<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, 1995
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, 1995, there were outstanding approximately
62,472,000 shares 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>
<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,
1995 and 1994 1
Condensed Consolidated Balance Sheets
- June 30, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1995 and 1994 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,
1995 and 1994 7
Condensed Consolidated Balance Sheets
- June 30, 1995 and December 31, 1994 8
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1995 and 1994 9
Notes to Condensed Consolidated Financial
Statements 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
Part II. Other Information
Item 1. Legal Proceedings 18
Item 3. Defaults Upon Senior Securities 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 25
<PAGE>
<TABLE>
Part I. Financial Information
Item 1A. Financial Statements
USAir Group, Inc.
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1995 and 1994 (Unaudited) (in thousands except per share amounts)
============================================================================================================
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Passenger transportation $1,804,231 $1,718,379 $3,390,616 $3,246,442
Cargo and freight 39,546 42,108 80,417 84,100
Other 139,276 119,064 275,357 234,910
--------- --------- --------- ---------
Total operating revenues 1,983,053 1,879,551 3,746,390 3,565,452
Operating Expenses
Personnel costs 724,923 727,612 1,448,921 1,450,574
Aviation fuel 161,226 162,210 323,443 324,682
Commissions 153,150 162,902 295,822 304,001
Aircraft rent 111,319 111,654 221,020 225,690
Other rent and landing fees 99,521 102,265 205,198 214,427
Aircraft maintenance 93,980 91,388 181,641 196,906
Depreciation and amortization 88,352 87,324 176,065 173,254
Other, net 387,468 360,085 773,163 741,795
--------- --------- --------- ---------
Total operating expenses 1,819,939 1,805,440 3,625,273 3,631,329
--------- --------- --------- ---------
Operating income (loss) 163,114 74,111 121,117 (65,877)
Other Income (Expense)
Interest income 11,732 6,362 18,991 10,611
Interest expense (76,717) (70,311) (153,455) (138,980)
Interest capitalized 2,807 307 6,972 4,074
Other, net 11,924 3,344 22,351 7,330
--------- --------- --------- ---------
Other income (expense), net (50,254) (60,298) (105,141) (116,965)
--------- --------- --------- ---------
Income (loss) before taxes 112,860 13,813 15,976 (182,842)
Income tax provision (credit) - - - -
--------- --------- --------- ---------
Net income (loss) 112,860 13,813 15,976 (182,842)
--------- --------- --------- ---------
Preferred dividend requirement (21,046) (19,335) (41,629) (38,555)
--------- --------- --------- ---------
Income (loss) applicable to
common stockholders $ 91,814 $ (5,522) $ (25,653) $ (221,397)
========= ========= ========= =========
Income (loss) per common share
Primary $ 1.47 $ (0.09) $ (0.41) $ (3.72)
Fully diluted $ 1.11 N/A N/A N/A
Shares used for computation (000)
Primary 62,387 59,616 61,976 59,446
Fully diluted 101,615 N/A N/A N/A
See accompanying Notes to condensed consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
USAir Group, Inc.
Condensed Consolidated Balance Sheets
June 30, 1995 (unaudited) and December 31, 1994 (dollars in thousands except per share amounts)
============================================================================================================
<CAPTION>
June 30, December 31,
1995 1994
ASSETS --------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 758,361 $ 429,538
Short-term investments - 22,133
Receivables, net 432,471 324,539
Materials and supplies, net 252,557 258,664
Prepaid expenses and other 101,699 81,642
--------- ---------
Total current assets 1,545,088 1,116,516
Property and Equipment
Flight equipment 5,293,390 5,162,599
Ground property and equipment 1,058,319 1,059,027
Less accumulated depreciation and amortization (2,181,675) (2,085,499)
--------- ---------
4,170,034 4,136,127
Purchase deposits 36,771 195,701
--------- ---------
Property and equipment, net 4,206,805 4,331,828
Other Assets
Goodwill, net 518,589 526,615
Other intangibles, net 309,146 319,711
Other assets, net 522,765 513,372
--------- ---------
Total other assets 1,350,500 1,359,698
--------- ---------
$7,102,393 $6,808,042
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 79,581 $ 85,538
Accounts payable 424,600 318,323
Traffic balances payable and unused tickets 701,953 568,215
Accrued expenses 1,285,994 1,287,977
--------- ---------
Total current liabilities 2,492,128 2,260,053
Long-Term Debt, Net of Current Maturities 2,875,195 2,895,378
Deferred Credits and Other Liabilities
Deferred gains, net 400,350 413,961
Postretirement benefits other than pensions, non-current 993,290 958,956
Non-current benefit liabilities and other 453,481 417,878
--------- ---------
Total deferred credits and other liabilities 1,847,121 1,790,795
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series A, 358,000 shares issued, no par value
(redemption value of $392,845 at June 30, 1995) 358,000 358,000
Series F, 30,000 shares issued, no par value
(redemption value of $317,871 at June 30, 1995) 300,000 300,000
Series T, 10,000 shares issued, no par value
(redemption value of $106,102 at June 30, 1995) 100,719 100,719
Stockholders' Equity (Deficit)
Series B cumulative convertible preferred stock, no par value,
4,263,000 depositary shares issued (liquidation preference
of $229,473 at June 30, 1995) 213,153 213,153
Common stock, par value $1 per share, authorized 150,000,000
shares, issued 62,472,000 shares and 61,088,000, respectively 62,472 61,088
Paid-in capital 1,351,556 1,344,336
Retained earnings (deficit) (2,401,522) (2,417,498)
Deferred compensation (89,412) (90,965)
Adjustment for minimum pension liability (7,017) (7,017)
--------- ---------
Total stockholders' equity (deficit) (870,770) (896,903)
--------- ---------
$7,102,393 $6,808,042
========= =========
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, 1995 and 1994 (unaudited) (in thousands)
==========================================================================================================
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash and cash equivalents beginning of period $ 429,538 $ 368,347
Cash flows from operating activities
Net income (loss) 15,976 (182,842)
Adjustments to reconcile net income (loss) to cash provided
by (used for) operating activities
Depreciation and amortization 176,065 173,254
Loss (gain) on disposition of property (3,187) 2,826
Other (16,001) (16,913)
Changes in certain assets and liabilities
Decrease (increase) in receivables (107,932) (79,830)
Decrease (increase) in materials, supplies, prepaid
expenses and intangible pension assets (4,244) (16,332)
Increase (decrease) in traffic balances payable and
unused tickets 133,738 116,219
Increase (decrease) in accounts payable and accrued expenses 118,271 97,298
Increase (decrease) in postretirement benefits other than
pensions, non-current 34,334 36,839
-------- --------
Net cash provided by (used for) operating activities 347,020 130,519
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (40,914) (9,866)
Additions to other property (32,742) (67,962)
Proceeds from disposition of property 120,294 2,367
Change in short-term investments 21,994 -
Change in restricted cash and investments 3,028 6,086
Other 367 560
-------- --------
Net cash provided by (used for) investing activities 72,027 (68,815)
Cash flows from financing activities
Issuance of debt - 172,156
Reduction of debt (98,539) (47,220)
Issuance of common stock 8,315 -
Sale of treasury stock - 4,936
Dividends paid - (38,460)
-------- --------
Net cash provided by (used for) financing activities (90,224) 91,412
-------- --------
Net increase (decrease) in cash and cash equivalents 328,823 153,116
-------- --------
Cash and cash equivalents end of period $ 758,361 $ 521,463
======== ========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions, net $ 143,236 $ 101,420
======== ========
Reduction of debt - aircraft purchase deposits $ 70,837 $ -
======== ========
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., Allegheny Airlines, Inc. (formerly Pennsylvania
Commuter Airlines, Inc.), USAir Leasing and Services, Inc., USAir
Fuel Corporation and Material Services Company, Inc.
Management believes that all adjustments 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. Certain 1994 amounts have been
reclassified to conform with 1995 classifications.
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, 1994.
(2) Cash and Cash Equivalents and Short-Term Investments
At June 30, 1995, Cash and Cash Equivalents included approxi-
mately $83 million net proceeds from asset sales, approximately $76
million of which the Company is required to use to reduce outstand-
ing debt pursuant to a resolution of its board of directors.
(3) Aircraft Commitments
In June 1995, the Company finalized its agreement with The
Boeing Company ("Boeing") regarding the deferral of eight 757-200
aircraft from 1996 to 1998. As part of the agreement with Boeing,
approximately $71 million of previously satisfied purchase deposits
were rescheduled to become due in the future. The decrease in
equipment deposits and the related long-term debt which financed
the deposits is reflected in the Company's June 30, 1995 financial
statements.
The following table of USAir's new aircraft deliveries and
scheduled payments at June 30, 1995 (including progress payments,
payments at delivery, buyer-furnished equipment, spares and
capitalized interest) reflects USAir's definitive agreement with
Boeing discussed above:
4
<PAGE>
Delivery Period - Firm Orders
-----------------------------------------------------
Remainder There-
1995 1996 1997 1998 1999 after Total
------ ---- ---- ---- ---- ------ -----
Boeing
757-200 1 - - 8 - - 9
737 Series - - - - - 40 40
--- --- --- --- --- ----- -----
1 - - 8 - 40 49
=== === === === === ===== =====
Payments
(millions) $ 30 $ 63 $ 74 $256 $ - $1,855 $2,278
=== === === === === ===== =====
In June 1995, USAir revised its commitment to purchase hush
kits for a substantial portion of its 737-200 aircraft. The
installation of the hush kits will bring these aircraft into
compliance with Federal Aviation Administration ("FAA") Stage 3
noise level requirements. The projected payments associated with
the purchase of the hush kits under the revised agreement are: $4
million - remainder of 1995; $29 million - 1996; $30 million -
1997; $30 million - 1998; $17 million - 1999.
(4) Contingencies
In May 1995, the Company, USAir and the Retirement Income
Plan for Pilots of USAir, Inc. (the "Pilots' Pension Plan") were
sued in federal district court for the District of Columbia by 469
active and retired USAir pilots. The lawsuit alleges that USAir
has breached its fiduciary duty under the Employee Retirement
Income Security Act ("ERISA") and otherwise violated ERISA by
erroneously calculating benefits under the Pilots' Pension Plan.
The plaintiffs seek, among other things, an injunction restraining
USAir and the Pilots' Pension Plan from allegedly improperly
calculating benefits under the Pilots' Pension Plan and payments to
plaintiffs of benefits allegedly improperly withheld in an amount
alleged to be equal to approximately $70 million, plus interest.
USAir believes that it has properly calculated benefits under the
Pilots' Pension Plan and intends to vigorously defend itself
against the allegations made in the lawsuit. Because this lawsuit
is in the initial stages of litigation, USAir is unable to predict
at this time its ultimate resolution or potential impact on the
Company's pension liability or future funding requirements.
In July 1995, USAir received a Civil Investigative Demand (a
"CID") from the U.S. Department of Justice (the "DOJ") requiring
USAir to produce certain information pertaining to what the DOJ
called "possible predatory behavior" toward ValuJet Airlines and
Nations Air Express in certain city pairs. USAir intends to comply
with the requirements of the CID. USAir believes that its
scheduling and pricing are legitimate competitive responses to
5
<PAGE>
these new entrants and that there is no basis in law or fact for a
finding of predation. However, this matter is in the investigatory
stage and therefore USAir is unable to predict at this time its
ultimate resolution or potential impact on the Company's financial
condition and results of operations.
(this space intentionally left blank)
6
<PAGE>
<TABLE>
Part I. Financial Information
Item 1B. Financial Statements
USAir, Inc.
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1995 and 1994 (Unaudited) (in thousands)
============================================================================================================
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Passenger transportation $1,676,297 $1,596,769 $3,162,887 $3,024,445
Cargo and freight 38,664 41,242 78,735 82,472
Other 137,498 125,482 275,327 245,813
--------- --------- --------- ---------
Total operating revenues 1,852,459 1,763,493 3,516,949 3,352,730
Operating Expenses
Personnel costs 692,339 693,413 1,385,903 1,381,615
Aviation fuel 153,871 154,665 309,508 310,139
Commissions 143,235 153,203 278,159 286,442
Aircraft rent 101,374 99,934 202,205 202,832
Other rent and landing fees 95,714 98,573 197,718 207,421
Aircraft maintenance 81,264 76,486 156,191 165,515
Depreciation and amortization 84,491 81,214 168,150 161,055
Other, net 365,452 346,023 734,700 712,951
--------- --------- --------- ---------
Total operating expenses 1,717,740 1,703,511 3,432,534 3,427,970
--------- --------- --------- ---------
Operating income (loss) 134,719 59,982 84,415 (75,240)
Other Income (Expense)
Interest income 11,619 6,707 18,774 11,109
Interest expense (76,490) (70,455) (149,595) (138,586)
Interest capitalized 2,807 307 6,972 4,074
Other, net 11,991 4,830 22,256 9,962
--------- --------- --------- ---------
Other income (expense), net (50,073) (58,611) (101,593) (113,441)
--------- --------- --------- ---------
Income (loss) before taxes 84,646 1,371 (17,178) (188,681)
Income tax provision (credit) - - - -
--------- --------- --------- ---------
Net income (loss) $ 84,646 $ 1,371 $ (17,178) $ (188,681)
========= ========= ========= =========
See accompanying Notes to condensed consolidated financial statements.
</TABLE>
7
<PAGE>
<TABLE>
USAir, Inc.
Condensed Consolidated Balance Sheets
June 30, 1995 (unaudited) and December 31, 1994 (dollars in thousands except per share amount)
===========================================================================================================
<CAPTION>
June 30, December 31,
1995 1994
ASSETS --------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 756,635 $ 428,925
Short-term investments - 22,133
Receivables, net 432,862 326,012
Materials and supplies, net 230,773 238,481
Prepaid expenses and other 91,058 77,111
--------- ---------
Total current assets 1,511,328 1,092,662
Property and Equipment
Flight equipment 5,054,512 4,914,776
Ground property and equipment 1,039,226 1,040,329
Less accumulated depreciation and amortization (2,103,569) (2,006,041)
--------- ---------
3,990,169 3,949,064
Purchase deposits 36,771 195,701
--------- ---------
Property and equipment, net 4,026,940 4,144,765
Other Assets
Goodwill, net 518,589 526,615
Other intangibles, net 308,975 319,229
Other assets, net 593,832 592,689
--------- ---------
Total other assets 1,421,396 1,438,533
--------- ---------
$6,959,664 $6,675,960
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt $ 75,335 $ 80,714
Accounts payable 413,367 305,719
Payable to parent company 106,477 85,175
Traffic balances payable and unused tickets 740,175 591,154
Accrued expenses 1,248,522 1,255,098
--------- ---------
Total current liabilities 2,583,876 2,317,860
Long-Term Debt, Net of Current Maturities 2,831,383 2,849,488
Deferred Credits and Other Liabilities
Deferred gains, net 395,915 409,091
Postretirement benefits other than pensions, non-current 993,040 958,706
Non-current benefit liabilities and other 445,813 414,000
--------- ---------
Total deferred credits and other liabilities 1,834,768 1,781,797
Commitments and Contingencies
Stockholder's Equity (Deficit)
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) (2,699,478) (2,682,300)
Adjustment for minimum pension liability (7,017) (7,017)
--------- ---------
Total stockholder's equity (deficit) (290,363) (273,185)
--------- ---------
$6,959,664 $6,675,960
========= =========
See accompanying Notes to condensed consolidated financial statements.
</TABLE>
8
<PAGE>
<TABLE>
USAir, Inc.
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994 (Unaudited) (in thousands)
============================================================================================================
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash and cash equivalents beginning of period $ 428,925 $ 367,835
Cash flows from operating activities
Net income (loss) (17,178) (188,681)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation and amortization 168,150 161,055
Loss (gain) on disposition of property (3,010) 3,100
Other (14,211) (15,958)
Changes in certain assets and liabilities
Decrease (increase) in receivables (106,850) (111,843)
Decrease (increase) in materials, supplies, prepaid
expenses and intangible pension assets (3,172) (17,252)
Increase (decrease) in traffic balances payable and
unused tickets 149,021 121,762
Increase (decrease) in accounts payable and accrued
expenses 143,297 104,456
Increase (decrease) in postretirement benefits other
than pensions, non-current 34,334 36,839
--------- ---------
Net cash provided by (used for) operating activities 350,381 93,478
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (40,914) (9,866)
Additions to other property (31,050) (64,513)
Proceeds from disposition of property 119,787 1,140
Change in short-term investments 21,994 -
Change in restricted cash and investments 3,028 6,086
Other 367 560
--------- ---------
Net cash provided by (used for) investing activities 73,212 (66,593)
Cash flows from financing activities
Issuance of debt - 172,156
Reduction of debt (95,883) (46,065)
--------- ---------
Net cash provided by (used for) financing activities (95,883) 126,091
--------- ---------
Net increase (decrease) in cash and cash equivalents 327,710 152,976
--------- ---------
Cash and cash equivalents end of period $ 756,635 $ 520,811
========= =========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions, net $ 143,236 $ 101,420
========= =========
Reduction of debt - aircraft purchase deposits $ 70,837 $ -
========= =========
Other property acquisitions - transfer from affiliated company $ - $ 7,925
========= =========
See accompanying Notes to condensed consolidated financial statements.
</TABLE>
9
<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").
Management believes that all adjustments 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. Certain 1994 amounts have been
reclassified to conform with 1995 classifications.
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, 1994.
(2) Other
Please refer to Notes 2, 3 and 4 in USAir Group's "Notes to
Condensed Consolidated Financial Statements" on Pages 4 and 5 of
this report.
10
<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. ("USAir Group" or the "Company").
USAir, Inc. ("USAir") is the Company's principal subsidiary and
accounts for approximately 93% of its operating revenue. There-
fore, the following discussion is based primarily upon USAir's
results of operations and prospects.
The Company continued its efforts during the second quarter
of 1995 to reduce its costs of operation. In addition to the
Company's progress towards its goal of achieving $500 million in
non-labor cost savings discussed below, the Company continued to
negotiate with the leadership of USAir's unionized employees toward
its other goal of reducing annual personnel costs by $500 million
through concession agreements involving wage and benefit reduc-
tions, improved productivity and other cost savings. On July 28,
1995, the Company announced that it was ending discussions with its
unions on a wage concession and restructuring package and that it
will now concentrate on reducing its labor costs through tradition-
al collective bargaining. An impasse on key economic and efficien-
cy issues made the shift necessary. Talks had continued with pilot
union negotiators since March 1995 on the tentative agreement
discussed below to try to resolve open issues in that agreement.
Ultimately, a variety of economic and efficiency issues could not
be resolved. Because the tentative agreement with the pilots'
union was linked to tentative agreements with USAir's other
principal labor unions, as discussed below, the Company expects
that none of the tentative agreements with the labor groups will go
forward.
The Company had reached an agreement in principle on
March 29, 1995 with the negotiating committee of the Air Line
Pilots Association ("ALPA"), which represents USAir's approximately
5,100 pilots, on wage and other concessions in exchange for
financial returns and governance participation for USAir's
organized labor groups and other employees. During the second
quarter, the Company reached similar agreements in principle with
the International Association of Machinists (the "IAM"), the
Association of Flight Attendants (the "AFA") and the Transport
Workers Union (the "TWU"). The IAM represents USAir's approximate-
ly 8,300 mechanical and related employees and USAir's approximately
6,500 fleet service employees. The AFA represents USAir's
approximately 8,300 flight attendants. The TWU represents USAir's
flight crew training instructors, flight simulator engineers and
dispatch employees. The tentative agreement with the TWU was with
respect only to the flight crew training instructors. Each of the
tentative agreements was subject to many significant conditions,
including union ratification, negotiation and ratification of
acceptable agreements between USAir and its other labor groups, the
11
<PAGE>
restructuring of holdings by other parties and approval of the
boards of directors of the Company and USAir and the shareholders
of the Company. In July, the members of the AFA voted against
ratification of their agreement in principle. The IAM then
notified the Company that it was postponing ratification action.
The Company continues to believe that USAir's long-term
future depends on reduced costs of operation, including lower
personnel costs. The Company remains committed to obtaining the
necessary labor cost reductions. The contracts of the four
principal labor unions at USAir will become open for negotiation
within the next 17 months, and USAir intends to pursue its cost-
cutting efforts through the collective bargaining process. USAir
and the IAM have exchanged their respective notices of intent to
bargain. ALPA's contract is open for negotiation in May 1996. The
contract of the AFA becomes amendable on January 1, 1997. At this
early stage in the collective bargaining process, it is not
possible to predict whether USAir will be successful in achieving
its desired personnel cost savings. It is also not possible at
this time to predict how long it will take to conclude collective
bargaining negotiations, which are subject to procedures mandated
by the Railway Labor Act, although these negotiations traditionally
take one or more years.
Under the Railway Labor Act, a labor contract does not
"expire," but rather becomes amendable on a certain date. Thirty
days prior to that date, either party to the contract may give
notice to the other of its intention to amend the contract, at
which point the collective bargaining process begins. If, after a
period of negotiations, the parties cannot reach an agreement, a
federal mediator from the National Mediation Board is brought in to
assist. The process of mediation continues until the National
Mediation Board determines, at its sole discretion, that the
parties have reached an impasse. At that point, the parties enter
a thirty-day "cooling off" period before either party may employ
so-called self-help (e.g., the imposition of contract changes by
the company or a strike by the union). While in negotiations and
mediation, both parties must observe the status quo.
Regarding the Company's goal to achieve $500 million in
annual savings from non-labor sources, USAir has undertaken various
organizational and structural changes, reengineering, and other
initiatives which are expected to result in at least $350 million
to $400 million of savings during 1995 from otherwise expected
levels. For example, USAir has begun to implement a plan to cut
capacity throughout its system and to emphasize the strengths of
its hubs in Pittsburgh, Charlotte, Philadelphia and Baltimore, as
well as other major east coast urban centers. The Company expects
that this capacity reduction program will result in substantial
financial benefits which USAir will begin to realize during the
second half of 1995. Based on current projections, USAir expects
that for the second half of 1995 its capacity, measured by
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available seat miles ("ASMs") will be down approximately 8% to 9%
from second half 1994 levels and its yield, or revenue per revenue
passenger mile ("RPM"), will be approximately 8% to 9% higher than
the same period in 1994. The Company expects that USAir's unit
cost (cost per ASM) will be approximately 9% to 10% higher during
the second half of 1995 versus the same time period in 1994 due
primarily to the planned reduction in capacity as well as contrac-
tual and longevity wage increases which became effective in 1995.
Southwest Airlines, Inc. ("Southwest"), a low cost, low fare,
"no frills" air carrier, recently announced that it will begin
service to and within Florida in early 1996. Southwest will serve
Florida from, among other cities, Indianapolis and Baltimore/-
Washington International ("BWI") airports. USAir offers service to
Florida from both of these locations. BWI is also one of USAir's
hub airports. Southwest has a significant cost advantage over
USAir, particularly with regard to personnel costs, and its move
into Florida is expected to lead to further low fare competition
for USAir. This and other low cost, low fare incursions could have
an adverse effect on USAir's financial condition and results of
operations and further emphasize the need for USAir to achieve a
significant reduction in personnel costs.
In June 1995, the U.S. Department of Transportation (the
"DOT") renewed its approval of the Company's and British Airways'
("BA") authority to operate code share service on flights serving
66 U.S. cities and Mexico City. In addition, the DOT approved an
expansion of the USAir and BA code share authority to 65 new U.S.
cities, Bermuda, Nassau and five Canadian cities. The approval is
valid for two years.
USAir has announced that it will phase out the "wet lease"
arrangements with BA during the first half of 1996. Under the wet
lease arrangements, USAir has leased three Boeing 767-200 aircraft,
along with cockpit and cabin crews, to BA in order to serve three
routes between the U.S. and London. Upon termination of the wet
lease arrangements, USAir plans to utilize the three Boeing 767-200
aircraft in either its long-haul domestic service or for additional
international opportunities which it is pursuing. In conjunction
with the termination of the wet lease arrangements, BA agreed to
pay USAir a total of $47 million in the form of periodic payments
commencing with the termination of the three wet leases and
continuing annually for nine years.
The DOT has completed its study of the Federal Aviation
Administration's High Density Traffic Airport Rule, which limits
the number of permitted take-offs and landings at four U.S.
airports, including New York's LaGuardia Airport ("LaGuardia") and
Washington National Airport ("National"). The DOT has indicated
that it intends to maintain these limitations. USAir holds a
substantial number of take-off and landing slots at LaGuardia and
National.
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The Company's annual stockholders meeting will be held on
November 28, 1995. Proxy materials will be distributed to
stockholders in October.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1995
Compared With
Six Months Ended June 30, 1994
The Company recorded net income of $16.0 million for the
first half of 1995 compared with a net loss of $182.8 million for
the same period of 1994. The year-over-year improvement in net
income is reflective of a $180.9 million (5.1%) revenue increase
coupled with essentially flat expenses. Second quarter 1995 net
income of $112.9 million more than offset the first quarter 1995
net loss of $96.9 million. The second quarter is the Company's
strongest due to USAir's combination of business traffic and north-
south traffic in the eastern United States during that period.
USAir ranked highly in on-time performance ratings among the major
U.S. airlines during the second quarter of 1995.
Operating Revenue - The Company's $144.2 million (4.4%)
increase in Passenger Transportation Revenue is the result of
USAir's $138.4 million (4.6%) improvement. USAir's passenger
traffic, measured by RPMs, improved 3.5% over 1994 levels largely
due to improved weather conditions in the first quarter of 1995.
The Company estimates that its revenue was adversely affected by
approximately $50 million in the first quarter of 1994 as a result
of severe winter weather in the northeast United States. USAir's
yield increased 1.1% as a result of generally higher fare levels in
the second quarter of 1995 which is partially due to a drop in
industry capacity in the eastern United States and less intense low
fare competition during the second quarter of 1995 versus 1994.
USAir's capacity, measured by ASMs, increased by 1.9% and its
capacity utilization (load factor) increased by 1.0 percentage
point. Based on current projections, USAir expects that for the
second half of 1995 its yield will be approximately 8% to 9% higher
than the same period in 1994 and its capacity (ASMs) will be down
approximately 8% to 9% from second half 1994 levels. See Exhibit
99 for USAir operating and financial statistics. The Company's
Other Revenue increased $40.4 million (17.2%) largely due to
USAir's $29.5 million (12.0%) improvement which includes an
increase in frequent traveler program participant fees and revenue
from aircraft lease arrangements.
Expense - The Company expects that USAir's unit cost (cost
per ASM) will be approximately 9% to 10% higher during the second
half of 1995 versus the same time period in 1994 due primarily to
the planned reduction in capacity (ASMs) discussed above as well as
contractual and longevity wage increases which became effective in
1995. The Company's and USAir's Personnel Costs were flat for the
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first six months of 1995 compared with 1994. USAir's pilots,
flight attendants, and mechanics have received contractual salary
increases within the past year. These increases were offset
overall by efficiencies and lower levels of personnel. The
Company's and USAir's Aviation Fuel expense was approximately the
same for the first half of 1995 compared with 1994. Jet fuel
prices are subject to market changes in response to the pricing of
crude oil and the demand for other refined petroleum products. The
Company's Commissions expense decreased $8.2 million (2.7%) despite
the increase in passenger revenue, due to a change in the rate
structure for travel agency commissions early in 1995. Aircraft
Maintenance expense decreased $15.3 million (7.8%) due to USAir's
$9.3 million (5.6%) improvement and a $6.0 million improvement at
the Company's regional airline subsidiaries resulting from the
replacement of certain regional aircraft with new models. The
Company's Other Expense, net is $31.4 million (4.2%) higher than
1994 due to USAir's $21.7 million (3.1%) increase which includes
increased expenses related to the other revenue category. The
Company's and USAir's Interest Income improved by $8.4 million
(79.0%) and $7.7 million (69.0%), respectively, as a result of
higher cash levels in 1995. The Company's Interest Expense
increased $14.5 million (10.4%) as a result of increased levels of
debt at USAir and one of the Company's wholly-owned regional
airlines. Interest Capitalized increased by $2.9 million (71.1%)
largely due to the refund of certain equipment deposits in 1994.
The Company's Other, net is $15.0 million better than 1994,
primarily due to USAir's $12.3 million improvement, which reflects
income on its computer reservation system investments.
Three Months Ended June 30, 1995
Compared With
Three Months Ended June 30, 1994
The Company recorded net income of $112.9 million for the
second quarter of 1995 compared with net income of $13.8 million
for the same period of 1994. The year-over-year improvement in net
income is reflective of a $103.5 million (5.5%) revenue increase
coupled with essentially flat expenses. As discussed above, the
Company's second quarter is its strongest.
Operating Revenue - The Company's Passenger Transportation
Revenue increased $85.9 million (5.0%) as a result of USAir's $79.5
million (5.0%) increase. USAir's yield increased 5.5% in the
second quarter of 1995 versus 1994 due to less intense low fare
competition in the eastern United States and its passenger traffic,
measured by RPMs, decreased slightly (0.5%). USAir's capacity,
measured by ASMs, decreased by 2.8% and its capacity utilization
(load factor) increased by 1.6 percentage points over the second
quarter of 1994. See Exhibit 99 for USAir operating and financial
statistics. The Company's Cargo and Freight revenue decreased by
$2.6 million (6.1%) due to USAir's $2.6 million (6.3%) decrease
which was caused by lower volumes. The Company's Other Revenue
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improved by $20.2 million (17.0%) largely due to USAir's $12.0
million (9.6%) improvement which includes an increase in frequent
traveler program participant fees and revenue from aircraft lease
arrangements.
Expense - The Company's Commissions expense decreased $9.8
million (6.0%) despite the increase in passenger revenue, due to a
change in the rate structure for travel agency commissions in
February 1995. Aircraft Maintenance expense increased $2.6 million
(2.8%) as a result of USAir's $4.8 million (6.2%) increase which is
due to timing. The Company's Other Expense, net is $27.4 million
(7.6%) higher than 1994 due to USAir's $19.4 million (5.6%)
increase which includes increased expense levels related to the
other revenue category. The Company's and USAir's Interest Income
improved by $5.4 million (84.4%) and $4.9 million (73.2%),
respectively, as a result of higher cash levels in 1995. The
Company's Interest Expense increased $6.4 million (9.1%) as a
result of increased levels of debt at USAir and one of the
Company's wholly-owned regional airlines. Interest Capitalized
increased by $2.5 million largely due to the refund of certain
equipment deposits in the second quarter of 1994. The Company's
Other, net is $8.6 million better than 1994, primarily due to
USAir's $7.2 million improvement, which reflects income on its
computer reservation system investments.
Liquidity and Capital Resources
Cash provided by operations was $347.0 million in the first
half of 1995. At June 30, 1995, cash and cash equivalents totaled
approximately $758 million, including approximately $83 million net
proceeds from asset sales. Pursuant to a resolution of its board
of directors, the Company is required to repurchase, defease, or
redeem USAir's $76 million of outstanding 12 7/8% senior debentures
due April 1, 2000 with proceeds from asset sales; however, the
resolution does not specify a date for this action to occur. In
addition to the Company's cash and cash equivalents of $758
million, USAir had $158.3 million which was deposited in trust
accounts to collateralize letters of credit or workers compensation
policies and classified as "Other Assets" at June 30, 1995.
The Company and USAir are highly leveraged. In order to meet
debt service, lease rental payments and other obligations and to
finance daily operations, the Company and USAir require substantial
liquidity and working capital. Developments beyond the control of
the Company and USAir might occur which could have a material
adverse effect on the Company's prospects, liquidity and financial
condition, including intensified fare wars, substantial increases
in jet fuel prices and fuel taxes, adverse weather conditions,
negative public perception regarding safety, and further incursions
by low cost, low fare carriers in USAir's markets. However, based
on current projections, the Company expects to satisfy its
liquidity requirements for the remainder of 1995 through a
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combination of cash from operations and cash on hand. Depending on
market, economic and other factors, the Company's expectations of
liquidity are subject to change. In addition, the Company has
entered into agreements to sell six Boeing 737-300 aircraft during
the second half of 1995. Net proceeds from the remaining aircraft
sales are expected to total approximately $92 million during the
second half of 1995.
In February 1995, the National Transportation Safety Board
(the "NTSB") proposed new requirements for U.S. commercial aircraft
flight data recorders. The Federal Aviation Administration (the
"FAA") has indicated that it would be physically impossible and
excessively costly for airlines to comply with an NTSB-proposed
December 31, 1995 deadline related to Boeing 737-300 aircraft and
has declined to require U.S. airlines to comply with the proposed
deadline. The FAA is expected to make a final proposal on the new
requirements by the end of 1995. The ultimate requirements could
involve a significant cash cost to USAir. However, the timing of
expenditures and ultimate cost of the program cannot be determined
until the FAA completes its rulemaking.
Investing activities during the first half of 1995 included
cash inflow of $120.3 million from disposition of assets (primarily
from seven Boeing 737-300 aircraft which were sold), offset by a
$73.7 million cash outflow for the acquisition of assets ($40.9
million cash payments related to new aircraft and $32.7 million
payments related to the purchase of rotables, hush kits, and
various ground support equipment). Net cash used by financing
activities was $90.2 million, which includes $98.5 million of debt
payments, offset by $8.3 million proceeds from the sale of the
Company's common stock to an employee benefit plan stock fund. In
addition, the Company incurred debt of $143.2 million associated
with the delivery of six new Boeing 757-200 aircraft and scheduled
aircraft progress payments for future deliveries during the first
half of 1995. USAir also rescheduled the due date of $70.8 million
of previously satisfied aircraft purchase deposits into the future
resulting in a reduction of both debt and equipment deposits. See
Note 3 to the Company's condensed consolidated financial statements
for additional information. The $143.2 million and $70.8 million
amounts are reflected as non-cash activity in USAir Group's
Condensed Consolidated Statement of Cash Flows found in Item 1A of
this report because USAir experienced an increase or decrease in
fixed assets or equipment deposits concurrently with the increase
or decrease in debt. USAir has completed financing for its
remaining 1995 aircraft delivery which occurred in July.
At June 30, 1995, USAir Group's ratio of current assets to
current liabilities was 0.62 to 1 and the debt component of USAir
Group's capitalization structure was greater than 100% (also
greater than 100% if the three series of redeemable preferred stock
are considered to be debt) due to a net capital deficiency.
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Part II. Other Information
Item 1. Legal Proceedings
In May 1995, the Company, USAir and the Retirement Income
Plan for Pilots of USAir, Inc. (the "Pilots' Pension Plan") were
sued in federal district court for the District of Columbia by 469
active and retired USAir pilots. The lawsuit alleges that USAir
has breached its fiduciary duty under the Employee Retirement
Income Security Act ("ERISA") and otherwise violated ERISA by
erroneously calculating benefits under the Pilots' Pension Plan.
The plaintiffs seek, among other things, an injunction restraining
USAir and the Pilots' Pension Plan from allegedly improperly
calculating benefits under the Pilots' Pension Plan and payments to
plaintiffs of benefits allegedly improperly withheld in an amount
alleged to be equal to approximately $70 million, plus interest.
USAir believes that it has properly calculated benefits under the
Pilots' Pension Plan and intends to vigorously defend itself
against the allegations made in the lawsuit. Because this lawsuit
is in the initial stages of litigation, USAir is unable to predict
at this time its ultimate resolution or potential impact on the
Company's pension liability or future funding requirements.
In July 1995, USAir received a Civil Investigative Demand (a
"CID") from the U.S. Department of Justice (the "DOJ") requiring
USAir to produce certain information pertaining to what the DOJ
called "possible predatory behavior" toward ValuJet Airlines and
Nations Air Express in certain city pairs. USAir intends to comply
with the requirements of the CID. USAir believes that its
scheduling and pricing are legitimate competitive responses to
these new entrants and that there is no basis in law or fact for a
finding of predation. However, this matter is in the investigatory
stage and therefore USAir is unable to predict at this time its
ultimate resolution or potential impact on the Company's financial
condition and results of operations.
In February and March 1995, several class action lawsuits
were filed in various federal district courts by travel agencies
and a travel agency trade association alleging that most of the
major U.S. airlines, including USAir, violated the antitrust laws
when they individually capped travel agent commissions at $50 for
round-trip domestic tickets with base fares above $500 and at $25
for one-way domestic tickets with base fares above $250. The
lawsuits have been consolidated in the federal district of
Minnesota. The plaintiffs are seeking unspecified treble damages
for restraint of trade and an injunction to prevent the airlines
from implementing or maintaining the cap on commissions. On
July 7, 1995, a hearing was held on the plaintiffs' motion for a
preliminary injunction and the defendants' motion for summary
18
<PAGE>
judgment. The parties are awaiting a ruling on the motions. USAir
is unable to predict at this time the ultimate resolution of these
lawsuits or their potential impact on the Company's financial
condition and results of operations.
For information on certain additional pending legal proceed-
ings see Part I. Item 3. - "Legal Proceedings" in the combined
Annual Report of USAir Group and USAir on Form 10-K for the year
ended December 31, 1994 and Part II. Item 1. - "Legal Proceedings"
in the combined Quarterly Report of USAir Group and USAir on Form
10-Q for the quarter ended March 31, 1995.
Item 3. Defaults Upon Senior Securities
The Company is currently in a capital deficit position and
therefore, under Delaware law, is legally restricted from paying
dividends until its capital surplus becomes positive. The Company
deferred quarterly dividend payments on all outstanding series of
its preferred stock beginning with payments due September 30, 1994.
The outstanding issues of preferred stock are: 9 1/4% Series A
Cumulative Convertible Redeemable Preferred Stock ("Series A
Preferred Stock") owned by affiliates of Berkshire Hathaway, Inc.;
Series F Cumulative Convertible Senior Preferred Stock ("Series F
Preferred Stock") and Series T Cumulative Convertible Exchangeable
Senior Preferred Stock ("Series T Preferred Stock") owned by an
affiliate of British Airways Plc; and Series B Cumulative Convert-
ible Preferred Stock ("Series B Preferred Stock") which is publicly
held.
The redemption value of the Series A Preferred Stock at
June 30, 1995 was $392.8 million (face amount of $358.0 million
plus deferred dividends and interest thereon of $34.8 million).
The redemption values of the Series F and T Preferred Stock at
June 30, 1995 were $317.9 million (face amount of $300.0 million
plus deferred dividends and interest thereon of $17.9 million) and
$106.1 million (face amount of $100.7 million plus deferred
dividends and interest thereon of $5.4 million), respectively. The
liquidation preference of the Series B Preferred Stock was $229.5
million (face amount of $213.2 million plus deferred dividends of
$16.3 million) at June 30, 1995. There can be no assurance when or
if preferred dividend payments will resume.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Designation Description
3.1 Restated Certificate of Incorporation of USAir Group
(incorporated by reference to Exhibit 3.1 to USAir
Group's Registration Statement on Form 8-B dated Janu
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ary 27, 1983), including the Certificate of Amendment
dated May 13, 1987 (incorporated by reference to
Exhibit 3.1 to USAir Group's and USAir's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1987), the Certificate of Increase dated June 30, 1987
(incorporated by reference to Exhibit 3 to USAir
Group's and USAir's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1987), the Certificate of
Increase dated October 16, 1987 (incorporated by
reference to Exhibit 3.1 to USAir Group's and USAir's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1987), the Certificate of Increase dated
August 7, 1989 (incorporated by reference to Exhibit
3.1 to USAir Group's Annual Report on Form 10-K for
the year ended December 31, 1989), the Certificate of
Increase dated April 9, 1992 (incorporated by refer-
ence to Exhibit 3.1 to USAir Group's and USAir's
Annual Report on Form 10-K for the year ended Decem-
ber 31, 1992), the Certificate of Increase dated
January 21, 1993 (incorporated by reference to USAir
Group's and USAir's Annual Report on Form 10-K for the
year ended December 31, 1992), and the Certificate of
Amendment dated May 26, 1993 (incorporated by refer-
ence to Appendix II to USAir Group's Proxy Statement
dated April 26, 1993).
3.2 By-Laws of USAir Group (incorporated by reference to
Exhibit 3.2 of USAir Group's and USAir's Annual Report
on Form 10-K for the year ended December 31, 1994).
3.3 Rights Agreement, dated as of July 29, 1989, as
amended and restated as of January 21, 1993, between
USAir Group and Chemical Bank, as Rights Agent
(incorporated by reference to Exhibit 28.4 to USAir
Group's Current Report on Form 8-K dated January 21,
1993).
3.4 Restated Certificate of Incorporation of USAir (in-
corporated by reference to Exhibit 3.1 to USAir's
Registration Statement on Form 8-B dated January 27,
1983).
3.5 By-Laws of USAir (incorporated by reference to Exhibit
3.5 of USAir Group's and USAir's Annual Report on Form
10-K for the year ended December 31, 1994).
4.1 Amended Certificate of Designation, Preferences, and
Rights of the Series D of Junior Preferred Stock of
USAir Group (incorporated by reference to Exhibit 4(c)
to USAir Group's Current Report on Form 8-K dated
August 11, 1989).
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<PAGE>
4.2 Certificate of Designation of Series A Cumulative
Convertible Preferred Stock of USAir Group (incorpo-
rated by reference to Exhibit 4(b) to USAir Group's
Current Report on Form 8-K dated August 11, 1989).
4.3 Certificate of Designation of Series B Cumulative
Convertible Preferred Stock of USAir Group (incorpo-
rated by reference to Exhibit 3.3 to Amendment No. 4
to USAir Group's Registration Statement on Form S-3
(Registration No. 33-39540) dated May 17, 1991).
4.4 Agreement between USAir Group and Berkshire Hathaway
Inc. dated August 7, 1989 (incorporated by reference
to Exhibit 4(a) to USAir Group's Current Report on
Form 8-K dated August 11, 1989).
4.5 Certificate of Designation of Series F Cumulative
Convertible Senior Preferred Stock of USAir Group
(incorporated by reference to Exhibit 28.2 to USAir
Group's Current Report on Form 8-K dated January 21,
1993).
4.6 Form of Certificate of Designation of Series T-_
Cumulative Exchangeable Convertible Senior Preferred
Stock of USAir Group (incorporated by reference to
Appendix VII to USAir Group's Proxy Statement dated
April 26, 1993). Neither USAir Group nor USAir is
filing any instrument (with the exception of holders
of exhibits 10.1(a-c)) defining the rights of holders
of long-term debt because the total amount of securi-
ties authorized under each such instrument does not
exceed ten percent of the total assets of USAir.
Copies of such instruments will be furnished to the
Securities and Exchange Commission upon request.
10.1(a) Supplemental Agreement No. 16, dated July 19, 1990, to
Purchase Agreement No. 1102 between USAir and The
Boeing Company (incorporated by reference to Exhibit
10.2(a) to USAir Group's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.1(b) Supplemental Agreement No. 17, dated November 28,
1990, to Purchase Agreement No. 1102 between USAir and
The Boeing Company (incorporated by reference to
Exhibit 10.2(b) to USAir Group's Annual Report on Form
10-K for the year ended December 31, 1990).
10.1(c) Supplemental Agreement No. 18, dated December 23,
1991, to Purchase Agreement No. 1102 between USAir and
The Boeing Company (incorporated by reference to
Exhibit 10.2(c) to USAir Group's Annual Report on Form
10-K for the year ended December 31, 1991).
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<PAGE>
10.2 Purchase Agreement No. 1725 dated December 23, 1991
between USAir and The Boeing Company (incorporated by
reference to Exhibit 10.3 to USAir Group's and USAir's
Annual Report on Form 10-K for the year ended Decem-
ber 31, 1991).
10.3 USAir, Inc. Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.3 to USAir
Group's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.4 USAir, Inc. Officers' Supplemental Benefit Plan
(incorporated by reference to Exhibit 10.5 to USAir's
Annual Report on Form 10-K for the year ended Decem-
ber 31, 1980).
10.5 USAir, Inc. Supplementary Retirement Benefit Plan
(incorporated by reference to Exhibit 10.5 to USAir
Group's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.6 USAir, Inc. Supplemental Executive Defined Contribu-
tion Plan (incorporated by reference to Exhibit 10.6
to USAir Group's and USAir's Annual Report on Form 10-
K for the year ended December 31, 1994).
10.7 USAir Group's 1984 Stock Option and Stock Appreciation
Rights Plan (incorporated by reference to Exhibit A to
USAir Group's Proxy Statement dated March 30, 1984).
10.8 USAir Group's 1988 Stock Incentive Plan (incorporated
by reference to Exhibit 10.15 to USAir Group's Annual
Report on Form 10-K for the year ended December 31,
1987).
10.9 USAir Group's 1992 Stock Option Plan (incorporated by
reference to Exhibit A to USAir Group's Proxy State-
ment dated March 30, 1992).
10.10 Employment Agreement between USAir and its Chief
Executive Officer (incorporated by reference to
Exhibit 10.10 to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.11 Employment Agreement between USAir and its President
and Chief Operating Officer (incorporated by reference
to Exhibit 10.11 to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1994).
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<PAGE>
10.12 Employment Agreement between USAir and its Executive
Vice President-Marketing (incorporated by reference to
Exhibit 10.12 to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.13 Employment Agreement between USAir and its Executive
Vice President and General Counsel (incorporated by
reference to Exhibit 10.13 to USAir Group's and
USAir's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.14 Employment Agreement between USAir and its Senior Vice
President-Human Resources (incorporated by reference
to Exhibit 10.14 to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.15(a) Agreement between USAir and its President and Chief
Operating Officer providing supplemental retirement
benefits (incorporated by reference to Exhibit
10.15(a) to USAir Group's and USAir's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.15(b) Agreement between USAir and its Executive Vice Presi-
dent-Marketing providing supplemental retirement
benefits (incorporated by reference to Exhibit
10.15(b) to USAir Group's and USAir's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.15(c) Agreement between USAir and its Executive Vice Presi-
dent and General Counsel providing supplemental
retirement benefits (incorporated by reference to
Exhibit 10.15(c) to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.15(d) Agreement between USAir and its Senior Vice President-
Human Resources providing supplemental retirement
benefits (incorporated by reference to Exhibit
10.15(d) to USAir Group's and USAir's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.16(a) Trust Agreement dated as of August 1, 1989 between
USAir Group and Wachovia Bank and Trust Company, N.A.,
as Trustee (incorporated by reference to Exhibit
10.10(a) to USAir Group's Annual Report on Form 10-K
for the year ended December 31, 1989).
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<PAGE>
10.16(b) Trust Agreement dated as of August 1, 1989 between
USAir and Wachovia Bank and Trust Company, N.A., as
Trustee (incorporated by reference to Exhibit 10.10(b)
to USAir Group's Annual Report on Form 10-K for the
year ended December 31, 1989).
10.17 Investment Agreement dated as of January 21, 1993
between USAir Group and British Airways Plc (incor-
porated by reference to Exhibit 28.1 to USAir Group's
and USAir's Current Report on Form 8-K filed on Janu-
ary 28, 1993, as amended by Amendment No. 1 on Form 8
filed on April 13, 1993).
10.17(a) Amendment dated as of February 21, 1994 to the Invest-
ment Agreement dated as of January 21, 1993 between
USAir Group and British Airways Plc (incorporated by
reference to Exhibit 10.13(a) to USAir Group's Annual
Report on Form 10-K for the year ended December 31,
1993).
11 Computation of Primary and Fully Diluted Earnings Per
Share for the three months and six months ended
June 30, 1995 and 1994 for USAir Group, Inc.
27(a) Financial Data Schedule for USAir Group, Inc.
27(b) Financial Data Schedule for USAir, Inc.
99 Airline Operating Statistics for the three months and
six months ended June 30, 1995 and 1994 for USAir,
Inc.
B. Reports on Form 8-K
Date of Report Subject of Report
July 21, 1995 News Release dated July 21, 1995 of USAir
Group, Inc. and USAir, Inc. with consoli-
dated statements of operations for each
company for the three months and six
months ended June 30, 1995 and 1994.
July 31, 1995 News Release dated July 28, 1995 of
USAir, Inc., announcing the end of dis-
cussions with unions on a wage concession
and restructuring package and a return to
traditional collective bargaining in
efforts to reduce labor costs.
24
<PAGE>
Signatures
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 11, 1995 By: /s/ John W. Harper
---------------------------
John W. Harper
Senior Vice President-Finance
and Chief Financial Officer
USAir, Inc.
(Registrant)
Date: August 11, 1995 By: /s/ John W. Harper
---------------------------
John W. Harper
Senior Vice President-Finance
and Chief Financial Officer
25
<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,
---------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Adjustments to Net Income (Loss)
================================
Net income (loss) $ 112,860 $ 13,813 $ 15,976 $(182,842)
Preferred dividend requirement (21,046) (19,335) (41,629) (38,555)
-------- -------- -------- --------
Net income (loss) applicable to common stock
and common stock equivalents used for primary
computation 91,814 (5,522) (25,653) (221,397)
Fully diluted adjustments
Assume conversion of preferred stock
Preferred dividend requirement 21,046 19,335 41,629 38,555
-------- -------- -------- --------
Adjusted net income (loss) applicable to
common stock assuming full dilution $ 112,860 $ 13,813 $ 15,976 $(182,842)
======== ======== ======== ========
Adjustments to Common Shares Outstanding
========================================
Average number of shares of common stock 62,321 59,616 61,976 59,446
Primary Adjustments 1)
Assume exercise of options and common stock
equivalents 66 - - -
-------- -------- -------- --------
Total average number of common and common
equivalent shares used for primary computation 62,387 59,616 61,976 59,446
======== ======== ======== ========
Average number of shares of common stock 62,321 59,616 61,976 59,446
Fully Diluted Adjustments 2)
Assume exercise of options 138 - 138 26
Assume conversion of preferred stock 39,156 39,156 39,156 39,156
-------- -------- -------- --------
Total average number of common shares assumed
to be outstanding after full conversion 101,615 98,772 101,270 98,628
======== ======== ======== ========
Income (Loss) Per Common Share
==============================
Primary income (loss) per common share 1) $ 1.47 $ (0.09) $ (0.41) $ (3.72)
======== ======== ======== ========
Fully diluted income (loss) per common share 2) $ 1.11 $ 0.14 $ 0.16 $ (1.85)
======== ======== ======== ========
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 which are anti-dilutive are included in accordance with
Regulation S-K Item 601(b)(11).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701345
<NAME> USAIR GROUP, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 758,361
<SECURITIES> 0
<RECEIVABLES> 432,471<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 252,557
<CURRENT-ASSETS> 1,545,088
<PP&E> 6,388,480
<DEPRECIATION> 2,181,675
<TOTAL-ASSETS> 7,102,393
<CURRENT-LIABILITIES> 2,492,128
<BONDS> 2,875,195
<COMMON> 62,472
758,719
213,153
<OTHER-SE> (1,146,395)
<TOTAL-LIABILITY-AND-EQUITY> 7,102,393
<SALES> 0
<TOTAL-REVENUES> 3,746,390
<CGS> 0
<TOTAL-COSTS> 3,625,273
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,455
<INCOME-PRETAX> 15,976
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,976
<EPS-PRIMARY> (.41)
<EPS-DILUTED> 0<F2>
<FN>
<F1>Receivables are presented net of allowances.
<F2>Fully diluted EPS is anti-dilutive and therefore not presented.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000714560
<NAME> USAIR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 756,635
<SECURITIES> 0
<RECEIVABLES> 432,862<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 230,773
<CURRENT-ASSETS> 1,511,328
<PP&E> 6,130,509
<DEPRECIATION> 2,103,569
<TOTAL-ASSETS> 6,959,664
<CURRENT-LIABILITIES> 2,583,876
<BONDS> 2,831,383
<COMMON> 1
0
0
<OTHER-SE> (290,364)
<TOTAL-LIABILITY-AND-EQUITY> 6,959,664
<SALES> 0
<TOTAL-REVENUES> 3,516,949
<CGS> 0
<TOTAL-COSTS> 3,432,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149,595
<INCOME-PRETAX> (17,178)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,178)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,178)
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Receivables are presented net of allowances.
<F2>EPS calculations are not relevant because USAir, Inc. is a wholly owned
subsidiary of USAir Group, Inc.
</FN>
</TABLE>
<PAGE>
<TABLE>
USAir, Inc.
Exhibit 99
Airline Operating Statistics 1)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- --------------------------------
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue passengers (thousands) * 15,199 15,993 (5.0) % 28,966 29,021 (0.2) %
Total revenue passenger miles
("RPMs") (millions) 10,122 10,159 (0.4) % 19,314 18,670 3.4 %
Revenue passenger miles
(millions) * 9,986 10,036 (0.5) % 19,065 18,426 3.5 %
Total available seat miles
("ASMs") (millions) 15,062 15,494 (2.8) % 30,396 29,842 1.9 %
Available seat miles
(millions) * 14,915 15,355 (2.9) % 30,121 29,569 1.9 %
Passenger load factor 2) * 67.0 % 65.4 % 1.6 pts. 63.3 % 62.3 % 1.0 pts.
Breakeven load factor 3) 4) 64.4 % 65.7 % (1.3) pts. 64.1 % 66.4 % (2.3) pts.
Passenger revenue per ASM * 11.24 c 10.40 c 8.1 % 10.50 c 10.23 c 2.6 %
Total revenue per ASM 4) 12.19 c 11.28 c 8.1 % 11.47 c 11.14 c 3.0 %
Cost per ASM 4) 11.30 c 10.90 c 3.7 % 11.19 c 11.39 c (1.8) %
Yield (revenue per RPM) * 16.79 c 15.91 c 5.5 % 16.59 c 16.41 c 1.1 %
Cost of fuel per gallon 5) 52.71 c 51.11 c 3.1 % 52.38 c 52.76 c (0.7) %
Gallons of fuel consumed
(millions) 292 303 (3.6) % 591 588 0.5 %
* = denotes scheduled service only.
c = cents
1) Statistics include free frequent travelers and the related miles flown.
2) Passenger load factor is the percentage of aircraft seating capacity that is actually utilized (RPMs/ASMs).
3) 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.
4) Financial statistics exclude revenue and expense generated under the British Airways wet lease arrangement.
5) Cost includes the base cost of fuel and transportation charges.
</TABLE>
