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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITY EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
------------------------------------
US Airways Group, Inc.
(Formerly USAir Group, Inc.)
(Commission file number: 1-8444)
and
US Airways, Inc.
(Formerly USAir, Inc.)
(Commission file number: 1-8442)
(Exact names of registrants as specified in their charters)
Delaware US Airways Group, Inc. 54-1194634
(State of incorporation US Airways, Inc. 53-0218143
of both registrants) (I.R.S. Employer Identification Nos.)
US Airways Group, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 872-5306
(Registrant's telephone number)
US Airways, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 872-7000
(Registrant's telephone number)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Registrant Title of each class on which registered
---------- ------------------- ---------------------
US Airways Common Stock, New York Stock
Group, Inc. par value $1.00 Exchange
per share
Depositary Shares, New York Stock
each representing Exchange
1/100 of a share of
$437.50 Series B
Cumulative Convertible
Preferred Stock
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 and
(2) have been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained in this
Form 10-K, and will not be contained, to the best of the
registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [X]
The aggregate market value of the voting stock of US Airways
Group, Inc. held by non-affiliates on February 28, 1997 was
approximately $2,056,729,000. On February 28, 1997, there were
outstanding approximately 64,347,000 shares of Common Stock of US
Airways Group, Inc. and 1,000 shares of Common Stock of US
Airways, Inc.
The registrant US Airways, Inc. meets the conditions set
forth in General Instructions J(1)(a) and (b) of Form 10-K and is
therefore participating in the filing of this form in the reduced
disclosure format permitted by such Instructions.
Item of Form 10-K Document Incorporated By Reference
- ------------------ -----------------------------------
Part III, Items 10, 11, Proxy Statement* (excluding
12 and 13 therefrom the subsections entitled
"Report of the Compensation and
Benefits Committee of the Board of
Directors" and "Performance Graph")
* Refers to the definitive Proxy Statement of US Airways Group,
Inc., to be filed pursuant to Regulation 14A, relating to the
Annual Meeting of Stockholders of US Airways Group, Inc. to be
held on May 21, 1997.
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US AIRWAYS GROUP, INC.
AND
US AIRWAYS, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
Part I PAGE
Item 1. Business 1
General Information 1
Strategy 2
Current Industry Conditions 4
Industry Regulation and Airport Access 5
Relationship with British Airways 8
British Airways Investment Agreement 9
DOT Order Regarding British Airways' Investment
in US Airways Group 10
Board of Directors Representation 10
U.K.-U.S. Routes 11
Code Sharing and Other Commercial Arrangements 11
Terms of the Series C Preferred Stock and the
Series E Preferred Stock 12
Certain Aspects of the Second and Final Purchase 12
Miscellaneous 12
Payments of Dividends on Senior Preferred Stock 13
Employees 14
Executive Officers 14
Status of US Airways' Labor Agreements 16
Frequent Traveler Program 18
Computerized Reservation Systems 19
Aviation Fuel 19
Insurance 20
Operating Statistics 21
Item 2. Properties 22
Flight Equipment 22
Ground Facilities 23
Terminal Construction Projects 24
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of
Security Holders 26
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TABLE OF CONTENTS
(Continued)
Part II PAGE
Item 5A. Market for US Airways Group's
Common Equity and Related
Stockholder Matters 26
Item 5B. Market for US Airways' Common Equity
and Related Stockholder
Matters 28
Item 6. Selected Financial Data 29
Item 7. Management's Discussion and Analysis of
Financial Condition and
Results of Operations 31
Item 8A. Consolidated Financial Statements and
Supplementary Information
for US Airways Group, Inc. 56
Item 8B. Consolidated Financial Statements and
Supplementary Information
for US Airways, Inc. 102
Item 9. Changes In and Disagreements with
Accountants on Accounting and
Financial Disclosure 136
Part III
Item 10. Directors and Executive Officers of
US Airways Group, Inc. 137
Item 11. Executive Compensation 137
Item 12. Security Ownership of Certain Beneficial
Owners and Management 137
Item 13. Certain Relationships and Related
Transactions 137
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 138
Signatures US Airways Group, Inc. 144
US Airways, Inc. 146
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PART I
ITEM 1. BUSINESS
GENERAL INFORMATION
US Airways Group, Inc. ("US Airways Group" or the "Company")
is a corporation organized under the laws of the State of
Delaware. The Company's executive offices are located at 2345
Crystal Drive, Arlington, Virginia 22227 (telephone number (703)
872-5306). Effective February 21, 1997, USAir Group, Inc. changed
its name to US Airways Group, Inc. and USAir, Inc. ("USAir")
changed its name to US Airways, Inc. ("US Airways"). USAir's
operations are now conducted under the name US Airways.
US Airways Group's primary business activity is ownership of
all the common stock of US Airways, Allegheny Airlines, Inc.
("Allegheny"), Piedmont Airlines, Inc. ("Piedmont"), PSA
Airlines, Inc. ("PSA"), USAir Fuel Corporation ("Fuel Corp."),
USAir Leasing and Services, Inc. ("USAir Leasing and Services")
and Material Services Company, Inc. US Airways' accounts include
its wholly-owned subsidiary USAM Corp. ("USAM"). The OR Group,
Inc. (the "OR Group") was a wholly-owned subsidiary of US Airways
Group incorporated in February 1996 and dissolved in the fourth
quarter of 1996. The OR Group provided resource allocation
consulting services and decision-making support systems to US
Airways, which assumed these activities upon OR Group's
dissolution.
US Airways, a certificated air carrier engaged primarily in
the business of transporting passengers, property and mail, is
the Company's principal operating subsidiary, and accounted for
approximately 92% of US Airways Group's operating revenues for
the fiscal year ended December 31, 1996. US Airways enplaned 56.9
million passengers in 1996 and is the fifth largest United States
air carrier ranked by revenue passenger miles ("RPMs") flown. As
of December 31, 1996, US Airways provided regularly scheduled jet
service through 110 airports to approximately 145 cities in the
continental U.S., Canada, Mexico, France, Germany, Italy, Spain
and the Caribbean. US Airways' executive offices are located at
2345 Crystal Drive, Arlington, Virginia 22227 (telephone number
(703) 872-7000).
A substantial portion of US Airways' operations are located
in the Eastern United States (that region of the United States
east of the Mississippi River). US Airways' primary connecting
hubs are located at the Pittsburgh, Charlotte/Douglas,
Philadelphia and Baltimore/Washington Inter-national ("BWI")
Airports, and US Airways also maintains significant operations at
major airports in Boston, New York City (LaGuardia Airport or
"LaGuardia") and Washington, D.C.'s National Airport ("Washington
National"). Measured by departures, US Airways is the largest or
second largest airline at each of the foregoing airports and is
the predominant air carrier in many smaller eastern cities, such
as Albany, Buffalo, Hartford, Providence, Richmond, Rochester and
Syracuse. In addition, US Airways is the leading airline from the
Northeast U.S. to Florida. US Airways currently has approximately
85% of its daily departures and approximately 58% of its capacity
(available seat miles or "ASMs") deployed in the Eastern U.S.
US Airways code shares with ten regional airlines operating
under the "US Airways Express" trade name (formerly doing
business as "USAir Express"). US Airways Group owns three of the
US Airways Express air carriers - Piedmont, Allegheny, and PSA.
Under a code share arrangement one air carrier places its
designator code and sells tickets on the flights of another air
carrier (its code share partner). Through service agreements US
Airways provides
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reservations and, at certain stations, ground support services,
in return for service fees. The US Airways Express network feeds
traffic into US Airways' route system at several points,
including its major hub operations at Pittsburgh, Charlotte,
Philadelphia and BWI. As of December 31, 1996, US Airways Express
served 174 airports in the United States, Canada and the Bahamas,
including 72 also served by US Airways. During 1996, US Airways
Express air carriers enplaned 10.6 million passengers (including
5.6 million passengers enplaned by Piedmont, PSA and Allegheny),
approximately half of whom connected to US Airways flights.
During the fourth quarter of 1996, US Airways began purchasing
all of the capacity generated by the Company's three wholly-owned
regional airlines in exchange for all of their transportation
revenues. The program, which has no effect on the Company's
Consolidated Financial Statements, is discussed in Part II, Item
7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
US Airways also has a management agreement and code shares
with Shuttle, Inc. operating as "US Airways Shuttle" (formerly
doing business as "USAir Shuttle"). The US Airways Shuttle
operates frequent service between LaGuardia and Boston and
between LaGuardia and Washington National. In 1992, US Airways
reached an agreement (the "Management Agreement") with the
consortium of banks (the creditors of the former Trump Shuttle)
which own Shuttle, Inc. (the "Shuttle") to manage the Shuttle's
operations under the name "USAir" or any other name the Company
determines for a period of up to ten years. The Company also has
an exclusive option, which became effective October 10, 1996 and
expires April 9, 1997, to purchase all of the debt and equity of
the Shuttle. The Company has a right of first refusal with
respect to the purchase of all outstanding shares and warrants of
the Shuttle until the termination of the Management Agreement. In
addition, the Company has a right of first refusal with respect
to the purchase of substantially all of the assets of the Shuttle
commencing on April 10, 1997 until the termination of the
Management Agreement.
US Airways is in the process of terminating its relationship
with British Airways plc ("British Airways") including the code
sharing agreement between the companies effective March 29, 1997
and certain other commercial arrangements. See "British Airways
Investment Agreement," and "Code Sharing and Other Commercial
Arrangements" for additional information.
The Company's second quarter financial results have
historically been its strongest due to US Airways' combination of
business traffic and North-South leisure traffic in the Eastern
U.S. during that period.
STRATEGY
In January 1996, the Company's and US Airways' boards of
directors elected Stephen M. Wolf as Chairman of the Board and
Chief Executive Officer. During February 1996, Rakesh Gangwal was
elected President and Chief Operating Officer and Lawrence M.
Nagin was elected Executive Vice President of Corporate Affairs
and General Counsel of both companies. The new senior management
team is focusing on addressing US Airways' high cost structure,
particularly with respect to personnel costs, and has embarked on
other measures to improve US Airways' competitive position in
today's highly competitive airline industry environment. These
other measures include improving and standardizing US Airways'
product, revamping US Airways' market image and focus, increasing
international service and rationalizing US Airways' operating
aircraft fleet.
Addressing US Airways' High Cost Structure - US Airways has the
highest cost structure of all major domestic air carriers. US
Airways has been able to reduce costs in certain expense
categories, but has not been successful in
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its efforts to reduce costs in its largest expense category -
Personnel costs. The Company is committed to obtaining a
significant reduction in US Airways' unit labor costs (see also
Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which includes
additional information related to the Company's ongoing
negotiations with US Airways' organized labor groups). With
respect to non-labor cost reductions, for example, US Airways
imposed limits on the base commissions it pays travel agents for
domestic air fares beginning in the first quarter of 1995. US
Airways has experienced cost savings due to the new commissions
limits (see also Part I, Item 3 "Legal Proceedings").
Improving and Standardizing US Airways' Product - US Airways'
recent name change signals the expanding reach of US Airways'
route structure and its changing image. Coinciding with the name
change, the livery of US Airways' aircraft is being enhanced and
aircraft interiors upgraded and standardized. New products and
features, such as a new international business class called "Envoy
Class" and personal in-seat video systems, will be added in an
effort to attract more business travelers and improve US Airways'
image in the marketplace. US Airways is in the process of
equipping all of its aircraft with in-flight phones and further
expanding first class cabins and replacing first class seats on
select aircraft. In addition, US Airways' airport lounges are
being enhanced and, in some cases, expanded.
Revamping US Airways' Market Image and Focus - US Airways has also
undertaken steps to increase its level of on-time performance and
improve in other key industry performance measurements (as
compiled and reported by the U.S. Department of Transportation
("DOT")). For October 1996, US Airways ranked first in on-time
performance among major domestic air carriers for the first time
in its history, despite setting a company single-month load factor
record during that month. US Airways finished first in on-time
performance among major domestic air carriers for the fourth
quarter of 1996. During that quarter, US Airways also ranked first
in fewest damaged or lost baggage complaints, fewest reservations
complaints and was second overall in fewest complaints of all
types. In April 1996, US Airways introduced electronic ticketing,
or "ticketless travel," as an option for customers traveling
within the U.S. on US Airways or US Airways Express. Electronic
ticketing enables a customer to book a flight through US Airways'
reservations system or certain travel agencies and receive a
confirmation number instead of a paper ticket. The Company
believes that electronic ticketing enhances customer convenience
and helps to reduce US Airways' distribution costs. Customer
response to electronic ticketing has been favorable and customer
use of electronic ticketing has increased since its introduction.
In October of 1995, US Airways introduced personal computer
software that enables certain high-volume customers to engage in
self-service travel booking. User response has been favorable.
Increasing International Service - During 1996, US Airways'
transatlantic capacity increased 55.4% versus 1995 levels (as
measured by ASMs). US Airways launched new European service to
Munich, Madrid and Rome during mid-1996 and added additional
service at Frankfurt during 1996. US Airways has also filed with
the DOT to serve London's Heathrow Airport from Boston,
Charlotte, Philadelphia and Pittsburgh. US Airways continues to
explore additional international opportunities.
Rationalizing US Airways' Operating Aircraft Fleet - US Airways
announced in November 1996 that it had entered into an agreement
with AVSA, S.A.R.L., an affiliate of aircraft manufacturer Airbus
Industrie ("Airbus"), regarding the acquisition of up to 400
narrowbody Airbus aircraft. The agreement is part of US Airways'
long-term strategy of replacing several older, diverse aircraft
types with newer, more efficient aircraft types based on a similar
design. The Company believes that the operational and customer
service benefits of modernizing its fleet outweigh the increased
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expenses that would be incurred by US Airways with the purchase or
lease of the new aircraft. The agreement with Airbus remains
subject to US Airways achieving a competitive cost structure and
the approval of definitive documentation by US Airways' board of
directors. In early January 1997, Airbus announced that it could
not support the delivery of six aircraft tentatively scheduled
for delivery to US Airways in 1997 due to US Airways' inability
to affirm the arrangement. Airbus subsequently advised US Airways
that it was also withdrawing all of US Airways' 1998 and 1999
firm delivery positions as well as support for the twelve
aircraft contemplated to be leased in 1998 for similar reasons.
If US Airways is able to achieve a competitive cost structure it
may still be able to acquire Airbus aircraft during 1998 and
1999.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information
related to the Company's current strategy, US Airways' program to
upgrade and enhance the interiors of its aircraft and US Airways'
agreement with Airbus.
CURRENT INDUSTRY CONDITIONS
Demand for air transportation historically has tended to
mirror general economic conditions. US Airways expects that the
airline industry will remain extremely competitive for the
foreseeable future, primarily due to the dramatic change which
has occurred in industry pricing and has resulted in generally
lower fares.
Most of the Company's airline subsidiaries operate in
competitive markets and experience competition of varying degrees
with other air carriers and with all forms of surface
transportation. US Airways competes with at least one major
airline on most of its routes between major cities. Vigorous
price competition exists in the airline industry, and competitors
have frequently offered sharply reduced discount fares in many of
these markets. Airlines, including US Airways, use discount fares
and other promotions to stimulate traffic during normally slack
travel periods, to generate cash flow and to increase relative
market share in selected markets. Discount and promotional fares
are often subject to various restrictions such as minimum stay
requirements, advance ticketing, limited seating and refund
penalties. US Airways has often elected to match discount or
promotional fares initiated by other air carriers in certain
markets in order to compete in those markets.
The Company recorded net income of $263.4 million for 1996,
net income of $119.3 million for 1995 and a net loss of $684.9
million for 1994. This upward trend is primarily attributable to
favorable capacity and pricing trends in markets served by the
Company's airline subsidiaries, continued stable domestic economic
conditions and the positive influence of US Airways' revenue
enhancement and cost-reduction initiatives. The Company's results
for 1996, although the best in its history, were dampened by
substantial year-over-year increases in Personnel costs and
Aviation fuel expenses. The factors contributing to the Company's
improved financial performance for 1996, as well as changes in
certain of the Company's operating expenses such as Personnel
costs and Aviation fuel, are discussed under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Despite the Company's improved financial results for 1996,
the competitive threat posed by low cost, low fare competition
presents a serious challenge to the Company to lower US Airways'
cost structure to ensure long-term financial viability. US
Airways currently has low cost, low fare competition overlapping
approximately 43% of its traffic base, up from approximately 40%
in early 1995.
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As discussed under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Delta Express,"
a low cost, low fare product offered by Delta Air Lines Inc.
("Delta"), was introduced on October 1, 1996, and Southwest
Airlines, Inc. ("Southwest") began service to and from
Providence, Rhode Island on October 27, 1996. Delta Express
currently operates between Florida and 10 Northeast and Midwest
cities. Southwest's service at Providence, which is approximately
60 miles from Boston, has resulted in some passenger traffic
being drawn from Boston's Logan International Airport. US Airways
and its regional airline affiliates have substantial operations
at Boston's Logan International Airport. Southwest, an air
carrier centered around low cost operations and a low fare
structure, first entered Northeast U.S. markets during 1993 by
adding service to and from BWI. Since that time, Southwest has
expanded service at BWI, initiated service to Florida from BWI
(among other locations), launched intra-Florida service and, as
mentioned above, added service to and from Providence. BWI is one
of US Airways' hub airports and Northeast-Florida service forms
one of US Airways' primary leisure markets. The Company estimates
that US Airways' direct route overlap with Delta Express and
Southwest is currently 3.9% and 2.8%, respectively (as measured
by ASMs). However, the Company anticipates that US Airways' route
overlap with both competitors, as well as the intensity of the
competitive pressure on US Airways, will increase as Delta
Express follows its planned doubling of operations in 1997 and
Southwest allocates additional resources to its new Northeast
U.S. operations.
The Company views Southwest's continued expansion into the
Eastern U.S. and Delta's ability to establish a low cost, low
fare operation as serious competitive threats. Both Southwest and
Delta Express have a significant cost advantage over US Airways.
As mentioned under "General Information" above, Eastern U.S.
operations comprise a substantial portion of US Airways' current
route structure. Although a competitive strength in some regards,
the regional concentration of significant operations results in US
Airways being susceptible to changes in certain regional
conditions that may adversely affect the Company's financial
condition and results of operations. The combination of a high
cost structure and the regional concentration of operations has
also contributed to US Airways being particularly vulnerable to
competition from air carriers or operations centered on low costs
of operations and a low fare structure. US Airways has typically
responded to the entry of a low cost, low fare competitor into its
markets by matching fares and increasing the frequency of service
in related markets, generally with the result of diluting US
Airways' yield (Passenger transportation revenue per RPM) in these
markets. In some cases US Airways has responded by reducing
service in affected markets.
INDUSTRY REGULATION AND AIRPORT ACCESS
US Airways operates under a certificate of public conve-
nience and necessity issued by the DOT. Such certificate may be
altered, amended, modified or suspended by the DOT if the public
convenience and necessity so require, or may be revoked for
intentional failure to comply with the terms and conditions of a
certificate. Airlines are also regulated by the United States
Federal Aviation Administration ("FAA"), a division of the DOT,
under Subtitle VII of 49 U.S.C. 40101 et seq. (the "Act"),
primarily in the areas of flight operations, maintenance, ground
facilities and other technical matters. Pursuant to the Act, US
Airways has established an FAA approved maintenance program for
each type of aircraft operated by US Airways that provides for
the ongoing maintenance of such aircraft, ranging from frequent
routine inspections to major overhauls.
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The DOT allows local airport authorities to implement
procedures designed to abate special noise problems, provided
such procedures do not unreasonably interfere with interstate or
foreign commerce or the national transportation system. Certain
airports, including the major airports at Boston, Washington,
D.C., Chicago, Los Angeles, San Diego and San Francisco, have
established airport restrictions to limit noise, including
restrictions on aircraft types to be used and limits on the
number of hourly or daily operations or the time of such
operations. In some instances these restrictions have caused
curtailments in services or increases in operating costs and such
restrictions could limit the ability of US Airways to expand its
operations at the affected airports. Authorities at other
airports may consider adopting similar noise regulations.
In the last several years, the FAA has issued a number of
maintenance directives and other regulations relating to, among
other things, retirement of older aircraft, collision avoidance
systems, airborne windshear avoidance systems, noise abatement
and increased inspections and maintenance procedures to be
conducted on older aircraft.
Several airports have recently sought to increase
substantially the rates charged to airlines, and the ability of
airlines to contest such increases has been restricted by federal
legislation, DOT regulations and judicial decisions. In addition,
legislation which became effective June 1, 1992 allows public
airports to impose passenger facility charges of up to $3 per
departing or connecting passenger at such airports. With certain
exceptions, airlines pass these charges on to passengers.
The FAA has designated New York's John F. Kennedy and
LaGuardia, Chicago O'Hare and Washington National airports as
"high density traffic airports" and has limited the number of
departure and arrival slots at those airports. Currently, slots
at the high density traffic airports may be voluntarily sold or
transferred between carriers. The DOT has in the past reallocated
slots to other carriers and reserves the right to withdraw slots.
Various amendments to the slot system, proposed from time to time
by the FAA, members of Congress and others, could, if adopted,
significantly affect operations at the high density traffic
airports or expand slot controls to other airports. Certain of
such proposals could restrict the number of flights, limit the
ownership transferability of slots, increase the risk of slot
withdrawal, or otherwise decrease the value of slots. US Airways
holds a substantial number of slots at LaGuardia and Washington
National. These slots are valuable assets and important in US
Airways' overall business strategy. US Airways cannot predict
whether any of these proposals will be adopted.
The availability of international routes to air carriers is
regulated by agreements between the U.S. and foreign governments.
The U.S. has in the past generally followed the practice of
encouraging foreign governments to accept multiple air carrier
designation on foreign routes, although certain countries have
sought to limit the number of air carriers. Foreign route
authorities may become less valuable to the extent that the U.S.
and other countries adopt "open skies" policies liberalizing
entry on international routes. In February 1995, the U.S. and
Canada reached a formal agreement which deregulates airline
services between Canada and the United States and provides that
Canadian airlines have immediate "open skies" access to the
United States and that U.S. airlines will have limited new route
rights to Vancouver and Montreal for two years and to Toronto for
three years and open skies thereafter. This agreement has
increased passenger traffic between the U.S. and Canada. The
agreement provided for two new Toronto designations in the first
year. In October 1995, the DOT granted to US Airways route
authority for non-stop service between Pittsburgh and Toronto. US
Airways had previously operated this route under temporary
exemption authority. On May 1, 1995, the DOT granted to US
Airways temporary exemption authority to begin twice-daily round-
trip nonstop service between Washington National and Toronto once
a Canadian air carrier entered that market. Air Canada
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initiated service on that route in June 1995 and US Airways began
service in the same month. US Airways received permanent route
authority in 1996. The route is open to all carriers in 1998.
In October 1995, the DOT granted US Airways a two-year
exemption route authority to operate between Madrid, Spain and
both Philadelphia and Boston. US Airways commenced service from
Philadelphia to Madrid in June 1996. In February 1996, the DOT
issued a show cause order awarding US Airways authority to
institute service to Rome, Italy from Philadelphia with through
service from Los Angeles. US Airways inaugurated its service to
Rome in June 1996. In February 1996, US Airways received final
approval from the DOT to institute service to Munich, Germany
from Philadelphia. US Airways inaugurated its Munich service in
May 1996. US Airways has also filed with the DOT to serve
London's Heathrow Airport from Boston, Charlotte, Philadelphia
and Pittsburgh.
The Federal excise tax on domestic air transportation was
reinstated on August 27, 1996, for tickets sold for travel before
January 1, 1997. This tax, 10% of the cost of an airline ticket,
had previously expired on January 1, 1996. The Company believes
that its Passenger transportation revenues were stimulated during
the period the tax was not in effect - the absence of the tax
effectively reduced the cost of air travel. The Company cannot
estimate the dollar impact of the tax expiration on its Passenger
transportation revenues during the period the tax was not
collected due to the complexity and number of factors that
contribute to the Company's performance in this area. This tax
expired again on January 1, 1997. On February 28, 1997, President
Clinton signed legislation reinstating the tax for tickets sold
beginning March 7, 1997 through September 30, 1997. Reinstatement
of this tax, which could effectively increase the cost of air
transportation, may dampen demand for air transportation which,
in turn, may have a material adverse effect on the Company's
financial condition and results of operations.
The Company's airline subsidiaries became obligated to pay
the $.043 per gallon Federal Excise Tax on transportation fuels
on October 1, 1995. Airlines had a three-year exemption from this
tax, which became effective during 1992. Attempts to either
rescind this tax or reinstate the airline exemption continue,
although these efforts have not been successful to date. US
Airways cannot predict the ultimate outcome of future attempts to
either rescind the tax or reinstate the airline exemption. US
Airways recognized expenses of $43.0 million and $11.9 million as
a result of this tax during 1996 and 1995, respectively.
The FAA has proposed new regulations that would require
flight data recorders that measure more flight parameters than
most original equipment flight data recorders. The proposed
regulations, subject to DOT approval, would require the upgraded
flight data recorders to be installed within four years. The
proposal, as drafted, would affect US Airways' entire operating
fleet. The Company estimates that the proposed regulations, if
adopted, would cost US Airways approximately $20 million over the
four-year period. The Company cannot predict whether or when the
proposed regulations will be adopted or if the proposed
regulations will result in expenditures consistent with the
Company's current estimate.
Following the July 1996 accident involving a TWA aircraft
and speculation that the cause of the accident may have been
sabotage, President Clinton ordered new security measures related
to passenger, baggage and cargo screening, particularly with
respect to international operations. The increased security
measures have resulted in an increase in the Company's operating
expenses, although the dollar effect of the new security measures
is not material. The President also formed a special committee
which reviewed aviation safety and airport security, as well as
the air traffic control system. The committee released its final
report on February 12, 1997. The Committee made several
recommendations in the areas of safety, air traffic control and
security. The Company is unable to predict whether any
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of the recommendations will be adopted, and if adopted, their
impact on the Company's financial condition and results of
operations. Further increases in government-mandated security
measures may have an adverse effect on the Company's results of
operations and financial condition depending on the ability of US
Airways and its regional affiliates to pass through any new
Federal taxes, surcharges or additional operating expenses to
customers. Any effective increase in the cost of air
transportation may dampen passenger and cargo traffic levels
which could have a material adverse effect on the Company's
financial condition and results of operations.
Many aspects of US Airways' operations are subject to
increasingly stringent federal, state and local laws protecting
the environment. Future regulatory developments could affect
operations and increase operating costs in the airline industry,
including for US Airways.
RELATIONSHIP WITH BRITISH AIRWAYS
On January 21, 1993, US Airways Group entered into an
investment agreement (the "Investment Agreement") with British
Airways. On the same date, British Airways purchased the Series F
Cumulative Convertible Senior Preferred Stock ("Series F
Preferred Stock") from the Company for $300 million (see Note
7(b) to the Company's Consolidated Financial Statements contained
in Part II, Item 8A of this report for the terms of the Series F
Preferred Stock). In June 1993, pursuant to certain preemptive
and optional purchase rights under the Investment Agreement,
British Airways purchased the Series T Cumulative Convertible
Exchangeable Preferred Stock ("Series T Preferred Stock" and,
together with the Series F Preferred Stock, the "BA Preferred
Stock") from the Company for an aggregate purchase price of
approximately $100.7 million (see Note 7(c) to the Company's
Consolidated Financial Statements for the terms of the Series T
Preferred Stock).
On March 7, 1994, British Airways announced that it would
not make any additional investments in the Company until the
outcome of measures by the Company to reduce costs and improve
financial results was known. On January 19, 1996, British Airways
announced that it would not exercise its option to make any
further investment in US Airways Group prior to the January 21,
1996 deadline provided in the Investment Agreement. See also
"British Airways Investment Agreement" below and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
On June 11, 1996, British Airways announced a proposed
"operational merger" with American Airlines, Inc. ("American")
(the "BA/AA Alliance"). The BA/AA Alliance is currently being
reviewed by regulatory authorities in the United Kingdom, the
United States and Europe.
On July 30, 1996, the Company and US Airways initiated a
lawsuit in the U.S. District Court for the Southern District of
New York against British Airways, BritAir Acquisition Corp.,
Inc., American and American's parent company, AMR Corp. The
Company and US Airways claim that British Airways, in pursuit of
an alliance with American, is responsible for breaches of
fiduciary duty to the Company and US Airways and violated certain
provisions of the Investment Agreement between the Company and
British Airways. The lawsuit also claims that the defendants are
in violation of U.S. antitrust laws that prohibit conduct that
harms competition. Although the defendants filed motions to
dismiss the lawsuit following the filing of the complaint, these
motions became superseded on March 5, 1997 when the Company filed
an Amended Complaint with the Court based on information gathered
in the pre-trial discovery process. The defendants have informed
the Company that, in response to the Amended Complaint, they
intend to file new motions to dismiss shortly.
8
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On December 17, 1996, British Airways delivered a notice (the
"Sale Notice") to the Company of its intent to sell in one or more
underwritten public offerings or privately negotiated
transactions, all of the shares of the BA Preferred Stock. Under
the Investment Agreement, the Sale Notice triggered (i) a right of
first offer of the Company to purchase all (or in certain
circumstances, any portion) of such shares at prices set forth in
the Sale Notice (the "Right of First Offer") and (ii) a public
offering registration procedure (the "Public Offering Registration
Procedure"). The Company did not exercise its right to purchase
the BA Preferred Stock prior to the expiration of the Right of
First Offer on February 15, 1997.
Because the Company elected not to exercise the Right of
First Offer with respect to the BA Preferred Stock, subject to
certain limitations, British Airways is free to complete a sale on
terms no less favorable to British Airways than those set forth in
the Sale Notice, provided that (i) such sale is closed by August
14, 1997 (or 180 days following the initial filing of the
Company's registration statement in conjunction with the Public
Offering Registration Procedure), (ii) in the case of a public
offering, the sale price may be higher or lower than the price
offered in the Sale Notice and (iii) in the case of a privately
negotiated transaction, the price must be equal to or higher than
the price offered in the Sale Notice.
In the Sale Notice, British Airways also exercised the Public
Offering Registration Procedure under the Investment Agreement to
cause the Company to use its "reasonable efforts" to register the
BA Preferred Stock for sale in an underwritten public offering at
British Airways' request on up to three occasions. The
registration procedures provide that the Company shall prepare and
file with the U.S. Securities and Exchange Commission and use its
reasonable efforts to cause to become effective a registration
statement under the Securities Act by April 16, 1997, provided,
however, that the Company's obligation to file a registration
statement may be deferred in certain circumstances for up to 180
days.
As described more fully under "Board of Directors
Representation," the British Airways representatives have resigned
from the US Airways Group and US Airways boards of directors.
Based on such resignations, British Airways may take the position
that British Airways is no longer an affiliate of US Airways Group
and, therefore, upon the expiration of the third month following
such change in status, is able to sell the BA Preferred Stock
without registration under the Securities Act of 1933 in
compliance with an exemption thereunder.
BRITISH AIRWAYS INVESTMENT AGREEMENT
The following summary of certain terms of the Investment
Agreement is subject to, and is qualified in its entirety by the
Investment Agreement and the exhibits thereto, which have
previously been filed with the SEC. British Airways has invested
approximately $400 million in BA Preferred Stock in accordance
with the Investment Agreement. Based on the circumstances
described under "Relationship with British Airways" above, the
Company does not expect that British Airways will make additional
investments in US Airways Group.
On January 19, 1996, British Airways announced that it would
not exercise its option to make any further investment in US
Airways Group prior to the January 21, 1996 deadline provided in
the Investment Agreement. Under the Investment Agreement,
assuming the Series F Preferred Stock or any shares issued upon
conversion thereof were outstanding and British Airways had not
sold any shares of the BA Preferred Stock or any common stock or
other securities received upon conversion or exchange of the BA
Preferred Stock, British Airways was entitled at its option to
elect to purchase, on or prior to January 21, 1996, 50,000 shares
of Series C Cumulative Convertible Senior Preferred Stock, without
par value ("Series C Preferred Stock"), at a purchase price of
9
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$10,000 per share, to be paid by British Airways' surrender of the
Series F Preferred Stock and payment of $200 million (the "Second
Purchase"). The Investment Agreement provides that, on or prior to
January 21, 1998, assuming that British Airways had purchased (or
was purchasing simultaneously in accordance with the terms of the
Investment Agreement) the Series C Preferred Stock, British
Airways would have the option to purchase 25,000 shares of Series
E Cumulative Convertible Exchangeable Senior Preferred Stock,
without par value ("Series E Preferred Stock"), at a purchase
price of $10,000 per share (the "Final Purchase"). Because British
Airways did not elect prior to January 21, 1996 to make the Second
Purchase, it cannot make the Final Purchase, except that if the
DOT were to approve all the transactions and acts contemplated by
the Investment Agreement on or prior to January 21, 1998, the
Second Purchase and Final Purchase could be consummated under
certain circumstances at the election of British Airways (provided
that British Airways had not sold any of the BA Preferred Stock)
or the Company (provided that the Company had not repurchased or
redeemed any of the BA Preferred Stock). Because British Airways
did not elect to make the Second Purchase by January 21, 1996, the
Company may at its option redeem, in whole or in part, the Series
F Preferred Stock and a like percentage of Series T Preferred
Stock at the higher of market value or the price of $10,000 per
share, plus accrued dividends. Under Delaware law, the Company may
be subject to certain legal restrictions on its ability to
repurchase or redeem its own shares of capital stock. Based on the
circumstances described under "Relationship with British Airways"
above, the Company does not expect that the Second Purchase and
Final Purchase will be consummated. In addition, assuming British
Airways continues to pursue the sale of the BA Preferred Stock in
accordance with the procedures described below, the Company does
not expect that it will repurchase or redeem the BA Preferred
Stock. As of December 31, 1996, the BA Preferred Stock
constituted approximately 23% of the total voting interest in US
Airways Group.
DOT ORDER REGARDING BRITISH AIRWAYS' INVESTMENT IN US AIRWAYS
GROUP
On March 15, 1993, the DOT issued an order (the "DOT Order")
finding, among other things, that British Airways' initial
investment of $300 million does not impair US Airways' citizenship
under Foreign Ownership Restrictions. However, the DOT instituted
a proceeding to consider whether US Airways will remain a U.S.
citizen if the transactions and acts contemplated by the
Investment Agreement, including the transactions discussed under
"British Airways Investment Agreement" above, are consummated. The
DOT has suspended indefinitely the period for comments from
interested parties to the proceeding pending its resolution of
requests by other airlines for production of additional documents
from US Airways. The DOT Order states that the DOT expects and
advises US Airways Group and British Airways not to proceed with
the Second Purchase and Final Purchase until the DOT has completed
its review of US Airways' citizenship. On March 7, 1994, British
Airways announced that it would make no additional investments in
US Airways Group until the outcome of measures by US Airways Group
to reduce its costs and improve its financial results was known
and on January 19, 1996, British Airways announced that it would
not proceed with the Second Purchase. On December 17, 1996,
British Airways delivered the Sale Notice to the Company,
indicating its intent to sell in one or more underwritten public
offerings or privately negotiated transactions, all of the shares
of the BA Preferred Stock.
BOARD OF DIRECTORS REPRESENTATION
Under the Investment Agreement, US Airways Group must use
its best efforts to cause British Airways to be proportionally
represented on US Airways Group's board of directors (on the basis
of its voting interest), up to a maximum representation of 25% of
the total number of authorized directors, assuming that such
proportional representation is permitted by then applicable U.S.
statutory and DOT regulatory or interpretative restrictions on
foreign ownership or control of US Airways Group or its securities
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("Foreign Ownership Restrictions"), generally, until the closing
of the Second Purchase. On January 28, 1997, the Company received
notice that British Airways' representatives, Messrs. Ayling,
Stevens and Maynard, resigned as directors of US Airways Group and
on February 12, 1997, the Company received notice that such
individuals resigned as directors of US Airways. In the letter of
resignation, British Airways waived its current and future rights
under the Investment Agreement to US Airways Group board
representation.
U.S. - U.K. ROUTES
Under the Investment Agreement, US Airways Group agreed that
as promptly as commercially practicable it would divest or, if
divestiture were not possible, relinquish, all licenses,
certificates and authorities for each of its routes between the
U.S. and the United Kingdom (the "U.K. Routes") at such time as
British Airways and US Airways implemented the code sharing
arrangement contemplated by the Investment Agreement discussed
below. US Airways Group and British Airways agreed that they
should attempt to mitigate any negative impact on US Airways
employees or communities served by the U.K. Routes and to share
any losses suffered as a result of such divestiture or
relinquishment with due regard to their respective interests.
Accordingly, British Airways operated and marketed certain routes
formerly operated by US Airways under a "wet lease." Under the wet
lease arrangements, US Airways leased three Boeing 767-200ER
aircraft, along with cockpit and cabin crews, to British Airways
for three routes between the U.S. and London. US Airways
terminated the wet lease arrangements with British Airways in a
phased approach with one of the three 767-200ER aircraft returned
in December 1995, the second in February 1996 and the third
aircraft in May 1996. US Airways is using the returned aircraft as
part of its expansion of international service (see "Strategy"
above). In conjunction with the termination of the wet lease
arrangements and related to US Airways' relinquishment or
divestiture of the U.K. Routes, British Airways agreed to pay US
Airways 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 first periodic payment was
received by US Airways in December 1995. The route authorities
which US Airways was required to sell or relinquish were the
Philadelphia-London and BWI-London route authorities purchased by
US Airways from TWA in April 1992 for $50 million, and its route
authority between Charlotte and London. See Note 12 to the
Company's Consolidated Financial Statements for additional
information related to US Airways' note receivable from British
Airways.
CODE SHARING AND OTHER COMMERCIAL ARRANGEMENTS
British Airways and US Airways Group entered into a code
share agreement on January 21, 1993 (the "Code Share Agreement")
pursuant to which certain US Airways flights carry the airline
designator code of both British Airways and US Airways. These
flights were intended by US Airways Group and British Airways
eventually to include all routes provided for under the bilateral
air services agreement between the U.S. and the U.K. to the extent
possible, consistent with commercial viability and technical
feasibility.
The DOT initially granted approval of the code sharing
agreement between US Airways and British Airways on March 17, 1993
for a period of one year. The authorizations to US Airways and
British Airways were expanded by a supplemental DOT order on
November 12, 1993 to permit code sharing on flights serving an
additional number of U.S. points through additional U.S. gateways
for British Airways' transatlantic flights. In June 1995, the DOT
renewed its approval of US Airways' and British Airways' authority
to operate code share service on flights serving 66 U.S. cities
and Mexico City. US Airways has ceased serving Mexico City. In
addition, the DOT approved an expansion of the US Airways/British
Airways code share authority to 65 new U.S. cities, Bermuda,
Nassau and
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five Canadian cities. The approval is valid for two years. As of
December 31, 1996, US Airways and British Airways had implemented
code sharing to 80 of the 138 airports authorized by the DOT.
British Airways has publicly stated that its relationship with US
Airways has contributed over $100 million in annual additional
revenues and cost savings to its financial results. US Airways
believes that the code share arrangement contributed less than $20
million annually to its operating revenues.
On October 24, 1996, US Airways notified British Airways that
it was terminating the code share and frequent traveler agreements
between the companies effective March 29, 1997 following British
Airways decision to enter into an alliance with American. The
Company does not believe that US Airways' lack of an international
code share partner will have a material impact on its financial
condition and results of operations.
TERMS OF THE SERIES C PREFERRED STOCK AND SERIES E PREFERRED STOCK
The Series C Preferred Stock and Series E Preferred Stock are
substantially similar to Series F Preferred Stock, except as
follows. Series C Preferred Stock will be convertible into shares
of Class B Common Stock or Non-Voting Class C Stock at an initial
conversion price of approximately $19.79, subject to Foreign
Ownership Restrictions. Each share of Series C Preferred Stock
will be entitled to a number of votes equal to the number of
shares of Class B Common Stock into which it is convertible,
subject to Foreign Ownership Restrictions. If shares of Series C
Preferred Stock are transferred to a third party, they convert
automatically at the seller's option into either shares of Common
Stock or a like number of shares of Series G Cumulative
Convertible Senior Preferred Stock. Series E Preferred Stock will
be convertible into shares of Common Stock or Non-Voting Class ET
Stock at an initial conversion price of approximately $21.74,
subject to increase if the Series E Preferred Stock is originally
issued on or after January 21, 1997, subject to Foreign Ownership
Restrictions (the Series B, Series C and Series ET Common Stock
are collectively referred to as the "BA Common Stock"). Each share
of Series E Preferred Stock will be entitled to a number of votes
equal to the number of shares of Common Stock into which it is
convertible, subject to Foreign Ownership Restrictions. Based on
the circumstances described under "Relationship with British
Airways" above, the Company does not expect to issue the Series C
or Series E Preferred Stock.
CERTAIN ASPECTS OF THE SECOND AND FINAL PURCHASE
Under the Investment Agreement, if the Second Purchase were
consummated, (i) new classes of US Airways Group common stock
would be created, (ii) certain changes would be implemented with
respect to the size of the board of directors of the Company and
the vote required to approve certain actions, which would have had
the effect of allowing the British Airways representatives to veto
certain board actions, (iii) the Company and British Airways would
integrate certain of their operations, subject to Foreign
Ownership restrictions and (iv) British Airways would be subject
to reductions in its voting and governance rights following a
British Airways transfer of capital stock of the Company. Based on
the circumstances as described under "Relationship with British
Airways" above, US Airways does not expect that these changes will
be implemented.
MISCELLANEOUS
Under the terms of the Investment Agreement, British Airways
has the right to maintain its proportionate ownership of US
Airways Group's securities under certain circumstances by
purchasing shares of certain series of Series T Preferred Stock,
Common Stock or BA Common Stock. Pursuant to these provisions, on
June 10, 1993, British Airways purchased (i) 152.1 shares of
Series T-1 Preferred Stock for approximately
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<PAGE>
$1.5 million as a result of certain issuances during the period
January 21 through March 31, 1993 of Common Stock in connection
with the exercise of certain employee stock options and to certain
defined contribution retirement plans; and (ii) 9,919.8 shares of
Series T-2 Preferred Stock for approximately $99.2 million as a
result of US Airways Group's issuance on May 4, 1993 of 11,500,000
shares of Common Stock for net proceeds of approximately $231
million pursuant to a public underwritten offering. Because
British Airways partially exercised its preemptive right in
connection with the Common Stock offering and the offering price
was below a certain level, the conversion price of the Series F
Preferred Stock was antidilutively adjusted on June 10, 1993 from
$19.50 to $19.41 per share. As a result, the Series F Preferred
Stock is convertible into 15,458,851 shares of Common Stock or
Non-Voting Class ET Common Stock. British Airways advised US
Airways Group that it would not exercise its optional purchase
rights under the Investment Agreement to buy additional series of
Series T Preferred Stock triggered by issuances of Common Stock of
US Airways Group pursuant to certain US Airways Group benefit
plans during 1994, 1995 and 1996.
The Investment Agreement also imposes certain restrictions on
British Airways' right to acquire additional voting securities,
participate in solicitations with respect to US Airways Group
securities or otherwise propose or discuss extraordinary
transactions concerning US Airways Group. These restrictions
remain in effect as long as British Airways or any of its
affiliates or associates beneficially owns any BA Preferred Stock,
T Notes or BA Common Stock, and for two years thereafter.
PAYMENTS OF DIVIDENDS ON SENIOR PREFERRED STOCK
During August and October of 1996, the Company paid
dividends of $43.0 million and $40.0 million, respectively, on
its outstanding Senior Preferred Stock (composed of the Company's
outstanding Series A, Series F and Series T preferred stock
issuances; see Notes 7 and 8(c) to the Company's Consolidated
Financial Statements for a description of each of the Company's
outstanding preferred stock issuances). Prior to these dividend
payments, the Company had deferred the payment of dividends on
all of its outstanding preferred stock issuances effective with
dividend payments due September 30, 1994.
On January 31, 1997, the Company paid additional dividends of
$50.0 million to holders of the Company's Senior Preferred Stock.
After this payment, deferred dividend and additional dividends
(interest) thereon of $27.6 million remained in arrears on the
Company's Senior Preferred Stock. There can be no assurance when
or if the Company will make additional dividend payments on its
Senior Preferred Stock.
The Company's outstanding publicly-held Series B Preferred
Stock is junior to the Company's Senior Preferred Stock and is
not eligible to receive dividends until the deferred dividends on
the Senior Preferred Stock are paid-in-full. Under the terms of
the Series B Preferred Stock, its holders have the right to elect
two additional directors to the Company's board of directors if
six quarterly dividend payments are not paid. That right became
effective on February 15, 1996. The right must be exercised by
notice of holders of record of 20% or more of the Series B
Preferred Stock. In April and October 1996, two different groups
of shareholders representing more than 20% of the Series B
Preferred Stock shares outstanding notified the Company that they
wished to exercise their right to elect additional directors.
However, the shareholders in each of these groups subsequently
sold their shares prior to fully exercising their rights. To the
Company's knowledge, there is currently no ongoing effort to elect
directors under the terms of the Series B Preferred Stock.
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<PAGE>
Under the terms of the Company's Series A Preferred Stock,
its holders, currently affiliates of Berkshire Hathaway, Inc.
("Berkshire"), have the right to elect two additional directors to
the Company's board of directors after a scheduled dividend
payment has not been made for thirty days. Berkshire has informed
the Company that it does not intend to exercise its right at this
time.
See Note 7(d) to the Company's Consolidated Financial
Statements for additional information with respect to accumulated
deferred dividends on the Company's outstanding preferred stock
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for information related to potential
restrictions on the Company's ability to pay dividends on or
redeem its capital stock.
EMPLOYEES
As of December 31, 1996, US Airways Group's subsidiaries
employed approximately 43,500 full-time equivalent employees. US
Airways employed approximately 4,800 pilots, 8,800 maintenance
and related personnel, 10,300 station personnel, 4,000
reservations personnel, 7,800 flight attendants and 4,500
personnel in other administrative and miscellaneous job
categories, while the Company's regional airline subsidiaries and
other subsidiaries employed approximately 900 pilots, 600
maintenance and related personnel, 1,000 station personnel, 400
flight attendants and 400 personnel in other administrative and
miscellaneous job categories.
Approximately 28,200, or 65%, of the employees of US Airways
Group's subsidiaries are covered by collective bargaining
agreements with various labor unions, or will be covered by a
collective bargaining agreement for which negotiations are in
progress. US Airways' four unions include the Air Line Pilots
Association ("ALPA") which represents US Airways' pilots, the
International Association of Machinists and Aerospace Workers (the
"IAM") which represents US Airways' mechanics and fleet service
employee groups, the Association of Flight Attendants (the "AFA")
which represents US Airways' flight attendants and the Transport
Workers' Union ("TWU") which represents US Airways' flight crew
training instructors, flight simulator engineers and dispatch
employees.
EXECUTIVE OFFICERS
The executive officers of US Airways Group and US Airways as
of March 14, 1997:
Name Age Position
---- --- --------
Robert L. Fornaro 44 Senior Vice President -
Planning, US Airways
Rakesh Gangwal 43 President and Chief
Operating Officer,
US Airways Group and
US Airways
John W. Harper 56 Senior Vice President -
Finance and Chief
Financial Officer, US
Airways Group and US
Airways
John R. Long, III 48 Executive Vice
President - Human
Resources, US Airways
Lawrence M. Nagin 56 Executive Vice
President - Corporate
Affairs and General
Counsel, US Airways
Group and US Airways
(table continued on following page)
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(table continued from previous page)
Robert C. Oaks 61 Senior Vice President -
Operations, US Airways
Nancy R. Rohrbach 50 Vice President - Public
and Community
Relations, US Airways
Group, Senior Vice
President - Public and
Community Relations, US
Airways
Stephen M. Wolf 55 Chairman of the Board
and Chief Executive
Officer, US Airways
Group and US Airways
There are no family relationships among any of the officers
listed above. No officer was selected pursuant to any arrangement
between him or her and any other person. Officers are elected
annually to serve for the following year or until the election
and qualification of their successors. Messrs. Fornaro, Harper
and Long have been actively engaged in the business and affairs
of the Company and US Airways during the past five years. The
business experience of the officers listed above since at least
January 1, 1992 is as follows:
Mr. Fornaro previously held several executive positions at
Northwest Airlines, Inc. ("Northwest") from August 1988 to
February 1992. He was Senior Vice President - Market Planning at
Northwest until his election as Senior Vice President - Planning
of US Airways in March 1992.
Mr. Gangwal was elected President and Chief Operating
Officer of US Airways Group and US Airways effective February 19,
1996. Mr. Gangwal came to US Airways from Air France where he had
been Executive Vice President - Planning and Development since
November 1994. Mr. Gangwal previously served in a variety of
management roles at United Air Lines, Inc. ("United") over an
eleven-year period, culminating in the role of Senior Vice
President - Planning.
Mr. Harper was Senior Vice President - Marketing and
Information Systems at Axe-Houghton Management (investment
management) until his election as Vice President and Controller
of US Airways in December 1991. He was elected Senior Vice
President - Information Systems of US Airways in October 1992 and
Senior Vice President - Finance and Chief Financial Officer of US
Airways Group and US Airways in April 1994.
Mr. Long served as Senior Vice President - Administration of
US Airways until his election as Senior Vice President - Customer
Operations of US Airways in June 1989. He was elected Senior Vice
President - Customer Services in March 1991 and Executive Vice
President - Customer Services in May 1992. Mr. Long was elected
Executive Vice President - Human Resources in May 1996.
Mr. Nagin practiced law with Skadden, Arps, Slate, Meagher &
Flom LLP from August 1994 until he joined US Airways Group and US
Airways in February 1996. He previously served in several
executive positions at United and UAL Corp. ("UAL") from
September 1988 to July 1994, culminating in the role of Executive
Vice President - Corporate Affairs and General Counsel of United
and UAL. From 1980-1988, Mr. Nagin was Senior Vice President and
General Counsel of The Flying Tiger Line Inc. ("Flying Tiger").
General Oaks is a retired United States Air Force General.
He was commander of the Air Training Command, the service's
organization responsible for all initial training, including
flight training, prior to his last post in
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his 35-year career with the Air Force, as commander of U.S. Air
Forces in Europe. He retired from the Air Force in 1994 and
joined US Airways in December 1994 as its Vice President -
Corporate Safety and Regulatory Compliance. He was elected to his
present position in August 1995.
Ms. Rohrbach served as a member of the White House
legislative liaison team (1981 to 1986) and as Assistant to the
President and Secretary to the Cabinet (1987 to 1988). In 1989
and 1990, she was a resident fellow at Harvard University's
Institute of Politics and a consultant to the Department of
Energy. She was Assistant Secretary of Labor for Policy during
1991 and 1992 and a public policy and communications consultant
during 1993. Ms. Rohrbach was elected Vice President - Public and
Community Relations of US Airways Group and Senior Vice President
- - Public and Community Relations of US Airways in January 1994.
Mr. Wolf is Chairman of the Board of Directors and Chief
Executive Officer of US Airways Group and US Airways and was
elected to those positions in January 1996. Immediately prior to
joining US Airways, Mr. Wolf was a senior advisor to the
investment bank Lazard Freres & Co. From 1987 to July 1994, Mr.
Wolf was Chief Executive Officer of UAL and United and became
Chairman of each in 1988. From 1986 to 1987, Mr. Wolf was Chief
Executive Officer of Tiger International, Inc. and Flying Tiger.
From 1984 to 1986, Mr. Wolf was President and Chief Executive
Officer of Republic Airlines, Inc. Prior to that time Mr. Wolf
held senior management positions at Continental Airlines, Inc.,
Pan American World Airways and American Airlines, Inc. Mr. Wolf
is a Director of Philip Morris Companies, R.R. Donnelley & Sons
Co., The Brookings Institution and the Alzheimer's Disease and
Related Disorders Association. He is also a trustee of
Northwestern University and Rush-Presbyterian-St. Luke's Medical
Center.
STATUS OF US AIRWAYS' LABOR AGREEMENTS
The following table presents the status of US Airways' labor
agreements as of December 31, 1996:
Expiration
Approximate Date of "No-
Number of Contract Furlough"
Union Class or Craft Employees Amendable Clause
- ----- -------------- ----------- --------- ----------
AFA flight attendants 7,800 01/01/97 (2) 12/31/96
ALPA pilots 4,800 05/01/96 (2) 06/30/97
IAM mechanics and
related employees 7,600 10/01/95 (2) 09/30/95
IAM fleet service
employees 5,700 (1) - (3) -
TWU flight crew
training instructors 50 10/09/96 (2) -
TWU flight simulator
engineers 60 08/02/97 -
TWU dispatch employees 160 09/01/96 (2) -
(1) Estimated number of employees who will be covered under this
new contract.
(2) Currently in negotiations.
(3) Initial contract in negotiation.
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The Company is unable to predict how long it will take to
conclude collective bargaining talks with respect to labor
contracts that are currently amendable or the eventual outcome of
these discussions. Such negotiations traditionally take one or
more years from the time a contract becomes amendable, as
described in the following paragraph. The Company remains
committed to obtaining a significant reduction in US Airways'
unit labor costs and believes that US Airways' long-term
financial viability depends on its success in further reducing
its cost of operations.
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 ("NMB") is
brought in to assist. The process of mediation continues until
the NMB 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 or a
lockout by the company or a strike by the union). While in
negotiations and mediation, both parties must observe the status
quo.
US Airways' current labor contract with ALPA provides that
in the event of a "change of control" of US Airways Group or US
Airways, ALPA will have the right to extend the duration of the
contract for one, two or three years at its option beyond the
amendable date of the agreement with across-the-board wage
increases of 4.5% on each anniversary of the amendable date
through April 30, 1999. A "change of control" is defined as a
single transaction or multi-step related transactions through
which (i) securities which constitute and/or are then currently
exchangeable into, exercisable for or convertible into 50% or
more of the outstanding Common Stock (and Common Stock then
currently issuable upon the exchange, exercise or conversion of
securities) and/or (ii) 50% or more of the value of the assets of
US Airways Group or US Airways, are acquired or held by a single
purchaser or a group of purchasers acting in concert.
During 1994, certain unions engaged in efforts to unionize
US Airways' fleet service employees. The Railway Labor Act
governs, and the NMB has jurisdiction over, campaigns to unionize
workers. After the IAM won a runoff election, on July 22, 1994
the NMB certified the IAM to represent the fleet service
employees. Under the Railway Labor Act, which governs labor
relations in the airline industry, US Airways 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 US Airways to
agree to any particular term or condition sought by the IAM. As
the table above indicates, US Airways and the IAM are currently
negotiating an initial contract covering US Airways' fleet
service employees.
In April 1996, the IAM and the Communications Workers of
America ("CWA") filed applications with the NMB requesting that
an election be held among US Airways' passenger service
employees. On November 12, 1996, the NMB issued a decision
holding that the CWA, but not the IAM, had submitted a sufficient
number of authorization cards to warrant an election. The NMB
mailed ballots to eligible passenger service employees and, after
counting the ballots on January 30, 1997, found the CWA did not
receive the majority vote required for certification. The CWA
filed a challenge to the election results on February 3, 1997. US
Airways cannot predict the outcome of this challenge.
17
<PAGE>
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information
related to the Company's current negotiations with US Airways'
organized labor groups.
FREQUENT TRAVELER PROGRAM
Under US Airways' Frequent Traveler Program ("FTP"),
participants generally receive mileage credits equal to the
greater of actual miles flown or 500 miles, effective May 1, 1995
(750 miles before May 1, 1995), for each paid flight segment on
US Airways or US Airways Express, or actual miles flown on one of
US Airways' FTP airline partners. Participants generally receive
a minimum of 500 mileage credits, effective May 1, 1995, for each
paid flight on US Airways Shuttle (1,000 miles prior to May 1,
1995). Participants flying on first or business class tickets
generally receive additional credits. Participants may also earn
mileage credits by utilizing certain credit cards, staying at
participating hotels, renting cars from participating car rental
companies and through other means. Mileage credits earned by FTP
participants, which do not expire under current program
guidelines, can be redeemed for various travel awards, including
fare discounts, first class upgrades and tickets on US Airways or
other airlines participating in US Airways' FTP. Certain awards
also include hotel and car rental awards. Awards may not be
brokered, bartered or sold, and have no cash value.
US Airways and its airline partners limit the number of
seats allocated per flight for award recipients through inventory
management techniques. The number of seats available for frequent
travelers varies depending upon flight, day, season and
destination. Award travel for all but US Airways' most frequent
travelers generally is not permitted on blackout dates, which
correspond to certain holiday periods in the United States or
peak travel dates to foreign destinations. US Airways reserves
the right to terminate the FTP or portions of the program at any
time, and the FTP rules, partners, special offers, blackout
dates, awards and mileage levels are subject to change without
prior notice.
US Airways accounts for its FTP under the incremental cost
method, whereby estimated future travel awards are valued at the
estimated average incremental cost of carrying one additional
passenger. Incremental costs include unit costs for passenger
food, beverages and supplies, fuel, reservations, communications,
liability insurance and denied boarding compensation expenses. No
profit or overhead margin is included in the accrual for
incremental costs. The Company periodically reviews the
assumptions made to calculate its FTP liability for
reasonableness and makes adjustments to these assumptions as
necessary. No liability is recorded for airline, hotel or car
rental award certificates that are to be honored by other parties
because there is no cost to US Airways for such awards.
Effective January 1, 1995, US Airways increased the minimum
mileage level required for a free domestic flight from 20,000 to
25,000. FTP participants had accumulated mileage credits for
approximately 3,715,000 awards and 3,350,000 awards as of
December 31, 1996 and 1995, respectively, at the 25,000 mile
level required to earn an award. Because US Airways expects that
some potential awards will never be redeemed, the calculations of
the accrued liability for incremental costs as of December 31,
1996 and 1995 were based on approximately 87% of the accumulated
credits. Mileage for FTP participants who have accumulated less
than the minimum number of mileage credits necessary to claim an
award is excluded from the calculation of the accrual.
Incremental changes in FTP liability resulting from redeemed or
additional mileage credits are recorded as part of the regular
review process.
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<PAGE>
US Airways' customers redeemed approximately 1.0 million,
1.2 million and 0.9 million awards for free travel on US Airways
in 1996, 1995 and 1994, respectively, representing approximately
6.0%, 9.0% and 7.0% of US Airways' RPMs in those years,
respectively. US Airways does not believe that usage of FTP
awards results in any significant displacement of revenue
passengers. US Airways' exposure to the displacement of revenue
passengers is not significant, as the number of US Airways
flights that depart 100% full is minimal. In the second quarter
of 1996, the quarter when the highest number of free frequent
traveler trips were flown for the year, for example, fewer than
8.0% of US Airways' flights departed 100% full. During this same
quarterly period, approximately 6.0% of US Airways' flights
departed 100% full and also had one or more passengers on board
who were traveling on FTP award tickets.
As discussed under "Code Sharing and Other Commercial
Arrangements" above, US Airways has notified British Airways that
it is terminating the frequent traveler relationship between the
Company and British Airways effective March 29, 1997.
US Airways renamed its frequent traveler program "Dividend
Miles" during February of 1997.
COMPUTERIZED RESERVATION SYSTEMS
As of December 31, 1996, USAM owned 11% of the Galileo
International Partnership, approximately 11% of the Galileo Japan
Partnership and approximately 21% of the Apollo Travel Services
Partnership.
The Galileo International Partnership owns and operates the
Galileo computer reservation system ("Galileo CRS"). Galileo
Japan Partnership markets the Galileo CRS in Japan and Apollo
Travel Services markets the Galileo CRS in the U.S. and Mexico.
The Galileo CRS is currently the second largest of the four
computer reservation systems ("CRSs") in the U.S. based on
revenues generated by travel agency subscribers. A subsidiary of
United controls 38% of the partnership, and the other partners
exclusive of US Airways' interest are subsidiaries of British
Airways, Swissair, KLM Royal Dutch Airlines, Alitalia, Air
Canada, Olympic Airways, Austrian Airlines, Aer Lingus and TAP
Air Portugal.
CRSs play a significant role in the marketing and
distribution of airline tickets. Travel agents issue tickets
which generate the majority of US Airways' passenger revenues.
Most travel agencies use one or more CRSs to obtain information
about airline schedules and fares and to book their clients'
travel.
AVIATION FUEL
All petroleum product prices continue to be subject to
unpredictable economic, political and market factors. Also, the
balance among supply, demand and price has become more reactive
to world market conditions. Accordingly, the price and
availability of aviation fuel, as well as other petroleum
products, continues to be unpredictable. Because aviation fuel
costs constitute a major expenditure for US Airways, significant
increases in aviation fuel costs could materially and adversely
affect US Airways' financial condition and results of operations.
US Airways continues to adjust its aviation fuel purchasing
strategy to take advantage of the best available prices while
attempting to ensure that supplies are secure. In addition, US
Airways has entered into agreements to hedge the price of a
portion of its aviation fuel needs, which may have the net effect
of increasing or decreasing US Airways' Aviation fuel expense
(see Note 2 to the Company's
19
<PAGE>
Consolidated Financial Statements). See "Industry Regulation and
Airport Access" above for information related to Federal taxes on
aviation fuel.
The following table sets forth statistics about US Airways'
aviation fuel consumption and cost for each of the last four
fiscal years:
Average Percentage
Fiscal Gallons Total Cost Per Of Operating
Year Consumed Cost (1) Gallon (1) Expenses (2)
- ------ -------- ------- --------- ------------
(Millions) (Millions)
1996 1,107 $709.5 $0.64 9.8%
1995 1,137 $605.0 $0.53 9.0%
1994 1,205 $642.3 $0.53 9.4%
1993 1,161 $677.9 $0.58 10.2%
(1) Cost includes the base cost of aviation fuel and
transportation charges.
(2) Operating expenses have been adjusted to exclude non-
recurring and unusual items and expenses generated under the
British Airways wet lease arrangements and the US Airways Express
capacity purchase program. See "Operating Statistics" below for
additional information.
INSURANCE
US Airways Group and its subsidiaries maintain insurance of
the types and in amounts deemed adequate to protect themselves
and their property. Principal coverage includes liability for
bodily injury to or death of members of the public, including
passengers; damage to property of US Airways Group, US Airways
and others; loss of or damage to flight equipment, whether on the
ground or in flight; fire and extended coverage; and workers'
compensation and employer's liability. Coverage for environmental
liabilities is expressly excluded from US Airways Group's and US
Airways' insurance policies.
(this space intentionally left blank)
20
<PAGE>
<TABLE>
OPERATING STATISTICS
US Airways' operating statistics during the years 1992 through 1996 are set forth in the following table (1):
<CAPTION>
Years Ended December 31, 1996 1995 1994 1993 1992
- ----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue Passengers
(Thousands)* 56,640 56,674 59,495 53,678 54,655
Average Passenger
Journey (Miles)* 688 664 638 656 642
Total Revenue Passenger
Miles ("RPMs")
(Millions) 39,220 38,079 38,395 35,529 35,436
RPMs (Millions)* 38,943 37,618 37,941 35,221 35,097
Total Available Seat
Miles ("ASMs")
(Millions) 57,208 58,678 61,540 59,841 60,052
ASMs (Millions)* 56,885 58,163 61,027 59,485 59,667
Passenger Load Factor (2)* 68.5% 64.7% 62.2% 59.2% 58.8%
Break Even Load
Factor (3) (5) 67.9% 64.9% 67.3% 61.7% 63.2%
Passenger Revenue Per
ASM* 11.95c 10.78c 9.70c 10.22c 9.70c
Total Revenue Per ASM
(4) (5) 13.19c 11.80c 10.59c 11.04c 10.38c
Cost per ASM (4) (5) (6) 12.69c 11.40c 11.02c 11.12c 10.85c
Yield (Revenue Per RPM)* 17.46c 16.66c 15.61c 17.27c 16.49c
Average Stage Length
(Miles)* 578 560 536 536 516
* Scheduled service only (excludes charter flights).
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) Break even load factor represents the percentage of aircraft seating capacity that must be utilized, based on fares
in effect during the period, for US Airways to break even at the pre-tax income level, adjusted to exclude non-recurring
and unusual items.
(4) Adjusted to exclude non-recurring and unusual items.
(5) Financial statistics for 1996, 1995, 1994 and 1993 exclude revenues and expenses generated under the British
Airways wet lease arrangement. Financial statistics for 1996 also exclude revenues and expenses generated under the US
Airways Express capacity purchase program (see "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for additional information).
(6) Certain statistics have been recalculated to reflect expense reclassifications.
</TABLE>
21
<PAGE>
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
As of December 31, 1996, US Airways operated the following
jet aircraft:
Passenger Average
Type Capacity Age Owned(1) Leased(2) Total
- ---- --------- ------- -------- --------- -----
(Years)
Boeing 767-200ER 210 7.5 5 7 12
Boeing 757-200 182 6.2 23 11 34
Boeing 737-400 145 7.0 19 35 54
McDonnell Douglas
MD-80 141 14.8 15 16 31
Boeing 737-300 127 9.7 11 74 85
Boeing 737-200 110 14.7 52 12 64
Douglas DC-9-30 101 23.1 50 12 62
Fokker 100 98 6.1 36 4 40
Fokker F28-4000 68 11.8 1 7 8
---- --- --- ---
12.0 212 178 390
===== === === ===
(1) Of the owned aircraft, 106 were pledged as collateral for
various secured financing obligations aggregating $2.1 billion as
of December 31, 1996.
(2) The terms of the leases expire between 1997 and 2015. US
Airways purchased two DC-9-30 aircraft upon lease expiry in
January 1997.
As of December 31, 1996, the Company's three wholly-owned
regional airline subsidiaries operated the following turboprop
aircraft:
Passenger Average
Type Capacity Age Owned Leased (1) Total
- ---- --------- ------- ----- --------- -----
(Years)
de Havilland
Dash 7 50 15.5 1 (2) 2 3
de Havilland
Dash 8 37 6.4 29 53 82
Dornier 328-110 32 1.3 - 25 25
--- -- -- ---
5.5 30 80 110
=== == == ===
(1) The terms of the leases expire between 1997 and 2012.
(2) One of the Company's regional airline subsidiaries is party to
an agreement under which it has the option to require a third
party to purchase this aircraft beginning in March 1997 and
extending 22 months.
US Airways is a party to purchase agreements with Boeing and
Rolls Royce that provide for the future acquisition of new jet
aircraft and jet engines. As of December 31, 1996, the Company's
regional airline subsidiaries, collectively, were party to
agreements related to the acquisition by lease of up to eighteen
additional turboprop aircraft. See Note 4(d) to the Company's
Consolidated Financial Statements for additional information
regarding outstanding commitments and options for the purchase of
flight equipment. The Company's airline subsidiaries maintain
inventories of spare engines, spare parts, accessories and other
maintenance supplies sufficient to meet their operating
requirements.
22
<PAGE>
As of December 31, 1996, the Company's airline subsidiaries,
principally US Airways, owned or leased the following aircraft
which were not considered part of the operating fleets presented
in the tables above. These aircraft were either parked in storage
facilities or, as shown in the far right column, leased or
subleased to third parties.
Average Leased/
Type Age Owned (1) Leased (2) Total Subleased
- ---- ------- --------- ---------- ----- ---------
(Years)
British
Aerospace
BAe-146-200 11.7 1 17 18 13
Boeing
737-200 27.8 11 - 11 10
Douglas
DC-9-30 (3) 28.5 4 2 6 -
Fokker
F28-1000 23.5 17 - 17 17
Fokker
F28-4000 12.9 4 6 10 3
Embraer
EMB-120 6.8 - 2 2 2
British
Aerospace
Jetstream 31 9.7 - 17 17 17
--- -- -- -- --
17.2 37 44 81 62
==== == == == ==
(1) US Airways sold all eleven 737-200 aircraft and its only
owned BAe-146-200 aircraft during the first quarter of 1997.
(2) US Airways purchased the two leased DC-9-30 aircraft upon
lease expiry in January 1997.
(3) US Airways reconditioned three of these aircraft and returned
them to its operating fleet during the first quarter of 1997.
See Note 4(b) to the Company's Consolidated Financial
Statements for additional information related to third party lease
arrangements.
US Airways is a participant in the Civil Reserve Air Fleet
("CRAF"), a voluntary program administered by the Air Mobility
Command (the "AMC"). The General Services Administration of the
United States government also requires that airlines participate
in CRAF in order to receive United States government business. The
United States government is US Airways' largest customer. US
Airways' commitment under CRAF is to provide up to eleven 767-
200ER aircraft in support of military operations, most likely
aeromedical missions, as specified by the AMC. To date, the AMC
has not requested US Airways to activate any of its aircraft under
CRAF.
GROUND FACILITIES
US Airways leases the majority of its ground facilities,
including executive and administrative offices in Arlington,
Virginia adjacent to Washington National; its principal operating,
overhaul and maintenance bases at the Pittsburgh and
Charlotte/Douglas International Airports; major training
facilities in Pittsburgh and Charlotte; central reservations
offices in several cities; and line maintenance bases and local
ticket, cargo and administrative offices throughout its system. US
Airways owns a building and vacant land in Fairfax, Virginia, a
training facility in Winston-Salem, North Carolina and
reservations facilities in San Diego, California and Orlando,
Florida. US Airways' building in Fairfax, Virginia, which is
leased to the U.S. government, and the vacant land are currently
for sale.
23
<PAGE>
TERMINAL CONSTRUCTION PROJECTS
The Company's airline subsidiaries utilize public airports
for their flight operations under lease arrangements with the
government entities that own or control these airports. Airport
authorities frequently require airlines to execute long-term
leases to assist in obtaining financing for terminal and facility
construction. Any future requirements for new or improved airport
facilities and passenger terminals are likely to require
additional expenditures and long-term commitments. Several
significant projects which affect large airports on US Airways'
route system are discussed below.
In 1993, US Airways and the City of Philadelphia reached an
agreement to proceed with certain capital improvements at
Philadelphia International Airport, where US Airways has its third
largest hub. The improvements include approximately $130 million
in various terminal renovations and a new $220 million regional
airline runway expansion project, exclusive of financing costs. US
Airways expects construction on the terminal project will be
completed in 1998. The runway expansion project is not expected to
be completed until 2000. US Airways expects that its annual costs
of operations at Philadelphia International Airport will increase
by approximately $14 million once construction is complete,
representing more than a 35% increase.
The Metropolitan Washington Airport Authority is currently
undertaking a $1 billion capital development project at Washington
National, which includes construction of a new terminal currently
expected to commence operation in the third quarter of 1997. Based
on current projections, US Airways estimates that its annual
operating expenses at Washington National will increase by
approximately $10 million to $12 million.
In 1996, US Airways and the Massachusetts Port Authority
reached an agreement to renovate and expand US Airways' terminal
premises at Boston's Logan International Airport. The Authority
issued approximately $49 million of special facilities bonds to
finance various improvements which include renovation and
expansion of holdrooms, ticket counter space, public circulation
areas, concessions, baggage processing, baggage claim areas and
the US Airways Club facility. The terminal expansion will include
approximately 95,000 square feet of additional space. US Airways
will be responsible for the awarding of contracts and managing of
construction and expects substantial project completion by May,
1998, except for the remodeling of certain gate areas which will
be completed by September, 1998. US Airways anticipates that its
annual operating expenses will increase by approximately $5
million per year as a result of this project.
ITEM 3. LEGAL PROCEEDINGS
US Airways is involved in legal proceedings arising out of
its two aircraft accidents that occurred in July and September
1994 near Charlotte, North Carolina and Pittsburgh, Pennsylvania,
respectively. The National Transportation Safety Board ("NTSB")
held hearings beginning in September 1994 relating to the July
accident and January and November of 1995 relating to the
September accident. In April 1995, the NTSB issued its finding of
probable causes with respect to the accident near Charlotte. It
assigned as probable causes flight crew errors and the failure of
air traffic control to convey weather and windshear hazard
information. The NTSB has not yet issued its final accident
investigation report for the accident near Pittsburgh. The NTSB
has indicated that a determination of the cause of the accident is
not likely until sometime in 1997. US Airways expects that it will
be at least two to three years before the accident litigation and
related settlements will be concluded. Litigation resulting from
the July 1994 accident in Charlotte was recently tried in U.S.
District Court in Columbia, South Carolina. The jury found US
Airways was liable for compensatory damages but was not liable for
punitive damages. The compensatory damages trials have not been
concluded and
24
<PAGE>
US Airways cannot estimate possible compensatory damages. However,
US Airways believes that it is fully insured with respect to this
litigation. Therefore, the Company believes that the litigation
will not have a material adverse effect on the Company's financial
condition or results of operations.
On July 30, 1996, the Company and US Airways initiated a
lawsuit in U.S. District Court for the Southern District of New
York against British Airways plc ("British Airways"), BritAir
Acquisition Corp., Inc., American Airlines Inc. ("American") and
American's parent company, AMR Corp. The Company and US Airways
claim that British Airways, in pursuit of an alliance with
American, is responsible for breaches of fiduciary duty to the
Company and US Airways and violated certain provisions of the
January 21, 1993 Investment Agreement between the Company and
British Airways. The lawsuit also claims that the defendants are
in violation of U.S. Antitrust laws that prohibit conduct that
harms competition. Although the defendants filed motions to
dismiss the lawsuit following the filing of the complaint, these
motions became superseded on March 5, 1997 when the Company filed
an Amended Complaint with the Court based on information gathered
in the pre-trial discovery process. The defendants have informed
the Company that, in response to the Amended Complaint, they
intend to file new motions to dismiss shortly. The Company is
unable to predict at this time the ultimate outcome of this
lawsuit.
In December 1995, US Airways received a Civil Investigative
Demand ("CID") from the U.S. Department of Justice relating to US
Airways' compliance with the terms of a consent decree entered
into in December 1992, as amended in September 1994. The consent
decree was entered into to resolve litigation concerning US
Airways' methods of disseminating fare data to the Airline Tariff
Publishing Company. A CID is a request for information in the
course of an antitrust investigation and does not constitute the
institution of a civil or criminal action. The CID issued in
December 1995 seeks information concerning US Airways' use of
travel dates in its fare filings, among other things. Although US
Airways believes there will be no further action stemming from
this CID, the investigation has not been fully closed.
In February and March 1995, 39 class action lawsuits were
filed in various federal district courts by travel agencies and a
travel agency trade association alleging that seven of the major
U.S. airlines, including US Airways, violated the antitrust laws
when they individually capped travel agent base 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 were consolidated in the federal district of Minnesota.
The plaintiffs sought unspecified treble damages for restraint of
trade. In September of 1996 the case against US Airways, and
subsequently the cases against the other airlines, were settled.
While US Airways believes that its actions in establishing a
commission cap were in full compliance with the antitrust laws,
the uncertainty and expense of litigation prompted a settlement of
the claims. US Airways paid $9.5 million, as part of a total
settlement of $85.8 million for all of the defendants. US Airways
did not admit liability or wrongdoing and the settlement allowed
the commission cap to remain in place. The settlement was approved
by the court in January of 1997.
In October 1995, US Airways terminated for cause an agreement
with in-flight Phone Corporation ("IFPC"). IFPC was US Airways'
provider of on-board telephone and interactive data systems (the
"IFPC System"). The agreement contemplated the eventual
installation of the IFPC System on substantially all of US
Airways' aircraft. The IFPC System had been installed on
approximately 80 aircraft prior to the date of termination of the
agreement. On December 6, 1995, IFPC filed suit against US Airways
in Illinois state court seeking equitable relief and damages in
excess of $186 million. US Airways believes that its termination
of its agreement with
25
<PAGE>
IFPC was appropriate and that it is owed significant damages from
IFPC. On December 7, 1995, US Airways successfully defended IFPC's
emergency motion for a temporary restraining order. On
December 13, 1995, IFPC's motion for a preliminary injunction was
denied and IFPC has relinquished its right to appeal that
decision. IFPC's claim for damages remains pending. In June 1996,
US Airways filed a counterclaim against IFPC seeking compensatory
damages in excess of $25 million and punitive damages in excess of
$25 million. In January 1997, IFPC filed for protection from its
creditors under Chapter 11 of the Bankruptcy Code. The parties
stipulated to lift the automatic stay provided for in the
Bankruptcy Code which could allow IFPC's and US Airways' claims to
be fully litigated. The Company is unable to predict at this time
the ultimate resolution or potential financial impact on the
Company's financial condition and results of operations of these
proceedings.
In May 1995, the Company, US Airways 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 481 active and retired US Airways pilots alleging violations of
the Employee Retirement Income Security Act ("ERISA") by
erroneously calculating benefits under the Pilots' Pension Plan.
The plaintiffs sought, among other things, damages in excess of
$70 million. In May 1996, the court issued a decision in the
lawsuit granting US Airways' Motion to Dismiss the majority of the
complaint for lack of subject matter jurisdiction, deciding that
the dispute must be resolved through the arbitration process. The
court retained jurisdiction over one count of the complaint
alleging a violation of a disclosure requirement of ERISA. There
are no significant penalties or damages which can result from this
remaining claim. The plaintiffs appealed the court's decision,
however, in the opinion of US Airways' counsel, the appeal is
unlikely to be successful.
The Equal Employment Opportunity Commission and various state
and local fair employment practices agencies are investigating
charges by certain job applicants, employees and former employees
of the Company's subsidiaries involving allegations of employment
discrimination in violation of Federal and state laws. The
plaintiffs in these cases generally seek declaratory and
injunctive relief and monetary damages, including back pay. In
some instances they also seek classification adjustment,
compensatory damages and punitive damages. Such proceedings are in
various stages of litigation and investigation, and the outcome of
these proceedings is difficult to predict. In the Company's
opinion, however, the disposition of these matters is not likely
to have a material adverse effect on its financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of 1996.
PART II
ITEM 5A. MARKET FOR US AIRWAYS GROUP'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
STOCK EXCHANGE LISTINGS
US Airways Group's Common Stock, $1 par value (the "Common
Stock"), is traded on the New York Stock Exchange (Symbol U). On
February 28, 1997, there were approximately 64,347,000 shares of
the Company's Common Stock outstanding held by 32,416 stockholders
of record at that date. The holders reside throughout the United
States and abroad.
26
<PAGE>
MARKET PRICES OF COMMON STOCK
The high and low sale prices of the Company's Common Stock as
reported on the New York Stock Exchange Composite Tape during 1996
and 1995 are presented in the table below:
Period High Low
------ ---- ---
1996
First Quarter 19 3/4 11 3/4
Second Quarter 20 3/4 15 7/8
Third Quarter 19 1/2 15 1/8
Fourth Quarter 25 7/8 15 1/4
1995
First Quarter 6 5/8 4 1/4
Second Quarter 14 5 5/8
Third Quarter 12 5/8 8
Fourth Quarter 15 7/8 10 3/8
Holders of the Common Stock are entitled to receive such
dividends as may be lawfully declared by the Company's board of
directors. The Company paid dividends of $.03 per share on its
Common Stock every quarter from the second quarter of 1980 through
the second quarter of 1990. In September 1990, however, the
Company suspended the payment of dividends on Common Stock for an
indefinite period.
As of the date of this report, the Company's board of
directors had not authorized the resumption of dividends on the
Company's Common Stock and there can be no assurance when or if
such dividend payments will resume. In addition, the Company,
organized under the laws of the State of Delaware, may be subject
to certain legal restrictions on its ability to pay dividends on
or repurchase or redeem its own shares of capital stock. See Note
7(d) to the Company's Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for additional information.
FOREIGN OWNERSHIP RESTRICTIONS
In connection with British Airways' 1993 investment in the
Company, the Company's stock-holders approved an amendment to its
restated certificate of incorporation ("Charter") at the 1993
annual meeting that is designed to prevent the loss of US Airways'
operating certificates due to foreign ownership or control of the
Company's voting securities exceeding the level permitted by
relevant Federal law. Under current law, foreign citizens cannot
own or control more than 25% of the Company's outstanding voting
securities.
The Charter provides that non-U.S. citizens ("Aliens") that
acquire beneficial ownership of the Company's voting securities on
or after May 27, 1993 have no voting rights and the Company can
redeem or exchange the voting securities beneficially owned by
these Aliens. The independent directors of the Company, who are
those directors other than those employed by or affiliated with
British Airways or the Company, have broad powers to construe and
apply these provisions of the Charter, including the determination
as to whether Aliens have become the beneficial owners of the
Company's voting securities.
See Part I, Item 1, "Relationship with British Airways" with
respect to recent developments concerning British Airways'
investment in US Airways Group and related matters.
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ITEM 5B. MARKET FOR US AIRWAYS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for US Airways'
common stock, all of which is owned by US Airways Group.
US Airways' board of directors has not authorized the payment
of dividends to US Airways Group since 1988. US Airways, organized
under the laws of the State of Delaware, may be subject to certain
legal restrictions on its ability to pay dividends on or
repurchase or redeem its own shares of capital stock. Covenants
related to US Airways' 10% and 9 5/8% senior unsecured notes
currently do not permit the payment of dividends by US Airways to
US Airways Group. However, these covenants do not restrict US
Airways from loaning or advancing funds to US Airways Group.
See Note 6 to US Airways' Consolidated Financial Statements
contained in Part II, Item 8B and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for
additional information.
(this space intentionally left blank)
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ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for US Airways Group is presented
below:
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in millions, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
Operating Revenues $ 8,142 $ 7,474 $ 6,997 $ 7,083 $ 6,686
Operating Expenses $ 7,705 $ 7,153 $ 7,489 $ 7,179 $ 7,033
Operating Income (Loss) $ 437 $ 322 $ (491)$ (96)$ (347)
Income (Loss) Before
Accounting Change $ 263 $ 119 $ (685)$ (349)$ (601)
Accounting Change (1) - - - (44) (628)
--- --- --- --- -----
Net Income (Loss) $ 263 $ 119 $ (685)$ (393)$(1,229)
Net Income (Loss)
Applicable to Common
Stockholders $ 175 $ 34 $ (763)$ (467)$(1,281)
Primary Income (Loss)
Per Common Share
Before Accounting
Change $ 2.69 $ 0.55 $(12.73)$ (7.68)$(13.88)
Effect of Accounting
Change - - - (0.80) (13.35)
---- ---- ----- ---- -----
Income (Loss) Per
Common Share $ 2.69 $ 0.55 $(12.73)$ (8.48)$(27.23)
Fully-Diluted Income (Loss)
Per Common Share
Before Accounting
Change $2.33 $ 0.55 $(12.73)$ (7.68)$(13.88)
Effect of Accounting
Change - - - (0.80) (13.35)
---- ---- ----- ---- -----
Income (Loss) Per Common
Share $2.33 $ 0.55 $(12.73)$ (8.48)$(27.23)
Dividends Per
Common Share $ - $ - $ - $ - $ -
(table continued on following page)
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(table continued from previous page)
December 31,
-----------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in millions)
CONSOLIDATED BALANCE SHEETS
Total Assets $ 7,531 $ 6,955 $ 6,808 $ 6,878 $ 6,595
Long-Term Obligations
and Redeemable Preferred
Stock (2) (3) $ 4,552 $ 4,572 $ 4,699 $ 4,198 $ 3,714
Series B Preferred
Stock (3) $ 213 $ 213 $ 213 $ 213 $ 213
Common Stockholders'
Equity (Deficit) (3) (798) (1,049) (1,110) (426) (169)
----- ----- ----- ----- -----
Total Stockholders'
Equity (Deficit) (3) $ (584)$ (836)$ (897)$ (213)$ 44
Shares of Common Stock
Outstanding 64.3 63.4 61.1 59.2 47.2
Book Value Per Share (4) $(14.25)$(18.39)$(18.71)$ (7.19)$ (3.58)
(1) Cumulative effect of change in method of accounting for
postemployment benefits in 1993 and postretirement benefits
other than pensions (net of income tax benefit of $117.6
million) in 1992.
(2) Long-term obligations include long-term debt, capital leases
and postretirement benefits other than pensions,
non-current.
(3) 1996, 1995 and 1994 do not include deferred dividends
on preferred stock. See Note 7(d) to the Company's
Consolidated Financial Statements.
(4) Based on Common Stockholders' Equity (Deficit), which is
adjusted to reflect deferred dividends on preferred stock as
though they had been declared. See Note 7(d) to the
Company's Consolidated Financial Statements.
Note: Numbers may not add or calculate due to rounding.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Effective February 21, 1997, USAir Group, Inc. changed its
name to US Airways Group, Inc. ("US Airways Group" or the
"Company") and its wholly-owned subsidiary, USAir, Inc., changed
its name to US Airways, Inc. ("US Airways").
The Company recorded net income of $27.2 million for the
fourth quarter of 1996 and net income of $263.4 million for all of
1996. The Company's primary income per common share was $0.08 for
the fourth quarter of 1996 and $2.69 for all of 1996. US Airways
recorded net income of $49.5 million for the fourth quarter of
1996 and net income of $183.2 million for all of 1996. US Airways'
financial results, which include the results of its wholly-owned
subsidiary USAM Corp. ("USAM"), were significantly influenced by
related party transactions as discussed under "Results of
Operations" below.
Except where noted, the following discussion relates
primarily to the financial condition, results of operations and
future prospects of US Airways. US Airways is the Company's
principal subsidiary and accounted for approximately 92% of the
Company's operating revenues for 1996. US Airways is a major
United States air carrier whose primary business is transporting
passengers, property and mail. US Airways enplaned more than 56.9
million passengers during 1996 and is currently the fifth largest
domestic air carrier, as measured by revenue passenger miles
("RPMs").
FACTORS CONTRIBUTING TO IMPROVED 1996 FINANCIAL RESULTS
The Company recorded net income of $263.4 million for 1996,
net income of $119.3 million for 1995 and a net loss of $684.9
million for 1994. This upward trend is primarily attributable to
favorable capacity and pricing trends in markets served by the
Company's airline subsidiaries, continued stable domestic economic
conditions and the positive influence of US Airways' revenue
enhancement and cost-reduction initiatives. The Company's results
for 1996, although the best in its history, were dampened by
substantial year-over-year increases in Personnel costs and
Aviation fuel expenses, as discussed under "Results of Operations"
below.
Favorable capacity and pricing trends have been evident in
markets served by the Company's airline subsidiaries since early
1995. As discussed further below, early 1995 marked the demise of
the "Continental Lite" service offered by Continental Airlines,
Inc. ("Continental"). Year-over-year industry capacity growth
within the Eastern United States, that region of the U.S. east of
the Mississippi River, was 1.4% for 1996 and a contraction of
3.1% for 1995 (as measured by available seat miles or "ASMs"). US
Airways currently has approximately 85% of its daily departures
and approximately 58% of its capacity (ASMs) deployed in the
Eastern U.S. With respect to pricing factors, the Company
believes that the absence of the 10% Federal excise tax on
domestic air transportation ("ticket tax") during the first eight
months of 1996 had a stimulative effect on the Company's
Passenger transportation revenues (see "Government Regulation"
below for additional information).
The demand for air transportation has historically mirrored
general economic conditions. The Company believes stable domestic
economic conditions during the last several years have contributed
to an overall increase in demand for air travel. As discussed
under "Revenue Enhancement and Cost Reduction Initiatives" below,
the Company's revenue enhancement and cost reduction initiatives
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have also contributed to the Company's improved 1996 results.
However, as discussed in the following section, the
Company's airline subsidiaries are currently facing renewed
pressure from low cost, low fare competition.
US AIRWAYS' CURRENT COMPETITIVE POSITION -
LOW COST, LOW FARE THREAT
US Airways has the highest cost structure of all major
domestic air carriers. Within the last several years, other major
domestic air carriers have made substantial progress toward
addressing their cost structures, particularly in response to
competition from low cost, low fare air carriers. US Airways has
been able to reduce costs in certain expense categories (see
"Revenue Enhancement and Cost Reduction Initiatives" below), but
has not been successful in its efforts to reduce costs in its
largest expense category - Personnel costs (See "Personnel Costs -
Continued Negotiations With Organized Labor Groups" below). During
1993, Continental, Trans World Airlines, Inc. ("TWA") and
Northwest Airlines, Inc., were able to obtain significant wage
concessions and productivity improvements from unionized
employees. The employee concessions achieved by Continental and
TWA were obtained in the course of bankruptcy proceedings of those
companies. During 1994, United Air Lines, Inc. ("United")
completed a transaction in which employees traded significant wage
concessions and productivity improvements for a majority ownership
stake in the company and seats on its board of directors. The
agreement also allowed United to establish a low cost, low fare
operation, "Shuttle by United." The primary function of this
operation is to successfully compete with low cost, low fare air
carriers in mainly secondary or short-haul markets. During 1996,
Delta Airlines, Inc. ("Delta") launched its own low cost, low fare
operation, "Delta Express." Delta Express marks the culmination
of Delta's efforts to establish a product capable of competing
with low cost, low fare air carriers such as Southwest Airlines,
Inc. ("Southwest") and ValuJet Airlines, Inc. ("ValuJet"). Delta
Express became possible as a result of a new labor agreement
Delta entered into with its unionized pilots group.
As mentioned above, Eastern U.S. operations comprise a
substantial portion of US Airways' current route structure.
Although a competitive strength in some regards, the regional
concentration of significant operations results in US Airways
being susceptible to changes in certain regional conditions that
may adversely effect the Company's financial condition and results
of operations. The combination of a high cost structure and the
regional concentration of operations has also contributed to US
Airways being particularly vulnerable to low cost, low fare
competition. In late 1993, for example, Continental launched its
low cost, low fare Continental Lite product in certain markets in
the Eastern U.S. also served by US Airways. Continental Lite
operations were substantially expanded during 1994. US Airways
responded to this competitive threat by selectively lowering its
fares by as much as 70% compared to the fares in effect prior to
the Continental Lite incursion. By late 1994, US Airways competed
with Continental Lite in primary and secondary markets from which
US Airways then derived approximately 46% of its passenger
revenues. Continental terminated its Continental Lite service in
early 1995. Competition with Continental, however, was one of the
major contributing factors to the Company's poor financial
performance during 1994.
ValuJet, an air carrier centered around low costs of
operations and a low fare structure, commenced operations in
October of 1993 by offering service within the Eastern U.S.
operating two aircraft. By April 1996, ValuJet had grown
substantially and operated 51 aircraft. However, ValuJet reduced
its service in May 1996 and suspended operations entirely on June
17, 1996. The Company estimates that approximately 8% of US
Airways' capacity (as measured by ASMs) directly overlapped with
ValuJet's route structure prior to ValuJet's service reduction.
The Company believes that ValuJet's cessation of operations had a
favorable effect on the Company's Passenger transportation
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revenues, but has not quantified such effect. ValuJet reinstated
service at reduced levels on September 30, 1996, but the Company
is unable to predict whether ValuJet's capacity in markets also
served by US Airways will eventually match or exceed the pre-May
1996 levels. ValuJet currently operates 21 aircraft.
The fourth quarter of 1996 included the introduction of
Delta Express on October 1st and Southwest's inauguration of
service to and from Providence, Rhode Island on October 27th. As
mentioned above, Delta Express became possible as a result of a
new labor agreement Delta reached with its unionized pilots
group. Delta Express currently operates between Florida and 10
Northeast and Midwest cities. Southwest's service at Providence,
which is approximately 60 miles from Boston, has resulted in some
passenger traffic being drawn from Boston's Logan International
Airport. US Airways and its regional airline affiliates have
substantial operations at Boston's Logan International Airport.
Southwest, another air carrier centered around low cost
operations and a low fare structure, first entered Northeast U.S.
markets during 1993 by adding service to and from
Baltimore/Washington International Airport ("BWI"). Since that
time, Southwest has expanded service at BWI, initiated service to
Florida from BWI (among other locations), launched intra-Florida
service and, as mentioned above, added service to and from
Providence. BWI is one of US Airways' hub airports and Northeast-
Florida service forms one of US Airways' primary leisure markets.
The Company estimates that US Airways' direct route overlap
with Delta Express and Southwest is currently 3.9% and 2.8%,
respectively (as measured by ASMs). However, the Company
anticipates that US Airways' route overlap with both competitors,
as well as the intensity of the competitive pressure on US
Airways, will increase as Delta Express follows its planned
doubling of operations in 1997 and Southwest allocates additional
resources to its new Northeast U.S. operations. The Company views
Southwest's continued expansion into the intra-Eastern U.S.
market and Delta's ability to establish a low cost, low fare
operation as serious competitive threats. For comparative
purposes, US Airways' unit operating cost (operating expenses per
ASM or "Cost per ASM") was 12.69 cents for full-year 1996,
Southwest's unit operating cost for 1996 was 7.50 cents and the
Company believes that Delta Express' annual unit operating cost is
close to Southwest's.
Overall, US Airways currently has low cost, low fare
competition overlapping approximately 43% of its traffic base; up
from approximately 40% during early 1995. In an effort to preserve
market share, US Airways has typically responded to the entry of a
low cost, low fare competitor into its markets by matching fares
and increasing the frequency of service in related markets,
generally with the result of diluting US Airways' yield (Passenger
transportation revenue per RPM) in these markets. In some cases US
Airways has responded by reducing service in affected markets.
The Company believes that lowering US Airways' costs of
operations is essential in order for US Airways to remain
competitive and ensure the Company's long-term financial
viability, particularly in light of recent competitive
developments.
REVENUE ENHANCEMENT AND COST REDUCTION INITIATIVES
In January 1996, the Company's and US Airways' boards of
directors elected Stephen M. Wolf as Chairman of the Board and
Chief Executive Officer. During February 1996, Rakesh Gangwal was
elected President and Chief Operating Officer and Lawrence M.
Nagin was elected Executive Vice President of Corporate Affairs
and General Counsel of both companies. The new senior management
team is focusing on addressing US Airways' high cost structure,
particularly with respect to Personnel Costs, and has embarked on
other measures to improve US Airways' competitive position in
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today's highly competitive airline industry environment. These
other measures include improving and standardizing US Airways'
product, revamping US Airways' market image and focus, increasing
international service and rationalizing US Airways' operating
aircraft fleet.
As mentioned above, US Airways recently changed its name. The
name change signals the expanding reach of US Airways' route
structure and its changing image. Coinciding with the name change,
the livery of US Airways' aircraft will be enhanced and aircraft
interiors upgraded and standardized. New products and features,
such as a new international business class called "Envoy Class"
and personal in-seat video systems, will be added in an effort to
attract more business travelers and improve US Airways' image in
the marketplace. US Airways is in the process of equipping all of
its operating aircraft with in-flight phones and further expanding
first class cabins and replacing first class seats on select
aircraft. In addition, US Airways' airport lounges are being
enhanced and, in some cases, expanded.
In 1991, US Airways began reducing the size of its operating
aircraft fleet culminating in a "right-sizing" strategy in the
Spring of 1995. The goal of this strategy was to reduce annual
system capacity by five percent and emphasize the strengths of its
hubs at the major airports in Pittsburgh, Charlotte, Philadelphia
and Baltimore, as well as its operations at other major East Coast
urban centers. Capacity reductions were focused on eliminating
redundant or unprofitable routes. US Airways' capacity (ASMs) for
1995 decreased by 4.7% versus 1994 as a result of these efforts.
The strengthening of hub operations was achieved by reducing
point-to-point flights (flights between cities that are not US
Airways hubs) thereby increasing the utilization of equipment and
personnel at hub locations. The percentage of point-to-point
flights in US Airways' schedule was reduced from approximately 18%
at the end of 1994 to approximately 10% by the end of 1995. Point-
to-point flying comprised approximately 9% of US Airways' schedule
at the end of 1996. US Airways also expanded its transatlantic
focus from Charlotte and Pittsburgh to include Boston and
Philadelphia to take advantage of better connecting traffic and
the larger population bases in those cities. These initiatives
produced substantial financial benefits during 1996 and 1995.
During 1996, US Airways' redirected its right-sizing efforts
and began focusing on diversifying its route structure. US
Airways' transatlantic capacity increased 55.4% in 1996 versus
1995 levels (as measured by ASMs). US Airways launched new
European service to Munich, Madrid and Rome during mid-1996 and
added additional service at Frankfurt during 1996. US Airways has
also filed with the U.S. Department of Transportation ("DOT") to
serve London's Heathrow Airport from Boston, Charlotte,
Philadelphia and Pittsburgh. US Airways continues to explore
additional international opportunities.
In light of the proposed alliance between British Airways
plc ("British Airways") and American Airlines, Inc. ("American")
(the "BA/AA Alliance"), as described under "Relationship with
British Airways" below, a critical element of US Airways'
strategy to achieve sustained financial health and growth in
international and domestic markets is the establishment of
competitive service to London's Heathrow Airport ("Heathrow").
The BA/AA Alliance is currently being reviewed by regulatory
authorities in the United Kingdom, the United States and Europe.
The Company believes that it is likely that British Airways and
American will be forced to divest slots and ground facilities at
Heathrow in order for regulatory authorities to approve the BA/AA
Alliance.
Based on US Airways' extensive route structure in the
Eastern U.S., the Company believes that it is uniquely situated
to receive slots and ground facilities at Heathrow which are
divested by British Airways or American as part of regulatory
approval of the BA/AA Alliance. However, many airlines, including
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competitors of US Airways, have appealed to the regulatory
authorities to receive such slots and ground facilities at
Heathrow.
The Company is unable to determine whether or when (a) the
BA/AA Alliance will be approved or (b) it will receive any slots
or ground facilities at Heathrow. In the event (a) regulatory
authorities do not approve the BA/AA Alliance or (b) US Airways
does not receive sufficient slots and ground facilities at
Heathrow in connection with the regulatory approval of the BA/AA
Alliance to support our proposed level of service, the Company's
international strategy will be constrained by its lack of access
to Heathrow.
US Airways has also undertaken steps to increase its level of
on-time performance and improve in other key industry performance
measurements (as compiled and reported by the DOT). For October
1996, US Airways ranked first in on-time performance among major
domestic air carriers for the first time in its history, despite
setting a company single-month load factor record during that
month. US Airways finished first in on-time performance among
major domestic air carriers for the fourth quarter of 1996. During
that quarter, US Airways also ranked first in fewest damaged or
lost baggage complaints, fewest reservations complaints and was
second overall in fewest complaints of all types. US Airways
continues its efforts to improve its image in the marketplace.
In October of 1995, US Airways introduced personal computer
software that enables certain high-volume customers to engage in
self-service travel booking. User response has been favorable. In
April 1996, US Airways introduced electronic ticketing, or
"ticketless travel," as an option for customers traveling within
the U.S. on US Airways or US Airways Express. Electronic
ticketing enables a customer to book a flight through US Airways'
reservations system or certain travel agencies and receive a
confirmation number instead of a paper ticket. The Company
believes that electronic ticketing enhances customer convenience
and helps to reduce US Airways' distribution costs. Distribution
costs currently account for approximately $1 billion of the
Company's annual operating expenses. Customer response to
electronic ticketing has been favorable and customer use of
electronic ticketing has increased since its introduction.
Electronic ticketing currently accounts for approximately 14% of
US Airways' ticket sales.
During 1996, US Airways continued its cost reduction efforts
in non-labor areas initiated in late 1994. These efforts have
included various organizational changes, process reengineering,
the centralization of US Airways purchasing functions, operations
research initiatives intended to improve operational efficiency
and maximize passenger revenue generation and the outsourcing of
certain cargo, catering and communications functions. In
addition, US Airways imposed limits on the base commissions it
pays travel agents for domestic air fares beginning in the first
quarter of 1995. The new limits on commissions are designed to
reduce one of US Airways' largest expenses - Commissions (see
also "Results of Operations" below). US Airways signed a ten-year
contract with a subsidiary of the General Electric Company ("GE")
during the third quarter of 1996 for the upkeep and overhaul of
US Airways' CFM-56 and CF-6 jet engines. These engines,
originally manufactured by GE, power US Airways' 737-300, 737-400
and 767-200ER aircraft. US Airways expects substantial cost
savings over the next ten years associated with the new GE
"power-by-the-hour" aircraft engine maintenance contract. The
Company believes that US Airways' cost reduction efforts helped
reduce non-labor expenses by approximately $500 million during
1995, from otherwise expected levels, with similar savings
achieved during 1996.
As part of the Company's efforts to reduce its capital
expenses, the Company reached an agreement with The Boeing Company
("Boeing") in 1994 which enabled US Airways to reschedule the
delivery of 40 Boeing 737-Series aircraft from the 1997-2000 time
period to the years 2003-2005. In addition, as part of the same
agreement, US Airways relinquished all of its options to purchase
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Boeing aircraft during the 1996-2000 time period. During 1995, the
Company reached agreements with Boeing and Rolls Royce plc ("Rolls
Royce") regarding the deferral of eight Boeing 757-200 aircraft
deliveries from 1996 to 1998. As part of the latter agreements,
the delivery dates for progress payments associated with the
previously scheduled 1996 deliveries were likewise rescheduled.
These agreements with Boeing and Rolls Royce have resulted in a
substantial reduction in US Airways' expected capital expenditures
for the years 1996 through 2000 (see "Aircraft Fleet and Related
Matters" below for recent events concerning Boeing).
US Airways announced in November 1996 that it had entered
into an agreement with AVSA, S.A.R.L., an affiliate of aircraft
manufacturer Airbus Industrie ("Airbus"), regarding the
acquisition of up to 400 narrowbody Airbus aircraft. The
agreement, discussed further under "Aircraft Fleet and Related
Matters" below, is part of US Airways' long-term strategy of
replacing several older, diverse aircraft types with newer, more
efficient aircraft types based on a similar design. The Company
believes that the operational and customer service benefits of
modernizing its fleet outweigh the increased expenses that would
be incurred by US Airways with the purchase or lease of the new
aircraft.
PERSONNEL COSTS - CONTINUED NEGOTIATIONS
WITH ORGANIZED LABOR GROUPS
Personnel costs represented 41.5% of US Airways' operating
costs for 1996. US Airways currently has the highest unit labor
costs in the domestic airline industry (see additional information
regarding Personnel costs under "Results of Operations"). The
Company remains committed to obtaining a significant reduction in
US Airways' unit labor costs and believes that US Airways' long-
term financial viability depends on its success in further
reducing its cost of operations.
During the Spring of 1995, the Company reached agreements-in-
principle with each of US Airways' major unions regarding
concession agreements involving wage and benefit reductions,
improved productivity and other cost savings totaling
approximately $500 million annually. However, those tentative
agreements were conditioned on, among other things, ratification
by the members of each labor group and the approval of the
Company's stockholders and the Company's and US Airways' boards of
directors. These agreements-in-principle provided for wage and
other concessions in exchange for equity participation in the
Company, profit sharing and representation on the Company's board
of directors for US Airways' labor groups. In July 1995, the
membership of the Association of Flight Attendants (the "AFA"),
which represents US Airways' flight attendants, voted not to
ratify its agreement-in-principle. The Airline Pilots Association
("ALPA"), which represents US Airways' pilots, made significant
additional demands which were unacceptable and negotiations were
thereafter terminated by the Company.
US Airways' contract with the employees represented by the
International Association of Machinists and Aerospace Workers (the
"IAM") became amendable on October 1, 1995. ALPA's contract became
amendable on May 1, 1996 and US Airways' contract with the AFA
became amendable on January 1, 1997. The collective bargaining
process is in progress with all three unions - the Company is
unable to predict how long it will take to conclude these
negotiations or the eventual outcome of these discussions. Such
negotiations traditionally take one or more years from the time a
contract becomes amendable, as described in the following
paragraph. In recent talks, the Company proposed that US Airways
split-off short-haul and certain longer-haul flights into a
separate, distinct operating unit. The new operation, centered on
lower operating costs than the "mainline" service and an
attractive pricing structure, would be designed to help US
Airways' competitive stance against Southwest, Delta Express,
ValuJet and other low cost competitors.
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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 ("NMB") is
brought in to assist. The process of mediation continues until the
NMB 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 or a lockout
by the company or a strike by the union). While in negotiations
and mediation, both parties are bound by the contractual terms
that were in effect prior to the commencement of the collective
bargaining process.
AIRCRAFT FLEET AND RELATED MATTERS
The Company has embarked on a program to upgrade and
standardize the interiors of US Airways' operating aircraft over
the next three years. The first phase of the program, which was
completed during the fourth quarter of 1996, involved minor
changes and improvements to the interiors of each of US Airways'
operating aircraft. This phase of the program resulted in minimal
incremental expenditures, but has provided a substantial short-
term improvement in the appearance of each aircraft. The second
phase of the program, which began in February 1997 and is
expected to be completed in 1999, includes, depending on the type
of aircraft, replacing carpets, seat cushions, sidewalls and
overhead storage bins, repainting other aircraft interior
components, reconfiguring and/or upgrading seats, expanding first
class seating and adding or replacing lavatories. The Company
currently estimates that the second phase of this program will
result in one-time incremental expenditures of approximately $73
million, approximately $27 million of which is expected to be
capitalized.
As mentioned previously, US Airways recently entered into an
agreement with an affiliate of Airbus regarding the acquisition
by US Airways of up to 400 Airbus aircraft. The aircraft, A319,
A320 and A321 narrowbody aircraft (collectively, the "Airbus
Aircraft") were tentatively scheduled for delivery to US Airways
between 1997 and 2009. The proposed transaction would be
comprised of 120 firm Airbus Aircraft and 120 Airbus Aircraft to
be reconfirmed by US Airways at a future date. In addition, US
Airways would have the option to acquire up to 160 additional
Airbus Aircraft with open-ended delivery dates. US Airways would
have the flexibility in selecting among the 122-seat A319, the
144-seat A320 and the 168-seat A321, depending upon projected
industry conditions at the time final delivery schedules were
set. The Airbus Aircraft are presently intended as, at a minimum,
replacement aircraft for US Airways' existing fleet of Douglas
DC-9-30 and MD-80 aircraft, Boeing 737-200 aircraft, and Fokker
F28-4000 aircraft. US Airways is also examining alternatives for
widebody aircraft to support US Airways' goal of increased
international operations.
The agreement with Airbus remains subject to US Airways
achieving a competitive cost structure and the approval of
definitive documentation by US Airways' board of directors. See
Note 4(d) to the Company's Consolidated Financial Statements
contained in Part II, Item 8A for additional information.
In early January 1997, Airbus announced that it could not
support the delivery of six aircraft tentatively scheduled for
delivery to US Airways in 1997 due to US Airways' inability to
affirm the arrangement. Airbus subsequently advised US Airways
that it was also withdrawing all of US Airways' 1998 and 1999
firm delivery positions as well as support for the twelve
aircraft contemplated to be leased in 1998 for similar reasons.
If US Airways is able to achieve a competitive cost structure it
37
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may still be able to acquire Airbus aircraft during 1998 and 1999
(see also "Personnel Costs - Continued Negotiations with
Organized Labor Groups" above).
The Company has not yet determined whether consummation of
the Airbus transaction and the disposition of the aircraft
intended to be replaced with Airbus Aircraft would require the
Company to recognize an "impairment loss" in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of " ("SFAS 121").
During October 1996, US Airways advised Boeing and Rolls
Royce that it does not plan to accept delivery of the eight
Boeing 757-200 aircraft US Airways presently has on firm order.
Consistent with a written statement from Boeing extending the
scheduled delivery dates of the Boeing 757s from 1998 to 1999 and
the ongoing business discussions between the two parties, US
Airways did not make a progress payment to Boeing of
approximately $3 million which was, prior to such extension,
scheduled to be due on November 1, 1996. On November 7, 1996,
Boeing alleged that US Airways was in default of the 757 purchase
agreement for failing to make the November 1st payment. Boeing
has further alleged, among other things, that US Airways has
repudiated a purchase agreement relating to 40 737-Series
aircraft scheduled for delivery commencing in 2003. Boeing has
purported to terminate both such 757-200 and 737-Series purchase
agreements, an action which US Airways believes is not supported
by law or the facts, and has claimed almost $450 million as
damages for US Airways' alleged breach of such agreements. US
Airways subsequently advised Boeing, among other things, that US
Airways rejects Boeing's asserted legal basis for termination of
such agreements. In addition, US Airways stated that it would
hold Boeing responsible for any damages incurred as a result of
Boeing's unlawful termination and demanded immediate return of
all payments made by US Airways in furtherance of the 737-Series
purchase agreement, together with interest from the date of
payment. US Airways also expressed its belief that Boeing is
legally committed to pursue contract resolutions in good faith.
Notwithstanding the formal legal positions of the parties, both
sides have expressed a desire to resolve this dispute on a
mutually satisfactory basis. US Airways cannot predict whether
Boeing will seek to exercise remedies against US Airways and if
so, whether the effect on US Airways' financial condition or
results of operations would be material. See Note 4(d) to the
Company's Consolidated Financial Statements for additional
information.
RELATIONSHIP WITH BRITISH AIRWAYS
On June 11, 1996, British Airways and American announced a
proposed alliance to jointly market, price and manage their North
Atlantic airline services, effective April 1, 1997, subject to
U.S. and international approvals. The joint services would carry
the designator codes of both airlines and each would code-share
beyond the other's gateways. The two airlines have also indicated
that they intend to act cooperatively in other areas, such as
marketing, sales, facilities use and cargo. British Airways and
American are seeking antitrust immunity in connection with
approval of their alliance. Certain competition authorities in
the U.S. and Europe have made inquiries into the proposed
alliance and several airlines serving the North Atlantic have
raised very strong objections to the proposed alliance.
On July 30, 1996, the Company and US Airways initiated a
lawsuit in the U.S. District Court for the Southern District of
New York against British Airways, BritAir Acquisition Corp.,
Inc., American and American's parent company, AMR Corp. The
Company and US Airways claim that British Airways, in pursuit of
an alliance with American, is responsible for breaches of
fiduciary duty to the Company and US Airways and violated certain
provisions of the January 21, 1993 Investment Agreement between
the Company and British Airways. The lawsuit also claims that the
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defendants are in violation of U.S. antitrust laws that prohibit
conduct that harms competition. Although the defendants filed
motions to dismiss the lawsuit following the filing of the
complaint, these motions became superseded on March 5, 1997 when
the Company filed an Amended Complaint with the Court based on
information gathered in the pre-trial discovery process. The
defendants have informed the Company that, in response to the
Amended Complaint, they intend to file new motions to dismiss
shortly.
The Company is unable to predict at this time the ultimate
outcome of this lawsuit.
On October 24, 1996, US Airways notified British Airways
that it is terminating the code sharing and frequent traveler
agreements between the two companies effective March 29, 1997 as
a result of British Airways' decision to enter into an alliance
with American. In addition, certain other commercial arrangements
between US Airways and British Airways have been or are in the
process of being terminated. The Company does not anticipate any
material adverse impact on its financial condition or results of
operations as a result of the termination of these arrangements.
US Airways believes that the code share arrangement contributed
less than $20 million annually to its operating revenues.
Further, the Company does not believe that US Airways' lack of an
international code share partner will have a material impact on
its financial condition or results of operations.
On December 17, 1996, British Airways delivered a notice (the
"Sale Notice") to the Company of its intent to sell in one or more
underwritten public offerings or privately negotiated
transactions, all of the shares of Series F and Series T Preferred
Stock (collectively, the "BA Preferred Stock") (see Note 7(b) and
7(c) to the Company's Consolidated Financial Statements for a
description of the Series F and Series T Preferred Stock,
respectively). Under the Investment Agreement, the Sale Notice
triggered (i) a right of first offer of the Company to purchase
all (or in certain circumstances, any portion) of such shares at
prices set forth in the Sale Notice (the "Right of First Offer")
and (ii) a public offering registration procedure (the "Public
Offering Registration Procedure"). The Company did not exercise
its right to purchase the BA Preferred Stock prior to the
expiration of the Right of First Offer on February 15, 1997.
Because the Company elected not to exercise the Right of
First Offer with respect to the BA Preferred Stock, subject to
certain limitations, British Airways is free to complete a sale on
terms no less favorable to British Airways than those set forth in
the Sale Notice, provided that (i) such sale is closed by August
14, 1997 (or 180 days following the initial filing of the
Company's registration statement in conjunction with the Public
Offering Registration Procedure), (ii) in the case of a public
offering, the sale price may be higher or lower than the price
offered in the Sale Notice and (iii) in the case of a privately
negotiated transaction, the price must be equal to or higher than
the price offered in the Sale Notice.
In the Sale Notice, British Airways also exercised the Public
Offering Registration Procedure under the Investment Agreement to
cause the Company to use its "reasonable efforts" to register the
BA Preferred Stock for sale in an underwritten public offering at
British Airways' request on up to three occasions. The
registration procedures provide that the Company shall prepare and
file with the U.S. Securities and Exchange Commission ("SEC") and
use its reasonable efforts to cause to become effective a
registration statement under the Securities Act by April 16, 1997,
provided, however, that the Company's obligation may be deferred
in certain circumstances for up to 180 days.
On January 28, 1997, the Company received notice that British
Airways' representatives, Messrs. Ayling, Stevens and Maynard,
resigned as directors of US Airways Group and on February 12,
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1997, the Company received notice that such individuals resigned
as directors of US Airways. In the letter of resignation, British
Airways waived its current and future rights under the Investment
Agreement to US Airways Group board representation.
Based on such resignations, British Airways may take the
position that British Airways is no longer an affiliate of US
Airways Group and, therefore, upon the expiration of the third
month following such change in status, is able to sell the BA
Preferred Stock without registration under the Securities Act of
1933 in compliance with an exemption thereunder.
PAYMENTS OF DIVIDENDS ON SENIOR PREFERRED STOCK
During August and October of 1996, the Company paid
dividends of $43.0 million and $40.0 million, respectively, on
its outstanding Senior Preferred Stock (composed of the Company's
Series A, Series F and Series T Preferred Stock; see Note 7(a) to
the Company's Consolidated Financial Statements for a description
of the Series A Preferred Stock). Prior to these dividend
payments, the Company had deferred the payment of dividends on
all of its outstanding preferred stock issuances effective with
dividend payments due September 30, 1994.
As of December 31, 1996, the Company's capital surplus, as
calculated in accordance with Delaware General Corporation Law
based on the Company's Consolidated Balance Sheets (which are
contained in Part II, Item 8A of this report), was $110.0
million. The Company, organized under Delaware law, may be
subject to certain legal restrictions on its ability to pay
dividends or repurchase or redeem its own shares of capital stock
for cash or other property depending on the amount of its capital
surplus. Capital surplus, under Delaware Law, is calculated as (i)
net assets (total assets minus total liabilities), less (ii) total
capital (that amount of preferred and common equity designated as
capital by a company's board of directors). As of December 31,
1996, the Company's net assets were in a surplus position of
$174.3 million based on the Company's Consolidated Balance Sheets
and its total capital was $64.3 million (all attributable to the
Company's outstanding Common Stock; capital for the Company's
outstanding preferred stock issuances is a nominal amount of one
cent per share).
The Company's outstanding publicly-held Series B Preferred
Stock is junior to the Company's Senior Preferred Stock and is
not eligible to receive dividends until the deferred dividends on
the Senior Preferred Stock are paid-in-full (see Note 8(c) to the
Company's Consolidated Financial Statements for a description of
the Series B Preferred Stock). Under the terms of the Series B
Preferred Stock, its holders have the right to elect two
additional directors to the Company's board of directors if six
quarterly dividend payments are not paid. That right became
effective on February 15, 1996. The right must be exercised by
notice of the holders of record of 20% or more of the Series B
Preferred Stock. In April and October 1996, two different groups
of shareholders representing more than 20% of the Series B
Preferred Stock shares outstanding notified the Company that they
wished to exercise their right to elect additional directors.
However, the shareholders in each of these groups subsequently
sold their shares prior to fully exercising their rights. To the
Company's knowledge, there is currently no ongoing effort to elect
directors under the terms of the Series B Preferred Stock.
Under the terms of the Company's Series A Preferred Stock,
its holders, currently affiliates of Berkshire Hathaway, Inc.
("Berkshire"), have the right to elect two additional directors to
the Company's board of directors after a scheduled dividend
payment has not been made for thirty days. Berkshire has informed
the Company that it does not intend to exercise its right at this
time. The holder of the Series F and Series T Preferred Stock, an
affiliate of British Airways, would have the right to nominate an
additional director to the Company's board of directors pursuant
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to its Investment Agreement with the Company if Berkshire and the
holders of the Series B Preferred Stock were to exercise their
respective rights to elect additional directors to the Company's
board of directors. See related discussion under "Relationship
with British Airways" above.
As of December 31, 1996, accumulated deferred dividends on
all of the Company's outstanding preferred stock issuances,
including penalty dividends thereon, totaled $118.9 million. See
Note 7(d) to the Company's Consolidated Financial Statements for
additional information with respect to accumulated deferred
dividends.
On January 31, 1997, the Company paid additional dividends of
$50.0 million to holders of the Company's Senior Preferred Stock.
After this payment, deferred dividend and additional dividends
(interest) thereon of $27.6 million remained in arrears on the
Company's Senior Preferred Stock. There can be no assurance when
or if the Company will make additional dividend payments on its
Senior Preferred Stock.
GOVERNMENT REGULATION
The ticket tax was reinstated on August 27, 1996, for
tickets sold for travel before January 1, 1997. This tax, 10% of
the cost of an airline ticket, had previously expired on January
1, 1996. The Company believes that its Passenger transportation
revenues were stimulated during the period the tax was not in
effect - the absence of the tax effectively reduced the cost of
air travel. The Company cannot estimate the dollar impact of the
tax expiration on its Passenger transportation revenues during
the period the tax was not collected due to the complexity and
number of factors that contribute to the Company's performance in
this area. This tax expired again on January 1, 1997. On February
28, 1997, President Clinton signed legislation reinstating the
tax for tickets sold beginning March 7, 1997 through September
30, 1997. Reinstatement of this tax, which could effectively
increase the cost of air transportation, may dampen demand for
air transportation which, in turn, may have a material adverse
effect on the Company's financial condition and results of
operations.
The Company's airline subsidiaries became obligated to pay
the $.043 per gallon Federal Excise Tax on Transportation Fuels
on October 1, 1995. Airlines had a three-year exemption from this
tax, which became law during 1992. Attempts to either rescind
this tax or reinstate the airline exemption continue, although
these efforts have not been successful to date. US Airways cannot
predict the ultimate outcome of future attempts to either rescind
the tax or reinstate the airline exemption. US Airways recognized
expenses of $43.0 million and $11.9 million as a result of this
tax during 1996 and 1995, respectively.
The Federal Aviation Administration ("FAA") has proposed new
regulations that would require flight data recorders that measure
more flight parameters than most original equipment flight data
recorders. The proposed regulations, subject to DOT approval,
would require the upgraded flight data recorders to be installed
within four years. The proposal, as drafted, would affect US
Airways' entire operating fleet. The Company estimates that the
proposed regulations, if adopted, would cost US Airways
approximately $20 million over the four year period. The Company
cannot predict whether or when the proposed regulations will be
adopted or if the proposed regulations will result in
expenditures consistent with the Company's current estimate.
Following the July 1996 accident involving a TWA aircraft
and speculation that the cause of the accident may have been
sabotage, President Clinton ordered new security measures related
to passenger, baggage and cargo screening, particularly with
respect to international operations. The increased security
measures have resulted in an increase in the Company's operating
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expenses, although the dollar effect of the new security measures
is not material. The President also formed a special committee
which is reviewing aviation safety and airport security, as well
as the air traffic control system. The committee released its
final recommendations on February 12, 1997. The committee made
several recommendations in the areas of safety, air traffic
control and security. The Company is unable to predict whether
any of the recommendations will be adopted, and if adopted, their
impact on the Company's financial condition and results of
operations. Further increases in government-mandated security
measures could have an adverse effect on the Company's financial
condition and results of operations depending on the ability of
US Airways and its regional affiliates to passthrough any new
Federal taxes, surcharges or additional operating expenses to
customers. Any effective increase in the cost of air
transportation may dampen passenger and cargo traffic levels
which could have a material adverse effect on the Company's
financial condition and results of operations.
Many aspects of US Airways' operations are subject to
increasingly stringent federal, state and local laws protecting
the environment. Future regulatory developments could affect
operations and increase operating costs in the airline industry,
including for US Airways.
RESULTS OF OPERATIONS
The following section provides an overview of changes in
certain components of the Company's results of operations (the
Company's Consolidated Statements of Operations are contained in
Part II, Item 8A of this report). See "Operating Statistics"
contained in Part I, Item 1 of this report for selected US
Airways operating and financial statistics (which also includes
the definition of each term used below). All terms used in this
section refer to US Airways' scheduled service operations except
for unit operating cost, which includes charter service.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO
YEAR ENDED DECEMBER 31, 1995
The Company recorded net income of $263.4 million for 1996,
an improvement of $144.1 million or more than double its net
results for 1995. After preferred dividend requirement (the
Company reflects dividends on all its outstanding preferred stock
as if paid during the period for purposes of calculating income
per common share), the Company earned $174.6 million for 1996, or
$2.69 per common share on a primary basis.
The Company's second quarter financial results have
historically been its strongest due to US Airways' combination of
business traffic and North-South leisure traffic in the Eastern
U.S. during that period.
US Airways' RPMs and passenger load factor for 1996 were
company records. Although US Airways' capacity (ASMs) fell 2.2%
and the number of revenue passengers carried was relatively
unchanged year-over-year, yield improved 4.8% and average
passenger journey increased 3.6%. The yield improvement was
primarily driven by the factors discussed under "Factors
Contributing to Improved 1996 Financial Results" and the decrease
in capacity (ASMs) was due mainly to less operating aircraft in
US Airways' operating fleet year-over-year. The increase in
average passenger journey reflects US Airways increased
transatlantic service (see related discussion under "Revenue
Enhancement and Cost Reduction Initiatives"). In general,
favorable capacity and pricing trends have been evident in
markets served by the Company's airline subsidiaries since the
demise of Continental Lite in early 1995. Competition with
Continental Lite included US Airways selectively lowering fares
in certain markets to maintain market share.
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As mentioned above, the Company's airline subsidiaries are
experiencing increased competitive pressure with the October 1996
launch of Delta Express, Southwest's late-October 1996 expansion
into the Northeast U.S. and ValuJet's recent reinstatement of
service. Direct competition with low cost, low fare air carriers
or operations has typically resulted in the dilution of yield
realized by the Company's airline subsidiaries in the affected
markets.
US Airways continues to be the highest cost major air
carrier in the United States. US Airways' unit operating cost was
12.69 cents for 1996, an 11.3% increase versus its unit operating
cost for 1995. This increase is primarily the result of higher
operating expenses applied over slightly less capacity (ASMs)
year-over-year (see discussion below related to year-over-year
changes in certain components of the Company's operating
expenses). US Airways' high cost structure relative to its major
competitors results in it being particularly susceptible to
adverse changes in general economic and market conditions.
During 1996, US Airways recorded two non-recurring items
related to its subleasing of 11 non-operating British Aerospace
BAe-146-200 ("BAe-146") aircraft (in addition to the three
sublease agreements reached during the fourth quarter of 1995 for
which US Airways recorded a non-recurring item of $4.1 million -
a credit to Aircraft rent expense). US Airways reversed $22.5
million of previously accrued rent obligations related to these
aircraft against Aircraft rent expense and reversed $7.0 million
against Aircraft maintenance expense related to previously
accrued lease return provisions.
OPERATING REVENUES
Passenger Transportation - US Airways' Passenger transportation
revenues increased $531.7 million, or 8.5%, with the remainder of
the $622.3 million increase attributable to passengers carried by
the Company's regional airline subsidiaries. US Airways' increase
is primarily the result of a 4.8% increase in yield and a 3.6%
increase in average passenger journey. The main factors
contributing to the Company's improved performance during 1996
are discussed above. In addition, the Company estimates that
severe winter weather within the Eastern U.S. and the partial
Federal Government shutdown adversely affected first quarter 1996
revenues by approximately $55 million. Hurricanes Fran and
Eduoard, which occurred during September 1996, also adversely
affected the Company's Passenger transportation revenues by
approximately $10 million. Although a competitive strength,
concentration of significant operations in the eastern U.S.
results in the Company's airline subsidiaries being susceptible to
certain regional conditions that may have an adverse effect on the
Company's financial condition and results of operations. The
Company's airline subsidiaries faced intense competitive pressure
from Continental Lite during early 1995 (see discussion under "US
Airways' Current Competitive Position - Low Cost, Low Fare
Threat").
Other Operating Revenues - Fees received by US Airways for
passenger handling and reservation services from US Airways
Express air carriers (other than the fees US Airways receives
from the Company's three wholly-owned regional air carriers,
which are eliminated during the consolidation of the Company's
results of operations) increased due to higher passenger volumes
carried by these air carriers and a higher fee structure. In
addition, US Airways revenues from frequent traveler program
participation fees, reservation cancellation fees and aircraft
lease arrangements all increased year-over-year. US Airways'
results include certain transactions with related parties that
are eliminated at the US Airways Group level (for additional
information see Note 10 to US Airways' Consolidated Financial
Statements). The final wet lease with British Airways expired
during the second quarter of 1996. Wet lease revenues of $12.6
million were included in the Company's Other Operating Revenues
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for 1996 as compared to $63.6 million for 1995. See additional
information related to the Company's third party lease and
sublease arrangements in Note 4(b) to the Company's Consolidated
Financial Statements. Increases or decreases in components of
Other Operating Revenues are largely offset by related changes in
Other Operating Expenses, Net or other operating expense
categories.
US Airways' Operating Revenues include the line item "US
Airways Express transportation revenues." Effective October 1,
1996, US Airways began purchasing all of the capacity (ASMs)
generated by the Company's three wholly-owned regional air
carriers and, concurrently, recognizing the passenger
transportation revenues that result from passengers being carried
by these affiliated companies. The rate per ASM that US Airways
pays is based on estimates of the costs incurred to produce the
capacity. The program is designed to reflect the reality of US
Airways' relationship with the Company's regional airline
subsidiaries - US Airways controls the markets these air carriers
operate in, the marketing programs and the fares they charge. US
Airways' expenses associated with this program are eliminated
during the consolidation of the Company's results of operations
and US Airways' revenues associated with this program are
reclassified to Passenger transportation revenues during the
consolidation process. The revenues and expenses recognized by US
Airways during the fourth quarter of 1996 related to this program
may not be indicative of future revenues and expenses associated
with this program. For additional information related to this
program see Note 10 to US Airways' Consolidated Financial
Statements.
OPERATING EXPENSES
Personnel Costs - Profit sharing expenses, the impact of adding a
stock appreciation right ("SAR") feature to one of the Company's
stock option plans, interest rate driven increases in pension and
postretirement benefits expenses, contractual wage increases that
US Airways' pilot and flight attendant employee groups received
in January 1996 and wage increases received by certain non-
contract employees effective January 1, 1996 were the primary
factors which resulted in the Company's Personnel costs
increasing $308.3 million or 10.7% versus 1995. US Airways'
mechanics and pilots also received contractual wage increases in
March 1995 and July 1995, respectively. US Airways had 40,160
full-time equivalent employees as of December 31, 1996 versus
39,900 full-time equivalent employees as of December 31, 1995.
The Company recorded profit sharing expense related to its
1992 Salary Reduction Plan of $121.6 million for 1996 versus
$49.7 million for 1995. The Company's obligations under this plan
ended with a payment to participants in early March 1997.
During the fourth quarter of 1996, the Company's 1992 Stock
Option Plan ("1992 Plan"), a component of the Company's 1992
Salary Reduction Plan, was amended to include a SAR feature and
SARs were granted to option holders under this plan on a one-for-
one basis. For each SAR, the holder is entitled to receive the
excess of the fair market value of a share of the Company's
Common Stock above $15. The exercise of any SAR cancels its
tandem option and, conversely, the exercise of any option cancels
its tandem SAR. The SARs have the same expiration date as the
tandem options. To the extent the fair market value of a share of
its Common Stock exceeds $15, the Company recognizes compensation
expense based on the number of SARs outstanding. The Company
recognized compensation expense of $41.6 million related to the
implementation of this program during the fourth quarter of 1996.
Approximately 4.2 million SARs were outstanding under this plan
as of December 31, 1996. Additional information related to the
Company's stock option plans (including SARs) can be found in
Note 8(e) to the Company's Consolidated Financial Statements.
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Pension and postretirement benefits expenses increased
$107.1 million due primarily to interest rate factors. In
addition, expenses related to stock option grants, stock grants,
severance payments and similar-type compensation (excluding SARs
expense) increased $20.6 million year-over-year. Long-term
disability expenses increased $22.7 million due mainly to an
increase in number of employees on long-term disability.
Aviation Fuel - US Airways' aviation fuel consumption was
relatively unchanged, but rate factors drove the Company's
Aviation fuel expense up $114.8 million. US Airways' average cost
of aviation fuel consumed during 1996 was 64.09 cents per gallon
versus an average rate of 53.23 cents for 1995. Aviation fuel
prices are subject to market conditions and other factors that
are generally outside of the Company's control. Fluctuations in
the price of aviation fuel can have a dramatic effect on the
Company's results of operations. Based on consumption for 1996,
each one cent per gallon increase in US Airways' cost of aviation
fuel translates into an increase of approximately $11 million in
US Airways' annual aviation fuel expense. See Other Operating
Expenses, Net below related to Federal taxes on aviation fuel.
Commissions - Increases resulted from higher Passenger
transportation revenues. See also Other, Net below.
Aircraft Rent - Excluding the effects of the non-recurring item
discussed above, Aircraft rent expense increased 4.0%. The
increase is due primarily to two leased Boeing 767-200ER aircraft
reentering US Airways' operating fleet during the first half of
1996. US Airways recognized expenses related to these aircraft in
the Other Operating Expenses category while they were operated by
British Airways.
Aircraft Maintenance - Excluding the effects of the non-recurring
item discussed above, Aircraft maintenance expense increased
$33.1 million. Efficiencies gained from reengineering efforts in
US Airways maintenance areas and the effects of fewer operating
aircraft in US Airways' fleet year-over-year were more than
offset by timing factors and expenses identifiable as transition
expenses related to a change in service providers for certain jet
engine maintenance work. US Airways signed a ten year contract
with a subsidiary of GE during the third quarter of 1996 for the
upkeep and overhaul of certain jet engines. Although the Company
expects a significant decrease in maintenance costs associated
with these engines because of the new contract, US Airways
experienced approximately $14 million in costs during the fourth
quarter of 1996 directly related to the transition of work from
the former contractor to GE (see discussion under "Revenue
Enhancement and Cost Reduction Initiatives" above).
Depreciation and Amortization - Decreased due mainly to fewer
owned aircraft in US Airways' operating fleet.
Other Operating Expenses, Net - Increased primarily due to
additional Federal taxes on aviation fuel and increases in
insurance and communications-related costs. US Airways also
experienced higher credit card expenses linked to higher
Passenger transportation revenues. The Federal Excise Tax on
transportation fuels was $43.0 million for 1996 (see also
"Government Regulation" above). Expenses related to the wet lease
arrangement with British Airways decreased $51.0 million due to
the expiration of this arrangement during May 1996 (see also
Other Operating Revenues and Aircraft Rent above).
US Airways' Operating Expenses include the line item "US
Airways Express capacity purchases." These expenses, which are
eliminated during the consolidation of the Company's results of
operations, are discussed under Operating Revenues above.
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OTHER INCOME (EXPENSE)
Interest Income - Increased due mainly to higher Cash and cash
equivalents and Short-term investments balances.
Interest Expense - Decreased primarily as the result of less
long-term debt outstanding year-over-year. The Company made early
debt repayments of $150.5 million during 1996.
Equity in Earnings (Loss) of Affiliates - Amounts pertain to
USAM's equity interest in the earnings of Galileo International
Partnership, Apollo Travel Services Partnership ("ATS") and
Galileo Japan Partnership ("GJP"). USAM owns 11% of the Galileo
International Partnership, which owns and operates the Galileo
Computerized Reservation System ("Galileo CRS"), approximately 21%
of ATS, which markets the Galileo CRS in the U.S. and Mexico and
approximately 11% of GJP, which markets the Galileo CRS in Japan.
Results for all three partner-ships improved primarily driven by
increases in airline industry passenger volumes year-over-year.
Other, Net - Results for 1996 include expenses of $9.5 million
related to US Airways' settlement of litigation involving travel
agencies (see Part I, Item 3 "Legal Proceedings" for additional
information) and losses of $8.7 million related to US Airways'
disposition of eight non-operating aircraft. Results for 1995
included gains totaling $10.7 million related to the sale of
certain 737-300 aircraft. US Airways sold ten non-operating
Boeing 737-200 aircraft during the first quarter of 1997 which
resulted in a gain of approximately $18 million.
Provision (Credit) for Income Taxes - The Company was subject to
Federal alternative minimum tax for 1996 and 1995 as well as
income taxes in certain states. The Company was not subject to
regular Federal income tax for 1996 or 1995 as the result of using
Federal net operating loss carryforwards. See Note 5 to the
Company's Consolidated Financial Statements for additional
information.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO
YEAR ENDED DECEMBER 31, 1994
US Airways Group recorded net income of $119.3 million for
1995 compared with a net loss of $684.9 million for 1994. US
Airways recorded net income of $33.0 million for 1995 which
represents an improvement of $749.2 million over its 1994 results.
US Airways' results include the results of its wholly-owned
subsidiary USAM.
The Company's year-over-year improvement in net income
reflects a $477.2 million (6.8%) revenue increase coupled with a
decrease in operating expenses of approximately $335.9 million
(4.5%). Excluding the unusual items recognized during 1995 and
1994, as discussed further below, the Company's operating costs
decreased approximately 1.1% year-over-year.
US Airways' yield was 16.66 cents for 1995, a 6.7%
improvement versus 1994. The stronger than anticipated increase in
yield primarily resulted from the effects of the relatively
stable domestic economic climate and favorable capacity and
pricing trends in markets served by the Company's airline
subsidiaries which were prevalent during most of 1995 (see
related discussion in "Factors Contributing to Improved 1996
Results" above).
US Airways' capacity (ASMs) for 1995 decreased by 4.7%. RPMs,
however, decreased less than 1% and US Airways' load factor was
64.7% for 1995, a historical high (which was subsequently eclipsed
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in 1996). US Airways' unit operating cost increased to 11.40 cents
from 11.02 cents for 1994 primarily due to the capacity (ASMs)
reductions that occurred in 1995.
The financial results for 1994 include several non-recurring
items:
- a $172.9 million charge related to US Airways' grounded
BAe-146 fleet and to US Airways' decision to cease operations
of its remaining Boeing 727-200 aircraft in 1995 (the last
operational 727-200 aircraft was retired from service in
September 1995). During 1994, US Airways again evaluated the
secondary market for BAe-146 aircraft and determined that it
was probable that it would not be successful in its efforts
to sublease or otherwise dispose of these assets (before
lease expiry). Considering this analysis, US Airways did not
include a provision for any potential subleasing activity in
determining the amount of the 1994 charge.
- a $54.0 million charge for obsolete inventory and rotables to
reflect market values.
- a $25.9 million charge related to US Airways' decision to
substantially reduce service between Los Angeles and San
Francisco in November 1994.
- a $28.3 million gain resulting from the sale of certain
aircraft and assets to Mesa Air Group, Inc. ("Mesa") and the
accounting treatment of the hull insurance recovery on the
aircraft lost in the September 1994 accident.
- a $1.7 million charge related to the sale of certain assets
to Mesa.
The following table indicates where the above items appear in
the Company's Consolidated Statements of Operations ($ millions,
brackets denote expense)
<TABLE>
<CAPTION>
California Other Asset
Line Item Aircraft Inventory Reduction Dispositions Total
- --------------------- ---------- --------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Personnel costs $ - $ - $ (0.3) $ - $ (0.3)
Aircraft rent (115.5) - - - (115.5)
Aircraft maintenance 3.4 - - - 3.4
Depreciation and
Amortization (21.7) (18.0) (18.2) - (57.9)
Other, net (39.1) (36.0) (7.4) (1.7) (84.2)
------ ------- ------- ------- -------
Total Operating Expenses $(172.9) $ (54.0) $ (25.9) $ (1.7) $ (254.5)
====== ======= ======= ======= =======
Other Income (Expense):
Other, net $ - $ - $ - $ 28.3 $ 28.3
------ ------- ------- ------- -------
Total Other Income (Exp.) $ - $ - $ - $ 28.3 $ 28.3
====== ======= ======= ======= =======
</TABLE
US Airways also recorded a $50.0 million addition to
Passenger transportation revenues in the fourth quarter of 1994 to
adjust estimates made during the first three quarters of 1994.
As mentioned above under "Year Ended December 31, 1996
Compared to Year Ended December 31, 1995," the Company recognized
a $4.1 million unusual item during the fourth quarter of 1995
related to US Airways' BAe-146 aircraft (a reduction of Aircraft
rent expense).
47
<PAGE>
OPERATING REVENUES
Passenger Transportation - Increased $391.0 million (6.2%), $345.5
million of which is attributable to US Airways and the remainder
to the Company's wholly-owned regional airlines. The Company
estimates that its Passenger transportation revenues were
adversely affected during 1994 by approximately $50 million due to
unfavorable weather during the first quarter and approximately
$150 million as the result of the two accidents that occurred
during the third quarter. By early 1995, US Airways' traffic had
recovered from the effects of the accidents and approached a level
more normally associated with US Airways' capacity in the
marketplace. US Airways' 6.7% yield improvement was sufficient to
offset the effects on revenues of a 4.7% decrease in both revenue
passengers and capacity (ASMs).
Cargo and Freight - Decreased $6.3 million (3.9%) primarily due to
US Airways' $6.7 million (4.2%) decrease. The U.S. Postal
Service's increased emphasis on truck movement of mail in the
Northeastern U.S. resulted in lower mail volumes and yields.
Other Operating Revenues - Increased $92.5 million (19.4%), $67.5
million (13.6%) of which is attributable to US Airways, primarily
due to an increase in fees received from participants in US
Airways' frequent traveler program and increased revenues from
higher volumes and rates for cancellation and rebooking fees.
Revenues from third party aircraft lease and sublease arrangements
also increased during 1995. US Airways' results include certain
transactions with related parties that are eliminated at the US
Airways Group level. Overall, increases in the Other Operating
Revenue category were largely offset by increases in related
expenses recognized as Other Operating Expenses, Net.
OPERATING EXPENSES
Personnel Costs - Relatively unchanged year-over-year. US Airways
recognized profit sharing expense of $49.7 million in 1995 and
$4.1 million during 1994 associated with the profit sharing
component of the 1992 Salary Reduction Program (see further
discussion of this profit sharing plan in "Year Ended December 31,
1996 Compared to Year Ended December 31, 1995" above). The 1994
profit sharing expenses resulted from employees receiving certain
guaranteed profit sharing payments upon their termination.
Overall, profit sharing expense and the contractual wage increases
that US Airways' pilots, flight attendants and mechanics received
during 1995 were offset by lower personnel levels. US Airways'
workforce had approximately 2,500 fewer employees as of December
31, 1995 than as of December 31, 1994.
Aviation Fuel - Decreased $37.6 million (5.6%), primarily due to
US Airways' $37.3 million (5.8%) decrease. Year-over-year, the
average cost of fuel per gallon was relatively unchanged but US
Airways' capacity (ASMs) decreased approximately 4.7%. The
decreased capacity contributed to a 5.6% reduction in fuel
consumption.
Commissions - Decreased $20.1 million (3.5%) and $22.1 million
(4.0%) at US Airways despite an increase in Passenger
transportation revenues primarily due to the effects of a change
in the rate structure for travel agency commissions that went into
effect during early 1995.
Aircraft Rent - Decreased $125.9 million (22.3%) primarily due to
US Airways' $123.3 million (23.7%) decrease. Excluding the unusual
items recognized during 1995 and 1994, as discussed above, US
Airways' Aircraft rent expense decreased $3.7 million (0.9%)
mainly due to fewer leased aircraft in US Airways' operating fleet
year-over-year.
48
<PAGE>
Other Rent and Landing Fees - Decreased $32.4 million (7.4%) and
$33.3 million (7.9%) at US Airways primarily due to US Airways'
capacity (ASMs) reductions during 1995 and credits totaling
approximately $6.0 million received from various airport
authorities during 1995 related to 1994 activity.
Aircraft Maintenance - Decreased $45.3 million (11.6%) primarily
due to US Airways' $40.2 million (12.0%) decrease which resulted
from fewer operating aircraft year-over-year and the positive
impact of US Airways' re-engineering efforts in the maintenance
areas.
Depreciation and Amortization - Excluding the effects of the
unusual items recognized during 1994, as discussed above, US
Airways' expense increased $7.8 million (2.4%).
Other Operating Expenses, Net - Excluding the effect of the
unusual items recognized in 1994, as discussed above, these
expenses increased approximately $68.5 million (4.7%) largely due
to increases in expenses associated with increased sales activity
and increased Federal taxes on aviation fuel (see discussion under
"Government Regulation" above). Increased third party lease and
sublease arrangements also contributed to the increase in this
expense category (see also "Other Operating Revenues" above).
Decreases in certain capacity-related expenses partially offset
increases in other components of Other Operating Expenses, Net. US
Airways' results include certain transactions that are eliminated
at the US Airways Group level.
OTHER INCOME (EXPENSE)
Interest Income - Improved by $24.5 million (90.6%) mainly as a
result of significantly higher cash levels during 1995.
Interest Expense - Increased $18.6 million (6.5%) primarily as a
result of interest incurred on debt associated with new aircraft
deliveries during 1995 and 1994 which outweighed the effects of US
Airways' early debt repayments during 1995 which totaled $202.1
million.
Interest Capitalized - Decreased $5.0 million (36.2%) mainly due
to US Airways' agreement with Boeing to defer the delivery of
certain 757-200 aircraft from 1996 to 1998 (see related discussion
under "Aircraft Fleet and Related Matters" above).
Equity in Earnings (Loss) of Affiliates - Results for all three
of USAM's equity investments improved primarily driven by
increases in airline industry passenger volumes year-over-year.
Other, Net - Decreased $8.9 million as the effects of the $28.3
million gain recognized in 1994 (discussed above) were only
partially offset by US Airways' $10.7 million gain associated with
the sale of thirteen 737-300 aircraft during 1995.
Provision (Credit) for Income Taxes - The Company was subject to
Federal alternative minimum tax for 1995 as well as income taxes
in certain states. The Company was not subject to regular Federal
income tax for 1995 as the result of using Federal net operating
loss carryforwards. The results for 1994 do not include any income
tax credit due to Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109") limitations in
recognizing a current benefit for net operating losses. See Note 5
to the Company's Consolidated Financial Statements for additional
information.
49
<PAGE>
INFLATION AND CHANGING PRICES
Inflation and changing prices do not have a significant
effect on the Company's operating revenues and expenses (other
than depreciation and amortization) because such revenues and
expenses generally reflect current price levels.
Depreciation and amortization expense is based on historical
cost. For assets acquired through the purchase of Pacific
Southwest Airlines, US Airways' historical cost is based on the
market value of the assets on May 29, 1987. In the case of
Piedmont Aviation, Inc., US Airways' historical cost is based on
the fair market value of the assets on November 5, 1987, reduced
by the tax effect of that portion of fair market value not
deductible for tax purposes in the form of depreciation and
amortization. Therefore, aggregate depreciation and amortization
is lower than if this expense reflected today's replacement costs
for existing productive assets. In evaluating how inflation would
increase depreciation expense, however, consideration should also
be given to the reduction in other operating expenses, such as
aircraft maintenance and aviation fuel, that would be achieved
from the operating efficiencies of newer, more technologically
advanced productive assets.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, Cash and cash equivalents and Short-
term investments totaled $1.59 billion. US Airways also had $74.4
million deposited in trust accounts to collateralize letters of
credit and workers' compensation policies at year-end 1996. These
deposits are included in the Other Asset category on the
Company's Consolidated Balance Sheets.
Net cash provided by operations was $1.03 billion for 1996,
$576.6 million for 1995 and $1.1 million for 1994. The significant
year-over-year improvements in cash flows from operating
activities experienced by the Company for the last three years
are primarily due to factors discussed under "Factors Contributing
to Improved 1996 Financial Results" above.
USAM received a special cash distribution of $33.7 million
from ATS during the second quarter of 1996, reflected in the
Other operating adjustments category in the Company's
Consolidated Statements of Cash Flows (contained in Part II, Item
8A of this report). This special distribution was part of an ATS
distribution of cash to its partners. USAM received distributions
of $48.7 million from its computer reservation system
investments, including the special ATS distribution, during 1996.
USAM received distributions of $14.0 million and $8.3 million
from these investments for 1995 and 1994, respectively.
As discussed under "Government Regulation" above, the ticket
tax expired on January 1, 1996, but was reinstated effective
August 27, 1996 for tickets sold for travel before January 1,
1997. During February 1997, US Airways remitted approximately
$180 million to the Federal Government primarily related to
ticket taxes that US Airways collected during the time period in
1996 that this tax was in effect. In addition, the Company paid
its remaining obligation under the 1992 Salary Reduction Plan,
$129.1 million, in early March 1997; this payment ended the
Company's obligations for profit sharing under this plan and was
based on expenses the Company recognized during 1996 and in
earlier periods.
The Company added a SAR feature to its 1992 Stock Option
Plan during the fourth quarter of 1996 (see discussion of
Personnel Costs under "Year Ended December 31, 1996 Compared to
Year Ended December 31, 1995" above). SAR exercises could
potentially have a material adverse effect on the Company's
future cash outflows depending on the number and timing of SAR
exercises and changes in the fair market value of the Company's
50
<PAGE>
Common Stock. Approximately 570,000 SARs were exercised during
the fourth quarter of 1996 resulting in a cash outlay of $4.9
million.
During the third quarter of 1996, the Company revised its
estimate of short-term pension plan funding requirements
resulting in a decrease of approximately $137 million in the
Company's current liabilities as of September 30, 1996 (which was
offset by a corresponding increase in the Company's long-term
liabilities) and a significant reduction in the Company's
original estimate of anticipated cash outflows for 1997.
The Company has also embarked on a program to upgrade and
standardize the interiors of US Airways' operating aircraft. This
program, described under "Aircraft Fleet and Related Matters"
above, will result in currently estimated incremental
expenditures of approximately $73 million, primarily during 1997
and 1998.
The Company anticipates that its capital expenditures for
1997 will total approximately $150 million, almost all of which is
related to US Airways' operations. This estimate includes $20
million related to the purchase of hush kits for certain aircraft
in order to comply with Federal noise and pollution mandates and
$115 million primarily related to the purchase of aircraft
rotables, other aircraft components (including items associated
with US Airways' Aircraft Interior Upgrade and Standardization
Program), ground support equipment and computer equipment. The
Company expects that it will satisfy its liquidity requirements
for 1997 through a combination of cash on hand (Cash and cash
equivalents and Short-term investments) and cash flow from
operations. The Company's estimate of capital expenditures for
1997 is subject to change. As discussed further under "Aircraft
Fleet and Related Matters" above, US Airways has entered into an
agreement with an affiliate of Airbus for the acquisition of up
to 400 Airbus Aircraft; however, this agreement is contingent
upon the Company achieving a competitive cost structure and
approval of definitive documentation by US Airways' board of
directors. If an aircraft acquisition agreement with Airbus is
consummated, the Company's estimate of short-term and long-term
capital expenditures may be materially effected. In addition, and
also discussed further under "Aircraft Fleet and Related Matters"
above, the Company has advised Boeing that it does not plan to
accept delivery of certain aircraft the Company has on firm order
with Boeing. The Company's estimate of capital expenditures for
1997 does not include equipment purchase deposits that had
originally been scheduled to be paid to Boeing under the terms of
the Company's contract with Boeing. The outcome of the Company's
discussions with Boeing and any impact on the Company's future
capital expenditures that may result from these discussions cannot
be determined at this time.
As of December 31, 1996, the Company's current assets were
$2.31 billion, an increase of $727.1 million since the end of
1995; however, the Company remains highly leveraged. The Company
and US Airways require substantial working capital in order to
meet scheduled debt and lease payments and to finance day-to-day
operations. In addition, the Company currently does not have in
place a short-term credit or receivable sale facility. Changes in
certain factors that are generally outside the Company's control,
such as an economic downturn, additional government regulation,
intensified low cost, low fare competition (see related
discussion under "US Airways' Current Competitive Position - Low
Cost, Low Fare Threat" above) and further increases in the price
of aviation fuel, could have a materially adverse effect on the
Company's liquidity, financial condition and results of
operations. In addition, the Company is currently in contract
negotiations with US Airways' organized labor groups with the
goal of achieving a competitive cost structure. There can be no
assurance that the Company will be able to accomplish this goal.
Currently, US Airways' high cost structure relative to its major
competitors results in the Company being particularly susceptible
to adverse changes in general economic and market conditions.
51
<PAGE>
Investing activities during 1996 included cash outflows of
$180.7 million for the acquisition of assets ($34.9 million for
hush kits, progress payments for 757-200 aircraft of $31.4
million (see "Aircraft Fleet and Related Matters" above for
recent developments concerning Boeing), $15.2 million to purchase
four 737-200 aircraft prior to lease expiry and $99.2 million
related to the purchase of rotables, various ground support
equipment and computer equipment). The Company's Short-term
investments increased $603.6 million year-over-year primarily due
to the Company's operations generating significantly more cash
than needed to fulfill immediate operational needs. The Other
investing uses of cash category on the Company's Consolidated
Statements of Cash Flows includes $12.2 million related to the
purchase of debt issued by Shuttle, Inc. during the first quarter
of 1996. Net cash used by investing activities during 1996 was
$753.8 million.
Net cash used by financing activities during 1996 was $209.0
million. During the third quarter of 1996, US Airways paid off
certain long-term debt with a principal amount of $42.8 million
for one of the Company's regional airline subsidiaries (the
affiliated company repaid US Airways during December 1996).
US Airways sold $263.0 million principal amount of Enhanced
Equipment Notes ("Enhanced Notes") during the first quarter of
1996 through a private placement offering under SEC Regulation
144A. US Airways used the proceeds from the offering as part of
the funds necessary to repay in full the indebtedness incurred in
connection with certain Boeing 757-200 aircraft delivered to US
Airways in 1995 and 1994. The transaction is reflected on the
Company's Consolidated Statements of Cash Flows as proceeds from
the issuance of debt of $103.0 million and a "non-cash" issuance
of debt of $160.0 million. The non-cash component reflects
proceeds that US Airways directed to reduce debt and pay
underwriter's fees at the time of the offering. US Airways used
the cash proceeds it received from the offering and additional
funds to make debt repayments of approximately $105.5 million
immediately following the offering. The Enhanced Notes are
secured by nine 757-200 aircraft. US Airways filed a Form S-4
Registration Statement with the SEC during July 1996 in
connection with its offer to exchange registered Enhanced Notes
for the privately-placed Enhanced Notes. The exchange offer was
completed in August 1996. The exchange offer did not result in
cash inflows or outflows with the exception of filing fees and
certain administrative costs.
In addition to the prepayment and refinancing transactions
and the early pay-off by US Airways of an affiliate's third party
debt, both discussed above, the Company's subsidiaries made
scheduled debt repayments of $85.0 million during 1996. US
Airways also incurred new debt of $29.2 million associated with
progress payments for 757 aircraft (see "Aircraft Fleet and
Related Matters" above for recent developments concerning
Boeing). The $29.2 million is reflected as non-cash activity in
the Company's Consolidated Statements of Cash Flows because US
Airways incurred the related debt in conjunction with the payment
of the progress payments.
During 1996, the Company paid dividends of $83.0 million on
its outstanding Senior Preferred Stock. The Company had
previously deferred the payment of dividends on all of its
outstanding series of preferred stock beginning in September 1994
(see discussion under "Payments of Dividends on Senior Preferred
Stock" above). The combined annual dividend requirement of all the
Company's outstanding preferred stock issuances, each of which has
a cumulative dividend feature, is approximately $78.7 million. As
of December 31, 1996, dividends of $118.9 million on all of the
Company's outstanding preferred stock issuances had been deferred
(including additional dividends (interest) on deferred dividends).
On January 31, 1997, the Company paid dividends of $50.0 million
to holders of its Senior Preferred Stock. See discussion under
"Payments of Dividends on Senior Preferred Stock" above. The
52
<PAGE>
Company's Series A Preferred Stock is mandatorily redeemable on
August 7, 1999 at $1,000 per share plus accrued dividends
(interest) and the Company's Series F Preferred Stock and Series T
Preferred Stock are mandatorily redeemable in the year 2008.
As of December 31, 1996, the redemption values of the Series
A Preferred Stock, Series F Preferred Stock and Series T Preferred
Stock were $404.7 million, $323.4 million and $107.6 million,
respectively, and the liquidation preference of the Series B
Preferred Stock was $255.1 million.
Except for the Enhanced Notes sold in 1996, the Company's and
US Airways' outstanding debt and equity securities are presently
rated "below investment grade" by Standard and Poor's Corporation
and Moody's Investors Service, Inc. Such ratings may make it more
difficult and costly for the Company and US Airways to effect
additional financing, particularly unsecured financing. US Airways
recently reached an agreement with a subsidiary of Airbus to
acquire up 400 Airbus Aircraft. Final consummation of this
agreement would result in a significant increase in the Company's
need for additional financing (see discussion under "Aircraft
Fleet and Related Matters" above).
US Airways is party to certain financial contracts to reduce
its exposure to fluctuations in the price of aviation fuel. Under
these arrangements, US Airways pays a fixed rate per notional
gallon of fuel and receives in return a floating rate per notional
gallon based on the market rate during the month of settlement.
Decreases in the market cost of the fuel below the rates specified
in the contracts require US Airways to make cash payments. The
Company believes that these financial contracts, although
inherently risky, do not present a material risk to the Company's
or US Airways' liquidity, financial condition or results of
operations due to the relatively simple terms, the purpose and
short duration of these arrangements. US Airways periodically
reviews the financial condition of each counterparty to these
financial contracts and believes that the potential for default by
any of the current counterparties is negligible. See Note 2 to the
Company's Consolidated Financial Statements for additional
information.
US Airways and certain of the Company's other subsidiaries
have received notices from the U.S. Environmental Protection
Agency and various state agencies that they are potentially
responsible parties with respect to the remediation of existing
sites of environmental concern. Negotiations with various
governmental agencies continue concerning known and possible
cleanup sites. US Airways has made financial contributions for the
performance of remedial investigations and feasibility studies at
sites in Moira, New York; Escondido, California; and Elkton,
Maryland. The contributions totaled approximately $120,000 in 1996
and $200,000 for 1995, 1994 and 1993 combined. The Company
believes that the ultimate resolution of known environmental
contingencies should not have a material adverse effect on its
financial condition and results of operations based on the
Company's experience with similar environmental sites.
Also, US Airways has been identified as a potentially
responsible party ("PRP") for environmental contamination at
Boston's Logan International Airport. There are a number of other
PRPs at the site. The Company has reached an agreement with the
Massachusetts Port Authority to pay approximately $300,000 in
cash, and to undertake certain remedial activities in connection
with its operations at Boston's Logan International Airport.
The Company terminated its revolving credit facility with a
group of banks during 1994. The Company had historically utilized
such a facility to supplement its liquidity from time to time. In
addition, US Airways' revolving accounts receivable sale program
expired in December 1994. US Airways was unable to sell
receivables under the agreement during 1994 because of failure to
53
<PAGE>
comply with certain financial covenants required to be maintained
in connection with that agreement. The Company does not believe
the absence of either type of liquidity supplement is detrimental
to its short-term financial condition due primarily to the
Company's current substantial cash, cash equivalents and short-
term investments reserves.
Investing activities during 1995 included cash inflows from
asset sales of approximately $222.3 million (primarily from the
sale of thirteen 737-300 aircraft) offset by a $146.7 million cash
outflow for the acquisition of assets ($61.7 million cash payments
related to new 757-200 aircraft) (see "Aircraft Fleet and Related
Matters" above for recent developments concerning Boeing) and
$85.0 million cash payments related to the purchase of aircraft
rotables, hush kits, computer equipment and various ground support
equipment. Net cash provided by investing activities for 1995 was
$148.9 million.
Financing activities during 1995 included $283.2 million of
debt payments, including the redemption of US Airways' remaining
outstanding 12 7/8% Unsecured Senior Notes ("12 7/8% Notes"),
partially offset by $8.7 million in cash proceeds from the sale of
the Company's stock to an employee benefit plan stock fund and new
debt of $1.2 million incurred at one of the Company's regional
airline subsidiaries. In addition, the Company incurred debt of
$169.7 million associated with the delivery of seven new 757-200
aircraft and scheduled progress payments for the future aircraft
deliveries during 1995. In connection with the deferral of eight
757-200 deliveries to 1998, US Airways 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 "Aircraft Fleet and Related Matters"
above for recent developments concerning Boeing). The $169.7
million and $70.8 million are reflected as non-cash activity in
the Company's Consolidated Statements of Cash Flows because US
Airways experienced an increase or decrease in fixed assets or
equipment deposits concurrently with the increase or decrease in
debt. US Airways made early debt payments, including the
redemption of the 12 7/8% Notes, totaling approximately $202.1
million during 1995.
During December 1995, US Airways completed a transaction
which enabled it to substitute previously unencumbered aircraft in
lieu of cash deposits as collateral for certain workers'
compensation liabilities. As a result of the arrangement,
approximately $67.2 million of previously restricted cash and
security deposits were returned to US Airways.
During 1994, the Company's investment in new aircraft
acquisitions and purchase deposits totaled $270.6 million (which
includes $224.6 million presented as non-cash on the Company's
Consolidated Statement of Cash Flows since debt was incurred upon
delivery of aircraft or to satisfy equipment deposit progress
payments). US Airways took delivery of five new 757-200 aircraft
during 1994. The Company invested $134.1 million in non-aircraft
property during 1994 (e.g., ground support equipment, computer
equipment, software, aircraft rotables and hush kits, and take-off
and landing slots), partly offset by $75.1 million in proceeds
from disposition of assets which includes the sale of certain
aircraft and assets to Mesa and insurance proceeds related to the
jet aircraft involved in the September 1994 accident. Net cash
provided by financing activities was $183.4 million, which
includes (i) $172.2 million net proceeds received by US Airways
upon the sale of $175 million principal amount of 9 5/8% Senior
Notes due 2001 through an underwritten public offering and (ii)
$136.7 million of new debt issued which is secured by aircraft
delivered before 1994, offset by $87.1 million of scheduled debt
payments and $49.7 million of preferred dividend payments. In
addition, as discussed above, the Company incurred $270.6 million
of debt upon delivery of five 757-200 aircraft and to satisfy
equipment deposit progress payments (see "Aircraft Fleet and
Related Matters" above for recent developments concerning
Boeing).
54
<PAGE>
As of December 31, 1996, the Company's ratio of current
assets to current liabilities was 0.81 to 1 and the debt
component of the Company's capitalization structure was greater
than 100% (and also greater than 100% if the three series of
mandatorily redeemable preferred stock are considered to be debt)
due to a deficit in stockholders' equity.
Certain information contained in "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
should be considered "forward-looking information" which is
subject to a number of risks and uncertainties. The preparation
of forward-looking information requires the use of estimates of
future revenues, expenses, activity levels and economic and
market conditions, many of which are outside the Company's
control. Among the specific factors that could cause actual
results to differ materially from those set forth in the forward-
looking information are the following: labor costs, or, in the
alternative, not putting in place a competitive cost structure,
aviation fuel costs, competitive pressures on pricing
particularly from low cost air carriers, weather conditions,
consumer perceptions of the Company's product, demand for air
transportation in the markets in which the Company operates and
the risks listed from time to time in the Company's U.S.
Securities and Exchange Commission reports. Other factors and
assumptions not identified above are also involved in the
preparation of forward-looking information, and the failure of
such other factors and assumptions to be realized may also cause
actual results to differ materially from those discussed. The
Company assumes no obligation to update such estimates to reflect
actual results, changes in assumptions or changes in other
factors affecting such estimates.
(this space intentionally left blank)
55
<PAGE>
ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
INFORMATION FOR US AIRWAYS GROUP, INC.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
US Airways Group, Inc.:
We have audited the consolidated balance sheets of US Airways
Group, Inc. (formerly USAir Group, Inc.) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated
statements of operations, cash flows, and changes in stockholders'
equity (deficit) for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of US Airways Group, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Washington, D. C.
February 26, 1997, except as to note 4(c) and note 4(d)
which are as of March 13, 1997
56
<PAGE>
</TABLE>
<TABLE>
US Airways Group, Inc. (Formerly USAir Group, Inc.)
Consolidated Statements of Operations
Years Ended December 31,
- ---------------------------------------------------------------------------------
(in thousands, except per share amounts)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating Revenues
Passenger transportation $7,370,888 $6,748,564 $6,357,547
Cargo and freight 162,704 157,262 163,598
Other 608,821 568,522 476,049
--------- --------- ---------
Total Operating Revenues 8,142,413 7,474,348 6,997,194
Operating Expenses
Personnel costs 3,195,463 2,887,115 2,889,764
Aviation fuel 749,119 634,320 671,926
Commissions 586,226 563,037 583,158
Aircraft rent 436,873 437,649 563,572
Other rent and landing fees 412,275 404,158 436,540
Aircraft maintenance 372,997 346,854 392,181
Depreciation and amortization 316,043 352,447 408,587
Other, net 1,635,924 1,527,081 1,542,822
--------- --------- ---------
Total Operating Expenses 7,704,920 7,152,661 7,488,550
--------- --------- ---------
Operating Income (Loss) 437,493 321,687 (491,356)
Other Income (Expense)
Interest income 74,819 51,624 27,088
Interest expense (267,122) (302,593) (284,034)
Interest capitalized 8,398 8,781 13,760
Equity in earnings (loss) of affiliates 36,602 34,546 26,535
Other, net (14,708) 14,227 23,084
-------- -------- --------
Other Income (Expense), Net (162,011) (193,415) (193,567)
-------- -------- --------
Income (Loss) Before Taxes 275,482 128,272 (684,923)
Provision (Credit) for Income Taxes 12,109 8,985 -
-------- -------- --------
Net Income (Loss) 263,373 119,287 (684,923)
Preferred Dividend Requirement (88,775) (84,904) (78,036)
-------- -------- --------
Net Income (Loss) Applicable to Common
Stockholders $ 174,598 $ 34,383 $(762,959)
======== ======== ========
Income (Loss) per Common Share
Primary $ 2.69 $ 0.55 $ (12.73)
Fully-diluted $ 2.33 $ 0.55 $ (12.73)
Shares Used for Computation (000)
Primary 64,919 62,430 59,915
Fully-diluted 95,516 62,526 59,915
See accompanying Notes to Consolidated Financial Statements.
57
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<PAGE>
<TABLE>
US Airways Group, Inc. (Formerly USAir Group, Inc.)
Consolidated Balance Sheets
December 31,
- ---------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
<CAPTION>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 950,966 $ 881,854
Short-term investments 635,839 19,831
Receivables, net 337,025 322,122
Materials and supplies, net 248,774 248,144
Prepaid expenses and other 137,590 111,131
--------- ---------
Total Current Assets 2,310,194 1,583,082
Property and Equipment
Flight equipment 5,202,057 5,251,742
Ground property and equipment 1,108,648 1,073,720
Less accumulated depreciation and amortization (2,470,337) (2,301,059)
--------- ---------
3,840,368 4,024,403
Purchase deposits 77,620 17,026
Total Property and Equipment, Net 3,917,988 4,041,429
Other Assets
Goodwill, net 494,511 510,562
Other intangibles, net 283,309 312,786
Other assets, net 525,409 507,149
--------- ---------
Total Other Assets 1,303,229 1,330,497
--------- ---------
$ 7,531,411 $ 6,955,008
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 84,259 $ 80,721
Accounts payable 438,951 325,330
Traffic balances payable and unused tickets 715,576 607,170
Accrued aircraft rent 510,752 495,489
Accrued expenses 1,099,181 975,986
--------- ---------
Total Current Liabilities 2,848,719 2,484,696
Long-term Debt, Net of Current Maturities 2,615,780 2,717,085
Deferred Credits and Other Liabilities
Deferred gains, net 359,748 386,947
Postretirement benefits other than pensions,
non-current 1,093,519 1,015,623
Non-current employee benefit liabilities and other 439,308 427,726
--------- ---------
Total Deferred Credits and Other Liabilities 1,892,575 1,830,296
(continued on next page)
58
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<PAGE>
<TABLE>
US Airways Group, Inc. (Formerly USAir Group, Inc.)
Consolidated Balance Sheets (Continued)
December 31,
- --------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
<CAPTION>
1996 1995
---- ----
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
<S> <C> <C>
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series A, 358,000 shares issued, no par value 358,000 358,000
(redemption value of $404,675 at December 31, 1996)
Series F, 30,000 shares issued, no par value 300,000 300,000
(redemption value of $323,361 at December 31, 1996)
Series T, 10,000 shares issued, no par value 100,719 100,719
(redemption value of $107,602 at December 31, 1996)
Stockholders' Equity (Deficit)
Series B cumulative convertible preferred stock, 213,128 213,153
no par value, 4,263,000 depositary shares
issued (liquidation preference of $255,088 at
December 31, 1996)
Common stock, par value $1 per share, authorized 64,306 63,449
150,000,000 shares, issued and outstanding
64,306,000 and 63,449,000 shares, respectively
Paid-in capital 1,386,557 1,362,756
Retained earnings (deficit) (2,117,838) (2,298,211)
Common stock held in treasury - -
Deferred compensation (95,326) (98,847)
Adjustment for minimum pension liability (35,209) (78,088)
--------- ---------
Total Stockholders' Equity (Deficit) (584,382) (835,788)
--------- ---------
$ 7,531,411 $ 6,955,008
========= =========
See accompanying Notes to Consolidated Financial Statements.
59
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<PAGE>
<TABLE>
US Airways Group, Inc. (Formerly USAir Group, Inc.)
Consolidated Statements of Cash Flows
Years Ended December 31,
- ----------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents beginning of year $ 881,854 $ 429,538 $ 368,347
------- ------- -------
Cash flows from operating activities
Net income (loss) 263,373 119,287 (684,923)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities
Depreciation and amortization 316,043 352,447 408,587
Loss (gain) on disposition of property 748 (17,043) (24,099)
Amortization of deferred gains and credits (27,668) (27,817) (27,396)
Other 38,048 6,294 (11,605)
Changes in certain assets and liabilities
Decrease (increase) in receivables (14,903) 2,417 41,101
Decrease (increase) in materials, supplies,
prepaid expenses and intangible
pension assets (45,455) (74,980) 74,663
Increase (decrease) in traffic balances
payable and unused tickets 108,406 38,955 (61,932)
Increase (decrease) in accounts payable, accrued
aircraft rent and accrued expenses 315,440 120,422 235,105
Increase (decrease) in postretirement
benefits other than pensions, non-current 77,896 56,667 51,613
--------- ------- ------
Net cash provided by (used for)
operating activities 1,031,928 576,649 1,114
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (52,854) (61,689) (46,022)
Additions to other property (127,875) (84,980) (134,086)
Proceeds from disposition of property 24,903 222,325 75,075
Decrease (increase) in short-term investments (603,593) 2,430 (21,994)
Decrease (increase) in restricted cash and investments 11,086 71,980 2,578
Other (5,497) (1,134) 1,110
------- ------- -------
Net cash provided by (used for) investing
activities (753,830) 148,932 (123,339)
(continued on next page)
60
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<PAGE>
<TABLE>
US Airways Group, Inc. (Formerly USAir Group, Inc.)
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31,
- ----------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities
Issuance of debt 103,002 1,162 308,856
Reduction of debt (235,500) (283,160) (87,073)
Issuance of common stock 3,882 8,733 52
Sale of treasury stock 2,630 - 11,244
Dividends paid (83,000) - (49,663)
------- ------- -------
Net cash provided by (used for) financing
activities (208,986) (273,265) 183,416
------- ------- -------
Net increase (decrease) in cash and cash equivalents 69,112 452,316 61,191
------- ------- -------
Cash and cash equivalents end of year $ 950,966 $ 881,854 $ 429,538
======= ======= =======
Noncash investing and financing activities
Issuance of debt - refinancing of debt secured
by aircraft $ 159,998 $ - $ -
======= ======= =======
Reduction of debt - refinancing of debt
secured by aircraft $ 154,422 $ - $ -
======= ======= =======
Issuance of debt - aircraft acquisitions $ 29,155 $ 169,725 $ 224,614
======= ======= =======
Reduction of debt - aircraft purchase deposits $ - $ 70,837 $ -
======= ======= =======
Underwriter's fees - refinancing of debt
secured by aircraft $ 2,488 $ - $ -
======= ======= =======
Treasury stock acquired for tax withholding on
employee stock grants $ 2,630 $ - $ -
======= ======= =======
Supplemental Information
Cash paid during the year for interest, net
of amounts capitalized $ 260,625 $ 299,871 $ 251,943
======= ======= =======
Net cash received (paid) during the year
for income taxes $ (12,325) $ (6,637) $ 317
======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
61
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<PAGE>
<TABLE>
US Airways Group, Inc. (Formerly USAir Group, Inc.)
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Three Years Ended December 31, 1996
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
<CAPTION>
Adjustment
For
Retained Deferred Minimum
Preferred Common Paid In Earnings Treasury Compen- Pension
Stock B Stock Capital (Deficit) Stock sation Liability Total
-------- ----- ------- -------- ------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 $213,153 $61,080 $1,417,346 $(1,682,912) $(83,891) $(94,957) $(42,395) $(212,576)
Reversion of 4,000 shares of
restricted stock previously
granted - (4) (28) - - 58 - 26
Sale of 12,400 shares of
common stock - 12 40 - - - - 52
Exercise of 5,000 options - - (177) - 225 - - 48
Sale of 1,859,000 shares of
treasury stock - - (72,470) - 83,666 - - 11,196
Dividends declared
(preferred stock)
Series A-$46.25 per share - - - (16,557) - - - (16,557)
Series B-$3.28 per
depositary share - - - (13,988) - - - (13,988)
Series F-$525 per share - - - (15,750) - - - (15,750)
Series T-$334.38 per share - - - (3,368) - - - (3,368)
Amortization of
deferred compensation - - (375) - - 3,934 - 3,559
Adjustment for minimum pension
liability - - - - - - 35,378 35,378
Net loss - - - (684,923) - - - (684,923)
------- ------ --------- --------- ------ ------ ------ -------
Balance December 31, 1994 $213,153 $61,088 $1,344,336 $(2,417,498) $ - $(90,965) $ (7,017) $(896,903)
Sale of 1,384,000 shares of
common stock - 1,384 6,929 - - - - 8,313
Grant of 934,600 shares of
restricted stock - 934 10,982 - - (11,916) - -
Exercise of 42,775 options - 43 377 - - - - 420
Amortization of
deferred compensation - - 132 - - 4,034 - 4,166
Adjustment for minimum
pension liability - - - - - - (71,071) (71,071)
Net income - - - 119,287 - - - 119,287
------- ------ --------- --------- ------ ------ ------ -------
Balance December 31, 1995 $213,153 $63,449 $1,362,756 $(2,298,211) $ - $(98,847) $(78,088) $(835,788)
(Continued on next page)
62
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<PAGE>
<TABLE>
US Airways Group, Inc. (Formerly USAir Group, Inc.)
Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Continued)
Three Years Ended December 31, 1996
- ------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
<CAPTION>
Adjustment
For
Retained Deferred Minimum
Preferred Common Paid In Earnings Treasury Compen- Pension
Stock B Stock Capital (Deficit) Stock sation Liability Total
-------- ----- ------- -------- ------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 $213,153 $63,449 $1,362,756 $(2,298,211) $ - $(98,847) $(78,088) $(835,788)
Grant of 635,000 shares
of restricted stock and
2,415,000 options - 635 20,668 - - (21,303) - -
Acquisition of 118,156
shares of common stock
from certain employees - - - - (2,630) - - (2,630)
Exercise of 434,876 options - 317 4,241 - 2,630 - - 7,188
Conversion of 500
depositary shares (25) 1 24 - - - - -
Reversion of 96,310 shares
of restricted stock
previously granted - (96) (1,132) - - 1,228 - -
Dividends declared
(preferred stock)
Series A - $133.74 per share - - - (47,879) - - - (47,879)
Series F - $902.14 per share - - - (27,064) - - - (27,064)
Series T - $799.91 per share - - - (8,057) - - - (8,057)
Amortization of
deferred compensation - - - - - 23,596 - 23,596
Adjustment for minimum
pension liability - - - - - - 42,879 42,879
Net income - - - 263,373 - - - 263,373
------- ------ --------- --------- ------ ------ ------ -------
Balance December 31, 1996 $213,128 $64,306 $1,386,557 $(2,117,838) $ - $(95,326) $(35,209) $(584,382)
======= ====== ========= ========= ====== ====== ====== =======
See accompanying Notes to Consolidated Financial Statements
63
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<PAGE>
US AIRWAYS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The accompanying Consolidated Financial Statements include
the accounts of US Airways Group, Inc. ("US Airways Group" or the
"Company") (formerly USAir Group, Inc.) and its wholly-owned
subsidiaries US Airways, Inc. ("US Airways") (formerly USAir,
Inc.), Piedmont Airlines, Inc. ("Piedmont"), PSA Airlines, Inc.
("PSA") (formerly Jetstream International Airlines, Inc.),
Allegheny Airlines, Inc. ("Allegheny"), USAir Leasing and
Services, Inc. ("USAir Leasing and Services"), USAir Fuel
Corporation ("Fuel Corp."), Material Services Company, Inc.
("MSC") and The OR Group, Inc. ("OR Group"). All significant
intercompany accounts and transactions have been eliminated.
US Airways is the Company's principal subsidiary and
accounted for approximately 92% of its operating revenues in 1996.
US Airways' results include the results of its wholly-owned
subsidiary USAM Corp. ("USAM"). US Airways is a major United
States air carrier whose primary business is transporting
passengers, property and mail. US Airways enplaned 56.9 million
passengers during 1996 and is currently the fifth largest domestic
air carrier, as measured by revenue passenger miles ("RPMs"). US
Airways operates predominantly in the eastern U.S. with primary
hubs at the major airports in Pittsburgh, Pennsylvania, Charlotte,
North Carolina, Philadelphia, Pennsylvania and at
Baltimore/Washington International Airport. US Airways also
maintains significant operations at the major airports in Boston,
Massachusetts, New York, New York and Washington, D.C.
USAM owns 11% of the Galileo International Partnership
("GIP") which owns and operates the Galileo Computer Reservation
System ("Galileo CRS"), approximately 11% of the Galileo Japan
Partnership ("GJP") which markets the Galileo CRS in Japan, and
approximately 21% of the Apollo Travel Services Partnership
("ATS") which markets the Galileo CRS in the U.S. and Mexico. USAM
accounts for these investments using the equity method because it
is represented on the board of directors of each of the
partnerships and therefore participates in policy making
processes.
Piedmont, PSA and Allegheny are regional air carriers that,
along with seven non-owned regional airline franchisees, form "US
Airways Express" (formerly doing business as "USAir Express"). US
Airways Express also has a majority of its operations in the
eastern U.S. US Airways Express air carriers enplaned 10.6 million
passengers in 1996 (5.6 million passengers enplaned by Piedmont,
PSA, and Allegheny), approximately half of whom connected to US
Airways flights.
Fuel Corp. was established in 1987 primarily to serve as a
fuel wholesaler to US Airways, in certain circumstances. MSC
performs a function similar to Fuel Corp., selling aviation fuel
to US Airways Express carriers and also assisting the US Airways
Express carriers with major maintenance and procurement contracts.
USAir Leasing and Services' main function is remarketing US
Airways' surplus or inactive aircraft.
OR Group was a wholly-owned subsidiary of US Airways Group
that was incorporated in February 1996 and dissolved in the
fourth quarter of 1996. The OR Group provided resource allocation
consulting services and decision-making support systems to US
Airways, which assumed these activities upon OR Group's
dissolution.
64
<PAGE>
US Airways terminated its Airline Technical Services, LLC
joint venture with a subsidiary of British Airways plc ("British
Airways"), effective January 1997. Amounts related to this joint
venture (accounted for using the equity method) included in the
Company's financial results for the years ended 1996 and 1995 are
immaterial and no material charges resulted from its termination.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The Company's principal operating subsidiary, US Airways, and
its three regional airline subsidiaries operate within one
industry (air transportation); therefore, no segment information
is provided.
Certain 1995 and 1994 amounts have been reclassified to
conform with 1996 classifications.
(b) CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
For financial statement purposes, the Company considers all
highly liquid investments purchased within three months of
maturity to be cash equivalents. Cash and cash equivalents are
stated at cost, which approximates market value. Short-term
investments consist of certificates of deposit and commercial
paper purchased with maturities greater than three months but less
than one year.
In 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). Under this statement,
the Company has classified its entire short-term investment
portfolio as "available-for-sale." As of December 31, 1996 and
1995, there were no material differences between estimated fair
values and carrying amounts for cash equivalents and short-term
investments.
(c) MATERIALS AND SUPPLIES
Inventories of materials and supplies are valued at the lower
of cost or market value. Costs are determined using average
costing methods and are charged to operations as consumed. An
allowance for obsolescence is provided for flight equipment
expendable and repairable parts.
(d) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost or, if acquired
under capital leases, at the lower of the present value of minimum
lease payments or fair market value at the inception of the lease.
Maintenance and repairs, including the overhaul of aircraft
components, are charged to operating expense as incurred and costs
of major improvements are capitalized for both owned and leased
assets. Interest related to deposits on aircraft purchase
contracts and facility and equipment construction projects is
capitalized as additional cost of the asset or as leasehold
improvement if the asset is leased. Depreciation and amortization
for principle asset classifications is provided on a straight-line
basis to estimated residual values over estimated depreciable
lives. Estimated depreciable lives and residual values are
periodically reviewed for reasonableness and estimates are
revised, if necessary.
65
<PAGE>
Depreciable Residual
Assets Lives Values
------ -------- --------
(years) (in millions)
Aircraft
Boeing 767-200ER 20 $14.0
Boeing 757-200 20 8.0
Boeing 737-300/400 20 7.5
Boeing 737-200 5-17 0.6-5.0
McDonnell Douglas MD-80 20 7.5
Douglas DC-9-30 17 3.0
Fokker 100 20 5.0
Fokker F28-4000 8 2.0
Fokker F28-1000 6 1.0
Turboprop aircraft 11-17 1.2-1.5
Improvements to leased
aircraft life of lease -
Ground property, equipment 1-10 or
and leasehold improvements life of lease -
Buildings 25-30 -
Property acquired under capital lease is amortized on a
straight-line basis over the term of the lease and charged to
Depreciation and amortization expense. When property and equipment
is sold or retired, the cost and accumulated depreciation is
removed from the accounts and any gain or loss recognized as
Other, net, a component of Other Income (Expense).
(e) GOODWILL AND OTHER INTANGIBLES
Goodwill, the cost in excess of fair value of identified net
assets acquired, is being amortized on a straight-line basis over
40 years. The $629.5 million goodwill resulting from the
acquisition of Pacific Southwest Airlines ("Pacific Southwest")
and Piedmont Aviation, Inc. ("Piedmont Aviation"), both in 1987,
is being amortized as Depreciation and amortization expense. As of
December 31, 1996 and 1995, accumulated amortization related to
the Pacific Southwest and Piedmont Aviation acquisitions was
$144.1 million and $128.3 million, respectively. The $11.4 million
goodwill resulting from USAM's computer reservation system
investments is being amortized as a component of Other Income
(Expense), consistent with the classification of the related
income or loss on the investments. As of December 31, 1996 and
1995, USAM's related accumulated amortization was $2.3 million and
$2.0 million, respectively. US Airways periodically evaluates
whether goodwill is impaired by comparing the goodwill balances
with estimated future undiscounted cash flows which, in US
Airways' judgment, are attributable to the goodwill. This analysis
is performed separately for the goodwill which resulted from each
acquisition.
Intangible assets consist mainly of purchased operating
rights at various airports, purchased route authorities,
capitalized software costs and the intangible asset associated
with the underfunded amounts of certain pension plans ("Intangible
Pension Asset"). The operating rights, route authorities and
capitalized software costs are being amortized on a straight-line
basis over the expected periods of benefit as Depreciation and
amortization expense. The operating rights, valued at purchase
cost or appraised value if acquired with Pacific Southwest or
Piedmont Aviation, are being amortized over periods ranging from
ten to 25 years, the route authorities are being amortized over 25
years and capitalized software costs are being amortized over five
years. The Intangible Pension Asset is recognized in accordance
with Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" ("SFAS 87") (see Note 10(a)
66
<PAGE>
for additional information). As of December 31, 1996 and 1995,
accumulated amortization related to intangible assets was $129.3
million and $105.0 million, respectively.
Based on the most recent analyses, US Airways believes that
goodwill and other intangible assets were not impaired as of
December 31, 1996.
(f) OTHER ASSETS
Other Assets consists primarily of non-current pension
assets, restricted cash and investments and a long-term receivable
from British Airways. Restricted cash and investments are deposits
in trust accounts to collateralize letters of credit and workers'
compensation policies. The long-term receivable from British
Airways resulted from the relinquishment by US Airways of three
U.S. to London routes.
In November 1995, US Airways entered into a five-year
transaction with a third party pursuant to which US Airways agreed
to pledge to such third party from time to time certain flight
equipment and simulators as collateral for up to $70 million
aggregate principal amount of letters of credit to be issued by
the third party with respect to certain workers' compensation
obligations of US Airways. On December 15, 1995, US Airways
pledged ten aircraft to the third party, resulting in the release
of $67.2 million in cash and securities that had been previously
pledged by US Airways to letter of credit providers.
(g) DEFERRED GAINS ON SALE AND LEASEBACK TRANSACTIONS
Gains on aircraft sale and leaseback transactions are
deferred and amortized over the term of the leases as a reduction
of the related aircraft rent expense.
(h) RECOGNITION OF PASSENGER TRANSPORTATION REVENUES
Passenger ticket sales are recognized as revenue when the
transportation service is rendered or the ticket otherwise
expires. At the time of sale, a liability is established (Traffic
balances payable and unused tickets) and subsequently eliminated
either through carriage of the passenger, through billing from
another air carrier which renders the service or by refund to the
passenger.
(i) FREQUENT TRAVELER AWARDS
US Airways accrues the estimated incremental cost of travel
awards earned by participants in its frequent traveler program
when requisite mileage award levels are achieved.
(j) INVESTMENT TAX CREDIT
Investment tax credit benefits were recorded using the "flow-
through" method as a reduction of the Federal income tax
provision. No new investment tax credits were generated during
1996, 1995 or 1994.
(k) ADVERTISING COSTS
Advertising costs are expensed when incurred as other
operating expense. Advertising expense for 1996, 1995 and 1994 was
$51.2 million, $66.6 million and $63.4 million, respectively.
67
<PAGE>
(l) INCOME (LOSS) PER COMMON SHARE
Primary income (loss) per common share is computed by
dividing net income or loss, after deducting all preferred stock
dividend requirements, by the weighted average number of shares of
US Airways Group, Inc. Common Stock, $1 par value ("Common
Stock"), outstanding, after giving effect to dilutive stock option
common stock equivalents. The Company uses the treasury stock
method to compute dilutive stock option common stock equivalents.
Stock option common stock equivalents were dilutive for 1996 and
1995, but were anti-dilutive for 1994. Therefore, stock option
common stock equivalents of approximately 898,000 shares and
78,000 shares were added to the weighted average common shares
outstanding in the calculation of primary income (loss) per common
share calculation for 1996 and 1995, respectively. None of the
Company's outstanding preferred stock issuances (see Notes 7 and
8(c)), all of which are convertible under certain conditions into
Common Stock, are considered common stock equivalents;
accordingly, they were excluded from the Company's primary income
(loss) per common share calculations.
Fully diluted income (loss) per common share reflects the
maximum dilution that would result after giving effect to dilutive
stock option common stock equivalents and to the assumed
conversion of all dilutive convertible preferred stock issuances.
Stock option common stock equivalents were dilutive for the years
1996 and 1995, but were anti-dilutive for 1994. Therefore, stock
option common stock equivalents of approximately 1,580,000 shares
and 174,000 shares were added to the weighted average common
shares outstanding in the calculation of fully diluted income
(loss) per common share calculation for 1996 and 1995,
respectively. The assumed conversions of the Series B, Series F
and Series T Preferred Stock had a dilutive effect on fully
diluted income (loss) per share for 1996. The income and share
effects of these assumed conversions were approximately $48.3
million and 29,915,000 shares, respectively. The assumed
conversion of the Series A had an anti-dilutive effect on fully
diluted income (loss) per share for 1996 and was accordingly
excluded from the calculation. For 1995 and 1994, the assumed
conversions of all preferred stock issuances had an anti-dilutive
effect and were accordingly excluded from the fully diluted income
(loss) per share calculations. See Note 9 regarding Common Stock
held in trust for US Airways' Employee Stock Ownership Plan
("ESOP").
2. FINANCIAL INSTRUMENTS
(a) TERMS OF CERTAIN FINANCIAL INSTRUMENTS
US Airways has entered into hedging arrangements designed to
reduce its exposure to fluctuations in the price of aviation fuel.
Under these arrangements, US Airways receives or makes payments
based on the difference between a fixed price and the market price
for specified petroleum products. Net settlements are recorded as
adjustments to Aviation fuel expense. The total notional gallons
under hedging arrangements were 84 million and 38 million as of
December 31, 1996 and 1995, respectively (US Airways entered into
arrangements prior to December 31, 1996 which effectively closed
certain hedging arrangements covering approximately 22 million
gallons). For hedging arrangements open as of December 31, 1996,
US Airways will pay fixed prices ranging from $0.553 to $0.700 per
notional gallon and receive a floating rate per gallon based on
current market prices. The open hedging arrangements, all of which
expire during 1997, represent approximately 6% of US Airways'
expected 1997 fuel consumption. For arrangements open as of
December 31, 1995, US Airways paid fixed prices ranging from
$0.499 to $0.548 per notional gallon and received a floating rate
based on market prices. Although these hedging arrangements expose
the Company to credit loss in the event of non-performance by the
other parties to the agreements, the Company does not anticipate
such non-performance because of the favorable creditworthiness of
the other parties. The Company may continue to enter into such
arrangements, depending on market conditions.
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<PAGE>
An aggregate of $32 million of future principal payments of
US Airways' long-term debt due 1998 through 2000 is payable in
Japanese Yen. This foreign currency exposure has been hedged to
maturity by US Airways' participation in foreign currency
contracts. Net settlements will be recorded as adjustments to
Interest expense. Although the Company is exposed to credit loss
in the event of non-performance by the counterparty to the
contracts, the Company does not anticipate such non-performance
because of the favorable creditworthiness of the other party.
(b) FAIR VALUE OF FINANCIAL INSTRUMENTS
Unless a quoted market price indicates otherwise, the fair
values of short-term investments generally approximates carrying
values because of the short maturity of these instruments. The
Company has estimated the fair value of long-term debt and the
long-term note receivable by discounting future cash flows using
current rates offered to the Company for debt and note receivables
of similar maturities. The estimated fair values of the Company's
outstanding redeemable preferred stock issuances (See Note 7) are
obtained from an independent external valuation source. The fair
values of energy swap agreements and foreign currency contracts
are obtained from dealer quotes. These values represent the
estimated amount the Company would receive or pay to terminate
such agreements.
The estimated fair values of the Company's financial
instruments, none of which are held for trading purposes, are
summarized as follows (brackets denote a liability):
<TABLE>
December 31,
----------------------------------------------
1996 1995
---- ----
<CAPTION>
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------- -------- ------ --------
(in thousands)
<S> <C> <C> <C> <C>
Short-term investments $ 635,839 $ 635,605 $ 19,831 $ 19,822
Restricted cash and
investments (1) 87,783 87,843 98,742 98,539
Long-term note
receivable (1) 40,733 30,080 45,433 33,277
Other long-term
investments (1) (2) 20,606 22,126 4,607 4,008
Long-term debt (excludes
capital lease obligations) (2,650,659) (2,698,431) (2,732,310) (2,543,340)
Redeemable preferred stock (758,719) (894,400) (758,719) (604,478)
Energy swap agreements:
In a net receivable position - 3,550 - 1,845
Foreign currency contracts:
In a net receivable position - 963 - 4,050
(1) Amounts included in Other Assets on the Company's Consolidated Balance Sheets.
(2) Classified as "held-to-maturity" under SFAS 115.
(this space intentionally left blank)
69
</TABLE>
<PAGE>
3. LONG-TERM DEBT
Details of long-term debt are as follows:
December 31,
---------------------
1996 1995
---- ----
(in thousands)
Senior Debt:
10% Senior Notes due 2003 $ 300,000 $ 300,000
9 5/8% Senior Notes due 2001 175,000 175,000
5.7% to 12% Equipment Financing
Agreements, Installments due 1997
to 2016 2,117,834 2,226,318
8.6% Airport Facility Revenue
Bond due 2022 27,620 27,620
7 1/4% Aircraft Purchase Deposit
Financing due 1998* 29,155 -
Other 1,050 3,372
--------- ---------
2,650,659 2,732,310
Capital Lease Obligations 49,380 65,496
--------- ---------
Total 2,700,039 2,797,806
Less Current Maturities 84,259 80,721
--------- ---------
$ 2,615,780 $ 2,717,085
========= =========
* See Note 4(d) for additional information with respect to
aircraft US Airways has scheduled for delivery in 1998.
Maturities of long-term debt and debt under capital leases for
the next five years:
(in thousands)
1997 $ 84,259
1998 184,788
1999 77,454
2000 122,681
2001 246,494
Thereafter 1,984,363
Interest rates on $242 million principal amount of long-term
debt as of December 31, 1996 are subject to adjustment to reflect
prime rate and other rate changes.
Equipment financings totaling $2.2 billion were collateralized
by aircraft and engines with a net book value of approximately
$2.3 billion as of December 31, 1996.
4. COMMITMENTS AND CONTINGENCIES
(a) OPERATING ENVIRONMENT
The Company's improved financial results for 1996 are
primarily attributable to favorable capacity and pricing trends
in markets served by the Company's airline subsidiaries,
continued stable domestic economic conditions and the positive
influence of US Airways' revenue enhancement and cost reduction
initiatives. However, the Company's financial condition, results
of operations and future prospects are more susceptible to an
economic downturn and competitive influences than most of its
major competitors due to US Airways' high cost structure amid the
growing low cost, low fare environment in the domestic airline
industry.
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<PAGE>
Most of the Company's airline subsidiaries operate in
competitive markets, predominantly in the Eastern U.S. In recent
years, air carriers with low costs of operations and fare
structures have initiated and or expanded into markets served by
the Company's airline subsidiaries. In addition, several of the
larger, mature air carriers have developed or indicated their
intention to develop similar low cost, low fare operations. In an
effort to preserve market share, US Airways has typically
responded to the entry of a low cost, low fare competitor into
its markets by matching fares and increasing the frequency of
service in related markets, generally with the result of diluting
US Airways' yield in those markets. US Airways' currently has the
highest unit operating costs among the major domestic air
carriers and the growth and expansion of low cost, low fare air
carriers or operations in US Airways' markets has put consider-
able pressure on US Airways to reduce operating costs in order to
maintain competitiveness.
US Airways was able to reduce certain non-labor related
operating costs during 1996 and 1995 through various
organizational changes, process reengineering and reducing or
eliminating capacity in unprofitable markets; however, US Airways
has not been successful to date in achieving meaningful
reductions in its largest expense category, Personnel costs. The
Company believes that US Airways' long-term financial viability
depends on its success in further reducing its cost of
operations, including its Personnel costs.
As of December 31, 1996, the Company's various subsidiaries
employed approximately 43,500 full-time equivalent employees.
Approximately 28,200, or 65%, of these employees are covered by
collective bargaining agreements with various unions, or will be
covered by collective bargaining agreements for which initial
negotiations are in progress. US Airways' contracts with the
International Association of Machinists and Aerospace Workers
("IAM"), which represents US Airways' machinists group, the Air
Line Pilots Association ("ALPA"), which represents US Airways'
pilots, and the Association of Flight Attendants ("AFA"), which
represents US Airways' flight attendants, are open for
negotiation and collective bargaining talks are underway. US
Airways has not yet reached an initial contract with its fleet
service employees, a class of approximately 5,700 employees who
are also represented by the IAM. The Company cannot predict the
ultimate outcome of its negotiations with US Airways' unions or
if the Company will be successful in achieving meaningful wage
and benefit concessions from US Airways' employees.
Although a competitive strength in some regards, the
concentration of significant operations in the Eastern U.S.
results in US Airways being susceptible to changes in certain
regional conditions that may have an adverse effect on the
Company's financial condition and results of operations. For
example, geographically isolated inclement weather and the
partial Federal government shutdowns which both occurred during
the first quarter of 1996, adversely affected the Company's
operating revenues and expenses to a greater degree than some of
the Company's competitors.
The operations of the Company's airline subsidiaries are
dependent on the availability of aviation fuel. The availability
and price of aviation fuel is largely determined by the actions
of the nations which compose the Organization of Petroleum
Exporting Countries ("OPEC") cartel. OPEC, which currently
controls a significant amount of the world's known crude oil
reserves, can affect the availability and price of aviation fuel
through its production and price-targeting actions. In addition,
aviation fuel prices are affected by political events, seasonal
factors and other factors generally outside of the Company's
control. US Airways has a diversified aviation fuel supplier
network and participates in fuel hedging transactions (see
Note 2) in order to ensure aviation fuel availability and
partially protect US Airways from temporary aviation fuel price
fluctuations.
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<PAGE>
(b) LEASES
The Company's airline subsidiaries lease certain aircraft,
engines, computer and ground equipment, in addition to the
majority of their ground facilities. Ground facilities include
executive offices, overhaul and maintenance bases and ticket and
administrative offices. Public airports are utilized for flight
operations under lease arrangements with the municipalities or
agencies owning or controlling such airports. Substantially all
leases provide that the lessee shall pay taxes, maintenance,
insurance and certain other operating expenses applicable to the
leased property. Some leases also include renewal and purchase
options.
In addition, the Company subleases certain leased aircraft
and ground facilities under noncancelable operating leases
expiring in various years through 2021.
The following amounts applicable to capital leases are
included in property and equipment:
December 31,
--------------------
1996 1995
---- ----
(in thousands)
Flight equipment $ 167,308 $ 192,775
Ground property and equipment 406 4,767
------- -------
167,714 197,542
Less accumulated amortization 125,568 140,212
------- -------
$ 42,146 $ 57,330
======= =======
As of December 31, 1996, obligations under capital and
noncancelable operating leases for future minimum lease payments
were as follows:
Capital Operating
Leases Leases
------ -------
(in thousands)
1997 $ 21,304 $ 771,684
1998 10,294 732,658
1999 10,295 686,805
2000 7,193 664,614
2001 4,703 659,716
Thereafter 14,109 5,844,431
------ ---------
Total minimum lease payments 67,898 9,359,908
Less sublease rental receipts - 185,973
------ ---------
Total minimum operating lease payments $9,173,935
=========
Less amount representing interest 18,518
------
Present value of future minimum
capital lease payments 49,380
Less current obligations under
capital leases 15,912
------
Long-term obligations under
capital leases $ 33,468
======
Rental expense under operating leases for 1996, 1995 and 1994
was $787 million, $773 million and $748 million, respectively. The
$787 million rental expense for 1996 excludes a credit of $22.5
million related to US Airways' subleasing of eleven non-operating
British Aerospace BAe-146-200 ("BAe-146") aircraft. The $773
million rental expense for 1995 excludes a credit of $4.1 million
related to US Airways' subleasing of three non-operating BAe-146
aircraft. The $748 million rental expense for 1994 excludes
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<PAGE>
charges of $103 million related to US Airways' grounded Bae-146
fleet and $13 million primarily related to US Airways' decision to
cease operations of its remaining Boeing 727-200 aircraft in 1995.
See Note 16 for additional information related to US Airways' non-
operating BAe-146 aircraft
The Company's airline subsidiaries also lease certain owned
aircraft under noncancelable operating leases which expire in
various years through the year 2000. The minimum future rentals to
be received by the Company on these leases are: $6.6 million -
1997; $2.9 million - 1998; $1.2 million - 1999; and $0.3 million -
2000.
The following amounts are applicable to aircraft leased under
such agreements as reflected in flight equipment:
December 31,
---------------------
1996 1995
---- ----
(in thousands)
Flight equipment $ 49,358 $158,688
Less accumulated amortization 24,711 64,690
------ -------
$ 24,647 $ 93,998
====== ======
(c) LEGAL PROCEEDINGS
US Airways is involved in legal proceedings arising out of
its two aircraft accidents that occurred in July and September
1994 near Charlotte, North Carolina and Pittsburgh, Pennsylvania,
respectively. The National Transportation Safety Board ("NTSB")
held hearings beginning in September 1994 relating to the July
accident and January and November of 1995 relating to the
September accident. In April 1995, the NTSB issued its finding of
probable causes with respect to the accident near Charlotte. It
assigned as probable causes flight crew errors and the failure of
air traffic control to convey weather and windshear hazard
information. The NTSB has not yet issued its final accident
investigation report for the accident near Pittsburgh. The NTSB
has indicated that a determination of the cause of the accident is
not likely until sometime in 1997. US Airways expects that it will
be at least two to three years before the accident litigation and
related settlements will be concluded. Litigation resulting from
the July 1994 accident in Charlotte was recently tried in U.S.
District Court in Columbia, South Carolina. The jury found US
Airways was liable for compensatory damages but was not liable for
punitive damages. The compensatory damages trials have not been
concluded and US Airways cannot estimate possible compensatory
damages. However, US Airways believes that it is fully insured
with respect to this litigation. Therefore, the Company believes
that the litigation will not have a material adverse effect on the
Company's financial condition or results of operations.
On July 30, 1996, the Company and US Airways initiated a
lawsuit in U.S. District Court for the Southern District of New
York against British Airways, BritAir Acquisition Corp., Inc.,
American Airlines Inc. ("American") and American's parent
company, AMR Corp. The Company and US Airways claim that British
Airways, in pursuit of an alliance with American, is responsible
for breaches of fiduciary duty to the Company and US Airways and
violated certain provisions of the January 21, 1993 Investment
Agreement between the Company and British Airways. The lawsuit
also claims that the defendants are in violation of U.S.
Antitrust laws that prohibit conduct that harms competition.
Although the defendants filed motions to dismiss the lawsuit
following the filing of the complaint, these motions became
superseded on March 5, 1997 when the Company filed an Amended
Complaint with the Court based on information gathered in the
73
<PAGE>
pre-trial discovery process. The defendants have informed the
Company that, in response to the Amended Complaint, they intend
to file new motions to dismiss shortly. The Company is unable to
predict at this time the ultimate outcome of this lawsuit.
In December 1995, US Airways received a Civil Investigative
Demand ("CID") from the U.S. Department of Justice relating to US
Airways' compliance with the terms of a consent decree entered
into in December 1992, as amended in September 1994. The consent
decree was entered into to resolve litigation concerning US
Airways' methods of disseminating fare data to the Airline Tariff
Publishing Company. A CID is a request for information in the
course of an antitrust investigation and does not constitute the
institution of a civil or criminal action. The CID issued in
December 1995 seeks information concerning US Airways' use of
travel dates in its fare filings, among other things. Although US
Airways believes there will be no further action stemming from
this CID, the investigation has not been fully closed.
In February and March 1995, 39 class action lawsuits were
filed in various federal district courts by travel agencies and a
travel agency trade association alleging that seven of the major
U.S. airlines, including US Airways, violated the antitrust laws
when they individually capped travel agent base 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 were consolidated in the federal district of Minnesota.
The plaintiffs sought unspecified treble damages for restraint of
trade. In September of 1996 the case against US Airways, and
subsequently the cases against the other airlines, were settled.
While US Airways believes that its actions in establishing a
commission cap were in full compliance with the antitrust laws,
the uncertainty and expense of litigation prompted a settlement of
the claims. US Airways paid $9.5 million, as part of a total
settlement of $85.8 million for all of the defendants. US Airways
did not admit liability or wrongdoing and the settlement allowed
the commission cap to remain in place. The settlement was approved
by the court in January of 1997.
In October 1995, US Airways terminated for cause an agreement
with In-Flight Phone Corporation ("IFPC"). IFPC was US Airways'
provider of on-board telephone and interactive data systems (the
"IFPC System"). The agreement contemplated the eventual
installation of the IFPC System on substantially all of US
Airways' aircraft. The IFPC System had been installed on
approximately 80 aircraft prior to the date of termination of the
agreement. On December 6, 1995, IFPC filed suit against US Airways
in Illinois state court seeking equitable relief and damages in
excess of $186 million. US Airways believes that its termination
of its agreement with IFPC was appropriate and that it is owed
significant damages from IFPC. On December 7, 1995, US Airways
successfully defended IFPC's emergency motion for a temporary
restraining order. On December 13, 1995, IFPC's motion for a
preliminary injunction was denied and IFPC has relinquished its
right to appeal that decision. IFPC's claim for damages remains
pending. In June 1996, US Airways filed a counterclaim against
IFPC seeking compensatory damages in excess of $25 million and
punitive damages in excess of $25 million. In January 1997, IFPC
filed for protection from its creditors under Chapter 11 of the
Bankruptcy Code. The parties stipulated to lift the automatic stay
provided for in the Bankruptcy Code which could allow IFPC's and
US Airways' claims to be fully litigated. The Company is unable to
predict at this time the ultimate resolution or potential
financial impact on the Company's financial condition and results
of operations of these proceedings.
In May 1995, the Company, US Airways 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 481 active and retired US Airways pilots alleging violations of
the Employee Retirement Income Security Act ("ERISA") by
erroneously calculating benefits under the Pilots' Pension Plan.
74
<PAGE>
The plaintiffs sought, among other things, damages in excess of
$70 million. In May 1996, the court issued a decision in the
lawsuit granting US Airways' Motion to Dismiss the majority of the
complaint for lack of subject matter jurisdiction, deciding that
the dispute must be resolved through the arbitration process. The
court retained jurisdiction over one count of the complaint
alleging a violation of a disclosure requirement of ERISA. There
are no significant penalties or damages which can result from this
remaining claim. The plaintiffs appealed the court's decision,
however, in the opinion of US Airways' counsel, the appeal is
unlikely to be successful.
The Equal Employment Opportunity Commission and various state
and local fair employment practices agencies are investigating
charges by certain job applicants, employees and former employees
of the Company's subsidiaries involving allegations of employment
discrimination in violation of Federal and state laws. The
plaintiffs in these cases generally seek declaratory and
injunctive relief and monetary damages, including back pay. In
some instances they also seek classification adjustment,
compensatory damages and punitive damages. Such proceedings are in
various stages of litigation and investigation, and the outcome of
these proceedings is difficult to predict. In the Company's
opinion, however, the disposition of these matters is not likely
to have a material adverse effect on its financial condition or
results of operations.
(d) AIRCRAFT COMMITMENTS
In June 1995, US Airways entered into agreements with The
Boeing Company ("Boeing") and Rolls Royce plc ("Rolls Royce")
deferring the delivery of eight 757-200 aircraft from 1996 to
1998. As part of the agreements, the due dates for progress
payments associated with the 1996 deliveries were likewise
rescheduled. Accordingly, approximately $71 million of progress
payments that had been paid by US Airways were refunded to US
Airways in the third quarter of 1995. The related long-term debt
which financed the deposits was dissolved.
The following schedule of US Airways' new aircraft deliveries
and scheduled payments as of December 31, 1996 (including progress
payments, payments at delivery, buyer furnished equipment, spares,
and capitalized interest) reflects US Airways' current agreements
with Boeing and Rolls Royce as discussed above (dollars in
millions):
Delivery Period
------------------------------------------
There-
1997 1998 1999 2000 2001 after Total
---- ---- ---- ---- ---- ----- -----
Boeing
757-200 - 8 - - - - 8
737-Series* - - - - - 40 40
---- ---- ---- ---- ---- ----- -----
Total - 8 - - - 40 48
==== ==== ==== ==== ==== ===== =====
Payments $ 74 $254 $ - $ - $ 52 $1,803 $2,183
==== ==== ==== ==== ==== ===== =====
* Purchase agreement includes a provision allowing US Airways to
purchase any other Boeing commercial aircraft type
insatisfaction of its obligation to purchase forty 737-Series
aircraft. Such satisfaction would be accomplished on an
"equivalent-seat" basis.
The above aircraft commitments do not include any amounts
related to a contingent contract to acquire up to 400 aircraft
from Airbus Industrie. The contract is contingent upon US Airways
achieving a competitive cost structure and approval of definitive
documentation by US Airways' board of directors.
75
<PAGE>
During the fourth quarter of 1996, US Airways advised Boeing
and Rolls Royce that it does not plan to accept delivery of the
eight Boeing 757-200 aircraft that it presently has on firm order
and suspended progress payments related to these aircraft. As of
December 31, 1996, US Airways had made $58.3 million in progress
payments for these aircraft. Subsequently, Boeing alleged, among
other things, that US Airways is in default of the 757-200
purchase agreement and that US Airways has also repudiated the
purchase agreement related to the 737-Series aircraft scheduled
for delivery commencing in 2003. Boeing has purported to
terminate both such 757-200 and 737-Series purchase agreements,
an action which US Airways believes is not supported by law or
the facts, and has claimed almost $450 million as damages for US
Airways' alleged breach of such agreements. US Airways
subsequently advised Boeing, among other things, that US Airways
rejects Boeing's asserted legal basis for termination of such
agreements. In addition, US Airways stated that it would hold
Boeing responsible for any damages incurred as a result of
Boeing's unlawful termination and demanded immediate return of
all payments made by US Airways in furtherance of the 737-Series
purchase agreement, together with interest from the date of
payment. US Airways also expressed its belief that Boeing is
legally committed to pursue contract resolutions in good faith.
Notwithstanding the formal legal positions of the parties, both
sides have expressed a desire to resolve this dispute on a
mutually satisfactory basis. US Airways cannot predict whether
Boeing will seek to exercise remedies against US Airways and if
so, whether the effect on US Airways' financial condition or
results of operations would be material.
US Airways has a commitment to purchase hush kits for certain
of its Douglas DC-9-30 and Boeing 737-200 aircraft. The
installation of these hush kits will bring the aircraft into
compliance with Federal Aviation Administration Stage 3 noise
level requirements. The projected payments associated with the
purchase of the hush kits are $19.7 million during 1997 and $32.1
million during 1998 and 1999.
(e) CONCENTRATION OF CREDIT RISK
The Company invests available cash in money market securities
of various banks, commercial paper of financial institutions and
other companies with high credit ratings and securities backed by
the United States government.
As of December 31, 1996, most of the Company's receivables
related to tickets sold to individual passengers through the use
of major credit cards (43%) or to tickets sold by other airlines
(17%) and used by passengers on US Airways or the Company's
regional airline subsidiaries. These receivables are short-term,
generally being settled within 14 days after sale. Bad debt
losses, which have been minimal in the past, have been considered
in establishing allowances for doubtful accounts. The Company does
not believe it is subject to any significant concentration of
credit risk.
(f) GUARANTEES
US Airways guarantees the payment of principal and interest
on special facility revenue bonds issued by certain
municipalities to build or improve airport and maintenance
facilities. Under related lease arrangements, US Airways is
required to make rental payments sufficient to pay maturing
principal and interest payments on the bonds. As of December 31,
1996 the principal amount of these bonds outstanding was $77.5
million.
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<PAGE>
5. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 required a change from the deferred
method under Accounting Principles Board Opinion No. 11 to the
asset and liability method of accounting for income taxes.
The Company files a consolidated Federal income tax return
with its wholly-owned subsidiaries.
The components of the provision for income taxes are as
follows:
1996 1995 1994
---- ---- ----
(in thousands)
Current provision:
Federal $ 6,423 $ 6,081 $ -
State 3,000 831 -
----- ----- -----
Total current provision 9,423 6,912 0
----- ----- -----
Deferred provision:
Federal - - -
State 2,686 2,073 -
----- ----- -----
Total deferred provision 2,686 2,073 0
----- ----- -----
Provision for income taxes $12,109 $ 8,985 $ 0
===== ===== =====
In 1996, the Company was not subject to regular Federal
income tax as a result of using $418 million in Federal net
operating loss carryforwards. However, the Company was subject to
Federal alternative minimum tax ("AMT"). Approximately $409
million in AMT net operating loss carry-forwards and approximately
$151 million in state net operating loss carryforwards were
utilized to reduce the Federal and state liabilities.
The significant components of deferred income tax expense
(benefit) for the years ended December 31, 1996, 1995 and 1994,
are as follows:
1996 1995 1994
---- ---- ----
(in thousands)
Deferred tax expense (benefit)
(exclusive of the other
components listed below) $ 114,906 $ 51,511 $(240,336)
Increase (decrease) for the
year in the valuation allowance
for deferred tax assets (112,220) (49,438) 240,336
------- ------ -------
Total $ 2,686 $ 2,073 $ 0
======= ====== =======
(this space intentionally left blank)
77
<PAGE>
A reconciliation of taxes computed at the statutory Federal
tax rate on earnings before income taxes to the provision for
income taxes is as follows:
1996 1995 1994
---- ---- ----
(in thousands)
Tax provision (credit) computed
at Federal statutory rate $ 96,419 $ 44,895 $(239,723)
Book expenses not deductible
for tax purposes 17,628 16,064 17,257
Limitation in recognizing unused
net operating loss/credits - - 222,466
Utilization of Federal net
operating loss which reduced
valuation allowance (146,472) (38,177) -
State income tax provision,
net of Federal tax benefit 4,636 1,888 -
Current year temporary
differences which increased
(reduced) valuation allowance 33,475 (22,492) -
Alternative minimum tax which
increased valuation allowance 9,097 3,794 -
Other (2,674) 3,013 -
----- ----- -----
Provision for income taxes $ 12,109 $ 8,985 $ 0
====== ===== =====
Effective tax rate 4% 7% 0%
====== ===== =====
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities as
of December 31, 1996, 1995 and 1994 are presented below:
1996 1995 1994
---- ---- ----
(in thousands)
Deferred tax assets:
Leasing transactions $ 154,732 $ 169,840 $ 167,772
Tax benefits purchased/sold 43,441 55,284 63,557
Gain on sale and leaseback
transactions 135,308 147,930 156,127
Employee benefits 608,948 512,568 501,599
Net operating loss
carryforwards 540,495 685,597 723,275
Alternative minimum tax
credit carryforwards 33,459 24,940 21,146
Investment tax credit
carryforwards 49,802 49,802 49,802
Other deferred tax assets 82,744 61,591 67,718
--------- --------- ---------
Total gross deferred
tax assets 1,648,929 1,707,552 1,750,996
Less valuation allowance (643,546) (755,766) (805,204)
--------- --------- ---------
Net deferred tax assets 1,005,383 951,786 945,792
Deferred tax liabilities:
Equipment depreciation
and amortization 966,874 908,917 909,353
Other deferred tax liabilities 45,415 44,942 36,439
--------- --------- ---------
Total deferred tax
liabilities 1,012,289 953,859 945,792
--------- --------- ---------
Net deferred tax
liabilities $ 6,906 $ 2,073 $ 0
========= ========= =========
The valuation allowance for deferred tax assets decreased
approximately $112 million in 1996, decreased approximately $49
million in 1995, and increased approximately $240 million in 1994.
As of December 31, 1996, the Company had unused net operating
losses of $1.5 billion for Federal tax purposes, which expire in
the years 2006 to 2009. The Company also has available, to reduce
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<PAGE>
future taxes payable, $375 million alternative minimum tax net
operating losses expiring in the years 2008 to 2009, $50 million
of investment tax credits expiring in 2002 to 2003, and $33
million of alternative minimum tax credits which do not expire.
The Federal income tax returns of the Company through 1986 have
been examined and settled with the Internal Revenue Service.
6. BRITISH AIRWAYS PLC INVESTMENT
On January 21, 1993, US Airways Group and British Airways
entered into an investment agreement (the "Investment Agreement")
under which a wholly-owned subsidiary of British Airways purchased
certain series of redeemable convertible preferred stock during
1993 and British Airways entered into code sharing and wet lease
arrangements with US Airways.
As of December 31, 1996, the preferred stock held by British
Airways constituted approximately 23% of the total voting interest
in the Company. These holdings included the Company's Series F
Cumulative Convertible Senior Preferred Stock, without par value
("Series F Preferred Stock"), the Series T-1 Cumulative
Convertible Exchangeable Senior Preferred Stock, without par value
("Series T-1 Preferred Stock"), and the Series T-2 Cumulative
Convertible Exchangeable Senior Preferred Stock, without par value
("Series T-2 Preferred Stock"). The Series T-1 Preferred Stock and
the Series T-2 Preferred Stock are collectively referred to herein
as the "Series T Preferred Stock," and, together with the Series
F Preferred Stock, the "BA Preferred Stock." See Notes 7(b) and
7(c) for additional information related to the preferred stock
issuances held by British Airways and Note 7(d) for information
related to the Company's deferral of dividends on its outstanding
preferred stock issuances. To the extent permitted by foreign
ownership restrictions which are applicable by statute regulations
or interpretation by regulatory authorities, including the United
States Department of Transportation ("DOT") ("Foreign Ownership
Restrictions"), the preferred stock owned by British Airways votes
on all matters presented to the Company's stockholders for a vote
and has voting power equal to the underlying shares of Common
Stock. Pursuant to the Investment Agreement, on January 21, 1993,
British Airways designated three of its officers to serve on the
Company's and US Airways' boards of directors.
On March 15, 1993, the DOT issued an order ("DOT Order")
stating, among other things, that British Airways' initial
investment of $300 million does not impair the Company's
citizenship under current Foreign Ownership Restrictions. However,
the DOT instituted a proceeding to consider whether the Company
would remain a U.S. citizen if the transactions and acts
contemplated by the Investment Agreement, including the possible
sale of Series C Cumulative Convertible Senior Preferred Stock,
without par value ("Series C Preferred Stock"), and Series E
Cumulative Convertible Exchangeable Preferred Stock, without par
value ("Series E Preferred Stock") to British Airways, are
consummated. The DOT has indefinitely suspended the period for
comments from interested parties pending its resolution of
requests by other airlines for production of additional documents
from US Airways Group. The DOT Order states that the DOT expects
and advises the Company and British Airways not to proceed with
the closing of the purchase of the Series C Preferred Stock or the
Series E Preferred Stock until the DOT has completed its review of
the Company's citizenship.
On March 7, 1994, British Airways announced it would not make
any additional investments in the Company until the outcome of
measures by the Company to reduce costs and improve financial
results was known. Under the terms of the Investment Agreement,
assuming the Series F Preferred Stock or any shares issued upon
conversion thereof were outstanding and British Airways had not
sold any shares of the BA Preferred Stock or any common stock or
other securities received upon conversion or exchange of the BA
Preferred Stock. British Airways was entitled at its option to
elect to purchase, on or prior to January 21, 1996, 50,000 shares
of Series C Preferred Stock at a purchase price of $10,000 per
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share, to be paid by British Airways' surrender of the Series F
Preferred Stock and payment of $200 million. The Investment
Agreement also provides that, on or prior to January 21, 1998,
assuming that British Airways had purchased (or was purchasing
simultaneously in accordance with the terms of the Investment
Agreement) Series C Preferred Stock, British Airways would have
the option to purchase 25,000 shares of Series E Preferred Stock,
at a purchase price of $10,000 per share. Because British Airways
did not elect to purchase the Series C Preferred Stock on or prior
to January 21, 1996, British Airways cannot purchase the Series E
Preferred Stock, except that if the DOT approves all the
transactions and acts contemplated by the Investment Agreement on
or prior to January 21, 1998, British Airways' purchase of the
Series C Preferred Stock and Series E Preferred Stock must be
consummated under certain circumstances at the election of either
British Airways (provided that British Airways had not sold any of
the BA Preferred Stock) or the Company (provided that the Company
had not repurchased or redeemed any of the BA Preferred Stock). In
addition, because British Airways did not elect to purchase the
Series C Preferred Stock on or prior to January 21, 1996, the
Company has the right to redeem, in whole or in part, Series F
Preferred Stock and a like percentage of Series T Preferred Stock
at the higher of market value or the price of $10,000 per share,
plus accrued dividends. Under Delaware law, the Company may be
subject to certain legal restrictions on its ability to repurchase
or redeem its own shares of capital stock. Based on British
Airways' actions described below, the Company does not expect that
the Second Purchase and Final Purchase will be consummated. In
addition, assuming British Airways sells the BA Preferred Stock in
accordance with the procedures described below, the Company does
not expect that it will repurchase or redeem the BA Preferred
Stock.
On July 30, 1996, the Company and US Airways initiated a
lawsuit in the U.S. District Court for the Southern District of
New York against British Airways, BritAir Acquisition Corp., Inc.,
American Airlines, Inc. ("American") and American's parent
company, AMR Corp. The Company and US Airways claim that British
Airways, in pursuit of an alliance with American, is responsible
for breaches of fiduciary duty to the Company and US Airways and
violated certain provisions of the Investment Agreement. The
lawsuit also claims that the defendants are in violation of U.S.
antitrust laws that prohibit conduct that harms competition.
Although the defendants filed motions to dismiss the lawsuit
following the filing of the complaint, these motions became
superseded on March 5, 1997 when the Company filed an Amended
Complaint with the Court based on information gathered in the
pre-trial discovery process. The defendants have informed the
Company that, in response to the Amended Complaint, they intend
to file new motions to dismiss shortly. See Note 4(c) for
additional information related to this lawsuit.
On October 24, 1996, US Airways notified British Airways that
it is terminating the code sharing and frequent traveler
agreements between the two companies effective March 29, 1997
following British Airways' decision to enter into an alliance with
American. Under the wet lease arrangements, US Airways leased
three 767-200ER aircraft, along with cockpit and cabin crews, to
British Airways for three routes between the U.S. and London. US
Airways terminated the wet lease arrangements with British Airways
in a phased approach with one of the three aircraft returned to US
Airways in December 1995, a second in February 1996 and the third
in May 1996.
On December 17, 1996, British Airways delivered a notice (the
"Sale Notice") to the Company of its intent to sell in one or more
underwritten public offerings or privately negotiated
transactions, all of the shares of the BA Preferred Stock. Under
the Investment Agreement, the Sale Notice triggered (i) a right of
first offer of the Company to purchase all (or in certain
circumstances, any portion) of such shares at prices set forth in
the Sale Notice (the "Right of First Offer") and (ii) a public
offering registration procedure (the "Public Offering Registration
Procedure"). The Company did not exercise its right to purchase
the BA Preferred Stock prior to the expiration of the Right of
First Offer on February 15, 1997.
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Because the Company elected not to exercise the Right of
First Offer with respect to the BA Preferred Stock, subject to
certain limitations, British Airways is free to complete a sale on
terms no less favorable to British Airways than those set forth in
the Sale Notice, provided that (i) such sale is closed by August
14, 1997 (or 180 days following the initial filing of the
Company's registration statement in conjunction with the Public
Offering Registration Procedure), (ii) in the case of a public
offering, the sale price may be higher or lower than the price
offered in the Sale Notice and (iii) in the case of a privately
negotiated transaction, the price must be equal to or higher than
the price offered in the Sale Notice.
In the Sale Notice, British Airways also exercised the Public
Offering Registration Procedure under the Investment Agreement to
cause the Company to use its "reasonable efforts" to register the
BA Preferred Stock for sale in an underwritten public offering at
British Airways' request on up to three occasions. The
registration procedures provide that the Company shall prepare and
file with the U.S. Securities and Exchange Commission and use its
reasonable efforts to cause to become effective a registration
statement under the Securities Act by April 16, 1997, provided,
however, that the Company's obligation may be deferred in certain
circumstances for up to 180 days.
Under the terms of the Investment Agreement, British Airways
has a right to maintain its proportionate representation on the
Company's board of directors. As of the date of this report, the
holders of Series A Preferred Stock and the holders of the Series
B Preferred Stock each have the right to elect two additional
directors to the Company's board of directors. If the holders of
the Series A and Series B Preferred Stock were to exercise their
right to elect additional directors, British Airways would have
the right to elect an additional director to the Company's board
of directors. On January 28, 1997, the Company received notice
that British Airways' representatives, Messrs. Ayling, Stevens and
Maynard, resigned as directors of US Airways Group and on
February 12, 1997, the Company received notice that such
individuals resigned as directors of US Airways. In the letter of
resignation, British Airways waived its current and future rights
under the Investment Agreement to US Airways Group board
representation.
Based on such resignations, British Airways may take the
position that British Airways is no longer an affiliate of US
Airways Group and, therefore, upon the expiration of the third
month following such change in status, is able to sell the BA
Preferred Stock without registration under the Securities Act of
1933 in compliance with an exemption thereunder.
See Note 7(a) and 8(c) for additional information related to
the Series A and Series B Preferred Stock, respectively, and Note
7(d) related to the Company's deferral of dividends on its
outstanding preferred stock issuances.
Based on British Airways' announcement that it does not
intend to complete the purchase of the Series C Preferred Stock
and its actions in connection with its proposed sale of the BA
Preferred Stock, the Company does not expect that the sale of
Series C and Series E Preferred Stock to British Airways will be
consummated. In addition, assuming British Airways continues to
pursue the sale of the BA Preferred Stock in accordance with the
procedures described above, the Company does not expect that it
will address the issue of repurchasing or redeeming the BA
Preferred Stock. The Company cannot predict the outcome of its
lawsuit against British Airways. As discussed under Note 7(d), the
Company may be subject to certain legal restrictions on its
ability to repurchase or redeem its own shares of capital stock.
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7. REDEEMABLE PREFERRED STOCK AND DEFERRAL OF DIVIDENDS
(a) SERIES A PREFERRED STOCK
As of December 31, 1996, the Company had 358,000 shares of
its 9 1/4% Series A Cumulative Convertible Redeemable Preferred
Stock ("Series A Preferred Stock"), without par value, out-
standing which were convertible into 9,239,944 shares of Common
Stock at a conversion price of approximately $38.74 per share. The
Series A Preferred Stock ranks pari passu with the Series F and
Series T Preferred Stock and is senior to the Series B Cumulative
Convertible Preferred Stock ("Series B Preferred Stock"), without
par value, and the Common Stock, with respect to dividend payments
and the distribution of assets. As of December 31, 1996, each
share of Series A Preferred Stock was entitled to approximately
25.8099 votes per share (a total of 9,239,944 votes) and votes
together with the Series F Preferred Stock, Series T Preferred
Stock and the Common Stock, on all matters submitted to a vote of
stockholders of the Company.
The Series A Preferred Stock is mandatorily redeemable on
August 7, 1999 at $1,000 per share, plus accrued dividends. The
Company has the right to redeem the stock at a 10% premium plus
accrued dividends until that time. The agreement relating to the
sale of the Series A Preferred Stock imposes certain restrictions
on the purchaser's ability to increase its ownership of, and to
transfer, its stock in US Airways Group. In addition, the holders
of the Series A Preferred Stock, affiliates of Berkshire Hathaway
Inc. ("Berkshire"), can require the Company to redeem the stock
if, under certain conditions, a non-affiliated entity purchases
fifty percent or more of the combined voting power of the
Company's then outstanding voting stock. There have been no
changes in the balance sheet value of the Series A Preferred Stock
since its issuance in 1989.
The Company paid dividends of $25.7 million and $22.2 million
to the holders of the Series A Preferred Stock during August 1996
and October 1996, respectively. The Company had previously
deferred dividend payments on all its outstanding series of
preferred stock beginning with payments due September 30, 1994. As
of December 31, 1996, deferred dividends and additional dividends
(interest) thereon of $46.7 million remained in arrears on the
Series A Preferred Stock. On January 31, 1997, the Company paid
dividends of $30.4 million to the holders of its Series A
Preferred Stock. After this payment, deferred dividends and
additional dividends (interest) thereon of $16.8 million remained
in arrears on the Series A Preferred Stock and its redemption
value was $374.8 million. As long as its dividends are deferred,
the Series A Preferred Stock will continue to accumulate dividends
at its stated dividend rate of 9.25% plus additional dividends
(interest) on the balance of the deferred dividends at the higher
of the stated dividend rate or the prime rate plus five percentage
points. As of December 31, 1996, the redemption value of the
Series A Preferred Stock was $404.7 million (the face amount of
the issuance of $358.0 million plus unpaid dividends and
additional dividends (interest) thereon of $46.7 million). The
annual dividends on the Series A Preferred Stock amount to
approximately $33.1 million (exclusive of additional dividends
(interest) on deferred dividends).
Under the terms of the Series A Preferred Stock, Berkshire
has the exclusive right to elect two directors to the Company's
board of directors after a scheduled dividend payment has not been
paid for thirty days. Berkshire has informed the Company that it
does not intend to exercise this right at this time.
See Note 7(d) for additional information with respect to
deferred dividends and potential restrictions on the Company's
ability to pay dividends on or repurchase or redeem its own shares
of capital stock.
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(b) SERIES F PREFERRED STOCK
As of December 31, 1996, the Company had 30,000 shares of its
7% Series F Preferred Stock outstanding which were convertible
into 15,458,851 shares of Common Stock at a conversion price of
approximately $19.41 per share. The Series F Preferred Stock,
owned by an affiliate of British Airways, ranks pari passu with
the Series A and Series T Preferred Stock and is senior to the
Series B Preferred Stock and the Common Stock, with respect to
dividend payments and the distribution of assets. As of
December 31, 1996, each share of Series F Preferred Stock was
entitled to 515.295 votes per share (a total of 15,458,851 votes)
to the extent permitted by the existing Foreign Ownership
Restrictions and votes together with the Series A Preferred Stock,
Series T Preferred Stock and Common Stock, on all matters
submitted to a vote of stockholders of the Company. Under Foreign
Ownership Restrictions, no more than 25% of the Company's voting
interest may be held by persons other than U.S. citizens. In
accordance with the terms of any BA Preferred Stock, conversion
rights and voting rights may not be exercised to the extent that
doing so would result in a loss of the Company's or any of its
airline subsidiaries' operating certificates or authorities under
Foreign Ownership Restrictions, and it is assumed for this purpose
that Series F Preferred Stock will be fully converted before any
other BA Preferred Stock.
The Series F Preferred Stock is convertible at the option of
the holder at any time on or after January 21, 1997 to the extent
that such conversion would not violate Foreign Ownership
Restrictions. The Series F Preferred Stock may be converted at the
option of the Company at any time after January 21, 1998 if the
average composite closing market price of Common Stock during any
30-day calendar period is at least 133% of the conversion price.
The Series F Preferred Stock is mandatorily redeemable on
January 21, 2008 at $10,000 per share, plus accrued dividends. The
deadline for British Airways' election to purchase the Series C
Preferred Stock and therefore, to elect to make any further
investment in the Company pursuant to the Investment Agreement,
was January 21, 1996. Because British Airways declined to exercise
its right to purchase the Series C Preferred Stock on or before
this date, the Company may at its option redeem, in whole or in
part, the Series F Preferred Stock and a like percentage of Series
T Preferred Stock at the higher of market value or the price of
$10,000 per share, plus accrued dividends. There have been no
changes in the balance sheet value of the Series F Preferred Stock
since its issuance in 1993.
The Company paid dividends of $13.3 million and $13.7 million
on the Series F Preferred Stock during August 1996 and October
1996, respectively. The Company had previously deferred dividend
payments on all its outstanding series of preferred stock
beginning with payments due September 30, 1994. As of December 31,
1996, deferred dividends and additional dividends (interest)
thereon of $23.4 million remained in arrears on the Series F
Preferred Stock. As of December 31, 1996, the redemption value of
the Series F Preferred Stock was $323.4 million (the face amount
of the issuance of $300.0 million plus unpaid dividends and
additional dividends (interest) thereon of $23.4 million).
On January 31, 1997, the Company paid dividends of $15.2
million to the holder of its Series F Preferred Stock. After this
payment, deferred dividends and additional dividends (interest)
thereon of $8.3 million remained in arrears on the Series F
Preferred Stock and its redemption value was $308.3 million. The
annual dividends on the Series F Preferred Stock amount to
approximately $21.0 million (exclusive of additional dividends
(interest) on deferred dividends). As long as its dividends are
deferred, the Series F Preferred Stock will continue to accumulate
dividends at its stated dividend rate of 7.0% plus additional
dividends (interest) on the balance of the deferred dividends at
the stated dividend rate.
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See Note 6 for additional information related to British
Airways' investment in US Airways Group and Note 7(d) for
additional information with respect to deferred dividends and
potential restrictions on the Company's ability to pay dividends
on or repurchase or redeem its own shares of capital stock.
(c) SERIES T PREFERRED STOCK
Under the Investment Agreement, British Airways has
preemptive and optional purchase rights to maintain its
proportionate ownership of the Company's Common Stock and
convertible securities, measured in terms of the British Airways
percentage ("BA Percentage"), which approximates British Airways'
fully-diluted ownership percentage based on British Airways'
current and potential holdings in the Company. The BA Percentage
is calculated without regard to Foreign Ownership Restrictions at
the time of the calculation. British Airways may exercise such
preemptive or optional purchase rights by purchasing, from time to
time, a series of Series T Preferred Stock.
As of December 31, 1996, the Company had two series of the
Series T Preferred Stock outstanding. On June 10, 1993, British
Airways exercised its preemptive purchase right by purchasing
9,919.8 shares of Series T-2 Preferred Stock for approximately
$99.2 million and exercised its optional purchase right by
purchasing 152.1 shares of a series of Series T-1 Preferred Stock
for approximately $1.5 million. British Airways' preemptive right
was triggered by the issuance of Common Stock and British Airways'
optional purchase rights were triggered by the Company's issuance
of additional shares of Common Stock as a result of option
exercises under various employee stock option plans and through
the sale of Common Stock to certain defined contribution plans
during the period January 21, 1993 to March 31, 1993. British
Airways has advised the Company that it will not exercise its
optional purchase rights to buy additional series of Series T
Preferred Stock triggered by the Company's issuance of Common
Stock pursuant to certain employee benefit plans and the exercise
of options and grant of restricted Common Stock under various
employee stock option and incentive plans that have occurred
between March 31, 1993 and March 31, 1996.
The terms of both outstanding series of Series T Preferred
Stock are substantially similar to those of the Series F Preferred
Stock, except as noted. Each share of Series T-2 Preferred Stock
carries a conversion price of $26.40 and is convertible into
approximately 378.7879 shares of Common Stock or Non-Voting Class
ET stock. Each share of Series T-1 Preferred Stock has a
conversion price of $20.50 and is convertible into approximately
487.8049 shares of Common Stock or Non-Voting Class ET stock. As
of December 31, 1996, each share of Series T-2 Preferred Stock was
entitled to approximately 378.7879 votes (a total of 3,757,500
votes) and each share of Series T-1 Preferred Stock was entitled
to approximately 487.8049 votes (a total of 74,195 votes).
Dividends are payable quarterly in arrears, at 50 basis points
over the three month LIBOR rate. The Series T Preferred Stock is
mandatorily redeemable on June 10, 2008 at $10,000 per share, plus
accrued dividends. Any shares of Series T Preferred Stock held by
any person other than British Airways or its subsidiaries may be
redeemed for cash at any time at the option of the Company at
$10,000, plus accrued dividends, plus a redemption premium equal
to $700 from the date of issue until the first anniversary thereof
and reduced by $46.67 on each anniversary thereafter. There has
been no change in the balance sheet value of the Series T
Preferred Stock since 1993.
The Series T Preferred Stock is exchangeable, at the option
of the Company, for that principal amount of floating rate
convertible subordinated notes of the Company ("T Notes") equal to
the redemption value of the shares to be exchanged and bearing
interest at the dividend rate. Any accrued dividends on the Series
T Preferred Stock to be exchanged will be treated as accrued
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interest on the T Notes. Each $10,000 aggregate principal amount
of such T Notes will be entitled to a number of votes equal to the
number of votes to which each share of Series T Preferred Stock
was entitled at the time of its exchange for T Notes, subject to
adjustment. If issued, T Notes will have terms otherwise
consistent with the terms of the Series T Preferred Stock.
The Company paid dividends of $4.0 million and $4.1 million
to the holder of the Series T Preferred Stock during August 1996
and October 1996, respectively. The Company had previously
deferred dividend payments on all its outstanding series of
preferred stock beginning with payments due September 30, 1994. As
of December 31, 1996, deferred dividends and additional dividends
(interest) thereon of $6.9 million remained in arrears on the
Series T Preferred Stock. As of December 31, 1996, the redemption
value of the Series T Preferred Stock was $107.6 million (the face
amount of the issuance of $100.7 million plus unpaid dividends and
additional dividends (interest) thereon of $6.9 million).
On January 31, 1997, the Company paid dividends of $4.5
million to the holder of the Series T Preferred Stock. After this
payment, deferred dividends and additional dividends (interest)
thereon of $2.5 million remained in arrears on the Series T
Preferred Stock and its redemption value was $103.2 million. The
annual dividends on the Series T Preferred Stock currently amount
to approximately $6.0 million. As long as preferred dividends are
deferred, the Series T Preferred Stock will continue to accumulate
dividends at its dividend rate of the three-month LIBOR rate plus
one-half of a percentage point plus additional dividends
(interest) on the balance of the deferred dividends at the
dividend rate.
See Notes 6 and 7(b) for additional information related to
British Airways' investment in US Airways Group and Note 7(d) for
additional information related to deferred dividends and
potential restrictions on the Company's ability to pay dividends
on or repurchase or redeem its own shares of capital stock.
(d) DEFERRAL OF DIVIDENDS ON PREFERRED STOCK
On September 29, 1994, the Company announced that it was
deferring the quarterly dividend payment due September 30, 1994 to
holders of its Series A Preferred Stock. At that time, the
Company, organized under the laws of the State of Delaware,
believed that it was legally prohibited from paying dividends on
or repurchasing or redeeming its capital stock due to the
provisions of Sections 160 and 170 of the Delaware General
Corporation Law ("Delaware Law"). Delaware Law requires a company
to maintain a capital surplus in order to pay dividends on or
repurchase or redeem its capital stock. The Company also deferred
quarterly dividend payments to holders of all its other
outstanding series of preferred stock, including the Series F and
Series T Preferred Stock and the publicly-held Series B Preferred
Stock.
During 1996, the Company's capital surplus position, as
calculated under Delaware Law and based on the Company's
Consolidated Balance Sheets, improved (became positive) and the
Company made two dividend payments totaling $83.0 million to
holders of its Senior Preferred Stock. On January 31, 1997, the
Company made an additional dividend payment of $50.0 million to
holders of its Senior Preferred Stock.
After the January 31, 1997 dividend payment, deferred
dividends remained outstanding on all of the Company's outstanding
preferred stock issuances, each of which has a cumulative dividend
feature. So long as dividends are deferred, the Series A, Series
F, Series T and Series B Preferred Stock will each accumulate
dividends at their stated rate. In addition, the Series A, Series
F and Series T Preferred Stock accumulate additional dividends
(interest) on the balance of any deferred dividends.
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There can be no assurance that the Company will be able to
maintain or further increase its capital surplus or when or if the
Company will make additional dividend payments on its preferred
stock.
See also Notes 7(a), 7(b), 7(c) and 8(c) for information
regarding each of the Company's outstanding preferred stock
issuances.
8. STOCKHOLDERS' EQUITY
(a) COMMON STOCK
As of December 31, 1996 and 1995, the Company had 150,000,000
authorized shares of Common Stock, par value $1. If British
Airways purchases the Series C Preferred Stock the number of
authorized shares of various classes of Common Stock will increase
to 300,000,000. As discussed in Note 6, British Airways has
indicated, however, that it will not make any additional
investments in the Company. As of December 31, 1996, approximately
51,073,000 Common Stock shares were reserved for issuance upon the
conversion of preferred stock and for offerings under employee
stock purchase, stock option, stock incentive and retirement
plans.
The Company has not paid dividends on its Common Stock since
the second quarter of 1990. There can be no assurance when or if
dividend payments will resume. See discussion of deferred
dividends above in Note 7(d).
(b) PREFERRED STOCK AND SENIOR PREFERRED STOCK
As of December 31, 1996, the Company had 5,000,000 authorized
shares of preferred stock, without nominal or par value, of which
358,000 shares were issued as Series A Preferred Stock, and
approximately 43,000 shares were issued as Series B Preferred
Stock. Also, as of December 31, 1996, the Company had 3,000,000
authorized shares of Senior Preferred Stock, without nominal or
par value, of which 30,000 shares were issued as Series F
Preferred Stock and approximately 10,000 shares were issued as
Series T Preferred Stock. The terms of the Series F Preferred
Stock and the Series T Preferred Stock provide that they rank,
with respect to dividends and upon distribution of assets in
liquidation, dissolutions or winding-up, pari passu with the
Series A Preferred Stock.
The terms of the Series A, Series F, Series T, and Series B
Preferred Stock are discussed in Note 7(a), 7(b), 7(c) and 8(c),
respectively.
As of December 31, 1996, dividends remained in arrears on
each of the Company's out-standing preferred stock issuances. See
Note 7(d).
(c) SERIES B PREFERRED STOCK
As of December 31, 1996, the Company had 4,262,550
Depositary Shares, representing 42,625.5 shares of its $437.50
Series B Preferred Stock outstanding. Each Depositary Share
represents 1/100 of a share of the Series B Preferred Stock. The
Series B Preferred Stock is convertible at any time, at the option
of the holder, at the rate of 249.25 shares of Common Stock of the
Company per preferred share, or 2.4925 shares of Common Stock per
Depositary Share. The Series B Preferred Stock ranks junior to
the Company's Series A , Series F and Series T Preferred Stock and
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senior to the Common Stock with respect to dividend payments and
the distribution of assets, whether upon liquidation or otherwise.
Except under certain circumstances, the holders of Series B
Preferred Stock have no voting rights.
The Series B Preferred Stock is redeemable, at the option of
the Company and with consent of the holders of Series F Preferred
Stock, (i) in whole but not in part, only in certain
circumstances, for so long as any shares of Series A Preferred
Stock are outstanding; and (ii) in whole or in part if no shares
of Series A Preferred Stock are outstanding, in each case at a
redemption price currently equal to approximately $52.19 per
Depositary Share and thereafter at prices declining to $50.00 per
Depositary Share (equivalent to $5,000 per share of Series B
Preferred Stock) on or after May 15, 2001, plus accrued dividends.
The Company paid dividends totaling $83.0 million to holders
of the Company's Senior Preferred Stock during 1996. The Company
had previously deferred dividend payments on all outstanding
series of preferred stock beginning with payments due
September 30, 1994. Because the Series B Preferred Stock is junior
to the Company's Senior Preferred Stock, the Company cannot pay
dividends on the Series B Preferred Stock until the dividends in
arrears on the Senior Preferred Stock are paid in full. As of
December 31, 1996, deferred dividends of $77.0 million and $42.0
million remained in arrears on the Company's Senior Preferred
Stock and the Series B Preferred Stock, respectively. As long as
preferred dividends are deferred, the Series B Preferred Stock
will continue to accumulate dividends at its stated dividend rate
of 8.75% but is not subject to additional dividends (interest) on
the balance of the deferred dividends. As of December 31, 1996,
the liquidation preference of the Series B Preferred Stock was
$255.1 million (the face amount of the issuance of $213.1 million
plus unpaid dividends of $42.0 million). The annual dividends on
the Series B Preferred Stock amount to approximately $18.6
million.
Under the terms of the Series B Preferred Stock, the holders
have the right to elect two additional directors to the Company's
board of directors if six quarterly dividend payments are not
paid. That right became effective on February 15, 1996. The right
must be exercised by notice of the holders of record of 20% or
more of the Series B Preferred Stock. In April and October 1996,
two different groups of shareholders representing more than the
20% of the Series B Preferred Stock shares outstanding notified
the Company that they wished to exercise their right to elect
additional directors. However, the shareholders in each of these
groups subsequently sold their shares prior to fully exercising
their rights. There is currently no ongoing effort to elect
directors under the terms of the Series B Preferred Stock.
See Note 7(d) for additional information with respect to
deferred dividends and potential restrictions of the Company's
ability to pay dividends on or repurchase or redeem its own shares
of capital stock.
(d) TREASURY STOCK
In 1989, the Company's board of directors authorized the
repurchase from time to time of up to 9.4 million shares of Common
Stock in open market transactions. As of December 31, 1996, the
Company had repurchased 2.1 million shares since the inception of
the program (all the purchases occurred during 1989). The Company
held 0.6 million Common Stock shares in treasury as of
December 31, 1988.
The Company sold approximately 1.9 million and 0.5 million
treasury stock shares during 1994 and 1993, respectively, and had
expended its treasury stock balance prior to December 31, 1994.
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<PAGE>
During 1996, certain employees, upon fulfilling the vesting
requirements of Common Stock grants, surrendered approximately
0.1 million shares of Common Stock to the Company in lieu of cash
payments to satisfy tax withholding requirements. The Company
reissued these shares prior to December 31, 1996 upon the exercise
of stock options.
The Company has not repurchased shares of its Common Stock
since 1989 and may be subject to certain legal restrictions on its
ability to repurchase its Common Stock under Delaware law.
(e) STOCK-BASED COMPENSATION
As of December 31, 1996, approximately 11.0 million shares
of Common Stock were reserved for future grants of Common Stock
or the possible exercise of stock options and stock appreciation
rights ("SARs") issued under the Company's four stock option and
incentive plans. The Company accounts for stock-based
compensation using the intrinsic value method prescribed under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). In accordance with APB 25, the
Company recognized compensation expense (an element of Personnel
costs) related to Common Stock grants of $11.9 million, $0.3
million and $0.2 million in 1996, 1995 and 1994, respectively,
and compensation expense related to stock option grants of $7.9
million in 1996 (none for 1995 or 1994). In addition, the Company
recognized compensation expenses related to SARs, the Company's
only variable stock-based compensation instrument, of $41.6
million in 1996 (none for 1995 or 1994). Deferred compensation
related to Common Stock grants was $9.4 million and $11.6 million
as of December 31, 1996 and 1995, respectively, and deferred
compensation related to stock option grants was $2.4 million as
of December 31, 1996 (none as of December 31, 1995).
The 1996 Stock Incentive Plan ("1996 Plan"), which became
effective during May 1996 and encompasses the Company's former
1988 Stock Incentive Plan, provides for the grant of up to 8.4
million shares of Common Stock and stock options to key
employees. The 1984 Stock Option and Stock Appreciation Rights
Plan ("1984 Plan") originally provided for the grant of up to 0.6
million stock options and SARs to key employees. Common Stock
grants, available under the 1996 Plan, are subject to a vesting
period of up to four years. The Company granted 0.6 million and
0.9 million shares of Common Stock during 1996 and 1995,
respectively (none during 1994). The weighted average fair value
per share of Common Stock granted in 1996 and 1995 was $17 and
$13, respectively. Both plans provide that options may be granted
as either nonqualified or incentive stock options. Stock options
awarded under both plans have terms of 10 years and one month.
Stock options awarded under either plan prior to 1994, except for
those that have been forfeited, have vested. Stock options
awarded during 1996, 1995 and 1994 have vesting periods of three
to four years. SARs, available under the 1984 Plan, permit the
grantee to receive an amount equal to the excess of the fair
market value of a share of Common Stock over the SAR's exercise
price on the day the SAR is exercised and may be settled in cash
or Common Stock, or any combination of the two. No SARs were
granted under the 1996 Plan or the 1988 Plan during 1996 or 1995.
The 1984 Plan had 24,400 SARs outstanding as of December 31,
1996.
Under the 1992 Stock Option Plan ("1992 Plan"), US Airways
employees whose pay was reduced, generally during a 12 month
period in 1992 and 1993, received stock options to purchase 50
shares of Common Stock at a price of $15 per share for each
$1,000 of salary reduction. Participating employees have five
years from the grant date to exercise such stock options.
Effective November 1, 1996, the Company added a SAR feature to
the 1992 Plan and granted SARs to stock option holders on a one-
for-one basis. For each SAR, the holder is entitled to receive a
cash distribution equal to the excess of the fair market value of
a share of Common Stock above $15. The exercise of any SAR
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<PAGE>
cancels its tandem stock option and, conversely, the exercise of
any stock option cancels its tandem SAR. The SARs have the same
expiration date as the tandem stock options. As of December 31,
1996, all stock options and SARs outstanding under the 1992 Plan
were vested and 4.2 million shares of Common Stock remain
reserved for the possible conversion of stock options issued and
outstanding under this plan (however, the Company expects most
plan participants to exercise SARs as opposed to stock options
due to lower transaction fees for SAR exercises).
The Nonemployee Director Stock Incentive Plan ("Director
Plan"), which also became effective during May 1996, allows for
the grant of up to 70,000 shares of Common Stock to the Company's
nonemployee directors. As of December 31, 1996, 15,000 Common
Stock shares were reserved for the possible conversion of stock
options issued and outstanding under this plan. Common Stock
grants under this plan are subject to a one year vesting period.
The following table summarizes stock option transactions
pursuant to the Company's various stock option and incentive
plans for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
---------------- --------------- -------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ------- ------ ------- ------ ------
(000) (000) (000)
Stock Options
Outstanding at
beginning of year 8,426 $17 8,844 $18 9,009 $19
Granted (1) 97 $17 155 $9 354 $9
Granted (2) 2,415 $13 - - - -
Exercised 435 $15 43 $10 5 $10
Forfeited (3) 673 $16 489 $25 504 $24
Expired 48 $32 41 $36 10 $23
----- ----- -----
Outstanding at
end of year 9,782 $17 8,426 $17 8,844 $18
Exercisable at
end of year 7,802 7,986 8,237
(1) Exercise price equal to the fair market value of a share of
Common Stock at date of grant; 1996 activity includes 20,000
stock options that were repriced.
(2) Exercise price lower than the fair market value of a share
of Common Stock at date of grant.
(3) 1996 activity includes cancellation of repriced stock
options. See (1) above.
The weighted average fair value of stock options which had
an exercise price equal to the fair market value of a share of
Common Stock at date of grant was $12 and $6 for 1996 and 1995,
respectively. The weighted average value of stock options which
had an exercise price lower than the fair market value of a share
of Common Stock at date of grant was $13 for 1996 (no such grants
during 1995).
89
<PAGE>
<TABLE>
<CAPTION>
Stock Options Stock Options
Outstanding Exercisable
---------------------------------- ----------------------
Weighted
Number Average Weighted Weighted
of Shares Remaining Average Average
Range of Outstanding Contractual Exercise Number Exercise
Exercise Prices at 12/31/96 Life Price Exerciseable Price
- --------------- ----------- ----------- -------- ------------ --------
(000) (years) (000)
<S> <C> <C> <C> <C> <C>
$ 4.25 to $10.00 278 7.8 $ 7 145 $ 7
$10.01 to $15.00 6,845 3.8 $ 14 5,086 $ 15
$15.01 to $20.00 477 5.9 $ 17 394 $ 18
$20.01 to $25.00 1,924 4.3 $ 22 1,919 $ 22
$25.01 to $40.00 51 1.8 $ 36 51 $ 36
$40.01 to $46.38 207 2.1 $ 46 207 $ 46
</TABLE>
During 1995, the Financial Accounting Standards Board
adopted Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This statement requires the use of
fair value techniques to determine compensation expense
associated with stock-based compensation. Although the Company
has opted to continue to apply the provisions of APB 25 to
determine compensation expense, as permitted under SFAS 123, the
Company is obligated to disclose certain information including
pro forma net income and earnings per share as if SFAS 123 had
been adopted by the Company to measure compensation expense. Had
compensation cost been measured in accordance with SFAS 123, the
Company's net income and earnings per share would have been
reduced to the pro forma numbers indicated in the table below. In
order to calculate the pro forma net income information presented
below, the Company used the Black-Scholes stock option-pricing
model with the following weighted-average assumptions for 1996
and 1995, respectively: stock volatility of 50.1% and 48.8%;
risk-free interest rates of 6.2% and 6.6%; expected stock option
life of 9 years for both years; and no dividend yield (0%) for
either year.
1996 1995
---- ----
Net income As reported (000s) $263,373 $119,287
Pro forma (000s) $248,204 $119,074
Net income
applicable to As reported (000s) $174,598 $ 34,383
common stockholders Pro forma (000s) $159,429 $ 34,170
Primary income per As reported $2.69 $0.55
common share Pro forma $2.48 $0.55
Fully-diluted income As reported $2.33 $0.55
per common share Pro forma $2.18 $0.55
Pro forma net income and income per common share information
reflect stock options granted in 1996 and 1995 only. Therefore,
the full impact of calculating compensation expense for stock
options under SFAS 123 is not reflected in the pro forma net
income and income per common share amounts above because
compensation expense is recognized over the stock option's vesting
period and compensation expense for stock options granted prior to
January 1, 1995 is not considered. See also Note 1(l).
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<PAGE>
(F) ADJUSTMENT FOR MINIMUM PENSION LIABILITY
The provisions of Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), require
the recognition of an additional minimum liability for each
defined benefit plan for which the accumulated benefit obligation
exceeds plan assets. This amount has been recognized by the
Company as a liability with an offsetting intangible asset (see
Note 1(e)). Because the intangible asset recognized may not exceed
the amount of unrecognized prior service cost on an individual
plan basis, the balance is reported as a separate reduction of
Stockholders' Equity (Deficit) as of December 31, 1996 and 1995.
See also Note 10(a).
9. EMPLOYEE STOCK OWNERSHIP PLAN
In August 1989, US Airways established an Employee Stock
Ownership Plan ("ESOP"). US Airways Group sold 2,200,000 shares of
its Common Stock to an Employee Stock Ownership Trust (the
"Trust") to hold on behalf of US Airways' employees, exclusive of
officers, in accordance with the terms of the Trust and the ESOP.
The trustee placed those shares in a suspense account pending
their release and allocation to employees. US Airways provided
financing to the Trust in the form of a 9 3/4% loan for $111.4
million for its purchase of shares and US Airways contributed an
additional $2.2 million to the Trust. US Airways makes a yearly
contribution to the Trust sufficient to cover the Trust's debt
service requirement. The contributions are made in amounts equal
to the periodic loan payments as they come due, less dividends
available for loan payment. Since the Company did not pay
dividends on any shares held by the Trust for the years ended
December 31, 1996, 1995 and 1994, the Trust did not utilize
dividends to service its debt during those periods. The initial
maturity of the loan is 30 years. As the loan is repaid over time,
the trustee systematically releases shares of the common stock
from the suspense account and allocates them to participating
employees. Each participant's allocation is based on the
participant's compensation, the total compensation of all ESOP
participants and the total number of shares being released. For
each year after 1989, a minimum of 71,933 shares are released from
the suspense account and allocated to participant accounts. If US
Airways Group's return on sales equals or exceeds four percent in
a given year, more shares are released and repayment of the loan
is accelerated. Annual contributions made by US Airways, and
therefore loan repayments made by the Trust, were $11.4 million in
each of 1996, 1995 and 1994. The interest portion of these
contributions was $10.3 million in 1996, $10.4 million in 1995 and
$10.5 million in 1994. Approximately 582,000 shares of Common
Stock have been released or committed to be released as of
December 31, 1996. US Airways recognized approximately $4 million
of compensation expense related to the ESOP in each of 1996, 1995
and 1994 based on shares allocated to employees (the "shares
allocated" method). Deferred compensation related to the ESOP
amounted to approximately $83.5 million, $87.2 million and $90.9
million as of December 31, 1996, 1995 and 1994, respectively. All
shares of Common Stock sold to the Trust are considered issued and
outstanding for computing the weighted average common shares
outstanding for the income (loss) per common share calculation.
See also Note 8(e) regarding the Company's accounting
treatment for stock-based compensation.
10. EMPLOYEE BENEFIT PLANS
(a) PENSION PLANS
The Company's subsidiaries have several pension plans in
effect covering substantially all employees. One qualified defined
benefit plan covers US Airways' maintenance employees and provides
benefits of specified amounts based on periods of service.
Qualified defined benefit plans for substantially all other
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<PAGE>
employees provide benefits based on years of service and
compensation. The qualified defined benefit plans for domestic
employees are funded, on a current basis, to meet the minimum
funding requirements of the Employee Retirement Income Security
Act of 1974. Liabilities related to pension plans covering foreign
employees are calculated in accordance with generally accepted
accounting principles and funded in accordance with the laws of
the individual country.
In 1996, US Airways changed the annual measurement date for
its pension plan assets and liabilities to September 30 from
December 31. The change in measurement date is considered a change
in a method of accounting and Accounting Principles Board Opinion
No. 20, "Accounting Changes" ("APB 20"), requires that the
cumulative effect of such a change be recognized as an adjustment
to retained earnings. The change in measurement date had no
material cumulative effect on pension expense for prior years and
thus no adjustment was recognized. For purposes of determining
whether a minimum pension liability existed as of September 30,
1996, plan contributions made in the fourth quarter of 1996 were
included in plan assets. The Company's other subsidiaries, which
represent less than 1% of the combined ABO, continue to use a
December 31 measurement date.
(this space intentionally left blank)
92
<PAGE>
<TABLE>
The funded status of the Company's qualified defined benefit plans:
<CAPTION>
1996* 1995
--------------------------- --------------------------
Plans in Which Plans in Which
--------------------------- --------------------------
Plan ABO Plan ABO
Assets Exceed Exceeds Assets Exceed Exceeds
ABO Plan Assets ABO Plan Assets
------------- ----------- ------------- -----------
(in millions)
<S> <C> <C> <C> <C>
Fair value of plan assets $ 2,186 $ 305 $ 1,009 $ 1,419
Actuarial present value of:
Vested benefit obligation 2,062 369 940 1,603
Nonvested benefit obligation 24 13 30 22
----- --- ----- -----
ABO based on salaries to date 2,086 382 970 1,625
Additional benefits based on
estimated future salary levels 665 - 143 598
----- --- ----- -----
Projected benefit obligation ("PBO") 2,751 382 1,113 2,223
----- --- ----- -----
PBO in excess of fair value of plan assets (565) (77) (104) (804)
Contributions from October 1, 1996
through December 31, 1996 45 12 - -
Unrecognized net transition asset (21) (9) (2) (34)
Unrecognized prior service (credit) cost (13) 75 2 66
Unrecognized net loss 508 40 317 571
----- --- ----- -----
Pension (liability) or asset
before adjustment (46) 41 213 (201)
----- --- ----- -----
Adjustment for minimum
pension liability ** - (106) - (149)
----- --- ----- -----
Pension (liability) or asset as
adjusted and recognized in
Consolidated Balance Sheets $ (46) $ (65) $ 213 $ (350)
===== === ===== =====
* See discussion above regarding the measurement dates used by the Company's subsidiaries.
** See Note 8(f).
</TABLE>
The weighted average assumptions used to determine the
actuarial present value of the PBO:
1996* 1995
---- ----
Discount rate 8.00% 7.25%
Rate of increase in compensation levels 3.58% 3.59%
Expected long-term rate of return
on plan assets 8.85% 9.32%
Components of plan assets:
Cash equivalents and
short-term investments 10% 7%
Equity investments** 28% 26%
Fixed income and other investments 62% 67%
* See discussion above regarding the measurement dates used by
the Company's subsidiaries.
** Plan assets as of December 31, 1995 include 205 shares of US
Airways Group Common Stock.
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<PAGE>
The components of the net periodic pension cost for the
qualified defined benefit plans:
1996 1995 1994
---- ---- ----
(in millions)
Service cost (benefits earned
during the period) $ 146 $ 94 $ 127
Interest cost on PBO 251 218 217
Actual return on plan assets (57) (541) 48
Net amortization and deferral (131) 371 (254)
--- --- ---
Net periodic pension costs $ 209 $ 142 $ 138
=== === ===
Non-qualified supplemental pension plans are established for
certain employee groups, which provide incremental pension
payments from the Company's funds so that total pension payments
equal amounts that would have been payable from the Company's
qualified pension plans if it were not for limitations imposed by
Federal income tax regulations.
The status of the Company's non-qualified supplemental plans:
1996* 1995
---- ----
(in millions)
Fair value of plan assets $ - $ -
Actuarial present value of:
Vested benefit obligation 32 33
Nonvested benefit obligation 1 2
-- --
ABO based on salaries to date 33 35
Additional benefits based on
estimated future salary levels 2 2
-- --
PBO 35 37
PBO in excess of fair value of plan assets (35) (37)
Contributions for October 1, 1996
to December 31, 1996 1 -
Unrecognized net transition asset - -
Unrecognized prior service cost 2 3
Unrecognized net loss 3 9
-- --
Pension (liability) or asset before adjustment (29) (25)
Adjustment for minimum pension liability ** (6) (11)
-- --
Unfunded supplemental liability as adjusted and
recognized in Consolidated Balance Sheets $ (35) $ (36)
== ==
* See discussion above regarding the measurement dates used by
the Company's subsidiaries.
** See Note 8(f).
The discount rate used to determine the actuarial present
value of the PBO was 8.00% and 7.25% as of September 30, 1996 and
December 31, 1995, respectively. Weighted average rates of 6.00%
and 5.88% were used to estimate future salary levels in 1996 and
1995, respectively.
(this space intentionally left blank)
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<PAGE>
The components of net periodic supplemental pension expense
for the non-qualified supplemental pension plans:
1996 1995 1994
---- ---- ----
(in millions)
Service cost (benefits earned
during the period) $ 2 $ - $ -
Interest cost on PBO 2 2 3
Actual return on plan assets - - -
Net amortization and deferral 6 (1) 21
-- -- --
Net periodic supplemental pension cost $ 10 $ 1 $ 24
== == ==
In addition to the qualified and non-qualified defined
benefit plans described above, the Company contributes to certain
defined contribution plans. The Company's contributions are based
on a formula which considers the age and earnings of each employee
and the amount of employee contributions. In addition, certain
qualified defined contribution plans contain a requirement for
profit sharing contributions if the Company achieves a certain
pre-tax margin level. The Company's expense related to its defined
contribution plans, excluding expenses related to its ESOP (see
Note 9), was $61 million, $65 million and $43 million for 1996,
1995 and 1994, respectively. The 1996 expense amount includes $4.8
million related to the profit sharing component of its defined
contribution plans. The Company made no contributions to its
defined contribution plans related to profit sharing in 1995 and
1994 because it did not achieve the prescribed pre-tax margin
level. The 1995 expense amount includes a catch up adjustment of
$11.6 million for new employer match contributions for certain
collective bargaining groups.
(b) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company offers medical and life insurance benefits to
certain employees who retire, and their eligible dependents. The
medical benefits provided by the Company are coordinated with
Medicare benefits. Retirees generally contribute amounts towards
the cost of their medical expenses based on years of service with
the Company. The Company also provides uninsured death benefit
payments to survivors of retired employees for stated dollar
amounts, or in the case of retired pilot employees, death benefit
payments determined by age and level of pension benefit. The plans
for postretirement medical and death benefits are funded on a pay-
as-you-go basis.
In 1996, US Airways changed the annual measurement date for
postretirement benefit liabilities to September 30 from
December 31. The change in measurement date is considered a change
in a method of accounting and APB 20 requires that the cumulative
effect of such a change be recognized as an adjustment to retained
earnings. The change in measurement date had no material
cumulative effect on postretirement benefit expenses for prior
years and thus no adjustment was recognized. The Company's
remaining subsidiaries, which represent less than 1% of the
combined accumulated postretirement benefit obligation ("APBO"),
continue to use a December 31 measurement date.
(this space intentionally left blank)
95
<PAGE>
The status of the plans:
1996* 1995
---- ----
(in millions)
Plan assets at fair value $ - $ -
APBO:
Retirees 326 338
Fully eligible active plan participants 170 176
Other plan participants 455 482
----- -----
Total APBO 951 996
APBO in excess of plan assets (951) (996)
Contributions from October 1, 1996
through December 31, 1996 7 -
Unrecognized prior service credits (142) (155)
Unrecognized net (gain)loss (34) 112
----- -----
Accrued postretirement benefit liability $ (1,120) $ (1,039)
===== =====
The assumptions used to determine the APBO:
1996* 1995
---- ----
Discount rate 8.00% 7.25%
Rate of increase in
compensation levels 3.00% to 6.00% 3.00% to 6.00%
Health care cost trend 7.5% 8.5%
* See discussion above regarding the measurement dates used by
the Company's subsidiaries.
The components of net periodic postretirement benefit
expense:
1996 1995 1994
---- ---- ----
(in millions)
Service cost (benefits earned during
the period) $ 44 $ 29 $ 36
Interest cost on APBO 75 65 60
Net amortization and deferral (11) (15) (12)
--- --- ---
Net periodic postretirement benefit cost $ 108 $ 79 $ 84
=== === ===
The assumed health care cost trend rate used in measuring the
APBO was 7.5% in 1996, declining by 1% per year after 1996 to an
ultimate rate of 4.5%. If the assumed health care cost trend rates
were increased by one percentage point, the APBO at September 30,
1996 would be increased by 10% and 1996 periodic postretirement
benefit expense would increase 12%.
(c) POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits to all
of its employees. In 1993, US Airways adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). SFAS 112 requires the use
of an accrual method to recognize postemployment benefits such as
severance, disability-related and workers' compensation benefits.
The Company records the expense for these benefits once a
triggering event occurs.
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<PAGE>
11. PROFIT SHARING
In exchange for temporary wage and salary reductions and
other concessions during a twelve month period in 1992 and 1993,
including certain ongoing work rule and medical benefits
concessions and the freeze of the defined benefit plan for certain
non-contract employees, affected US Airways employees participate
in a profit sharing program and were granted stock options to
purchase US Airways Group Common Stock (see related discussion
under Note 8(e)). This profit sharing program was designed to
recompense those US Airways employees whose pay had been reduced
in an amount equal to (i) two times salary forgone plus (ii) one
time salary forgone (subject to a minimum of $1,000) for the
freeze of the defined benefit pension plan for certain non-
contract employees. US Airways has recognized charges of $213.5
million, including $121.6 million and $49.7 million in 1996 and
1995, respectively. Cash distributions to participants of $213.5
million have also been made, including $74.9 million and $3.3
million in 1996 and 1995, respectively, and a final cash
distribution in the first quarter of 1997 of $129.1 million. After
the first quarter 1997 payment, the Company's obligations under
this profit sharing program were satisfied and this program
ceased.
US Airways' ESOP and Defined Contribution Retirement Program
("DCRP") each have profit sharing components. Under the ESOP, each
eligible US Airways employee receives Common Stock shares based on
his or her compensation relative to the total compensation of all
participants and the number of Common Stock shares in the
allocation pool. When US Airways' return on sales equals or
exceeds certain prescribed levels, US Airways increases its
contribution, which effectively increases the number of Common
Stock shares in the allocation pool (see Note 9). US Airways did
not make any provision for profit sharing contributions in
connection with the profit sharing component of the ESOP during
1996 or 1995. Under the DCRP, US Airways makes additional
contributions to participant accounts when US Airways Group
achieves certain prescribed pre-tax margin levels (see Note
10(a)). US Airways' 1996 results of operations reflect a provision
of $4.8 million for the profit sharing component of the DCRP. In
1995, US Airways' results did not achieve the prescribed pre-tax
margin levels. Accordingly, US Airways made no such provision in
1995 for this program.
12. RELATED PARTY TRANSACTIONS
US Airways wet leased Boeing 767-200ER aircraft, including
cockpit and cabin crews, to British Airways in order to serve
three routes between the U.S. and London beginning June 1993. The
final wet lease arrangement expired May 31, 1996. US Airways
recognized other operating revenues of approximately $12.6
million, $63.6 million and $60.7 million for the years 1996, 1995
and 1994, respectively, related to the wet lease arrangements.
These revenues were offset by an equal amount of other operating
expenses.
US Airways also has various agreements with British Airways
for ground handling at certain airports, contract training and
other services. US Airways recognized other operating revenues of
approximately $5.8 million, $4.9 million and $6.4 million for the
years 1996, 1995 and 1994, respectively, related to the services
US Airways performed for British Airways.
US Airways' current receivables from and payables to British
Airways were approximately $8.0 million and $5.5 million,
respectively, as of December 31, 1996 and $11.5 million and $5.3
million, respectively, as of December 31, 1995.
US Airways has a long-term receivable from British Airways
related to three U.S. to London routes that US Airways
relinquished at the time of implementation of a code sharing
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<PAGE>
arrangement with British Airways. US Airways is terminating its
code sharing arrangement with British Airways effective March 29,
1997. The balance of the receivable was approximately $40.7
million and $45.4 million as of December 31, 1996 and 1995,
respectively. Payments began in December 1995 in conjunction with
the termination of the first wet lease arrangement and continue
annually for nine years.
See also Note 6 - British Airways Plc Investment and Note 7 -
Redeemable Preferred Stock and Deferral of Dividends.
During 1996, certain employees, upon fulfilling the vesting
requirements of Common Stock grants, surrendered approximately
0.1 million shares of Common Stock to the Company in lieu of cash
payments to satisfy tax withholding requirements (see also Note
8(d)).
13. SELECT FINANCIAL INFORMATION - USAM INVESTMENTS
USAM's equity in the earnings of ATS, GIP and GJP for the
years 1996, 1995 and 1994 was as follows (in thousands):
1996 1995 1994
---- ---- ----
Apollo Travel Services
Partnership (ATS) $19,188 $20,708 $20,089
Galileo International Partnership (GIP) 17,213 13,320 6,081
Galileo Japan Partnership (GJP) 201 518 365
------ ------ ------
$36,602 $34,546 $26,535
====== ====== ======
The following is summarized financial information for these
partnerships (combined, in millions):
As of December 31,
-----------------
1996 1995
---- ----
(Unaudited)
Current assets $ 357 $ 405
Noncurrent assets 480 512
--- ---
Total assets 837 917
--- ---
Current liabilities 227 294
Long-Term liabilities 209 228
--- ---
Total liabilities 436 522
--- ---
Net assets $ 401 $ 395
=== ===
Years Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(Unaudited)
Service revenues $1,466 $1,327 $1,193
Cost and expenses 1,207 1,103 1,046
----- ----- -----
Net earnings $ 259 $ 224 $ 147
===== ===== =====
USAM received distributions from GIP, GJP and ATS of
approximately $4.1 million, $0.1 million and $44.5 million
(including a special distribution from ATS of $33.7 million
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<PAGE>
during the second quarter of 1996 which represented a
distribution of cash to partners), respectively, during 1996.
USAM received distributions from GIP, GJP and ATS of
approximately $2.6 million, $0.2 million and $11.2 million,
respectively, during 1995.
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected quarterly financial
data for 1996 and 1995:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in millions except per share amounts)
1996
Operating revenues $ 1,868 $ 2,149 $ 2,073 $ 2,052
Operating income (loss) $ 11 $ 246 $ 131 $ 49
Net income (loss) $ (32) $ 201 $ 68 $ 27
Net income (loss)
applicable to common
stockholders $ (55) $ 178 $ 45 $ 6
Income (loss) per
common share
Primary $ (0.86) $ 2.71 $ 0.69 $ 0.08
Fully-diluted $ (0.86) $ 1.91 $ 0.60 $ 0.08
1995
Operating revenues $ 1,763 $ 1,983 $ 1,873 $ 1,855
Operating income (loss) $ (42) $ 163 $ 93 $ 108
Net income (loss) $ (97) $ 113 $ 43 $ 60
Net income (loss)
applicable to common
stockholders $ (117) $ 92 $ 22 $ 38
Income (loss) per common
share
Primary $ (1.91) $ 1.47 $ 0.35 $ 0.61
Fully-diluted $ (1.91) $ 1.11 $ 0.35 $ 0.54
See Note 16 - Non-Recurring and Unusual Items.
Note: The sum of the four quarters may not equal yearly totals
due to rounding of quarterly results.
15. SUPPLEMENTAL BALANCE SHEET INFORMATION
The components of certain accounts in the accompanying
Consolidated Balance Sheets are as follows:
December 31,
----------------
1996 1995
---- ----
(in thousands)
(a) Cash and cash equivalents:
Cash $ 20,986 $ 13,539
Cash equivalents, at cost which
approximates market 929,980 868,315
------- -------
$950,966 $881,854
======= =======
(table continued on following page)
99
<PAGE>
(table continued from previous page)
(b) Receivables, net:
Accounts receivable $349,214 $334,462
Less allowance for doubtful accounts 12,189 12,340
------- -------
$337,025 $322,122
======= =======
(c) Materials and supplies, net:
Materials and supplies $395,065 $412,230
Less allowance for obsolescence 146,291 164,086
------- -------
$248,774 $248,144
======= =======
(d) Accrued expenses:
Salaries and wages* $ 422,766 $345,710
All other 676,415 630,276
--------- -------
$1,099,181 $975,986
========= =======
* Includes amounts related to profit sharing. See Note 11 for
additional information.
Note: Certain 1995 amounts have been reclassified to conform with
1996 classifications.
16. NON-RECURRING AND UNUSUAL ITEMS
(a) 1996
The Company's results for 1996 include two non-recurring
items recorded by US Airways during the second quarter of 1996
related to US Airways' subleasing of 11 non-operating BAe-146
aircraft (see Note 16 (b) and 16 (c) below). US Airways reversed
$22.5 million of previously accrued rent obligations related to
these aircraft against Aircraft rent expense and reversed $7.0
million against Aircraft maintenance expense related to previously
accrued lease return provisions. US Airways may reverse additional
amounts related to the 1994 non-recurring charge in future periods
dependent upon its success and the terms at which the remaining
non-operating BAe-146 aircraft are subleased or otherwise
disposed.
(b) 1995
In the fourth quarter of 1995, US Airways reversed $4.1
million of the $132.8 million non-recurring charge related to its
grounded BAe-146 fleet that was recorded in the fourth quarter of
1994 (see Note 16 (c) below). The reversal, a credit to Aircraft
rent expense, reflects the successful remarketing by US Airways of
three of these aircraft.
(c) 1994
The Company's results for 1994 include (i) a $132.8 million
charge related to US Airways' grounded BAe-146 fleet, recorded in
the fourth quarter of 1994 (During 1994, US Airways again
evaluated the secondary market for its non-operating BAe-146
aircraft and determined that it was probable that it would not be
successful in its efforts to sublease or other wise dispose of
these assets (before lease expiry). Considering this analysis, US
Airways did not include a provision for any potential subleasing
activity in determining the amount of the 1994 charge.); (ii) a
$54.0 million charge for obsolete inventory and rotables to
reflect market value, recorded in the fourth quarter of 1994;
(iii) a $50.0 million addition to Passenger transportation
revenues in the fourth quarter of 1994 to adjust estimates made
during the first three quarters of 1994; (iv) a $40.1 million
100
<PAGE>
charge primarily related to US Airways' decision to cease
operations of its remaining Boeing 727-200 aircraft in 1995,
recorded in the third quarter of 1994; (v) a $25.9 million charge
related to US Airways' decision to substantially reduce service
between Los Angeles and San Francisco and close its San Francisco
crew base, recorded in the third quarter of 1994; (vi) a $28.3
million gain resulting from the sale of certain aircraft and
assets to Mesa Air Group, Inc. (formerly Mesa Airlines, Inc.)
("Mesa") and the accounting treatment of the hull insurance
recovery on the aircraft lost in the September, 1994 accident,
recorded in the third quarter of 1994; and (vii) a $1.7 million
charge related to the sale of assets to Mesa, recorded in the
third quarter of 1994.
(this space intentionally left blank)
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<PAGE>
ITEM 8B. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
INFORMATION FOR US AIRWAYS, INC.
INDEPENDENT AUDITORS' REPORT
The Stockholder and Board of Directors
US Airways, Inc.:
We have audited the consolidated balance sheets of US Airways,
Inc. (formerly USAir, Inc.) and subsidiary as of December 31, 1996
and 1995, and the related consolidated statements of operations,
cash flows, and changes in stockholder's equity (deficit) for each
of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of US Airways, Inc. and subsidiary as of December 31,
1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Washington, D. C.
February 26, 1997, except as to note 4(c) and note 4(d)
which are as of March 13, 1997
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<PAGE>
<TABLE>
US Airways, Inc. (Formerly USAir, Inc.)
Consolidated Statements of Operations
Years Ended December 31,
- ----------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating Revenues
Passenger transportation $6,799,420 $6,267,762 $5,922,223
Cargo and freight 158,899 153,651 160,364
US Airways Express transportation revenues 145,118 - -
Other 600,620 563,463 496,006
--------- --------- ---------
Total Operating Revenues 7,704,057 6,984,876 6,578,593
Operating Expenses
Personnel costs 3,040,682 2,751,437 2,753,269
Aviation fuel 709,505 605,027 642,305
Commissions 547,048 527,058 549,192
Aircraft rent 387,312 398,063 521,395
Other rent and landing fees 394,431 388,866 422,190
Aircraft maintenance 311,901 295,594 335,791
Depreciation and amortization 300,608 337,066 387,211
US Airways Express capacity purchases 93,042 - -
Other, net 1,550,860 1,447,114 1,484,212
--------- --------- ---------
Total Operating Expenses 7,335,389 6,750,225 7,095,565
--------- --------- ---------
Operating Income (Loss) 368,668 234,651 (516,972)
Other Income (Expense)
Interest income 75,905 51,122 28,044
Interest expense (283,936) (301,923) (285,846)
Interest capitalized 8,398 8,781 13,760
Equity in earnings of affiliates 36,602 34,546 26,535
Other, net (14,594) 10,221 18,296
--------- --------- ---------
Other Income (Expense), net (177,625) (197,253) (199,211)
--------- --------- ---------
Income (Loss) Before Taxes 191,043 37,398 (716,183)
Provision For Income Taxes 7,811 4,408 -
--------- --------- ---------
Net Income (Loss) $ 183,232 $ 32,990 $ (716,183)
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
US Airways, Inc. (Formerly USAir, Inc.)
Consolidated Balance Sheets
December 31,
- ----------------------------------------------------------------------------------------
(dollars in thousands, except per share amount)
<CAPTION>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 950,134 $ 879,613
Short-term investments 635,839 19,831
Receivables, net 342,718 321,755
Materials and supplies, net 211,184 222,245
Prepaid expenses and other 129,380 97,922
--------- ---------
Total Current Assets 2,269,255 1,541,366
Property and Equipment
Flight equipment 4,972,873 5,021,520
Ground property and equipment 1,087,178 1,052,706
Less accumulated depreciation and amortization (2,381,844) (2,222,814)
--------- ---------
3,678,207 3,851,412
Purchase deposits 77,620 17,026
--------- ---------
Total Property and Equipment, Net 3,755,827 3,868,438
Other Assets
Goodwill, net 494,511 510,562
Other intangibles, net 283,274 312,539
Other assets, net 606,906 590,622
--------- ---------
Total Other Assets 1,384,691 1,413,723
--------- ---------
$ 7,409,773 $ 6,823,527
========= =========
LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 84,171 $ 77,496
Accounts payable 472,105 325,079
Payable to parent company 159,383 100,344
Traffic balances payable and unused tickets 715,576 638,019
Accrued aircraft rent 495,662 479,749
Accrued expenses 1,073,773 955,445
--------- ---------
Total Current Liabilities 3,000,670 2,576,132
Long-term Debt, Net of Current Maturities
Long-term debt 2,614,818 2,674,376
Note payable - parent company - 67,556
--------- ---------
Total Long-term Debt, Net of Current Maturities 2,614,818 2,741,932
(continued on next page)
</TABLE>
104
<PAGE>
<TABLE>
US Airways, Inc. (Formerly USAir, Inc.)
Consolidated Balance Sheets (Continued)
December 31,
- ----------------------------------------------------------------------------------------
(dollars in thousands, except per share amount)
<CAPTION>
1996 1995
---- ----
LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT) (Continued)
<S> <C> <C>
Deferred Credits and Other Liabilities
Deferred gains, net 356,583 382,995
Postretirement benefits other than pensions,
non-current 1,093,269 1,015,373
Non-current employee benefit liabilities and other 429,588 418,268
--------- ---------
Total Deferred Credits and Other Liabilities 1,879,440 1,816,636
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) (2,466,078) (2,649,310)
Adjustment for minimum pension liability (35,209) (77,995)
--------- ---------
Total Stockholder's Equity (Deficit) (85,155) (311,173)
--------- ---------
$ 7,409,773 $ 6,823,527
========= =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
105
<PAGE>
<TABLE>
US Airways, Inc. (Formerly USAir, Inc.)
Consolidated Statements of Cash Flows
Years Ended December 31,
- ----------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents beginning of year $ 879,613 $ 428,925 $ 367,835
Cash flows from operating activities
Net income (loss) 183,232 32,990 (716,183)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities
Depreciation and amortization 300,608 337,066 387,211
Loss (gain) on disposition of property 1,808 (16,654) (16,671)
Amortization of deferred gains and credits (26,412) (26,411) (26,382)
Other 21,524 (4,354) (8,080)
Changes in certain assets and liabilities
Decrease (increase) in receivables (20,963) 4,257 127,902
Decrease (increase) in materials, supplies,
prepaid expenses and intangible
pension assets (32,219) (68,415) 70,750
Increase (decrease) in traffic balances
payable and unused tickets 77,557 46,865 (68,452)
Increase (decrease) in accounts payable,
accrued aircraft rent and accrued expenses 326,727 214,707 326,855
Increase (decrease) in postretirement
benefits other than pensions, non-current 77,896 56,667 51,613
--------- --------- ---------
Net cash provided by (used for) operating
activities 909,758 576,718 128,563
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (52,854) (61,689) (46,022)
Additions to other property (123,575) (80,644) (128,874)
Proceeds from disposition of property 21,725 219,762 55,540
Decrease (increase) in short-term investments (603,593) 2,430 (21,994)
Decrease (increase) in restricted cash and
investments 11,086 71,980 2,578
Payment of debt for affiliated company (42,830) - -
Collection on note receivable from affiliated
company 42,830 - -
Other (5,497) 433 1,110
--------- --------- ---------
Net cash provided by (used for) investing
activities (752,708) 152,272 (137,662)
(continued on next page)
</TABLE>
106
<PAGE>
<TABLE>
US Airways, Inc. (Formerly USAir, Inc.)
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31,
- ----------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities
Issuance of debt 103,002 - 172,156
Reduction of debt (189,531) (278,302) (101,967)
--------- --------- ---------
Net cash provided by (used for)financing
activities (86,529) (278,302) 70,189
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 70,521 450,688 61,090
--------- --------- ---------
Cash and cash equivalents end of year $ 950,134 $ 879,613 $ 428,925
========= ========= =========
Noncash investing and financing activities
Issuance of debt - refinancing of debt secured
by aircraft $ 159,998 $ - $ -
========= ========= =========
Reduction of debt - refinancing of debt secured
by aircraft $ 154,422 $ - $ -
========= ========= =========
Issuance of parent company debt - aircraft
acquisitions $ - $ 68,640 $ -
========= ========= =========
Reduction of parent company debt - aircraft
acquisitions $ 68,640 $ - $ -
========= ========= =========
Issuance of debt - aircraft acquisitions $ 29,155 $ 169,725 $ 224,614
========= ========= =========
Reduction of debt - aircraft purchase deposits $ - $ 70,837 $ -
========= ========= =========
Underwriter's fees - refinancing of debt secured
by aircraft $ 2,488 $ - $ -
========= ========= =========
Aircraft acquisitions - transfer from affiliated
company $ - $ - $ 3,569
========= ========= =========
Other property acquisitions - transfer from
affiliated company $ - $ - $ 7,925
========= ========= =========
Aircraft dispositions - transfer to affiliated
company $ - $ - $ 81,913
========= ========= =========
Supplemental Information
Cash paid during the year for interest, net
of amounts capitalized $ 257,689 $ 290,560 $ 254,199
========= ========= =========
Cash paid (received) during the year for
income taxes, net $ 11,061 $ (6,329) $ -
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
107
<PAGE>
<TABLE>
US Airways, Inc. (Formerly USAir, Inc.)
Consolidated Statements of Changes in Stockholder's Equity (Deficit)
Three Years Ended December 31, 1996
- -------------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
Adjustment
For
Retained Minimum
Common Paid-In Earnings Pension
Stock Capital (Deficit) Liability Total
------ ------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993 $ 1 $2,416,131 $(1,966,117) $(41,964) $408,051
Net loss - - (716,183) - (716,183)
Adjustment for minimum
pension liability - - - 34,947 34,947
----- --------- --------- ------- -------
Balance December 31, 1994 1 2,416,131 (2,682,300) (7,017) (273,185)
Net income - - 32,990 - 32,990
Adjustment for minimum
pension liability - - - (70,978) (70,978)
----- --------- --------- ------- -------
Balance December 31, 1995 1 2,416,131 (2,649,310) (77,995) (311,173)
Net income - - 183,232 - 183,232
Adjustment for minimum
pension liability - - - 42,786 42,786
----- --------- --------- ------- -------
Balance December 31, 1996 $ 1 $2,416,131 $(2,466,078) $(35,209) $(85,155)
===== ========= ========= ======= =======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
108
<PAGE>
US AIRWAYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The accompanying Consolidated Financial Statements include
the accounts of US Airways, Inc. ("US Airways") (formerly USAir,
Inc.) and its wholly-owned subsidiary USAM Corp. ("USAM"). US
Airways is a wholly-owned subsidiary of US Airways Group, Inc.
("US Airways Group" or the "Company") (formerly USAir Group,
Inc.). All significant intercompany accounts and transactions have
been eliminated. However, as discussed further in Note 10, US
Airways' financial results are significantly influenced by related
party transactions.
US Airways is a major United States air carrier whose primary
business is transporting passengers, property and mail. US Airways
operates predominantly in the eastern U.S. with primary hubs at
the major airports in Pittsburgh, Pennsylvania, Charlotte, North
Carolina, Philadelphia, Pennsylvania and at Baltimore/Washington
International Airport. US Airways also maintains significant
operations at the major airports in Boston, Massachusetts, New
York, New York and Washington, D.C. US Airways enplaned 56.9
million passengers during 1996 and is currently the fifth largest
domestic air carrier, as measured by revenue passenger miles
("RPMs").
USAM owns 11% of the Galileo International Partnership
("GIP") which owns and operates the Galileo Computer Reservation
System ("Galileo CRS"), approximately 11% of the Galileo Japan
Partnership ("GJP") which markets the Galileo CRS in Japan and
approximately 21% of the Apollo Travel Services Partnership
("ATS") which markets the Galileo CRS in the U.S. and Mexico. USAM
accounts for these investments using the equity method because it
is represented on the board of directors of each of the
partnerships and therefore participates in policy making
processes.
US Airways terminated its Airline Technical Services, LLC
joint venture with a subsidiary of British Airways plc ("British
Airways"), effective January 1997. Amounts related to this joint
venture (accounted for using the equity method) included in US
Airways' financial results for the years ended 1996 and 1995 are
immaterial and no material charges resulted from its termination.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Certain 1995 and 1994 amounts have been reclassified to
conform with 1996 classifications.
(b) CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
For financial statement purposes, US Airways considers all
highly liquid investments purchased within three months of
maturity to be cash equivalents. Cash and cash equivalents are
stated at cost, which approximates market value. Short-term
investments consist of certificates of deposit and commercial
paper purchased with maturities greater than three months but less
than one year.
In 1994, US Airways adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
109
<PAGE>
Equity Securities" ("SFAS 115"). Under this statement, US Airways
has classified its entire short-term investment portfolio as
"available-for-sale." As of December 31, 1996 and 1995, there were
no material differences between estimated fair values and carrying
amounts for cash equivalents and short-term investments.
(c) MATERIALS AND SUPPLIES
Inventories of materials and supplies are valued at the lower
of cost or market value. Costs are determined using average
costing methods and are charged to operations as consumed. An
allowance for obsolescence is provided for flight equipment
expendable and repairable parts.
(d) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost or, if acquired
under capital leases, at the lower of the present value of minimum
lease payments or fair market value at the inception of the lease.
Maintenance and repairs, including the overhaul of aircraft
components, are charged to operating expense as incurred and costs
of major improvements are capitalized for both owned and leased
assets. Interest related to deposits on aircraft purchase
contracts and facility and equipment construction projects is
capitalized as additional cost of the asset or as leasehold
improvement if the asset is leased. Depreciation and amortization
for principle asset classifications is provided on a straight-line
basis to estimated residual values over estimated depreciable
lives. US Airways periodically reviews estimated depreciable lives
and residual values for reasonableness and revises its estimates,
if necessary.
Depreciable
Assets Lives Residual Values
------ ----------- ---------------
(years) (in millions)
Aircraft
Boeing 767-200ER 20 $14.0
Boeing 757-200 20 8.0
Boeing 737-300/400 20 7.5
Boeing 737-200 5-17 0.6-5.0
McDonnell Douglas MD-80 20 7.5
Douglas DC-9-30 17 3.0
Fokker 100 20 5.0
Fokker F28-4000 8 2.0
Fokker F28-1000 6 1.0
Turboprop aircraft 15 1.5
Improvements to leased aircraft life of lease -
Ground property, equipment and 1-10 or
leasehold improvements life of lease -
Buildings 30 -
Property acquired under capital lease is amortized on a
straight-line basis over the term of the lease and charged to
Depreciation and amortization expense. When property and equipment
is sold or retired, the cost and accumulated depreciation is
removed from the accounts and any gain or loss recognized as
Other, net, a component of Other Income (Expense).
(e) GOODWILL AND OTHER INTANGIBLES
Goodwill, the cost in excess of fair value of identified net
assets acquired, is being amortized on a straight-line basis over
40 years. The $629.5 million goodwill resulting from the
acquisition of Pacific Southwest Airlines ("Pacific Southwest")
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<PAGE>
and Piedmont Aviation, Inc. ("Piedmont Aviation"), both in 1987,
is being amortized as Depreciation and amortization expense. As of
December 31, 1996 and 1995, accumulated amortization related to
the Pacific Southwest and Piedmont Aviation acquisitions was
$144.1 million and $128.3 million, respectively. The $11.4 million
goodwill resulting from USAM's computer reservation system
investments is being amortized as a component of Other Income
(Expense), consistent with the classification of the related
income or loss on the investments. As of December 31, 1996 and
1995, USAM's related accumulated amortization was $2.3 million and
$2.0 million, respectively. US Airways periodically evaluates
whether goodwill is impaired by comparing the goodwill balances
with estimated future undiscounted cash flows which, in US
Airways' judgment, are attributable to the goodwill. This analysis
is performed separately for the goodwill which resulted from each
acquisition.
Other intangible assets consist mainly of purchased operating
rights at various airports, purchased route authorities,
capitalized software costs and the intangible asset associated
with the underfunded amounts of certain pension plans ("Intangible
Pension Asset"). The operating rights, route authorities and
capitalized software costs are being amortized on a straight-line
basis over the expected periods of benefit as Depreciation and
amortization expense. The operating rights, valued at purchase
cost or appraised value if acquired with Pacific Southwest or
Piedmont Aviation, are being amortized over periods ranging from
ten to 25 years, the route authorities are being amortized over 25
years and capitalized software costs are being amortized over five
years. The Intangible Pension Asset is recognized in accordance
with Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" ("SFAS 87") (see Note 8(a)).
As of December 31, 1996 and 1995, accumulated amortization related
to intangible assets was $128.2 million and $104.0 million,
respectively.
Based on the most recent analyses, US Airways believes that
goodwill and other intangible assets were not impaired as of
December 31, 1996.
(f) OTHER ASSETS
Other Assets consists primarily of non-current pension
assets, the unamortized balance of deferred compensation,
restricted cash and investments and a long-term receivable from
British Airways. Deferred compensation resulted mainly from US
Airways' establishment of an Employee Stock Ownership Plan
("ESOP") in 1989 (see Note 7). Restricted cash and investments are
deposits in trust accounts to collateralize letters of credit and
workers' compensation policies. The long-term receivable from
British Airways resulted from the relinquishment by US Airways of
three U.S. to London routes.
Besides the deferred compensation that arose from the
establishment of the ESOP, US Airways accounts for deferred
compensation and the related amortization by applying the
provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). In
accordance with APB 25, US Airways recognizes deferred
compensation equal to the fair market value of US Airways Group
common stock for such stock granted to US Airways employees
("Stock Grants") (which is amortized as Personnel costs over the
vesting period) but typically records no deferred compensation
when options to purchase US Airways Group Common Stock are
granted to US Airways employees ("Option Grants") (because,
except on limited occasions, there is no difference between the
exercise price of the stock options and the fair market value of
US Airways Group Common Stock on the date of grant).
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<PAGE>
US Airways recognized compensation expense related to Stock
Grants of $11.9 million, $0.3 million and $0.2 million in 1996,
1995 and 1994, respectively, and compensation expense related to
Option Grants of $7.9 million in 1996 (none for 1995 or 1994). In
addition, US Airways recognized compensation expense related to
stock appreciation rights tied to the fair market value of US
Airways Group common stock ("SARs") of $41.6 million in 1996
(none for 1995 or 1994) as the result of a SAR feature granted to
stock option holders under US Airways Group's 1992 Stock Option
Plan. Deferred compensation related to Stock Grants was $9.4
million and $11.6 million as of December 31, 1996 and 1995,
respectively, and deferred compensation related to Options Grants
was $2.4 million as of December 31, 1996 (none as of December 31,
1995).
The following table summarizes stock option transactions
related to US Airways employees pursuant to US Airways Group's
various stock option and incentive plans for the years ended
December 31, 1996, 1995 and 1994:
1996 1995 1994
--------------- -------------- --------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ------ ------ ------ ------ ------
(000) (000) (000)
Stock Options
- -------------
Outstanding at
beginning of year 8,426 $17 8,844 $18 9,009 $19
Granted (1) 82 $17 155 $ 9 354 $ 9
Granted (2) 2,415 $13 - - - -
Exercised 435 $15 43 $10 5 $10
Forfeited (3) 673 $16 489 $25 504 $24
Expired 48 $32 41 $36 10 $23
----- ----- -----
Outstanding at
end of year 9,767 $17 8,426 $17 8,844 $18
Exercisable at
end of year 7,802 7,986 8,237
(1) Exercise price equal to the fair market value of a share of
US Airways Group common stock at date of grant; 1996 activity
includes 20,000 stock options that were repriced.
(2) Exercise price lower than the fair market value of a share
of US Airways Group common stock at date of grant.
(3) 1996 activity includes the cancellation of repriced stock
options. See (1) above.
The weighted average fair value of stock options which had
an exercise price equal to the fair market value of a share of US
Airways Group common stock at date of grant was $11 and $6 for
1996 and 1995, respectively. The weighted average value of stock
options which had an exercise price lower than the fair market
value of a share of US Airways Group common stock at date of
grant was $13 for 1996 (no such grants during 1995).
During 1995, the Financial Accounting Standards Board
adopted Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This statement requires the use of
fair value techniques to determine compensation expense
associated with stock-based compensation. As mentioned above, US
Airways applies the provisions of APB 25 to determine
compensation expense, as permitted under SFAS 123. However, US
Airways is obligated to disclose certain information including
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pro forma net income as if SFAS 123 had been adopted to measure
compensation expense. Had compensation cost been measured in
accordance with SFAS 123, US Airways estimates that its net
income for 1996 would have been reduced from $183.2 million to
$168.1 million and its net income for 1995 would have been
reduced from $33.0 million to $32.8 million. In order to
calculate this pro forma net income information, US Airways used
the Black-Scholes stock option-pricing model with the following
weighted-average assumptions for 1996 and 1995, respectively:
stock volatility of US Airways Group common stock of 50.1% and
48.8%; risk-free interest rates of 6.2% and 6.6%; expected stock
option life of 9 years for both years; and no dividend yield (0%)
for either year.
The pro forma net income information reflects Option Grants
in 1996 and 1995 only. Therefore, the full impact of calculating
compensation expense for stock options under SFAS 123 is not
reflected in the pro forma net income amounts above because
compensation expense is recognized over the stock option's vesting
period and compensation expense for stock options granted prior to
January 1, 1995 is not considered.
In November 1995, US Airways entered into a five-year
transaction with a third party pursuant to which US Airways agreed
to pledge to such third party from time to time certain flight
equipment and simulators as collateral for up to $70 million
aggregate principal amount of letters of credit to be issued by
the third party with respect to certain workers' compensation
obligations of US Airways. On December 15, 1995, US Airways
pledged ten aircraft to the third party, resulting in the release
of $67.2 million in cash and securities that had been previously
pledged by US Airways to letter of credit providers.
(g) DEFERRED GAINS ON SALE AND LEASEBACK TRANSACTIONS
Gains on aircraft sale and leaseback transactions are
deferred and amortized over the term of the leases as a reduction
of the related aircraft rent expense.
(h) RECOGNITION OF PASSENGER TRANSPORTATION REVENUES
Passenger ticket sales are recognized as Passenger
transportation revenues when the transportation service is
rendered or the ticket otherwise expires. At the time of sale, a
liability is established (Traffic balances payable and unused
tickets) and subsequently eliminated through carriage of the
passenger, through billing from another air carrier which renders
the service or by refund to the passenger.
Effective October 1, 1996, US Airways began purchasing all of
the capacity (available seat miles) generated by US Airways
Group's three wholly-owned regional air carriers and,
concurrently, recognizing revenues, "US Airways Express
transportation revenues," when transportation service is rendered
by these affiliated air carriers or the related tickets otherwise
expire. Liabilities related to tickets sold for travel on these
air carriers are also included in US Airways' Traffic balances
payable and unused tickets and are subsequently eliminated in the
same manner as described above. See Note 10 for more information
related to these capacity purchase arrangements.
As of December 31, 1995, $30.8 million owed to US Airways
Group's three wholly-owned regional airline subsidiaries was
included in Traffic balances payable and unused tickets. No such
amounts are included as of December 31, 1996 due to the capacity
purchase arrangements mentioned above.
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(i) FREQUENT TRAVELER AWARDS
US Airways accrues the estimated incremental cost of travel
awards earned by participants in its frequent traveler program
when requisite mileage award levels are achieved.
(j) INVESTMENT TAX CREDIT
Investment tax credit benefits were recorded using the "flow-
through" method as a reduction of the Federal income tax
provision.
(k) ADVERTISING COSTS
Advertising costs are expensed when incurred as other
operating expense. Advertising expense for 1996, 1995 and 1994 was
$51.2 million, $66.6 million and $63.4 million, respectively.
2. FINANCIAL INSTRUMENTS
(a) TERMS OF CERTAIN FINANCIAL INSTRUMENTS
US Airways has entered into hedging arrangements designed to
reduce its exposure to fluctuations in the price of aviation fuel.
Under these arrangements, US Airways receives or makes payments
based on the difference between a fixed price and the market price
for specified petroleum products. Net settlements are recorded as
adjustments to Aviation fuel expense. The total notional gallons
under hedging arrangements were 84 million and 38 million as of
December 31, 1996 and 1995, respectively (US Airways entered into
arrangements prior to December 31, 1996 which, effectively closed
certain hedging arrangements covering approximately 22 million
gallons). For hedging arrangements open as of December 31, 1996,
US Airways will pay fixed prices ranging from $0.553 to $0.700 per
notional gallon and receive a floating rate per gallon based on
current market prices. The open hedging arrangements, all of which
expire during 1997, represent approximately 6% of US Airways'
expected 1997 fuel consumption. For arrangements open as of
December 31, 1995, US Airways paid fixed prices ranging from
$0.499 to $0.548 per notional gallon and received a floating rate
based on market prices. Although these hedging arrangements expose
US Airways to credit loss in the event of non-performance by the
other parties to the agreements, US Airways does not anticipate
such non-performance because of the favorable creditworthiness of
the other parties. US Airways may continue to enter into such
arrangements, depending on market conditions.
An aggregate of $32 million of future principal payments of
US Airways' long-term debt due 1998 through 2000 is payable in
Japanese Yen. This foreign currency exposure has been hedged to
maturity by US Airways' participation in foreign currency
contracts. Net settlements will be recorded as adjustments to
Interest expense. Although US Airways is exposed to credit loss in
the event of non-performance by the counterparty to the contracts,
US Airways does not anticipate such non-performance because of the
favorable creditworthiness of the other party.
(b) FAIR VALUE OF FINANCIAL INSTRUMENTS
Unless a quoted market price indicates otherwise, the fair
values of short-term investments and other investments generally
approximates carrying values because of the short maturity of
these instruments. US Airways has estimated the fair value of
long-term debt and the long-term note receivable by discounting
future cash flows using current rates offered to US Airways for
debt and note receivables of similar maturities. The fair values
of energy swap agreements and foreign currency contracts are
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obtained from dealer quotes. These values represent the estimated
amount US Airways would receive or pay to terminate such
agreements.
The estimated fair values of US Airways' financial
instruments, none of which are held for trading purposes, are
summarized as follows (brackets denote a liability):
December 31,
---------------------------------------------
1996 1995
--------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(in thousands)
Short-term
investments $ 635,839 $ 635,605 $ 19,831 $ 19,822
Restricted cash
and investments(1) 87,783 87,843 98,742 98,539
Long-term note
receivable(1) 40,733 30,080 45,433 33,277
Other long-term
investments(1)(2) 20,606 22,126 4,607 4,008
Long-term debt (excludes
capital lease
obligations) (2,649,609) (2,697,422) (2,753,932) (2,564,514)
Energy swap agreements:
In a net receivable
position - 3,550 - 1,845
Foreign currency contracts:
In a net receivable
position - 963 - 4,050
(1) Amounts included in Other Assets on US Airways' Consolidated
Balance Sheets.
(2) Classified as "held-to-maturity" under SFAS 115.
3. LONG-TERM DEBT
Details of long-term debt are as follows:
December 31,
-----------------------
1996 1995
---- ----
(in thousands)
Senior Debt:
10% Senior Notes due 2003 $ 300,000 $ 300,000
9 5/8% Senior Notes due 2001 175,000 175,000
5.7% to 12% Equipment Financing
Agreements, Installments due 1997
to 2016 2,117,834 2,180,430
8.4% Intercompany Aircraft Loan
with US Airways Group - 68,640
8.6% Airport Facility Revenue
Bond due 2022 27,620 27,620
7 1/4% Aircraft Purchase Deposit
Financing due 1998* 29,155 -
Other - 2,242
---------- ----------
2,649,609 2,753,932
Capital Lease Obligations 49,380 65,496
---------- ----------
Total 2,698,989 2,819,428
Less Current Maturities 84,171 77,496
---------- ----------
$ 2,614,818 $ 2,741,932
========== ==========
* See Note 4(d) for additional information with respect to
aircraft US Airways has scheduled for delivery in 1998.
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Maturities of long-term debt and debt under capital leases
for the next five years:
(in thousands)
1997 $ 84,171
1998 184,693
1999 77,351
2000 122,569
2001 246,372
Thereafter 1,983,833
Interest rates on $242 million principal amount of long-term
debt as of December 31, 1996 are subject to adjustment to reflect
prime rate and other rate changes.
Equipment financings totaling $2.2 billion were
collateralized by aircraft and engines with a net book value of
approximately $2.3 billion as of December 31, 1996.
4. COMMITMENTS AND CONTINGENCIES
(a) OPERATING ENVIRONMENT
US Airways improved financial results for 1996 are primarily
attributable to favorable capacity and pricing trends in markets
it operates in, continued stable domestic economic conditions and
the positive influence of its revenue enhancement and cost
reduction initiatives. However, US Airways' financial condition,
results of operations and future prospects are more susceptible
to an economic downturn and competitive influences than most of
its major competitors due to its high cost structure amid the
growing low cost, low fare environment in the domestic airline
industry. As discussed in Note 10, US Airways' financial results
for the fourth quarter and full-year 1996 were significantly
affected by related party transactions.
Most of US Airways' operations are in competitive markets,
predominantly within the Eastern U.S. In recent years, air
carriers with low costs of operations and fare structures have
initiated and or expanded into markets served by US Airways. In
addition, several of the larger, mature air carriers have
developed or indicated their intention to develop similar low
cost, low fare operations. In an effort to preserve market share,
US Airways has typically responded to the entry of a low cost,
low fare competitor into its markets by matching fares and
increasing the frequency of service in related markets, generally
with the result of diluting US Airways' yield in those markets.
US Airways' currently has the highest unit operating costs among
the major domestic air carriers and the growth and expansion of
low cost, low fare air carriers or operations in US Airways'
markets has put considerable pressure on US Airways to reduce
operating costs in order to maintain competitiveness.
US Airways was able to reduce certain non-labor related
operating costs during 1996 and 1995 through various
organizational changes, process reengineering and reducing or
eliminating capacity in unprofitable markets; however, US Airways
has not been successful to date in achieving meaningful
reductions in its largest expense category, Personnel costs. US
Airways believes that its long-term financial viability depends
on its success in further reducing its cost of operations,
including its Personnel costs.
As of December 31, 1996, US Airways employed approximately
40,160 full-time equivalent employees. Approximately 26,200, or
65%, of these employees are covered by collective bargaining
agreements with various unions, or will be covered by collective
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bargaining agreements for which initial negotiations are in
progress. US Airways' contracts with the International
Association of Machinists and Aerospace Workers ("IAM"), which
represents US Airways' machinists group, the Air Line Pilots
Association ("ALPA"), which represents US Airways' pilots, and
the Association of Flight Attendants ("AFA"), which represents US
Airways' flight attendants, are open for negotiation and
collective bargaining talks are underway. US Airways has not yet
reached an initial contract with its fleet service employees, a
class of approximately 5,700 employees who are also represented
by the IAM. US Airways cannot predict the ultimate outcome of
these negotiations or if it will be successful in achieving
meaningful wage and benefit concessions from its employees.
Although a competitive strength in some regards, the
concentration of significant operations in the Eastern U.S.
results in US Airways being susceptible to changes in certain
regional conditions that may have an adverse affect on its
financial condition and results of operations. For example,
geographically isolated inclement weather and the partial Federal
government shutdowns which both occurred during the first quarter
of 1996, adversely effected operating revenues and expenses to a
greater degree than some of its competitors.
US Airways' operations are dependent on the availability of
aviation fuel. The availability and price of aviation fuel is
largely determined by the actions of the nations which compose
the Organization of Petroleum Exporting Countries ("OPEC")
cartel. OPEC, which currently controls a significant amount of
the world's known crude oil reserves, can affect the availability
and price of aviation fuel through its production and price-
targeting actions. In addition, aviation fuel prices are affected
by political events, seasonal factors and other factors generally
outside of US Airways' control. US Airways has a diversified
aviation fuel supplier network and participates in fuel hedging
transactions (see Note 2) in order to ensure aviation fuel
availability and partially protect US Airways from temporary
aviation fuel price fluctuations.
(b) LEASES
US Airways leases certain aircraft, engines, computer and
ground equipment, in addition to the majority of its ground
facilities. Ground facilities include executive offices, overhaul
and maintenance bases and ticket and administrative offices.
Public airports are utilized for flight operations under lease
arrangements with the municipalities or agencies owning or
controlling such airports. Substantially all leases provide that
the lessee shall pay taxes, maintenance, insurance and certain
other operating expenses applicable to the leased property. Some
leases also include renewal and purchase options.
In addition, US Airways subleases certain leased aircraft and
ground facilities under noncancelable operating leases expiring in
various years through 2021.
The following amounts applicable to capital leases are
included in property and equipment:
December 31,
----------------------
1996 1995
---- ----
(in thousands)
Flight equipment $ 167,308 $ 192,775
Ground property and equipment 406 4,767
-------- --------
167,714 197,542
Less accumulated amortization 125,568 140,212
-------- --------
$ 42,146 $ 57,330
======== ========
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As of December 31, 1996, obligations under capital and
noncancelable operating leases for future minimum lease payments
were as follows:
Capital Operating
Leases Leases
------- ---------
(in thousands)
1997 $ 21,304 $ 704,579
1998 10,294 666,706
1999 10,295 628,959
2000 7,193 623,135
2001 4,703 619,755
Thereafter 14,109 5,788,942
-------- ---------
Total minimum lease payments 67,898 9,032,076
Less sublease rental receipts 174,655
---------
Total minimum operating lease payments $8,857,421
=========
Less amount representing interest 18,518
--------
Present value of future minimum
capital lease payments 49,380
Less current obligations under
capital leases 15,912
--------
Long-term obligations under
capital leases $ 33,468
========
Rental expense under operating leases for 1996, 1995 and 1994
was $731 million, $738 million and $703 million, respectively. The
$731 million rental expense for 1996 excludes a credit of $22.5
million related to the US Airways' subleasing of eleven non-
operating British Aerospace BAe-146-200 ("BAe-146") aircraft. The
$738 million rental expense for 1995 excludes a credit of $4.1
million related to US Airways' subleasing of three non-operating
BAe-146 aircraft. See Note 14 for additional information related
to US Airways' non-operating BAe-146 aircraft. The $703 million
rental expense for 1994 excludes charges of $103 million related
to US Airways' grounded BAe-146 fleet and $13 million primarily
related to US Airways' decision to cease operations of its
remaining Boeing 727-200 aircraft in 1995.
US Airways also leases certain owned aircraft under
noncancelable operating leases which expire in various years
through 2002 to both third and related parties, primarily
subsidiaries of US Airways Group. See Note 10 - Related Party
Transactions. The minimum future rentals to be received by US
Airways on these leases are: $12.7 million - 1997; $7.2 million -
1998; $5.4 million - 1999; $4.6 million - 2000; $4.2 million -
2001; and $1.8 million thereafter. The following amounts are
applicable to aircraft leased under such agreements as reflected
in flight equipment:
December 31,
-----------------------
1996 1995
---- ----
(in thousands)
Flight equipment $ 82,868 $ 192,198
Less accumulated amortization 36,947 75,089
-------- --------
$ 45,921 $ 117,109
======== ========
(c) LEGAL PROCEEDINGS
US Airways is involved in legal proceedings arising out of
its two aircraft accidents that occurred in July and September
1994 near Charlotte, North Carolina and Pittsburgh, Pennsylvania,
respectively. The National Transportation Safety Board ("NTSB")
held hearings beginning in September 1994 relating to the July
accident and January and November of 1995 relating to the
September accident. In April 1995, the NTSB issued its finding of
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probable causes with respect to the accident near Charlotte. It
assigned as probable causes flight crew errors and the failure of
air traffic control to convey weather and windshear hazard
information. The NTSB has not yet issued its final accident
investigation report for the accident near Pittsburgh. The NTSB
has indicated that a determination of the cause of the accident is
not likely until sometime in 1997. US Airways expects that it will
be at least two to three years before the accident litigation and
related settlements will be concluded. Litigation resulting from
the July 1994 accident in Charlotte was recently tried in U.S.
District Court in Columbia, South Carolina. The jury found US
Airways was liable for compensatory damages but was not liable for
punitive damages. The compensatory damages trials have not been
concluded and US Airways cannot estimate possible compensatory
damages. However, US Airways believes that it is fully insured
with respect to this litigation. Therefore, US Airways believes
that the litigation will not have a material adverse effect on its
financial condition or results of operations.
On July 30, 1996, US Airways Group and US Airways initiated
a lawsuit in U.S. District Court for the Southern District of New
York against British Airways plc ("British Airways"), BritAir
Acquisition Corp., Inc., American Airlines Inc. ("American") and
American's parent company, AMR Corp. US Airways Group and US
Airways claim that British Airways, in pursuit of an alliance
with American, is responsible for breaches of fiduciary duty to
US Airways Group and US Airways and violated certain provisions
of the January 21, 1993 Investment Agreement between US Airways
Group and British Airways. The lawsuit also claims that the
defendants are in violation of U.S. Antitrust laws that prohibit
conduct that harms competition. Although the defendants filed
motions to dismiss the lawsuit following the filing of the
complaint, these motions became superseded on March 5, 1997 when
US Airways Group filed an Amended Complaint with the Court based
on information gathered in the pre-trial discovery process. The
defendants have informed US Airways Group that, in response to
the Amended Complaint, they intend to file new motions to dismiss
shortly. US Airways is unable to predict at this time the
ultimate outcome of this lawsuit.
In December 1995, US Airways received a Civil Investigative
Demand ("CID") from the U.S. Department of Justice relating to US
Airways' compliance with the terms of a consent decree entered
into in December 1992, as amended in September 1994. The consent
decree was entered into to resolve litigation concerning US
Airways' methods of disseminating fare data to the Airline Tariff
Publishing Company. A CID is a request for information in the
course of an antitrust investigation and does not constitute the
institution of a civil or criminal action. The CID issued in
December 1995 seeks information concerning US Airways' use of
travel dates in its fare filings, among other things. Although US
Airways believes there will be no further action stemming from
this CID, the investigation has not been fully closed.
In February and March 1995, 39 class action lawsuits were
filed in various federal district courts by travel agencies and a
travel agency trade association alleging that seven of the major
U.S. airlines, including US Airways, violated the antitrust laws
when they individually capped travel agent base 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 were consolidated in the federal district of Minnesota.
The plaintiffs sought unspecified treble damages for restraint of
trade. In September of 1996 the case against US Airways, and
subsequently the cases against the other airlines, were settled.
While US Airways believes that its actions in establishing a
commission cap were in full compliance with the antitrust laws,
the uncertainty and expense of litigation prompted a settlement of
the claims. US Airways paid $9.5 million, as part of a total
settlement of $85.8 million for all of the defendants. US Airways
did not admit liability or wrongdoing and the settlement allowed
the commission cap to remain in place. The settlement was approved
by the court in January of 1997.
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In October 1995, US Airways terminated for cause an agreement
with In-Flight Phone Corporation ("IFPC"). IFPC was US Airways'
provider of on-board telephone and interactive data systems (the
"IFPC System"). The agreement contemplated the eventual
installation of the IFPC System on substantially all of US
Airways' aircraft. The IFPC System had been installed on
approximately 80 aircraft prior to the date of termination of the
agreement. On December 6, 1995, IFPC filed suit against US Airways
in Illinois state court seeking equitable relief and damages in
excess of $186 million. US Airways believes that its termination
of its agreement with IFPC was appropriate and that it is owed
significant damages from IFPC. On December 7, 1995, US Airways
successfully defended IFPC's emergency motion for a temporary
restraining order. On December 13, 1995, IFPC's motion for a
preliminary injunction was denied and IFPC has relinquished its
right to appeal that decision. IFPC's claim for damages remains
pending. In June 1996, US Airways filed a counterclaim against
IFPC seeking compensatory damages in excess of $25 million and
punitive damages in excess of $25 million. In January 1997, IFPC
filed for protection from its creditors under Chapter 11 of the
Bankruptcy Code. The parties stipulated to lift the automatic stay
provided for in the Bankruptcy Code which could allow IFPC's and
US Airways' claims to be fully litigated. US Airways is unable to
predict at this time the ultimate resolution or potential
financial impact on its financial condition and results of
operations of these proceedings.
In May 1995, US Airways Group, US Airways 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 481 active and retired US Airways pilots alleging violations of
the Employee Retirement Income Security Act ("ERISA") by
erroneously calculating benefits under the Pilots' Pension Plan.
The plaintiffs sought, among other things, damages in excess of
$70 million. In May 1996, the court issued a decision in the
lawsuit granting US Airways' Motion to Dismiss the majority of the
complaint for lack of subject matter jurisdiction, deciding that
the dispute must be resolved through the arbitration process. The
court retained jurisdiction over one count of the complaint
alleging a violation of a disclosure requirement of ERISA. There
are no significant penalties or damages which can result from this
remaining claim. The plaintiffs appealed the court's decision,
however, in the opinion of US Airways' counsel, the appeal is
unlikely to be successful.
The Equal Employment Opportunity Commission and various state
and local fair employment practices agencies are investigating
charges by certain job applicants, employees and former employees
of US Airways involving allegations of employment discrimination
in violation of Federal and state laws. The plaintiffs in these
cases generally seek declaratory and injunctive relief and
monetary damages, including back pay. In some instances they also
seek classification adjustment, compensatory damages and punitive
damages. Such proceedings are in various stages of litigation and
investigation, and the outcome of these proceedings is difficult
to predict. In US Airways' opinion, however, the disposition of
these matters is not likely to have a material adverse effect on
its financial condition or results of operations.
(d) AIRCRAFT COMMITMENTS
In June 1995, US Airways entered into agreements with The
Boeing Company ("Boeing") and Rolls Royce plc ("Rolls Royce")
deferring the delivery of eight 757-200 aircraft from 1996 to
1998. As part of the agreements, the due dates for progress
payments associated with the 1996 deliveries were likewise
rescheduled. Accordingly, approximately $71 million of progress
payments that had been paid by US Airways were refunded to US
Airways in the third quarter of 1995. The related long-term debt
which financed the deposits was dissolved.
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The following schedule of US Airways' new aircraft deliveries
and scheduled payments as of December 31, 1996 (including progress
payments, payments at delivery, buyer furnished equipment, spares,
and capitalized interest) reflects US Airways' current agreements
with Boeing and Rolls Royce as discussed above (dollars in
millions):
Delivery Period - Firm Orders
-------------------------------------------------
There-
1997 1998 1999 2000 2001 after Total
---- ---- ---- ---- ---- ----- -----
Boeing
757-200 - 8 - - - - 8
737-Series* - - - - - 40 40
---- ---- ---- ---- ---- ----- -----
Total - 8 - - - 40 48
==== ==== ==== ==== ==== ===== =====
Payments $ 74 $254 $ - $ - $ 52 $1,803 $2,183
==== ==== ==== ==== ==== ===== =====
* Purchase agreement includes a provision allowing US Airways to
purchase any other Boeing commercial aircraft type in satisfaction
of its obligation to purchase forty 737-Series aircraft. Such
satisfaction would be accomplished on an "equivalent-seat" basis.
The above aircraft commitments do not include any amounts
related to a contingent contract to acquire up to 400 aircraft
from Airbus Industrie. The contract is contingent upon US Airways
achieving a competitive cost structure and approval of definitive
documentation by US Airways' board of directors.
During the fourth quarter of 1996, US Airways advised Boeing
and Rolls Royce that it does not plan to accept delivery of the
eight Boeing 757-200 aircraft that it presently has on firm order
and suspended progress payments related to these aircraft. As of
December 31, 1996, US Airways had made $58.3 million in progress
payments for these aircraft. Subsequently, Boeing alleged, among
other things, that US Airways is in default of the 757-200
purchase agreement and that US Airways has also repudiated the
purchase agreement related to the 737-Series aircraft scheduled
for delivery commencing in 2003. Boeing has purported to
terminate both such 757-200 and 737-Series purchase agreements,
an action which US Airways believes is not supported by law or
the facts, and has claimed almost $450 million as damages for US
Airways' alleged breach of such agreements. US Airways
subsequently advised Boeing, among other things, that US Airways
rejects Boeing's asserted legal basis for termination of such
agreements. In addition, US Airways stated that it would hold
Boeing responsible for any damages incurred as a result of
Boeing's unlawful termination and demanded immediate return of
all payments made by US Airways in furtherance of the 737-Series
purchase agreement, together with interest from the date of
payment. US Airways also expressed its belief that Boeing is
legally committed to pursue contract resolutions in good faith.
Notwithstanding the formal legal positions of the parties, both
sides have expressed a desire to resolve this dispute on a
mutually satisfactory basis. US Airways cannot predict whether
Boeing will seek to exercise remedies against US Airways and if
so, whether the effect on US Airways' financial condition or
results of operations would be material.
US Airways has a commitment to purchase hush kits for certain
of its Douglas DC-9-30 and Boeing 737-200 aircraft. The
installation of these hush kits will bring the aircraft into
compliance with Federal Aviation Administration Stage 3 noise
level requirements. The projected payments associated with the
purchase of the hush kits are $19.7 million during 1997 and $32.1
million during 1998 and 1999.
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(e) CONCENTRATION OF CREDIT RISK
US Airways invests available cash in money market securities
of various banks, commercial paper of financial institutions and
other companies with high credit ratings and securities backed by
the United States government.
As of December 31, 1996, most of US Airways' receivables
related to tickets sold to individual passengers through the use
of major credit cards (42%) or to tickets sold by other airlines
(17%) and used by passengers on US Airways or its regional airline
affiliates. These receivables are short-term, generally being
settled within 14 days after sale. Bad debt losses, which have
been minimal in the past, have been considered in establishing
allowances for doubtful accounts. US Airways does not believe it
is subject to any significant concentration of credit risk.
(f) GUARANTEES
As of December 31, 1996, US Airways guaranteed payments of
debt and lease obligations of Piedmont Airlines, Inc. ("Piedmont")
and PSA Airlines, Inc. ("PSA"), both wholly-owned subsidiaries of
US Airways Group, totaling $83.6 million.
US Airways also guarantees the payment of principal and
interest on special facility revenue bonds issued by certain
municipalities to build or improve airport and maintenance
facilities. Under related lease arrangements, US Airways is
required to make rental payments sufficient to pay maturing
principal and interest payments on the bonds. As of December 31,
1996 the principal amount of these bonds outstanding was $77.5
million.
5. INCOME TAXES
Effective January 1, 1993, US Airways adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 required a change from the deferred
method under Accounting Principles Board Opinion No. 11 to the
asset and liability method of accounting for income taxes. US
Airways files a consolidated Federal income tax return with its
parent company, US Airways Group. US Airways Group and its wholly-
owned subsidiaries have executed a tax sharing agreement which
allocates tax and tax items, such as net operating losses and tax
credits between members of the group based on their proportion of
taxable income and other items. This tax sharing and allocation
impacts the deferred tax assets and liabilities reported by each
corporation on a separate company basis. Accordingly, US Airways'
tax expense is based on its taxable income (loss), taking into
consideration its allocated tax loss carryforwards and tax credit
carryforwards.
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<PAGE>
The components of the provision for income taxes are as
follows:
1996 1995 1994
---- ---- ----
(in thousands)
Current provision:
Federal $4,432 $4,107 $ -
State 3,026 301 -
----- ----- -----
Total current provision 7,458 4,408 0
----- ----- -----
Deferred provision:
Federal - - -
State 353 - -
----- ----- -----
Total deferred provision 353 0 0
----- ----- -----
Provision for income taxes $7,811 $4,408 $ 0
===== ===== ======
In 1996, US Airways was not subject to regular Federal income
tax as a result of using $320 million in Federal net operating
loss carryforwards. However, US Airways was subject to Federal
alternative minimum tax ("AMT"). Approximately $318 million in AMT
net operating loss carry-forwards and approximately $148 million
in state net operating loss carryforwards were utilized to reduce
the Federal and state tax liabilities.
The significant components of deferred income tax expense
(benefit) for the years ended December 31, 1996, 1995, and 1994,
are as follows:
1996 1995 1994
---- ---- ----
(in thousands)
Deferred tax expense (benefit)
(exclusive of the other
components listed below) $ 90,583 $ 17,779 $(234,269)
Increase (decrease) for the
year in the valuation
allowance for deferred tax
assets (90,230) (17,779) 234,269
------- ------- --------
Total $ 353 $ 0 $ 0
======= ======= ========
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<PAGE>
A reconciliation of taxes computed at the statutory Federal
tax rate on earnings before income taxes to the provision (credit)
for income taxes is as follows:
1996 1995 1994
---- ---- ----
(in thousands)
Tax provision (credit) computed
at Federal statutory rate $ 66,865 $ 13,089 $(250,664)
Book expenses not deductible
for tax purposes 16,535 15,088 15,691
Limitation in recognizing tax
benefit of net operating
loss/credits - - 234,973
Utilization of Federal net
operating loss which reduced
valuation allowance (111,920) (7,778) -
State income tax provision,
net of Federal tax benefit 2,320 196 -
Current year temporary differences
which reduced valuation allowance 29,579 (20,293) -
Alternative minimum tax which
increased valuation allowance 7,208 3,384 -
Other (2,776) 722 -
-------- ------- --------
Provision for income taxes $ 7,811 $ 4,408 $ 0
======== ======= ========
Effective tax rate 4% 12% 0%
======== ======= ========
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities as
of December 31, 1996, 1995 and 1994 are presented below:
1996 1995 1994
---- ---- ----
(in thousands)
Deferred tax assets:
Leasing transactions $ 153,952 $ 168,813 $ 164,513
Tax benefits purchased/sold 54,173 67,348 76,784
Gain on sale and leaseback
transactions 134,090 146,387 154,246
Employee benefits 606,213 510,213 498,710
Net operating loss
carryforwards 473,918 627,357 657,870
Alternative minimum tax
credit carryforwards 32,681 25,819 20,881
Investment tax credit
carryforwards 48,720 48,720 47,880
Other deferred tax assets 156,811 95,358 85,005
--------- --------- ---------
Total gross deferred tax
assets 1,660,558 1,690,015 1,705,889
Less valuation allowance (695,076) (785,306) (803,085)
--------- --------- ---------
Net deferred tax assets 965,482 904,709 902,804
Deferred tax liabilities:
Equipment depreciation and
amortization 927,442 871,056 866,356
Other deferred tax
liabilities 38,393 33,653 36,448
--------- --------- ---------
Total deferred tax
liabilities 965,835 904,709 902,804
--------- --------- ---------
Net deferred tax
liabilities $ 353 $ 0 $ 0
========= ========= =========
Included in "Other Deferred Tax Assets" above for 1996, 1995
and 1994 are approximately $79 million, $38 million and $16
million, respectively, of tax assets which originate from
subsidiaries of US Airways Group in accordance with US Airways'
Tax Sharing Agreement.
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<PAGE>
The valuation allowance for deferred tax assets decreased
approximately $90 million in 1996, decreased approximately $18
million in 1995, and increased approximately $234 million in 1994.
As of December 31, 1996, US Airways had unused net operating
losses of $1.4 billion for Federal tax purposes, which expire in
the years 2006 to 2009. US Airways also has available, to reduce
future taxes payable, $251 million alternative minimum tax net
operating losses expiring in the year 2009, $49 million of
investment tax credits expiring in the years 2002 to 2003, and $33
million of alternative minimum tax credits which do not expire.
The Federal income tax returns of US Airways through 1986 have
been examined and settled with the Internal Revenue Service.
6. STOCKHOLDER'S EQUITY AND DIVIDEND RESTRICTIONS
US Airways Group owns all of the outstanding common stock of
US Airways. US Airways' board of directors has not authorized the
payment of dividends to US Airways Group since 1988. In addition,
US Airways, organized under the laws of the State of Delaware, may
be subject to certain legal restrictions on its ability to pay
dividends on or repurchase or redeem its own shares of capital
stock. Covenants related to US Airways' 10% and 9 5/8% Senior
Unsecured Notes currently do not permit the payment of dividends
by US Airways to US Airways Group. However, these covenants do not
restrict US Airways from loaning or advancing funds to US Airways
Group.
The provisions of Statement of Accounting Standards No. 87,
"Employers' Accounting for Pensions," require the recognition of a
minimum liability for each defined benefit plan for which the
accumulated benefit obligation exceeds plan assets. This amount
has been recognized by US Airways as a liability with an
offsetting intangible asset (see Note 1(e)). Because the
intangible asset recognized may not exceed the amount of
unrecognized prior service cost on an individual plan basis, the
balance is reported as a separate reduction of Stockholder's
Equity (Deficit) as of December 31, 1996 and 1995. See also Note
9.
7. EMPLOYEE STOCK OWNERSHIP PLAN
In August 1989, US Airways established an ESOP. US Airways
Group sold 2,200,000 shares of its Common Stock to an Employee
Stock Ownership Trust (the "Trust") to hold on behalf of US
Airways' employees, exclusive of officers, in accordance with the
terms of the Trust and the ESOP. The trustee placed those shares
in a suspense account pending their release and allocation to
employees. US Airways provided financing to the Trust in the form
of a 9 3/4% loan for $111.4 million for its purchase of shares and
US Airways contributed an additional $2.2 million to the Trust. US
Airways makes a yearly contribution to the Trust sufficient to
cover the Trust's debt service requirement. The contributions are
made in amounts equal to the periodic loan payments as they come
due, less dividends available for loan payment. Since the Company
did not pay dividends on any shares held by the Trust for the
years ended December 31, 1996, 1995 and 1994, the Trust did not
utilize dividends to service its debt during those periods. The
initial maturity of the loan is 30 years. As the loan is repaid
over time, the trustee systematically releases shares of the
common stock from the suspense account and allocates them to
participating employees. Each participant's allocation is based on
the participant's compensation, the total compensation of all ESOP
participants and the total number of shares being released. For
each year after 1989, a minimum of 71,933 shares are released from
the suspense account and allocated to participant accounts. If US
Airways Group's return on sales equals or exceeds four percent in
a given year, more shares are released and repayment of the loan
is accelerated. Annual contributions made by US Airways, and
therefore loan repayments made by the Trust, were $11.4 million in
each of 1996, 1995 and 1994. The interest portion of these
contributions was $10.3 million in 1996, $10.4 million in 1995 and
$10.5 million in 1994. Approximately 582,000 shares of Common
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<PAGE>
Stock have been released or committed to be released as of
December 31, 1996. US Airways recognized approximately $4 million
of compensation expense related to the ESOP in each of 1996, 1995
and 1994 based on shares allocated to employees (the "shares
allocated" method). Deferred compensation related to the ESOP
amounted to approximately $83.5 million, $87.2 million and $90.9
million as of December 31, 1996, 1995 and 1994, respectively.
8. EMPLOYEE BENEFIT PLANS
(a) PENSION PLANS
US Airways has several pension plans in effect covering
substantially all of its employees. One qualified defined benefit
plan covers US Airways' maintenance employees and provides
benefits of specified amounts based on periods of service.
Qualified defined benefit plans for substantially all other
employees provide benefits based on years of service and
compensation. The qualified defined benefit plans for domestic
employees are funded, on a current basis, to meet the minimum
funding requirements of the Employee Retirement Income Security
Act of 1974. Liabilities related to pension plans covering foreign
employees are calculated in accordance with generally accepted
accounting principles and funded in accordance with the laws of
the individual country.
In 1996, US Airways changed the annual measurement date for
its pension plan assets and liabilities to September 30 from
December 31. The change in measurement date is considered a change
in a method of accounting and Accounting Principles Board Opinion
No. 20, "Accounting Changes" ("APB 20"), requires that the
cumulative effect of such a change be recognized as an adjustment
to retained earnings. The change in measurement date had no
material cumulative effect on pension expense for prior years and
thus no adjustment was recognized. For purposes of determining
whether a minimum pension liability existed as of September 30,
1996, plan contributions made in the fourth quarter of 1996 were
included in plan assets.
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126
<PAGE>
<TABLE>
The funded status of US Airways' qualified defined benefit plans:
<CAPTION>
1996 1995
--------------------------- ---------------------------
Plans in Which Plans in Which
--------------------------- ---------------------------
Plan ABO Plan ABO
Assets Exceed Exceeds Assets Exceed Exceeds
ABO Plan Assets ABO Plan Assets
------------- ----------- ------------- -----------
(in millions)
<S> <C> <C> <C> <C>
Fair value of plan assets $ 2,168 $ 305 $ 993 $ 1,419
Actuarial present value of:
Vested benefit obligation 2,050 369 929 1,603
Nonvested benefit obligation 23 13 29 22
------ ------ ------ ------
ABO based on salaries to date 2,073 382 958 1,625
Additional benefits based on
estimated future salary levels 653 - 130 598
------ ------ ------ ------
Projected benefit obligation ("PBO") 2,726 382 1,088 2,223
PBO in excess of fair value of plan assets (558) (77) (95) (804)
Contributions from October 1, 1996
through December 31, 1996 45 12 - -
Unrecognized net transition asset (22) (9) (2) (34)
Unrecognized prior service (credit) cost (13) 75 - 66
Unrecognized net loss 506 40 312 571
------ ------ ------ ------
Pension (liability) or asset
before adjustment (42) 41 215 (201)
------ ------ ------ ------
Adjustment for minimum
pension liability * - (106) - (149)
------ ------ ------ ------
Pension (liability) or asset as
adjusted and recognized in
Consolidated Balance Sheets $ (42) $ (65) $ 215 $ (350)
====== ====== ====== ======
See Note 8(f).
</TABLE>
The weighted average assumptions used to determine the
actuarial present value of the PBO:
1996 1995
------ ------
Discount rate 8.00% 7.25%
Rate of increase in
compensation levels 3.52% 3.54%
Expected long-term rate
of return on plan assets 8.84% 9.33%
Components of plan assets:
Cash equivalents and
short-term investments 11% 7%
Equity investments* 27% 26%
Fixed income and other investments 62% 67%
* Plan assets as of December 31, 1995 include 205 shares of US
Airways Group Common Stock.
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<PAGE>
The components of the net periodic pension cost for the
qualified defined benefit plans:
1996 1995 1994
---- ---- ----
(in millions)
Service cost (benefits earned
during the period) $ 143 $ 92 $ 124
Interest cost on PBO 250 216 216
Actual return on plan assets (55) (539) 48
Net amortization and deferral (132) 371 (254)
----- ----- -----
Net periodic pension cost $ 206 $ 140 $ 134
===== ===== =====
Non-qualified supplemental pension plans are established for
certain employee groups, which provide incremental pension
payments from US Airways' funds so that total pension payments
equal amounts that would have been payable from US Airways'
qualified pension plans if it were not for limitations imposed by
Federal income tax regulations.
The status of US Airways' non-qualified supplemental plans:
1996 1995
---- ----
(in millions)
Fair value of plan assets $ - $ -
Actuarial present value of:
Vested benefit obligation 31 30
Nonvested benefit obligation 1 2
----- -----
ABO based on salaries to date 32 32
Additional benefits based on
estimated future salary levels 1 2
----- -----
PBO 33 34
----- -----
PBO in excess of fair value of plan assets (33) (34)
Contributions from October 1, 1996 through
December 31, 1996 1 -
Unrecognized net transition asset - -
Unrecognized prior service cost 2 3
Unrecognized net loss 3 8
----- -----
Pension (liability) or asset before
adjustment (27) (23)
Adjustment for minimum pension liability * (7) (11)
----- -----
Unfunded supplemental liability as
adjusted and recognized in
Consolidated Balance Sheets $ (34) $ (34)
===== =====
* See Note 8(f).
The discount rate used to determine the actuarial present
value of the PBO was 8.00% and 7.25% as of September 30, 1996 and
December 31, 1995, respectively. A rate of 6% was used to estimate
future salary levels in 1996 and 1995.
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128
<PAGE>
The components of net periodic supplemental pension expense
for the non-qualified supplemental pension plans:
1996 1995 1994
---- ---- ----
(in millions)
Service cost (benefits earned
during the period) $ 2 $ - $ -
Interest cost on PBO 2 2 2
Actual return on plan assets - - -
Net amortization and deferral 6 (1) 21
----- ----- -----
Net periodic supplemental
pension cost $ 10 $ 1 $ 23
===== ===== =====
In addition to the qualified and non-qualified defined
benefit plans described above, US Airways also contributes to
certain defined contribution plans. US Airways' contributions are
based on a formula which considers the age and earnings of each
employee and the amount of employee contributions. In addition,
certain qualified defined contribution plans contain a requirement
for profit sharing contributions if US Airways Group achieves a
certain pre-tax margin level. US Airways' expense related to its
defined contribution plans, excluding expenses related to its ESOP
(see Note 7), was $59 million, $64 million and $43 million for
1996, 1995 and 1994, respectively. The 1996 expense amount
includes $4.8 million related to the profit sharing component of
its defined contribution plan. US Airways made no contributions
related to the profit sharing component of its defined contribu-
tion plans in 1995 or 1994 because US Airways Group did not
achieve the prescribed pre-tax margin level. The 1995 expense
amount includes a catch up adjustment of $11.6 million for new
employer match contributions for certain collective bargaining
groups.
(b) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
US Airways offers medical and life insurance benefits to
certain employees who retire from US Airways and their eligible
dependents. The medical benefits provided by US Airways are
coordinated with Medicare benefits. Retirees generally contribute
amounts towards the cost of their medical expenses based on years
of service with US Airways. US Airways provides uninsured death
benefit payments to survivors of retired employees for stated
dollar amounts, or in the case of retired pilot employees, death
benefit payments determined by age and level of pension benefit.
The plans for postretirement medical and death benefits are funded
on a pay-as-you-go basis.
In 1996, US Airways changed the annual measurement date for
postretirement benefit liabilities to September 30 from December
31. The change in measurement date is considered a change in a
method of accounting and APB 20 requires that the cumulative
effect of such a change be recognized as an adjustment to retained
earnings. The change in measurement date had no material effect on
postretirement benefit expenses for prior years and thus no
adjustment was recognized.
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129
<PAGE>
The status of the plans:
1996 1995
------ ------
(in millions)
Plan assets at fair value $ - $ -
Accumulated Postretirement Benefit
Obligation ("APBO"):
Retirees 326 338
Fully eligible active plan
participants 170 176
Other plan participants 454 482
------ ------
Total APBO 950 996
APBO in excess of plan assets (950) (996)
Contributions from October 1, 1996
through December 31, 1996 7 -
Unrecognized prior service credits (143) (155)
Unrecognized net (gain) loss (34) 112
------ ------
Accrued postretirement benefit liability $(1,120) $(1,039)
====== ======
The assumptions used to determine the APBO:
1996 1995
----- -----
Discount rate 8.00% 7.25%
Rate of increase in
compensation levels 3.00% to 6.00% 3.00% to 6.00%
Health care cost trend 7.50% 8.50%
The components of net periodic postretirement benefit
expense:
1996 1995 1994
---- ---- ----
(in millions)
Service cost (benefits earned
during the period) $ 44 $ 29 $ 36
Interest cost on APBO 74 65 60
Net amortization and deferral (11) (15) (12)
----- ----- -----
Net periodic postretirement
benefit expense $ 107 $ 79 $ 84
===== ===== =====
The assumed health care cost trend rate used in measuring the
APBO was 7.5% in 1996, declining by 1% per year after 1996 to an
ultimate rate of 4.5%. If the assumed health care cost trend rates
were increased by one percentage point, the APBO at September 30,
1996 would be increased by 10% and 1996 periodic postretirement
benefit expense would increase 12%.
(c) POSTEMPLOYMENT BENEFITS
US Airways provides certain postemployment benefits to all of
its employees. In 1993, US Airways adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). SFAS 112 requires the use
of an accrual method to recognize postemployment benefits such as
severance, disability-related and workers' compensation benefits.
US Airways records the expense for these benefits once a
triggering event occurs.
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<PAGE>
9. PROFIT SHARING
In exchange for temporary wage and salary reductions and
other concessions during a twelve month period in 1992 and 1993,
including certain ongoing work rule and medical benefits
concessions and the freeze of the defined benefit plan for certain
non-contract employees, affected US Airways employees participate
in a profit sharing program and were granted stock options to
purchase US Airways Group Common Stock (see related discussion
under Note 1(f)). This profit sharing program was designed to
recompense those US Airways employees whose pay had been reduced
in an amount equal to (i) two times salary forgone plus (ii) one
time salary forgone (subject to a minimum of $1,000) for the
freeze of the defined benefit pension plan for certain non-
contract employees. US Airways has recognized charges of $213.5
million, including $121.6 million and $49.7 million in 1996 and
1995, respectively. Cash distributions to participants of $213.5
million have also been made, including $74.9 million and $3.3
million in 1996 and 1995, respectively, and a final cash
distribution in the first quarter of 1997 of $129.1 million. After
the first quarter 1997 payment, US Airways' obligations under this
profit sharing program were satisfied and this program ceased.
US Airways' ESOP and Defined Contribution Retirement Program
("DCRP") each have profit sharing components. Under the ESOP, each
eligible US Airways employee receives Common Stock shares based on
his or her compensation relative to the total compensation of all
participants and the number of Common Stock shares in the
allocation pool. When US Airways' return on sales equals or
exceeds certain prescribed levels, US Airways increases its
contribution, which effectively increases the number of Common
Stock shares in the allocation pool (see Note 7). US Airways did
not make any provision for profit sharing contributions in
connection with the profit sharing component of the ESOP during
1996 or 1995. Under the DCRP, US Airways makes additional
contributions to participant accounts when US Airways Group
achieves certain prescribed pre-tax margin levels (see Note 8(a)).
US Airways' 1996 results of operations reflect a provision of $4.8
million for the profit sharing component of the DCRP. In 1995, US
Airways' results did not achieve the prescribed pre-tax margin
levels. Accordingly, US Airways made no such provision in 1995 for
this program.
10. RELATED PARTY TRANSACTIONS
(a) PARENT COMPANY
US Airways' balance sheet line item, Payable to parent
company, includes intercompany loans from US Airways Group which
arise in the normal course of business. These loans bear interest
at market rates which are reset quarterly.
As of December 31, 1995, US Airways had a $68.6 million 8.4%
note payable to US Airways Group related to US Airways Group's
purchase of aircraft-secured debt obligations of US Airways. US
Airways repaid the note in February 1996.
Net interest expense related to the notes payable and
intercompany loans was $19.7 million, $7.8 million and $11.3
million for the years 1996, 1995 and 1994, respectively.
(b) REGIONAL AIRLINE SUBSIDIARIES OF US AIRWAYS GROUP
Effective October 1, 1996, US Airways began purchasing all of
the capacity (available seat miles or "ASMs") generated by US
Airways Group's three wholly-owned regional airline subsidiaries,
Allegheny Airlines, Inc. ("Allegheny"), Piedmont and PSA, at a
rate per ASM that is determined by US Airways on a monthly basis
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<PAGE>
and, concurrently, recognizing revenues that result from
passengers being carried by these affiliated companies. The rate
per ASM that US Airways pays is based on estimates of the costs
incurred to produce the capacity. During the fourth quarter of
1996, US Airways recorded US Airways Express transportation
revenues of $145.1 million and US Airways Express capacity
purchases (expenses) of $93.0 million related to this program. The
revenues and expenses recognized by US Airways during the fourth
quarter of 1996 related to this program may not be indicative of
future revenues and expenses associated with this program. The
revenues and expenses associated with this program are eliminated
during the consolidation of US Airways Group's results of
operations.
US Airways provides various services including passenger
handling, contract training and catering. US Airways recognized
other operating revenues of approximately $63.5 million, $46.5
million and $43.5 million related to these services for the years
1996, 1995 and 1994, respectively. These regional airlines also
perform passenger and ground handling for US Airways at certain
airports for which US Airways recognized other operating expenses
of approximately $18.7 million, $21.0 million and $15.3 million
for the years 1996, 1995 and 1994 respectively.
US Airways also leases or subleases certain turboprop
aircraft to these regional airline subsidiaries. US Airways
recognized other operating revenues related to these arrangements
of approximately $14.4 million, $18.7 million and $22.0 million
for the years 1996, 1995 and 1994, respectively. US Airways
entered into a sale-leaseback arrangement with Allegheny during
1994 involving certain turboprop aircraft (in return, US Airways
subleases these same aircraft back to Allegheny). This arrangement
was terminated in September 1996. US Airways recognized other
operating expenses related to the lease of these aircraft from
Allegheny of approximately $6.0 million, $9.8 million and $3.1
million for 1996, 1995 and 1994, respectively.
US Airways' receivables from and payables to these regional
airlines were approximately $17.3 million and $34.1 million,
respectively, as of December 31, 1996 and $9.6 million and $1.6
million, respectively, as of December 31, 1995. As a result of
the capacity purchase program discussed above, liabilities related
to tickets sold for travel on the regional airline subsidiaries
are included in the US Airways' Traffic balances payable and
unused tickets. As of December 31, 1995 US Airways' Traffic
balances payable and unused tickets included $30.8 million owed to
the regional airline subsidiaries for passengers flown by the
regional airline subsidiaries on behalf of US Airways during the
month of December 1995.
(c) OTHER US AIRWAYS GROUP SUBSIDIARIES
US Airways leases certain aircraft to US Airways Group's
wholly-owned subsidiary USAir Leasing and Services, Inc. ("USAir
Leasing and Services"). USAir Leasing and Services subleases these
aircraft to third parties. US Airways recognized other operating
revenues related to these arrangements of approximately $4.3
million, $4.6 million and $2.2 million for the years 1996, 1995
and 1994, respectively.
US Airways purchases a portion of its aviation fuel from US
Airways Group's wholly-owned subsidiary USAir Fuel Corporation
("Fuel Corp."), which acts as a fuel wholesaler to US Airways in
certain circumstances. US Airways' aviation fuel purchases were
approximately $205.9 million, $104.9 million and $57.8 million for
the years 1996, 1995 and 1994, respectively. US Airways' accounts
payable to Fuel Corp. was $17.4 million and $20.7 million as of
December 31, 1996 and 1995, respectively.
132
<PAGE>
The OR Group, Inc. (the "OR Group") was a wholly-owned
subsidiary of US Airways Group incorporated in February 1996 and
dissolved in the fourth quarter of 1996. OR Group provided
resource allocation consulting services and decision-making
support systems to US Airways, which assumed these activities upon
OR Group's dissolution. US Airways recorded other operating
expenses of $6.1 million for the year 1996 related to these
services.
(d) BRITISH AIRWAYS
On January 21, 1993, US Airways Group and British Airways
entered into an Investment Agreement under which a wholly-owned
subsidiary of British Airways purchased certain series of
convertible preferred stock and British Airways entered into code
sharing and wet lease arrangements with US Airways. US Airways is
terminating its code sharing arrangement with British Airways
effective March 29, 1997 and the final wet lease arrangement
expired May 31, 1996. As of December 31, 1996, British Airways'
total voting interest in US Airways Group was approximately 23%.
US Airways wet leased Boeing 767-200ER aircraft, including
cockpit and cabin crews, to British Airways in order to serve
three routes between the U.S. and London beginning June 1993. US
Airways recognized other operating revenues of approximately $12.6
million, $63.6 million and $60.7 million for the years 1996, 1995
and 1994, respectively, related to the wet lease arrangements.
These revenues were offset by an equal amount of other operating
expenses.
US Airways also has various agreements with British Airways
for ground handling at certain airports, contract training and
other services. US Airways recognized other operating revenues of
approximately $5.8 million, $4.9 million and $6.4 million for the
years 1996, 1995 and 1994, respectively, related to the services
US Airways performed for British Airways.
US Airways' current receivables from and payables to British
Airways were approximately $8.0 million and $5.5 million,
respectively, as of December 31, 1996 and $11.5 million and $5.3
million, respectively, as of December 31, 1995.
US Airways has a long-term receivable from British Airways
related to three U.S. to London routes that US Airways
relinquished at the time of implementation of a code sharing
arrangement with British Airways. The balance of the receivable
was approximately $40.7 million and $45.4 million as of
December 31, 1996 and 1995, respectively. Payments began in
December 1995 in conjunction with the termination of the first wet
lease arrangement and continue annually for nine years.
11. SELECT FINANCIAL INFORMATION - USAM INVESTMENTS
USAM's equity in the earnings of ATS, GIP and GJP for the
years 1996, 1995 and 1994 was as follows (in thousands):
1996 1995 1994
------ ------ ------
Apollo Travel Services
Partnership (ATS) $19,188 $20,708 $20,089
Galileo International
Partnership (GIP) 17,213 13,320 6,081
Galileo Japan Partnership (GJP) 201 518 365
------ ------ ------
$36,602 $34,546 $26,535
====== ====== ======
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<PAGE>
The following is summarized financial information for these
partnerships (combined, in millions):
As of December 31,
------------------
1996 1995
---- ----
(Unaudited)
Current assets $ 357 $ 405
Noncurrent assets 480 512
---- ----
Total assets 837 917
---- ----
Current liabilities 227 294
Long-Term liabilities 209 228
---- ----
Total liabilities 436 522
---- ----
Net assets $ 401 $ 395
==== ====
Years Ended December 31,
-------------------------------
1996 1995 1994
----- ----- -----
(Unaudited)
Service revenues $1,466 $1,327 $1,193
Cost and expenses 1,207 1,103 1,046
----- ----- -----
Net earnings $ 259 $ 224 $ 147
===== ===== =====
USAM received distributions from GIP, GJP and ATS of
approximately $4.1 million, $0.1 million and $44.5 million
(including a special distribution from ATS of $33.7 million
during the second quarter of 1996 which represented a
distribution of cash to partners), respectively, during 1996.
USAM received distributions from GIP, GJP and ATS of
approximately $2.6 million, $0.2 million and $11.2 million,
respectively, during 1995.
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected quarterly financial
data for 1996 and 1995:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in millions)
1996
Operating revenues $ 1,740 $ 1,994 $ 1,924 $ 2,047
Operating income (loss) $ (9) $ 207 $ 97 $ 74
Net income (loss) $ (55) $ 161 $ 28 $ 50
1995
Operating revenues $ 1,664 $ 1,852 $ 1,743 $ 1,725
Operating income (loss) $ (50) $ 135 $ 66 $ 84
Net income (loss) $ (102) $ 85 $ 17 $ 34
See Note 14 - Non-Recurring and Unusual Items.
See Note 10(b) with respect to US Airways' capacity purchase
arrangements with US Airways Group's regional airline
subsidiaries implemented during the fourth quarter of 1996.
Note: The sum of the four quarters may not equal yearly totals
due to rounding of quarterly results.
134
<PAGE>
13. SUPPLEMENTAL BALANCE SHEET INFORMATION
The components of certain accounts in the accompanying
Consolidated Balance Sheets are as follows:
December 31,
---------------------
1996 1995
---- ----
(in thousands)
(a) Cash and cash equivalents:
Cash $ 20,154 $ 11,298
Cash equivalents, at cost which
approximates market 929,980 868,315
--------- --------
$ 950,134 $ 879,613
========= ========
(b) Receivables, net:
Accounts receivable $ 354,671 $ 333,859
Less allowance for doubtful accounts 11,953 12,104
--------- --------
$ 342,718 $ 321,755
========= =========
(c) Materials and supplies, net:
Materials and supplies $ 353,994 $ 383,910
Less allowance for obsolescence 142,810 161,665
--------- --------
$ 211,184 $ 222,245
========= ========
(d) Accrued expenses:
Salaries and wages* $ 419,688 $ 342,391
All other 654,085 613,054
--------- --------
$1,073,773 $ 955,445
========= ========
* Includes amounts related to profit sharing. See Note 9 for
additional information.
Note: Certain 1995 amounts have been reclassified to conform with
1996 classifications.
14. NON-RECURRING AND UNUSUAL ITEMS
(a) 1996
US Airways' results for 1996 include two non-recurring items
recorded during the second quarter of 1996 related to its
subleasing of 11 non-operating BAe-146 aircraft (see Note 14 (b)
and 14 (c) below). US Airways reversed $22.5 million of previously
accrued rent obligations related to these aircraft against
Aircraft rent expense and reversed $7.0 million against Aircraft
maintenance expense related to previously accrued lease return
provisions. US Airways may reverse additional amounts related to
the 1994 non-recurring charge in future periods dependent upon its
success and the terms at which the remaining five grounded BAe-146
aircraft are subleased or otherwise disposed.
(b) 1995
In the fourth quarter of 1995, US Airways reversed $4.1
million of the $132.8 million non-recurring charge related to its
grounded BAe-146 fleet that was recorded in the fourth quarter of
1994 (see Note 14 (c) below). The reversal, a credit to Aircraft
rent expense, reflects the successful remarketing by US Airways of
three of these aircraft.
135
<PAGE>
(c) 1994
US Airways' results for 1994 include (i) a $132.8 million
charge related to its grounded BAe-146 fleet, recorded in the
fourth quarter of 1994 (During 1994, US Airways again evaluated
the secondary market for its non-operating BAe-146 aircraft and
determined that it was probable that it would not be successful
in its efforts to sublease or otherwise dispose of these assets
(before lease expiry). Considering this analysis, US Airways did
not include a provision for any potential subleasing activity in
determining the amount of the 1994 charge.); (ii) a $54.0 million
charge for obsolete inventory and rotables to reflect market
value, recorded in the fourth quarter of 1994; (iii) a $50.0
million addition to Passenger Transportation revenues in the
fourth quarter of 1994 to adjust estimates made during the first
three quarters of 1994; (iv) a $40.1 million charge primarily
related to US Airways' decision to cease operations of its
remaining Boeing 727-200 aircraft in 1995, recorded in the third
quarter of 1994; (v) a $25.9 million charge related to US Airways'
decision to substantially reduce service between Los Angeles and
San Francisco and close its San Francisco crew base, recorded in
the third quarter of 1994; and (vi) an $18.6 million gain
resulting from the accounting treatment of the hull insurance
recovery on the aircraft lost in the September, 1994 accident,
recorded in the third quarter of 1994.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
(this space intentionally left blank)
136
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Information regarding this item appears in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A
relating to the Company's Annual Meeting of Stockholders on May
21, 1997 and is incorporated herein by reference. Information
concerning executive officers of the Company is set forth in Item
1 of the Report under the caption "Executive Officers" in reliance
on General Instruction G to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding this item appears in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A
relating to the Company's Annual Meeting of Stockholders on May
21, 1997 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding this item appears in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A
relating to the Company's Annual Meeting of Stockholders on May
21, 1997 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding this item appears in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A
relating to the Company's Annual Meeting of Stockholders on May
21, 1997 and is incorporated herein by reference.
(this space intentionally left blank)
137
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this
report:
1. CONSOLIDATED FINANCIAL STATEMENTS
(i) The following consolidated financial statements of US
Airways Group are included in Part II, Item 8A. of this
report:
-Consolidated Statements of Operations for each of the Three
Years Ended December 31, 1996
-Consolidated Balance Sheets as of December 31, 1996 and
1995
-Consolidated Statements of Cash Flows for each of the Three
Years Ended December 31, 1996
-Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for each of the Three Years Ended December 31,
1996
-Notes to Consolidated Financial Statements
(ii) The following consolidated financial statements of US
Airways are included in Part II, Item 8B. of this
report:
-Consolidated Statements of Operations for each of the Three
Years Ended December 31, 1996
-Consolidated Balance Sheets as of December 31, 1996 and
1995
-Consolidated Statements of Cash Flows for each of the Three
Years Ended December 31, 1996
-Consolidated Statements of Changes in Stockholder's Equity
(Deficit) for each of the Three Years Ended December 31,
1996
-Notes to Consolidated Financial Statements
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(i) Independent Auditors' Report on the Consolidated
Financial Statement Schedule of US Airways Group.
-Consolidated Financial Statement Schedule - Three Years
Ended December 31, 1996:
VIII Valuation and Qualifying Accounts and Reserves
(ii) Independent Auditors' Report on the Consolidated
Financial Statement Schedule of US Airways.
-Consolidated Financial Statement Schedule - Three Years
Ended December 31, 1996:
VIII Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not
applicable or not required, or because the required information is
either incorporated herein by reference or included in the
financial statements or notes thereto included in this report.
138
<PAGE>
(B) REPORTS ON FORM 8-K
DATE OF REPORT SUBJECT OF REPORT
February 27, 1997 News release dated February 27, 1997 of US
Airways Group, Inc. announcing the change of
the Company's name from USAir Group, Inc. to
US Airways Group, Inc. and the change of
USAir, Inc. to US Airways, Inc.
January 30, 1997 News release dated January 28, 1997 of US
Airways Group, Inc. announcing the resignation
of Robert Ayling, Roger P. Maynard and Derek
M. Stevens from the board of directors of US
Airways Group, Inc.
January 22, 1997 News release dated January 22, 1997 of US
Airways Group, Inc. and US Airways, Inc. with
consolidated statements of operations for both
companies for the three months and year ended
December 31, 1996, and select operating and
financial statistics for US Airways, Inc.
December 20, 1996 Letter, dated December 17, 1996, from British
Airways plc ("British Airways") to US Airways
Group, Inc. giving notice that British
Airways' wholly-owned subsidiary, BritAir
Acquisition Corp. Inc. ("BritAir") intends to
sell in one or more underwritten public
offerings or privately negotiated transactions
all of the 30,000 shares of Series F
Cumulative Convertible Senior Preferred Stock,
the 152.1 shares of Series T-1 Cumulative
Convertible Exchangeable Senior Preferred
Stock and the 9,919.8 shares of Series T-2
Cumulative Convertible Exchangeable Senior
Preferred Stock of US Airways Group, Inc.
which are owned by BritAir.
3. EXHIBITS
DESIGNATION DESCRIPTION
3.1 Restated Certificate of Incorporation of US Airways
Group, Inc. ("US Airways Group") (incorporated by
reference to Exhibit 3.1 to US Airways Group's
Registration Statement on Form 8-B dated January 27,
1983), including the Certificate of Amendment dated May
13, 1987 (incorporated by reference to Exhibit 3.1 to US
Airways Group's and US Airways, Inc.'s ("US Airways")
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 US
Airways Group's and US Airways' 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 US Airways
Group's and US Airways' 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 US Airways 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 reference to Exhibit 3.1 to US Airways Group's and US
Airways' Annual Report on Form 10-K for the year ended
December 31, 1992), the Certificate of Increase dated
January 21, 1993 (incorporated by reference to US Airways
Group's and US Airways' Annual Report on Form 10-K for
the year ended December 31, 1992), and the Certificate of
Amendment dated May 26, 1993 (incorporated by reference
to Appendix II to US Airways Group's Proxy Statement
139
<PAGE>
dated April 26, 1993); and the Certificate of Ownership
and Merger merging Nameco, Inc. into USAir Group, Inc.
dated February 17, 1997.
3.2 By-Laws of US Airways Group.
3.3 Restated Certificate of Incorporation of US Airways
(incorporated by reference to Exhibit 3.1 to US Airways'
Registration Statement on Form 8-B dated January 27,
1983); and the Certificate of Amendment to Restated
Certificate of Incorporation of USAir, Inc. dated
February 17, 1997.
3.4 By-Laws of US Airways.
4.1 Certificate of Designation of Series A Cumulative
Convertible Preferred Stock of US Airways Group
(incorporated by reference to Exhibit 4(b) to US Airways
Group's Current Report on Form 8-K dated August 11,
1989).
4.2 Certificate of Designation of Series B Cumulative
Convertible Preferred Stock of US Airways Group
(incorporated by reference to Exhibit 3.3 to Amendment
No. 4 to US Airways Group's Registration Statement on
Form S-3 (Registration No. 33-39540) dated May 17, 1991).
4.3 Agreement between US Airways Group and Berkshire Hathaway
Inc. dated August 7, 1989 (incorporated by reference to
Exhibit 4(a) to US Airways Group's Current Report on Form
8-K dated August 11, 1989).
4.4 Certificate of Designation of Series F Cumulative
Convertible Senior Preferred Stock of US Airways Group
(incorporated by reference to Exhibit 28.2 to US Airways
Group's Current Report on Form 8-K dated January 21,
1993).
4.5 Form of Certificate of Designation of Series T Cumulative
Exchangeable Convertible Senior Preferred Stock of US
Airways Group (incorporated by reference to Appendix VII
to US Airways Group's Proxy Statement dated April 26,
1993). Neither US Airways Group nor US Airways 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 securities authorized
under each such instrument does not exceed ten percent of
the total assets of US Airways. 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 US Airways and The
Boeing Company (incorporated by reference to Exhibit
10.2(a) to US Airways 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 US Airways and The
Boeing Company (incorporated by reference to Exhibit
10.2(b) to US Airways 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 US Airways and The
Boeing Company (incorporated by reference to Exhibit
10.2(c) to US Airways Group's Annual Report on Form 10-K
for the year
140
<PAGE>
ended December 31, 1991).
10.2 Purchase Agreement No. 1725 dated December 23, 1991
between US Airways and The Boeing Company (incorporated
by reference to Exhibit 10.3 to US Airways Group's and US
Airways' Annual Report on Form 10-K for the year ended
December 31, 1991).
10.3 Incentive Compensation Plan of US Airways Group, Inc. as
amended and restated January 1, 1996.
10.4 US Airways, Inc. Supplementary Retirement Benefit Plan
(incorporated by reference to Exhibit 10.5 to US Airways
Group's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.5 US Airways, Inc. Supplemental Executive Defined
Contribution Plan (incorporated by reference to Exhibit
10.6 to US Airways Group's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.6 US Airways Group's 1984 Stock Option and Stock
Appreciation Rights Plan (incorporated by reference to
Exhibit A to US Airways Group's Proxy Statement dated
March 30, 1984).
10.7 US Airways Group's 1992 Stock Option Plan (incorporated
by reference to Exhibit A to US Airways Group's Proxy
Statement dated March 31, 1992).
10.8 US Airways Group's 1996 Stock Incentive Plan.
(incorporated by reference to Exhibit A to US Airways
Group's Proxy Statement dated April 15, 1996).
10.9 Employment Agreement between US Airways and its Chief
Executive Officer. (incorporated by reference to Exhibit
10.11 to US Airways Group's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.10 Employment Agreement between US Airways and its President
and Chief Operating Officer (incorporated by reference to
Exhibit 10.12 to US Airways Group's Annual Report on Form
10-K for the year ended December 31, 1995).
10.11 Employment Agreement between US Airways and its Executive
Vice President -Corporate Affairs and General Counsel
(incorporated by reference to Exhibit 10.13 to US Airways
Group's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.12 Agreement between US Airways and its Chief Executive
Officer with respect to certain employment arrangements
(incorporated by reference to Exhibit 10.14 to US Airways
Group's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.13 Agreement between US Airways and its President and Chief
Operating Officer with respect to certain employment
arrangements (incorporated by reference to Exhibit 10.15
to US Airways Group's Annual Report on Form 10-K for the
year ended December 31, 1995).
141
<PAGE>
10.14 Agreement between US Airways and its Executive Vice
President - Corporate Affairs and General Counsel with
respect to certain employment arrangements (incorporated
by reference to Exhibit 10.16 to US Airways Group's
Annual Report on Form 10-K for the year ended December
31, 1995).
10.15 Employment Agreement between US Airways and its former
Chief Executive Officer as amended by a severance
agreement (incorporated by reference to Exhibit 10.17 to
US Airways Group's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.16 Employment Agreement between US Airways and its former
Executive Vice President - Marketing (incorporated by
reference to Exhibit 10.20 to US Airways Group's Annual
Report on Form 10-K for the year ended December 31,
1995).
10.17 Trust Agreement dated as of April 1, 1992 between US
Airways and Wachovia Bank of North Carolina, N.A.
providing for certain compensation arrangements for US
Airways' former Executive Vice President-Marketing
(incorporated by reference to Exhibit 10.21 to US Airways
Group's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.18 Employment Agreement between US Airways and its Executive
Vice President -Human Resources (incorporated by
reference to Exhibit 10.22 to US Airways Group's Annual
Report on Form 10-K for the year ended December 31,
1995).
10.19 Agreement between US Airways and its Chief Executive
Officer providing supplemental retirement benefits
(incorporated by reference to Exhibit 10.23 to US Airways
Group's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.20 Agreement between US Airways and its President and Chief
Operating Officer providing supplemental retirement
benefits (incorporated by reference to Exhibit 10.24 to
US Airways Group's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.21 Agreement between US Airways and its Executive Vice
President - Corporate Affairs and General Counsel
providing supplemental retirement benefits (incorporated
by reference to Exhibit 10.25 to US Airways Group's
Annual Report on Form 10-K for the year ended December
31, 1995).
10.22 Agreement between US Airways and its former Chief
Executive Officer providing supplemental retirement
benefits (incorporated by reference to Exhibit 10.26 to
US Airways Group's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.23 Agreement between US Airways and its former Executive
Vice President - Marketing providing supplemental
retirement benefits (incorporated by reference to Exhibit
10.29 to US Airways Group's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.24 Employment Agreement between US Airways and its Executive
Vice President - Human Resources providing retirement
benefits (incorporated by reference to Exhibit
142
<PAGE>
10.30 to US Airways Group's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.25 Agreement between US Airways and its former Executive
Vice President - Marketing providing for supplemental
severance benefits.
11 Computation of primary and fully diluted earnings per
share of US Airways Group for the three years ended
December 31, 1996.
21 Subsidiaries of US Airways Group and US Airways.
23.1 Consent of the Auditors of US Airways Group to the
incorporation of their report concerning certain
financial statements contained in this report in certain
registration statements.
23.2 Consent of the Auditors of US Airways to the
incorporation of their report concerning certain
financial statements contained in this report in certain
registration statements.
24.1 Powers of Attorney signed by the directors of US Airways
Group, authorizing their signatures on this report.
24.2 Powers of Attorney signed by the directors of US Airways,
authorizing their signatures on this report.
27.1 Financial Data Schedule - US Airways Group
27.2 Financial Data Schedule - US Airways
(this space intentionally left blank)
143
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, US Airways Group, Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
US AIRWAYS GROUP, INC.
(Formerly USAir Group, Inc.)
By: /s/Stephen M. Wolf
----------------------
Stephen M. Wolf
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: March 14, 1997
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of US Airways Group, Inc. and in the capacities
and on the dates indicated.
March 14, 1997 By: /s/Stephen M. Wolf
------------------------
Stephen M. Wolf
Chairman and Chief
Executive Officer
(Principal Executive Officer)
March 14, 1997 By: /s/John W. Harper
------------------------
John W. Harper
Senior Vice President-Finance
(Principal Financial Officer)
March 14, 1997 By: /s/James A. Hultquist
------------------------
James A. Hultquist
Controller
(Principal Accounting Officer)
March 14, 1997 By: *
------------------------
Robert W. Bogle
Director
March 14, 1997 By: *
------------------------
Edwin I. Colodny
Director
March 14, 1997 By: *
-------------------------
Mathias J. DeVito
Director
144
<PAGE>
March 14, 1997 By: *
-------------------------
Rakesh Gangwal
Director
March 14, 1997 By: *
-------------------------
George J. W. Goodman
Director
March 14, 1997 By: *
-------------------------
John W. Harris
Director
March 14, 1997 By: *
-------------------------
Edward A. Horrigan, Jr.
Director
March 14, 1997 By: *
-------------------------
Robert LeBuhn
Director
March 14, 1997 By: *
-------------------------
John G. Medlin, Jr.
Director
March 14, 1997 By: *
-------------------------
Hanne M. Merriman
Director
March 14, 1997 By: *
-------------------------
Raymond W. Smith
Director
By: /s/John W. Harper
-----------------------
John W. Harper
Attorney-In-Fact
145
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, US Airways, Inc. has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
US AIRWAYS, INC.
(Formerly USAir, Inc.)
By: /s/Stephen M. Wolf
----------------------
Stephen M. Wolf
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: March 14, 1997
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of US Airways, Inc. and in the capacities and
on the dates indicated.
March 14, 1997 By: /s/Stephen M. Wolf
------------------------
Stephen M. Wolf
Chairman and Chief
Executive Officer
(Principal Executive Officer)
March 14, 1997 By: /s/John W. Harper
------------------------
John W. Harper
Senior Vice President-Finance
(Principal Financial Officer)
March 14, 1997 By: /s/James A. Hultquist
------------------------
James A. Hultquist
Controller
(Principal Accounting Officer)
March 14, 1997 By: *
------------------------
Robert W. Bogle
Director
March 14, 1997 By: *
------------------------
Edwin I. Colodny
Director
March 14, 1997 By: *
-------------------------
Mathias J. DeVito
Director
146
<PAGE>
March 14, 1997 By: *
-------------------------
Rakesh Gangwal
Director
March 14, 1997 By: *
-------------------------
George J. W. Goodman
Director
March 14, 1997 By: *
-------------------------
John W. Harris
Director
March 14, 1997 By: *
-------------------------
Edward A. Horrigan, Jr.
Director
March 14, 1997 By: *
-------------------------
Robert LeBuhn
Director
March 14, 1997 By: *
-------------------------
John G. Medlin, Jr.
Director
March 14, 1997 By: *
-------------------------
Hanne M. Merriman
Director
March 14, 1997 By: *
-------------------------
Raymond W. Smith
Director
By: /s/John W. Harper
-----------------------
John W. Harper
Attorney-In-Fact
147
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE FOR
US AIRWAYS GROUP, INC.
The Stockholders and Board of Directors
US Airways Group, Inc.
Under date of February 26, 1997, except as to note 4(c) and note
4(d) which are as of March 13, 1997, we reported on the
consolidated balance sheets of US Airways Group, Inc. (formerly
USAir Group, Inc.) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, cash
flows, and changes in stockholders' equity (deficit) for each of
the three years in the period ended December 31, 1996, included
in Item 14(a)1(i) in this annual report on Form 10-K for the year
1996. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the
consolidated financial statement schedule as listed in Item
14(a)2(i). This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is
to express an opinion on the consolidated financial statement
schedule based on our audits.
In our opinion, this consolidated financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Washington, D. C.
February 26, 1997, except as to note 4(c) and note 4(d)
which are as of March 13, 1997
148
<PAGE>
US AIRWAYS GROUP, INC.
(FORMERLY USAIR GROUP, INC.)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Allowance For
Uncollectible Inventory
Accounts Obsolescence
-------------- ------------
(in thousands)
Balance December 31, 1993 $ 10,818 $ 95,171
Additions charged to income (1) 11,763 86,775
Amounts charged to reserve (13,110) (9,155)
------- -------
Balance December 31, 1994 9,471 172,791
Additions charged to income 12,046 12,146
Amounts charged to reserve (9,177) (20,851)
------ -------
Balance December 31, 1995 12,340 164,086
Additions charged to income 11,086 10,501
Amounts charged to reserve (11,237) (28,296)
------ -------
Balance December 31, 1996 $ 12,189 $146,291
======= =======
(1) 1994 additions to inventory obsolescence include charges of
$75 million to reflect market value of parts related to
certain aircraft which have been or will be withdrawn from
service and inventory parts which have been identified for
sale.
149
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE FOR
US AIRWAYS, INC.
The Stockholder and Board of Directors
US Airways, Inc.
Under date of February 26, 1997, except as to note 4(c) and note
4(d) which are as of March 13, 1997, we reported on the
consolidated balance sheets of US Airways, Inc. (formerly USAir,
Inc.) and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, cash flows, and
changes in stockholder's equity (deficit) for each of the three
years in the period ended December 31, 1996, included in Item
14(a)1(ii) in this annual report on Form 10-K for the year 1996.
In connection with our audits of the aforementioned consolidated
financial statements, we also audited the consolidated financial
statement schedule as listed in Item 14(a)2(ii). This consolidated
financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion
on the consolidated financial statement schedule based on our
audits.
In our opinion, this consolidated financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Washington, D. C.
February 26, 1997, except as to note 4(c) and note 4(d)
which are as of March 13, 1997
150
<PAGE>
US AIRWAYS, INC.
(FORMERLY USAIR, INC.)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Allowance For
Uncollectible Inventory
Accounts Obsolescence
-------------- ------------
(in thousands)
Balance December 31, 1993 $ 10,595 $ 92,592
Additions charged to income (1) 11,600 85,633
Amounts charged to reserve (12,973) (8,398)
------- -------
Balance December 31, 1994 9,222 169,827
Additions charged to income 12,000 9,667
Amounts charged to reserve (9,118) (17,829)
------ -------
Balance December 31, 1995 12,104 161,665
Additions charged to income 11,000 9,440
Amounts charged to reserve (11,151) (28,295)
------- -------
Balance December 31, 1996 $ 11,953 $142,810
======= =======
(1) 1994 additions to inventory obsolescence include charges of
$75 million to reflect market value of parts related to
certain aircraft which have been or will be withdrawn from
service and inventory parts which have been identified for
sale.
151
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Exhibit 3.1
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
NAMECO, INC.
INTO
USAIR GROUP, INC.
-------------------------------------------------
Pursuant to Sections 103 and 253 of the
General Corporation Law of the State of Delaware
-------------------------------------------------
USAir Group, Inc., a Delaware corporation (the
"Corporation"), does hereby certify:
FIRST: The Corporation is incorporated pursuant to the
General Corporation Law of the State of Delaware.
SECOND: The Corporation owns 100% of the outstanding shares
of each class of the capital stock of Nameco, Inc., a Delaware
corporation (the "Subsidiary").
THIRD: The Board of Directors of the Corporation, by
resolutions duly adopted a meeting held on November 13, 1996
(true and correct copies of which are attached hereto as Exhibit
A), has authorized the merger of the Subsidiary with and into the
Corporation (the "Merger"). Such resolutions have not been
modified or rescinded and are in full force and effect on the
date hereof.
FOURTH: The Corporation shall be the surviving corporation
of the Merger (the "Surviving Corporation").
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FIFTH: At the effective time of the Merger the name of the
Surviving Corporation shall be changed to US Airways Group, Inc.
SIXTH: The Merger shall become effective at 5:00 p.m.
(Delaware time) on February 21 , 1997.
IN WITNESS WHEREOF, USAir Group, Inc. has caused this
Certificate of Ownership and Merger to be executed in its
corporate name this 17th day of February, 1997.
USAIR GROUP, INC.
By: /s/ Michelle V. Bryan
---------------------
Name: Michelle V. Bryan
Title: Secretary
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EXHIBIT A
RESOLVED, that the proper officers of the Corporation be,
and each of them hereby is, authorized and directed to cause the
formation of Nameco, Inc. (the "Subsidiary"), as a wholly owned
subsidiary of the Corporation under and pursuant to the laws of
the State of Delaware; that the Subsidiary shall be merged with
and into the Corporation (the "Merger") and the Corporation shall
be the surviving corporation (the "Surviving Corporation") of the
Merger; that in connection with the Merger the Surviving
Corporation shall change its name to US Airways Group, Inc.;
that, from and after the effective time of the Merger, the
certificate of incorporation of the Corporation shall be the
certificate of incorporation of the Surviving Corporation, the
bylaws of the Corporation shall be the bylaws of the Surviving
Corporation, the officers and directors of the Corporation shall
be the officers and directors of the Surviving Corporation, the
outstanding common stock and other securities of the Corporation
shall remain outstanding as the common stock and other securities
of the Surviving Corporation and the outstanding common stock of
the Subsidiary shall be canceled; that the proper officers of the
Corporation be, and each of them hereby is, authorized and
directed, in the name and on behalf of the Corporation, to
prepare and execute a Certificate of Ownership and Merger and to
cause such Certificate of Ownership and Merger to be filed with
the Secretary of State of the State of Delaware pursuant to
Sections 103 and 253 of the General Corporation Law of the State
of Delaware; and that the Merger shall be effective at the time
stated in such Certificate of Ownership and Merger; and
FURTHER RESOLVED, that, upon the effectiveness of the
Merger, a Restated Certificate of Incorporation be prepared which
only restates and integrates and does not further amend the
provisions of the Corporation's certificate of incorporation as
theretofore amended or supplemented; such Restated Certificate of
Incorporation be, and it hereby is, approved and adopted in all
respects as and for the Restated Certificate of Incorporation of
the Corporation; and that the proper officers of the Corporation
be, and each of them hereby is, authorized, empowered and
directed, in the name and on behalf of the Corporation, to cause
such Restated Certificate of Incorporation, as restated, to be
filed with the Secretary of State of the State of Delaware
pursuant to Section 245 of the General Corporation Law of the
State of Delaware; and
FURTHER RESOLVED, that, upon the effectiveness of the
Merger, the proper officers of the Corporation be, and each of
them individually hereby is, authorized, empowered and directed
to prepare or cause to be prepared forms of (i) a certificate to
evidence shares of common stock of the Corporation, par value
$1.00 per share ("Common Stock"), (ii) a certificate to evidence
the 9 1/4% Series A Cumulative Convertible Redeemable Preferred
Stock, without par value ("Series A Preferred Stock"), (iii) a
certificate to evidence the Series B Cumulative Convertible
Preferred Stock, without par value ("Series B Preferred Stock"),
and (iv) a certificate to evidence the Junior Participating
Preferred Stock Series D, without par value ("Series D Preferred
Stock"), (v) a certificate to evidence the Series F Cumulative
Convertible Senior Preferred Stock, without par value ("Series F
Preferred Stock"), (vi) a certificate to evidence the Series T-1
Cumulative Convertible Exchangeable Senior Preferred Stock,
without par value ("Series T-1 Preferred Stock"), (vii) a
certificate to evidence the Series T-2 Cumulative Convertible
Exchangeable Senior Preferred Stock, without par value ("Senior
T-2 Preferred Stock"), in each case reflecting the change in
corporate name resulting from the Merger; that such forms of
Common Stock
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certificate, Series A Preferred Stock certificate, Series B
Preferred Stock certificate, Series D Preferred Stock
certificate, Series F Preferred Stock certificate, Series T-1
Preferred Stock certificate, and Series T-2 Preferred Stock
certificate shall be adopted, to the same extent as if presented
to and adopted by the Board of Directors at this meeting,
provided that a copy thereof be affixed to these minutes by the
Secretary or Assistant Secretary; that the proper officers of the
Corporation be, and each of them individually hereby is,
authorized, empowered and directed to execute such Common Stock
certificates, Series A Preferred Stock certificates, Series B
Preferred Stock certificates, Series D Preferred Stock
certificates, Series F Preferred Stock certificates, Series T-1
Preferred Stock certificates, and Series T-2 Preferred Stock
certificates; that any or all of such signatures on such Common
Stock certificates, Series A Preferred Stock certificates, Series
B Preferred Stock certificates, Series D Preferred Stock
certificates, Series F Preferred Stock certificates, Series T-1
Preferred Stock certificates, and Series T-2 Preferred Stock
certificates may be facsimile signatures; and that in case any
officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon such Common Stock
certificates, Series A Preferred Stock certificates, Series B
Preferred Stock certificates, Series D Preferred Stock
certificates, Series F Preferred Stock certificates, Series T-1
Preferred Stock certificates, and Series T-2 Preferred Stock
certificates shall have ceased to be such officer, transfer agent
or registrar before the issuance thereof, it may be issued by the
Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue; and
FURTHER RESOLVED, that, upon the effectiveness of the
Merger, the proper officers of the Corporation be, and each of
them individually hereby is, authorized, empowered and directed
to prepare or cause to be prepared a corporate seal, reflecting
the change in corporate name resulting from the Merger; that such
corporate seal shall be adopted, to the same extent as if
presented to and adopted by the Board of Directors at this
meeting, provided that an impression of such corporate seal be
affixed to these minutes by the Secretary or Assistant Secretary;
and
FURTHER RESOLVED, that the proper officers of the
Corporation be, and each of them hereby is, authorized and
directed to prepare, execute, deliver and file or cause to be
prepared, executed, delivered and filed any and all documents and
to take any and all actions with federal, state, local and
foreign authorities and with the New York Stock Exchange, Inc.,
as they or any of them may deem necessary or appropriate to
effect the corporate name change and Merger contemplated by the
foregoing resolutions and to carry out fully the purpose and
intent of such resolutions; and
FURTHER RESOLVED, that the proper officers of the
Corporation be, and each of them hereby is, authorized, empowered
and directed, in the name and on behalf of the Corporation, to
take all actions necessary to adopt and approve the proposed name
change of USAir, Inc., a wholly owned subsidiary of the
Corporation, to US Airways, Inc. as set forth in a Certificate of
Amendment to the Restated Certificate of Incorporation of USAir,
Inc.; and
FURTHER RESOLVED, that all actions heretofore taken by any
officer or director of the Corporation in connection with the
matters contemplated by the foregoing resolutions be, and they
hereby are, approved, adopted, ratified, confirmed and accepted
in all respects.
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Exhibit 3.2
BY-LAWS
USAIR GROUP, INC.
November 28, 1995
--------------------------------------
ARTICLE I
OFFICES
---------
The registered office of the Corporation shall be in the City
of Wilmington, County of New Castle, Delaware. The Corporation
may have offices within and without the State of Delaware.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Annual Meetings. The annual meeting of
stockholders for the election of Directors shall be held on the
fourth Wednesday in May, or if that be a legal holiday, on the
next succeeding day not a legal holiday, at nine thirty o'clock in
the morning, or in any year at such other date and time as may be
designated by the Board of Directors, at which meeting the
stockholders shall elect by ballot, by plurality vote, a Board of
Directors and may transact such other business as may come before
the meeting.
Section 2. Special Meetings. Special meetings of the
stockholders, except those regulated by statue, may be called at
any time by the Chairman or President, and shall, be called by the
President or Secretary on the request, in writing, or by vote, of
a majority of Directors, and by no other person or persons. No
business may be transacted at a special meeting of the
stockholders except as set forth in the notice of such meeting.
Section 3. Location of Meetings. All meetings of the
stockholders for any purpose may be held, within or without the
State of Delaware, at such time and place as shall be stated in
the notice of the meeting or a duly executed waiver of notice, and
by no other person or persons. No business may be transacted at a
special meeting of the stockholder except as set forth in the
notice of such meeting.
Section 4. List of Stockholders. The Secretary shall cause
to be prepared a complete list of stockholders entitled to vote at
any meeting, arranged in alphabetical order and showing the
address of each stockholder and number of shares registered in the
name of each stockholder. The list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours for at least ten days
prior to the meeting either at a place within the city where the
meeting is to be held (which place shall be specified in the
notice of meeting) or at the place where the meeting is to be
held. The list shall also be open for inspection by stockholders
during the time and at the place of the meeting.
Section 5. Voting. Each stockholder entitled to vote shall,
at every meeting of the stockholders, be entitled to one vote in
person or by proxy, signed by him, for each share of voting
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stock held by him but no proxy shall be voted on or after three
years from its date, unless it provides for a longer period. Such
rightto vote shall be subject to the right of the Board of
Directors to fix a record date for voting stockholders as
hereinafter provided.
Section 6. Notice of Stockholder Business. At an annual
meeting of the stockholders held pursuant to Section 1 of this
Article II, only such business shall be conducted as shall have
been brought before the meeting (a) by or at the direction of the
Board of Directors or (b) by any stockholder of the Corporation,
provided such stockholder complies with this Section 6. For
business to be properly brought before an annual meeting by a
stockholder, the stockholder shall give prior written notice
thereof to the Secretary. Such notice shall be received at the
principal executive offices of the Corporation by the Secretary
not less than thirty nor more than sixty days prior to such annual
meeting; provided, however, that in the event that less than forty
days' prior written notice or prior public disclosure of the date
of the meeting is given or made to stockholders, such notice by
the stockholder shall be received by the Secretary not later than
the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such
public disclosure was made. A stockholder's notice to the
Secretary pursuant to this Section 6 shall set forth as to each
matter the stockholder proposes to bring before the annual
meeting: (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, of the stockholder
proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and
(d) any material interest of the stockholder in such business.
Notwithstanding any provision in these By-Laws to the contrary, no
business shall be conducted at an annual meeting except in
accordance with this Section 6. The Chairman of an annual meeting
shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting in
accordance with this Section 6, and if he should so determine, he
shall so declare to the meeting and any such business shall not be
transacted.
Section 7. Notice to Stockholders. Notice of all meetings
shall be mailed by the Secretary to each stockholder of record
entitled to vote, at his or her last known post office address,
not less than ten nor more than sixty days prior to any annual or
special meeting.
Section 8. Quorum. The holders of a majority of the stock
outstanding and entitled to vote shall constitute a quorum but the
holders of a smaller amount may adjourn from time to time without
further notice until a quorum is secured.
Section 9. Stockholder Action by Written Consent. In order
that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall
not recede the date upon which the resolution fixing the record
date is adopted by the Board of Directors, and which date shall
not be more than 10 days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any
stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written
notice to the Secretary, request the Board of Directors to fix a
record date. The Board of Directors shall promptly, but in all
events within 10 days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record
date has been fixed by the Board of Directors within 10 days of
the date on which such a
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request is received, the record date for determining stockholders
entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed
to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of
business, or any officer or agent of the Corporation having
custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed
by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for
determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on
the date on which the Board of Directors adopts the resolution
taking such prior action.
ARTICLE III
DIRECTORS
---------
Section 1. Number. The property and business of the
Corporation shall be managed and controlled by its Board of
Directors, consisting of fifteen members. Directors need not be
stockholders.
Section 2. Notice of Stockholder Nominees. Only persons
nominated in accordance with this Section 2 shall be eligible for
election as Directors. Nomination of persons for election to the
Board of Directors of the Corporation may be made at a meeting of
stockholders (a) by or at the direction of the Board of Directors
or (b) by any stockholder of the Corporation entitled to vote for
the election of Directors at the meeting who complies with this
Section 2. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be received at the
principal executive offices of the Corporation by the Secretary
not less than thirty nor more than sixty days prior to the
meeting; provided, however, that in the event less than forty
days' prior written notice or prior public disclosure of the date
of the meeting is given or made to stockholders, such notice by
the stockholder shall be received by the Secretary not later than
the close of business on the tenth day following the day on which
such notice of the date of meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth:
(a) as to each person whom the stockholder proposes to nominate
for election or re-election as a Director, all information
relating to such person as is required to be disclosed in
solicitation of proxies for election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such
person's written consent to being named in the proxy statement as
a nominee and to serving as a Director if elected), and (b) as to
the stockholder giving the notice (i) the name and address, as
they appear on the Corporation's books, of such stockholder and
(ii) the class and number of shares of the Corporation which are
beneficially owned by such stockholder. At the request of the
Board of Directors any person nominated by the Board of Directors
for election as a Director shall furnish to the Secretary that
information required by this Section 2 to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
No person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with these By-Laws.
The Chairman of the stockholders' meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination
was not made in accordance with these By-Laws, and if he should so
determine, he shall so declare to such meeting and the defective
nomination shall be disregarded.
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Section 3. Election, Term, Vacancies. The Directors shall
hold office until the next annual election and until their
successors are elected and qualified. They shall be elected by
the stockholders, except that if there be a vacancy in the Board
by reason of death, resignation or otherwise, such vacancy shall
be filled for the unexpired term by the remaining Directors,
though less than a quorum, by a majority vote.
Section 4. Powers of Directors. The business of the
Corporation shall be managed by or under the direction of its
Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
Section 5. Directors Emeriti. For the purpose of
conserving, for the benefit of the Corporation, the knowledge,
experience and good will generated by a long period of service in
formulating and implementing the basic policies of the Corporation
or predecessor or affiliated corporations, the Board of Directors
shall have the power in its discretion to appoint one or more
Directors Emeriti. Any person who has served for a period of not
less than ten years on the Board of Directors of the Corporation
or of any predecessor or affiliate of the Corporation, may be
appointed a Director Emeritus by the Board of Directors for an
annual term and shall be eligible for reappointment annually at
the discretion of the Board. The duties of a Director Emeritus
shall consist of being available to the Chairman and President of
the Corporation for consultation and advice on any matters
pertaining to the Corporation which the Chairman or President may
refer to him from time to time. Directors Emeriti shall be
notified of and be invited to attend the annual meeting of the
Board of Directors and such other meetings as determined by the
Chairman or President of the Corporation and be entitled to be
heard at such meetings on matters pending before the Board of
Directors. They shall not be members of the Board nor be entitled
to vote as such nor be counted as constituting part of a quorum.
Section 6. Compensation. Directors, members of committees
and Directors Emeriti shall receive such compensation as the Board
shall from time to time prescribe.
ARTICLE IV
MEETINGS OF DIRECTORS
---------------------
Section 1. Annual Meeting. After each annual election of
Directors, the newly elected Directors may meet for the purpose of
organization, the election of Officers, and the transaction of
other business, at such place and time as shall be fixed by the
stockholders at the annual meeting, and, if a majority of the
Directors be present at such place and time, no prior notice of
such meeting shall be required to be given to the Directors. The
place and time of such meeting may also be fixed by written
consent of the Directors.
Section 2. Regular Meetings. Bi-monthly meetings of the
Board of Directors shall be held in January, March, May, July,
September and November in each year, on the date and at a time and
place designated from time to time by the Board of Directors. The
Secretary shall forward to each Director, at least five days
before any such meeting, a notice of the time and place of the
meeting.
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Section 3. Special Meetings. Special meetings of the
Directors may be called by the Chairman or President on two days'
notice in writing, or on one day's notice by telegraph to each
Director, and shall be called by the President in like manner on
the written request of two or more Directors.
Section 4. Location. Meetings of the Directors may be held
within or without the State of Delaware at such place as is
indicated in the notice of waiver of notice thereof.
Section 5. Quorum. A majority of the Directors shall
constitute a quorum, but a smaller number may adjourn from time to
time, without further notice, until a quorum is secured.
ARTICLE V
COMMITTEES
----------
Section 1. Creation. The Board of Directors may, by
resolution or resolutions passed by a majority of the Board,
designate one or more committees each to consist of three or more
Directors of the Corporation. Each such Committee shall have and
may exercise such powers and duties as shall be delegated to it by
the Board of Directors except that no such Committee shall have
power to (a) elect Directors; (b) alter, amend or repeal these By-
Laws or any resolution or resolutions of the Board of Directors
relating to such Committee; (c) declare any dividend or make any
other distribution to the stockholders of the Corporation; (d)
appoint any member of such Committee; or (e) take any other action
which may lawfully be taken only by the Board.
Section 2. Committee Procedure. Each such Committee
established by the Board shall meet at stated times or on notice
to all members by any member of such Committee. Each such
Committee shall establish its own rules of procedure. Each such
Committee shall keep regular minutes of its proceedings and report
the same to the Board of Directors.
ARTICLE VI
INDEMNIFICATION
---------------
The Corporation shall indemnify its Directors, Officers and
employees, and shall have the power to indemnify its other agents,
to the full extent permitted by the General Corporation Law of the
State of Delaware, as amended from time to time (but, in the case
of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide on June 29,
1989). Expenses (including attorneys' fees) incurred by an
Officer, Director or employee in defending any civil, criminal,
administrative, or investigative action, suit or proceeding shall
to the fullest extent permitted by law be paid by the Corporation
in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
Director, Officer or employee to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified
by the Corporation as authorized hereunder. The right to
indemnification and the payment of expenses incurred in defending
a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the
Restated Certificate of Incorporation, by-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
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ARTICLE VII
OFFICERS
-----------
Section 1. General. The Officers of the Corporation shall
be a Chairman of the Board, a Chief Executive Officer, a
President, one or more Vice Presidents, a Secretary, a Treasurer,
a Controller and such other Officers as may from time to time be
chosen by the Board of Directors. The Chief Executive Officer
shall be empowered to appoint and remove from office, at his
discretion, Assistant Vice Presidents and Assistant Secretaries.
Any number of offices may be held by the same person, unless the
certificate of incorporation or these By-Laws otherwise provide.
Section 2. Term. The Officers of the Corporation shall hold
office until their successors are chosen and qualified. Any
Officer chosen or appointed by the Board of Directors may be
removed either with or without cause at any time by the
affirmative vote of a majority of the whole Board of Directors.
If the office of any Officer other than an assistant officer
becomes vacant for any reason, the vacancy shall be filled by the
affirmative vote of a majority of the whole Board of Directors.
Section 3. Chairman of the Board. A Chairman of the Board
shall be chosen from among the Directors. The Chairman of the
Board shall preside at all meetings of the stockholders and
Directors and shall perform such other duties as may be prescribed
by the Board of Directors.
Section 4. Chief Executive Officer. The Chief Executive
Officer shall have responsibility for the general and active
management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried
into effect.
Section 5. President. The President shall be the Chief
Operating Officer of the Corporation. The President shall have
such responsibilities and authority as determined by the Chief
Executive Officer of the Corporation.
Section 6. Vice President. The Vice President or Vice
Presidents, in the order designated by the Board of Directors,
shall be vested with all the powers and required to perform all
the duties of the President in his absence or disability and shall
perform such other duties as may be prescribed by the Board of
Directors.
Section 7. Secretary. The Secretary shall perform all the
duties commonly incident to his office, and keep accurate minutes
of all meetings of the stockholders, the Board of Directors and
the Committees of the Board of Directors, recording all the
proceedings of such meetings in a book kept for that purpose. He
shall give proper notice of meetings of stockholders and Directors
and perform such other duties as the Board of Directors shall
designate.
Section 8. Treasurer. The Treasurer shall have custody of
the funds and securities of the Corporation and shall keep full
and accurate accounts of disbursements and shall deposit all
monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the
Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board or President, taking
proper vouchers for such disbursements, and shall render to the
President and Directors, whenever they may require it, an account
of all his
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transactions as Treasurer and of the financial condition of the
Corporation. Until such time as a Controller is elected, the
Treasurer shall also maintain adequate records of all assets,
liabilities and transactions of the Corporation and shall see that
adequate audits thereof are currently and regularly made. He
shall cause to be prepared, compiled and filed such reports,
statements, statistics and other data as may be required by law or
prescribed by the President. The Treasurer shall perform such
other duties as the Board of Directors may from time to time
prescribe.
ARTICLE VIII
STOCK
-----
Section 1. Certificates. Certificates of stock of the
Corporation shall be signed by, or in the name of, the Corporation
by the President or a Vice President and the Secretary or an
Assistant Secretary, certifying the number of shares of the holder
thereof. The Board of Directors may appoint one or more transfer
agents and registrars of transfers, which may be the same agency
or agencies, and may require all certificates to bear the
signatures of one of such transfer agents and one of such
registrars of transfers, or as the Board of Directors may
otherwise direct. Where any such certificate is signed by a
transfer agent or transfer clerk and by a registrar, the
signatures of any such President, Vice President, Secretary or
Assistant Secretary may be facsimiles engraved or printed. The
certificates shall bear the seal of the Corporation or a
predecessor corporation or shall bear a facsimile of such seal
engraved or printed.
In case any Officer or Officers who have signed, or whose
facsimile signature or signatures have been used on, any
certificate or certificates of stock, has ceased to be an Officer
or Officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates
have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be
issued and delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signature or
signatures have been used thereon, had not ceased to be such
Officer or Officers of the Corporation.
Section 2. Lost Certificates. If a certificate of stock is
lost or destroyed, another may be issued in its stead upon proof
of loss or destruction and the giving of a satisfactory bond of
indemnity, in an amount sufficient to indemnify the Corporation
against any claim. A certificate may be issued without requiring
bond when, in the judgment of the Directors, it is proper to do
so.
Section 3. Transfers. All transfers of stock of the
Corporation shall be made upon its books by the holder of the
shares in person or by his lawfully constituted representative,
upon surrender of certificates of stock for cancellation.
Section 4. Fixing Record Date. The Board of Directors may
fix in advance a record date in order to determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of
any other lawful action. The record date shall not be more than
sixty nor less than ten days before the date of any meeting of
stockholders nor more than sixty days prior to any other action.
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Section 5. Stockholders of Record. The Corporation shall be
entitled to treat the holder of record of any share or shares of
stock as the holder in fact thereof, and accordingly shall not be
bound to recognize any equitable or other claim to or interest in
such share on the part of any other person whether or not it shall
have express or other notice thereof, except as expressly provided
by the laws of the State of Delaware.
ARTICLE IX
GENERAL PROVISIONS
------------------
Section 1. Fiscal Year. The fiscal year of the Corporation
shall begin the first day of January and end on the 31st day of
December of each year.
Section 2. Dividends. Dividends upon the capital stock may
be declared by the Board of Directors at any regular or special
meeting and may be paid in cash or in property or in shares of the
capital stock. Before paying any dividend or making any
distribution of profits, the Directors may set apart out of any of
the funds of the Corporation available for dividends a reserve or
reserves for any proper purpose and may alter or abolish any such
reserve or reserves.
Section 3. Checks. All checks, drafts or orders for the
payment of money shall be signed by the Treasurer or by such other
Officer, Officers, employee or employees as the Board of Directors
may from time to time designate.
Section 4. Corporate Seal. The Corporate Seal shall have
inscribed thereon the name of the Corporation, the year of its
incorporation, and the words "Incorporated Delaware."
ARTICLE X
AMENDMENT TO BY-LAWS
--------------------
Subject to the provisions of any resolution of Directors
creating any series of preferred stock, the Board of Directors
shall have the power from time to time to make, alter or repeal
By-Laws, but any By-Laws made by the Board of Directors may be
altered, amended or repealed by the stockholders at any annual
meeting of stockholders, or at any special meeting provided that
the notice of such proposed alteration, amendment or repeal is
included in the notice of such special meeting.
ARTICLE XI
RESTATED CERTIFICATE OF INCORPORATION TO GOVERN
-----------------------------------------------
Notwithstanding anything to the contrary herein, in the event
any provision contained herein is inconsistent with or conflicts
with a provision of the Corporation's Restated Certificate of
Incorporation, as the same may be from time to time amended or
supplemented (the "Restated Certificate of Incorporation"), such
provision herein shall be superseded by the inconsistent provision
in the Restated Certificate of Incorporation, to the extent
necessary to give effect to such provision in the Restated
Certificate of Incorporation.
8
<PAGE>
Exhibit 3.3
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
USAIR, INC.
---------------------------------------------------
Pursuant to Section 242 of
the General Corporation Law of the State of Delaware
---------------------------------------------------
USAir, Inc. a Delaware corporation (hereinafter called the
"Corporation"), does hereby certify as follows:
FIRST: Article FIRST of the Corporation's Restated
Certificate of Incorporation is hereby amended to read in its
entirety as set forth below:
FIRST: The name of the corporation is US Airways, Inc.
(hereinafter the "Corporation").
SECOND: The foregoing amendment was duly adopted in
accordance with Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be duly executed in its corporate name this 17th
day of February, 1997.
USAIR, INC.
By: /s/Michelle V. Bryan
--------------------
Name: Michelle V. Bryan
Title: Vice President, Deputy
General Counsel and Secretary
<PAGE>
Exhibit 3.4
BY-LAWS
USAIR, INC.
November 28, 1995
----------------------------------------------
ARTICLE I
OFFICES
-------
The registered office of the Corporation shall be in the City
of Wilmington, County of New Castle, Delaware. The Corporation
may have offices within and without the State of Delaware.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Annual Meetings. The annual meeting of
stockholders for the election of Directors shall be held on the
fourth Wednesday in May, or if that be a legal holiday, on the
next succeeding day not a legal holiday, at nine thirty o'clock in
the morning, or in any year at such other date and time as may be
designated by the Board of Directors, at which meeting the
stockholders shall elect by ballot, by plurality vote, a Board of
Directors and may transact such other business as may come before
the meeting.
Section 2. Special Meetings. Special meetings of the
stockholders may be called at any time by the Chairman or
President, and shall be called by the President or Secretary on
the request, in writing, or by vote, of a majority of Directors,
or at the request, in writing, of stockholders of record owning a
majority in amount of the capital stock outstanding and entitled
to vote.
Section 3. Location of Meetings. All meetings of the
stockholders for any purpose may be held, within or without the
State of Delaware, at such time and place as shall be stated in
the notice of the meeting or a duly executed waiver of notice.
Section 4. List of Stockholders. The Secretary shall cause
to be prepared a complete list of stockholders entitled to vote at
any meeting, arranged in alphabetical order and showing the
address of each stockholder and number of shares registered in the
name of each stockholder. The list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours for at least ten days
prior to the meeting either at a place within the city where the
meeting is to be held (which place shall be specified in the
notice of meeting) or at the place where the meeting is to be
held. The list shall also be open for inspection by stockholders
during the time and at the place of the meeting.
Section 5. Voting. Each stockholder entitled to vote shall,
at every meeting of the stockholders, be entitled to one vote in
person or by proxy, signed by him, for each share of voting stock
held by him but no proxy shall be voted on or after three years
from its date, unless it provides for a longer period. Such right
to vote shall be subject to the right of the Board of Directors to
fix a record date for voting stockholders as hereinafter provided.
1
<PAGE>
Section 6. Notice to Stockholders. Notice of all meetings
shall be mailed by the Secretary to each stockholder of record
entitled to vote, at his or her last known post office address,
not less than ten nor more than sixty days prior to any annual or
special meeting.
Section 7. Quorum. The holders of a majority of the stock
outstanding and entitled to vote shall constitute a quorum but the
holders of a smaller amount may adjourn from time to time without
further notice until a quorum is secured.
ARTICLE III
DIRECTORS
---------
Section 1. Number. The property and business of the
Corporation shall be managed and controlled by its Board of
Directors, consisting of fifteen members. Directors need not be
stockholders.
Section 2. Election, Term, Vacancies. The Directors shall
hold office until the next annual election and until their
successors are elected and qualified. They shall be elected by
the stockholders, except that if there be a vacancy in the Board
by reason of death, resignation or otherwise, such vacancy shall
be filled for the unexpired term by the remaining Directors,
though less than a quorum, by a majority vote.
Section 3. Powers of Directors. The business of the
Corporation shall be managed by or under the direction of its
Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these by-laws
directed or required to be exercised or done by the stockholders.
Section 4. Directors Emeriti. For the purpose of
conserving, for the benefit of the Corporation, the knowledge,
experience and good will generated by a long period of service in
formulating and implementing the basic policies of the Corporation
or corporations merged into the corporation, the Board of
Directors shall have the power in its discretion to appoint one or
more Directors Emeriti. Any person who has served for a period of
not less than ten years on the Board of Directors of the
Corporation or of any predecessor or affiliate of the Corporation,
may be appointed a Director Emeritus by the Board of Directors for
an annual term and shall be eligible for reappointment annually at
the discretion of the Board. The duties of a Director Emeritus
shall consist of being available to the Chairman and President of
the Corporation for consultation and advice on any matters
pertaining to the Corporation which the Chairman or President may
refer to him from time to time. Directors Emeriti shall be
notified of and be invited to attend the annual meeting of the
Board of Directors and such other meetings as determined by the
Chairman or President of the Corporation and be entitled to be
heard at such meetings on matters pending before the Board of
Directors. They shall not be members of the Board nor be entitled
to vote as such nor be counted as constituting part of a quorum.
Section 5. Compensation. Directors, members of committees
and Directors Emeriti shall receive such compensation as the Board
shall from time to time prescribe.
2
<PAGE>
ARTICLE IV
MEETINGS OF DIRECTORS
---------------------
Section 1. Annual Meeting. After each annual election of
Directors, the newly elected Directors may meet for the purpose of
organization, the election of Officers, and the transaction of
other business, at such place and time as shall be fixed by the
stockholders at the annual meeting, and, if a majority of the
Directors be present at such place and time, no prior notice of
such meeting shall be required to be given to the Directors. The
place and time of such meeting may also be fixed by written
consent of the Directors.
Section 2. Regular Meetings. Bi-monthly meetings of the
Board of Directors shall be held in January, March, May, July,
September and November in each year, on the date and at a time and
place designated from time to time by the Board of Directors. The
Secretary shall forward to each Director, at least five days
before any such meeting, a notice of the time and place of the
meeting.
Section 3. Special Meetings. Special meetings of the
Directors may be called by the Chairman or President on two days'
notice in writing, or on one day's notice by telegraph to each
Director, and shall be called by the President in like manner on
the written request of two or more Directors.
Section 4. Location. Meetings of the Directors may be held
within or without the State of Delaware at such place as is
indicated in the notice of waiver of notice thereof.
Section 5. Quorum. A majority of the Directors shall
constitute a quorum, but a smaller number may adjourn from time to
time, without further notice, until a quorum is secured.
ARTICLE V
COMMITTEES
----------
Section 1. Creation. The Board of Directors may, by
resolution or resolutions passed by a majority of the Board,
designate one or more committees each to consist of three or more
Directors of the Corporation. Each such Committee shall have and
may exercise such powers and duties as shall be delegated to it by
the Board of Directors except that no such Committee shall have
power to (a) elect Directors; (b) alter, amend or repeal these By-
Laws or any resolution or resolutions of the Board of Directors
relating to such Committee; (c) declare any dividend or make any
other distribution to the stockholders of the Corporation; (d)
appoint any member of such Committee; or (e) take any other action
which may lawfully be taken only by the Board.
Section 2. Committee Procedure. Each such Committee
established by the Board shall meet at stated times or on notice
to all members by any member of such Committee. Each such
Committee shall establish its own rules of procedure. Each such
Committee shall keep regular minutes of its proceedings and report
the same to the Board of Directors.
3
<PAGE>
ARTICLE VI
INDEMNIFICATION
---------------
The Corporation shall indemnify its Directors, Officers and
employees, and shall have the power to indemnify its other agents,
to the full extent permitted by the General Corporation Law of the
State of Delaware, as amended from time to time, (but, in the case
of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide on June 29,
1989). Expenses (including attorneys' fees) incurred by an
Officer, Director or employee in defending any civil, criminal,
administrative, or investigative action, suit or proceeding shall
to the fullest extent permitted by law be paid by the Corporation
in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
Director, Officer or employee to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified
by the Corporation as authorized hereunder. The right to
indemnification and the payment of expenses incurred in defending
a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the
Restated Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
ARTICLE VII
OFFICERS
--------
Section 1. General. The Officers of the Corporation shall
be a Chairman of the Board, a Chief Executive Officer, a
President, one or more Vice Presidents, a Secretary, a Treasurer,
a Controller and such other Officers as may from time to time be
chosen by the Board of Directors. The Chief Executive Officer
shall be empowered to appoint and remove from office, at his
discretion, Assistant Vice Presidents and Assistant Secretaries.
Any number of offices may be held by the same person, unless the
certificate of incorporation or these By-laws otherwise provide.
Section 2. Term. The Officers of the Corporation shall hold
office until their successors are chosen and qualified. Any
Officer chosen or appointed by the Board of Directors may be
removed either with or without cause at any time by the
affirmative vote of a majority of the whole Board of Directors.
If the office of any Officer other than an assistant officer
becomes vacant for any reason, the vacancy shall be filled by the
affirmative vote of a majority of the whole Board of Directors.
Section 3. Chairman of the Board. A Chairman of the Board
shall be chosen from among the Directors. The Chairman of the
Board shall preside at all meetings of the stockholders and
Directors and shall perform such other duties as may be prescribed
by the Board of Directors.
Section 4. Chief Executive Officer. The Chief Executive
Officer shall have responsibility for the general and active
management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried
into effect.
Section 5. President. The President shall be the Chief
Operating Officer of the Corporation. The President shall have
such responsibilities and authority as determined by the
4
<PAGE>
Chief Executive Officer of the Corporation.
Section 6. Vice President. The Vice President or Vice
Presidents, in the order designated by the Board of Directors,
shall be vested with all the powers and required to perform all
the duties of the President in his absence or disability and shall
perform such other duties as may be prescribed by the Board of
Directors.
Section 7. Secretary. The Secretary shall perform all the
duties commonly incident to his office, and keep accurate minutes
of all meetings of the stockholders, the Board of Directors and
the Committees of the Board of Directors, recording all the
proceedings of such meetings in a book kept for that purpose. He
shall give proper notice of meetings of stockholders and Directors
and perform such other duties as the Board of Directors shall
designate.
Section 8. Treasurer. The Treasurer shall have custody of
the funds and securities of the Corporation and shall keep full
and accurate accounts of disbursements and shall deposit all
monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the
Board of Directors. He shall disburse the funds of the Corpora-
tion as may be ordered by the Board or President, taking proper
vouchers for such disbursements, and shall render to the President
and Directors, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation. The Treasurer shall perform such other duties as the
Board of Directors may from time to time prescribe.
Section 9. Controller. The Controller shall maintain
adequate records of all assets, liabilities and transactions of
the Corporation and shall see that adequate audits thereof are
currently and regularly made. He shall cause to be prepared,
compiled and filed such reports, statements, statistics and other
data as may be required by law or prescribed by the President and
shall perform such other duties as may be prescribed by the Board
of Directors.
ARTICLE VIII
STOCK
-----
Section 1. Certificates. Certificates of stock of the
Corporation shall be signed by, or in the name of, the Corporation
by the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary,
certifying the number of shares of the holder thereof. The Board
of Directors may appoint a transfer agent, and a registrar of
transfers, which may be the same agency, and may require all
certificates to bear the signatures of such transfer agent and
such registrar of transfers, or as the Board of Directors may
otherwise direct. Where any such certificate is signed by a
transfer agent or transfer clerk and by a registrar, the
signatures of any such President, Vice President, Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary may be
facsimiles engraved or printed. The certificates shall bear the
seal of the Corporation or shall bear a facsimile of such seal
engraved or printed.
In case any Officer or Officers who have signed, or whose
facsimile signature or signatures have been used on, any
certificate or certificates of stock, has ceased to be an Officer
or Officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates
have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be
issued and delivered as though the person or persons who
5
<PAGE>
signed such certificate or certificates or whose facsimile
signature or signatures have been used thereon, had not ceased to
be such Officer or Officers of the Corporation.
Section 2. Lost Certificates. If a certificate of stock is
lost or destroyed, another may be issued in its stead upon proof
of loss or destruction and the giving of a satisfactory bond of
indemnity, in an amount sufficient to indemnify the Corporation
against any claim. A certificate may be issued without requiring
bond when, in the judgment of the Directors, it is proper to do
so.
Section 3. Transfers. All transfers of stock of the
Corporation shall be made upon its books by the holder of the
shares in person or by his lawfully constituted representative,
upon surrender of certificates of stock for cancellation.
Section 4. Fixing Record Date. The Board of Directors may
fix in advance a record date in order to determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of
any other lawful action. The record date shall not be more than
sixty nor less than ten days before the date of any meeting of
stockholders nor more than sixty days prior to any other action.
Section 5. Stockholders of Record. The Corporation shall be
entitled to treat the holder of record of any share or shares of
stock as the holder in fact thereof, and accordingly shall not be
bound to recognize any equitable or other claim to or interest in
such share on the part of any other person whether or not it shall
have express or other notice thereof, except as expressly provided
by the laws of Delaware.
ARTICLE IX
GENERAL PROVISIONS
------------------
Section 1. Fiscal Year. The fiscal year of the Corporation
shall begin the first day of January and end on the 31st day of
December of each year.
Section 2. Dividends. Dividends upon the capital stock may
be declared by the Board of Directors at any regular or special
meeting and may be paid in cash or in property or in shares of the
capital stock. Before paying any dividend or making any
distribution of profits, the Directors may set apart out of any of
the funds of the Corporation available for dividends a reserve or
reserves for any proper purpose and may alter or abolish any such
reserve or reserves.
Section 3. Checks. All checks, drafts or orders for the
payment of money shall be signed by the Treasurer or by such other
Officer, Officers, employee or employees as the Board of Directors
may from time to time designate.
Section 4. Corporate Seal. The Corporate Seal shall have
inscribed thereon the name of the Corporation, the year of its
incorporation, and the words "Incorporated Delaware."
6
<PAGE>
ARTICLE X
AMENDMENT OF BY-LAWS
--------------------
Subject to the provisions of any resolution of Directors
creating any series of preferred stock, the Board of Directors
shall have the power from time to time to make, alter or repeal
by-laws, but any by-laws made by the Board of Directors may be
altered, amended or repealed by the stockholders at any annual
meeting of stockholders, or at any special meeting provided that
the notice of such proposed alteration, amendment or repeal is
included in the notice of such special meeting.
7
<PAGE>
Exhibit 10.3
Executive Incentive Compensation Plan
of USAir Group, Inc.
as Amended and Restated December 1, 1996
The Incentive Compensation Plan of USAir Group, Inc. was
originally adopted by the Corporation effective January 1, 1988.
By action of the Corporation's Board of Directors, the Plan has
been amended and restated in its entirety to be effective for
Plan Years ending after December 1, 1995.
1. Purpose - The purpose of the Plan is to reward executives and
other key management employees of USAir and other subsidiaries of
the Corporation and to motivate them to increase shareholder
value and to achieve profitable results.
2. Definitions - When used in this Plan, unless the context
otherwise suggests:
(a) "Committee" shall mean the Human Resources Committee of
the Corporation's Board of Directors.
(b) "Corporation" shall mean USAir Group, Inc.
(c) "Plan" shall mean the Incentive Compensation Plan of
USAir Group, Inc.
(d) "Plan Year" shall mean January 1 to December 31 to
coincide with the Corporation's fiscal year.
(e) "USAir" shall mean USAir, Inc.
3. Administration - The Plan shall be administered by the
Committee. Any Committee member who is eligible to participate in
the Plan shall abstain from voting on any matter before the
Committee relating to the Plan. The Committee may authorize and
establish such rules, regulations, and procedures as it may
determine advisable to make the Plan effective or to provide for
its administration and may take such other action with regard to
the Plan as it shall deem desirable to effectuate its purposes. A
determination of the Committee as to any questions which arise
with respect to the interpretation of the provisions of the Plan
shall be final.
4. Participants - Executives and other key management employees
of USAir and other subsidiaries of the Corporation as approved by
the Committee.
5. Eligibility - Participation must be actively employed in
order to receive an award. However, should a Participant retire,
die or become disabled at any time during the Plan Year, a pro
rata award will be paid based on the Participant's number of full
months of active service during the Plan Year. Participants in an
eligible position for less
Page 1
<PAGE>
than a full Plan Year, either due to the commencement or
termination of employment, promotion or demotion, shall receive a
pro rata award based on the number of full months in the eligible
position. Participants whose target percentage changes during a
Plan Year will receive an award based on a pro rata calculation
between the percentages.
6. Awards - The Plan provides for the payment of incentive and
bonus awards.
(a) Incentive Awards:
(i) The Committee will establish target awards for each
officer Participant in the Plan stated as a
percentage of the Participant's base salary. The
senior officer whose responsibilities include Human
Resources, with the concurrence of the Chief
Executive Officer, will establish target awards for
each non-officer Participant in the Plan stated as a
percentage of the Participants' base salary.
(ii) The Committee shall establish objectives for the
Plan Year by March 31 of the Plan Year against which
incentive awards will be measured.
(iii) Target awards will be paid if the Corporation and
the Participant meet established objectives. Awards
shall range from zero (0) to 200% of target if
objectives are achieved at maximum. The Committee
retains the right to adjust a Participant's award
based on the individual Participant's performance at
its sole discretion; however, no award may exceed
200% of the individual's target award.
(b) Bonus Awards: For any Plan Year in which no incentive
awards are paid, the Committee retains the right to
authorize bonus awards under the Plan to such
Participants and in such amounts as it shall determine in
its sole discretion.
(c) Incentive and bonus awards shall be paid in a lump sum
cash distribution to Participants as soon as practical
following the close of the Plan Year and after such
awards have been approved by the Committee.
7. Tax Withholding - Cash awards made pursuant to the Plan are
subject to applicable federal, state and local, if any, payroll
tax withholdings.
8. Amendment of Plan - The Committee may from time to time amend
the Plan and its terms and conditions and may at any time
discontinue the granting of awards under the Plan.
9. Effective Date and Term of Plan - The Plan shall be effective
as of January 1, 1988 and shall remain in effect until the
Committee, in its sole discretion, decided to terminate the plan.
Page 2
<PAGE>
Exhibit 10.25
January 30, 1997
Mr. W. Thomas Lagow
Executive Vice President-Marketing
USAir, Inc.
2345 Crystal Drive
Arlington, VA 22227
Dear Tom:
This letter, when countersigned by you, will reflect the
agreement between you and USAir, Inc. ("USAir") with respect to
the severance of your employment with USAir and amends the terms
of the Employment Agreement between USAir and you dated as of
February 7, 1992, as previously amended ("Employment Agreement").
The terms of this amendment have been approved by the Board of
Directors at its meeting held on January 22, 1997.
USAir previously notified you of its intent to terminate your
employment effective on January 7, 1997. Pursuant to the
provisions below, USAir is hereby agreeing to extend your
termination date until February 7, 1997. Your termination will be
reflected as a retirement on company records. USAir acknowledges
that such termination of your employment entitles you to severance
payments under Section 6(d)(1) of the Employment Agreement and all
notice requirements for you or USAir thereunder are hereby waived.
USAir agrees to pay to you all severance compensation and benefits
set forth in Section 6(d)(1) of the Employment Agreement which
provides for the obligations of the company upon the termination
of the executive's employment in the absence of a change of
control. The specific compensation and benefits required pursuant
to the Employment Agreement, assuming a February 7, 1997 "Date of
Termination" (as defined in the Employment Agreement) are set
forth in Attachment A.
You requested, and USAir hereby agrees to provide, the
following additional compensation and benefits which you
acknowledge exceed the compensation and severance benefits to
which you were otherwise entitled as result of the termination of
your employment:
A. February 7, 1997 Severance Date. USAir agrees to extend
your employment through February 7, 1997 enabling you to qualify
for retiree benefit coverage as set forth more fully in paragraphs
(D) and (E) below. Your employment as Executive Vice President-
Marketing and every other position you hold with any parent,
subsidiary or affiliated company of USAir, will be severed
effective February 7, 1997. February 7, 1997 will be deemed to be
the "Date of Termination" for all purposes of the Employment
Agreement. During the period of employment from today's date
through February 7, 1997, you will continue to receive your
current salary and all other compensation and benefits applicable
to your current position as a senior officer.
<PAGE>
B. Restricted Stock. The 12,250 shares of restricted stock
granted to you on November 28, 1995 and which will remain subject
to restrictions on the Date of Termination and which would
otherwise be immediately forfeited upon your termination, will not
be forfeited and the restrictions will lapse on the established
vesting schedule dates irrespective of your employment
termination. Specifically, the restrictions will lapse on 5,250
shares of restricted stock on November 28, 1997 and the remaining
7,000 shares of restricted stock on November 28, 1998; however,
the lapse of the restrictions on each of the aforementioned
vesting dates remain contingent on your satisfactory compliance
with the conditions set forth below.
C. Bonus. On November 28, 1997, you will receive a bonus
payment for the 1996 fiscal year pursuant to the terms of the
Incentive Compensation Plan of USAir Group, Inc. This payment
will be in the gross amount of $238,000, plus interest accrued
from the date the 1996 bonus payments are made to other executives
of the company through November 28, 1997 using a reasonable
interest rate as determined at USAir's discretion; however, the
payment of such bonus remains contingent on your satisfactory
compliance with the conditions set forth below. Applicable taxes
will be withheld from the payment but no other payroll deductions
will be withheld from the payment.
D. Retiree Health Benefits. You hereby agree to elect
commencement of retirement benefits from all USAir pension plans
effective March 1, 1997. At the expiration of the Employment
Period (as defined in the Employment Agreement) on February 7,
2000, coverage under USAir's health benefit plan will convert to
retiree coverage. Effective February 7, 2000 you will be covered
on the same basis as other retired USAir employees and coverage
will continue in accordance with the terms of the USAir, Inc.
Health Benefit Plan as it may be amended from time to time. Your
continued coverage under the health benefit plan after February 7,
2000 remains contingent on your satisfactory compliance with the
conditions set forth below.
E. Travel Benefits. At the expiration of the Employment
Period on February 7, 2000 you will continue to remain eligible
for retiree travel privileges. This includes space positive on-
line travel for you and your spouse. You will be provided such
benefits on the same basis as other retired senior officers of the
company in accordance with company policy as it may be amended
from time to time. Your continued travel privileges after
February 7, 2000 remains contingent on your satisfactory
compliance with the conditions set forth below.
F. Supplemental Pension. Pursuant to the terms of the
supplemental pension agreement between you and USAir dated
February 7, 1992 ("SERP"), you would have been eligible to receive
an annual benefit of approximately $12,635 (calculated as a single
life annuity commencing on February 1, 1997). As a result of your
continued employment through February 7, 1997 you will be eligible
for an additional annual benefit of approximately $1,500
(calculated as a single life annuity commencing on March 1, 1997)
as a result of the additional service and age credited through the
continuation of your employment until February 7, 1997. The
payment of this added pension benefit remains contingent on your
satisfactory compliance with the conditions set forth below. The
annual benefit numbers stated above are approximations and the
precise calculation and payment of the supplemental pension
benefit is subject to the terms of the SERP.
<PAGE>
In consideration for the supplemental compensation and
benefits set forth in the foregoing paragraph, you agree to the
following conditions:
A. Transition and Ongoing Services. You will remain
available to the management of USAir through February 7, 1997 to
provide assistance in the transition of your responsibilities, and
will remain available throughout the remainder of the Employment
Period at such times, and on such terms as are mutually agreed
upon between you and USAir to provide consulting advice and
assistance. During the remainder of the employment period your
duty of loyalty to USAir will continue. In the event that USAir is
not fully satisfied with your assistance, you will forfeit
eligibility for all of the supplemental compensation and benefits
provided for in this amendment.
B. Non-Competition. You agree not to take a position for a
period of two years following the Date of Termination as an
employee, director, agent, consultant, advisor, owner, partner, or
joint venturer with, (i) any entity which directly or indirectly
provides transportation by air, (ii) any entity providing
financial, marketing or other advice to any entity providing
transportation by air, (iii) any entity entering into or
contemplating entering into a material agreement with USAir, (iv)
any entity providing financial, marketing or other advice to any
entity entering into or contemplating entering into a material
agreement with USAir, or (v) any entity with which you could make
use of the proprietary or other confidential information learned
while employed with USAir. With respect to items (ii) and (iv) of
the foregoing non-compete clause, you will not be precluded from
providing services to an entity engaged in one of the activities
included in items (ii) and (iv), provided that you are not
directly or indirectly assisting the entity in such activity and
you otherwise comply with the non-compete, non-disclosure and non-
disparagement requirements of this agreement. Any interpretation
as to whether a violation of this non-compete provision has
occurred will be determined in USAir's sole discretion. Should
you contemplate any position which may violate this provision you
must seek advance approval from USAir. Any waiver or release from
this provision must be evidenced in writing from the General
Counsel of USAir. In the event that USAir determines in its sole
discretion that you have breached this non-compete provision you
will forfeit eligibility for all of the supplemental compensation
and benefits provided for in this amendment. Any compensation or
benefits paid to you prior to such breach of the non-compete
provision must be repaid to USAir within 15 days of your receipt
of written notification of such breach from USAir. USAir reserves
the right to pursue any other legal or equitable remedies
available to it to enforce this non-compete provision.
C. Non-Disclosure and Non-Disparagement. You agree to hold
in a fiduciary capacity for the benefit of USAir and will not
disclose without the prior written consent of USAir, all
confidential and proprietary information, knowledge or data
relating to USAir, its parent, subsidiary or affiliated companies,
which was obtained by you during your employment with USAir unless
such information, knowledge or data is known to the general public
(other than by acts by you). You further agree not to disclose or
make public, orally, in writing, or otherwise, any disparaging
statements, or any information which would cause public discredit,
about USAir, its parent, subsidiary or affiliated companies, or
their respective directors, officers or employees. This provision
does not preclude you from making factual statements or analysis
related to the Company's financial results or general operations
of the Company relative to the industry to the extent that such
comments are related to performance of permitted employment
activities. In the event that you are subpoenaed or otherwise
compelled by court order to provide information which
<PAGE>
would violate this non-disclosure/non-disparagement provision,
you will notify USAir before responding to any such request for
testimony or information to afford USAir an opportunity to assert
any objection it may have. In the event that USAir determines in
its sole discretion that you have breached this non-
disclosure/non-disparagement provision you will forfeit
eligibility for all of the supplemental compensation and benefits
provided for in this amendment. Any compensation or benefits paid
to you prior to such breach of the non-disclosure/non-
disparagement provision must be repaid to USAir within 15 days of
your receipt of written notification of such breach from USAir.
USAir reserves the right to pursue any other legal or equitable
remedies available to it to enforce this non-disclosure/non-
disparagement provision.
D. Non-Solicitation of Employees. For a period of two
years following the Date of Termination you agree not to solicit
either directly or indirectly any USAir employees for hire by or
to provide services to another employer.
E. Release of Claims. You irrevocably and unconditionally
release and discharge USAir, it subsidiaries, parent, affiliates,
predecessors, successors and assigns, and their respective
principals, directors, officers, employees, and agents from all
legal, equitable, or administrative claims, known and unknown,
that you may have against any or all of them arising on or before
the date you execute this amendment. This release specifically
includes but is not limited to any discrimination claims arising
under the Civil Rights Act of 1964, as amended, the Americans with
Disabilities Act, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act, the Employee Retirement Income
Security Act, the Older Workers Benefit Protection Act, and all
other claims arising under federal, state, or local statutes,
common law, or ordinances. This release also includes but is not
limited to a release of any claim for tortious conduct, breach of
contract, breach of covenants, wrongful discharge or for
attorney's fees and costs.
The parties agree that any and all claims concerning the
application, interpretation, and enforcement of the Employment
Agreement, as amended, including, but not limited to, any and all
declaratory relief actions, injunctive relief actions, and/or
civil actions, shall be filed and litigated in the appropriate
trial court in the State of Delaware. The parties agree that they
are expressly waiving the right to file and litigate any action,
in law or in equity, concerning the application, interpretation,
and enforcement of the Employment Agreement, as amended, in any
other forum, and agree that they will accept service of process by
mail of any summons, complaint, claim, or subpoena filed in the
appropriate trial court in the State of Delaware concerning the
application, interpretation, and enforcement of the Employment
Agreement, as amended.
All other terms of the Employment Agreement not changed by
this amendment continue in full force and effect.
Your signature below indicates your agreement to and
intention to be bound by the terms of this amendment. Your
signature below also indicates that you have had read this
document, understand all of its provisions, have had the
opportunity to seek the advice of counsel, and you have been given
at least 21 days to review the document. If you sign this
amendment prior to the end of said 21-day period, you acknowledge
that you have done so voluntarily. You have seven days after
signature to revoke this amendment. Any such revocation must be
delivered in writing to USAir before the end of the seventh day.
<PAGE>
Pursuant to the authorization of its Board of Directors,
USAir has entered into this amendment by signature of its officer
below.
EXECUTIVE USAIR, INC.
/s/W. Thomas Lagow /s/Lawrence M. Nagin
- ------------------ --------------------
W. Thomas Lagow Lawrence M. Nagin
Executive Vice President-
Corporate Affairs and
General Counsel
<PAGE>
ATTACHMENT A
A. Section 6(d)(1)(i)(A). You will receive normal bi-weekly
payroll checks through February 7, 1997 at the annual salary rate
of $340,000. All applicable taxes and other usual payroll
deductions (i.e., 401(k) deductions, term pass and health plan
contributions) will be deducted from such checks.
B. Section 6(d)(1)(i)(B). Within 30 days after your Date
of Termination, USAir will issue a lump sum payment for the total
amount of base salary payable from February 7, 1997 through the
remainder of the Employment Period ending on February 7, 2000,
i.e., three years' base salary. This payment will be in the gross
amount of $1,020,000, however, applicable taxes will be withheld
from the payment. No other payroll deductions will be withheld
from the payment.
C. Section 6(d)(1)(i)(C). Within 30 days after your Date
of Termination, USAir will issue a lump sum payment for the 94
days of your unused accrued paid days off. This payment will be
in the gross amount of $122,923, however, applicable taxes will be
withheld from the payment. No other payroll deductions will be
withheld from the payment.
D. Section 6(d)(1)(ii). From February 7, 1997 through the
remainder of the Employment Period ending on February 7, 2000, you
will be eligible for continued coverage in all welfare and fringe
benefit plans maintained by USAir on the same basis as active key
executives. Specifically, this includes health plan (medical and
dental) coverage, split dollar life insurance, accidental death
and dismemberment insurance, long-term disability insurance,
space-positive on-line travel benefits, a USAir Club membership
and companion passes, as such welfare and fringe benefit plans may
be amended from time to time. All applicable employee charges or
contributions required for continued coverage under such plans
must be paid by you monthly. The Human Resources Department will
provide you with a listing of the applicable monthly charges and
direct you on the appropriate payment schedule for these charges.
US AIRWAYS GROUP, INC.
(FORMERLY USAIR GROUP, INC.)
EXHIBIT 11
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended December 31,
------------------------------
1996 1995 1994
------- ------- --------
Adjustments to Net Income (Loss)
- --------------------------------
Net Income (loss) $263,373 $119,287 $(684,923)
Preferred dividend requirement (88,775) (84,904) (78,036)
------- ------- -------
Net income (loss) applicable
to common stock and common
stock equivalents used for
primary computation 174,598 34,383 (762,959)
Fully Diluted Adjustments:
Assume conversion of preferred
stock:
Preferred dividend
requirement 88,775(1) 84,904(2) 78,036(2)
------- ------- -------
Adjusted net income (loss)
applicable to common stock
assuming full dilution $263,373 $119,287 $(684,923)
======= ======= =======
Adjustments to Common Shares Outstanding
- ----------------------------------------
Average number of shares of
common stock 64,021 62,352 59,915
Primary Adjustments:
Incremental shares from the
1984, 1992 and 1996 Plans'
outstanding stock options
using the treasury stock
method 898 78 -(3)
------ ------ ------
Total average number of common and
common equivalent shares used for
primary computation 64,919 62,430 59,915
====== ====== ======
<PAGE>
US AIRWAYS GROUP, INC.
(FORMERLY USAIR GROUP, INC.)
EXHIBIT 11
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(CONTINUED)
Years Ended December 31,
------------------------------
1996 1995 1994
------- ------- --------
Average number of shares of
common stock 64,021 62,352 59,915
Fully diluted adjustments:
Incremental shares from
the 1984, 1992, and 1996
Plans' outstanding stock
options using the treasury
stock method 1,580 174 12 (4)
Assume conversion of
preferred stock 39,155 (1) 39,156 (2) 39,156 (2)
------- ------- -------
Total average number of
common shares assumed to
be outstanding after full
conversion 104,756 101,682 99,083
======= ======= ======
Income (Loss) Per Common Share
- ------------------------------
Primary $ 2.69 $ 0.55 $(12.73)
======= ======= ======
Fully Diluted $ 2.51 $ 1.17 $(6.91)
======= ======= ======
(1) Inclusion of the effects of assuming conversion of US Airways
Group, Inc. ("US Airways Group") Series A Preferred Stock is
anti-dilutive but included in accordance with Regulation S-K
item 601(b)(11).
(2) Inclusion of the effects of assuming conversion of US Airways
Group's Series A, B, F, and T Preferred Stock is anti-
dilutive but included in accordance with Regulation S-K item
601(b)(11).
(3) The incremental shares that are a result of assuming exercise
of stock options using the treasury stock method are anti-
dilutive and excluded from the calculation of primary
earnings per share.
(4) The incremental shares that are a result of assuming exercise
of stock options using the treasury stock method are anti-
dilutive but included in accordance with Regulation S-K item
601(b)(11).
<PAGE>
US AIRWAYS GROUP, INC.
(FORMERLY USAIR GROUP, INC.)
EXHIBIT 21
Subsidiaries of US Airways Group, Inc.
--------------------------------------
US Airways, Inc.
Allegheny Airlines, Inc.
Piedmont Airlines, Inc.
PSA Airlines, Inc.
USAir Fuel Corporation
USAir Leasing and Services, Inc.
Material Services Company, Inc.
Subsidiaries of US Airways, Inc.
(Formerly USAir, Inc.)
--------------------------------------
USAM Corp.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
US Airways Group, Inc.:
We consent to the incorporation by reference in the registration
statement nos. 2-98828, 33-26762, 33-39896, 33-44835, 33-60618
and 33-60620 on Form S-8 and the registration statement nos. 33-
41821 and 33-50231 on Form S-3 of US Airways Group, Inc.
(formerly USAir Group, Inc.), of our report dated February 26,
1997, except as to note 4(c) and note 4(d) which are as of March
13, 1997, relating to the consolidated balance sheets of US
Airways Group, Inc. and subsidiaries (the "Company") as of
December 31, 1996 and 1995, and the related consolidated
statements of operations, cash flows and changes in stockholders'
equity (deficit) and the related consolidated financial statement
schedule for each of the years in the three-year period ended
December 31, 1996 which appear in the December 31, 1996 Annual
Report on Form 10-K of the Company and US Airways, Inc. (formerly
USAir, Inc.).
KPMG Peat Marwick LLP
Washington, DC
March 14, 1997
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
The Board of Directors
US Airways, Inc.:
We consent to the incorporation by reference in the registration
statement nos. 33-35509 and 33-50231-01 on Form S-3 of US
Airways, Inc. (formerly USAir, Inc.), of our report dated
February 26, 1997, except as to note 4(c) and note 4(d) which are
as of March 13, 1997, relating to the consolidated balance sheets
of US Airways, Inc. and subsidiary ("US Airways") as of December
31, 1996 and 1995, and the related consolidated statements of
operations, cash flows and changes in stockholder's equity
(deficit) and the related consolidated financial statement
schedule for each of the years in the three-year period ended
December 31, 1996 which appear in the December 31, 1996 Annual
Report on Form 10-K of US Airways Group, Inc. (formerly USAir
Group, Inc.) and US Airways.
KPMG Peat Marwick LLP
Washington, DC
March 14, 1997
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert W. Bogle,
Director of US Airways Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
10th day of March, 1997.
/S/ Robert W. Bogle
----------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edwin I. Colodny,
Director of US Airways Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
11 day of March, 1997.
/S/ Edwin I. Colodny
-----------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Mathias J. DeVito,
Director of US Airways Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
11th day of March, 1997.
/S/ Mathias J. DeVito
------------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Rakesh Gangwal,
Director of US Airways Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
10 day of March, 1997.
/S/ R. Gangwal
-----------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, George J. W. Goodman,
Director of US Airways Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
12th day of March, 1997.
/S/ George J. W. Goodman
--------------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John W. Harris,
Director of US Airways Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
11th day of March, 1997.
/S/ J W Harris
----------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edward A. Horrigan,
Jr., Director of US Airways Group, Inc., (the "Company"), do
hereby constitute and appoint Lawrence M. Nagin and John W.
Harper, and each of them (with full power to each of them to act
alone), attorney and agent for me and in my name and on my behalf
to sign any Annual Report on Form 10-K of the Company for the year
ended December 31, 1996 and any amendments or supplements thereto
which shall be filed with the Securities and Exchange Commission
under the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
10th day of March, 1997.
/S/ Edward A. Horrigan, Jr.
-----------------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert LeBuhn,
Director of US Airways Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
10th day of March, 1997.
/S/ Robert LeBuhn
---------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John G. Medlin, Jr.,
Director of US Airways Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
11th day of March, 1997.
/S/ John G. Medlin, Jr.
--------------------------L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Hanne M. Merriman,
Director of US Airways Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
12th day of March, 1997.
/S/ Hanne M. Merriman
------------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Raymond W. Smith,
Director of US Airways Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and perform
all acts and things necessary to be done in the premises as fully
and effectually in all respects as I could do if personally
present; and I hereby ratify and confirm all that said attorneys
and agents, and each of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
11th day of March, 1997.
/S/ R W Smith
--------------(L.S.)
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert W. Bogle,
Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 10th day of March, 1997.
/S/ Robert W. Bogle
---------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edwin I. Colodny,
Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 11 day of March, 1997.
/S/ Edwin I. Colodny
----------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Mathias J. DeVito,
Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 11th day of March, 1997.
/S/ Mathias J. DeVito
------------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Rakesh Gangwal,
Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 10 day of March, 1997.
/S/ R. Gangwal
-----------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, George J. W.
Goodman, Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 12th day of March, 1997.
/S/ George J. W. Goodman
--------------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John W. Harris,
Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 11th day of March, 1997.
/S/ J W Harris
-----------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edward A. Horrigan,
Jr., Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 10th day of March, 1997.
/S/ Edward A. Horrigan, Jr.
----------------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert LeBuhn,
Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 10th day of March, 1997.
/S/ Robert LeBuhn
--------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John G. Medlin, Jr.,
Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 11th day of March, 1997.
/S/ John G. Medlin, Jr.
------------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Hanne M. Merriman,
Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 12th day of March, 1997.
/S/ Hanne M. Merriman
-----------------------(L.S.)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Raymond W. Smith,
Director of US Airways, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin and John W. Harper, and
each of them (with full power to each of them to act alone),
attorney and agent for me and in my name and on my behalf to sign
any Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and any amendments or supplements thereto which
shall be filed with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and
each of them, full power and authority generally to do and
perform all acts and things necessary to be done in the premises
as fully and effectually in all respects as I could do if
personally present; and I hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
this 11th day of March, 1997.
/S/ R W Smith
-----------------(L.S.)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701345
<NAME> US AIRWAYS GROUP,INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 950,966
<SECURITIES> 635,839
<RECEIVABLES> 337,025<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 248,744
<CURRENT-ASSETS> 2,310,194
<PP&E> 6,388,325
<DEPRECIATION> 2,470,337
<TOTAL-ASSETS> 7,531,411
<CURRENT-LIABILITIES> 2,848,719
<BONDS> 2,615,780
758,719
213,128
<COMMON> 64,306
<OTHER-SE> (861,816)
<TOTAL-LIABILITY-AND-EQUITY> 7,531,411
<SALES> 0
<TOTAL-REVENUES> 8,142,413
<CGS> 0
<TOTAL-COSTS> 7,704,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 267,122
<INCOME-PRETAX> 275,482
<INCOME-TAX> 12,109
<INCOME-CONTINUING> 263,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 263,373
<EPS-PRIMARY> 2.69
<EPS-DILUTED> 2.33
<FN>
<F1>Receivables are presented net of allowances.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000714560
<NAME> US AIRWAYS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 950,134
<SECURITIES> 635,839
<RECEIVABLES> 342,718<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 211,184
<CURRENT-ASSETS> 2,269,255
<PP&E> 6,137,671
<DEPRECIATION> 2,381,844
<TOTAL-ASSETS> 7,409,773
<CURRENT-LIABILITIES> 3,000,670
<BONDS> 2,614,818
0
0
<COMMON> 1
<OTHER-SE> (85,155)
<TOTAL-LIABILITY-AND-EQUITY> 7,409,773
<SALES> 0
<TOTAL-REVENUES> 7,704,057
<CGS> 0
<TOTAL-COSTS> 7,335,389
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,936
<INCOME-PRETAX> 191,043
<INCOME-TAX> 7,811
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,232
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Receivables are presented net of allowances.
<F2>EPS calculations are not relevant because US Airways, Inc. is a wholly-owned
subsidiary of US Airways Group, Inc.
</FN>
</TABLE>
