<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1994
USAir Group, Inc.
(Commission file number: 1-8444)
and
USAir, Inc.
(Commission file number: 1-8442)
(Exact names of registrants as specified in their charters)
Delaware USAir Group, Inc. 54-1194634
(State of incorporation USAir, Inc. 53-0218143
of both registrants) (I.R.S. Employer Identification Nos.)
USAir Group, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 418-5306
(Registrant's telephone number, including area code)
USAir, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 418-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrants (1) have 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 registrants were required to file
such reports), and (2) have been subject to such filing require-
ments for the past 90 days.
Yes x No
----- -----
At July 31, 1994, there were outstanding approximately
60,050,000 shares (exclusive of approximately 1,026,000 shares held
in treasury) of common stock of USAir Group, Inc. and 1,000 shares
of common stock of USAir, Inc.
The registrant USAir, Inc. meets the conditions set forth in
General Instructions H(1)(a) and (b) of Form 10-Q and is therefore
participating in the filing of this form with the reduced disclo-
sure format.
<PAGE>
USAir Group, Inc.
and
USAir, Inc.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1A. Financial Statements - USAir Group, Inc.
Condensed Consolidated Statements of Operations
- Three Months and Six Months Ended June 30,
1994 and 1993 1
Condensed Consolidated Balance Sheets
- June 30, 1994 and December 31, 1993 2
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1994 and 1993 3
Notes to Condensed Consolidated Financial
Statements 4
Item 1B. Financial Statements - USAir, Inc.
Condensed Consolidated Statements of Operations
- Three Months and Six Months Ended June 30,
1994 and 1993 6
Condensed Consolidated Balance Sheets
- June 30, 1994 and December 31, 1993 7
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1994 and 1993 8
Notes to Condensed Consolidated Financial
Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
<TABLE>
PART I. FINANCIAL STATEMENTS
Item 1A. Financial Statements
USAir Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS and SIX MONTHS ENDED JUNE 30, 1994 and 1993 (Unaudited) (in thousands except per share amounts)
============================================================================================================
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Passenger transportation $1,718,379 $1,688,130 $3,246,442 $3,288,568
Cargo and freight 42,108 42,574 84,100 84,622
Other 119,064 85,064 234,910 158,919
--------- --------- --------- ---------
Total operating revenues 1,879,551 1,815,768 3,565,452 3,532,109
Operating Expenses
Personnel costs 727,612 675,001 1,450,574 1,334,192
Aviation fuel 162,210 179,970 324,682 355,985
Commissions 162,902 153,545 304,001 296,402
Other rent and landing fees 106,006 114,651 221,859 224,330
Aircraft rent 111,654 118,922 225,690 237,861
Aircraft maintenance 91,388 79,393 196,906 174,143
Depreciation and amortization 79,448 76,376 157,688 150,585
Other, net 360,278 351,730 742,045 690,409
--------- --------- --------- ---------
Total operating expenses 1,801,498 1,749,588 3,623,445 3,463,907
--------- --------- --------- ---------
Operating income (loss) 78,053 66,180 (57,993) 68,202
Other Income (Expense)
Interest income 6,362 2,132 10,611 3,871
Interest expense (70,311) (60,613) (138,980) (122,952)
Interest capitalized 307 4,505 4,074 11,463
Other, net (598) (6,370) (554) (15,782)
--------- --------- --------- ---------
Other income (expense), net (64,240) (60,346) (124,849) (123,400)
--------- --------- --------- ---------
Income (loss) before taxes and cumulative
effect of accounting change 13,813 5,834 (182,842) (55,198)
Income tax provision (credit) - - - -
--------- --------- --------- ---------
Income (loss) before cumulative effect of
accounting change 13,813 5,834 (182,842) (55,198)
Cumulative effect of change in method of
accounting for postemployment benefits - - - (43,749)
--------- --------- --------- ---------
Net income (loss) 13,813 5,834 (182,842) (98,947)
--------- --------- --------- ---------
Preferred dividend requirement (19,335) (18,408) (38,555) (35,316)
--------- --------- --------- ---------
Net loss applicable to common stockholders $ (5,522) $ (12,574) $ (221,397) $ (134,263)
========= ========= ========= =========
Loss per common share
Before accounting change $ (0.09) $ (0.23) $ (3.72) $ (1.78)
Effect of accounting change - - - (0.86)
--------- --------- --------- ---------
Loss per common share $ (0.09) $ (0.23) $ (3.72) $ (2.64)
========= ========= ========= =========
Shares used for computation (000) 59,616 54,597 59,446 50,945
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
1
<PAGE>
<TABLE>
USAir Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 (Unaudited) and DECEMBER 31, 1993 (in thousands except per share amounts)
============================================================================================================
<CAPTION>
June 30, December 31,
1994 1993
--------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 521,463 $ 368,347
Receivables, net 443,850 364,020
Materials and supplies, net 353,876 362,019
Prepaid expenses and other 98,078 83,334
--------- ---------
Total current assets 1,417,267 1,177,720
Property and Equipment
Flight equipment 5,137,974 5,031,351
Ground property and equipment 1,072,462 1,074,526
Less accumulated depreciation and amortization (2,023,682) (1,883,858)
--------- ---------
4,186,754 4,222,019
Purchase deposits 179,556 156,621
--------- ---------
Property and equipment, net 4,366,310 4,378,640
Other Assets
Goodwill, net 534,640 542,666
Other intangibles, net 332,333 311,332
Other assets, net 479,339 467,555
--------- ---------
Total other assets 1,346,312 1,321,553
--------- ---------
$7,129,889 $6,877,913
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 77,156 $ 87,833
Accounts payable 350,774 335,918
Traffic balances payable and unused tickets 746,366 630,147
Accrued expenses 1,220,398 1,182,886
--------- ---------
Total current liabilities 2,394,694 2,236,784
Long-Term Debt, Net of Current Maturities 2,683,719 2,444,017
Deferred Credits and Other Liabilities
Deferred gains, net 427,573 440,327
Postretirement benefits other than pensions, non-current 944,182 907,343
Non-current pension liability and other 352,883 303,299
--------- ---------
Total deferred credits and other liabilities 1,724,638 1,650,969
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series A, 358,000 shares issued, no par value 358,000 358,000
Series F, 30,000 shares issued, no par value 300,000 300,000
Series T, 10,000 shares issued, no par value 100,719 100,719
Stockholders' Equity (Deficit)
Series B cumulative convertible preferred stock, no par
value 4,263,000 depositary shares issued 213,153 213,153
Common stock, par value $1 per share, authorized
150,000,000 shares, issued 61,076,000 and 61,080,000
shares, respectively 61,076 61,080
Paid-in capital 1,393,708 1,417,346
Retained earnings (deficit) (1,908,877) (1,682,912)
Common stock held in treasury, at cost, 1,237,000 and
1,864,000 shares, respectively (55,684) (83,891)
Deferred compensation (92,862) (94,957)
Adjustment for minimum pension liability (42,395) (42,395)
--------- ---------
Total stockholders' equity (deficit) (431,881) (212,576)
--------- ---------
$7,129,889 $6,877,913
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
USAir Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 and 1993 (Unaudited) (in thousands)
============================================================================================================
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash and cash equivalents beginning of period $ 368,347 $ 296,038
Cash flows from operating activities
Net loss (182,842) (98,947)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation and amortization 157,688 150,585
Loss on disposition of property 2,826 4,764
Other (5,764) 5,972
Changes in certain assets and liabilities
Decrease (increase) in receivables (79,830) (125,837)
Decrease (increase) in materials, supplies, prepaid
expenses and intangible pension assets (16,332) (24,739)
Increase (decrease) in traffic balances payable and
unused tickets 116,219 23,852
Increase (decrease) in accounts payable and accrued
expenses 97,298 28,588
Increase (decrease) in postretirement benefits other
than pensions, non-current 36,839 29,518
--------- ---------
Net cash provided by (used for) operating activities 126,102 (6,244)
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (9,866) (111,773)
Additions to other property (66,999) (67,043)
Proceeds from disposition of property 1,540 130,157
Change in restricted cash and investments 6,086 2,175
Other 4,841 (1,176)
--------- ---------
Net cash provided by (used for) investing activities (64,398) (47,660)
Cash flows from financing activities
Issuance of debt 172,156 226,360
Reduction of debt (47,220) (744,598)
Issuance of common stock - 230,966
Issuance of preferred stock - 400,719
Sale of treasury stock 4,936 5,033
Dividends (38,460) (33,350)
--------- ---------
Net cash provided by (used for) financing activities 91,412 85,130
--------- ---------
Net increase (decrease) in cash and cash equivalents 153,116 31,226
--------- ---------
Cash and cash equivalents end of period $ 521,463 $ 327,264
========= =========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions $ 101,420 $ 229,520
========= =========
Issuance of debt for additions to other property $ - $ 669
========= =========
Reduction of debt - aircraft related $ - $ 47,685
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
USAir Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements
include the accounts of USAir Group, Inc. ("USAir Group" or the
"Company") and its wholly-owned subsidiaries: USAir, Inc.
("USAir"), Piedmont Airlines, Inc., Jetstream International
Airlines, Inc., Pennsylvania Commuter Airlines, Inc., USAir Leasing
and Services, Inc., USAir Fuel Corporation and Material Services
Company, Inc.
The comparative 1993 figures in the accompanying Condensed
Consolidated Statements of Operations and Condensed Consolidated
Statements of Cash Flows have been restated from the June 30, 1993
Quarterly Report on Form 10-Q to reflect the adoption during the
third quarter of 1993, retroactive to January 1, 1993, of Statement
of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits." Certain other 1993 amounts have been
reclassified to conform with 1994 classifications.
Management believes that all adjustments (none of which were
other than normal recurring accruals) necessary for a fair
statement of results have been included in the condensed consoli-
dated financial statements for the interim periods presented, which
are unaudited. All significant intercompany accounts and transac-
tions have been eliminated.
These interim period condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
(2) COMMITMENTS
On May 12, 1994, USAir and The Boeing Company ("Boeing")
reached an agreement to reschedule the delivery of 40 firm order
737-series aircraft from the 1997-2000 time period to the years
2003-2005. In addition, USAir will forego options to purchase 63
737-series, 11 757-series and two 767-series aircraft during the
1996-2000 time period.
The following schedule of USAir's new aircraft deliveries and
scheduled payments at June 30, 1994 (including progress payments,
payments at delivery, buyer furnished equipment, spares and
capitalized interest) reflects USAir's agreement with Boeing:
4
<PAGE>
<TABLE>
<CAPTION>
Delivery Period - Firm Orders
-----------------------------------------------------
Remainder There-
1994 1995 1996 1997 1998 after Total
------ ---- ---- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Boeing
757-200 3 7 8 - - - 18
737 Series - - - - - 40 40
--- --- --- --- --- ----- -----
3 7 8 - - 40 58
=== === === === === ===== =====
Payments
(millions) $159 $287 $252 $ - $ - $1,814 $2,512
=== === === === === ===== =====
</TABLE>
(3) LONG-TERM DEBT
On April 26, 1994, the Company terminated its credit agreement
dated March 30, 1987, as amended, with a group of banks ("Credit
Agreement"). At that date, there were no borrowings under the
Credit Agreement. As a result, 66 jet and commuter aircraft and
certain spare engines with a net book value of approximately $260
million at that time were released from a mortgage related to the
Credit Agreement. The Company had been in violation of certain
covenants at March 31, 1994. The Credit Agreement was scheduled by
its terms to expire on September 30, 1994.
5
<PAGE>
<TABLE>
PART I. FINANCIAL STATEMENTS
Item 1B. Financial Statements
USAir, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS and SIX MONTHS ENDED JUNE 30, 1994 and 1993 (Unaudited) (in thousands)
============================================================================================================
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Passenger transportation $1,596,769 $1,564,609 $3,024,445 $3,050,798
Cargo and freight 41,242 41,743 82,472 82,996
Other 125,482 87,073 245,813 165,079
--------- --------- --------- ---------
Total operating revenues 1,763,493 1,693,425 3,352,730 3,298,873
Operating Expenses
Personnel costs 693,413 639,163 1,381,615 1,265,071
Aviation fuel 154,665 171,714 310,139 339,619
Commissions 153,203 143,759 286,442 277,568
Other rent and landing fees 102,314 111,193 214,853 217,573
Aircraft rent 99,934 109,534 202,832 219,068
Aircraft maintenance 76,486 64,083 165,515 143,236
Depreciation and amortization 73,338 68,737 145,489 135,612
Other, net 346,216 341,278 713,201 670,456
--------- --------- --------- ---------
Total operating expenses 1,699,569 1,649,461 3,420,086 3,268,203
--------- --------- --------- ---------
Operating income (loss) 63,924 43,964 (67,356) 30,670
Other Income (Expense)
Interest income 6,707 6,702 11,109 13,862
Interest expense (70,455) (57,592) (138,586) (114,773)
Interest capitalized 307 4,501 4,074 11,454
Other, net 888 (5,075) 2,078 (13,350)
--------- --------- --------- ---------
Other income (expense), net (62,553) (51,464) (121,325) (102,807)
--------- --------- --------- ---------
Income (loss) before taxes and cumulative
effect of accounting change 1,371 (7,500) (188,681) (72,137)
Income tax provision (credit) - - - -
--------- --------- --------- ---------
Income (loss) before cumulative effect
of accounting change 1,371 (7,500) (188,681) (72,137)
Cumulative effect of change in method of
accounting for postemployment benefits - - - (43,749)
--------- --------- --------- ---------
Net income (loss) $ 1,371 $ (7,500) $ (188,681) $ (115,886)
========= ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
6
<PAGE>
<TABLE>
USAir, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 (Unaudited) and DECEMBER 31, 1993 (in thousands except per share amounts)
============================================================================================================
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 520,811 $ 367,835
Receivable from parent company 39,453 16,092
Receivables, net 447,960 367,403
Materials and supplies, net 330,991 338,808
Prepaid expenses and other 93,469 78,131
--------- ---------
Total current assets 1,432,684 1,168,269
Property and Equipment
Flight equipment 4,929,016 4,824,031
Ground property and equipment 1,050,803 1,045,306
Less accumulated depreciation and amortization (1,918,557) (1,786,817)
--------- ---------
4,061,262 4,082,520
Purchase deposits 179,556 156,621
Property and equipment, net --------- ---------
($162,000 pledged for parent company debt at
December 31, 1993) 4,240,818 4,239,141
Other Assets
Goodwill, net 534,640 542,666
Other intangibles, net 331,604 310,545
Other assets, net 561,950 548,847
--------- ---------
Total other assets 1,428,194 1,402,058
--------- ---------
$7,101,696 $6,809,468
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt $ 75,730 $ 85,715
Accounts payable 334,124 316,843
Traffic balances payable and unused tickets 781,368 659,606
Accrued expenses 1,187,669 1,150,062
--------- ---------
Total current liabilities 2,378,891 2,212,226
--------- ---------
Long-Term Debt, Net of Current Maturities
Long-term debt 2,682,596 2,441,935
Notes payable - parent company 104,584 105,080
--------- ---------
Total long-term debt, net of current maturities 2,787,180 2,547,015
Deferred Credits and Other Liabilities
Deferred gains, net 422,267 434,586
Postretirement benefits other than pensions, non-current 943,932 907,093
Non-current pension liability and other 350,056 300,497
--------- ---------
Total deferred credits and other liabilities 1,716,255 1,642,176
Commitments and Contingencies
Stockholder's Equity
Common stock, par value $1 per share, authorized
1,000 shares, issued and outstanding 1,000 shares 1 1
Paid-in capital 2,416,131 2,416,131
Retained earnings (deficit) (2,154,798) (1,966,117)
Adjustment for minimum pension liability (41,964) (41,964)
--------- ---------
Total stockholder's equity 219,370 408,051
--------- ---------
$7,101,696 $6,809,468
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
7
<PAGE>
<TABLE>
USAir, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 and 1993 (Unaudited) (in thousands)
============================================================================================================
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash and cash equivalents beginning of period $ 367,835 $ 295,432
Cash flows from operating activities
Net loss (188,681) (115,886)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation and amortization 145,489 135,612
Loss on disposition of property 3,100 4,756
Other (4,809) 5,849
Changes in certain assets and liabilities
Decrease (increase) in receivables (111,843) 14,147
Decrease (increase) in materials, supplies, prepaid
expenses and intangible pension assets (17,252) (22,103)
Increase (decrease) in traffic balances payable and
unused tickets 121,762 30,256
Increase (decrease) in accounts payable and accrued
expenses 104,456 25,377
Increase (decrease) in postretirement benefits other
than pensions, non-current 36,839 29,518
--------- ---------
Net cash provided by (used for) operating activities 89,061 107,526
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (9,866) (61,851)
Additions to other property (64,377) (63,049)
Proceeds from disposition of property 1,140 130,075
Change in restricted cash and investments 6,086 2,175
Other 4,841 (1,176)
--------- ---------
Net cash provided by (used for) investing activities (62,176) 6,174
Cash flows from financing activities
Issuance of debt 172,156 -
Reduction of debt (46,065) (82,274)
--------- ---------
Net cash provided by (used for) financing activities 126,091 (82,274)
--------- ---------
Net increase (decrease) in cash and cash equivalents 152,976 31,426
--------- ---------
Cash and cash equivalents end of period $ 520,811 $ 326,858
========= =========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions $ 101,420 $ 229,520
========= =========
Issuance of parent company debt for aircraft acquisitions $ - $ 49,914
========= =========
Issuance of debt for additions to other property $ - $ 669
========= =========
Other property acquisitions - transfer from affiliated company $ 7,925 $ -
========= =========
Reduction of debt - aircraft related $ - $ 47,685
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
8
<PAGE>
USAir, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements
include the accounts of USAir, Inc. ("USAir") and its wholly-owned
subsidiary USAM Corp. USAir is a wholly-owned subsidiary of USAir
Group, Inc. ("USAir Group" or the "Company").
The comparative 1993 figures in the accompanying Condensed
Consolidated Statements of Operations and Condensed Consolidated
Statements of Cash Flows have been restated from the June 30, 1993
Quarterly Report on Form 10-Q to reflect the adoption during the
third quarter of 1993, retroactive to January 1, 1993, of Statement
of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits." Certain other 1993 amounts have been
reclassified to conform with 1994 classifications.
Management believes that all adjustments (none of which were
other than normal recurring accruals) necessary for a fair
statement of results have been included in the condensed consoli-
dated financial statements for the interim periods presented, which
are unaudited. All significant intercompany accounts and transac-
tions have been eliminated.
These interim period condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements contained in USAir's Annual Report on Form 10-
K for the year ended December 31, 1993.
(2) OTHER
Please refer to Note 2 in USAir Group's "Notes to Condensed
Consolidated Financial Statements" on Page 4 of this report.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condi-
tion and Results of Operations
The following discussion relates to the financial results and
condition of USAir Group, Inc. (the "Company"). USAir, Inc.
("USAir") is the Company's principal subsidiary and accounts for
approximately 93% of its operating revenue. The following
discussion is based primarily upon USAir's results of operations
and prospects.
Adverse weather during the first quarter, the intense competi-
tive environment characterized by the growth of low fare, low cost
airlines in USAir's markets, industry fare discounting, and USAir's
cost structure are factors that had a negative impact on the
Company's results of operations for the first six months of 1994.
The growth of the operations of low fare, low cost carriers in
USAir's markets in the eastern U.S. represents a competitive
challenge for USAir, which has higher operating costs than its
competitors. USAir believes that it must reduce its operating
costs substantially if it is to survive in this low fare competi-
tive environment. The Company expects a pre-tax loss for the full
year of 1994 in excess of the $350 million loss reported for 1993.
The Company's expectation of the magnitude of its loss for the full
year of 1994 is subject to market, economic and other factors.
In February 1994, to avoid a loss of market share in the
eastern U.S., USAir began to substantially lower its fares in
primary and secondary markets affected by the expansion of
Continental Airlines' ("Continental") low fare, low cost service.
By July 1994, markets from which USAir has historically realized
approximately 40% of its passenger revenue had the reduced fares in
place, reflecting reductions in certain markets of up to 70% from
previous levels. Passenger transportation revenue increased during
the second quarter of 1994 because passenger traffic growth
stimulated by the lower fares was more then sufficient to offset
the dilutive effect of the lower fares. Although bookings remain
strong, there can be no assurance that passenger traffic levels
will continue to be sufficient enough to offset the effect of lower
fares in the third quarter or the future.
Continental and its commuter affiliates initiated service in
July 1994 in certain additional markets competitive with USAir and
its commuter affiliates in the northeastern and southeastern U.S.
at fares substantially below those previously offered by USAir in
those markets and in markets within a reasonable driving distance.
Continental has begun to augment capacity by eliminating first
class seating in certain short-haul markets in the eastern U.S.
where it is currently competing against USAir with low fares.
Continental also has announced plans, effective in September 1994,
to further reduce service at its Denver, Colorado hub and expand
service in the eastern U.S. Continental could continue to redeploy
its assets and offer other low fare service in additional markets
served by USAir.
10
<PAGE>
In addition, as discussed below, United Air Lines ("United")
has substantially reduced its personnel costs as part of a
recapitalization transaction completed in July 1994. The resulting
lower operating costs will give United a competitive advantage over
carriers with higher costs. United has announced plans to initiate
its low cost, low fare operation in the western U.S. in October
1994. United could initiate additional low fare, low cost service
in other markets served by USAir. In addition, a number of small
low cost, low fare start-up carriers have initiated or are seeking
to initiate service in the eastern U.S.
In April 1994, Delta Air Lines ("Delta") announced that it
plans to eliminate up to 15,000 positions, or approximately 20% of
its work force, as part of a restructuring initiative that is
intended to significantly reduce its operating costs. Delta's
announcement is a further illustration of the trend among the major
U.S. airlines to restructure in order to reduce operating costs and
enable them to compete in a low fare environment.
The Company is actively pursuing several initiatives in an
effort to reduce USAir's unit costs, which are among the highest of
the major U.S. airlines. The Company's short term goal is to
reduce USAir's unit cost to approximately 10 to 10.5 cents per
available seat mile ("ASM") during the next two to three years,
with the goal of implementing the most substantial cost reductions
beginning in 1994. The longer range goal is to reduce USAir's unit
costs to approximately 9.5 to 10 cents per ASM. The Company
believes that it must reduce USAir's annual operating expenses by
approximately $1 billion in order to achieve the unit cost goal of
9.5 to 10 cents.
The Company is seeking to realize half, or approximately $500
million, of the $1 billion of annual savings through reductions in
personnel costs, which are the largest single component of USAir's
operating costs. USAir is engaged in discussions with the
leadership of its unionized employees regarding the $500 million
annual savings in personnel costs it desires to achieve through
wage and benefit reductions, improved productivity, and other cost
savings. On August 3, 1994, USAir received a proposal regarding
cost savings from the Air Line Pilots Association ("ALPA"), which
represents USAir's pilot employees. In summary, the ALPA proposal
states that, contingent on savings contributed by other employee
groups and a broad restructuring of the Company's capitalization
and corporate governance, USAir's pilot employees would contribute
an average of $150 million in savings annually for five years. As
part of ALPA's proposed recapitalization and changes in governance,
employees would own 25% of the Company and the affirmative vote of
Directors elected by the unionized employees would be required to
approve certain significant corporate actions. Moreover, the
proposed recapitalization contemplates that BA would invest an
additional $450 million in the Company. On August 5, 1994, the
Company issued a press release that indicated, in summary, that the
savings proposed by the pilot employees are inadequate and would
require a disproportionate contribution by other lesser paid
employee groups and that the corporate governance contemplated by
11
<PAGE>
the ALPA proposal is unacceptable because it would effectively
result in control of the Company by the union Directors. Further-
more, BA has stated that it would not make any additional invest-
ments in the Company based on the ALPA proposal and certain other
USAir unions have indicated that the magnitude of savings the ALPA
proposal would require from non-pilot employees is unacceptable.
The outcome of USAir's discussions with its labor unions is
uncertain, and even if substantial savings are achieved, it remains
uncertain whether they will be adequate in light of the Company's
financial condition and competitive position. See Part II. Item 5.
"Other Information" for a discussion of the unionization and
possible unionization of additional USAir employee groups.
The Company plans to achieve the remaining $500 million in
annual cost savings through a combination of initiatives which
USAir is currently pursuing, including:
* a restructuring of its maintenance organization and processes.
* expansion of its quick turn service (discussed below).
* an employee suggestion cost-cutting program that began in
August 1994 with an ultimate goal of approximately $60 million
in annual savings that would be reduced by one-time program
costs of approximately $13 million.
* rationalization of its jet fleet which would include eliminat-
ing certain fleet types.
* centralization of its purchasing function and measures to
enhance cargo revenue and reduce cargo handling expenses.
* modification of its product which is intended to enable USAir
to compete more effectively with low cost carriers while
integrating the short-haul product with the remaining network.
This modification will require substantial one-time implemen-
tation costs.
In February 1994, USAir inaugurated quick turn, point-to-point
service in 18 city-pair markets using 22 aircraft in a move
intended to increase the utilization of its existing aircraft,
facilities and personnel and thereby reduce unit costs. In July
1994, USAir expanded the quick turn service to approximately 165
markets using approximately 100 aircraft. There can be no
assurance that the quick turn service will generate sufficient
additional revenue to offset the increased variable costs associat-
ed with this service. Moreover, there can be no assurance that any
of the initiatives discussed above will be successful in improving
USAir's financial condition and results of operations. Because it
is uncertain whether USAir can achieve sufficient cost reductions,
even if it is successful in some or all of the above initiatives,
the Company has evaluated other strategic options, including major
restructurings, which may be available to address the difficult
financial and competitive factors facing USAir.
12
<PAGE>
There are recent examples of companies in the airline industry
which have obtained employee concessions in agreements also
resulting in the recapitalization of the companies, including
employee ownership stakes and employee participation in corporate
governance as well as the restructuring of debt and lease obliga-
tions. Most recently, in July 1994, UAL Corporation, parent of
United, consummated a recapitalization which resulted in majority
ownership and board membership for certain employee groups in
exchange for concessions. Delta's restructuring initiative, as
described above, reportedly will not involve an equity ownership
interest by its employees. In other cases, airlines have filed for
bankruptcy protection under Chapter 11 of the bankruptcy code, and
some airlines have ceased operation altogether when their operating
costs remained excessive in relation to their revenues, and their
liquidity became insufficient to sustain their operations. In
addition, other factors beyond the Company's control, such as a
downturn in the economy, a dramatic increase in fuel prices or
intensified industry fare wars, could have a material adverse
effect on the Company's and USAir's prospects and financial
condition. Because the Company and USAir are highly leveraged and
currently do not have access to bank credit and receivables
facilities which had supplied a substantial portion of their
liquidity, they could be more vulnerable to these factors than
their financially stronger competitors.
On April 12, 1994, Delta and Virgin Atlantic Airways ("Virgin
Atlantic") announced that they had reached a codeshare marketing
agreement that would enable Delta to feed traffic to Virgin
Atlantic for travel between the U.S. and Heathrow Airport in
London. This arrangement has been approved by the applicable U.K.
government authority but is subject to the approval of the U.S.
Department of Transportation (the "DOT"). The Company believes
that the Delta/Virgin Atlantic arrangement, if approved by the DOT,
will compete with the codeshare service offered by USAir and
British Airways Plc. ("BA") between certain U.S. cities and London.
United and Lufthansa German Airlines ("Lufthansa") have received
the necessary approvals to implement a code share arrangement which
will include transatlantic service from certain U.S. cities to
Europe and beyond. United and Lufthansa implemented the first
phase of such service in June 1994. The resulting impact of these
code share arrangements on the Company's results of operations and
financial condition cannot be predicted at this time, but is not
expected to be material.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1994
Compared With
Six Months Ended June 30, 1993
The Company recorded a net loss of $182.8 million on revenue
of $3.6 billion in the first half of 1994, compared with a net loss
of $98.9 million on revenue of $3.5 billion for the same period in
1993. The Company estimates that severe winter weather in the
13
<PAGE>
first quarter of 1994 negatively affected its results of operations
by approximately $50 million. The financial results for the first
half of 1993 included a $43.7 million charge for the cumulative
effect of an accounting change, as required by Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits."
Operating Revenue - The Company's Passenger Transportation
Revenue decreased $42.1 million (1.3%) versus the first half of
1993, $26.4 million of which is attributable to USAir. Increased
levels of traffic during the second quarter of 1994 resulted in an
improvement in passenger transportation revenue in that quarter.
However, the first quarter of 1994 was worse than the first quarter
of 1993 due to several factors including lower fares resulting from
increased competition from low fare, low cost carriers in USAir's
markets and insufficient traffic during the first quarter of 1994
to compensate for the resulting yield (passenger revenue per
revenue passenger mile, or "RPM") dilution; adverse weather in
January and February 1994; and industry fare discounting promo-
tions. USAir's ASMs were 1.6% higher and the number of passengers
increased 13.8% over the first half of 1993, resulting in a
passenger load factor increase of 4.2 percentage points. Despite
the increase in traffic, lower yields resulted in a 2.4% decline
in passenger revenue per ASM. The Company expects that the low
fares offered in response to low fare, low cost competition will
remain in place and, even if traffic remains strong, will continue
to materially and adversely affect its results of operations unless
the Company is successful in reducing operating costs. The
Company's Other Revenue increased $76.0 million (47.8%) as a result
of increased charter revenue, third party lease revenue, cancella-
tion and rebooking fees, frequent traveler participation fees, and
various other sources.
Expense - The Company's Personnel Costs increased $116.4
million (8.7%) primarily due to USAir's $116.5 million (9.2%)
increase in personnel costs which resulted from the expiration
during 1993 of employee wage reductions, contractual and general
salary increases during 1993, and a lower discount rate used during
1994 in the calculation of pension and postretirement benefit
expense. Aviation Fuel expense decreased $31.3 million (8.8%),
primarily because of USAir's $29.5 million (8.7%) decrease, which
was attributable to lower average fuel prices in the first half of
1994. Continuation of this trend will depend on market and
political conditions. Aircraft Rent decreased $12.2 million
(5.1%), resulting from USAir's $16.2 million (7.4%) decrease which
is caused by the lease of three aircraft to BA under a wet lease
arrangement and the return of certain aircraft to lessors.
Aircraft Maintenance increased $22.8 million (13.1%) primarily
because of USAir's $22.3 million (15.6%) increase which resulted
from the $18.4 million reversal in the second quarter of 1993 of a
maintenance reserve accrued in 1992 for certain parked aircraft.
Depreciation and Amortization increased $7.1 million (4.7%)
following the delivery of aircraft during 1993 and early 1994 which
caused a $9.9 million (7.3%) increase at USAir. The $51.6 million
(7.5%) increase in Other Expenses, Net, $42.7 million (6.4%) of
14
<PAGE>
which is attributable to USAir, results from increases in several
expense categories, including those related to the wet lease
arrangement with BA.
Interest Income improved by $6.7 million as a result of higher
cash levels in 1994. USAir's results include intercompany
transactions which are eliminated from the Company's results.
Interest Expense increased $16.0 million (13.0%) primarily as a
result of additional interest incurred on certain USAir aircraft
and unsecured financings, which were completed during 1993 and
early 1994. Interest Capitalized decreased $7.4 million (64.5%) as
a result of aircraft deliveries during 1993 and the refund of
certain deposits during 1994. Other, Net reflects a $15.2 million
(96.5%) improvement primarily due to improved equity results from
USAir's 11% ownership investment in the Galileo International
Partnership, which owns and operates the Galileo Computerized
Reservation System ("CRS"), and USAir's 21% ownership investment in
the Apollo Travel Services Partnership, which markets the Galileo
CRS in the U.S. and Mexico.
Three Months Ended June 30, 1994
Compared With
Three Months Ended June 30, 1993
The Company recorded net income of $13.8 million on revenue of
$1.9 billion in the second quarter of 1994, compared with net
income of $5.8 million on revenue of $1.8 billion in 1993. Revenue
growth for the quarter slightly outpaced the increase in expenses,
resulting in the more favorable results.
Operating Revenue - The Company's Passenger Transportation
Revenue increased $30.2 million (1.8%) versus the second quarter of
1993 primarily as a result of USAir's $32.2 million (2.1%)
increase. USAir's 11.8% increase in RPMs in the second quarter of
1994 compared with 1993 was more than sufficient to offset the
accompanying 8.7% reduction in yield. USAir's ASMs were 3.4%
higher and the number of passengers increased 16.9% over the second
quarter of 1993, resulting in a passenger load factor increase of
5.0 percentage points. Despite the increase in passenger traffic,
lower yields resulted in a 1.2% decline in passenger revenue per
ASM. The Company expects that the low fares offered in response to
low fare, low cost competition will remain in place and, even if
traffic remains strong, will continue to materially and adversely
affect its results of operations unless the Company is successful
in reducing operating costs. The Company's Other Revenue increased
$34.0 million (40.0%) as a result of increased charter revenue,
third party lease revenue, cancellation and rebooking fees,
frequent traveler participation fees, and various other sources.
Expense - The Company's Personnel Costs increased $52.6
million (7.8%) due primarily to USAir's $54.2 million (8.5%)
increase in personnel costs which resulted from the expiration
during 1993 of employee wage reductions, contractual and general
salary increases during 1993, and a lower discount rate used during
1994 in the calculation of pension and postretirement benefit
expense.
15
<PAGE>
Aviation Fuel expense decreased $17.8 million (9.9%), primarily
because of USAir's $17.0 million (9.9%) decrease, which was
attributable to lower average fuel prices in 1994. Continuation of
this trend will depend on market and political conditions. Other
Rent and Landing Fees decreased $8.6 million (7.5%), resulting from
USAir's $8.9 million (8.0%) decrease which reflects the favorable
effect of airport facility cost rebates received in the second
quarter of 1994. Aircraft Rent decreased $7.3 million (6.1%),
resulting from USAir's $9.6 million (8.8%) decrease which is caused
by the lease of three aircraft to BA under a wet lease arrangement
and the return of certain aircraft to lessors. Aircraft Mainte-
nance increased $12.0 million (15.1%) primarily because of USAir's
$12.4 million (19.4%) increase which resulted from the $18.4
million reversal in the second quarter of 1993 of a maintenance
reserve accrued in 1992 for certain parked aircraft. Depreciation
and Amortization increased $3.1 million (4.0%) following the
delivery of aircraft during 1993 and early 1994 which caused a $4.6
million (6.7%) increase at USAir.
Interest Income improved by $4.2 million as a result of higher
cash levels in 1994. USAir's results include intercompany
transactions which are eliminated from the Company's results.
Interest Expense increased $9.7 million (16.0%) primarily as a
result of additional interest incurred on certain USAir aircraft
and unsecured financings, which were completed during 1993 and
early 1994. Interest Capitalized decreased $4.2 million (93.2%) as
a result of aircraft deliveries during 1993 and the refund of
certain deposits during 1994. Other, Net reflects a $5.8 million
(90.6%) improvement primarily due to improved equity results from
USAir's 11% ownership investment in the Galileo International
Partnership and USAir's 21% ownership investment in the Apollo
Travel Services Partnership.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was approximately $126 million in
the first half of 1994. At June 30, 1994, cash and cash equiva-
lents totaled approximately $521 million, excluding approximately
$168 million which was deposited in trust accounts to collateralize
letters of credit or workers compensation policies and classified
as "Other Assets." Due to the coincidence of certain semiannual,
quarterly and monthly debt and lease payments, substantial
scheduled payments are due in the months of July and January.
Accordingly, the Company's cash and cash equivalents totaled
approximately $400 million at July 31, 1994. Based on current
projections, the Company expects to satisfy its liquidity require-
ments for the remainder of 1994 through a combination of cash from
operations, cash on hand, and committed aircraft financing. The
Company does not anticipate a material decline in liquidity at
year-end from July 31, 1994 levels. However, depending on market,
economic and other factors and the availability of financing, the
Company's expectations of liquidity are subject to change.
16
<PAGE>
The Company currently is not party to a revolving credit
facility. The Company has historically utilized such a facility to
supplement its liquidity from time-to-time. On April 26, 1994, the
Company terminated its revolving credit facility with a group of
banks ("Credit Agreement"). As a result, 66 jet and commuter
aircraft and certain spare engines with a net book value of
approximately $260 million at that time were released from a
mortgage related to the Credit Agreement. See Note 3 to the
Company's condensed consolidated financial statements.
Moreover, USAir is currently unable to sell receivables under
its revolving accounts receivable sale program ("Receivables Agree-
ment") because of failure to comply with two of the financial
covenants required to be maintained in connection with that
agreement. USAir is currently engaged in discussions with the
financial institution that is party to the Receivables Agreement
regarding a revised agreement. There can be no assurance that
USAir will be successful in obtaining a waiver or reaching a
revised or new agreement to sell its receivables. The existing
Receivables Agreement is scheduled, by its terms, to expire in
December 1994. There were no outstanding sales under the Receiv-
ables Agreement on June 30, 1994.
On May 12, 1994, USAir reached an agreement with The Boeing
Company to reschedule the delivery of 40 737-series aircraft from
the 1997-2000 time period to the years 2003-2005. In addition, as
part of the same agreement, USAir will forego its options to
purchase aircraft during the 1996-2000 time period. As a result,
the Company's capital commitments have been substantially reduced
for the 1995-2000 time period. See Note 2 to the Company's
condensed consolidated financial statements for the future aircraft
commitments schedule reflecting this agreement with Boeing.
Net cash used for investing activities during the first half
of 1994 was $64.4 million, primarily for non-aircraft purchases.
Net cash provided by financing activities was $91.4 million, which
includes the $172.2 net proceeds received by USAir upon the sale of
$175 million principal amount of 9 5/8% Senior Notes due 2001
through an underwritten public offering. In addition, USAir
incurred additional debt of $101.4 million associated with the
delivery of two new Boeing 757 aircraft and the payment of
scheduled aircraft progress payments during the first half of 1994.
The $101.4 million is reflected as non-cash activity in USAir
Group's Condensed Consolidated Statement of Cash Flows found in
Item 1A. of this report because USAir incurred the related debt
upon delivery of the aircraft or payment of the progress payments.
The Company has committed financing for the remainder of its 1994
and 1995 scheduled aircraft deliveries.
On August 5, 1994, based on the ALPA proposal described above,
the negative reaction of BA and certain other USAir unions to that
proposal and its view that USAir's discussions with its unions
could be lengthy and difficult, Standard & Poor's Corporation
("S&P") further downgraded its ratings of the Company's and USAir's
securities. S&P is continuing to monitor the Company's results of
17
<PAGE>
operations with the possibility of a further downgrade. In April
1994, Moody's Investors Services, Inc. had further lowered its
ratings of the Company's and USAir's securities following a similar
downgrade by S&P in March 1994. The recent downgrades will make
it more difficult for the Company and USAir to effect additional
financing.
At June 30, 1994, USAir Group's ratio of current assets to
current liabilities was 0.59 to 1 and the debt component of USAir
Group's capitalization structure was approximately 89% (100% if the
three series of redeemable preferred stock are considered to be
debt).
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 22, 1994, following a run off election, the National
Mediation Board ("NMB") certified the International Association of
Machinists ("IAM") as the representative of USAir's fleet service
class or craft of employees. See Part II. Item 5. "Other Informa-
tion." USAir is seeking a declaratory judgment from the U.S.
District Court for the District of Columbia that it is entitled to
modify the existing terms and conditions of employment of the fleet
service employees during the period in which USAir is negotiating
an initial collective bargaining agreement with the IAM for these
employees.
For information on certain other pending legal proceedings see
Part I. Item 3. - "Legal Proceedings" in the Annual Reports of
USAir Group and USAir on Form 10-K for the year ended December 31,
1993 and Part II. Item 1. - "Legal Proceedings" in the Quarterly
Reports of USAir Group and USAir on Form 10-Q for the quarter ended
March 31, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
USAir Group's annual meeting of stockholders was held on
July 27, 1994. Proxies for the meeting were solicited by USAir
Group pursuant to Regulation 14 under the Securities Exchange Act
of 1934.
All of management's nominees for the election to the Board of
Directors as listed in USAir Group's Proxy Statement for the
meeting were elected without solicitation in opposition. In
addition, the holders of voting securities also voted on the
following proposals with the following results:
1. Management's proposal regarding ratification of the selection
of auditors of the Company for fiscal year 1994.
For 76,642,502 Against 482,087 Abstain 312,472
Broker Non-Votes None
2. Management's proposal regarding reversion of certain shares of
common stock of the Company which are authorized and reserved
for issuance under certain employee benefit plans to autho-
rized, unissued and unreserved common stock.
For 75,512,094 Against 1,440,116 Abstain 484,851
Broker Non-Votes None
19
<PAGE>
3. Stockholder proposal relating to "Term Limitation" on direc-
tors.
For 3,388,219 Against 58,870,705 Abstain 492,118
Broker Non-Votes 14,686,269
4. Stockholder proposal concerning confidential voting.
For 19,782,572 Against 42,485,909 Abstain 482,561
Broker Non-Votes 14,686,269
5. Stockholder proposal relating to airfare discounts for certain
stockholders.
For 2,418,458 Against 59,557,461 Abstain 775,132
Broker Non-Votes 14,686,269
Item 5. Other Information
On May 17, 1994, the NMB tabulated the results of an election
among the class or craft of approximately 7,700 USAir fleet service
employees. In the election, none of the three unions that sought
to represent this class or craft received a majority of the vote;
however, a majority of the eligible employees cast ballots in favor
of union representation. Accordingly, the NMB ordered a runoff
election to determine which of the IAM or the United Steelworkers
Union (the "USWA"), the two unions that received the most votes,
would represent this class or craft. The NMB mailed ballots for
the runoff election on June 17, 1994 and tabulated the ballots on
July 20, 1994. The IAM won the runoff election and on July 22,
1994 the NMB certified the IAM to represent the fleet service class
or craft. The IAM already represents approximately 8,600 USAir
mechanics and related employees. Under the Railway Labor Act,
which governs labor relations in the airline industry, USAir is
obligated to negotiate a collective bargaining agreement with the
IAM governing the terms and conditions of employment for the fleet
service employees. This obligation does not require USAir to agree
to any particular term or condition sought by the IAM. See Part
II. Item 1. - "Legal Proceedings."
On May 20, 1994, USAir announced plans to subcontract air
freight and mail operations at 35 cities which will affect
approximately 600 of the fleet service employees. The USWA and
several individual employees subsequently sought an injunction in
a U.S. district court against the implementation of those plans.
On July 14, 1994, the court denied the plaintiffs request for a
preliminary injunction based on its finding that the plaintiffs did
not have legal standing to represent USAir employees and had failed
to demonstrate that they will suffer irreparable harm as a result
of the subcontracting.
On June 3, 1994, the NMB ordered an election among USAir's
passenger service employees, a class or craft of approximately
10,000 workers consisting of USAir's customer service and reserva-
tions employees, to determine whether the USWA or other union will
20
<PAGE>
represent these employees. Under NMB procedures, employees may
write-in votes for other representatives, and the IAM is conducting
a write-in campaign. The NMB mailed ballots to eligible passenger
service employees on July 19, 1994 and will tabulate the ballots on
August 18, 1994. USAir cannot predict if a majority of the
passenger service employees will vote in favor of representation
and if, as a result, the USWA or other union will represent this
group. If the NMB certifies the USWA or other union, then (i)
USAir will be subject to the obligation, described above, to reach
a collective bargaining agreement with the USWA or other union for
the passenger service group and (ii) substantially all of USAir's
non-management employees would be represented by unions. In
addition, unionization of the fleet service and passenger service
employees may complicate the process of obtaining reductions in
USAir's labor costs that is discussed under Part I. Item 2.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
In August 1994, USAir and two of its affiliates, Pennsylvania
Commuter Airlines, Inc. ("Allegheny") and USAir Leasing and
Services, Inc., sold to Mesa Airlines ("Mesa") the Beechcraft 1900
and Short 360 commuter operations currently flown by Allegheny,
certain spare parts, station and ground equipment and a maintenance
facility in Reading, Pennsylvania. The transaction will result in
the divestiture of 22 aircraft by Allegheny by the end of 1994.
USAir does not expect connecting traffic to be materially affected
because connecting feed currently provided by Allegheny will be
provided by Mesa or other USAir Express carriers.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Designation
11 Computation of Primary and Fully Diluted Earnings Per
Share for the three months and six months ended June 30,
1994 and 1993 for USAir Group, Inc.
99 Airline Operating Statistics for the three months and six
months ended June 30, 1994 and 1993 for USAir, Inc.
B. Reports on Form 8-K
None
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
USAir Group, Inc.
(Registrant)
Date: August 12, 1994 By: /s/ Ann Greer-Rector
---------------------------
Ann Greer-Rector
Vice President & Controller
(Principal Accounting Officer)
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
USAir, Inc.
(Registrant)
Date: August 12, 1994 By: /s/ Ann Greer-Rector
---------------------------
Ann Greer-Rector
Vice President & Controller
(Principal Accounting Officer)
23
<PAGE>
<TABLE>
USAir Group, Inc.
EXHIBIT 11
COMPUTATION OF PRIMARY
AND FULLY DILUTED EARNINGS PER SHARE
(unaudited)
(in thousands except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Adjustments to Net Income (Loss)
================================
Income (loss) before accounting change $ 13,813 $ 5,834 $(182,842) $ (55,198)
Preferred dividend requirement (19,335) (18,408) (38,555) (35,316)
------- ------- -------- --------
Net loss applicable to common stock
before accounting change (5,522) (12,574) (221,397) (90,514)
Accounting change - - - (43,749)
------- ------- -------- --------
Net loss applicable to common stock
and common stock equivalents used
for primary computation (5,522) (12,574) (221,397) (134,263)
Fully Diluted Adjustments
Assume conversion of preferred stock 19,335 18,408 38,555 35,316
------- ------- -------- --------
Adjusted net income (loss) applicable to
common stock assuming full dilution $ 13,813 $ 5,834 $(182,842) $ (98,947)
======= ======= ======== ========
Adjustments to Shares Outstanding
=================================
Average number of shares of common stock 59,616 54,597 59,446 50,945
Primary Adjustments
Assume exercise of options and common
stock equivalents 1) - - - -
Total average number of common and ------- ------- -------- --------
common equivalent shares used for
primary computation 59,616 54,597 59,446 50,945
======= ======= ======== ========
Average number of shares of common stock 59,616 54,597 59,446 50,945
Fully Diluted Adjustments 2)
Assume exercise of options - 1,583 26 1,019
Assume conversion of preferred stock 39,156 35,617 39,156 33,008
Total average number of shares assumed to ------- ------- -------- --------
be outstanding after full conversion 98,772 91,797 98,628 84,972
======= ======= ======== ========
Income (Loss) Per Share
=======================
Primary 1)
Before accounting change $ (0.09) $ (0.23) $ (3.72) $ (1.78)
Effect of accounting change - - - (0.86)
------- ------- -------- --------
Primary loss per share $ (0.09) $ (0.23) $ (3.72) $ (2.64)
======= ======= ======== ========
Fully diluted 2)
Before accounting change $ 0.14 $ 0.06 $ (1.85) $ (0.65)
Effect of accounting change - - - (0.51)
------- ------- -------- --------
Fully diluted income (loss) per share $ 0.14 $ 0.06 $ (1.85) $ (1.16)
======= ======= ======== ========
1) The assumed exercise of options and common stock equivalents which are anti-dilutive are not included in the computation
and presentation of primary earnings per share.
2) The assumed exercise of options and conversion of preferred stock are anti-dilutive but are included in accordance with
Regulation S-K Item 601(b)(11).
</TABLE>
<PAGE>
<TABLE>
USAir, Inc.
EXHIBIT 99
AIRLINE OPERATING STATISTICS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
Better Better
1994 1993 (Worse) 1994 1993 (Worse)
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue passengers (thousands) * 15,993 13,679 16.9 % 29,021 25,504 13.8 %
Revenue passenger miles ("RPMs")
(millions) * 10,036 8,976 11.8 % 18,426 16,903 9.0 %
Available seat miles ("ASMs")
(millions) * 15,355 14,857 3.4 % 29,569 29,106 1.6 %
Passenger load factor 1) * 65.4 % 60.4 % 5.0 pts. 62.3 % 58.1 % 4.2 pts.
Breakeven load factor 2) 65.7 % 61.4 % (4.3)pts. 66.4 % 59.8 % (6.6)pts.
Passenger revenue per ASM * 10.40 c 10.53 c (1.2)% 10.23 c 10.48 c (2.4)%
Total revenue per ASM 11.28 c 11.31 c (0.3)% 11.14 c 11.26 c (1.1)%
Cost per ASM 10.87 c 11.12 c 2.2 % 11.36 c 11.20 c (1.4)%
Yield (revenue per RPM) * 15.91 c 17.43 c (8.7)% 16.41 c 18.05 c (9.1)%
Cost of fuel per gallon 51.11 c 59.52 c 14.1 % 52.76 c 59.66 c 11.6 %
Gallons of fuel consumed (millions) 303 289 (4.8)% 588 569 (3.3)%
* Scheduled service only.
c cents.
1) Passenger load factor is the percentage of aircraft seating capacity
that is actually utilized (RPMs/ASMs).
2) Breakeven load factor represents the percentage of aircraft seating
capacity that must be utilized, based on fares in effect during the
period, for USAir to break even at the pretax income level.
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