooling off
period, unless an agreement is reached or action is taken by Congress, the labor organization may
exercise self-help, such as a strike, which could materially adversely affect our ability to
conduct our business and our financial performance.
We are currently in negotiations with unions representing our pilots and flight attendants,
and both negotiations are being overseen by the NMB. As a result, these unions presently may not
lawfully engage in concerted refusals to work, such as strikes, slow-downs, sick-outs or other
similar activity, against us. Nonetheless, after more than five years of negotiations without a
resolution to the bargaining issues that arose from the merger, there is a risk that disgruntled
employees, either with or without union involvement, could engage in one or more concerted refusals
to work that could individually or collectively harm the operation of our airline and impair our
financial performance. Likewise, employees represented by unions that have reached post-merger
integrated agreements could engage in improper actions that disrupt our operations. We are also
involved in binding arbitrations regarding grievances under our collective bargaining agreements,
including but not limited to issues related to wages and working conditions, which if determined
adversely against us could materially adversely affect our ability to conduct our business and our
financial performance and create material liability for back pay.
The inability to maintain labor costs at competitive levels would harm our financial performance.
Currently, our labor costs are very competitive relative to the other hub-and-spoke carriers.
However, we cannot provide assurance that labor costs going forward will remain competitive because
some of our agreements are amendable now and others may become amendable, competitors may
significantly reduce their labor costs or we may agree to higher-cost provisions in our current
labor negotiations. Approximately 86% of the employees within US Airways Group are represented for
collective bargaining purposes by labor unions. Some of our unions have brought and may continue to
bring grievances to binding arbitration, including related to wages. Unions may also bring court
actions and may seek to compel us to engage in the bargaining processes where we believe we have no
such obligation. If successful, there is a risk these judicial or arbitral avenues could create
material additional costs that we did not anticipate.
Interruptions or disruptions in service at one of our hub airports or our focus city could have a
material adverse impact on our operations.
We operate principally through hubs in Charlotte, Philadelphia and Phoenix and Washington,
D.C. is a focus city. Substantially all of our flights either originate in or fly into one of these
locations. A significant interruption or disruption in service at one of our hubs or at Washington,
D.C. resulting from air traffic control delays, weather conditions, natural disasters, growth
constraints, relations with third-party service providers, failure of computer systems, labor
relations, fuel supplies, terrorist activities or otherwise could result in the cancellation or
delay of a significant portion of our flights and, as a result, could have a severe impact on our
business, operations and financial performance.
If we incur problems with any of our third-party regional operators or third-party service
providers, our operations could be adversely affected by a resulting decline in revenue or
negative public perception about our services.
A significant portion of our regional operations are conducted by third-party operators on our
behalf, primarily under capacity purchase agreements. Due to our reliance on third parties to
provide these essential services, we are subject to the risks of disruptions to their operations,
which may result from many of the same risk factors disclosed in this report, such as the impact of
current economic conditions, and other risk factors, such as a bankruptcy restructuring of any of
the regional operators. We may also experience disruption to our regional operations if we
terminate the capacity purchase agreement with one or more of our current operators and transition
the services to another provider. As our regional segment provides revenues to us directly and
indirectly (by providing flow traffic to our hubs), any significant disruption to our regional
operations would have a material adverse effect on our business, financial condition and results of
operations.
47
In January 2010, Mesa Air Group, Inc. and certain of its subsidiaries, including Mesa
Airlines, Inc., filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code.
At December 31, 2010, Mesa operated 51 aircraft for our Express passenger operations, representing
over $500 million in annual passenger revenues to us in 2010. In November 2010, we signed an
agreement for an extension of 39 months on average from the current scheduled expiration of June
30, 2012, for the operation of 38 CRJ900 aircraft by Mesa under the companies codeshare and
revenue sharing agreement, which agreement was approved by the U.S. Bankruptcy Court. The remaining
13 aircraft were not extended. Mesa Air Group, Inc. emerged from bankruptcy in March 2011.
In addition, our reliance upon others to provide essential services on behalf of our
operations may result in our relative inability to control the efficiency and timeliness of
contract services. We have entered into agreements with contractors to provide various facilities
and services required for our operations, including Express flight operations, aircraft
maintenance, ground services and facilities, reservations and baggage handling. Similar agreements
may be entered into in any new markets we decide to serve. These agreements are generally subject
to termination after notice by the third-party service provider. We are also at risk should one of
these service providers cease operations, and there is no guarantee that we could replace these
providers on a timely basis with comparably priced providers. Recent volatility in fuel prices,
disruptions to capital markets and the current economic downturn in general have subjected certain
of these third-party service providers to strong financial pressures. Any material problems with
the efficiency and timeliness of contract services, resulting from financial hardships or
otherwise, could have a material adverse effect on our business, financial condition and results of
operations.
We rely on third party distribution channels and must manage effectively the costs, rights and
functionality of these channels.
We rely on third party distribution channels, including those provided by or through global
distribution systems, or GDSs (e.g., Amadeus, Sabre and Travelport), conventional travel agents and
online travel agents, or OTAs (e.g., Expedia, Orbitz and Travelocity), to distribute a significant
portion of our airline tickets and we expect in the future to continue to rely on these channels
and hope eventually to use them to distribute and collect revenues for ancillary products (e.g.,
fees for selective seating). These distribution channels are more expensive and at present have
less functionality in respect of ancillary product offerings than those we operate ourselves, such
as our call centers and our website. Certain of these distribution channels also effectively
restrict the manner in which we distribute our products generally. To remain competitive, we will
need to manage successfully our distribution costs and rights, increase our distribution
flexibility and improve the functionality of third party distribution channels, while maintaining
an industry-competitive cost structure. Several of our distribution agreements with key GDSs and
OTAs are due to expire in the relatively near term and will therefore require that we negotiate renewals or
extensions. These negotiations have in the past and could in the future be contentious, result in
diminished or less favorable terms for the distribution of our tickets and ancillary products, and
not result in our obtaining the functionality we require to maximize ancillary revenues. Any
inability to manage our third party distribution costs, rights and functionality at a competitive
level or any material diminishment or disruption in the distribution of our tickets could have a
material adverse effect on our competitive position and our results of operations.
Further, on
April 21, 2011, we filed an antitrust lawsuit against 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 to
preserve its monopoly power by restricting our ability to distribute our
products to our customers. The lawsuit also alleges that these actions have
prevented us from employing new competing technologies and has allowed Sabre to
continue to charge us supracompetitive fees. The lawsuit seeks both injunctive
relief and money damages. We intend to pursue these claims vigorously, but
there can be no assurance of the outcome of this litigation.
Changes in government regulation could increase our operating costs and limit our ability to
conduct our business.
Airlines are subject to extensive regulatory requirements. In the last several years, Congress
has passed laws, and the DOT, the FAA, the TSA and the Department of Homeland Security have issued
a number of directives and other regulations. These requirements impose substantial costs on
airlines. On October 10, 2008, the FAA finalized new rules governing flight operations at the three
major New York airports. These rules did not take effect because of a legal challenge, but the FAA
has pushed forward with a reduction in the number of flights per hour at LaGuardia. The FAA is
attempting to work with carriers on a voluntary basis to implement its new lower operations cap at
LaGuardia. If this is not successful, the FAA may resort to other methods to reduce congestion in
New York. Additionally, the DOT recently finalized a policy change that will permit airports to
charge differentiated landing fees during congested periods, which could impact our ability to
serve certain markets in the future. This decision was recently upheld by the District of Columbia
Circuit Court of Appeals. The Obama Administration has not yet indicated how it intends to move
forward on the issue of congestion management in the New York region, although we expect new
proposed rules to be issued later this year.
The FAA from time to time issues directives and other regulations relating to the maintenance
and operation of aircraft that require significant expenditures or operational restrictions. Some
FAA requirements cover, among other things, retirement and maintenance of older aircraft, security
measures, collision avoidance systems, airborne windshear avoidance systems, noise abatement, other
environmental concerns, fuel tank inerting, crew scheduling, aircraft operation and safety and
increased inspections and maintenance procedures to be conducted on older aircraft. Our failure to
timely comply with these requirements can result in fines and other enforcement actions by the FAA
or other regulators. For example, on October 14, 2009, the FAA proposed a fine of $5.4 million with
respect to certain alleged violations and we are in discussions with the agency regarding
resolution of this matter. Additionally, new proposals by the FAA to further regulate flight crew
duty times could increase our costs and reduce staffing flexibility.
48
The DOT finalized rules, taking effect on April 29, 2010, requiring new procedures for
customer handling during long onboard delays, as well as additional reporting requirements for
airlines that could increase the cost of airline operations or reduce revenues. The DOT has been
aggressively investigating alleged violations of the new rules. In addition, the DOT released a
second set of proposed new rules addressing concerns about how airlines handle interactions with
passengers through the reservations process, at the airport and on board the aircraft. The comment
period on the proposed rules ended in September 2010. We anticipate that any new rules will take
effect in 2011.
Finally, the ability of U.S. carriers to operate international routes is subject to change
because the applicable arrangements between the U.S. and foreign governments may be amended from
time to time, or because appropriate slots or facilities may not be available. We cannot assure you
that laws or regulations enacted in the future will not adversely affect our operating costs. In
addition, increased environmental regulation, particularly in the EU, may increase costs or
restrict our operations.
We rely heavily on automated systems to operate our business and any failure or disruption of
these systems could harm our business.
To operate our business, we depend on automated systems, including our computerized airline
reservation systems, flight operations systems, telecommunication systems, airport customer
self-service kiosks and websites. Our website and reservation systems must be able to accommodate a
high volume of traffic, process transactions and deliver important flight information on a timely
and reliable basis. Substantial or repeated disruptions or failures of any of these automated
systems could impair our operations, reduce the attractiveness of our services and could result in
lost revenues and increased costs. In addition, these automated systems require periodic
maintenance, upgrades and replacements, and our business may be harmed if we fail to properly
maintain, upgrade or replace such systems.
Changes to our business model that are designed to increase revenues may not be successful and may
cause operational difficulties or decreased demand.
We have implemented several new measures designed to increase revenue and offset costs. These
measures include charging separately for services that had previously been included within the
price of a ticket and increasing other pre-existing fees. We may introduce additional initiatives
in the future, however, as time goes on, we expect that it will be more difficult to identify and
implement additional initiatives. We cannot assure you that these new measures or any future
initiatives will be successful in increasing our revenues. Additionally, the implementation of
these initiatives creates logistical challenges that could harm the operational performance of our
airline. Also, the new and increased fees might reduce the demand for air travel on our airline or
across the industry in general, particularly if weakened economic conditions continue to make our
customers more sensitive to increased travel costs or provide a significant competitive advantage
to other carriers which determine not to institute similar charges.
The airline industry is intensely competitive and dynamic.
Our competitors include other major domestic airlines as well as foreign, regional and new
entrant airlines, some of which have more financial resources or lower cost structures than ours,
and other forms of transportation, including rail and private automobiles. In many of our markets
we compete with at least one low cost air carrier. Our revenues are sensitive to the actions of
other carriers in many areas including pricing, scheduling, capacity and promotions, which can have
a substantial adverse impact not only on our revenues, but on overall industry revenues. These
factors may become even more significant in periods when the industry experiences large losses, as
airlines under financial stress, or in bankruptcy, may institute pricing structures intended to
achieve near-term survival rather than long-term viability. In addition, because a significant
portion of our traffic is short-haul travel, we are more susceptible than other major airlines to
competition from surface transportation such as automobiles and trains.
Low cost carriers have a profound impact on industry revenues. Using the advantage of low unit
costs, these carriers offer lower fares in order to shift demand from larger, more-established
airlines. Some low cost carriers, which have cost structures lower than ours, have better financial
performance and significant numbers of aircraft on order for delivery in the next few years. These
low-cost carriers are expected to continue to increase their market share through growth and,
potentially, further consolidation, and could continue to have an impact on the overall performance
of US Airways Group.
49
Additionally, as mergers and other forms of industry consolidation, including antitrust
immunity grants take place, we might or might not be included as a participant. Depending on which
carriers combine and which assets, if any, are sold or otherwise transferred to other carriers in
connection with such combinations, our competitive position relative to the post-combination
carriers or other carriers that acquire such assets could be harmed. In addition, as carriers
combine through traditional mergers or antitrust immunity grants, their route networks will grow
and that growth will result in greater overlap with our network, which in turn could result in
lower overall market share and revenues for us. Such consolidation is not limited to the U.S., but
could include further consolidation among international carriers in Europe and elsewhere.
The loss of key personnel upon whom we depend to operate our business or the inability to attract
additional qualified personnel could adversely affect the results of our operations or our
financial performance.
We believe that our future success will depend in large part on our ability to attract and
retain highly qualified management, technical and other personnel. We may not be successful in
retaining key personnel or in attracting and retaining other highly qualified personnel. Any
inability to retain or attract significant numbers of qualified management and other personnel
could adversely affect our business.
We may be adversely affected by conflicts overseas or terrorist attacks; the travel industry
continues to face ongoing security concerns.
Acts of terrorism or fear of such attacks, including elevated national threat warnings, wars
or other military conflicts, including the wars in Iraq and Afghanistan, may depress air travel,
particularly on international routes, and cause declines in revenues and increases in costs. The
attacks of September 11, 2001 and continuing terrorist threats and attempted attacks materially
impacted and continue to impact air travel. Increased security procedures introduced at airports
since the attacks and other such measures as may be introduced in the future generate higher
operating costs for airlines. The Aviation and Transportation Security Act mandated improved flight
deck security, deployment of federal air marshals on board flights, improved airport perimeter
access security, airline crew security training, enhanced security screening of passengers,
baggage, cargo, mail, employees and vendors, enhanced training and qualifications of security
screening personnel, additional provision of passenger data to U.S. Customs and enhanced background
checks. A concurrent increase in airport security charges and procedures, such as restrictions on
carry-on baggage, has also had and may continue to have a disproportionate impact on short-haul
travel, which constitutes a significant portion of our flying and revenue.
Our ability to operate and grow our route network in the future is dependent on the availability
of adequate facilities and infrastructure throughout our system.
In order to operate our existing flight schedule and, where appropriate, add service along new
or existing routes, we must be able to obtain adequate gates, ticketing facilities, operations
areas, slots (where applicable) and office space. For example, at our largest hub airport, we are
seeking to increase international service despite challenging airport space constraints. The
nations aging air traffic control infrastructure presents challenges as well. The ability of the
air traffic control system to handle traffic in high-density areas where we have a large
concentration of flights is critical to our ability to operate our existing schedule. Also, as
airports around the world become more congested, we cannot always be sure that our plans for new
service can be implemented in a commercially viable manner given operating constraints at airports
throughout our network.
We are subject to many forms of environmental regulation and may incur substantial costs as a
result.
We are subject to increasingly stringent federal, state, local and foreign laws, regulations
and ordinances relating to the protection of the environment, including those relating to emissions
to the air, discharges to surface and subsurface waters, safe drinking water, and the management of
hazardous substances, oils and waste materials. Compliance with all environmental laws and
regulations can require significant expenditures.
Several U.S. airport authorities are actively engaged in efforts to limit discharges of
de-icing fluid (glycol) to local groundwater, often by requiring airlines to participate in the
building or reconfiguring of airport de-icing facilities. Such efforts are likely to impose
additional costs and restrictions on airlines using those airports. We do not believe, however,
that such environmental developments will have a material impact on our capital expenditures or
otherwise adversely affect our operations, operating costs or competitive position.
50
We are also subject to other environmental laws and regulations, including those that require
us to remediate soil or groundwater to meet certain objectives. Under federal law, generators of
waste materials, and owners or operators of facilities, can be subject to liability for
investigation and remediation costs at locations that have been identified as requiring response
actions. We have liability for such costs at various sites, although the future costs associated
with the remediation efforts are currently not expected to have a material adverse effect on our
business.
We have various leases and agreements with respect to real property, tanks and pipelines with
airports and other operators. Under these leases and agreements, we have agreed to standard
language indemnifying the lessor or operator against environmental liabilities associated with the
real property or operations described under the agreement, even if we are not the party responsible
for the initial event that caused the environmental damage. We also participate in leases with
other airlines in fuel consortiums and fuel committees at airports, where such indemnities are
generally joint and several among the participating airlines.
There is increasing global regulatory focus on climate change and greenhouse gas emissions. In
particular, the United States and the EU have developed regulatory requirements that may affect our
business. The U.S. Congress is considering climate-related legislation to reduce emissions of
greenhouse gases. Several states have also developed measures to regulate emissions of greenhouse
gases, primarily through the planned development of greenhouse gas emissions inventories and/or
regional greenhouse gas cap and trade programs. In late 2009 and early 2010, the U.S. EPA adopted
regulations requiring reporting of greenhouse gas emissions from certain facilities and updating
the renewable fuels standard, and is considering additional regulation of greenhouse gases under
the existing federal Clean Air Act. In addition, the EU has adopted legislation to include aviation
within the EUs existing greenhouse gas emission trading scheme effective in 2012. This legislation
has been legally challenged in the EU but we have had to begin complying and incurred additional
costs as a result of this legislation. While we cannot yet determine what the final regulatory
programs will be in the U.S., the EU or in other areas in which we do business, such climate
change-related regulatory activity in the future may adversely affect our business and financial
results.
California is in the process of implementing environmental provisions aimed at limiting
emissions from motorized vehicles, which may include some airline belt loaders and tugs and require
a change of ground service vehicles. The future costs associated with replacing some or all of our
ground fleets in California cities are currently not expected to have a material adverse effect on
our business.
Governmental authorities in several U.S. and foreign cities are also considering or have
already implemented aircraft noise reduction programs, including the imposition of nighttime
curfews and limitations on daytime take-offs and landings. We have been able to accommodate local
noise restrictions imposed to date, but our operations could be adversely affected if
locally-imposed regulations become more restrictive or widespread.
Ongoing data security compliance requirements could increase our costs, and any significant data
breach could harm our business, financial condition or results of operations.
Our business requires the appropriate and secure utilization of customer and other sensitive
information. We cannot be certain that advances in criminal capabilities, discovery of new
vulnerabilities, attempts to exploit existing vulnerabilities in our systems, data thefts, physical
system or network break-ins or inappropriate access, or other developments will not compromise or
breach the technology protecting the networks that access and store database information.
Furthermore, there has been heightened legislative and regulatory focus on data security in the
U.S. and abroad (particularly in the EU), including requirements for varying levels of customer
notification in the event of a data breach.
Many of our commercial partners, including credit card companies, have imposed data security
standards that we must meet. In particular, we are required by the Payment Card Industry Security
Standards Council, founded by the credit card companies, to comply with their highest level of data
security standards. While we continue our efforts to meet these standards, new and revised
standards may be imposed that may be difficult for us to meet and could increase our costs.
In addition to the Payment Card Industry Standards discussed above, failure to comply with the
other privacy and data use and security requirements of our partners or related laws and
regulations to which we are subject may expose us to fines, sanctions or other penalties, which
could materially and adversely affect our results of operations and overall business. In addition,
failure to address appropriately these issues could also give rise to additional legal risks,
which, in turn, could increase the size and number of litigation claims and damages asserted or
subject us to enforcement actions, fines and penalties and cause us to incur further related costs
and expenses.
51
We are at risk of losses and adverse publicity stemming from any accident involving any of our
aircraft or the aircraft of our regional operators.
If one of our aircraft, an aircraft that is operated under our brand by one of our regional
operators or an aircraft that is operated by an airline that is one of our codeshare partners were
to be involved in an accident, we could be exposed to significant tort liability. The insurance we
carry to cover damages arising from any future accidents may be inadequate. In the event that our
insurance is not adequate, we may be forced to bear substantial losses from an accident. In
addition, any accident involving an aircraft that we operate, an aircraft that is operated under
our brand by one of our regional operators or an aircraft that is operated by an airline that is
one of our codeshare partners could create a public perception that our aircraft or those of our
regional operators or codeshare partners are not safe or reliable, which could harm our reputation,
result in air travelers being reluctant to fly on our aircraft or those of our regional operators
or codeshare partners and adversely impact our financial condition and operations.
Delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity may adversely
impact our operations and financial results.
The success of our business depends on, among other things, the ability to operate an optimum
number and type of aircraft. In many cases, the aircraft we intend to operate are not yet in our
fleet, but we have contractual commitments to purchase or lease them. If for any reason we were
unable to accept or secure deliveries of new aircraft on contractually scheduled delivery dates,
this could have a negative impact on our business, operations and financial performance. Our
failure to integrate newly purchased aircraft into our fleet as planned might require us to seek
extensions of the terms for some leased aircraft. Such unanticipated extensions may require us to
operate existing aircraft beyond the point at which it is economically optimal to retire them,
resulting in increased maintenance costs. If new aircraft orders are not filled on a timely basis,
we could face higher monthly rental rates.
Our business is subject to weather factors and seasonal variations in airline travel, which cause
our results to fluctuate.
Our operations are vulnerable to severe weather conditions in parts of our network that could
disrupt service, create air traffic control problems, decrease revenue and increase costs, such as
during hurricane season in the Caribbean and Southeast United States, snow and severe winter
weather in the Northeast United States and thunderstorms in the Eastern United States. In addition,
the air travel business historically fluctuates on a seasonal basis. Due to the greater demand for
air and leisure travel during the summer months, revenues in the airline industry in the second and
third quarters of the year tend to be greater than revenues in the first and fourth quarters of the
year. Our results of operations will likely reflect weather factors and seasonality, and therefore
quarterly results are not necessarily indicative of those for an entire year, and our prior results
are not necessarily indicative of our future results.
Increases in insurance costs or reductions in insurance coverage may adversely impact our
operations and financial results.
The terrorist attacks of September 11, 2001 led to a significant increase in insurance
premiums and a decrease in the insurance coverage available to commercial air carriers.
Accordingly, our insurance costs increased significantly and our ability to continue to obtain
insurance even at current prices remains uncertain. In addition, we have obtained third-party war
risk (terrorism) insurance through a special program administered by the FAA, resulting in lower
premiums than if we had obtained this insurance in the commercial insurance market. The program has
been extended, with the same conditions and premiums, until September 30, 2011. If the federal
insurance program terminates, we would likely face a material increase in the cost of war risk
insurance. The failure of one or more of our insurers could result in a lack of coverage for a
period of time. Additionally, severe disruptions in the domestic and global financial markets could
adversely impact the claims paying ability of some insurers. Future downgrades in the ratings of
enough insurers could adversely impact both the availability of appropriate insurance coverage and
its cost. Because of competitive pressures in our industry, our ability to pass additional
insurance costs to passengers is limited. As a result, further increases in insurance costs or
reductions in available insurance coverage could have an adverse impact on our financial results.
We may be adversely affected by global events that affect travel behavior.
Our revenue and results of operations may be adversely affected by global events beyond our
control. An outbreak of a contagious disease such as Severe Acute Respiratory Syndrome (SARS),
H1N1 influenza virus, avian flu, or any other influenza-type illness, if it were to persist for an
extended period, could again materially affect the airline industry and us by reducing revenues and
impacting travel behavior.
52
We are exposed to foreign currency exchange rate fluctuations.
As a result of our international operations, we have significant operating revenues and
expenses, as well as assets and liabilities, denominated in foreign currencies. Fluctuations in
foreign currencies can significantly affect our operating performance and the value of our assets
and liabilities located outside of the United States.
The use of US Airways Groups net operating losses and certain other tax attributes could be
limited in the future.
When a corporation undergoes an ownership change, as defined in Section 382 of the Internal
Revenue Code (Section 382), a limitation is imposed on the corporations future ability to
utilize any net operating losses (NOLs) generated before the ownership change and certain
subsequently recognized built-in losses and deductions, if any, existing as of the date of the
ownership change. We believe an ownership change as defined in Section 382 occurred for US
Airways Group in February 2007. Since February 2007, there have been additional changes in the
ownership of US Airways Group that, if combined with sufficiently large future changes in
ownership, could result in another ownership change as defined in Section 382. Until US Airways
Group has used all of its existing NOLs, future shifts in ownership of US Airways Groups common
stock could result in new Section 382 limitations on the use of our NOLs as of the date of an
additional ownership change.
Risks Relating to Our Common Stock
The price of our common stock has recently been and may in the future be volatile.
The market price of our common stock may fluctuate substantially due to a variety of factors,
many of which are beyond our control, including:
|
|
|
our operating results failing to meet the expectations of securities analysts or
investors; |
|
|
|
changes in financial estimates or recommendations by securities analysts; |
|
|
|
material announcements by us or our competitors; |
|
|
|
movements in fuel prices; |
|
|
|
new regulatory pronouncements and changes in regulatory guidelines; |
|
|
|
general and industry-specific economic conditions; |
|
|
|
public sales of a substantial number of shares of our common stock; and |
|
|
|
general market conditions. |
Conversion of our convertible notes will dilute the ownership interest of existing stockholders
and could adversely affect the market price of our common stock.
The conversion of some or all of US Airways Groups 7.25% convertible senior notes due 2014
will dilute the ownership interests of existing stockholders. Any sales in the public market of the
common stock issuable upon such conversion could adversely affect prevailing market prices of our
common stock. In addition, the existence of the convertible notes may encourage short selling by
market participants because the conversion of the notes could depress the price of our common
stock.
53
Certain provisions of the amended and restated certificate of incorporation and amended and
restated bylaws of US Airways Group make it difficult for stockholders to change the composition
of our board of directors and may discourage takeover attempts that some of our stockholders might
consider beneficial.
Certain provisions of the amended and restated certificate of incorporation and amended and
restated bylaws of US Airways Group may have the effect of delaying or preventing changes in
control if our board of directors determines that such changes in control are not in the best
interests of US Airways Group and its stockholders. These provisions include, among other things,
the following:
|
|
|
a classified board of directors with three-year staggered terms; |
|
|
|
advance notice procedures for stockholder proposals to be considered at stockholders
meetings; |
|
|
|
the ability of US Airways Groups board of directors to fill vacancies on the board; |
|
|
|
a prohibition against stockholders taking action by written consent; |
|
|
|
a prohibition against stockholders calling special meetings of stockholders; |
|
|
|
a requirement that holders of at least 80% of the voting power of the shares entitled to
vote in the election of directors approve any amendment of our amended and restated bylaws
submitted to stockholders for approval; and |
|
|
|
super-majority voting requirements to modify or amend specified provisions of US Airways
Groups amended and restated certificate of incorporation. |
These provisions are not intended to prevent a takeover, but are intended to protect and
maximize the value of US Airways Groups stockholders interests. While these provisions have the
effect of encouraging persons seeking to acquire control of our company to negotiate with our board
of directors, they could enable our board of directors to prevent a transaction that some, or a
majority, of our stockholders might believe to be in their best interests and, in that case, may
prevent or discourage attempts to remove and replace incumbent directors. In addition, US Airways
Group is subject to the provisions of Section 203 of the Delaware General Corporation Law, which
prohibits business combinations with interested stockholders. Interested stockholders do not
include stockholders whose acquisition of US Airways Groups securities is approved by the board of
directors prior to the investment under Section 203.
Our charter documents include provisions limiting voting and ownership of our equity interests,
which includes our common stock and our convertible notes, by foreign owners.
Our charter documents provide that, consistent with the requirements of Subtitle VII of Title
49 of the United States Code, as amended, or as the same may be from time to time amended (the
Aviation Act), any person or entity who is not a citizen of the United States (as defined under
the Aviation Act and administrative interpretations issued by the DOT, its predecessors and
successors, from time to time), including any agent, trustee or representative of such person or
entity (a non-citizen), shall not own (beneficially or of record) and/or control more than (a)
24.9% of the aggregate votes of all of our outstanding equity securities (as defined, which
definition includes our capital stock, securities convertible into or exchangeable for shares of
our capital stock, including our outstanding convertible notes, and any options, warrants or other
rights to acquire capital stock) (the voting cap amount) or (b) 49.9% of our outstanding equity
securities (the absolute cap amount). If non-citizens nonetheless at any time own and/or control
more than the voting cap amount, the voting rights of the equity securities in excess of the voting
cap amount shall be automatically suspended in accordance with the provisions of our bylaws. Voting
rights of equity securities, if any, owned (beneficially or of record) by non-citizens shall be
suspended in reverse chronological order based upon the date of registration in the foreign stock
record. Further, if at any time a transfer of equity securities to a non-citizen would result in
non-citizens owning more than the absolute cap amount, such transfer shall be void and of no
effect, in accordance with provisions of our bylaws. Certificates for our equity securities must
bear a legend set forth in our amended and restated certificate of incorporation stating that such
equity securities are subject to the foregoing restrictions. Under our bylaws, it is the duty of
each stockholder who is a non-citizen to register his, her or its equity securities on our foreign
stock record. In addition, our bylaws provide that in the event that non-citizens shall own
(beneficially or of record) or have voting control over any equity securities, the voting rights of
such persons shall be subject to automatic suspension to the extent required to ensure that we are
in compliance with applicable provisions of law and regulations relating to ownership or control of
a United States air carrier. In the event that we determine that the equity securities registered
on the foreign stock record or the stock records of the Company exceed the absolute cap amount,
sufficient shares shall be removed from the foreign stock record and the stock records of the
Company so that the number of shares entered therein does not exceed the absolute
cap amount. Shares of equity securities shall be removed from the foreign stock record and the
stock records of the Company in reverse chronological order based on the date of registration in
the foreign stock record and the stock records of the Company.
54
The exhibits listed in the Exhibit Index following the signature pages to this report are
filed as part of this report.
55
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly
caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
US Airways Group, Inc. (Registrant)
|
|
Date: April 25, 2011 |
By: |
/s/ Derek J. Kerr
|
|
|
|
Derek J. Kerr |
|
|
|
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer) |
|
|
|
US Airways, Inc. (Registrant)
|
|
Date: April 25, 2011 |
By: |
/s/ Derek J. Kerr
|
|
|
|
Derek J. Kerr |
|
|
|
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer) |
|
56
Exhibit Index
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
|
|
10.1 |
|
|
2011 Annual Incentive Program Under 2008 Equity Incentive Plan. |
|
|
|
|
|
|
10.2 |
|
|
2011 Long Term Incentive Performance Program Under 2008 Equity Incentive Plan. |
|
|
|
|
|
|
31.1 |
|
|
Certification of US Airways Groups Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|
|
|
|
|
|
31.2 |
|
|
Certification of US Airways Groups Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|
|
|
|
|
|
31.3 |
|
|
Certification of US Airways Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|
|
|
|
|
|
31.4 |
|
|
Certification of US Airways Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|
|
|
|
|
|
32.1 |
|
|
Certification of US Airways Groups Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.2 |
|
|
Certification of US Airways Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
101 |
|
|
Interactive data files pursuant to Rule 405 of Regulation S-T. |
|
|
|
|
|
Management contract or compensatory plan or arrangement. |
57