FORM 10-Q-QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ------------
US AIRWAYS GROUP, INC.
(Exact name of registrant as specified in its charter)
State of Incorporation: Delaware
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 872-7000
(Registrant's telephone number, including area code)
(Commission file number: 1-8444)
(I.R.S. Employer Identification No: 54-1194634)
US AIRWAYS, INC.
(Exact name of registrant as specified in its charter)
State of Incorporation: Delaware
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 872-7000
(Registrant's telephone number, including area code)
(Commission file number: 1-8442)
(I.R.S. Employer Identification No: 53-0218143)
Indicate by check mark whether the registrants (1) have
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrants were
required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
As of April 30, 2000 there were outstanding approximately
66,619,000 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 H(1)(a) and (b) of Form 10-Q and is
therefore participating in the filing of this form in the reduced
disclosure format permitted by such Instructions.
US AIRWAYS GROUP, INC.
AND
US AIRWAYS, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1A. Financial Statements- US Airways Group, Inc.
Condensed Consolidated Statements of Operations
- Three Months Ended March 31, 2000 and 1999 1
Condensed Consolidated Balance Sheets
- March 31, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Cash Flows
- Three Months Ended March 31, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4
Item 1B. Financial Statements-US Airways, Inc.
Condensed Consolidated Statements of Operations
- Three Months Ended March 31, 2000 and 1999 8
Condensed Consolidated Balance Sheets
- March 31, 2000 and December 31, 1999 9
Condensed Consolidated Statements of Cash Flows
- Three Months Ended March 31, 2000 and 1999 10
Notes to Condensed Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
US Airways Group, Inc.
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 (unaudited)
(in millions, except per share amounts)
2000 1999
---- ----
Operating Revenues
Passenger transportation $1,884 $1,856
Cargo and freight 39 40
Other 175 176
----- -----
Total Operating Revenues 2,098 2,072
Operating Expenses
Personnel costs 876 801
Aviation fuel 274 129
Commissions 90 124
Aircraft rent 126 114
Other rent and landing fees 112 108
Aircraft maintenance 130 117
Other selling expenses 108 101
Depreciation and amortization 91 80
Other 430 409
----- -----
Total Operating Expenses 2,237 1,983
----- -----
Operating Income (Loss) (139) 89
Other Income (Expense)
Interest income 13 15
Interest expense (57) (50)
Interest capitalized 9 8
Other, net (1) 13
----- -----
Other Income (Expense), Net (36) (14)
----- -----
Income (Loss) Before Taxes and
Cumulative Effect of Accounting Change (175) 75
Provision (Credit) for Income Taxes (60) 29
----- -----
Income (Loss) Before Cumulative Effect
of Accounting Change (115) 46
Cumulative Effect of Accounting Change,
Net of Applicable Income Taxes
of $63 Million (103) -
----- -----
Net Income (Loss) $ (218) $ 46
===== =====
Earnings (Loss) per Common Share
Basic
Before Accounting Change $ (1.72) $ 0.57
Cumulative Effect of
Accounting Change $ (1.55) $ -
------ -----
Net Earnings (Loss)
per Common Share $ (3.27) $ 0.57
====== =====
Diluted
Before Accounting Change $ (1.72) $ 0.56
Cumulative Effect of
Accounting Change $ (1.55) $ -
------ -----
Net Earnings (Loss)
per Common Share $ (3.27) $ 0.56
====== =====
Shares Used for Computation (000)
Basic 66,500 79,464
Diluted 66,500 80,953
See accompanying Notes to Condensed Consolidated Financial Statements.
1
US Airways Group, Inc.
Condensed Consolidated Balance Sheets
March 31, 2000 (unaudited) and December 31, 1999
(in millions)
March 31, December 31,
2000 1999
--------- -----------
ASSETS
Current Assets
Cash $ 48 $ 31
Cash equivalents 967 215
Short-term investments 353 624
Receivables, net 425 387
Materials and supplies, net 229 226
Deferred income taxes 404 348
Prepaid expenses and other 250 265
------ ------
Total Current Assets 2,676 2,096
Property and Equipment
Flight equipment 5,967 5,672
Ground property and equipment 1,047 1,011
Less accumulated depreciation
and amortization (2,985) (2,919)
------ ------
4,029 3,764
Purchase deposits for flight equipment 308 285
------ ------
Total Property and Equipment 4,337 4,049
Other Assets
Goodwill, net 565 569
Other intangibles, net 348 358
Other assets, net 615 613
------ ------
Total Other Assets 1,528 1,540
------ ------
$ 8,541 $ 7,685
====== ======
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 794 $ 116
Accounts payable 518 474
Traffic balances payable and
unused tickets 1,093 635
Accrued aircraft rent 99 236
Accrued salaries, wages and vacation 342 341
Other accrued expenses 665 699
------ -----
Total Current Liabilities 3,511 2,501
Noncurrent Liabilities
Long-term debt, net of current maturities 2,080 2,113
Accrued aircraft rent 314 279
Deferred gains, net 500 500
Postretirement benefits other than pensions 1,341 1,323
Employee benefit liabilities and other 1,127 1,086
----- -----
Total Noncurrent Liabilities 5,362 5,301
Commitments and Contingencies
Stockholders' Equity (Deficit)
Common stock 101 101
Paid-in capital 2,252 2,268
Retained earnings (deficit) (769) (551)
Common stock held in treasury, at cost (1,828) (1,852)
Deferred compensation (88) (83)
------ -----
Total Stockholders' Equity (Deficit) (332) (117)
------ -----
$ 8,541 $ 7,685
====== =====
See accompanying Notes to Condensed Consolidated Financial Statements.
2
US Airways Group, Inc.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 (unaudited)
(in millions)
2000 1999
---- ----
Cash flows from operating activities
Net income (loss) $ (218) $ 46
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities
Depreciation and amortization 91 80
Losses (gains) on dispositions of property (1) (1)
Amortization of deferred gains and credits (10) (7)
Cumulative effect of accounting change,
net of applicable income taxes 103 -
Other 12 21
Changes in certain assets and liabilities
Decrease (increase) in receivables (120) (53)
Decrease (increase) in materials and supplies,
prepaid expenses and pension assets 12 27
Decrease (increase) in deferred income taxes (13) (3)
Increase (decrease) in traffic balances
payable and unused tickets 292 161
Increase (decrease) in accounts payable and
accrued expenses (8) (16)
Increase (decrease) in postretirement benefits
other than pensions, noncurrent 18 21
----- -----
Net cash provided by (used for)
operating activities 158 276
Cash flows from investing activities
Capital expenditures (363) (241)
Proceeds from dispositions of property 2 3
Proceeds from exercise of Sabre options 81 -
Decrease (increase) in short-term investments 263 (14)
Decrease (increase) in restricted cash and investments (1) -
Other 3 2
----- -----
Net cash provided by (used for)
investing activities (15) (250)
Cash flows from financing activities
Proceeds from the sale-leaseback of aircraft - 132
Proceeds from issuance of long-term debt 662 -
Principal payments on long-term debt (17) (67)
Purchases of Common Stock (20) (339)
Sales of treasury stock 1 1
----- -----
Net cash provided by (used for)
financing activities 626 (273)
----- -----
Net increase (decrease) in Cash and Cash equivalents 769 (247)
----- -----
Cash and Cash equivalents at beginning of period 246 612
----- -----
Cash and Cash equivalents at end of period $1,015 $ 365
===== =====
Noncash investing and financing activities
Net unrealized gain on available-for-sale securities,
net of income tax effect $ - $ 22
Supplemental Information
Cash paid during the period for interest,
net of amount capitalized $ 59 $ 58
Net cash paid during the period for income taxes $ 53 $ 27
See accompanying Notes to Condensed Consolidated Financial Statements.
3
US AIRWAYS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements include
the accounts of US Airways Group, Inc. (US Airways Group or the Company)
and its wholly-owned subsidiaries. These interim period statements should
be read in conjunction with the Consolidated Financial Statements contained
in the Company's and US Airways, Inc.'s (US Airways, the Company's
principal operating subsidiary) Annual Report to the United States
Securities and Exchange Commission (SEC) on Form 10-K for the year ended
December 31, 1999.
Management believes that all adjustments necessary for a fair
statement of results have been included in the Condensed Consolidated
Financial Statements for the interim periods presented, which are
unaudited. All significant intercompany accounts and transactions have been
eliminated. 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 1999 amounts have been reclassified to conform with 2000
classifications.
(b) FREQUENT TRAVELER PROGRAM
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101), which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements. Although SAB 101 does not change existing accounting
rules on revenue recognition, changes in accounting to apply the guidance
in SAB 101 may be accounted for as a change in accounting principle. In
the first quarter, the Company changed its method of accounting for the
sale of mileage credits in its Dividend Miles program from recognizing
revenue when credits are sold, to deferring a portion of revenue
attributable to future transportation and recognizing it as passenger
revenue when the service is provided. The remaining portion of sales
proceeds will continue to be recognized immediately as a component of Other
operating revenues. The Company believes the new method results in a
better matching of revenue with the period in which travel services are
provided. In connection with the change, the Company recognized a $103
million, net of applicable income taxes, cumulative effect charge on
January 1, 2000.
(this space intentionally left blank)
4
The pro forma 1999 amounts below are provided to show what US Airways
Group would have reported if the new accounting policy had been in effect
in periods prior to 2000.
Three Months Ended March 31,
----------------------------
Pro Forma
2000 1999
---- ----
Operating Revenues
Passenger transportation $ 1,884 $ 1,889
Cargo and freight 39 40
Other 175 134
----- ----
Total Operating Revenues $ 2,098 $ 2,063
===== =====
Net Income (Loss) $ (218) $ 40
===== =====
Earnings (Loss) Per Common Share
Basic $(3.27) $ 0.50
Diluted $(3.27) $ 0.49
2. EARNINGS (LOSS) PER COMMON SHARE
Earnings per Common Share (EPS) is presented on both a basic and
diluted basis in accordance with the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Basic EPS is computed
by dividing net income (loss) by the weighted average number of shares of
common stock outstanding during the period. Diluted EPS reflects the
maximum dilution that would result after giving effect to dilutive stock
options. The following table presents the computation of basic and diluted
EPS (in millions, except per share amounts):
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Earnings (loss) applicable to common stockholders
before cumulative effect of accounting change $ (115) $ 46
==== ===
Common shares:
Weighted average common shares outstanding (basic) 67 79
Incremental shares related to outstanding
stock options (1) - 2
---- ---
Weighted average common shares outstanding (diluted) 67 81
==== ===
EPS before accounting change -Basic $(1.72) $ 0.57
EPS before accounting change -Diluted $(1.72) $ 0.56
(1) Option effect is antidilutive and therefore excluded for the three
months ended March 31, 2000.
Note: EPS amounts may not recalculate due to rounding.
3. COMPREHENSIVE INCOME
Comprehensive income (loss) was $(218) million and $68 million for the
quarters ended March 31, 2000 and 1999, respectively. Comprehensive income
encompasses net income and "other comprehensive income," which includes all
other non-owner transactions and events that change stockholders' equity.
Other comprehensive income is composed primarily of changes in the fair
value of the Company's equity investments.
5
4. OPERATING SEGMENTS AND RELATED DISCLOSURES
The Company has two reportable operating segments: US Airways and
US Airways Express. The US Airways segment includes the operations of US
Airways (excluding US Airways' wholly-owned subsidiary US Airways Investment
Management Company, Inc.) and Shuttle, Inc. The US Airways Express segment
includes the operations of the Company's three wholly-owned regional
airlines and activity resulting from marketing agreements with two non-owned
US Airways Express air carriers. All Other (as presented in the table
below) reflects the activity of subsidiaries other than those included in
the Company's two reportable operating segments.
Financial information for each reportable operating segment is set
forth below (in millions):
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Operating Revenues:
US Airways external $1,895 $1,890
US Airways intersegment 17 15
US Airways Express external 195 182
US Airways Express intersegment 10 8
All Other 8 -
Intersegment elimination (27) (23)
----- -----
$2,098 $2,072
===== ======
Income (Loss) Before Taxes and Cumulative
Effect of Accounting Change:
US Airways $ (188) $ 73
US Airways Express 6 25
All Other 7 (23)
----- -----
$ (175) $ 75
===== =====
5. LONG-TERM DEBT
On December 10, 1999, the Company entered into $500 million senior
secured credit facilities (Facilities) with a syndicate of financial
institutions. The Facilities are structured as a $250 million, 364-day
revolving loan facility, renewable annually for each of the next two years,
and a $250 million, 3-year revolving loan facility. The Facilities are
collateralized by a group of aircraft and slots. The Company has the right
to prepay any loans or terminate the commitment, in whole or in part, at
any time without premium or penalty. On March 15, 2000, the Company
received loan proceeds of $500 million from its Facilities. The effective
interest rate for borrowing against the Facilities is a floating rate based
on the London Interbank Offered Rate (LIBOR). On May 4, 2000, the Company
repaid the $500 million it had drawn against its Facilities.
In addition, during the first quarter of 2000 the Company borrowed
$162 million to finance new Airbus aircraft deliveries.
6. COMMITMENTS TO PURCHASE FLIGHT EQUIPMENT
As of March 31, 2000, the Company had 108 A320-family aircraft on firm
order, 196 A320-family aircraft subject to reconfirmation prior to
scheduled delivery and options for 50 additional A320-family aircraft. With
respect to the firm-order A320-family aircraft, 44 are expected to be
delivered during the balance of 2000 and the remaining A320-family aircraft
are expected to be delivered in the years 2001 through 2006. As of March
31, 2000, the Company had nine A330-300 aircraft on firm order, four A330-
300 aircraft subject to reconfirmation prior to scheduled delivery and
options for 16 additional A330-300 aircraft. With respect to the firm-order
A330-300 aircraft,
6
six are expected to be delivered during the balance of 2000 and the
remaining A330-300 aircraft are expected to be delivered in the years 2001
through 2004.
The minimum determinable payments associated with the Company's
acquisition agreements for Airbus aircraft (including progress payments,
payments at delivery, buyer-furnished equipment, spares, capitalized
interest, penalty payments, cancellation fees and/or nonrefundable
deposits) were estimated at $1.85 billion for the nine months ended
December 31, 2000, $1.14 billion in 2001, $490 million in 2002, $290
million in 2003 and $504 million thereafter.
7. SUBSEQUENT EVENTS
On May 1, 2000, US Airways' flight attendants, who are members of the
Association of Flight Attendants, approved a five-year labor contract.
The Federal Aviation Administration has designated John F. Kennedy
International Airport (Kennedy) and LaGuardia Airport (LaGuardia) in New
York, O'Hare International Airport in Chicago (O'Hare) and Ronald Reagan
Washington National Airport in Washington, D.C. (Reagan National) as "high
density traffic airports" and has limited the number of departure and
arrival slots at those airports. In April 2000, legislation was enacted
which eliminates slot restrictions beginning in 2001 at O'Hare and in 2007
at LaGuardia and Kennedy. As a result of this legislation, the Company
will perform an evaluation in the second quarter 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." The assessment could result in the recording of an impairment charge
for the amount that the carrying value of the slots exceeds the fair value
of the slots, the acceleration of amortization over the remaining useful
life, or some combination thereof.
(this space intentionally left blank)
7
US Airways, Inc.
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 (unaudited)
(in millions)
2000 1999
---- ----
Operating Revenues
Passenger transportation $1,684 $1,661
US Airways Express transportation revenues 191 177
Cargo and freight 38 39
Other 146 163
----- -----
Total Operating Revenues 2,059 2,040
Operating Expenses
Personnel costs 812 744
Aviation fuel 253 119
Commissions 83 113
Aircraft rent 108 98
Other rent and landing fees 101 99
Aircraft maintenance 103 88
Other selling expenses 97 91
Depreciation and amortization 82 73
US Airways Express capacity purchases 179 146
Other 376 376
----- -----
Total Operating Expenses 2,194 1,947
----- -----
Operating Income (Loss) (135) 93
Other Income (Expense)
Interest income 24 49
Interest expense (57) (50)
Interest capitalized 3 4
Other, net (1) 13
----- -----
Other Income (Expense), Net (31) 16
----- -----
Income (Loss) Before Taxes and Cumulative
Effect of Accounting Change (166) 109
Provision (Credit) for Income Taxes (58) 42
----- -----
Income (Loss) Before Cumulative Effect
of Accounting Change (108) 67
Cumulative Effect of Accounting Change, Net of
Applicable Income Taxes of $63 Million (103) -
----- -----
Net Income (Loss) $ (211) $ 67
===== =====
See accompanying Notes to Condensed Consolidated Financial Statements.
8
US Airways, Inc.
Condensed Consolidated Balance Sheets
March 31, 2000 (unaudited) and December 31, 1999
(in millions)
March 31, December 31,
2000 1999
---- ----
ASSETS
Current Assets
Cash $ 20 $ 13
Cash equivalents 966 215
Short-term investments 353 624
Receivables, net 420 385
Receivables from related parties, net 170 229
Materials and supplies, net 198 192
Deferred income taxes 397 341
Prepaid expenses and other 174 185
----- -----
Total Current Assets 2,698 2,184
Property and Equipment
Flight equipment 5,697 5,396
Ground property and equipment 1,005 970
Less accumulated depreciation and
amortization (2,847) (2,786)
----- -----
3,855 3,580
Purchase deposits for flight
equipment 160 46
----- -----
Total Property and Equipment 4,015 3,626
Other Assets
Goodwill, net 434 438
Other intangibles, net 268 278
Receivable from parent company 254 281
Other assets, net 703 690
----- -----
Total Other Assets 1,659 1,687
----- -----
$8,372 $7,497
===== =====
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 794 $ 116
Accounts payable 477 414
Traffic balances payable and unused tickets 1,093 635
Accrued aircraft rent 96 227
Accrued salaries, wages and vacation 336 336
Other accrued expenses 608 638
----- -----
Total Current Liabilities 3,404 2,366
Noncurrent Liabilities
Long-term debt, net of current maturities 2,068 2,100
Accrued aircraft rent 314 277
Deferred gains, net 499 499
Postretirement benefits other than pensions 1,316 1,298
Employee benefit liabilities and other 1,188 1,143
----- -----
Total Noncurrent Liabilities 5,385 5,317
Commitments and Contingencies
Stockholder's Equity (Deficit)
Common stock - -
Paid-in capital 2,406 2,406
Retained earnings (deficit) (793) (582)
Receivable from parent company (2,030) (2,010)
----- -----
Total Stockholder's Equity (Deficit) (417) (186)
----- -----
$8,372 $7,497
===== =====
See accompanying Notes to Condensed Consolidated Financial Statements.
9
US Airways, Inc.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 (unaudited)
(in millions)
2000 1999
---- ----
Cash flows from operating activities
Net income (loss) $ (211) $ 67
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities
Depreciation and amortization 82 73
Losses (gains) on dispositions of property - (1)
Amortization of deferred gains and credits (10) (7)
Cumulative effect of accounting change, net
of applicable income taxes 103 -
Other (10) (11)
Changes in certain assets and liabilities
Decrease (increase) in receivables (129) (50)
Decrease (increase) in materials and supplies,
prepaid expenses and pension assets 5 (11)
Decrease (increase) in deferred income taxes (12) (9)
Increase (decrease) in traffic balances
payable and unused tickets 292 161
Increase (decrease) in accounts payable
and accrued expenses 11 40
Increase (decrease) in postretirement
benefits other than pensions, noncurrent 18 21
----- -----
Net cash provided by (used for)
operating activities 139 273
Cash flows from investing activities
Capital expenditures (297) (206)
Proceeds from dispositions of property 1 3
Proceeds from exercise of Sabre options 81 -
Decrease (increase) in short-term investments 263 (14)
Decrease (increase) in restricted cash and investments (1) -
Funding of parent company's common stock purchases (20) (339)
Funding of parent company's aircraft purchase deposits (57) (27)
Other 3 1
----- -----
Net cash provided by (used for)
investing activities (27) (582)
Cash flows from financing activities
Proceeds from the sale-leaseback of aircraft - 132
Proceeds from issuance of long-term debt 662 -
Principal payments on long-term debt (16) (67)
----- -----
Net cash provided by (used for)
financing activities 646 65
----- -----
Net increase (decrease) in Cash and Cash equivalents 758 (244)
----- -----
Cash and Cash equivalents at beginning of period 228 604
----- -----
Cash and Cash equivalents at end of period $ 986 $ 360
===== =====
Noncash investing and financing activities
Net unrealized gain on available-for-sale
securities, net of income tax effect $ - $ 22
Reduction of parent company receivable-
assignment of aircraft purchase rights
by parent company $ 160 $ 70
Supplemental Information
Cash paid during the period for interest,
net of amount capitalized $ 58 $ 58
Net cash paid during the period for income taxes $ 53 $ 27
See accompanying Notes to Condensed Consolidated Financial Statements.
10
US AIRWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements
include the accounts of US Airways, Inc. (US Airways) and its
wholly-owned subsidiary US Airways Investment Management Company,
Inc. (USIM). US Airways is a wholly-owned subsidiary of US
Airways Group, Inc. (US Airways Group). These interim period
statements should be read in conjunction with the Consolidated
Financial Statements contained in US Airways' Annual Report to
the United States Securities and Exchange Commission (SEC) on
Form 10-K for the year ended December 31, 1999.
Management believes that all adjustments necessary for a
fair statement of results have been included in the Condensed
Consolidated Financial Statements for the interim periods
presented, which are unaudited. All significant intercompany
accounts and transactions have been eliminated. 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 1999 amounts have been reclassified to conform with
2000 classifications.
(b) FREQUENT TRAVELER PROGRAM
In December 1999, the SEC issued Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" (SAB 101),
which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. Although SAB 101
does not change existing accounting rules on revenue recognition,
changes in accounting to apply the guidance in SAB 101 may be
accounted for as a change in accounting principle. In the first
quarter, US Airways changed its method of accounting for the sale
of mileage credits in its Dividend Miles program from recognizing
revenue when credits are sold, to deferring a portion of revenue
attributable to future transportation and recognizing it as
passenger revenue when the service is provided. The remaining
portion of sales proceeds will continue to be recognized
immediately as a component of Other operating revenues. US
Airways believes the new method results in a better matching of
revenue with the period in which travel services are provided.
In connection with the change, US Airways recognized a $103
million, net of applicable income taxes, cumulative effect charge
on January 1, 2000.
(this space intentionally left blank)
11
The pro forma 1999 amounts below are provided to show what
US Airways would have reported if the new accounting policy had
been in effect in periods prior to 2000.
Three Months Ended March 31,
----------------------------
Pro Forma
2000 1999
---- ----
Operating Revenues
Passenger transportation $ 1,684 $ 1,694
US Airways Express
transportation revenues 191 177
Cargo and freight 38 39
Other 146 121
----- -----
Total Operating Revenues $ 2,059 $ 2,031
===== =====
Net Income (Loss) $ (211) $ 61
===== =====
2. COMPREHENSIVE INCOME
Comprehensive income (loss) was $(211) million and $89
million for the quarters ended March 31, 2000 and 1999,
respectively. Comprehensive income encompasses net income and
"other comprehensive income," which includes all other non-owner
transactions and events that change stockholder's equity. Other
comprehensive income is composed primarily of changes in the fair
value of US Airways' equity investments.
3. OPERATING SEGMENTS AND RELATED DISCLOSURES
US Airways has two reportable operating segments: US Airways
and US Airways Express. The US Airways segment includes the
operations of US Airways (excluding USIM). The US Airways Express
segment only includes certain revenues and expenses related to US
Airways Group's three wholly-owned regional airlines and from
marketing agreements with two non-owned US Airways Express air
carriers.
Financial information for each reportable operating segment
is set forth below (in millions):
Three Months Ended March 31,
----------------------------
2000 1999
---- -----
Operating Revenues:
US Airways $ 1,868 $1,863
US Airways Express 191 177
----- -----
$ 2,059 $2,040
===== =====
Income (Loss) Before Taxes and Cumulative
Effect of Accounting Change:
US Airways $ (189) $ 76
US Airways Express 12 31
All Other 11 2
----- -----
$ (166) $ 109
===== =====
4. RELATED PARTY TRANSACTIONS
US Airways provides various loans to US Airways Group
including the advancing of funds to purchase US Airways Group's
common stock which is recorded as a reduction of Stockholder's
Equity. Interest, at market rates, was accrued on these advances
through September 30, 1999 at
12
which time such advances became non-interest bearing. Interest
income related to this receivable was $24 million for the three
months ended March 31, 1999.
5. LONG-TERM DEBT
Please refer to Note 5 in US Airways Group's Notes to
Condensed Consolidated Financial Statements on page 6 of this
report related to long-term debt.
6. COMMITMENTS TO PURCHASE FLIGHT EQUIPMENT
Please refer to Note 6 in US Airways Group's Notes to
Condensed Consolidated Financial Statements on page 6 of this
report related to commitments to purchase flight equipment.
7. SUBSEQUENT EVENTS
Please refer to Note 7 in US Airways Group's Notes to
Condensed Consolidated Financial Statements on page 7 of this
report related to subsequent events.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL INFORMATION
Part I, Item 2 of this report should be read in conjunction
with Part II, Item 7 of US Airways Group, Inc.'s (US Airways
Group or the Company) and US Airways, Inc.'s (US Airways) Annual
Report to the United States Securities and Exchange Commission
(SEC) on Form 10-K for the year ended December 31, 1999. The
information contained herein is not a comprehensive discussion
and analysis of the financial condition and results of operations
of the Company and US Airways, but rather updates disclosures
made in the aforementioned filing.
Certain information contained herein should be considered
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 which is subject to a
number of risks and uncertainties. The preparation of forward-
looking statements 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.
Specific factors that could cause actual results to differ
materially from those set forth in the forward-looking statements
include: economic conditions; labor costs; financing costs;
aviation fuel costs; competitive pressures on pricing
(particularly from lower-cost competitors); weather conditions;
government legislation; consumer perceptions of the Company's
products; demand for air transportation in the markets in which
the Company operates; other operational matters discussed below
and other risks and uncertainties listed from time to time in the
Company's reports to the SEC. Other factors and assumptions not
identified above are also involved in the preparation of forward-
looking statements, 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.
FINANCIAL OVERVIEW
For the first quarter of 2000, the Company's operating
revenues were $2.1 billion, operating loss was $139 million, loss
before cumulative effect of accounting change was $115 million
and diluted loss per common share before cumulative effect of
accounting change was $1.72. For the comparative period in 1999,
operating revenues were $2.1 billion, operating income was $89
million, income before cumulative effect of accounting change was
$46 million and diluted earnings per common share before
cumulative effect of accounting change was $0.56.
13
The major factors that influenced the Company's financial
performance for the first quarter 2000 included significantly
higher fuel prices, severe winter weather along the Eastern
United States (U.S.) in January and reduced passenger traffic
stemming from the then-threatened March 25, 2000 shutdown (see
"Update on Strategic Objectives Progress" below) and passenger
apprehensions of flying on or around December 31, 1999 ("Y2K").
Nevertheless, as discussed below the Company made significant
progress in its five-point business plan.
UPDATE ON STRATEGIC OBJECTIVES PROGRESS
The Company's actions continue to follow its five-point
business plan:
- - Achieve a competitive cost structure,
- - Exploit the route network,
- - Rationalize the fleet,
- - Change the culture of the company,
- - Become the "Carrier of Choice."
Since the end of 1999, the Company made additional progress
related to its five-point business plan.
In recent years, US Airways has worked closely with its
employees covered by collective bargaining agreements to create
labor contracts that are mutually beneficial to US Airways and
the employees. Through the end of 1999, US Airways had achieved
this with all major employee groups except those represented by
the Association of Flight Attendants (AFA), which represents US
Airways flight attendant employees. The AFA had publicly
threatened that it would conduct an organized strike campaign it
had named "CHAOS" (Create Havoc Around Our System) if no
agreement was reached by March 25, 2000, the end of a 30-day
cooling off period. In response, US Airways announced that it
would shut down its operations on that date if an agreement was
not reached. On March 25, 2000, US Airways reached a tentative
agreement with the AFA, which was later ratified by the union
membership on May 1, 2000. With this ratification, US Airways
now believes that all labor contracts with its major employee
groups are cost competitive.
On February 10, 2000, the US Airways Air Line Pilots
Association (ALPA) Master Executive Council (MEC) and US Airways
Shuttle ALPA MEC announced the approval of an agreement clearing
the way for the integration of the US Airways Shuttle pilot group
into the US Airways pilot group. The Company plans to complete
the integration of US Airways Shuttle into US Airways no later
than June 30, 2000, with the corporate merger of Shuttle, Inc.
into US Airways to be effective July 1, 2000.
US Airways continues to expand international service. A
majority of transatlantic passengers originate their travel from
the Eastern U.S., the Company's primary operating region.
US Airways began to bolster international operations to take
advantage of its strategic position in 1996. In March, US Airways
received its first A330-300 widebody aircraft. US Airways
introduced three-class transatlantic service when the A330 was
placed into service on May 4th between Philadelphia and Paris. A
premium First Class cabin was added to an expanded Envoy Class
service and a comfortable Economy Class cabin. Since the end of
1999, US Airways added service between Charlotte and both Paris
and Frankfurt on April 13th and May 11th, respectively. In
addition, US Airways will add service between Philadelphia and
Manchester, England on May 25th. In early April 2000, US Airways
received approval from the Department of Transportation to
operate daily nonstop flights between Pittsburgh and London's
Gatwick Airport. US Airways expects this service to begin in
July 2000.
With regards to rationalizing the fleet, the Company
received six A320-family aircraft and one A330 aircraft into its
fleet during the first quarter and retired one DC-9-30 aircraft.
The Airbus
14
aircraft are more fuel efficient, are less costly to maintain,
have greater range capabilities and provide certain customer
service advantages over the aircraft they replace. During 2000,
the Company expects to take delivery of 50 A320-family aircraft
and seven A330 aircraft and retire 17 B737-200 aircraft, four
B727-200 aircraft and 15 DC-9-30 aircraft.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board
issued Interpretation No. 44 (FIN 44) "Accounting for Certain
Transactions involving Stock Compensation--an interpretation of
APB Opinion No. 25." Among other issues, FIN 44 clarifies the
application of Accounting Principles Board Opinion No. 25 (APB
25) regarding (a) the definition of employee for purposes of
applying APB 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination.
The provisions of FIN 44 that affect the Company are to be
applied on a prospective basis effective July 1, 2000. The
Company does not expect FIN 44 to have a material impact on its
results of operations or financial condition.
OTHER INFORMATION
In December 1999, the SEC issued Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" (SAB 101),
which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. Although SAB 101
does not change existing accounting rules on revenue recognition,
changes in accounting to apply the guidance in SAB 101 may be
accounted for as a change in accounting principle. In the first
quarter, the Company changed its method of accounting for the
sale of mileage credits in its Dividend Miles program from
recognizing revenue when credits are sold, to deferring a portion
of revenue attributable to future transportation and recognizing
it as passenger revenue when the service is provided. The
remaining portion of sales proceeds will continue to be
recognized immediately as a component of Other operating
revenues. The Company believes the new method results in a
better matching of revenue with the period in which travel
services are provided. In connection with the change, the
Company recognized a $103 million, net of applicable income
taxes, cumulative effect charge on January 1, 2000.
The Federal Aviation Administration has designated John F.
Kennedy International Airport (Kennedy) and LaGuardia Airport
(LaGuardia) in New York, O'Hare International Airport in Chicago
(O'Hare) and Ronald Reagan Washington National Airport in
Washington, D.C. (Reagan National) as "high density traffic
airports" and has limited the number of departure and arrival
slots at those airports. In April 2000, legislation was enacted
which eliminates slot restrictions beginning in 2001 at O'Hare
and in 2007 at LaGuardia and Kennedy. As a result of this
legislation, the Company will perform an evaluation in the second
quarter 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." The
assessment could result in the recording of an impairment charge
for the amount that the carrying value of the slots exceeds the
fair value of the slots, the acceleration of amortization over
the remaining useful life, or some combination thereof.
Among other things, the legislation encourages the
development of air service to smaller communities from slot-
controlled airports. In connection with this, several airlines
have announced increases in regional jet flights from New York's
LaGuardia airport to cities in the East, South and Midwest, which
are served by the Company. At this time, the Company cannot
predict the outcome of the announced plans.
Regional jet aircraft add a great deal of flexibility to the
US Airways system because they can operate effectively in markets
too small for US Airways' jet service and with stage lengths too
great
15
for turboprop aircraft. The number of regional aircraft operated
by US Airways is limited by provisions in US Airways' pilot labor
contract. In April 2000, US Airways' pilots ratified an
agreement whereby US Airways can increase the number of regional
jet aircraft operated from 35 to 70. US Airways is currently
evaluating where and when it will deploy the additional aircraft.
RESULTS OF OPERATIONS
The following section pertains to activity included in the
Company's Condensed Consolidated Statements of Operations (which
are contained in Part I, Item 1A of this report) and in selected
US Airways operating and financial statistics. Except where
noted, operating statistics referred to below are for scheduled
service only.
THREE MONTHS ENDED MARCH 31, 2000
COMPARED WITH THE
THREE MONTHS ENDED MARCH 31, 1999
OPERATING REVENUES-Passenger transportation revenues increased
$28 million. On a pro forma basis, passenger revenues for US
Airways declined $10 million due to a 1.7% decrease in yield
partially offset by a 1.1% increase in revenue passenger miles
(RPMs) for US Airways. See "Selected US Airways Operating and
Financial Statistics" below for additional information related to
US Airways' RPMs and Note 1(b) in Part I, Items 1A and 1B for
additional information related to the Dividend Miles revenue
recognition change. Passenger transportation revenues for
Shuttle, Inc. and the three wholly-owned regional airlines were
relatively flat. Other operating revenues were flat. However, on
a pro forma basis these revenues would have increased by $41
million. The increase is principally due to revenues from sales
of fuel to third parties (rate-driven) and to revenues generated
from sales of capacity (available seat miles or ASMs) on Mesa
Airlines, Inc. (Mesa) and Chautauqua Airlines, Inc. (Chautauqua-
this agreement began in July 1999) and an increase in frequent
traveler mileage credits sold to partners. The increased revenues
resulting from sales of capacity on Mesa and Chautauqua are
partially offset by increased expenses recognized in the Other
operating expenses category related to purchases of the capacity
(see below).
OPERATING EXPENSES-The Company's Personnel costs increased 9.4%
due to capacity driven increases in full time equivalents and
flight hours. Certain employee groups also received higher rates
of pay. Aviation fuel increased significantly due primarily to
average fuel prices increasing 105.2% over their prior year
level. Commissions decreased 27.4% due primarily to an October
1999 revision in the general commission rate paid to travel
agents from 8% to 5%. Aircraft rent increased 10.5% related to
the leases of Airbus aircraft delivered during 1999. Aircraft
maintenance increased 11.1% as the Company successfully
eliminated the backlog of aircraft waiting for scheduled
maintenance. Depreciation and amortization increased due to
amortization of capitalized software costs (related primarily to
information systems provided by Sabre, Inc. (Sabre)), the
purchase of new Airbus aircraft and higher depreciation expenses
associated with reducing the remaining depreciable life of
certain DC-9-30 and B737-200 aircraft. Other operating expenses
increased due to expenses from sales of fuel to third parties
(rate-driven) and to expenses related to purchases of capacity
(ASMs) on Mesa and Chautauqua (Chautauqua agreement began in July
1999). These increases were partially offset by lower expenses
associated with US Airways' information systems contract with
Sabre. Expenses in 1999 related to the Sabre contract were
higher than normal due to a high number of scheduled data
migration projects during that period.
OTHER INCOME (EXPENSE)-Interest expense increased due to more
debt outstanding. The Company's outstanding long-term debt
(including current maturities) has increased $915 million since
March 31, 1999 primarily due to $500 million receipt of proceeds
from its senior secured credit facilities and flight equipment
financing related to the new Airbus aircraft. Other, net for the
first quarter of 1999 includes a $9.9 million gain which resulted
from the sale of approximately 30% of US Airways' interest in
Equant n.v.
16
PROVISION (CREDIT) FOR INCOME TAXES-The book tax rate declined
from approximately 40% to 35%. The tax credit in the first
quarter of 2000 results from the tax benefit associated with the
pretax loss, offset by the tax effect of the Company's permanent
tax differences.
EARNINGS (LOSS) PER COMMON SHARE-The first quarter 2000 earnings
per common share number was adversely affected by the Company's
loss position and a lower share number stemming from the share
repurchases that occurred mostly in 1999.
<TABLE>
SELECTED US AIRWAYS OPERATING AND FINANCIAL STATISTICS (NOTE 1)
<CAPTION>
Three Months
Ended March 31, Increase
2000 1999 (Decrease)
---- ---- -----------
<S> <C> <C> <C>
Revenue passengers (thousands)* 12,804 12,998 (1.5) %
Total revenue passenger miles (RPMs) (millions) (Note 2) 9,676 9,573 1.1 %
RPMs (millions)* 9,660 9,553 1.1 %
Total available seat miles (ASMs) (millions) (Note 3) 15,057 14,134 6.5 %
ASMs (millions)* 15,037 14,107 6.6 %
Passenger load factor* (Note 4) 64.2 % 67.7 % (3.5) pts.
Break-even load factor (Note 5) 70.8 % 65.0 % 5.8 pts.
Yield* (Notes 6 and 12) 17.43 c 17.73 c (1.7) %
Passenger revenue per ASM* (Notes 7 and 12) 11.20 c 12.01 c (6.7) %
Revenue per ASM (Notes 8 and 12) 12.40 c 13.12 c (5.5) %
Cost per ASM (Note 9) 13.39 c 12.75 c 5.0 %
Average passenger journey (miles)* 754 735 2.6 %
Average stage length (miles)* 614 614 -
Revenue aircraft miles (millions)* 111 105 5.7 %
Cost of aviation fuel per gallon (Note 10) 88.81 c 43.27 c 105.2 %
Cost of aviation fuel per gallon,
excluding fuel taxes (Note 11) 82.32 c 37.17 c 121.5 %
Gallons of aviation fuel consumed (millions) 285 275 3.6 %
Number of aircraft in operating fleet at period-end 387 377 2.7 %
Full-time equivalent employees at period-end 42,727 38,832 10.0 %
* Scheduled service only (excludes charter service).
c = cents
Note 1. Operating statistics include US Airways' "mainline" operations as well as the
operations of its low-cost product, MetroJet. Operating statistics include free
frequent travelers and the related miles they flew. Revenues and expenses
associated with US Airways' capacity purchase arrangements with certain
affiliated airlines have been excluded from US Airways' financial results for
purposes of financial statistical calculations for better comparability between
periods.
Note 2. Revenue passenger miles-Revenue passengers multiplied by the number of miles
they flew.
Note 3. Available seat miles-Seats available multiplied by the number of miles flown (a
measure of capacity).
Note 4. Percentage of aircraft seating capacity that is actually utilized (RPMs/ASMs).
Note 5. Percentage of aircraft seating capacity utilized that equates to US Airways
breaking-even at the pre-tax income level.
Note 6. Passenger transportation revenue divided by RPMs.
Note 7. Passenger transportation revenue divided by ASMs (a measure of unit revenue).
Note 8. Total Operating Revenues divided by ASMs (a measure of unit revenue).
Note 9. Total Operating Expenses divided by ASMs (a measure of unit cost).
Note 10. Includes the base cost of aviation fuel, fuel taxes and transportation charges.
Note 11. Includes the base cost of aviation fuel and transportation charges (excludes
fuel taxes).
Note 12. Effective January 1, 2000, US Airways changed its accounting policy related to
Dividend Miles revenue recognition in connection with guidance found in the
Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." The 1999 amount has been adjusted to
show what US Airways would have reported if the new accounting policy had been
in effect in periods prior to 2000.
17
</TABLE>
Capacity (as measured by ASMs) increased 6.6% while RPMs
increased 1.1% resulting in a 64.2% passenger load factor, a 3.5
percentage point decrease. The relatively lower RPM growth in
the first quarter resulted from severe winter weather along the
Eastern U.S. particularly in January and reduced passenger
traffic stemming from the then-threatened March 25, 2000 shutdown
and passenger apprehensions of flying on or around December 31,
1999 ("Y2K").
US Airways' unit revenue (revenue per ASM) fell 5.5%
reflecting relatively flat revenues on increased capacity. Its
unit cost (cost per ASM) increased 5.0% reflecting significantly
higher fuel costs and higher personnel costs. If US Airways had
experienced the same rate for fuel during the quarter ended March
31, 2000 as that of the comparable prior year period, unit cost
would have decreased 1.7%.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company's Cash, Cash equivalents
and Short-term investments totaled $1.4 billion, including $500
million in proceeds received from the senior secured credit
facilities. The Company's ratio of current assets to current
liabilities (current ratio) was 0.8 (the Company's Condensed
Consolidated Balance Sheets are contained in Part I, Item 1A of
this report). As of December 31, 1999, the Company's Cash, Cash
equivalents and Short-term investments totaled $870 million and
the current ratio was 0.8.
For the first three months of 2000, the Company's operating
activities provided net cash of $158 million (as presented in the
Company's Condensed Consolidated Statements of Cash Flows, which
are contained in Part I, Item 1A of this report) compared to $276
million for the first three months of 1999. Operating cash flows
during the first quarter of 2000 were adversely affected by the
same factors that adversely affected financial results during
that period (see discussion in "Results of Operations").
For the first three months of 2000, investing activities
included cash outflows of $363 million related to capital
expenditures. Capital expenditures included $291 million for new
aircraft (including purchase deposits) with the balance related
to rotables, ground equipment (including training equipment) and
miscellaneous assets. During January 2000, US Airways received
$81 million related to its December 1999 exercise of Sabre
options. The net cash used for investing activities for the
quarter ended March 31, 2000 was $15 million. For the first three
months of 1999, investing activities included cash outflows of
$241 million related to capital expenditures. Capital
expenditures included $221 million for aircraft and aircraft-
related assets, including the purchase of five new Airbus A320-
family aircraft, the purchase of two operating aircraft that were
previously leased and purchase deposits related to new Airbus
aircraft scheduled for future delivery. Net cash used for the
quarter ended March 31, 1999 was $250 million.
Net cash provided by financing activities during the first
three months of 2000 was $626 million. US Airways received
proceeds of $500 million and $162 million from its senior secured
credit facilities in March 2000 and mortgage of six A320-family
aircraft, respectively. These proceeds were partially offset by
the early January purchase of 0.6 million shares of Common Stock
on the open market for $20 million and scheduled principal
repayments of long-term debt in the amount of $17 million. Net
cash used for financing activities during the first three months
of 1999 was $273 million, including $339 million related to the
Company's purchase of 6.6 million shares of its common stock.
Besides normal debt repayments during the first quarter of 1999,
US Airways retired early certain debt with a principal amount of
$47 million. These cash outflows were partially offset by $132
million of proceeds received from the sale-leaseback of four
A320-family aircraft.
The minimum determinable payments associated with the
Company's acquisition agreements for Airbus aircraft (including
progress payments, payments at delivery, buyer-furnished
equipment,
18
spares, capitalized interest, penalty payments, cancellation fees
and/or nonrefundable deposits) were estimated at $1.85 billion
for the nine months ended December 31, 2000, $1.14 billion in
2001, $490 million in 2002, $290 million in 2003 and $504 million
thereafter. In 2001, US Airways expects to take deliveries of 23
A320-family and two A330 aircraft. See Note 6 in Part I, Item 1A
for additional information related to Airbus aircraft.
UPDATED OUTLOOK FOR 2000
For the second quarter of 2000, unit cost is expected to be
comparable to 1999. Unit cost excluding the increase in fuel
prices is expected to improve 3% to 4%. Greater improvements are
expected in the third quarter due to better operational
performance, more capacity and longer stage length flying. Year-
over-year unit revenue performance for the second quarter is
expected to improve compared to the performance of the most
recent two quarters. Available seat miles are expected to
increase 11.5% year-over-year for the second quarter while load
factor is expected to be flat for the quarter. The available
seat mile increase is anticipated to be driven by a 25% increase
in transatlantic flying, a 14% increase in long-haul east-west
flying out of hubs and improved operational performance. For the
second half of 2000, available seat miles are expected to
increase 12%. Approximately 1/3 of the increase is expected to
come from long-haul growth in the core network, another 1/3 of
the increase is expected to come from growth in the transatlantic
operation and the remaining growth is expected to be equally
split between larger aircraft in the domestic operation and
improvements in operating performance. Available seat miles for
2000 are expected to increase approximately 11% versus 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
There have been no material changes to the Company's
disclosures related to certain market risks as reported under Part
II, Item 7A, "Quantitative and Qualitative Disclosures About
Market Risk," in the Annual Report of US Airways Group, Inc. and
US Airways, Inc. to the U.S. Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No new material legal proceedings have commenced during the
time period covered by this interim report. In addition, there
have been no significant developments in the pending legal
proceedings as previously reported on the Annual Report of US
Airways Group, Inc. and US Airways, Inc. to the U.S. Securities
and Exchange Commission on Form 10-K for the year ended December
31, 1999.
(this space intentionally left blank)
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
DESIGNATION DESCRIPTION
10.1 Amendment No. 6 dated as of April 19, 2000, to
A319/A320/A321 Purchase Agreement dated October 31,
1997 between US Airways Group and AVSA, S.A.R.L.
(portions of this exhibit have been omitted pursuant
to a request for confidential treatment and filed
separately with the SEC).
10.2 Amendment No. 1 dated as of March 23, 2000, to
A330/A340 Purchase Agreement dated November 24, 1998
between US Airways Group and AVSA, S.A.R.L. (portions
of this exhibit have been omitted pursuant to a
request for confidential treatment and filed
separately with the SEC).
18 Letter from KPMG LLP re change in accounting principle
27.1 Financial Data Schedule-US Airways Group
27.2 Financial Data Schedule-US Airways
B. REPORTS ON FORM 8-K
DATE OF REPORT SUBJECT OF REPORT
May 9, 2000 Certain forward-looking information was
provided by US Airways to the investment
community related to aircraft fleet and
selected operating and financial statistics.
May 2, 2000 News release announcing the approval of a
five-year labor contract between US Airways
and its flight attendants who are members of
the Association of Flight Attendants.
April 19, 2000 News release disclosing the results of
operations for both US Airways Group and US
Airways for the three months ended March 31,
2000, and selected operating and financial
statistics for US Airways for the same
period.
April 11, 2000 Certain forward-looking information was
provided by US Airways to the investment
community related to aircraft fleet and
selected operating and financial statistics.
March 15, 2000 Certain forward-looking information was
provided by US Airways to the investment
community related to aircraft fleet and
selected operating and financial statistics.
March 3, 2000 Documents filed as Exhibits in connection
with, and incorporated by reference into, US
Airways Group, Inc.'s and US Airways, Inc.'s
Registration Statement on Form S-3
(Registration No. 333-79825). The
Registration Statement, and a Prospectus
Supplement, dated February 25, 2000, to the
Prospectus, dated July 30, 1999, relate to
the offering of US Airways, Inc. Pass
Through Certificates, Series 2000-1, Class G.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrants have duly caused this report to be
signed on their behalf by the undersigned thereunto duly
authorized.
US Airways Group, Inc. (Registrant)
Date: May 11, 2000 By: /s/ Anita P. Beier
--------------------------
Anita P. Beier
Vice President and Controller
(Chief Accounting Officer)
US Airways, Inc. (Registrant)
Date: May 11, 2000 By: /s/ Anita P. Beier
---------------------------
Anita P. Beier
Vice President and Controller
(Chief Accounting Officer)
21
Amendment No.6
TO THE A319/A320/A321 PURCHASE AGREEMENT
dated as of October 31, 1997
between
AVSA, S.A.R.L.,
and
US AIRWAYS GROUP, INC.
This Amendment No. 6 (hereinafter referred to as the "Amendment")
entered into as of April 19, 2000, by and between AVSA, S.A.R.L.,
a societe a responsabilite limitee organized and existing under
the laws of the Republic of France, having its registered office
located at 2, Rond Point Maurice Bellonte, 31700 Blagnac, FRANCE
(hereinafter referred to as the "Seller"), and US Airways Group,
Inc., a corporation organized and existing under the laws of the
State of Delaware, United States of America, having its
executive offices located at 2345 Crystal Drive, Arlington, VA
22227, U.S.A. (hereinafter referred to as the "Buyer");
WITNESSETH :
WHEREAS, the Buyer and the Seller entered into an Airbus
A319/A320/A321 Purchase Agreement, dated as of October 31, 1997,
relating to the sale by the Seller and the purchase by the Buyer
of certain Airbus Industrie A319, A320 and A321 model aircraft
(the "Aircraft"), which agreement, together with all Exhibits,
Appendices and Letter Agreements attached thereto and as amended
by Amendment No. 1 dated as of June 10, 1998, Amendment No. 2
dated as of January 19, 1999, Amendment No. 3 dated as of March
31, 1999, Amendment No. 4 dated as of August 31, 1999 and
Amendment No. 5 dated as of October 29, 1999, is hereinafter
called the "Agreement."
WHEREAS, the Buyer wishes to exercise certain of its
conversion rights under the Agreement.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS :
1. DEFINITIONS
-----------
Capitalized terms used herein and not otherwise defined in this
Amendment will have the meanings assigned to them in the
Agreement. The terms "herein," "hereof," and "hereunder" and
words of similar import refer to this Amendment.
2. DELIVERY
--------
2.1 The Buyer and the Seller hereby agree to the following
conversions:
***
2.2 In addition, the Buyer and the Seller hereby agree that the
following *** hereby become ***, as defined in the
Agreement:
***
2.3 As a result of paragraphs 2.1 and 2.2 above, the delivery
schedule set forth in Appendix 1 of Amendment No.5 to the
Agreement is hereby superseded and replaced by the schedule
set forth in Appendix 1 hereto.
3. PREDELIVERY PAYMENTS
--------------------
The Buyer will pay all necessary adjustments to the
Predelivery Payments resulting from the changes described in
paragraph 2 above.
4. EFFECT OF AMENDMENT
-------------------
The Agreement will be deemed to be amended to the extent
herein provided, and, except as specifically amended hereby,
will continue in full force and effect in accordance with
its original terms. This Amendment supersedes any previous
understandings, commitments, or representations whatsoever,
whether oral or written, related to the subject matter of
this Amendment.
Both parties agree that this Amendment will constitute an
integral, nonseverable part of the Agreement, that the
provisions of the Agreement are hereby incorporated herein
by reference, and that this Amendment will be governed by
the provisions of the Agreement, except that if the
Agreement and this Amendment have specific provisions that
are inconsistent, the specific provisions contained in this
Amendment will govern.
5. ASSIGNMENT
----------
2
This Amendment and the rights and obligations of the Buyer
hereunder will not be assigned or transferred in any manner
without the prior written consent of the Seller, and any
attempted assignment or transfer in contravention of the
provisions of this Paragraph 5 will be void and of no force
or effect. Notwithstanding the preceding sentence, the terms
of Subclauses 19.5 and 19.6 of the Agreement will apply to
this Amendment.
6. GOVERNING LAW
-------------
THIS AMENDMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE
PERFORMANCE OF THIS AMENDMENT WILL BE DETERMINED ALSO IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE
PARTIES HEREBY ALSO AGREE THAT THE UNITED NATIONS CONVENTION
ON THE INTERNATIONAL SALE OF GOODS WILL NOT APPLY TO THIS
TRANSACTION.
If the foregoing correctly sets forth our understanding,
please execute this Amendment in the space provided below,
whereupon, as of the date first above written, this Amendment
will constitute part of the Agreement.
Agreed and accepted Yours sincerely,
US AIRWAYS GROUP, INC. AVSA, S.A.R.L.
By: /s/ Thomas A. Fink By:
---------------------- -----------------
Its: Vice President - Purchasing Its:
---------------------------- ----------------
3
Appendix I
***
4
Amendment No. 1
TO THE A330/A340 PURCHASE AGREEMENT
dated as of November 24, 1998
between
AVSA, S.A.R.L.,
and
US AIRWAYS GROUP, INC.
1
This Amendment No. 1 (hereinafter referred to as the "Amendment")
entered into as of March 23, 2000, by and between AVSA, S.A.R.L.,
a societe a responsabilite limitee organized and existing under
the laws of the Republic of France, having its registered office
located at 2, Rond Point Maurice Bellonte, 31700 Blagnac, FRANCE
(hereinafter referred to as the "Seller"), and US Airways Group,
Inc., a corporation organized and existing under the laws of the
State of Delaware, United States of America, having its
executive offices located at 2345 Crystal Drive, Arlington, VA
22227, U.S.A. (hereinafter referred to as the "Buyer") ;
WITNESSETH :
WHEREAS, the Buyer and the Seller entered into an Airbus
A330/A340 Purchase Agreement, dated as of November 24, 1998,
relating to the sale by the Seller and the purchase by the Buyer
of certain Airbus Industrie A330 and A340 model aircraft (the
"Aircraft"), which agreement, together with all Exhibits,
Appendices and Letter Agreements attached thereto is hereinafter
called the "Agreement".
WHEREAS, the Buyer and the Seller agree to amend certain
terms of the Agreement.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS :
1. DEFINITIONS
-----------
Capitalized terms used herein and not otherwise defined in
this Amendment will have the meanings assigned to them in the
Agreement. The terms "herein," "hereof," and hereunder and
words of similar import refer to this Amendment.
2. DELIVERY DATES
--------------
Pursuant to the provisions of Paragraph 2 of Letter Agreement
No. 2 to the Agreement, the Buyer has reconfirmed, as of
***, the order for the ***. Therefore, Subparagraph 9.1.1 of
the Agreement is hereby cancelled and replaced by the
following Subparagraph 9.1.1.
In addition, as per notification sent by the Buyer to the
Seller dated as of ***, the Buyer and the Seller have agreed
to ***.
Consequently, the Buyer will accept the Aircraft, during the
months and years set forth below in this Subparagraph 9.1.1.
***
3. RECONFIRMABLE AIRCRAFT
----------------------
The first paragraph of Paragraph 2 of Letter Agreement No. 2
to the Agreement is hereby canceled and replaced by the
following quoted text.
QUOTE
2
In order to provide the Buyer with flexibility to meet its
future fleet mix requirements, the Seller grants the Buyer
the right to reconfirm its order for each and any
Reconfirmable Aircraft. *** Upon reconfirmation of a
Reconfirmable Aircraft by the Buyer, such Reconfirmable
Aircraft will be considered Firm Aircraft for all purposes
under the Agreement.
UNQUOTE
4. ***
4.1 ***
QUOTE
***
UNQUOTE
4.2 ***
QUOTE
***
UNQUOTE
5. EFFECT OF AMENDMENT
-------------------
The Agreement will be deemed to be amended to the extent
herein provided, and, except as specifically amended hereby,
will continue in full force and effect in accordance with its
original terms. This Amendment supersedes any previous
understandings, commitments, or representations whatsoever,
whether oral or written, related to the subject matter of
this Amendment.
Both parties agree that this Amendment will constitute an
integral, nonseverable part of said Agreement, that the
provisions of said Agreement are hereby incorporated herein
by reference, and that this Amendment will be governed by the
provisions of said Agreement, except that if the Agreement
and this Amendment have specific provisions that are
inconsistent, the specific provisions contained in this
Amendment will govern.
6. ASSIGNMENT
----------
This Amendment and the rights and obligations of the Buyer
hereunder will not be assigned or transferred in any manner
without the prior written consent of the Seller, and any
attempted assignment or transfer in contravention of the
provisions of this Paragraph 5 will be void and of no force
or effect. Notwithstanding the preceding sentence, the terms
of Subclauses 19.5 and 19.6 of the Agreement will apply to
this Amendment.
3
7. GOVERNING LAW
-------------
THIS AMENDMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE
PERFORMANCE OF THIS AMENDMENT WILL BE DETERMINED ALSO IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
THE PARTIES HEREBY ALSO AGREE THAT THE UNITED NATIONS
CONVENTION ON THE INTERNATIONAL SALE OF GOODS WILL NOT APPLY
TO THIS TRANSACTION.
4
If the foregoing correctly sets forth our understanding,
please execute this Amendment in the space provided below,
whereupon, as of the date first above written, this Amendment
will constitute part of the Agreement.
Agreed and accepted Yours sincerely,
US AIRWAYS GROUP, INC. AVSA, S.A.R.L.
By: /s/ Thomas A. Fink By: Michele Lascaux
---------------------- --------------------
Its: Vice President - Purchasing Its: Director - Contracts
----------------------------- ----------------------
5
US Airways Group, Inc.
US Airways, Inc.
Arlington, Virginia
May 11, 2000
Ladies and Gentlemen:
We have been furnished with a copy of the combined Form 10-Q of
US Airways Group, Inc. ("US Airways Group") and US Airways,
Inc. ("US Airways"), collectively referred to as the
"Companies" for the three months ended March 31, 2000, and have
read the Companies' statements contained in Note 1 to the
condensed consolidated financial statements included therein. As
stated in Note 1, the Companies changed their method of
accounting for the sale of mileage credits in its Dividend Miles
program from recognizing revenue when the credits are sold to
deferring a portion of the revenue attributable to future
transportation and recognizing it as passenger revenue when the
service is provided. Also, as stated in Note 1, the newly adopted
accounting principle is preferable in the circumstances because
the Companies believe the new method results in a better matching
of revenues with the period in which travel services are
provided. In accordance with your request, we have reviewed and
discussed with officials of the Companies the circumstances and
business judgment and planning upon which the decision to make
this change in the method of accounting was based.
We have not audited any financial statements of the Companies as
of any date or for any period subsequent to December 31, 1999,
nor have we audited the information set forth in the
aforementioned Note 1 to the condensed consolidated financial
statements; accordingly, we do not express an opinion concerning
the factual information contained therein.
With regard to the aforementioned accounting change,
authoritative criteria have not been established for evaluating
the preferability of one acceptable method of accounting over
another acceptable method. However, for purposes of the
Companies compliance with the requirements of the Securities and
Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's
business judgment and planning, we concur that the newly adopted
method of accounting is preferable in the Companies'
circumstances.
Very truly yours,
/s/ KPMG LLP
Page
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701345
<NAME> US AIRWAYS GROUP, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,015
<SECURITIES> 353
<RECEIVABLES> 425<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 229
<CURRENT-ASSETS> 2,676
<PP&E> 7,322
<DEPRECIATION> 2,985
<TOTAL-ASSETS> 8,541
<CURRENT-LIABILITIES> 3,511
<BONDS> 2,080
0
0
<COMMON> 101
<OTHER-SE> (433)
<TOTAL-LIABILITY-AND-EQUITY> 8,541
<SALES> 0
<TOTAL-REVENUES> 2,098
<CGS> 0
<TOTAL-COSTS> 2,237
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> (175)
<INCOME-TAX> (60)
<INCOME-CONTINUING> (115)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (103)
<NET-INCOME> (218)
<EPS-BASIC> (3.27)
<EPS-DILUTED> (3.27)
<FN>
<F1>Receivables are presented net of allowances.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000714560
<NAME> US AIRWAYS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 986
<SECURITIES> 353
<RECEIVABLES> 590<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 198
<CURRENT-ASSETS> 2,698
<PP&E> 6,862
<DEPRECIATION> 2,847
<TOTAL-ASSETS> 8,372
<CURRENT-LIABILITIES> 3,404
<BONDS> 2,068
0
0
<COMMON> 0
<OTHER-SE> (417)
<TOTAL-LIABILITY-AND-EQUITY> 8,372
<SALES> 0
<TOTAL-REVENUES> 2,059
<CGS> 0
<TOTAL-COSTS> 2,194
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> (166)
<INCOME-TAX> (58)
<INCOME-CONTINUING> (108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (103)
<NET-INCOME> (211)
<EPS-BASIC> 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>
