<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
_________________________
USAir Group, Inc.
(Commission file number: 1-8444)
and
USAir, Inc.
(Commission file number: 1-8442)
(Exact names of registrants as specified in their charters)
Delaware USAir Group, Inc. 54-1194634
(State of incorporation USAir, Inc. 53-0218143
of both registrants) (I.R.S. Employer Identification Nos.)
USAir Group, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 418-5306
(Registrant's telephone number)
USAir, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 418-7000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Registrant Title of each class on which registered
- ---------- ------------------- ----------------------
USAir Group, Inc. Common stock, par New York Stock Exchange
value $1.00 per
share
Preferred Share New York Stock Exchange
Purchase Rights
expiring 1996
Depositary Shares, New York Stock Exchange
each representing
1/100 of a share
of $437.50 Series
B Cumulative Convert-
ible Preferred Stock
<PAGE>
Name of each exchange
Registrant Title of each class on which registered
- ---------- ------------------- ----------------------
USAir, Inc. 12-7/8% Senior New York Stock Exchange
Debentures due
2000
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 regis-
trants' 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. [ ]
The aggregate market value of the voting stock of USAir Group,
Inc. held by non-affiliates on February 28, 1994 was approximately
$1,390,034,000. On February 28, 1994, there were outstanding
59,265,000 shares (exclusive of 1,815,000 shares held in treasury)
of common stock of USAir Group, Inc. and 1,000 shares of common
stock of USAir, Inc.
The registrant USAir, Inc. meets the conditions set forth in
General Instructions 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.
<PAGE>
USAir Group, Inc.
and
USAir, Inc.
Form 10-K
Year Ended December 31, 1993
TABLE OF CONTENTS
Part I Page
Item 1. Business 1
Significant Impact of Low Cost, Low Fare Competition 1
British Airways Announcement Regarding Additional
Investment in the Company; Code Sharing 4
Major Airline Operations 5
Commuter Airline Operations 12
USAM Corp. 12
Employees 13
Jet Fuel 19
Insurance 20
Industry Conditions 20
Regulation 22
British Airways Investment Agreement 26
Item 2. Properties 37
Flight Equipment 37
Ground Facilities 39
Item 3. Legal Proceedings 41
Item 4. Submission of Matters to a Vote
of Security Holders 43
Part II
Item 5A. Market for USAir Group's Common Equity
and Related Stockholder Matters 44
Item 5B. Market for USAir's Common Equity and
Related Stockholder Matters 44
Item 6. Selected Financial Data 45
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 46
i
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TABLE OF CONTENTS
(Continued)
Part II (Continued) Page
Item 8A. Financial Statements and Supplementary
Information - USAir Group, Inc. 69
Item 8B. Financial Statements and Supplementary
Information - USAir, Inc. 111
Item 9. Changes In and Disagreements with
Accountants on Accounting and
Financial Disclosure 140
Part III
Item 10. Directors and Executive Officers of
USAir Group, Inc. 141
Item 11. Executive Compensation 151
Item 12. Security Ownership of Certain Beneficial
Owners and Management 168
Item 13. Certain Relationships and Related
Transactions 172
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 173
Financial Statements - USAir Group, Inc. 173
Financial Statements - USAir, Inc. 173
Financial Statement Schedules 173
Reports on Form 8-K 174
Exhibits 174
Signatures
USAir Group, Inc. 180
USAir, Inc. 183
ii
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PART I
Item 1. BUSINESS
USAir Group, Inc. ("USAir 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) 418-5306). USAir
Group's primary business activity is ownership of all the common
stock of USAir, Inc. ("USAir"), Pennsylvania Commuter Airlines,
Inc. (which is operating as Allegheny Commuter Airlines) ("Alleghe-
ny"), Piedmont Airlines, Inc. ("Piedmont") (formerly Henson
Aviation, Inc.), Jetstream International Airlines, Inc. ("Jet-
stream"), USAir Fuel Corporation ("USAir Fuel"), USAir Leasing and
Services, Inc. ("USAir Leasing and Services") and Material Services
Company, Inc. In May 1987, the Company acquired Pacific Southwest
Airlines ("PSA"), which merged into USAir on April 9, 1988. In
November 1987 the Company completed its acquisition of Piedmont
Aviation, Inc. ("Piedmont Aviation"), which merged into USAir on
August 5, 1989. On July 15, 1992, the Company sold three wholly-
owned subsidiaries, Piedmont Aviation Services, Inc., Air Service,
Inc. and Aviation Supply Corporation. The former subsidiaries were
engaged in fixed base operations and the sale and repair of
aircraft and aircraft components. During the third quarter of
1992, the Company merged one wholly-owned subsidiary, Allegheny
Commuter Airlines, Inc. into another, Pennsylvania Commuter
Airlines, Inc.
Significant Impact of Low Cost, Low Fare Competition
As discussed in greater detail in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the
dramatic expansion of low fare competitive service in many of
USAir's markets in the eastern U.S. during the first quarter of
1994 and USAir's competitive response in February 1994 by reducing
its fares up to 70 percent in those markets and other affected
markets in order to preserve its market share led the Company to
announce that it expected to experience greater losses in 1994 than
it experienced in 1993.
In September 1993, Southwest Airlines, Inc. ("Southwest"), a
low cost, low fare, "no frills" air carrier which had not previous-
ly provided service to or in the eastern U.S., inaugurated service
to Chicago and Cleveland from Baltimore/ Washington International
Airport ("BWI") at fares substantially below those previously
offered by USAir and other airlines in the same markets. BWI is
one of USAir's hub airports. Unlike the other major U.S. air
carriers, Southwest does not structure its operations around
connecting hub airports, relying instead on high frequency point-
to-point service. USAir responded by matching most of Southwest's
fares and increasing the frequency of service in related markets.
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On March 22, 1994, Southwest announced that on May 26, 1994,
and June 6, 1994, it will expand service between BWI and Chicago.
Southwest also announced that on May 26, 1994, it will initiate its
low fare service between BWI and St. Louis, and on July 8, 1994,
between BWI and Birmingham, Alabama and Louisville, Kentucky. At
this time, USAir has not determined its response to the Southwest
announcement.
In October 1993, Continental Airlines ("Continental"), which
had reorganized under bankruptcy proceedings earlier in 1993,
inaugurated low fare service on certain routes in the eastern U.S.
USAir is a competitor in most of the markets served by these
routes. While Continental initiated service to certain cities,
such as Charleston, South Carolina; Greensboro, North Carolina; and
Jacksonville, Florida; most of the markets included as part of its
new program (for example, Baltimore) were previously served by
Continental through its hubs at Newark, Cleveland, and Houston.
However, under its new program, Continental linked certain of these
cities independently of its hubs while continuing to provide many
of the same services that are available on its hub flights,
including advance seat assignment, frequent traveler mileage
credits and interline connections. Under its new program,
Continental served approximately 80 city pair markets, from which
USAir has historically realized approximately 4% of its total
passenger revenue. When Continental started the new program it was
uncertain whether the program was an experiment or a beachhead from
which Continental planned to expand further. USAir, therefore,
made a measured response by matching most of the low fares offered
by Continental.
On January 31, 1994, Continental increased its competitive
threat. It announced that by March 9, 1994, it would expand the low
fare program to approximately 356 city pair markets, most of which
USAir served and from which USAir has historically realized
approximately 8% of its passenger revenue. Moreover, if secondary
markets within a 90-mile radius, or a reasonable driving distance,
were viewed as being included in Continental's new program, markets
from which USAir has historically realized approximately 36% of its
passenger revenue were affected. Contemporaneously, Continental
announced that it would substantially reduce service at its Denver
hub and redeploy significant aircraft and personnel resources to
the eastern U.S. Although Continental's balance sheet continues to
have significant leverage following its bankruptcy reorganization,
its liquidity position improved substantially as a result of equity
and debt infusions completed as part of that reorganization.
Moreover, Continental completed a common stock offering in December
1993, which may indicate the market's receptivity to its efforts to
raise additional funds. Continental has operating (including
labor) costs that are substantially lower than those of USAir and
the other major air carriers.
2
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On February 8, 1994, in response to the expansion of Continen-
tal and to avoid loss of market share in the eastern U.S., USAir
lowered in primary and secondary markets affected by the Continen-
tal expansion, by as much as 50%, the fares most commonly used by
business travelers on many east coast routes. In addition, USAir
lowered leisure fares by as much as 70% in the same markets. In
many of the markets, free companion fares are available with
business fares. These reduced fares have no expiration date.
However, USAir could adjust the fares at some time in the future.
Increases in traffic which are stimulated by the lower fares
offered by Southwest, Continental and USAir will not offset USAir's
reduced revenue resulting from lower yields in these markets.
USAir believes that Southwest, Continental or other low cost
carriers with a significant cost advantage over USAir likely will
expand their operations to additional markets. For example, in
December 1993, Southwest completed its acquisition of Morris Air,
a regional air carrier with operations concentrated in the western
U.S. This acquisition could enable Southwest to divert resources
to expand its operations in the eastern U.S. Furthermore, media
reports indicate that Southwest has entered into a long-term
agreement for the use of four additional gates at BWI, where it
currently operates from two gates. On March 4, 1994, Continental
further escalated prospective competition by announcing that it
will further reduce operations at its Denver, Colorado hub and
establish a flight crew base at Greensboro, North Carolina. These
measures are likely to increase losses at USAir because they could
enable Continental, which has significantly lower costs than USAir,
to expand further its high frequency, low fare service described
above in additional short-haul markets served by USAir with
substantial detriment to USAir. In addition, other low cost
carriers may enter other USAir markets. For example, America West
Airlines ("America West") announced on February 15, 1994 that it
will commence service on April 18, 1994 between Columbus, Ohio
where it operates a hub and Philadelphia, where USAir has a hub
operation. Other carriers, including some of the larger carriers,
have also indicated their intent to develop similar low-fare short-
haul service.
In March 1994, USAir announced that it expected a pre-tax loss
for the quarter ended March 31, 1994 of approximately $200 million
and that it expected a pre-tax loss for the full year of 1994 in
excess of the $350 million loss reported for 1993. USAir, whose
operating costs are among the highest in the domestic airline
industry, believes that it must reduce those costs significantly if
it is to survive in this low fare competitive environment. The
largest single component of USAir's operating costs, approximately
40 percent, relates to personnel costs. USAir also announced in
March 1994 that it had initiated discussions with the leaders of
its unionized employees regarding efforts to reduce these costs,
including reductions in wages, improvements in productivity and
other cost savings.
3
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The outcome of those discussions is uncertain. There are
recent examples of companies in the airline industry which have
obtained employee concessions in agreements also resulting in the
recapitalization of the companies, including employee ownership
stakes and employee participation in corporate governance as well
as the restructuring of debt and lease obligations. In other
cases, airlines have filed for bankruptcy protection under Chapter
11 of the bankruptcy code, and some airlines have ceased operation
altogether when their operating costs remained excessive in
relation to their revenues, and their liquidity became insufficient
to sustain their operations. In addition, other factors beyond the
Company's control, such as a downturn in the economy, a dramatic
increase in fuel prices or intensified industry fare wars, could
have a material adverse effect on the Company's and USAir's
prospects and financial condition. Because the Company and USAir
are highly leveraged and currently do not have access to bank
credit and receivables facilities which had supplied a substantial
portion of their liquidity, they could be more vulnerable to these
factors than their financially stronger competitors. See "Managem-
ent's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
British Airways Announcement Regarding Additional Investment in the
Company; Code Sharing
As described in greater detail in "British Airways Investment
Agreement" below, on January 21, 1993, the Company and British
Airways Plc ("BA") entered into an Investment Agreement (as
subsequently amended, the "Investment Agreement"). Pursuant to the
Investment Agreement, on the same date, BA invested $300 million in
certain preferred stock of the Company. In June 1993, pursuant to
BA's exercise of its preemptive and optional purchase rights under
the Investment Agreement which were triggered by the issuance by
the Company to the public, and under certain employee benefit
plans, of certain shares of common stock, BA purchased $100.7
million of additional series of preferred stock of the Company.
The Company has benefitted from the additional equity provided by
BA and also from the resulting enhancement of the Company's image
in the marketplace and in the investment community. However, on
March 7, 1994, BA announced that because of the Company's continued
substantial losses it would make no additional investments in the
Company until the outcome of the Company's efforts to reduce its
costs is known. See "Significant Impact of Low Fare, Low Cost
Competition" above and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources." At the same time, BA indicated it would
continue to cooperate with USAir on the code sharing arrangements
discussed below.
In addition, since January 1993, pursuant to the Investment
Agreement, BA and USAir have entered into code sharing arrangements
whereby certain USAir flights carry the airline designator code of
4
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both USAir and BA. Code sharing is a common practice in the
airline industry whereby one carrier sells the flights of another
carrier (its code sharing partner) as if it provides those flights
with its own equipment and personnel. On March 17, 1994, the U.S.
Department of Transportation (the "DOT") issued an order renewing
for one year all of the code share authority it had previously
approved for USAir and BA which includes authority to code share to
64 airports in the U.S. through 12 gateways and to Mexico City
through Philadelphia. The DOT did not act on other pending
applications by BA and USAir for expanded code share authority.
Major Airline Operations
USAir, a certificated air carrier engaged primarily in the
business of transporting passengers, property and mail, is the
Company's principal operating subsidiary, accounting for more than
93% of USAir Group's operating revenues in 1993. USAir is one of
nine passenger carriers classified as "major" airlines (those with
annual revenues greater than $1 billion) by the United States
Department of Transportation (the "DOT"). USAir enplaned more than
54.0 million passengers in 1993, and is the sixth largest United
States air carrier ranked by revenue passenger miles ("RPMs")
flown.
At January 31, 1994, USAir provided regularly scheduled jet
service through 118 airports to more than 154 cities in the
continental United States, Canada, the Bahamas, Bermuda, the Cayman
Islands, Puerto Rico, Germany, France and the Virgin Islands.
USAir ceased serving the United Kingdom in January 1994. See
"British Airways Investment Agreement". USAir's executive offices
are located at 2345 Crystal Drive, Arlington, Virginia 22227
(telephone number (703) 418-7000), and its primary connecting hubs
are located at the Pittsburgh, Charlotte/Douglas, Philadelphia and
Baltimore/Washington International ("BWI") Airports. A substantial
portion of USAir's RPMs is flown within or to and from the eastern
United States. USAir Group and USAir incurred substantial
operating and net losses during 1991, 1992 and 1993.
During the first quarter of 1992, USAir's RPMs decreased over
the same period in 1991, however, yield, or passenger revenue per
RPM, improved. The decline in traffic was attributable to the May
1991 Restructuring (discussed below) and the economic recession.
It is not possible to estimate accurately how many business and
leisure travelers decided not to travel during 1991 and 1992 as a
result of the recession and perceived weak recovery. During the
second quarter of 1992, American Airlines, Inc. ("American")
introduced a four-tier fare structure which resulted in the
proliferation of deeply discounted promotional fares in the second
and third quarters of 1992. Although the promotional fares
significantly stimulated traffic during the second and third
quarters of 1992, yields suffered substantial declines versus
comparable periods in 1991.
5
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Although yields at USAir recovered and improved significantly
in the fourth quarter of 1992 and in the first three quarters of
1993, yields started to erode in the fourth quarter of 1993 and
declined versus the comparable quarter of 1992 due to proliferation
of discount and promotional fares which were designed to stimulate
passenger traffic. Yields have continued to be weak in the first
quarter of 1994 due primarily to USAir's action to reduce fares to
remain competitive with low cost low fare carriers which had
entered many of USAir's markets in the eastern U.S. During 1993,
systemwide traffic remained relatively weak. In addition, the
domestic airline industry was characterized in 1991 - 1993 by
substantial losses, excess capacity, intense competition and
certain carriers operating under the protection of Chapter 11 of
the Bankruptcy Code. Any of these factors or other developments,
including the emergence of America West from bankruptcy, the entry
or potential entry of low cost carriers in USAir's markets and a
resurgence in low fare competition from these and other carriers
could have a material adverse effect on the Company's yields,
liquidity and financial condition. See "Significant Impact of Low
Fare, Low Cost Competition" above and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
For information on possible further effects of the recent
economic recession, increased competition from low cost, low fare
carriers, possible restructuring of the Company and USAir,
consolidation in the domestic airline industry and globalization of
the airline industry, see Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
USAir implemented several operational changes during the
period 1991 through 1993 in efforts to return to profitability and
has announced plans for additional action in 1994.
On May 2, 1991, USAir ceased operating its fleet of 18 British
Aerospace BAe 146-200 ("BAe-146") aircraft, ceased serving eight
airports in California, Oregon and Washington, and eliminated some
flights at Baltimore/Washington and Cleveland Hopkins International
Airports. Although other service was added to partially offset
these reductions, the net effect was a decrease of approximately
three percent in USAir's system available seat miles ("ASMs"), and
a net reduction in scheduled departures of ten percent from January
1991 service levels. In connection with this restructuring, USAir
closed four flight crew bases, two heavy maintenance facilities and
one reservations office (these measures are collectively referred
to as the "May 1991 Restructuring"). (In April 1993, USAir
reintroduced long-haul service at John Wayne Airport in Orange
County, California, one of the airports that USAir ceased serving
in the May 1991 Restructuring).
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Effective January 7, 1992, USAir discontinued its hub
operations at Dayton, Ohio due to operating losses there. Daily
jet departures from Dayton were reduced from 72 to 23. The
majority of USAir's jet flights between Dayton and smaller and
medium-sized "spoke" cities was shifted to USAir's hub at Pitts-
burgh, Pennsylvania, and there was no reduction in total systemwide
capacity as a result of this action.
In September 1993, USAir announced steps to reduce projected
operating costs in 1994 by approximately $200 million. These
measures include a workforce reduction of approximately 2,500 full
time positions, revision of USAir's vacation, holiday and sick
leave policy and a review of planned 1994 capital expenditures.
The workforce reduction, which USAir anticipates will be completed
by the end of the first quarter of 1994, will be comprised
primarily of the elimination of approximately 1,800 customer
service, 200 flight attendant and 200 maintenance positions. USAir
recorded a non-recurring charge of approximately $68.8 million
primarily in the third quarter of 1993 for severance, early
retirement and other personnel-related expenses in connection with
the workforce reduction.
In March 1994, USAir initiated discussions with the leadership
of its unionized employees regarding reductions in wages, improve-
ments in productivity and other cost savings as a result of the
entry of low cost low fare carriers in many of its markets and
USAir's response to this low fare competition. See "Significant
Impact of Low Cost, Low Fare Competition" above and Item 7.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations".
In counterpoint to the reductions outlined above, USAir has
also taken, or plans to take, the following steps to augment or
enhance its service.
In December 1991, USAir reached agreements with General
Electric Capital Corporation ("GE Capital") and with The Boeing
Company ("Boeing") to acquire up to 40 757-200 aircraft during
1992-1997. USAir agreed to lease ten aircraft owned by GE Capital
and formerly operated by Eastern Air Lines ("Eastern"). In
December 1992, USAir agreed to sublease an additional 757-200
aircraft from Boeing that was formerly operated by Eastern. USAir
added these 11 aircraft to its operating fleet during 1992. USAir
also agreed with Boeing to purchase 15 new 757-200 aircraft in 1993
and 1994, and took options to purchase 15 more 757-200s in 1996 and
1997. In April 1993, USAir and Boeing reached an agreement to
exercise the options on 757-200 aircraft previously scheduled for
delivery in 1996-1997 and accelerate their delivery to 1995-1996,
and to convert a firm order for a 767-200 aircraft, originally
scheduled for delivery in 1994, to a firm order for a 757-200
aircraft, also scheduled for delivery in 1994. Boeing granted
USAir options to purchase 15 additional 757-200 aircraft for 1995
7
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and beyond, three of which have expired. In addition, Boeing
relieved USAir of its obligation to purchase 20 of its 60 firm
orders for Boeing 737 series aircraft and agreed to reschedule
delivery of the remaining 40 on order. No new firm order 737
aircraft are scheduled to be delivered to USAir between 1994-1996,
while 12 new 737 aircraft will be delivered annually in the years
1997-1999 and four will be delivered in the year 2000. USAir is
using the Boeing 757-200 aircraft, which seats approximately 190
passengers, on long-haul routes and in high demand markets where
potential passenger traffic may not currently be accommodated on
smaller aircraft at peak travel times. USAir considers the 757-200
aircraft to be more suitable for these missions than the Boeing
767-200 and Boeing 737 aircraft types. The above actions supple-
ment USAir's agreements with Boeing in 1990 and 1991 to defer
delivery of several 737 and 767 aircraft originally scheduled for
the 1991-1994 period. Overall, the deferrals have substantially
reduced USAir's capital commitments and financing needs during that
time period. USAir is engaged in negotiations with Boeing
regarding, among other things, the current schedule of new aircraft
deliveries. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Item 8A. Note 4 to the Company's Consolidat-
ed Financial Statements.
On January 17, 1992, USAir purchased 62 jet take-off and
landing slots and 46 commuter slots at New York City's LaGuardia
Airport ("LaGuardia") and six jet slots at Washington National
Airport from Continental Airlines ("Continental") for $61 million.
USAir also assumed Continental's leasehold obligations associated
with the East End Terminal, which commenced operations on Septem-
ber 12, 1992, and a flight kitchen at LaGuardia. USAir acquired
all 46 commuter slots and 24 of the jet slots at LaGuardia on
February 1, 1992; the remaining 38 jet slots at LaGuardia and all
six jet slots at Washington National Airport were transferred to
USAir on May 1, 1992. As a result of the acquisition, USAir
expanded its operations at LaGuardia including the initiation of
non-stop service to eight additional cities, four of which are in
Florida. The New York-Florida markets are among the largest in the
nation. USAir Express carriers used the commuter slots to expand
service primarily to cities in the northeastern United States.
(See "Commuter Airline Operations"). Expansion into these jet and
commuter markets enhanced USAir's presence in the New York area and
in the northeast. In addition, the East End Terminal permitted
USAir to consolidate its mainline, commuter and USAir Shuttle
operations in adjoining facilities, which USAir believes are the
most comfortable and convenient at LaGuardia. USAir sold substan-
tially all the assets associated with the flight kitchen operation
on October 9, 1992.
USAir Group reached an agreement during 1992 with the
creditors of the Trump Shuttle to manage and operate the Shuttle
under the name "USAir Shuttle" for a period of up to ten years.
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Under the agreement, USAir Group has an option to purchase the
shuttle operation on or after October 10, 1996. The USAir Shuttle
commenced operations in April 1992 between New York City, Boston
and Washington D.C.
Effective August 1, 1992, USAir leased 28 take-off and landing
slots at Washington National Airport from Northwest Airlines, Inc.
("Northwest"). USAir is using the slots to offer expanded service
from Washington to five Florida cities and New Orleans. In August
1993, USAir purchased eight of these slots from Northwest. USAir
continues to lease the remaining slots from Northwest.
On October 1, 1992, USAir moved its hub operation at Pitts-
burgh, which is the largest on its system, to the new Pittsburgh
International Airport terminal, where USAir leases 53 of 75 gates.
USAir believes that the Pittsburgh hub, one of the largest hub
airports (measured by departures) in the U.S., is one of the most
efficient connecting complexes in the nation.
Effective February 1, 1993, USAir and USAir Express service
within the state of Florida commenced operating under the brand
name "USAir Florida Shuttle". In addition, USAir started hourly
service between Miami and Tampa and Miami and Orlando. On
February 1, 1993 total USAir and USAir Express daily departures in
the intra-Florida markets and to cities outside Florida increased
approximately 27% over February 1992 levels. To enhance customer
service and bolster brand loyalty within the state, USAir offered
special benefits, bonus miles and upgrades to Florida residents
participating in its Frequent Traveler Program. (See Item 7.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - General Economic Conditions and Industry
Capacity.")
By June 1993 USAir increased capacity between key cities on
the west coast of the U.S. and cities in the midwestern and eastern
parts of the nation as it realigned west coast schedules and
increased its emphasis on long-haul flights. Much of the increase
in capacity was achieved by replacing smaller aircraft types with
757-200 aircraft.
During 1993 and thus far in 1994 USAir and BA have gradually
implemented code sharing arrangements pursuant to the Investment
Agreement. As of March 1, 1994, USAir and BA had implemented code
sharing to 34 of the 65 airports currently authorized by the DOT.
See "British Airways Announcement Regarding Additional Investment
in the Company; Code Sharing" above and "British Airways Investment
Agreement" below.
In March 1994, USAir (i) purchased from United Air Lines, Inc.
("United") certain takeoff and landing slots at Washington National
Airport and New York LaGuardia Airport; (ii) purchased from United
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certain gates and related space at Orlando International Airport
and (iii) granted to United options to purchase certain gates and
related space, and a right of first refusal to purchase certain
takeoff and landing slots, at Chicago O'Hare International Airport.
In December 1993, USAir reached an agreement with United to
negotiate a code sharing agreement with United regarding USAir's
flights to and from Miami and United's flights between Miami and
Latin America. Consummation of the code sharing agreement is
subject to a number of conditions, including governmental approvals
and definitive documentation. At this time, USAir cannot predict
when the transactions contemplated by the code sharing agreement
with United will be consummated. In September 1993, USAir received
a civil investigative demand from the U.S. Department of Justice
("DOJ") related to an investigation of violations of Section 1 of
the Sherman Act in connection with USAir's agreement with United
regarding the above transactions. Although there can be no
certainty, USAir does not believe the DOJ will seek to overturn the
transactions described in (i), (ii) and (iii) above.
In 1994, USAir has implemented and plans to implement certain
changes to its service on certain short-haul routes to reduce the
cost and increase the efficiency of those operations. In addition,
in the second half of 1993 and early 1994, USAir experienced
increased competition from low cost, low fare carriers. See
"Significant Impact of Low Cost, Low Fare Competition" and Item 7.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Low Cost, Low Fare Competition".
In response to the entry of certain low cost, low fare
competitors at BWI and as part of USAir's measures to reduce the
cost and increase the efficiency of its shorthaul service, USAir
has substantially expanded its operations at BWI. As of March
1994, USAir had 121 daily jet departures at that airport compared
to 91 daily jet departures in March 1993. See Item 7. "Manage-
ment's Discussion and Analysis of Financial Condition and Results
of Operations - Low Cost, Low Fare Competition."
In November 1993, USAir commenced service between BWI and St.
Thomas, Virgin Islands and between Charlotte and Tampa and Grand
Cayman, Cayman Islands. In addition, USAir commenced nonstop
service from Philadelphia to Mexico City in March 1994 and will
commence non-stop service from Tampa to Mexico City in May 1994.
As a result of seasonal adjustments, increased service to
existing markets and service to new destinations, on May 8, 1994,
USAir also plans to increase daily jet departures at its Pittsburgh
hub from 327 to 355 and at its Charlotte hub from 323 to 334.
In summary, in 1993, USAir continued to try to capitalize on
its strong franchise in the northeastern U.S. and in Florida, based
on measures it had implemented in 1991 and 1992. By the end of the
third quarter of 1993, however, due to continued fare discounting,
a resurgence of low fare competition from low cost carriers,
10
<PAGE>
persistent consumer price consciousness and, despite significant
countermeasures, increased operating expenses, it became clear that
for USAir to remain competitive, it needed to reduce costs and
become more efficient. This realization resulted in, among other
steps, the reduction in force of 2,500 full-time positions
initiated in 1993, the innovations in short-haul service and the
initiation of discussions with the leadership of USAir's unionized
employees regarding wage reductions, improved productivity and
other costs savings described in "Significant Impact of Low Cost,
Low Fare Competition" above and Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Low
Cost, Low Fare Competition." USAir is engaged in formulating
additional plans to reduce its operating costs in 1994.
USAir's operating statistics during the years 1989 through
1993 are set forth in the following table:
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991 1990 1989
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue Passengers (1)
(Thousands)* 53,678 54,655 55,600 60,059 61,152
Average Passenger
Journey (Miles)* 656.2 642.2 613.7 591.9 551.0
Revenue Passenger
Miles ("RPMs")
(Millions)* 35,221 35,097 34,120 35,551 33,697
Available Seat Miles
(Millions)* 59,485 59,667 58,261 59,484 55,610
Passenger Load
Factor (2)* 59.2% 58.8% 58.6% 59.8% 60.6%
Breakeven Load
Factor (3) (5) 61.7% 63.2% 62.7% 64.5% 60.6%
Passenger Revenue
per ASM* 10.22c 9.70c 9.76c 9.67c 10.00c
Total Revenue per
ASM (5) 11.04c 10.38c 10.33c 10.19c 10.48c
Cost per ASM (4) (5) 11.09c 10.82c 10.77c 10.83c 10.45c
Yield (Revenue per
RPM)* 17.27c 16.49c 16.67c 16.18c 16.50c
</TABLE>
* Scheduled service only.
c = cents
(1) Statistics for 1989 are set forth on a pro forma basis to
include the jet operations of Piedmont Aviation as if it had
merged into USAir effective January 1, 1989.
(2) Passenger load factor is the percentage of aircraft seating
capacity that is actually utilized (RPMs/ASMs).
(3) Breakeven load factor represents the percentage of aircraft
seating capacity that must be utilized, based on fares in
effect during the period, for USAir to break even at the pre-
tax income level, adjusted to exclude non-recurring and
11
<PAGE>
special items.
(4) Adjusted to exclude non-recurring and special items.
(5) Financial statistics for 1993 exclude revenue and expense
generated under the BA wet lease arrangement.
Commuter Airline Operations
Most commuter airlines in the United States are affiliated
with a major or regional jet carrier. USAir provides reservations
and, at certain stations, ground support services, in return for
service fees, to 10 commuter carriers (including Allegheny,
Piedmont and Jetstream) which operate under the name "USAir
Express." At certain other stations, the commuter carriers
commenced performing ground support for their operations in 1993.
These airlines share USAir's two-letter designator code and feed
connecting traffic into USAir's route system at several points,
including its major hub operations at Pittsburgh, Charlotte,
Philadelphia and BWI. At January 5, 1994, USAir Express carriers
served 181 airports in the United States, Canada and the Bahamas,
including 88 also served by USAir. During 1993, USAir Express'
combined operations enplaned approximately 8.7 million passengers.
Piedmont's collective bargaining agreement with the Air Line
Pilots Association ("ALPA"), which represents its pilot employees,
became amendable on December 1, 1992. On February 22, 1994, the
National Mediation Board (the "NMB"), which had assigned a mediator
to the negotiations between Piedmont and ALPA on a new agreement,
declared these negotiations at an impasse and commenced a thirty-
day "cooling-off" period. Upon the expiration of this period at
midnight on March 25, 1994, the Piedmont pilots would be free to
strike and Piedmont could resort to self-help measures. As USAir's
largest commuter affiliate, Piedmont provides significant passenger
feed to USAir. In addition, if the Piedmont pilots commence a
strike, other USAir Express or USAir employees could refuse to
cross picket lines or engage in sympathy strikes. USAir would view
such activity as violative of applicable contracts and the Railway
Labor Act and would pursue all legal remedies to halt it.
Suspension of the operations of Piedmont, other USAir Express
carriers or USAir for a prolonged period due to strikes or self-
help measures could have a material adverse effect on the Company's
and USAir's financial condition and prospects.
USAM Corp.
At December 31, 1992, USAM Corp. ("USAM"), a subsidiary of
USAir, owned 11% of the Covia Partnership ("Covia") which owned and
operated a computerized reservation system ("CRS"). In September
1993, Covia purchased the assets of the corporation that owned and
operated the Galileo CRS which provided CRS services to travel
agent subscribers in Europe. Covia was then separated into three
entities. As a result, at December 31, 1993, USAM owns 11% of the
Galileo International Partnership, approximately 11% of the Galileo
12
<PAGE>
Japan Partnership and approximately 21% of the Apollo Travel
Services Partnership.
The Galileo International Partnership owns and operates the
Galileo CRS ("Galileo"). Galileo Japan Partnership markets CRS
services in Japan. Apollo Travel Services markets CRS services in
the U.S. and Mexico. Galileo is the second largest of the four
such systems 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 USAir's interest
are subsidiaries of BA, 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. During 1993, travel agents issued tickets
which generated the majority of USAir's passenger revenues. Most
travel agencies use one or more CRSs to obtain information about
airline schedules and fares and to book their clients' travel.
Employees
At December 31, 1993, USAir Group's various subsidiaries
employed approximately 48,500 full-time equivalent employees.
USAir employed approximately 5,400 pilots, 10,100 maintenance and
related personnel, 12,300 station personnel, 4,100 reservations
personnel, 8,600 flight attendants and 4,900 personnel in other
administrative and miscellaneous job categories, while the commuter
and other subsidiaries employed approximately 1,000 pilots, 800
maintenance personnel, 400 station personnel, 400 flight attendants
and 500 personnel in other administrative and miscellaneous job
categories. Approximately 24,400, or 50%, of the employees of
USAir Group's subsidiaries are covered by collective bargaining
agreements with various labor unions.
As indicated in "Significant Impact of Low Cost, Low Fare
Competition" above and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations," because
of the entry of low cost low fare carriers in certain of USAir's
markets and USAir's response to this market penetration, in March
1994 USAir initiated discussions with the leadership of its
unionized employees for wage reductions, improved productivity and
other cost savings. USAir must reduce its operating costs
significantly if it is to survive in this low fare competitive
environment.
Historically, USAir implemented a workforce reduction program
in September 1990, in response to the economic recession and
financial losses that caused USAir to decrease its planned capacity
growth for 1991. More than 3,600 positions were eliminated through
layoffs, furloughs and voluntary separations in connection with
that program. A further reduction of more than 3,500 positions
13
<PAGE>
resulted from the May 1991 Restructuring. In September 1993, USAir
announced steps to reduce projected operating costs in 1994. These
measures will include a workforce reduction of approximately 2,500
full time positions and certain other cost reductions discussed
under "Major Airline Operations".
In addition, USAir believes that it was largely successful in
implementing during 1992 and 1993 the elements of the comprehensive
cost reduction program that it announced in October 1991. The cost
reduction program included salary and wage reductions for a fixed
time period, suspension of longevity/step increases in wages and
salary, the freeze of a defined benefit pension plan applicable to
non-contract employees, productivity improvements, contributions by
employees for a portion of the cost of medical and dental benefits
and implementation of a new managed care program intended to reduce
the cost and retard the growth of these benefits. Consistent with
this program, USAir sought concessionary contracts with each of its
unions and stated that salary reductions for non-contract employees
would take effect only when the first major union agreed to wage
reductions.
In the second quarter of 1992, ALPA, which represents USAir's
pilot employees, reached agreement on a new contract which becomes
amendable on May 1, 1996. The new contract included wage reduc-
tions and suspension of longevity/step increases which resulted in
savings of approximately $58 million over the twelve-month period
which began June 1992. Additional savings of approximately $15
million resulted from productivity improvements over the same
period. If fully implemented, USAir expects the productivity
improvements will save the airline up to approximately $83 million
annually. In addition, the pilots agreed to participate in
contributory managed care medical and dental programs, which USAir
expects will save approximately $10 million annually.
In June 1993, the wages of pilot employees reverted to pre-
reduction levels, and on September 1, 1993, in accordance with the
terms of ALPA's agreement with USAir, pilot employees received a
2.5% increase in their wages. These employees are scheduled to
receive further wage increases on (i) July 1, 1994, of approximate-
ly 6.9%; (ii) July 1, 1995 of 2%; and (iii) January 1, 1996 of 1%.
In accordance with its previously announced policy, when ALPA
agreed to the cost reduction program, USAir imposed wage reductions
and suspension of longevity/step increases on its non-contract
employees for the twelve-month period commencing in June 1992.
USAir estimates that it saved approximately $32 million from these
measures. Earlier in 1992, USAir had implemented the contributory
managed care medical and dental programs for non-contract employ-
ees, which result in approximately $20 million in annual savings.
Prior to January 1, 1992, USAir exclusively paid contributions to
the basic defined benefit pension plan for its non-contract
employees. USAir froze this pension plan at the end of 1991, which
14
<PAGE>
resulted in a one-time book gain of approximately $107 million in
1991. USAir implemented a defined contribution pension plan for
these employees on January 1, 1993, which is composed of three
components: contributions by USAir based on a percentage of salary,
a partial match by USAir of employee contributions to a savings
plan and a profit-sharing plan.
On October 8, 1992, following a four-day strike, USAir reached
agreement with the International Association of Machinists ("IAM"),
which represents USAir's mechanics and related employees, on a new
contract which becomes amendable on October 1, 1995. The new
contract included wage reductions and suspension of longevity/step
increases for the twelve-month period commencing October 1992,
which USAir estimates resulted in savings of approximately $20
million. USAir also estimates that productivity improvements,
which are also provided for in the new contract, resulted in
savings of approximately $22 million in 1993 and will result in
savings of $45 million annually if the improvements are fully
implemented. In addition, IAM employees agreed to participate in
contributory managed care medical and dental programs, which USAir
expects will save approximately $14 million annually.
In November 1993, the wages of the IAM-represented employees
reverted to pre-reduction levels and on November 1, 1993, in
accordance with the terms of the IAM's agreement with USAir, the
wages of these employees increased by 2%. These employees are
scheduled to receive further wage increases on June 1, 1994 and
April 1, 1995 of approximately 3.9% and 4.7%, respectively.
In February 1993, USAir announced that it had reached a
tentative agreement with the Association of Flight Attendants
("AFA"), which represents its flight attendant employees, on a new
contract which would become amendable on January 1, 1997. The
contract, which was ratified by the AFA membership in March 1993,
provides for wage reductions and suspension of longevity/step
increases for a twelve-month period commencing April 1, 1993, which
USAir expects will result in savings of approximately $10 million.
USAir also estimates that productivity improvements, which are also
provided for in the new contract, will result in savings of
approximately $18 million over the twelve-month period commencing
April 1, 1993 and $43 million annually if the improvements are
fully implemented. In addition, AFA employees agreed to partici-
pate in contributory managed care medical and dental programs,
which USAir expects will save approximately $7 million annually.
In March 1994, the wages of the flight attendant employees
will revert to pre-reduction levels, and on April 1, 1994, in
accordance with the terms of the AFA agreement with USAir, the
wages of these employees will increase by 3%. These employees are
scheduled to receive further wage increases on January 31, 1995 and
January 31, 1996 of approximately 4% commencing on each date.
15
<PAGE>
On March 31, 1993 the Transport Workers Union (the "TWU"),
which represents 175 flight dispatch employees, reached agreement
with USAir on a contract which becomes amendable on September 1,
1996. The agreement provides for productivity improvements. These
employees also participate in wage reductions, suspension of
longevity/step increases and contributory managed care medical and
dental programs because of their non-contract status when those
measures were implemented for non-contract employees. The defined
benefit plan for the flight dispatch employees was frozen on
December 31, 1991 because of their non-contract status at that
time.
On July 29, 1993, USAir reached agreement with the TWU, which
also represents approximately 60 USAir flight simulator engineers,
on a new four-year contract which becomes amendable on August 1,
1997. The contract will result in savings of approximately
$140,000 over the 12-month period commencing August 1, 1993, in the
form of temporary salary reductions and suspension of longevi-
ty/step increases. In addition, the flight simulator engineers
agreed to participate in contributory managed care medical and
dental programs which the Company expects will save approximately
$50,000 annually. In addition, the defined benefit pension plan
for these employees was frozen effective August 31, 1993, and will
be replaced by a defined contribution pension plan beginning
September 1, 1994.
Taken together, the above measures provided for temporary wage
reductions and suspension of longevity/step increases in wages that
USAir estimates saved approximately $120 million during the period
June 1992 through March 1994. These concessions provide for
productivity improvements which are expected to save USAir
approximately $55 million during the same period. If fully
implemented, these productivity enhancements may save an additional
$171 million annually. All employees affected by these changes
have also agreed to participate in contributory managed care
medical and dental program which are expected to save approximately
$51 million annually. In exchange for the concessions agreed upon
by its unionized employees, USAir included "no furlough" provisions
in each of the new labor agreements with the ALPA, IAM, AFA and
TWU, which prohibit USAir from furloughing employees hired on or
before the effective date of the agreements during the term of each
respective contract.
USAir recorded a non-recurring charge of approximately $36.8
million in the fourth quarter of 1993 based on a projection of the
repayment of the amount of the temporary wage and salary reductions
discussed above in the event that the employees who sustained the
pay cuts leave the employ of USAir. USAir will adjust this
accounting charge in subsequent periods to reflect the change in
the present value of the liability and changes in actuarial
assumptions including, among other things, actual experience with
the rate of attrition for these employees and whether such
16
<PAGE>
employees have received payments under the profit sharing program
discussed in the next paragraph.
In exchange for the pay reductions and pension freeze,
affected employees will participate in a profit sharing program and
have been, or will be, granted options to purchase USAir Group
common stock. The profit sharing program is designed to recompense
those employees whose pay has been reduced in an amount equal to
(i) two times salary foregone plus; (ii) one times salary foregone
(subject to a minimum of $1,000) for the freeze of pension plans
described above. Estimated savings of approximately $23 million
attributable to the suspension of longevity/step increases will not
be subject to repayment through the profit sharing program. For
each year the profit sharing program is in effect, pre-tax profits,
as defined in the program, of USAir Group would be distributed to
participating employees as follows:
25% of the first $100 million in pre-tax profits
35% of the next $100 million in pre-tax profits
40% of the pre-tax profits exceeding $200 million
This profit sharing program will be in effect until USAir employees
are recompensed for salary and pension benefits forgone and is
independent of the profit sharing plan which is an element of the
new defined contribution pension plan for non-contract employees
discussed above.
Under the stock option program, employees whose pay has been
reduced have received or will receive options to purchase 50 shares
of USAir Group common stock at $15 per share for each $1,000 of
salary reduction. The options were, or become, exercisable
following the twelve-month period of the salary reduction program
for each group of employees. Generally, participating employees
have five years from the grant date to exercise such options. As
of December 31, 1993, USAir Group had granted options to purchase
approximately five million shares of common stock to USAir
employees under the program. At December 31, 1993, the market
value of a share of USAir Group common stock was $12.875.
Certain unions are engaged in efforts to unionize USAir's
customer service and reservations employees. The Railway Labor Act
(the "RLA") governs, and the NMB has jurisdiction over, such
campaigns. Under the RLA, the NMB could order an election among a
class or craft of eligible employees if a union submitted an
application to the NMB supported by the authorization cards from at
least 35% of the applicable class or craft of employees. If the
NMB ordered an election and a majority of the eligible employees
voted for representation, USAir would be required to negotiate a
collective bargaining agreement with the union that wins the
election. On January 28, 1994, the IAM, United Steelworkers of
America ("USWA") and International Brotherhood of Teamsters filed
applications with the NMB requesting that an election be held among
17
<PAGE>
USAir's fleet service employees, a class or craft of approximately
8,000 workers included among USAir's customer service employees.
On March 1, 1994, after determining that each of the three
applicant unions had submitted the required number of authorization
cards, the NMB declared an election among the fleet service agents.
At this time, the NMB has not determined the dates for the mailing
or tabulation of ballots, however, USAir expects this process will
be completed by the end of the third quarter of 1994. USAir cannot
predict the outcome of the election, nor can it predict, if a union
is certified, when a collective bargaining agreement would be
negotiated or what its terms would be. On March 21, 1994, the USWA
filed an additional application with the NMB requesting an election
among USAir's passenger service employees, a class or craft of
approximately 10,000 workers included among USAir's customer
service employees. The NMB is in the process of determining
whether this application is supported by sufficient authorization
cards to warrant an election. USAir cannot predict whether an
election will be held among the passenger service class or craft
and if an election were held, the outcome. Nor can it predict if
a union is certified when a collective bargaining agreement would
be negotiated or what its terms would be. If unions are certified
to represent the fleet service employees and the passenger service
employees, substantially all of USAir's non-management employees
would be unionized. USAir also cannot predict whether any union
might submit authorization cards to the NMB sufficient to obtain an
election among any other class or craft of employees.
Except as noted, the following table presents the status of
USAir's labor agreements as of December 31, 1993:
<TABLE>
<CAPTION>
Approximate Date
Number of Contract
Union Class or Craft Employees Amendable
- ----- -------------- ---------- ---------
<S> <C> <C>
AFA - flight attendants 8,600 1/97
ALPA - pilots 5,400 5/96
IAM - mechanics and related employees 8,600 10/95
TWU - flight crew training instructors 50 1/93
TWU - flight simulator engineers 60 8/97
TWU - dispatch employees 170 9/96
</TABLE>
As indicated under "Significant Impact of Low Fare, Low Cost
Competition," in March 1994, USAir initiated discussions with the
leadership of its unionized employees regarding wage reductions,
improved productivity and other cost savings. If these discussions
are successful, the terms of the above labor agreements will be
18
<PAGE>
renegotiated. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Low Cost, Low Fare
Competition."
See"-Commuter Airline Operations" for information regarding
negotiations between Piedmont and ALPA.
Jet Fuel
USAir and USAir Fuel have contracts with 25 different fuel
suppliers to meet a large percentage of USAir's current jet fuel
requirements. The contracts for these jet fuel purchases are
generally for one-year terms and expire at various dates. The
pricing provisions of these agreements may be based upon many
factors including crude oil, heating oil or jet fuel market
conditions. In some cases, USAir has the right to terminate the
agreements if contract prices become unacceptable. As market
conditions permit, USAir also may purchase a portion of its fuel on
the spot market at day-to-day prices depending upon availability,
price and purchasing strategy.
The most important single factor affecting petroleum product
prices, including the price of jet fuel, continues to be the
actions of the OPEC countries in setting targets for the produc-
tion, and pricing of crude oil. In addition, jet fuel prices are
affected by the markets for heating oil, diesel fuel, automotive
gasoline and natural gas. Seasonally, second and third quarter jet
fuel prices are typically lower than during the first and fourth
quarters as the demand for heating oil, which competes with jet
fuel for refinery production, subsides and refiners switch to
gasoline production which also increases the output of jet fuel.
Due primarily to OPEC's unwillingness or inability to restrain
crude oil production and recession-dampened demand for petroleum
products by the industrialized nations, USAir benefitted during
1993 from a general downward trend in jet fuel prices. For 1993,
USAir's jet fuel cost averaged approximately 58.4 cents per gallon
(versus an average of 61 cents in 1992) with quarterly averages of
59.8, 59.5, 56.7, and 57.7 cents.
USAir continues to adjust its jet fuel purchasing strategy to
take advantage of the best available prices while attempting to
ensure that supplies are secure. While USAir believes that jet
fuel prices will remain relatively stable in 1994, 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 condi-
tions. Accordingly, the price and availability of jet fuel, as
well as other petroleum products, continues to be unpredictable.
In addition, USAir has entered into agreements to hedge the price
of a portion of its jet fuel needs, which may have the net effect
of increasing or decreasing USAir's fuel expense. See Note 1 to
19
<PAGE>
Consolidated Financial Statements of USAir. In early August 1993,
the Clinton Administration's budget package was enacted. The
budget package included a 4.3 cent per gallon tax on transportation
fuels beginning October 1, 1993. The airline industry is exempt
from the tax until October 1, 1995. Imposition of the fuel tax
will increase USAir's operating expenses. If the fuel tax had been
in effect on January 1, 1993, USAir's fuel expense in 1993 would
have increased by approximately $50 million.
The following table sets forth statistics about USAir's jet
fuel consumption and cost for each of the last three years:
<TABLE>
<CAPTION>
Gallons Average Percentage
Calendar Consumed Total Cost Cost Per of Operating
Year (Millions) (Millions) Gallon Expenses (1)
- -------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C>
1993 1,161 $677.9 $0.58 10.2%
1992 1,183 $720.6 $0.61 11.1%
1991 1,168 $769.4 $0.66 12.2%
</TABLE>
(1) Operating expenses have been adjusted to exclude non-recurring
and special items.
Insurance
The Company and its subsidiaries maintain insurance of the
types and in amounts deemed adequate to protect them and their
property. Principal coverage includes liability for bodily injury
to or death of members of the public, including passengers; damage
to property of the Company, its subsidiaries and others; loss of or
damage to flight equipment, whether on the ground or in flight;
fire and extended coverage; and workers' compensation and em-
ployer's liability. Effective February 1, 1991, the Company
reduced the hull insurance coverage on its narrowbody aircraft from
replacement value to the higher of book value or the loss value
required by applicable leases or other contractual provisions.
Coverage for environmental liabilities is expressly excluded from
the Company's insurance policies.
Industry Conditions
The airline industry has historically been cyclical, in that
demand for air transportation has tended to mirror general economic
conditions. Although airline traffic and operating revenues
generally benefitted from the economic growth that occurred through
much of the 1980s, the Company and the industry have been adversely
affected by the recent economic recession. Historically, the
Company's airline operations have also been subject to seasonal
variations in demand. First and fourth quarter results have often
been adversely affected by winter weather and, with certain
exceptions, reduced travel demand, while the second and third
20
<PAGE>
quarters generally have been characterized by more favorable
weather conditions as well as higher levels of passenger travel.
The restructuring of USAir's route system in recent years to
emphasize its strengths in the northeastern U.S. and to capitalize
in the first, second and fourth quarters on passenger traffic to
Florida may result in changes in historic seasonality.
Most of USAir's operations are in competitive markets. USAir
and its commuter affiliates experience competition in varying
degrees with other air carriers and with all forms of surface
transportation. USAir competes with at least one major airline on
most of its routes between major cities. Vigorous price competi-
tion exists in the airline industry, and competitors have frequent-
ly offered sharply reduced discount fares in many of these markets.
Airlines 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. USAir has often elected to
match those discount or promotional fares. In 1993, Southwest
Airlines, Inc. and Continental, two low cost carriers, entered
several of USAir's markets in the eastern U.S. and commenced low
fare service. Continental substantially expanded its low fare
operations in the first quarter of 1994, and, in anticipation of
that expansion, USAir substantially reduced its fares in many
markets. See "Significant Impact of Low Fare, Low Cost Competi-
tion" above and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Low Cost, Low Fare
Competition." USAir expects that it will continue to face vigorous
price competition. To the extent that low fares continue and their
depressive effect on revenues is not offset by stimulation of
additional traffic or by reduced costs, USAir's and the Company's
earnings and liquidity will continue to be materially and adversely
affected.
Of the eleven airlines classified as "major" carriers by the
DOT in January 1991, two have ceased operations, one is currently
operating under Chapter 11 of the Bankruptcy Code and two filed for
bankruptcy protection, reorganized and emerged from bankruptcy in
1993. Eastern, which declared bankruptcy in March 1989, ceased
operations in January 1991. Pan American World Airways filed for
Chapter 11 protection from creditors in January 1991 and ceased
operations in December 1991. Continental, America West and Trans
World Airlines ("TWA") filed for bankruptcy in December 1990, June
1991 and January 1992, respectively. Continental and TWA reorga-
nized and emerged from bankruptcy in April 1993 and November 1993,
respectively. America West is seeking to emerge from bankruptcy in
1994. In addition, Midway Airlines, a smaller carrier that had
been a competitor of USAir at Philadelphia, declared bankruptcy in
March 1991 and ceased operations in November 1991.
21
<PAGE>
Airlines operating under Chapter 11 often engage in discount
pricing to generate the cash flow necessary for their survival. In
addition, when these airlines emerge from bankruptcy they may have
substantially reduced their debt and lease obligations and other
operating costs, as was the case when Continental and TWA emerged.
These reduced costs may permit the reorganized carriers to enter
new markets and offer discount fares, which may be intended to
generate cash flow, preserve and enhance market share and rehabili-
tate the carriers' image in the marketplace. Since its reorganiza-
tion, Continental has entered many of USAir's markets in the
eastern U.S. and offered fares that were substantially lower than
those that were previously available. See "Significant Impact of
Low Fare, Low Cost Competition" above and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Low Cost Low Fare Competition." The availability of
the assets of bankrupt carriers has enabled certain financially
stronger participants in the market, including, to a lesser extent,
USAir, to consolidate their position by purchasing routes,
aircraft, takeoff and landing slots and other assets. While
substantial capacity has been removed in certain domestic markets,
these bankruptcies and failures illustrate the difficulties facing
the airline industry today.
Regulation
All domestic airlines, including USAir and its commuter
affiliates, are subject to regulation by the FAA under the Federal
Aviation Act of 1958, as amended. The Federal Aviation Administra-
tion ("FAA") has regulatory jurisdiction over flight operations
generally, including equipment, ground facilities, security
systems, maintenance and other safety matters. To assure compli-
ance with its operational standards, the FAA requires air carriers
to obtain operations, airworthiness and other certificates, which
may be suspended or revoked for cause. The FAA also conducts
safety audits and has the power to impose fines and other sanctions
for violations of aviation safety and security regulations.
USAir has developed extensive maintenance programs which
consist of a series of phased checks for each aircraft type. These
checks are performed at specified intervals measured either by time
flown or by the number of takeoffs and landings ("cycles")
performed. They range from daily "walkaround" inspections, to more
involved overnight maintenance checks, to exhaustive and time-
consuming overhauls. The "Q Check", for example, requires more
than 7,000 personnel-hours of work and includes stripping the
airframe, extensively testing the airframe structure and a large
number of parts and components, and reassembling the overhauled
airframe with new or rebuilt components. Aircraft engines are
subject to phased, or continuous, maintenance programs designed to
detect and remedy potential problems before they occur. The
service lives of certain parts and components of both airframes and
engines are time or cycle controlled. Parts and other components
22
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are replaced or overhauled prior to the expiration of their time or
cycle limits. The FAA approves all airline maintenance programs,
including changes to the programs. In addition, the FAA licenses
the mechanics who perform the inspections and repairs, as well as
the inspectors who monitor the work.
The FAA frequently issues airworthiness directives, often in
response to specific incidents or reports by operators or manufac-
turers, requiring operators of specified equipment to perform
prescribed inspections, repairs or modifications within stated time
periods or number of cycles.
In response to several incidents involving older aircraft, the
FAA, in cooperation with airframe manufacturers and operators, has
developed mandatory programs requiring extensive testing, modifica-
tions and repairs to certain models of older aircraft as a
condition of their continuing in service beyond specified time
periods or number of cycles. USAir is modifying its Boeing 727-
200, Boeing 737-200 and Douglas DC-9-30 aircraft to comply with the
first phase of the "aging aircraft" requirements, which requires
that a series of structural modifications be performed. The second
phase, announced in November 1990, involves intensified corrosion
control and detection procedures. Many of USAir's aircraft will be
brought into compliance well in advance of the FAA's time and cycle
requirements, because the work is scheduled to be accomplished in
conjunction with other maintenance.
A continuing regulatory issue currently facing the airline
industry involves air traffic delays and landing rights. While the
volume of aircraft operations in domestic airspace has increased
during recent years, the capacity of the national air traffic
control system has not kept pace. This situation causes frequent
and significant air traffic delays, especially at the nation's
busiest airports. These delays have led the FAA to require monthly
reporting by air carriers of on-time performance and have prompted
various proposals for reform of the FAA, which oversees and
regulates the air traffic control system.
The National Commission to Ensure a Strong Competitive Airline
Industry (the "Airline Commission") issued its report in August
1993. Among other things, the Airline Commission recommended that:
(1) the air traffic control system be modernized and the FAA air
traffic control functions be performed by an independent federal
corporation; (2) the federal regulatory burden be reduced; (3) the
airlines be granted certain tax relief; and (4) the bankruptcy
process be shortened. The Airline Commission also favored raising
the statutory limit on foreign ownership of voting securities in
U.S. airlines to 49 percent under certain circumstances. It
further urged that the current international system of bilateral
agreements be replaced with multilateral arrangements. In
addition, the Airline Commission recommended that the DOT review
the airlines' business, capital or financial plans with the
23
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assistance of a presidentially appointed advisory committee and, if
an airline repeatedly failed to heed warnings or concerns of the
DOT Secretary, the DOT could "exercise its existing authority,"
among other things, to revoke an airline's operating certificate.
In January 1994, the Clinton Administration issued a report
which described its program to implement certain of the Airline
Commission's recommendations. Among other things, the Administra-
tion stated that it supported the recommendation described above
regarding the FAA, supported increasing to 49 percent the foreign
ownership restrictions provided there are reciprocal opportunities
for U.S. airlines and investors abroad, and opposed the recommenda-
tions regarding tax relief and the appointment of the advisory
committee discussed above. At this time, it is impossible to
predict whether any of the Airline Commission's recommendations
will be enacted and, if enacted, their effect on USAir. It is also
difficult to anticipate whether the Congress will act in the near
term on any of the proposals requiring legislation.
The FAA, through its High Density Traffic Airport Rule, limits
the number of flight operations at Washington National Airport,
Chicago's O'Hare International Airport and New York City's John F.
Kennedy International and LaGuardia Airports during specified time
periods. Takeoff and landing rights ("slots") are assigned to
airlines serving these high density airports. The FAA has
promulgated regulations governing the allocation and use of slots
that permit them to be traded, leased, purchased and sold. In
addition, in 1992, the FAA amended its regulations governing the
use of slots to require slotholders to increase their average
monthly use of their slots. In 1993, the DOT began a comprehensive
examination of the High Density Rule. As part of its study, the
DOT will determine whether the operating limitations imposed by the
rule can be eliminated or modified to better utilize available
capacity at these airports. USAir holds a substantial number of
slots at LaGuardia and National Airports, including those assigned
a value when the Company acquired Piedmont Aviation. Any DOT
action which would eliminate those slots or compel USAir to
transfer those slots could have a material adverse effect on
USAir's operations and financial position. Revision of the High
Density Rule at National Airport, however, would require legisla-
tion by the Congress. The DOT has indicated that it expects to
complete its study by late 1994.
The FAA also has authority to set noise standards for civil
aircraft. Three noise level categories exist under FAA regula-
tions. Stage 1 aircraft, which were designed before the first FAA
noise regulations were promulgated in 1969, are no longer permitted
to operate in the United States unless retrofitted to meet Stage 2
requirements. Stage 2 aircraft comply with regulations limiting
noise emissions to specified levels. Aircraft designed after 1977
must meet the even more stringent noise limitations of Stage 3. At
December 31, 1993, 260 aircraft, or 62% of USAir's operating fleet
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(excluding 33 Fokker F28 aircraft exempt from the Stage 3 require-
ments because their gross takeoff weights do not exceed 75,000
pounds), were Stage 3 aircraft. The Airport Noise and Capacity Act
of 1990, with minor qualifications, prohibits operation of Stage 2
aircraft after 1999. Regulations promulgated by the FAA in 1991
require operators to modify or reduce the number of Stage 2
aircraft they operated during 1990 by 25% by the end of 1994, by
50% by the end of 1996, and by 75% by the end of 1998. Alterna-
tively, an operator may elect to operate a fleet that is at least
55% Stage 3 by the end of 1994, 65% Stage 3 by the end of 1996 and
75% Stage 3 by the end of 1998. Modification costs will depend on
the technology that is developed in response to the need, but these
costs could be substantial for some aircraft types. See Note 4 to
the Company's Consolidated Financial Statements. USAir intends to
convert up to 64 of its Boeing 737-200 and 31 of its Douglas DC-9-
30 aircraft from Stage 2 to Stage 3. In May 1993, USAir entered
into agreements to purchase hushkits for a substantial portion of
its Boeing 737-200 fleet. The installation of these hushkits will
bring the aircraft into compliance with federally mandated Stage 3
noise level requirements. These agreements are in addition to a
previously existing agreement to purchase hushkits for certain of
USAir's DC-9-30 aircraft. Installation of the hushkits will be
accomplished during 1994-1999.
Certain airport operators have adopted local regulations
which, among other things, impose curfews, restrict the number of
aircraft operations and require aircraft to meet prescribed decibel
limits. Local noise regulations affect USAir's scheduling
flexibility by requiring that only certain aircraft be scheduled at
certain airports and at specified times of the day.
In compliance with FAA regulations, USAir has implemented a
drug testing program that involves not only education and training,
but also periodic drug testing of personnel performing safety and
security-related work, including pilots, flight attendants,
mechanics, instructors, dispatchers and security screeners, and
drug testing of all newly hired employees regardless of job
classification. The FAA's drug testing regulations are comprehen-
sive and complex. They require, among other things, six categories
of drug tests: pre-employment, probable cause, periodic, random,
post-accident and return to duty. In addition, all USAir Express
operators have drug testing programs in place that comply with the
FAA's drug testing regulations. The DOT has recently promulgated
rules requiring by January 1995 the periodic testing of airline
employees in safety-related jobs for alcohol use. USAir cannot
predict at this time the effect of these new rules.
Several aspects of airlines' operations are subject to
regulation or oversight by Federal agencies other than the FAA.
The DOT has jurisdiction over certain aviation matters such as
international routes and fares, consumer protection and unfair
competitive practices. The antitrust laws are enforced by the DOJ.
25
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Labor relations in the air transportation industry are generally
regulated under the RLA, which vests in the NMB certain regulatory
powers with respect to disputes between airlines and labor unions
that arise under collective bargaining agreements. USAir and other
airlines certificated prior to October 24, 1978 are also subject to
regulations issued by the Department of Labor which implement the
statutory preferential hiring rights granted by the Airline
Deregulation Act of 1978 to certain airline employees who have been
furloughed or terminated (other than for cause).
The Company must also comply with federal and state environ-
mental laws and regulations and has developed formal policies and
procedures designed to ensure its ongoing compliance. The Company
expects that its operating expenses will increase in the future as
a result of governmental rulemaking and more stringent enforcement
of applicable existing environmental laws. The Company cannot
predict the magnitude of those increased costs or when they may be
incurred, but in order to conduct their operations, airlines,
including USAir and the USAir Express carriers, release and
discharge pollutants into the environment. For example, USAir and
the other airlines operating at Pittsburgh are subject to a
Pennsylvania consent decree to reduce the runoff of deicing fluid
which has resulted in the construction of new deicing pads, the
cost of which will be passed on to the airlines. In addition, the
Clean Air Act, as amended, as it may be implemented by the various
states, may require operational upgrades and tighter emissions
controls not only on aircraft but also on ground equipment operated
by airlines. The airlines' operations in certain states, for
example, California, where air pollution is a serious problem, may
be affected more significantly than in other states. Moreover,
many airports were constructed before the enactment of various
environmental laws. The cost of correcting environmental problems
at these airports may be passed onto the airlines operating at
these airports through increased rents and fees. See also the
disclosure above regarding the FAA's regulations regarding noise
standards for civil aircraft and noise regulation by other
governmental authorities and Note 4(d) to the Company's Con-
solidated Financial Statements for disclosure regarding capital
commitments related to compliance with these FAA regulations.
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 are exhibits
to this report. On March 7, 1994, BA announced it would make no
additional investments in the Company until the outcome of measures
by the Company to reduce costs and improve its financial results is
known. As of March 1, 1994, BA owned preferred stock in the
Company constituting approximately 22% of the total voting interest
in the Company. See Item 12. "Security Ownership of Certain
Beneficial Owners and Management."
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<PAGE>
Terms of the Series F Preferred Stock On January 21, 1993,
the Company sold, pursuant to the Investment Agreement, 30,000
shares of the Company's Series F Cumulative Convertible Senior
Preferred Stock, without par value, ("Series F Preferred Stock") to
BA for an aggregate purchase price of $300 million. The Series F
Preferred Stock is convertible into shares of Common Stock at a
conversion price of $19.41 and will have a liquidation preference
of $10,000 per share plus an amount equal to accrued dividends.
See "Miscellaneous" for a discussion of an antidilution adjustment
to the conversion price of the Series F Preferred Stock. The
Series F Preferred Stock may be converted at the option of USAir
Group 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 will be entitled to cumulative quarterly dividends
of 7% per annum when and if declared and to share in certain other
distributions. The Series F Preferred Stock must be redeemed by
USAir Group on January 15, 2008. Each share of the Series F
Preferred Stock will be entitled to a number of votes equal to the
number of shares of Common Stock into which it is convertible and
will vote with the Common Stock and USAir Group's Series A
Cumulative Convertible Preferred Stock, without par value ("Series
A Preferred Stock"), and any other capital stock with general
voting rights for the election of directors, as a single class.
Subject to adjustment, 515.2886 shares of Common Stock are issuable
on conversion per share of Series F Preferred Stock (determined by
dividing the $10,000 liquidation preference per share of Series F
Preferred Stock by the $19.41 conversion price), and 15,458,658
shares of Common Stock would be issuable on conversion of all
Series F Preferred Stock. However, under the terms of any USAir
Group preferred Stock that is or will be held by BA ("BA Preferred
Stock"), conversion rights (and as a result voting rights) may not
be exercised to the extent that doing so would result in a loss of
USAir Group's or any of its subsidiaries' operating certificates
and authorities under Foreign Ownership Restrictions, as defined
under "Board Representation" below, and it is assumed for this
purpose that Series F Preferred Stock will be fully converted
before any other BA Preferred Stock. Under Foreign Ownership
Restrictions, no more than 25% of the Company's voting interest may
be held by persons other than U.S. citizens, including BA. With
respect to dividend rights and rights on liquidation, dissolution
and winding up, the Series F Preferred Stock ranks senior to USAir
Group's $437.50 Series B Cumulative Convertible Preferred Stock,
without par value, and Junior Participating Preferred Stock, Series
D, no par value, and Common Stock, and pari passu with BA Preferred
Stock and Series A Preferred Stock.
Moreover, the Certificate of Designation for the Series F
Preferred Stock provides that if on any one occasion on or prior to
January 21, 1996, any court or regulatory authority issues a final
order that any material part of the Investment Agreement is
27
<PAGE>
unenforceable (except pursuant to bankruptcy or like event), then
the conversion price of Series F Preferred Stock shall be reduced
by 10.2564%. In that event, if the then conversion price of the
Series F Preferred Stock were $19.41, it would be reduced to
$17.42.
On March 15, 1993, the DOT issued an order (the "DOT Order")
finding, among other things, that "BA's initial investment of $300
million does not impair USAir's citizenship" under Foreign
Ownership Restrictions as defined under "Board Representation"
below. However, the DOT instituted a proceeding to consider
whether USAir will remain a U.S. citizen if the transactions and
acts contemplated by the Investment Agreement, including the
transactions discussed under "Possible Additional BA Investments"
and "Certain Governance Matters" below, 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 USAir.
The DOT Order states that the DOT expects and advises USAir Group
and BA not to proceed with the Second Purchase and Final Purchase,
as such terms are defined under "Possible Additional BA Invest-
ments," until the DOT has completed its review of USAir's citizen-
ship. In any event, on March 7, 1994, BA announced that it would
make no additional investments in the Company until the outcome of
measures by the Company to reduce its costs and improve its
financial results is known. See "Significant Impact of Low Fare,
Low Cost Competition" and "British Airways Announcement Regarding
Additional Investments in the Company; Code Sharing" above. The
Company cannot predict the outcome of the proceeding or if the
transactions contemplated under the Investment Agreement, particu-
larly those discussed under "Possible Additional BA Investments"
and "Certain Governance Matters", will be consummated. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of issues and consider-
ations pertaining to globalization of the airline industry and
"Miscellaneous" for information regarding BA's purchase of two
additional series of preferred stock from USAir Group pursuant to
its exercise of optional and preemptive purchase rights under the
Investment Agreement and its decision not to exercise its optional
purchase rights with respect to three additional series of
preferred stock.
Board Representation USAir Group increased the size of its
Board of Directors by three on January 21, 1993 and the Board of
Directors filled the newly created directorships with designees of
BA. Under the terms of the Investment Agreement, USAir Group must
use its best efforts to cause BA to be proportionally represented
on the Board of Directors (on the basis of its voting interest), up
to a maximum representation of 25% of the total number of autho-
rized directors ("Entire Board"), assuming that such proportional
representation is permitted by then applicable U.S. statutory and
DOT regulatory or interpretative foreign ownership restrictions
28
<PAGE>
("Foreign Ownership Restrictions"), until the later of the closing
of the Second Purchase, as defined under "Possible Additional BA
Investments" below, and the date on which BA may exercise under
Foreign Ownership Restrictions the rights described under "Certain
Governance Matters" below. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Industry Globalization" for a discussion of currently applicable
Foreign Ownership Restrictions.
U.S.-U.K. Routes Under the Investment Agreement, USAir 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 USAir's routes between the
U.S. and the U.K. (the "U.K. Routes") at such time as BA and USAir
implement the code-sharing arrangement contemplated by the
Investment Agreement discussed below. USAir Group and BA have
agreed that they should attempt to mitigate any negative impact on
Company 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, BA is operating and marketing certain routes formerly
operated by USAir under a "wet lease." Under a "wet lease," an
airline, in this case USAir, leases its aircraft and cockpit and
cabin crews to another airline, in this case BA, for the purpose of
operating certain routes or flights. The wet leases have an
initial term of one year and may be extended by USAir Group and BA
for a cumulative lease term not to exceed two years and eleven
months. Rentals under the wet lease are based on USAir's costs.
BA will retain the cumulative profits received by it in respect of
these routes on the basis of its fully diluted stock ownership in
USAir Group and pay the balance of the profits to USAir Group
annually. See "Code Sharing" below. If the contemplated profit
sharing cannot be performed, BA will reimburse USAir Group for a
portion of any losses suffered by USAir Group in the divesture or
relinquishment of the U.K. Routes based on a formula set forth in
the Investment Agreement. The route authorities which USAir was
required to sell or relinquish were the Philadelphia-London and
BWI-London route authorities purchased by USAir from TWA in April
1992 for $50 million, and its route authority between Charlotte and
London. Assets related to the U.K. Routes were carried on USAir's
books at approximately $47 million at December 31, 1993 and USAir
expects to recover such amount in full pursuant to the provisions
of the Investment Agreement described above.
During March and April of 1993, USAir reached agreement with
two air carriers to sell the Philadelphia-London and BWI-London
route authorities, provided, among other conditions, governmental
authorities permitted the transfer of these route authorities to
other cities. In June 1993, the DOT denied applications for such
transfers on the grounds that the U.S.-U.K. bilateral air services
agreement does not permit such transfers. In July 1993, the DOT
awarded the Philadelphia-London route authority to American. USAir
29
<PAGE>
ceased operating the BWI-London route authority on October 1, 1993
as a result of the implementation of the wet leasing and code
sharing arrangements with BA. See "Code Sharing" below. In April
1993, USAir agreed to sell to the Metropolitan Nashville Airport
Authority, Nashville, Tennessee for $5 million its operating
authority between Charlotte and London Gatwick Airport. In
December 1993, the DOT issued an order which disapproved USAir's
proposed sale of this route to Nashville and awarded the BWI-London
and Charlotte-London route authorities to American, which will
transfer the U.S. gateway cities for these route authorities to
Nashville and Raleigh/Durham, North Carolina. USAir ceased serving
the Charlotte-London route on January 19, 1994 and implemented the
code sharing and wet leasing arrangement with BA in that market on
that date.
Code Sharing BA and USAir Group entered into a code share
agreement on January 21, 1993 (the "Code Share Agreement") pursuant
to which certain USAir flights will carry the airline designator
code of both BA and USAir. Code sharing is a common practice in
the airline industry whereby one carrier sells the flights of
another carrier (its code sharing partner) as if it provides those
flights with its own equipment and personnel. These flights are
intended by USAir Group and BA 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 commer-
cial viability and technical feasibility.
The DOT Order, among other things, granted USAir for one year
a statement of authorization, and BA an exemption, for certain code
sharing and wet leasing arrangements contemplated by the Investment
Agreement (the "Initial Code Share Authority"). USAir believes
that the one-year term of the Initial Code Share Authority was
consistent with DOT policy and precedents with respect to other
code sharing arrangements. As contemplated in the Initial Code
Share Authority, USAir can code share with BA to approximately 38
airports in the U.S. beyond the BWI, Philadelphia and Pittsburgh
gateways. Since the DOT Order was issued in March 1993, the DOT
also granted USAir code sharing authorization for 26 additional
U.S. airports and Mexico City through nine additional U.S.
gateways, including Charlotte (the "Supplemental Code Share
Authority"). Although the DOT granted the Supplemental Code Share
Authority for periods shorter than one year in an effort to exert
pressure on the U.K. to liberalize access to the U.K., particularly
London's Heathrow Airport, in negotiations on a revised U.S.-U.K.
bilateral air services agreement, the DOT eventually extended the
Supplemental Code Share Authority to March 17, 1994, the same date
the Initial Code Share Authority expired. As of March 1, 1994,
USAir and BA had implemented the code sharing arrangements for 34
U.S. cities. On March 17, 1994, the DOT issued an order renewing
for one year the code share authorization granted under the Initial
Code Share Authority and Supplemental Code Share Authority. In
January 1994, USAir and BA filed applications to code share to 65
30
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additional U.S., and seven additional foreign, destinations via the
same and several additional U.S. gateways. The DOT did not act on
these applications in its March 17, 1994 order.
The Company and BA are in the process of exploring the
economies and synergies that may be possible as a result of the
Code Share Agreement. The Company believes that (i) the code-share
cities in the U.S. will receive greater access to international
markets; (ii) it will have greater access to international traffic;
and (iii) BA's and its customers will benefit from better on-line
connections as well as coordinated check-in and baggage checking
procedures. The Company believes that the code sharing arrange-
ments will generate increased revenues; however, the magnitude of
any increase cannot be estimated at this time. The DOT may
continue to link further renewals of the code share authorization
to the U.K.'s liberalization of U.S. air carrier access to the
U.K.; however, the code sharing arrangements contemplated by the
Code Share Agreement are expressly permitted under the bilateral
air services agreement between the U.S. and U.K. Accordingly,
USAir expects that the existing code share authorization will
continue to be renewed; however, there can be no assurance that
this will occur. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Industry Globaliza-
tion." USAir does not believe that the DOT's failure to renew
further the authorization would result in a material adverse change
in its financial condition; however, if the authorization is not
renewed, consummation of the Second Purchase and the Final
Purchase, as defined under "Possible Additional BA Investments"
below, may be less likely. In any event, on March 7, 1994 BA
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 its financial results is known. As discussed
under "Possible Additional BA Investments" below, USAir cannot
predict whether or when the Second Purchase or the Final Purchase
will be consummated in any event.
Possible Additional BA Investments On March 7, 1994 BA
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 its financial results is known. Under the terms
of the Investment Agreement, assuming the Series F Preferred Stock
or any shares issued upon conversion thereof are outstanding and BA
has not sold any shares of preferred stock issued to it by USAir
Group or any common stock or other securities received upon
conversion or exchange of the preferred stock, BA is entitled at
its option to elect to purchase from USAir Group, 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 $10,000 per share, to be paid by
BA's surrender of the Series F Preferred Stock and a payment of
$200 million (the "Second Purchase"), and, on or prior to Janu-
ary 21, 1998, assuming that BA has purchased or is purchasing
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<PAGE>
simultaneously Series C Preferred Stock, 25,000 (or more in certain
circumstances) shares of Series E Cumulative Convertible Exchange-
able Senior Preferred Stock, without par value ("Series E Preferred
Stock"), at a purchase price of $10,000 per share (the "Final
Purchase"). Series E Preferred Stock is exchangeable under certain
circumstances at the option of USAir Group into certain USAir Group
debt securities ("BA Notes"). If the DOT approves all the
transactions and as contemplated by the Investment Agreement, at
the election of either BA or USAir Group on or prior to January 21,
1998, BA's purchase of the Series C Preferred Stock (unless
previously consummated) and BA's purchase of the Series E Preferred
Stock would be consummated under certain circumstances. If BA has
not elected to purchase the Series C Preferred Stock by January 21,
1996, then USAir Group may at its option redeem, in whole or in
part, Series F Preferred Stock at the higher of market value or the
price of $10,000 per share, plus accrued dividends. USAir cannot
predict whether or when the Second Purchase and Final Purchase will
be consummated.
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 (as such terms
are defined under "Terms of BA Common Stock" below) 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 share
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 (as defined
under "Terms of BA Common Stock" below) 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. 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.
Terms of BA Common Stock To the extent permitted by Foreign
Ownership Restrictions, an amendment to USAir Group's charter,
which is to be filed with the Delaware Secretary of State immedi-
ately prior to the Second Purchase, which BA has announced it will
not complete under current circumstances, will create three new
classes of common stock - Class B Common Stock, par value $1.00 per
share ("Class B Common Stock"), Non-Voting Class C Common Stock,
par value $1.00 per share ("Non-Voting Class C Stock"), and Non-
Voting Class ET Common Stock, par value $1.00 per share ("Non-
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Voting Class ET Common Stock," collectively with Class B Common
Stock and Non-Voting Class C Common Stock, "BA Common Stock") all
of which may be held only by BA or one of its wholly-owned
subsidiaries. Except with respect to voting and conversion rights,
the BA Common Stock will be substantially identical to the Common
Stock. Shares of BA Common Stock will convert automatically to
shares of Common Stock upon their transfer to a third party.
Subject to Foreign Ownership Restrictions, Class B Common Stock
will be entitled to one vote per share. After the effectiveness of
the above charter amendment, to the extent permitted by Foreign
Ownership Restrictions, Class B Common Stock will vote as a single
class with Series C Preferred Stock on the election of one-fourth
of the directors and the approval of the holders of Class B Common
Stock and Series C Preferred Stock voting as a single class will be
required for certain matters.
Certain Governance Matters Following the Second Purchase,
which BA has announced it will not complete under current circum-
stances, and assuming these changes are permitted under Foreign
Ownership Restrictions, the above charter amendment will fix the
size of USAir Group's Board of Directors at 16, one-fourth of whom
would be elected by BA. In addition, the vote of 80% of the USAir
or USAir Group Boards of Directors will be required for approval of
the following (with certain limited exceptions): (i) any agreement
with the DOT regarding citizenship and fitness matters; (ii) any
annual operating or capital budgets or financing plans; (iii)
incurring capital expenditure not provided for in a budget approved
by the vote of 80% of the board in excess of $10 million in the
aggregate during any fiscal year; (iv) declaring and paying
dividends on any capital stock of USAir Group or any of its
subsidiaries (other than dividends paid only to USAir Group or any
wholly-owned subsidiary of USAir Group and any dividends on
preferred stock); (v) making investments in other entities not
provided for in approved budgets in excess of $10 million in the
aggregate during any fiscal year; (vi) incurring additional debt
(other than certain debt specified in the Investment Agreement) not
in an approved financing plan in excess of $450 million in the
aggregate during any fiscal year; (vii) incurring off-balance sheet
liabilities (e.g., operating leases) not in an approved financing
plan in excess of $50 million in the aggregate during any fiscal
year; (viii) appointment, compensation and dismissal of certain
senior executives; (ix) acquisition, sale, transfer or relinquish-
ment of route authorities or operating rights; (x) entering into
material commercial or marketing agreements or joint ventures; (xi)
issuance of capital stock (or debt or other securities convertible
into or exchangeable for capital stock), other than (A) the stock
options granted to employees in return for pay reductions under the
USAir Group 1992 Stock Option Plan, as described under "Employees"
above, (B) to USAir Group or any direct or indirect wholly owned
subsidiary of USAir Group, (C) pursuant to the terms of USAir Group
securities outstanding when a certain amendment to USAir Group's
charter required in connection with consummation of the Second
33
<PAGE>
Purchase becomes effective, or (D) pursuant to the terms of
securities the issuance of which was previously approved by the
vote of 80% of the board; (xii) acquisition of its own equity
securities other than from USAir Group or its subsidiaries, or
pursuant to sinking funds or an approved financing plan; and (xiii)
establishment of a board of directors' committee with power to
approve any of the foregoing. This supermajority vote requirement
would allow any four directors, including those elected by BA, to
withhold approval of the actions described above if they believe
them to be contrary to the best interests of USAir. The super-
majority vote would not be required with regard to the foregoing
actions to the extent they involve the enforcement by USAir Group
of its rights under the Investment Agreement.
Following the Second Purchase, which BA has indicated it will
not complete under current circumstances, to the extent permitted
under Foreign Ownership Restrictions, USAir Group and BA will
integrate certain of their respective business operations pursuant
to certain "Integration Principles" included in the Investment
Agreement. In addition, to the extent permitted by Foreign
Ownership Restrictions or pursuant to specific DOT approval, an
"Integration Committee," headed by the chief executive officers of
USAir Group and BA and by an Executive Vice President-Integration
of USAir Group, would oversee the integration subject to the
ultimate discretion of USAir Group's board of directors. As of the
Final Purchase, which BA has indicated it will not complete under
current circumstances, to the extent permitted by Foreign Ownership
Restrictions, the Investment Agreement provides for the establish-
ment of a committee ("Appointments Committee") of the board of
directors of USAir Group, composed of USAir Group's chief executive
officer, BA's chief executive officer and another director serving
on both USAir Group's and BA's board of directors, to handle all
employment matters relating to managers at the level of vice
president and above, except for certain senior executives.
BA's governance rights after the Second Purchase and the Final
Purchase, which BA has indicated it will not complete under current
circumstances, are subject to reduction if BA reduces its holding
in USAir Group under the following circumstances. If BA sells or
transfers, in one or more transactions, BA Preferred Stock, Common
Stock or BA Common Stock (collectively, Common Stock and BA Common
Stock are hereinafter referred to as "Non-Preferred Stock") issued
directly or indirectly upon the conversion thereof such that the
aggregate purchase price of the BA Preferred Stock, BA Notes, Non-
Preferred Stock or other equity securities of USAir Group held by
BA and its directly or indirectly wholly owned subsidiaries
following such sale or transfer (the "BA Holding") is less than
both two-thirds of the aggregate purchase price of all BA Preferred
Stock, BA Notes, Non-Preferred Stock or other equity securities of
USAir Group acquired by BA and its subsidiaries following Janu-
ary 21, 1993 and $750 million (or $500 million if the Final
Purchase has not occurred), then (i) the number of directors
34
<PAGE>
elected by the Class B Common Stock and the Series C Preferred
Stock, voting together as a single class, will be limited to two;
(ii) the directors elected by the Common Stock, Series A Preferred
Stock, Series E Preferred Stock, Series T Preferred Stock, as
defined under "Miscellaneous" below, and other capital stock with
voting rights will no longer be required to include two directors
selected from among the outside directors on the board of directors
of BA; (iii) special class voting rights applicable to the Class B
Common Stock and Series C Preferred Stock will no longer apply and;
(iv) BA will no longer participate in the Appointments Committee.
In addition, if the BA Holding becomes less than both one-third of
the aggregate purchase price of all BA Preferred Stock, BA Notes,
Non-Preferred Stock or other equity securities of USAir Group
acquired by BA and its subsidiaries following January 21, 1993 and
$375 million (or $250 million if the Final Purchase has not
occurred), then the number of directors elected by the Class B
Common Stock and the Series C Preferred Stock, voting together as
a single class, will be reduced to one. If the BA Holding becomes
less than $100 million, then the Class B Common Stock and the
Series C Preferred Stock will no longer vote together as a single
class with respect to the election of any directors of USAir Group,
but will vote together with the Common Stock, the Series A
Preferred Stock and any other class or series of capital stock with
voting rights with respect to the election of directors of USAir
Group.
Miscellaneous Under the terms of the Investment Agreement,
BA has the right to maintain its proportionate ownership (based on
the assumed consummation of the Second Purchase and the Final
Purchase) of USAir Group's securities under certain circumstances
by purchasing shares of certain series of Series T Cumulative
Convertible Exchangeable Senior Preferred Stock, without par value
("Series T Preferred Stock"), Common Stock or BA Common Stock.
Pursuant to these provisions, on June 10, 1993, BA purchased (i)
152.1 shares of Series T-1 Preferred Stock for approximately $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 USAir 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 BA
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 15,458,658 shares of Common Stock or Non-Voting Class ET
Common Stock. On March 7, 1994, BA advised the Company that it
would not exercise its optional purchase rights under the Invest-
ment Agreement to buy three additional series of Series T Preferred
35
<PAGE>
Stock triggered by issuances of common stock of the Company
pursuant to certain Company benefit plans during the second, third
and fourth quarters of 1993.
The Investment Agreement also imposes certain restrictions on
BA's right to acquire additional voting securities, participate in
solicitations with respect to USAir Group securities or otherwise
propose or discuss extraordinary transactions concerning USAir
Group. In addition, the Investment Agreement restricts BA's right
to transfer certain securities and requires that prior to transfer-
ring such securities, BA must, in most cases, first offer to sell
the securities to USAir Group. BA has certain rights to require
USAir Group to register for sale USAir Group securities sold to it
pursuant to the Investment Agreement.
USAir Group believes that the investments made by BA, the code
sharing arrangements and consummation of the other transactions
contemplated by the Investment Agreement have enabled and would
further enable it to compete more effectively by (i) increasing
USAir Group's equity capital and strengthening its balance sheet;
(ii) improving its liquidity and access to capital markets; (iii)
providing financial resources to help it withstand adverse economic
conditions and fare competition; (iv) providing financial resources
for the purchase of strategic assets which may be on the market
from time to time; and (v) giving USAir greater access to interna-
tional traffic. However, BA has announced that while it will
continue to code share with USAir, it will not make additional
investments in the Company under current circumstances. It is
unclear whether or when any additional investments by BA will
occur.
36
<PAGE>
Item 2. PROPERTIES
Flight Equipment
At December 31, 1993, USAir operated the following jet
aircraft:
<TABLE>
<CAPTION>
Passenger Avg. Age Owned Leased
Type Capacity (Years) (1) (2) Total
---- --------- -------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Boeing 767-200ER
(3) 210 4.9 4 6 10
Boeing 757-200 186 5.5 11 11 22
Boeing 727-200 151 15.0 - 8 8
Boeing 737-400 146 4.1 19 35 54
McDonnell Douglas
MD-80 141 11.9 15 16 31
Boeing 737-300 128 7.0 25 76 101
Boeing 737-200 110 14.4 61 20 81
Douglas DC-9-30 103 20.9 59 14 73
Fokker 100 98 3.1 36 4 40
Fokker F28-4000 68 10.0 4 17 21
---- --- --- ---
10.4 234 207 441
==== === === ===
</TABLE>
(1) Of the owned aircraft, 119 were collateral for various secured
financing obligations aggregating $2.0 billion at December 31,
1993, 31 were collateral under USAir Group's Credit Agreement
(see Item 8A, Notes to the Consolidated Financial Statements
of USAir Group).
(2) The terms of the leases expire between 1994 and 2015.
(3) The above table excludes one owned and one leased Boeing 767-
200ER which USAir leased to BA under a wet lease arrangement
at December 31, 1993. See "British Airways Investment
Agreement - U.S.-U.K. Routes."
37
<PAGE>
At December 31, 1993, USAir Group's three commuter airline
subsidiaries operated the following propeller-driven aircraft:
<TABLE>
<CAPTION>
Passenger Avg. Age Owned Leased
Type Capacity (Years) (1) (2) Total
---- --------- -------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
deHavilland Dash 7 50 12.7 2 3 5
deHavilland Dash 8 37 5.1 33 31 64
Shorts SD3-60 36 8.8 5 12 17
Embraer Model
120 Brasilia 28 6.5 - 7 7
120 Brasilia 30 3.8 - 2 2
Beechcraft B1900 19 8.5 9 - 9
British Aerospace
Jetstream 31 19 6.5 5 21 26
---- --- --- ---
6.4 54 76 130
==== === === ===
</TABLE>
(1) Of the owned aircraft, four were collateral for various
secured financing obligations aggregating $3.6 million at
December 31, 1993, 35 were collateral under USAir Group's
Credit Agreement (see Item 8A, Notes to the Consolidated
Financial Statements of USAir Group), 14 were owned by USAir
Leasing and Services, and 17 were owned by USAir.
(2) The terms of the leases expire between 1994 and 2010.
USAir is party to purchase agreements that provide for the
future acquisition of new jet aircraft. See Note 4(d) to the
Company's Consolidated Financial Statements for outstanding
commitments and options for the purchase of flight equipment. The
Company's subsidiary airlines maintain inventories of spare
engines, spare parts, accessories and other maintenance supplies
sufficient to meet their operating requirements.
USAir owns one and leases 17 BAe 146-200 aircraft, leases 8
Boeing 727-200 and owns 12 Fokker F28-1000 aircraft that were
parked in storage facilities and not operating at December 31,
1993. In addition, certain of the Company's subsidiaries lease
five owned F-28-1000 aircraft to outside parties.
USAir is a participant in the Civil Reserve Air Fleet
("CRAF"), a voluntary program administered by the Air Mobility
Command ("MAC"). USAir's commitment under CRAF is to provide two
Boeing 767 aircraft in support of military operations, probably for
aeromedical missions, as specified by MAC. To date, MAC has not
requested USAir to activate any of its aircraft under CRAF.
38
<PAGE>
Ground Facilities
USAir leases the majority of its ground facilities, including
executive and administrative offices in Arlington, Virginia
adjacent to Washington National Airport; 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. USAir owns
property in Fairfax, Virginia, a training facility in Winston-
Salem, North Carolina, a reservations and training facility in San
Diego, California, and a reservations facility in Orlando, Florida.
Allegheny owns its principal ground facilities in Middletown,
Pennsylvania. Jetstream leases its principal ground facilities in
Dayton, Ohio. Piedmont leases its principal ground facilities in
Salisbury, Maryland, Norfolk, Virginia and Jacksonville, Florida.
The Company's airline subsidiaries utilize public airports for
their flight operations under lease arrangements with the govern-
ment 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. Future requirements for new or improved airport
facilities and passenger terminals will require additional
expenditures and long-term commitments. Several significant
projects which affect large airports on USAir's route system are
discussed below.
The new terminal at Pittsburgh International Airport commenced
operation in October 1992. The construction cost of the new
terminal was approximately $800 million, a substantial portion of
which was financed through the issuance of airport revenue bonds.
As the principal tenant of the new facility, USAir will pay a
portion of the cost of the new terminal through rents and other
charges pursuant to a use agreement which expires in 2018. While
USAir's terminal rental expense at Pittsburgh increased from
approximately $14 million annually prior to relocation to the new
facility, to approximately $49 million annually in 1993, the new
facility has provided additional gate capacity for USAir and has
enhanced the efficiency and quality of its hub services at
Pittsburgh. In addition to the annual terminal rental expense,
USAir is recognizing approximately $18 million annual rental
expense for property and equipment typically owned by USAir at
other airports. The annual terminal rental expense is subject to
adjustment, depending on the actual airport operating costs, among
other factors. These additional rents are reflected in Note 4(b),
"Lease Commitments", to the Company's and USAir's respective
Consolidated Financial Statements.
39
<PAGE>
The East End Terminal at New York LaGuardia Airport, which
cost approximately $177 million to construct, opened in the third
quarter of 1992. USAir, USAir Express and the USAir Shuttle
operations at LaGuardia are conducted from this new terminal and
the adjoining USAir Shuttle terminal. The East End Terminal has 12
jet gates. USAir will recognize approximately $31.6 million in
annual rental expense for the new terminal and is responsible for
all maintenance and operating costs.
In 1993, USAir and the City of Philadelphia reached an
agreement to proceed with certain capital improvements at Philadel-
phia International Airport, where USAir has its third largest hub.
The improvements include between $60 million and $90 million in
various terminal renovations and a new $214 million commuter
airline runway expansion project, exclusive of financing costs.
Depending on the timing of certain federal environmental reviews,
USAir expects construction will begin some time in 1994 or 1995 and
will be completed in 1996 or 1997.
The Washington National Airport Authority, which operates
Washington National Airport ("National"), is currently undertaking
a $930 million capital development project at National, which
includes construction of a new terminal currently expected to
commence operation in the fourth quarter of 1996. Based on current
projections, the Company estimates that its annual operating
expenses at Washington National Airport will increase by approxi-
mately $15-$20 million.
During 1990, Congress enacted legislation to permit airport
authorities, with prior approval from the DOT, to impose passenger
facility charges ("PFCs") as a means of funding local airport
projects. These charges, which are collected by the airlines from
their passengers, are limited to $3.00 per enplanement, and to no
more than $12.00 per round trip. The legislation provides that the
airlines will be reimbursed for the cost of collecting these
charges and remitting the funds to the airport authorities. To
date, approximately 200 airports, including airports at Boston,
Baltimore, Washington, Newark, New York City, Philadelphia, Orlando
and Tampa (which are major markets served by USAir), have imposed
or are seeking approval to impose PFCs. These airports will
receive more than $1 billion annually in PFCs. By the end of 1993,
most major airports had imposed, or announced their intent to
impose, PFCs. As a result of downward competitive pressure on
fares, USAir and other airlines have been unable in many instances
to pass on the cost of the PFCs to passengers through fare
increases.
40
<PAGE>
With respect to the magnitude of airport rent and landing and
other user fees generally, federal law prohibits States and their
subdivisions from collecting these fees, other than reasonable
rental charges, landing fees and other service charges, from
aircraft operators for the use of airport facilities. In the
absence of guidance from the FAA and the DOT, which are charged
with enforcing such laws, regarding the "reasonableness" of fees
charged at certain airports, controversies have arisen in recent
years concerning the allocation of airport costs among the
airlines, general aviation and concessionaires operating at the
airport. Until these agencies act, governmental authorities will
continue to assess fees in excess of what the airlines believe is
reasonable at certain airports.
In addition, during 1993, the controversy surrounding the
diversion by airport and other governmental authorities of airport
revenues continued to grow. Airport revenues typically consist
primarily of rents and landing and other user fees paid by the
airlines operating at the airport. Under federal law, federal
transportation funds could be denied to certain airports that
engage in diversion of these revenues. During 1993, a number of
airlines operating at Los Angeles International Airport ("LAX")
withheld a portion of the fees assessed by LAX on the grounds that
airport revenues were being diverted to the City of Los Angeles.
The LAX airport authority threatened to prohibit certain airlines,
including USAir, from operating at LAX until the fees were paid.
Although, following litigation, the airlines eventually paid the
fees at LAX, the Company expects that the temptation to divert
airport revenues will continue at certain airports because of
increasing governmental budgets and a reluctance to increase taxes
and other sources of revenue.
Item 3. LEGAL PROCEEDINGS
USAir has been named as party to, or may be affected by, legal
proceedings brought by owners and residents of property located in
the vicinity of certain commercial airports. The plaintiffs
generally seek to enjoin certain aircraft operations at such
airports or to obtain awards of damages on the defendant airport
operators and air carriers as a result of alleged aircraft noise or
air pollution. The relative rights and liabilities among property
owners, airport operators, air carriers and Federal, state and
local governments are unclear. Any liability imposed on airport
operators or air carriers, or the granting of any injunctive relief
against them, could result in higher costs to air carriers,
including the Company's airline subsidiaries.
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
41
<PAGE>
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 and punitive damages.
The above 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.
In 1989 and 1990, a number of U.S. air carriers, including
USAir received two Civil Investigative Demands ("CIDs") from the
DOJ (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) related to investigations of price
fixing in the domestic airline industry. The Attorney General of
the State of Florida has also issued CIDs to USAir and other
airlines concerning the same subject matter.
The investigations by the DOJ culminated in the filing of a
lawsuit against Airline Tariff Publishing Company ("ATPCo") and
eight major air carriers, including USAir, alleging that the
defendants had agreed to fix prices in violation of Section 1 of
the Sherman Act through the methods used to disseminate fare data
to ATPCo, an airline-owned fare publishing service. To avoid the
costs associated with protracted litigation and an uncertain
outcome, USAir and another carrier decided to settle the lawsuit by
entering into a consent decree to modify their fare-filing
practices in certain respects and to implement compliance programs
that would include education of employees regarding the carrier's
responsibilities under the consent decree. Accordingly, the
consent decree and the U.S. Government's complaint were filed
contemporaneously in the U.S. District Court for the District of
Columbia in December 1992. Due to certain legal requirements
associated with the settlement of government antitrust suits, the
consent decree could not be entered until a notice and comment
period had expired. On November 1, 1993, after it had reviewed the
comments, the Court entered the consent decree. USAir does not
believe that the fare-filing practices reflected in the consent
decree will have a material adverse effect on its financial
condition or on its ability to compete. In March 1994, the
remaining six air carrier defendants agreed to the entry of a
separate consent decree to settle the lawsuit. This consent decree
cannot be entered by the Court until a notice and comment period
has expired. When that consent decree is entered, USAir can
petition the Court to have its consent decree amended to conform
with the other settlement and the Court will enter an amended
consent decree.
42
<PAGE>
On March 19, 1993, the U.S. District Court in Atlanta, Georgia
entered a settlement involving USAir and five other U.S. air
carrier defendants in the Domestic Air Transportation Antitrust
Litigation class action lawsuit. The class action suit, which was
filed in July 1990, alleged that the airlines used ATPCo to signal
and communicate carrier pricing intentions and otherwise limit
price competition for travel to and from numerous hub airports.
Under the terms of the settlement, the six air carriers will pay
$45 million in cash and issue $396.5 million in certificates valid
for purchase of domestic air travel on any of the six airlines.
USAir's share of the cash portion of the settlement, $5 million,
was recorded in results of operations for the second quarter of
1992. The certificates provide a dollar-for-dollar discount
against the cost of a ticket generally of up to a maximum of 10%
per ticket, depending on the cost of the ticket. It is possible
that this settlement could have a dilutive effect on USAir's
passenger transportation revenue and associated cash flow.
However, due to the interchangeability of the certificates among
the six carriers involved in the settlement, the possibility that
carriers not party to the settlement will honor the certificates,
and the potential stimulative effect on travel created by the
certificates, USAir cannot reasonably estimate the impact of this
settlement on further passenger revenue and cash flows. USAir has
employed the incremental cost method to estimate a range of costs
attributable to the exercise of the certificates, based on the
assumption that the estimated maximum number of certificates to be
redeemed for travel on USAir will be related to USAir's market
share relative to the total market share of the six carriers
involved in the settlement. USAir's estimated percentage of such
market share is less than 9%. Incremental costs include unit costs
for passenger food, beverages and supplies, fuel, liability
insurance, and denied boarding compensation expenses expected to be
incurred on a per passenger basis. USAir has estimated that its
incremental cost will not be material based on the equivalent free
trips associated with the settlement.
The Attorney General of the State of Florida and the Attorneys
General of several other states are investigating whether several
major airlines, including USAir, have engaged in price fixing and
other unlawful restraints of trade. Certain of these Attorneys
General have issued document requests to USAir and several other
airlines requiring them to provide certain information and
documents. At this time, USAir cannot predict the manner in which
these investigations will be resolved and if the resolution will
have an adverse effect on USAir's results of operations or
financial position.
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 1993.
43
<PAGE>
PART II
Item 5A. MARKET FOR USAir Group's COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Stock Exchange Listings
The common stock of the Company is traded on the New York
Stock Exchange (Symbol U). On February 28, 1994, there were
approximately 59,265,000 shares (exclusive of approximately
1,815,000 shares held in treasury) of common stock of the Company
outstanding. The stock was held by 35,763 stockholders of record.
The holders reside throughout the United States and abroad.
Market Prices of Common Stock
Presented below are the high and low sale prices of the common
stock of the Company as reported on the New York Stock Exchange
Composite Tape during 1993 and 1992:
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
1993
First Quarter 20 1/4 12 7/8
Second Quarter 24 3/4 15 3/8
Third Quarter 17 1/2 11 1/8
Fourth Quarter 15 12 3/8
1992
First Quarter 18 1/4 11 5/8
Second Quarter 17 7/8 10 1/2
Third Quarter 14 1/2 12
Fourth Quarter 13 3/4 10 7/8
</TABLE>
Holders of the common stock are entitled to receive such
dividends as may be lawfully declared by the Board of Directors of
the Company. A common stock dividend of $.03 per share was paid in
every quarter from the second quarter of 1980 through the second
quarter of 1990. In September 1990, however, the Board of
Directors suspended the payment of dividends on common stock for an
indefinite period.
Item 5B. MARKET FOR USAir's COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for USAir's
common stock, which is all owned by USAir Group. No dividends were
paid in 1992 or 1993.
44
<PAGE>
<TABLE>
Item 6. SELECTED FINANCIAL DATA
Selected financial data for USAir Group is presented below:
<CAPTION>
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
(in millions except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Operating Revenues $ 7,083 $ 6,686 $ 6,514 $ 6,559 $ 6,251
Operating Expenses $ 7,159 $ 7,017 $ 6,682 $ 7,052 $ 6,224
Operating Income (Loss) $ (75) $ (331) $ (168) $ (493) $ 27
Loss Before Accounting Changes $ (349) $ (601) $ (305) $ (454) $ (63)
Accounting Changes (1) (44) (628) - - -
________ ________ ________ ________ ________
Net Loss $ (393) $(1,229) $ (305) $ (454) $ (63)
Net Loss Applicable to Common
Stockholders $ (467) $(1,281) $ (350) $ (488) $ (76)
Loss Per Share:
Before Accounting Changes $ (7.68) $(13.88) $ (7.62) $(10.89) $ (1.73)
Effect of Accounting Changes (0.80) (13.35) - - -
________ ________ ________ ________ ________
Loss Per Share $ (8.48) $(27.23) $ (7.62) $(10.89) $ (1.73)
Dividends Per Common Share $ - $ - $ - $ 0.06 $ 0.15
Consolidated Balance Sheet
Total Assets $ 6,878 $ 6,595 $ 6,454 $ 6,574 $ 6,069
Long-Term Obligations and Redeemable
Preferred Stock (2) $ 4,198 $ 3,714 $ 2,577 $ 2,743 $ 1,901
Series B Preferred Stock $ 213 $ 213 $ 213 $ - $ -
Common Stockholders' Equity (Deficit) $ (426) $ (169) $ 1,105 $ 1,434 $ 1,893
________ ________ _______ _______ _______
Total Stockholders' Equity (Deficit) $ (213) $ 44 $ 1,318 $ 1,434 $ 1,893
Shares of Common Stock Outstanding 59.2 47.2 46.6 45.5 44.2
Book Value Per Share (3) $ (7.19) $ (3.58) $ 23.69 $ 31.50 $ 42.86
(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 $117,571) in 1992.
See Note 11 of the USAir Group Consolidated Financial Statements for more information.
(2) Long-term obligations include long-term debt, capital leases and postretirement benefits other
than pensions, non-current.
(3) Based on Common Stockholders' Equity.
Note: Numbers may not add or calculate due to rounding.
</TABLE>
45
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDI-
TION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition
and Results of Operations presented below relates to the Consoli-
dated Financial Statements of USAir Group, Inc. ("USAir Group" or
the "Company") presented in Item 8A. Consolidated Financial
Statements for USAir, Inc. ("USAir"), the Company's principal
subsidiary, are presented in Item 8B. USAir's operating revenue
accounted for more than 93% of the Company's operating revenue in
each of the last three years. USAir Group also owns three commuter
airline subsidiaries, which accounted for more than 5% of the
Company's operating revenue in each of the last three years.
Therefore, the following discussion and analysis of results of
operations relates principally to the operations of USAir and to
the airline industry.
The following general factors are among those that influence
USAir's financial results and its future prospects:
1. General economic conditions and industry capacity.
2. A decline in the proportion of passengers paying higher
yield "business fares" to passengers paying lower yield
fares.
3. The emergence and growth of low cost, low fare airlines
and USAir's high cost structure.
4. The trend toward globalization in the airline industry
and related regulatory limitations.
These and other factors are discussed in the following
sections.
General Economic Conditions and Industry Capacity
Historically, demand for air transportation has tended to
mirror general economic conditions. Economic conditions in the
United States and fare competition in the domestic airline industry
continued to be major factors affecting the financial condition of
USAir and the airline industry in 1993. In recent years, the
change in industry capacity has failed to mirror the reduction in
demand for domestic air transportation due primarily to continued
delivery of new aircraft and, secondarily, to the operation of
certain major U.S. carriers under the protection of Chapter 11 of
the Bankruptcy Code for extended periods. While industry capacity
has leveled off and the general economy has shown signs of
improvement, the Company expects that the airline industry will
remain extremely competitive for the foreseeable future. See the
discussion of low cost, low fare airlines below.
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During the recent economic recession, some observers of the
travel industry speculated that the business traveler became less
reliant on air transportation as teleconferencing, telecopying and
other technological developments gained wider acceptance. In
addition, some observers have speculated that corporate restructur-
ing and furloughs in the U.S. have reduced the number of business
travelers and that the leisure traveler has become conditioned to
waiting for promotional fares before making travel plans. The
Company is unable to determine whether these structural changes
have occurred in the air transportation market or if these changes
have occurred, how long-lived these trends will be. However, the
Company believes that for the foreseeable future the demand for
higher yield "business fares" will remain essentially flat and
relatively inelastic while the lower yield "leisure" market will
continue to grow with the general economy. This trend could make
it more difficult for the domestic airlines, including USAir, to
sustain meaningful yield increases in the future.
Financial circumstances have compelled certain bankrupt or
financially weakened carriers to sell assets, including foreign
routes, gates and take-off and landing slots at capacity con-
strained airports. Proceeds from asset sales provide cash
infusions to weaker carriers, but also augment the route systems
and market presence of the stronger carriers. Although USAir has
completed route and other asset purchases from a number of weaker
carriers, the purchases illustrate a trend of consolidation of
strategic assets and financial strength within the industry which
appears to benefit the three largest U.S. carriers in the long-
term. In the short-term, however, these carriers have suffered
from the cost of integrating these assets into their systems and
from the incremental capacity which has been exacerbated by
declines in passenger travel and fare wars. As a result, these
carriers have taken or announced actions including reduction in
workforce and salary and other employee benefits, concessions from
unionized employees, deferral of new aircraft deliveries, early
retirement of inefficient aircraft types, and termination of
unprofitable service. USAir implemented similar measures during
1990-1993, including a workforce reduction of 2,500 full-time
positions between November 1993 and the first quarter of 1994,
which, along with other measures, is expected to save the Company
approximately $200 million in 1994. USAir will pursue additional
measures in 1994 to reduce further its operating costs. See Item
1. "Business - Significant Impact of Low Cost, Low Fare Competi-
tion" and "-British Airways Announcement Regarding Additional
Investment in the Company; Code Sharing."
In 1993, USAir reached an agreement with the Boeing Company
("Boeing") to, among other things, exercise options to purchase
additional B757-200 aircraft on an accelerated basis and to cancel
and reschedule the delivery of certain Boeing 737 aircraft on order
into the future. This agreement reduced USAir's capital expendi
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tures by more than $880 million between 1993 and 1996. USAir is
currently in negotiations with Boeing regarding, among other
things, the current schedule of new aircraft deliveries.
Each major airline has developed a frequent traveler program
that offers its passengers incentives to maximize travel on that
particular carrier. Participants in such programs typically earn
"mileage credits" for every trip they fly that can be redeemed for
airline travel or, in some cases, for other benefits. Under
USAir's Frequent Traveler Program ("FTP"), participants receive
mileage credits equal to the greater of actual miles flown or 750
miles for each paid flight on USAir or USAir Express, or actual
miles flown on one of USAir's FTP airline partners. Participants
flying on first or business class tickets receive additional
credits. Participants may also earn mileage credits by staying at
participating hotels or by renting cars from participating car
rental companies within 24 hours of a flight.
Mileage credits can be redeemed for certificates for various
travel awards, including fare discounts, first class upgrades and
tickets on USAir or other airlines participating in USAir's FTP.
Certain awards also include hotel and car rental awards. Award
certificates may not be brokered, bartered or sold, and have no
cash value. USAir and its airline partners limit the number of
seats allocated per flight for award recipients. The number of
seats varies depending upon flight, day, season and destination.
Award travel is not permitted on blackout dates, which generally
correspond to certain holiday periods in the United States or peak
travel dates to foreign destinations. Hotel awards are valid at
participating hotels and are subject to room availability, which is
limited. Car rental awards are valid only at participating
locations. The number of cars available for award usage is
limited, and no cars are available for award usage on blackout
dates. USAir reserves the right to terminate the FTP or portions
of the program at any time, and the FTP's official rules, partners,
special offers, blackout dates, awards and mileage levels are
subject to change with or without prior notice.
USAir accounts for its FTP under the incremental cost method,
whereby travel awards are valued at the incremental cost of
carrying one additional passenger. Such costs are accrued when FTP
participants accumulate sufficient miles to be entitled to claim
award certificates. No value is assigned to airline, hotel or car
rental award certificates that are to be honored by other parties.
Incremental costs include unit costs for passenger food, beverages
and supplies, fuel, liability insurance and denied boarding
compensation expenses expected to be incurred on a per passenger
basis. No profit or overhead margin is included in the accrual for
incremental costs.
FTP participants had accumulated mileage credits for approxi-
mately 3,896,000 awards (at the 20,000 mile level required for a
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free domestic flight on USAir) at December 31, 1993, compared with
3,199,000 awards at December 31, 1992. However, because USAir
expects that some award certificates will be redeemed by other
airlines participating in USAir's FTP, that some certificates will
expire, and that some accumulated mileage credits will never be
applied towards award certificates, the calculations of the accrued
liability for incremental costs at December 31, 1993 and 1992 were
based on approximately 88% and 86%, respectively, of the accumulat-
ed 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. Most
participants belong to more than one frequent traveler program and
it is not possible to project when or if participants will accrue
additional mileage credits required to earn an award. Incremental
changes in the liability resulting from additional mileage credits
are recorded as part of the regular review process. Effective
January 1, 1995, USAir will increase the minimum mileage level
required for a free domestic flight from 20,000 to 25,000.
USAir's customers redeemed approximately 841,000, 626,000 and
654,000 awards for free travel on USAir in 1993, 1992 and 1991,
respectively, representing approximately 8.0%, 4.9% and 5.3% of
USAir's revenue passenger miles ("RPMs") in those years, respec-
tively. During 1993, two "free ticket for segments flown"
promotions were completed which increased the number of awards used
for free travel on USAir. These promotions were offered in
response to similar promotions offered by USAir's competitors.
USAir does not believe that usage of FTP awards results in any
significant displacement of revenue passengers. USAir has the
ability, through its inventory management system, to identify
markets and flights expected to have high load factors and, through
capacity controls, to maximize use of FTP awards on flights with
lower demand and available seats. Also, blackout dates forestall
the usage of awards on peak travel days. Furthermore, USAir's
exposure to the displacement of revenue passengers is not signifi-
cant, as the number of USAir flights that depart 100% full is
minimal. In the third quarter of 1993 (the third quarter being the
period of the year when USAir generally experiences its highest
load factor and expects the usage of FTP awards to be highest), for
example, fewer than 2.2% of USAir's flights departed 100% full.
During this same quarterly period, only approximately 1.9% of
USAir's flights departed 100% full and also had one or more
passengers on board who were traveling on FTP award tickets.
Airlines often use other competitive promotions, such as
offering extra credits or reduced award thresholds under certain
conditions, as incentives to stimulate travel. USAir reviews these
promotions to determine the proper accounting treatment for each
one. To the extent these promotions are determined to be an
integral part of the FTP, they are accounted for in the same manner
as free travel earned through mileage credits.
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Low Cost, Low Fare Competition
In September 1993, Southwest Airlines, Inc. ("Southwest"), a
low cost, low fare, "no frills" air carrier which had not previous-
ly provided service to or in the eastern U.S., inaugurated service
to Chicago and Cleveland from Baltimore/ Washington International
Airport ("BWI") at fares substantially below those previously
offered by USAir and other airlines in the same markets. BWI is
one of USAir's hub airports. Unlike the other major U.S. air
carriers, Southwest does not structure its operations around
connecting hub airports, relying instead on high frequency point-
to-point service. USAir responded by matching most of Southwest's
fares and increasing the frequency of service in related markets.
On March 22, 1994, Southwest announced that on May 26, 1994,
and June 6, 1994, it will expand service between BWI and Chicago.
Southwest also announced that on May 26, 1994, it will initiate its
low fare service between BWI and St. Louis, and on July 8, 1994,
between BWI and Birmingham, Alabama and Louisville, Kentucky. At
this time, USAir has not determined its response to the Southwest
announcement.
In October 1993, Continental Airlines ("Continental"), which
had reorganized under bankruptcy proceedings earlier in 1993,
inaugurated low fare service on certain routes in the eastern U.S.
USAir is a competitor in most of the markets served by these
routes. While Continental initiated service to certain cities,
such as Charleston, South Carolina; Greensboro, North Carolina; and
Jacksonville, Florida; most of the markets included as part of its
new program (for example, Baltimore) were previously served by
Continental through its hubs at Newark, Cleveland, and Houston.
However, under its new program, Continental linked certain of these
cities independently of its hubs while continuing to provide many
of the same services that are available on its hub flights,
including advance seat assignment, frequent traveler mileage
credits and interline connections. Under its new program,
Continental served approximately 80 city pair markets, from which
USAir has historically realized approximately 4% of its total
passenger revenue. When Continental started the new program it was
uncertain whether the program was an experiment or a beachhead from
which Continental planned to expand further. USAir, therefore,
made a measured response by matching most of the low fares offered
by Continental.
On January 31, 1994, Continental increased its competitive
threat. It announced that by March 9, 1994, it would expand the low
fare program to approximately 356 city pair markets, most of which
USAir served and from which USAir has historically realized
approximately 8% of its passenger revenue. Moreover, if secondary
markets within a 90-mile radius, or a reasonable driving distance,
were viewed as being included in Continental's new program, markets
from which USAir has historically realized approximately 36% of its
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passenger revenue were affected. Contemporaneously, Continental
announced that it would substantially reduce service at its Denver
hub and redeploy significant aircraft and personnel resources to
the eastern U.S. Although Continental's balance sheet continues to
have significant leverage following its bankruptcy reorganization,
its liquidity position improved substantially as a result of equity
and debt infusions completed as part of that reorganization.
Moreover, Continental completed a common stock offering in December
1993, which may indicate the market's receptivity to its efforts to
raise additional funds. Continental has operating (including
labor) costs that are substantially lower than those of USAir and
the other major air carriers.
On February 8, 1994, in response to the expansion of Continen-
tal and to avoid loss of market share in the eastern U.S., USAir
lowered in primary and secondary markets affected by the Continen-
tal expansion, by as much as 50%, the fares most commonly used by
business travelers on many east coast routes. In addition, USAir
lowered leisure fares by as much as 70% in the same markets. In
many of the markets, free companion fares are available with
business fares. These reduced fares have no expiration date.
However, USAir could adjust the fares at some time in the future.
Increases in traffic which are stimulated by the lower fares
offered by Southwest, Continental and USAir will not offset USAir's
reduced revenue resulting from lower yields in these markets.
USAir believes that Southwest, Continental or other low cost
carriers with a significant cost advantage over USAir likely will
expand their operations to additional markets. For example, in
December 1993, Southwest completed its acquisition of Morris Air,
a regional air carrier with operations concentrated in the western
U.S. This acquisition could enable Southwest to divert resources
to expand its operations in the eastern U.S. Furthermore, media
reports indicate that Southwest has entered into a long-term
agreement for the use of four additional gates at BWI, where it
currently operates from two gates. On March 4, 1994, Continental
further escalated prospective competition by announcing that it
will further reduce operations at its Denver, Colorado hub and
establish a flight crew base at Greensboro, North Carolina. These
measures are likely to increase losses at USAir because they could
enable Continental, which has significantly lower costs than USAir,
to expand further its high frequency, low fare service described
above in additional short-haul markets served by USAir with
substantial detriment to USAir. In addition, other low cost
carriers may enter other USAir markets. For example, America West
announced on February 15, 1994 that it will commence service on
April 18, 1994 between Columbus, Ohio where it operates a hub and
Philadelphia, where USAir has a hub operation. Other carriers,
including some of the larger carriers, have also indicated their
intent to develop similar low-fare short-haul service.
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Unless USAir is able to reduce its operating costs, present
and increasing competition from low cost, low fare airlines in
USAir's markets could have a material adverse impact on USAir's
cash position and therefore, its ability to sustain operations. In
March 1994, USAir announced that it had initiated discussions with
the leadership of its unionized employees regarding wage reduc-
tions, improved productivity and other cost savings. The outcome
of these negotiations is uncertain, but if timely agreements are
not reached, the Company may seek other restructuring alternatives.
See Item 1. "Business - Significant Impact of Low Fare, Low Cost
Competition".
In 1993, Northwest Airlines, Inc. ("Northwest") and Trans
World Airlines, Inc. ("TWA") sought and obtained from unionized
employees substantial concessions and productivity improvements.
In exchange, these employees have received ownership interests in
those companies. In December 1993, United Airlines, Inc. ("Unit-
ed") announced that it had reached agreement with two of its unions
to trade concessions for a substantial ownership stake by all
employees, subject to approval by United's stockholders. The
memberships of these two unions have ratified the agreement. The
stated intent and purpose of these labor concessions are to enable
these carriers to lower their operating costs. At this time, it is
uncertain whether the United transaction will be consummated and
whether these events constitute isolated incidents or a trend of
employee ownership in the airline industry. As an airline with
relatively high labor costs and a route system with a significant
percentage of short-haul flying, USAir is considering additional
ways to reduce these costs which could involve an exchange of
employee concessions for an ownership interest in the Company.
USAir is currently engaged in discussions with the leaders of its
unionized employees regarding efforts to reduce costs, including
reductions in wages, improvements in productivity and other cost
savings. The outcome of these discussions is uncertain. See Item
1. "Business - Significant Impact of Low Fare, Low Cost Competi-
tion."
USAir has been examining various ways to restructure its
operations to increase efficiency and lower unit costs in markets
of approximately 500 miles or less in distance. Certain carriers,
such as Southwest and Continental, have a substantial cost
advantage over USAir in these short-haul markets. In addition,
consumers appear to be increasingly price conscious, particularly
for short distance flights. In February 1994, USAir implemented
the first phase of the introduction of a new short-haul product in
18 city-pair markets of approximately 500 miles or less, resulting
in increased utilization and productivity of aircraft, personnel,
and ground facilities in these markets by decreasing the amount of
time that aircraft spend on the ground between flights from an
average of 45 minutes to approximately 25 minutes. Initiation of
the first phase of this service did not involve any immediate
pricing changes or new personnel. Ultimately, USAir anticipates
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that enhancements to the short-haul product will be completed in
summer 1994, and that long-haul and transatlantic service will be
redesigned later in 1994. USAir plans to expand this higher
frequency service to additional short-haul and other markets in
July 1994, with a total fleet of approximately 100 aircraft.
Although USAir expects this higher frequency operation will result
in reduced unit costs in relevant markets, certain variable costs
generally associated with providing the incremental flights,
including jet fuel, landing fees and labor, will increase. There
can be no assurance, therefore, that the changes will result in
improved financial results for USAir. If USAir cannot find ways to
compete effectively with low cost carriers by lowering its
operating costs, and to generate sufficient additional passengers
to offset the effect of sharply reduced fares, USAir's revenue and
results of operations will continue to be materially and adversely
affected.
Industry Globalization and Regulation
The trend toward globalization of the airline industry has
accelerated in recent years as the three largest U.S. carriers have
initiated foreign service and purchased the foreign routes of
financially distressed or bankrupt U.S. carriers. In addition,
certain foreign carriers have made substantial investments in U.S.
carriers which have frequently been tied to marketing alliances or,
less frequently, reciprocal investments by the U.S. carrier in its
foreign partner. In August 1993, Continental announced that it had
reached agreement with Air France on a joint marketing agreement.
Earlier in the year, Air Canada made a substantial equity invest-
ment in Continental in connection with Continental's bankruptcy
reorganization. In October 1993, United and Lufthansa German
Airlines announced that they had reached an agreement to implement
code sharing to link some of their flights. Continuing privatiza-
tion of sovereign carriers and foreign airline deregulation may
encourage further foreign investment. Foreign investment in U.S.
air carriers is restricted by statute and may be subject to review
by the U.S. Department of Transportation ("DOT") and, on antitrust
grounds, by the U.S. Department of Justice ("DOJ").
On January 21, 1993, USAir Group and British Airways Plc
("BA") entered into an Investment Agreement ("Investment Agree-
ment") under which a wholly-owned subsidiary of BA has purchased
certain preferred stock of the Company for $400.7 million. On
March 7, 1994, BA announced that it would not make any additional
investments in the Company under current circumstances. See
"Liquidity and Capital Resources" and Item 1. "Business - British
Airways Announcement Regarding Additional Investments in the
Company; Code Sharing" and "- British Airways Investment Agreement"
for additional information related to the investment. Under the
Investment Agreement, USAir and BA have entered into a code sharing
arrangement under which certain domestic USAir flights, connecting
to certain BA transatlantic flights, may be listed on computerized
reservation systems either under USAir's or BA's two letter
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designation code, subject to authorization by the DOT. As of
March 1, 1994, USAir and BA offered code share service to and from
34 of the 65 airports authorized by the DOT. On March 17, 1994,
the DOT issued an order renewing for one year the existing code
sharing authority. In January 1994, USAir and BA filed applica-
tions with the DOT to code share to 65 additional domestic and
seven additional foreign destinations. The DOT did not act on
these applications in its March 17, 1994 order. See Item 1.
"Business - British Airways Announcement Regarding Additional
Investments in the Company; Code Sharing" and "-British Airways
Investment Agreement".
USAir and BA are in the process of expanding their code
sharing arrangement. USAir believes that it will have greater
access to international traffic and that its and BA's customers
will benefit from better on-line connections as well as coordinated
check-in and baggage checking procedures. USAir also believes that
the code sharing arrangement will generate increased revenues, the
magnitude of which cannot be reasonably estimated at this time.
The DOT may continue to link further renewals of the code share
authorization to the United Kingdom's ("U.K.") liberalization of
U.S. air carrier access to the U.K. markets. However, the code
sharing arrangement is expressly permitted under the bilateral air
services agreement between the U.S. and U.K. USAir expects that
the authorization will be renewed in the future; however, there can
be no assurance that this will occur. USAir does not believe that
the DOT's failure to renew the code share authorization or grant
the pending application would result in a material adverse change
in its financial condition. However, further investment in the
Company by BA, as contemplated in the Investment Agreement, may be
less likely. See Item 1. "Business - British Airways Announcement
Regarding Additional Investments in the Company; Code Sharing" and
"-British Airways Investment Agreement."
Current U.S. law provides that foreign ownership or control of
the voting interest in a certificated U.S. air carrier may not
exceed 25%, non-U.S. citizens may not constitute more than a third
of the board of directors and managing officers of the air carrier
and the president of the air carrier must be a U.S. citizen. Over
the years in the context of "fitness" reviews to determine whether
air carriers could be issued, or continue to hold, operating
certificates, the DOT has also issued interpretations regarding
whether investments by, or other arrangements with, foreign
investors constitute de facto control over a U.S. air carrier.
Although the Company believes the policy has no basis in law,
recently and particularly during 1992 and 1993, the DOT has linked
its review of foreign investment in, and foreign alliances with,
U.S. air carriers to the status of the bilateral air transportation
treaty between the U.S. and the country of origin of the foreign
airline. The willingness of the DOT to allow proposed foreign
investments, alliances and participation in corporate governance
has been linked to its perception of the liberality of the relevant
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treaty with respect to the right of U.S. air carriers to operate
to, from and beyond the foreign country. For example, the
Netherlands entered into a new bilateral treaty with the U.S. in
1992 which permitted "open skies", or unrestricted access to the
Netherlands by U.S. air carriers. As a result, in 1992 the DOT
approved Northwest's proposal to integrate its operations with
those of KLM Royal Dutch Airlines, an airline based in that nation.
However, the DOT has refused to allow USAir and BA to proceed with
the second and third phases of their Investment Agreement, which
calls for an additional investment of $450 million by BA, unless
and until the U.K. government agrees to amend its bilateral air
services agreement with the U.S. to permit new services by U.S.
carriers to the U.K. and particularly to London's Heathrow Airport.
The U.S. and U.K. governments held several negotiating sessions
during the past year and have exchanged proposals to amend the
bilateral agreement, but to date the two governments have failed to
resolve their differences. As a result, USAir and BA were unable
to proceed with the second and third phases of the Investment
Agreement in 1993. In any event, on March 7, 1994, BA announced
that it would not make any additional investments in the Company
under current circumstances. See Item 1. "Business - British
Airways Announcement Regarding Additional Investment in the
Company; Code Sharing" and "-British Airways Investment Agreement."
The National Commission to Ensure a Strong Competitive Airline
Industry ("Airline Commission") issued its report in August 1993.
The Airline Commission was a presidentially-appointed committee
with the task of analyzing the condition of the U.S. airline
industry and reporting to the Clinton Administration its findings
and recommendations. Among other things, the Airline Commission
recommended that: (i) the air traffic control system be modernized
and the Federal Aviation Administration's ("FAA") air traffic
control functions be performed by an independent federal corpora-
tion; (ii) the federal regulatory burden be reduced; (iii) the
airlines be granted certain tax relief; and (iv) the bankruptcy
process be shortened. The Airline Commission also favored raising
the statutory limit on foreign ownership of voting securities in
the U.S. airlines to 49 percent under certain circumstances. It
further urged that the current international system of bilateral
agreements be replaced with multilateral arrangements. In
addition, the Airline Commission recommended that the DOT review
the airlines' business, capital or financial plans with the
assistance of a presidentially-appointed advisory committee and, if
an airline repeatedly failed to heed warnings or concerns of the
DOT Secretary, the DOT could "exercise its existing authority",
among other things, to revoke an airline's operating certificate.
In January 1994, the Clinton Administration issued a report
which described its program to implement certain of the Airline
Commission's recommendations. Among other things, the Administra-
tion stated that it supported the recommendation described above
regarding the FAA, supported increasing to 49 percent the foreign
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ownership restrictions provided there are reciprocal opportunities
for U.S. airlines and investors abroad, and opposed the recommenda-
tions regarding tax relief and the appointment of the advisory
committee discussed above. At this time, it is impossible to
predict whether any of the Airline Commission's recommendations
will be enacted and, if enacted, their effect on USAir. It is also
difficult to anticipate whether the Congress will act in the near
term on any of the proposals requiring legislation.
As part of its initiative in the transportation industry, the
Clinton Administration also indicated that the DOT has begun a
comprehensive examination of the "high density rule" which limits
airline operations at Chicago O'Hare, New York's LaGuardia
("LaGuardia") and John F. Kennedy International, and Washington
National ("National") Airports by restricting the number of takeoff
and landing slots. As part of its study, the DOT will determine
whether the operating limitations imposed by the rule can be
eliminated or modified to better utilize available capacity at
these airports. USAir holds a substantial number of slots at
LaGuardia and National, including those assigned a value when the
Company acquired Piedmont Aviation, Inc. Any DOT action which
would eliminate those slots or compel USAir to transfer those slots
could have a material adverse effect on USAir's operations and
financial position. Revision of the high density rule at National,
however, would require legislation by the Congress. The DOT has
indicated that it expects to complete its study by late 1994.
RESULTS OF OPERATIONS
1993 Compared with 1992
The Company recorded a net loss of $393.1 million on revenue
of $7.1 billion, in 1993 compared with the 1992 net loss of $1.2
billion on revenue of $6.7 billion. Several non-recurring items,
which include the cumulative effect of accounting changes, make it
difficult to compare these results. After excluding the effect of
certain non-recurring items discussed below, which amount to $153.2
million and $759.3 million in 1993 and 1992, respectively, the net
loss would have been $239.9 million in 1993 ($5.69 per common share
after preferred dividend requirement) compared with a loss of
$469.6 million in 1992 ($11.09 per common share after preferred
dividend requirement).
The Company's 1993 financial results contain $153.2 million of
non-recurring items, including (i) $68.8 million for severance,
early retirement and other personnel-related expenses recorded in
connection with a workforce reduction of approximately 2,500 full-
time positions between November 1993 and the first half of 1994;
(ii) $43.7 million for the cumulative effect of an accounting
change, as required by Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits" ("FAS
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112"), which was adopted during the third quarter of 1993,
retroactive to January 1, 1993; (iii) $36.8 million based on a
projection of the repayment of certain employee pay reductions;
(iv) $13.5 million for certain airport facilities at locations
where USAir has, among other things, discontinued or reduced its
service; (v) $8.8 million for a loss on USAir's investment in the
Galileo International Partnership, which operates a computerized
reservations system; and (vi) an $18.4 million credit related to
non-operating aircraft.
The Company's 1992 financial results contain $759.3 million of
non-recurring items, including (i) $628.1 million for the cumula-
tive effect of an accounting change, as required by Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106"); (ii)
$107.4 million related to aircraft which have been withdrawn from
service; (iii) $34.1 million loss related to the sale of ten
McDonnell Douglas 82 ("MD-82") aircraft which USAir had on order
but eliminated from its fleet plan; and (iv) $10.3 million gain
resulting from the sale of three of the Company's subsidiaries
during 1992.
Operating Revenue - The Company's Passenger Transportation
Revenue increased by $356.5 million (5.8%) in 1993 compared with
1992, primarily due to the $296.0 million (5.1%) increase at USAir.
USAir's capacity, as measured by available seat miles ("ASM" - one
ASM is equal to one seat flown one mile), decreased by 0.3% in 1993
compared with 1992, its passenger revenue per ASM increased by 5.4%
to 10.22 cents and its passenger load factor, a measure of capacity
utilization, increased by 0.4 points to 59.2%. The increase in
passenger revenue per ASM is largely attributed to the lower level
of discounting in 1993 versus 1992. The Company expects that it
will experience a 1 - 2% increase in ASMs (including the effect of
weather-related cancellations) in 1994 compared with 1993.
Continued fare discounting and low fares offered by USAir to
compete with low cost, low fare carriers discussed above, are
expected to have a negative impact on the Company's passenger
revenue. It is not expected that the resulting decrease in revenue
per ASM will be totally offset by additional passengers. The
severe winter weather conditions in the U.S. during the early part
of 1994 have caused a reduction in revenue which the Company
estimates at approximately $50 million.
In March 1993, USAir and five other U.S. air carriers entered
into a settlement in the Domestic Air Transportation Antitrust
Litigation class action lawsuit, which alleged that the airlines
used the Airline Tariff Publishing Company to signal and communi-
cate carrier pricing intentions and otherwise limit price competi-
tion for travel to and from numerous hub airports. It is possible
that this settlement could have a dilutive effect on USAir's
passenger transportation revenue and associated cash flow.
However, due to the interchangeability of the certificates among
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the six carriers involved in the settlement, the possibility that
carriers not party to the settlement will honor the certificates,
and the potential stimulative effect on travel created by the
certificates, USAir cannot reasonably estimate the impact of this
settlement on future passenger revenue and cash flows. USAir has
estimated that any incremental cost associated with the settlement
will not be material based on the nominal equivalent free trips
associated with the settlement. See Note 4 to the Company's
Consolidated Financial Statements for additional information.
The Company's Other Revenue increased by $38.8 million (12.3%)
in 1993. USAir's increase of $90.5 million (32.3%) was partially
offset at the Company level by a decrease in non-airline subsidiary
revenue resulting from the sale of three wholly-owned subsidiaries
in July 1992. USAir's 32.3% improvement resulted from increased
passenger cancellation and rebooking fees, frequent traveler
participation fees, and various other sources.
Expense - The Company's total operating expenses increased
$141.7 million (2.0%) in 1993 compared with 1992. The Company's
Personnel Costs increased by $217.7 million (8.3%), $205.6 million
of which is attributable to USAir. USAir's increase includes (i)
$65.6 million of the $68.8 million non-recurring charge related to
a workforce reduction of 2,500 full-time positions; and (ii) the
$36.8 million charge based on an estimate of the repayment of
certain employee pay reductions, both discussed above. Without the
effect of these non-recurring charges, USAir experienced an
increase in employee salaries of $91.4 million (4.7%) and an
increase in employee benefits of $11.8 million (2.1%). The
increase in employee salaries is generally due to contractual and
general salary increases which occurred during 1993. The amount
saved as a result of the 12-month salary reduction program was
approximately the same in 1993 and 1992. USAir expects that due to
scheduled contractual increases and the effect of the expiration of
the 12-month salary reduction program, employee salaries will
increase in 1994 to the extent that the reduction of 2,500 full-
time positions and any other possible measures do not offset the
increases. See Item 1. "Business - Significant Impact of Low Fare,
Low Cost Competition" and "- Employees" for information related to
the possible unionization of additional employee groups. The $11.8
million increase in employee benefits is the result of increased
pension expense, offset partially by a decrease in other postretir-
ement benefit expense. The increased pension expense in 1993
resulted from the establishment of a defined contribution pension
plan for USAir's non-contract employees on January 1, 1993. The
defined benefit plan for these employees was frozen at December 31,
1991. Because of the interest rates on long-term, high quality
corporate bonds which prevailed at December 31, 1993, the Company
has lowered its discount rate used to calculate the actuarial
present value of its pension and postretirement obligations. This
action will cause an increase in the Company's pension and other
postretirement benefits expense in 1994 of approximately $70
58
<PAGE>
million over 1993. See Note 11 to the Company's Consolidated
Financial Statements.
The Company's Aviation Fuel Expense decreased $43.2 million
(5.7%) as a result of a lower cost per gallon and decreased
consumption. In early August 1993, the Clinton Administration's
budget package was enacted. The budget package included a 4.3 cent
per gallon tax on transportation fuels beginning October 1, 1993.
The airline industry is exempt from the tax until October 1, 1995.
See Item 1. "Business - Jet Fuel" and Note 1 to the Company's
Consolidated Financial Statements.
Commissions increased by $27.2 million (4.8%) as a result of
the 5.8% increase in Passenger Transportation Revenue. The
Company's Other Rent and Landing Fees increased $64.3 million
(15.8%) primarily due to an increase in USAir's facility rental
expense following the opening of the new terminal at Pittsburgh in
October 1992, and the $8.9 million of non-recurring expense
recorded for certain airport facilities, discussed above. The
Company's Aircraft Rent Expense included a $72.4 million non-
recurring charge in 1992 (part of the $107.4 million discussed
above). Without this charge, aircraft rent expense increased $15.0
million (3.3%) due to the addition of new leased aircraft in 1993.
Excluding the effect of non-recurring items in 1992 and 1993,
Aircraft Maintenance Expense increased by $37.6 million (10.6%)
resulting from the timing of aircraft maintenance cycles. Other
Operating Expense decreased by $58.0 million (4.0%), reflecting a
$25.0 million (1.8%) decrease at USAir and a $58.4 million decrease
which resulted from the sale of three wholly-owned subsidiaries in
July 1992, offset by increases at the Company's other wholly-owned
subsidiaries.
The Company's Interest Capitalized decreased $10.0 million
(36.1%) as the level of outstanding purchase deposits decreased
with the delivery of new aircraft and changes in delivery sched-
ules.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes", ("FAS 109"). The adoption of FAS 109 resulted in no
cumulative adjustment. Results for 1993 do not include any income
tax credit due to the FAS 109 limitations in recognizing a current
benefit for net operating losses. See Note 6 to the Company's
Consolidated Financial Statements for additional information.
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<PAGE>
1992 Compared With 1991
The Company recorded a net loss of $1.2 billion on revenue of
$6.7 billion in 1992, compared with the 1991 net loss of $305.3
million on revenue of $6.5 billion. Several non-recurring items,
which include the cumulative effect of an accounting change, make
it difficult to compare these results. In addition, the Company
recorded no tax credit in 1992. After excluding the effect of
certain non-recurring items which amount to a net charge of $759.3
million and a net gain of $45.9 million in 1992 and 1991, respec-
tively, the pre-tax loss would have been $469.6 million in 1992
($11.09 per common share after preferred dividend requirement)
compared with a pre-tax loss of $460.7 million in 1991 ($11.01 per
common share after preferred dividend requirement). This compari-
son does not consider the ongoing effect to the Company's operating
expenses which result from the adoption of FAS 106, the freezing of
the pension plan for non-contract employees, or other changes.
The Company's 1992 financial results contained $759.3 million
of non-recurring items, detailed above. Operating results for 1991
included (i) $107 million pre-tax gain related to the freeze of the
fully funded pension plan for USAir's non-contract employees; (ii)
a $21 million pre-tax charge related to USAir's parked British
Aerospace BAe-146 ("BAe-146") fleet; (iii) $21.6 million pre-tax
expense related to early retirement incentives; and (iv) $18.5
million, net, in miscellaneous non-recurring charges.
On October 5, 1992, the International Association of Machin-
ists ("IAM"), which represents USAir's mechanics and related
employees, commenced a strike against USAir. At that time, USAir
implemented a reduced flight schedule equal to approximately 60% of
the normal flight schedule. On October 8, 1992, USAir reached
agreement with the IAM on a new collective bargaining agreement
which becomes amendable in October 1995. Following ratification of
the agreement by the IAM-represented employees, USAir resumed full
service on October 12, 1992. USAir immediately offered various
incentives including bonus frequent traveler miles and relaxed
advance purchase restrictions in an effort to attract passengers
following the disruption of service. The Company estimates that
the IAM strike had a negative effect on results of approximately
$45 million for the year.
Operating Revenue - The Company's Passenger Transportation
Revenue increased $164.6 million (2.7%) in 1992, reflecting a $97.9
million increase in USAir passenger transportation revenue and a
$66.7 million increase in commuter airline passenger revenue.
USAir's ASMs increased by 2.4% in 1992, its passenger revenue per
ASM decreased by 0.7% to 9.7 cents, and its passenger load factor
increased by 0.2 points to 58.8%. USAir's average 1992 passenger
revenue per ASM was adversely affected by widespread fare promo-
tions. The improvement in commuter airline passenger revenue is
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<PAGE>
attributed to increased traffic made possible by 20.1% increase in
capacity during 1992 over 1991, as measured by ASMs, at the
Company's commuter airline subsidiaries.
USAir's Other Revenue increased $81.3 million (40.9%) in 1992
as compared with 1991, due to increases in revenue generated by
passenger cancellation and re-booking fees, fees received from
commuter affiliates for handling certain of their flights, and
other miscellaneous sources.
Operating Expenses - The Company's Personnel Costs increased
$102.5 million (4.1%) in 1992 compared with 1991, driven by USAir's
increase in personnel costs of $99.7 million (4.2%). Personnel
Costs are comprised of two components: (i) employee wages and
salaries; and (ii) employee benefits. USAir's wage and salary
expense decreased $21.9 million (1.1%) during 1992 as a result of
partial-year wage concessions on the part of pilots, non-contract
employees and mechanics, all of which ended in 1993. USAir's
employee benefit expense increased $121.6 million (27.8%) in 1992
resulting from the adoption of FAS 106 in 1992, and the 1991 freeze
of the fully-funded pension plan for non-contract employees. The
1991 pension freeze resulted in a $107 million gain. The Company
estimates that USAir's pension expense was approximately $40
million lower in 1992 than would have been the case if the freeze
had not occurred. Expense for postretirement medical and death
benefits, calculated in accordance with FAS 106, was $114.7 million
in 1992, compared with approximately $8 million cash-basis expense
in 1991. USAir's medical and dental benefit expense for active
employees decreased $26.7 million (14.2%) in 1992 compared with
1991 as a result of a contributory managed care program that was
implemented during 1992 for most employee groups. Excluding the
effects of FAS 106 and the pension freeze, USAir employee benefit
expense decreased approximately $48 million, or 8.8%, in 1992
compared with 1991.
The Company's Aviation Fuel Expense decreased $45.8 million
(5.7%) during 1992 compared with 1991 as a result of lower cost per
gallon, partially offset by an increase in consumption. The price
of fuel was inflated during early 1991 as a result of the Iraqi
invasion of Kuwait and ensuing Desert Storm operation in August
1990 - January 1991, and did not return to pre-invasion levels
until the second quarter of 1991.
Commissions increased $29.6 million (5.5%) as a result of the
2.7% increase in passenger transportation revenue and the mix of
travel agency sales versus total sales. Other Rent and Landing
Fees Expense for the Company increased $56.6 million (16.2%) during
1992. This increase was largely due to increased expense at
LaGuardia which resulted from USAir's assumption of Continental's
leasehold obligations associated with the East End Terminal there
in January, 1992 and the increased operation at LaGuardia during
the year using the take-off and landing slots acquired from
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<PAGE>
Continental. Also contributing to the increase was the October
1992 opening of the new terminal at the Pittsburgh International
Airport, USAir's largest hub. The Company's Aircraft Rent Expense
increased $152.3 million (40.3%) during 1992. A charge related to
USAir's grounded BAe-146 fleet accounted for $81 million of the
increase. The remainder of the increase was caused by additional
leased aircraft both at USAir and the commuter airline subsidiar-
ies. The Company's Aircraft Maintenance Expense decreased $33.9
million (8.2%) during 1992. This decrease reflects USAir's
decrease in aircraft maintenance of $43.4 million, or 12.0%, and an
increase of $9.5 million at the Company's commuter airline
subsidiaries during the same period. The improvement in USAir's
aircraft maintenance expense is largely attributable to the
grounding of its BAe-146 fleet in May 1991, the shifting of certain
aircraft engine repairs in-house from outside vendors and the
negotiation of a new vendor repair contract in 1991 for certain
aircraft engines. The increase in maintenance expense at the
commuter airline subsidiaries is due primarily to an increased
fleet size in 1992. Maintenance expense for 1992 and 1991 includes
charges of $25.0 million and $25.5 million, respectively, related
to grounded aircraft.
The Company's Other Operating Expense, Net increased $63.6
million (4.6%) in 1992 compared with 1991. Expense for 1992
includes $25 million related to an employee suggestion program
which netted estimated savings of $22 million in 1992 and $110
million in 1993. The remainder of the increase is attributable to
changes in various smaller expense categories.
USAir Group's Interest Income decreased $8.7 million (46.9%)
during 1992 due to a lower average level of short-term investments
during 1992 coupled with lower interest rates in 1992. Both
USAir's interest income and expense include intercompany amounts
which have been eliminated in the USAir Group consolidation
process. The Company's Interest Expense decreased $10.4 million
(4.0%) in 1992 due to a lower average level of debt outstanding
related to USAir Group's revolving bank credit agreement, partially
offset by additional interest associated with higher levels of
aircraft-related debt in 1992. Interest Capitalized decreased $7.8
million (21.8%) as a result of a lower level of outstanding
equipment deposits coupled with a lower capitalized interest rate.
The Company's Other Non-Operating Expense, Net increased $17.0
million, or 40.2%, during 1992. In 1992, this category included a
gain of $10.3 million from the sale of three wholly-owned subsid-
iaries and a $34.1 million loss related to the sale of ten MD-82
aircraft discussed above. In 1991, this category included a $12.5
million loss incurred in conjunction with the sale of nine Boeing
B727-200 aircraft which had been previously retired from service.
All of the Company's remaining available tax credit, or $117.6
million, was recognized upon the adoption of FAS 106 on January 1,
1992. The Company could not recognize any tax credit associated
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<PAGE>
with the 1992 results due to limitations under Accounting Princi-
ples Board Opinion No. 11.
Inflation and Changing Prices
Inflation and changing prices do not have a significant effect
on the Company's operating revenues, operating expenses, and
operating income because such revenues and expenses, other than
depreciation and amortization, generally reflect current price
levels.
Depreciation and amortization expense is based on historical
cost. For assets acquired through the purchase of Pacific
Southwest Airlines, USAir's historical cost is based on fair market
value of the assets on May 29, 1987. In the case of Piedmont
Aviation, Inc., USAir's 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
Cash used by operations was $21.3 million during 1993,
including a $220.0 million payment under USAir's revolving accounts
receivable sale program ("Receivables Agreement"). At December 31,
1993, cash and cash equivalents totaled approximately $368.3
million, excluding $163.7 million which was deposited in trust
accounts to collateralize letters of credit or workers compensation
policies and classified as "Other Assets" on the Company's balance
sheet. Although not currently available (see below), at Decem-
ber 31, 1993, USAir Group had $300 million in commitments available
for borrowing under its revolving credit agreement with a group of
banks ("Credit Agreement") and no outstanding loans thereunder, and
USAir had approximately $141 million of available funds under its
Receivables Agreement.
At February 28, 1994, cash and cash equivalents totaled
approximately $363.5 million. Funds under the Credit Agreement and
Receivables Agreement are not available to the Company and USAir
because of violations of minimum net worth covenants in those
agreements. On March 14, 1994, the Company and USAir announced
that they are seeking waivers of compliance with the minimum net
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worth covenant and other anticipated covenant violations. There
can be no assurance that the Company or USAir will be able to
obtain the waivers or arrange replacement facilities.
The Company and USAir are highly leveraged. In order to meet
debt service, lease and other obligations and to finance daily
operations, the Company and USAir require substantial liquidity and
working capital. In addition, developments may occur which are
beyond the control of the Company and USAir, including intensified
fare wars or substantial increases in jet fuel prices, which could
have a material adverse effect on the Company's prospects and
financial condition. The Company and USAir have unencumbered
assets, particularly if the Credit Agreement is terminated and the
mortgage of aircraft equipment related thereto is released. The
Company expects that it could use these unencumbered assets to
raise funds to provide an infusion of liquidity. In addition, the
second and third quarters of the year historically have been
characterized by higher revenues and working capital than in the
first and fourth quarters. Moreover, USAir is seeking in discus-
sions with the leadership of its unionized employees substantial
wage reductions, improved productivity and other cost savings.
However, if unforeseen adverse developments occur, if the Company
and USAir are unable to finance unencumbered assets, or if timely
agreements with the employees are not reached, the Company and
USAir may pursue other restructuring alternatives. See Item 1.
"Business - Significant Impact of Low Fare, Low Cost Competition"
and Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Low Cost, Low Fare Competi-
tion."
During 1993, the Company's investment in new aircraft
acquisitions and purchase deposits totaled $545.3 million. USAir
took delivery of 11 Boeing 757-200, one Boeing 767-200, and six MD-
82 aircraft during the year. The MD-82s were immediately sold to
a third party. In addition, USAir sold two other MD-82 aircraft
which had been delivered in the fourth quarter of 1992. Proceeds
from the sale of the MD-82s approximated $168 million. The Company
has completed financing arrangements for, including the $337.7
million issue of Pass Through Certificates ("Certificates") which
USAir sold through an underwritten public offering on November 1,
1993, or internally funded, all of its 1993 aircraft expenditures.
See Note 4(d) to the Company's Consolidated Financial Statements
for the projected cash flows associated with aircraft orders and
other contractual capital commitments. The Company has arranged
committed financing for 100% of its 1994 and 1995 aircraft
deliveries.
On January 21, 1993, a wholly-owned subsidiary of BA purchased
30,000 shares of the 7% Series F Cumulative Convertible Senior
Preferred Stock ("Series F Preferred Stock"), for $300 million.
Substantially all of the $300 million received by the Company from
the sale of the Series F Preferred Stock was used to pay down debt
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<PAGE>
under the Company's Credit Agreement. The Series F Preferred Stock
is subject to mandatory redemption on January 15, 2008.
On May 4, 1993, the Company sold 11.5 million shares of $1 par
value Common Stock at $20.75 per share which netted proceeds of
approximately $231 million. BA partially exercised its preemptive
right to maintain its proportionate ownership percentage by
purchasing, on June 10, 1993, 9,919.8 shares of redeemable Series
T-2 Cumulative Exchangeable Senior Preferred Stock ("Series T-2
Preferred Stock") for approximately $99.2 million. For additional
information, see Note 8 to the Company's Consolidated Financial
Statements. On March 7, 1994, BA 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 is known.
On July 8, 1993, USAir sold $300 million principal amount of
10% Senior Notes due 2003 (the "10% Notes") through an underwritten
public offering. The offering netted proceeds of approximately
$294 million. The 10% Notes are unconditionally guaranteed by the
Company.
On February 2, 1994, USAir sold $175 million principal amount
of 9 5/8% Senior Notes due 2001 (the "9 5/8% Notes") through an
underwritten public offering. The offering netted proceeds of
approximately $172 million. The 9 5/8% Notes are unconditionally
guaranteed by the Company. The 9 5/8% Notes are not reflected in
the Company's December 31, 1993 balance sheet because they were
issued after that time.
All net proceeds received by USAir or the Company from the
Common Stock offering, the sale to BA of the Series T-2 Preferred
Stock, the sale of the 10% Notes and 9 5/8% Notes were added to the
working capital of the Company for general corporate purposes,
including the possible early repayment of certain outstanding debt
with high interest rates.
USAir and the Company have filed with the Securities and
Exchange Commission ("SEC") a shelf registration for $700 million
of various debt and equity securities. Approximately $187 million
of securities remain available for sale on the shelf registration
following the sale of the 9 5/8% Notes and may be sold from time-
to-time depending on market conditions. The Company will continue
to evaluate opportunities in the financial markets.
On September 29, 1993, the maximum commitment available under
the Credit Agreement decreased to $300 million from $600 million in
accordance with the terms of the agreement. The Credit Agreement
is due to expire on September 30, 1994. In September 1993, USAir
Group obtained a waiver of compliance with the coverage ratio test
required to be maintained as part of the Credit Agreement, for the
period July 1 through September 30, 1993. Without this waiver,
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USAir Group would have violated this test on September 30, 1993.
As of September 30, 1993, USAir Group was in compliance with the
other financial covenants required to be maintained as part of the
Credit Agreement. Moreover, in December 1993, USAir Group obtained
an additional waiver under the Credit Agreement of compliance
during the period October 1 through December 31, 1993 with the
coverage ratio test. Without this waiver, USAir Group would have
violated this test on December 31, 1993. The Company is currently
unable to borrow under the Credit Agreement because it is in
violation of a minimum net worth covenant thereunder. In addition,
based on current projections of its results for 1994, USAir Group
expects that it will not be in compliance with the coverage ratio
test and possibly other financial covenants at March 31, 1994 and
during the remainder of the year. There can be no assurance that
USAir Group will be able to obtain a waiver of compliance with
these covenants or to arrange a replacement facility.
In September 1993 and December 1993, USAir obtained waivers of
the coverage ratio test under the Receivables Agreement on the same
terms as described above with respect to the Credit Agreement. At
December 31, 1993, USAir was in compliance with the other financial
covenants and had no amounts outstanding under the Receivables
Agreement. The maximum amount of receivables which USAir may sell
under the Receivables Agreement was $240 million at December 31,
1993 and will be adjusted downward to $190 million on June 30, 1994
if the Company's consolidated net worth does not exceed $1.5
billion. For purposes of this net worth comparison, the Company's
actual net worth is adjusted to add back the initial and ongoing
impact of adopting FAS 106 and certain other accounting pronounce-
ments. USAir is currently unable to sell receivables under the
Receivables Agreement because it is in violation of a minimum net
worth covenant thereunder. In addition, based on current projec-
tions of its results for 1994, USAir expects that it will not be in
compliance with the coverage ratio test and possibly other
financial covenants at March 31, 1994 and during the remainder of
the year. There can be no assurance that USAir will be able to
obtain a waiver of compliance with these covenants or to arrange a
replacement facility.
The Company's and USAir's debt and equity securities are
presently rated below investment grade by Standard and Poor's
Corporation ("S&P") and Moody's Investors Service, Inc. ("Moo-
dy's"). Following the January 21, 1993 transaction in which a
subsidiary of BA purchased $300 million of the Company's Series F
Preferred Stock, Moody's placed the ratings on watch for possible
upgrade. On March 19, 1993, Moody's confirmed its ratings of USAir
Group and USAir securities. Following DOT approval of the purchase
of the Series F Preferred Stock and the code sharing and wet lease
relationship between USAir and BA, S&P affirmed its ratings of
USAir Group and USAir securities, stating its ratings outlook was
positive. In December 1993, S&P affirmed its ratings of USAir
Group and USAir securities. However, the agency revised the
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ratings outlook to negative, citing, among other considerations,
the status of the negotiations on a revised U.S.-U.K. bilateral air
services agreement and the entrance and possible expansion of the
operations of low fare, low cost air carriers into USAir's markets.
In February 1994, as a result of USAir's low fare initiative in
certain markets and its high cost structure, S&P and Moody's placed
the securities of the Company and USAir on watch with negative
implications. On March 24, 1994, S&P further downgraded the
Company's and USAir's securities. This downgrade will make it more
difficult for the Company and USAir to effect additional financing.
In addition, the Company's and USAir's securities remain on watch
with negative implications at S&P.
In 1992, the Company's investment in new aircraft acquisitions
and purchase deposits, net of deposits refunded, totaled $458.7
million. The Company purchased eight Fokker F-100 and four
deHavilland Dash 8 aircraft during 1992. The acquisition of these
aircraft was financed through a combination of secured debt
financings and interim debt financings. In addition, USAir took
delivery of four MD-82s, two of which were immediately sold to a
third party. The remaining two aircraft delivered in 1992 were
sold to a third party in early 1993. Cash outflows for other
property during the period totaled $277.2 million, which includes
$61 million paid to Continental for landing and take-off slots at
LaGuardia and Washington National Airports and $50 million paid to
TWA for London routes from BWI and Philadelphia International
Airports. See Item 1. "Business - British Airways Investment
Agreement - U.S.-U.K. Routes." Proceeds from disposition of
assets of $429.5 million were realized during the year, primarily
from sale-leaseback transactions, the sale of the two MD-82
aircraft, and the sale of three wholly-owned subsidiaries.
During 1991, acquisition of new aircraft and purchase deposit
payments amounted to $345 million. During 1991, USAir took
delivery of two Boeing 767-200ER, nine Boeing 737-400, 12 Fokker
100, and five deHavilland Dash 8 aircraft. The acquisition of
these aircraft was financed through a combination of sale-leaseback
transactions, secured debt financings and interim debt financings.
Expenditures for other property, consisting primarily of ground
support equipment, leasehold improvements, and major aircraft
components, totaled $97 million. Proceeds from disposition of
property of $286 million were realized during 1991, primarily as a
result of aircraft sale-leaseback transactions.
In May 1991, USAir Group sold 4,263,050 Depositary Shares,
each representing 1/100 of a share of $437.50 Series B Cumulative
Convertible Preferred Stock, without par value, for net proceeds of
$207.8 million. Such proceeds were used to repay indebtedness
under USAir Group's Credit Agreement.
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At December 31, 1993, USAir Group's ratio of current assets to
current liabilities was 0.53 to 1 and the debt component of USAir
Group's capitalization structure was approximately 82% (100% if the
redeemable Series A Cumulative Convertible Preferred Stock, the
Series F Preferred Stock and the redeemable Series T Cumulative
Convertible Exchangeable Senior Preferred Stock are considered to
be debt).
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Item 8A. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
USAir Group, Inc.
Independent Auditors' Report
The Stockholders and Board of Directors
USAir Group, Inc.:
We have audited the accompanying consolidated balance sheets
of USAir Group, Inc. and subsidiaries ("Group") as of December 31,
1993 and 1992, and the related consolidated statements of opera-
tions, cash flows, and changes in stockholders' equity (deficit)
for each of the years in the three-year period ended December 31,
1993. These consolidated financial statements are the responsibil-
ity of Group'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 USAir Group, Inc. and subsidiaries as of December 31,
1993 and 1992, and the results of their operations and their cash
flows for each of the years in the three-year period ended
December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 11 to the consolidated financial
statements, effective January 1, 1993, Group changed its method of
accounting for postemployment benefits and effective January 1,
1992, Group changed its method of accounting for postretirement
benefits other than pensions.
KPMG PEAT MARWICK
Washington, D. C.
February 25, 1994
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<TABLE>
USAir Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, (in thousands except per share amounts)
==================================================================================================
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Operating Revenues
Passenger transportation $6,554,926 $ 6,198,409 $6,033,831
Cargo and freight 173,824 172,360 164,517
Other 354,458 315,643 315,723
--------- ---------- ---------
Total operating revenues 7,083,208 6,686,412 6,514,071
Operating Expenses
Personnel costs 2,841,344 2,623,645 2,521,166
Aviation fuel 710,109 753,301 799,081
Commissions 596,779 569,583 539,969
Other rent and landing fees 470,093 405,842 349,221
Aircraft rent 472,622 530,046 377,705
Aircraft maintenance 374,084 379,870 413,725
Depreciation and amortization 306,330 309,368 299,104
Other, net 1,387,273 1,445,278 1,381,668
--------- ---------- ---------
Total operating expenses 7,158,634 7,016,933 6,681,639
--------- ---------- ---------
Operating loss (75,426) (330,521) (167,568)
Other Income (Expense)
Interest income 12,632 9,898 18,627
Interest expense (249,916) (248,691) (259,126)
Interest capitalized 17,763 27,802 35,565
Other, net (54,420) (59,306) (42,299)
--------- ---------- ---------
Other income (expense), net (273,941) (270,297) (247,233)
--------- ---------- ---------
Loss before taxes and cumulative effect of
accounting changes (349,367) (600,818) (414,801)
Income tax credit - - (109,543)
--------- ---------- ---------
Loss before cumulative effect of accounting
changes (349,367) (600,818) (305,258)
Cumulative effect of changes in method of
accounting for postemployment benefits
in 1993 and for postretirement benefits
other than pensions (net of tax benefit
of $117,571) in 1992 (43,749) (628,098) -
--------- ---------- ---------
Net loss (393,116) (1,228,916) (305,258)
Preferred dividend requirement (73,651) (51,766) (44,306)
--------- ---------- ---------
Net loss applicable to common stockholders $ (466,767) $(1,280,682) $ (349,564)
========= ========== =========
Loss per common share
Before accounting changes $ (7.68) $ (13.88) $ (7.62)
Effect of accounting changes (0.80) (13.35) -
--------- ---------- ---------
Loss per common share $ (8.48) $ (27.23) $ (7.62)
========= ========== =========
Shares used for computation (000) 55,070 47,026 45,864
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
70
<PAGE>
<TABLE>
USAir Group, Inc.
CONSOLIDATED BALANCE SHEETS (dollars in thousands
DECEMBER 31, except per share amounts)
===================================================================================================
<CAPTION>
1993 1992
---- ----
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 368,347 $ 296,038
Receivables, net 364,020 179,347
Materials and supplies, net 362,019 374,949
Prepaid expenses and other 83,334 137,454
---------- ----------
Total current assets 1,177,720 987,788
Property and Equipment
Flight equipment 5,031,351 4,545,771
Ground property and equipment 1,074,526 1,041,718
Less accumulated depreciation and amortization (1,883,858) (1,665,420)
---------- ----------
4,222,019 3,922,069
Purchase deposits 156,621 341,936
---------- ----------
Property and equipment, net 4,378,640 4,264,005
Other Assets
Goodwill, net 542,666 558,718
Other intangibles, net 296,775 363,312
Other assets 482,112 420,707
---------- ----------
Total other assets 1,321,553 1,342,737
--------- ----------
$6,877,913 $6,594,530
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 87,833 $ 250,019
Accounts payable 335,918 418,381
Traffic balances payable and unused tickets 630,147 594,630
Accrued expenses 1,182,886 1,138,484
---------- ---------
Total current liabilities 2,236,784 2,401,514
Long-Term Debt, Net of Current Maturities 2,444,017 2,264,944
Deferred Credits and Other Liabilities
Deferred gains, net 440,327 468,832
Postretirement benefits other than pensions, non-current 907,343 841,376
Non-current pension liability and other 303,299 215,801
---------- ---------
Total deferred credits and other liabilities 1,650,969 1,526,009
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series A, 358,000 shares issued, no par value 358,000 358,000
Series F, 30,000 shares issued, no par value 300,000 -
Series T, 10,000 shares issued, no par value 100,719 -
Stockholders' Equity (Deficit)
Series B cumulative convertible preferred stock, no par
value, 4,263,000 depositary shares issued 213,153 213,153
Common stock, par value $1 per share, authorized
150,000,000 and 100,000,000 shares, respectively,
issued 61,080,000 and 49,581,000 shares, respectively 61,080 49,581
Paid-in capital 1,417,346 1,211,765
Retained earnings (deficit) (1,682,912) (1,218,230)
Common stock held in treasury, at cost, 1,864,000
and 2,364,000 shares, respectively (83,891) (106,376)
Deferred compensation (94,957) (99,010)
Adjustment for minimum pension liability (42,395) (6,820)
--------- ---------
Total stockholders' equity (deficit) (212,576) 44,063
--------- ---------
$6,877,913 $6,594,530
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
71
<PAGE>
<TABLE>
USAir Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, (in thousands)
===================================================================================================
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents beginning of year $ 296,038 $ 319,603 $ 408,069
Cash flows from operating activities
Net loss (393,116) (1,228,916) (305,258)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation and amortization 306,330 309,368 299,104
Deferred income taxes - (111,128) (73,301)
Loss on disposition of assets 14,928 30,405 10,067
Other 20,299 2,757 15,693
Changes in certain assets and liabilities
Decrease (increase) in receivables (180,152) 25,536 61,824
Decrease (increase) in materials, supplies,
prepaid expenses and intangible pension assets 24,234 (99,256) (70,745)
Increase (decrease) in traffic balances payable
and unused tickets 7,719 105,448 29,746
Increase (decrease) in accounts payable and
accrued expenses 112,525 252,756 138,730
Increase (decrease) in postretirement benefits
other than pensions, non-current 65,967 841,376 -
-------- -------- --------
Net cash provided by (used for) operating activities (21,266) 128,346 105,860
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (202,085) (239,060) (212,374)
Additions to other property (144,474) (277,230) (93,187)
Proceeds from disposition of assets 178,387 429,463 250,217
Change in restricted cash and investments (14,221) (95,331) (63,735)
Other (311) (8,293) 807
--------- -------- --------
Net cash used for investing activities (182,704) (190,451) (118,272)
Cash flows from financing activities
Issuance of debt 597,834 1,073,336 663,327
Reduction of debt (889,872) (991,717) (922,856)
Issuance of common stock 230,891 3,452 12,296
Issuance of preferred stock 400,719 - 213,153
Sale of treasury stock 8,273 5,235 -
Dividends (71,566) (51,766) (41,974)
-------- -------- --------
Net cash provided by (used for) financing activities 276,279 38,540 (76,054)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 72,309 (23,565) (88,466)
-------- -------- --------
Cash and cash equivalents end of year $ 368,347 $ 296,038 $ 319,603
======== ======== ========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions $ 343,188 $ 219,611 $ 132,455
Issuance of debt for additions to other property $ 669 $ - $ 4,200
Reduction of debt - aircraft related $ 47,685 $ - $ -
Proceeds from disposition of property applied against debt $ - $ - $ 42,975
Issuance of debt for materials $ - $ 909 $ -
Supplemental Information
Cash paid during the year for interest, net of amounts
capitalized $ 236,122 $ 220,713 $ 215,872
======== ======== ========
Net cash received (paid) during the year for income taxes $ (967) $ 30,480 $ 38,079
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
72
<PAGE>
<TABLE>
USAir Group, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1993 (dollars in thousands except per share amounts)
========================================================================================================================
<CAPTION>
Adjustments
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, 1990 $ - $ 48,282 $1,210,816 $ 409,684 $(123,914) $(110,757) $ - $ 1,434,111
Reversion of 15,000 shares
of restricted stock
previously granted - (15) (221) - - 354 - 118
Sale of 1,133,000 shares
of common stock - 1,133 10,363 - - - - 11,496
Issuance of 4,263,050
depositary shares of
Series B cumulative
convertible preferred
stock 213,153 - - - - - - 213,153
Dividends declared
(preferred stock):
Series A-$92.50 per share - - - (33,115) - - - (33,115)
Series B-$4.375 per
depositary share - - - (8,859) - - - (8,859)
Amortization of deferred
compensation - - - - - 6,516 - 6,516
Net loss - - - (305,258) - - - (305,258)
------- ------- --------- ---------- -------- -------- -------- ----------
Balance December 31, 1991 213,153 49,400 1,220,958 62,452 (123,914) (103,887) - 1,318,162
Reversion of 28,000 shares
of restricted stock pre-
viously granted - (28) (465) - - 740 - 247
Exercise of 6,000 options - - (207) - 270 - - 63
Sale of 209,000 shares of
common stock - 209 3,243 - - - - 3,452
Sale of 384,000 shares of
treasury stock - - (12,097) - 17,268 - - 5,171
Dividends declared
(preferred stock):
Series A-$92.50 per share - - - (33,115) - - - (33,115)
Series B-$4.375 per
depository share - - - (18,651) - - - (18,651)
Amortization of deferred
compensation - - 333 - - 4,137 - 4,470
Equity reduction for minimum
pension liability - - - - - - (6,820) (6,820)
Net loss - - - (1,228,916) - - - (1,228,916)
------- ------- --------- ---------- -------- -------- -------- ----------
Balance December 31, 1992 213,153 49,581 1,211,765 (1,218,230) (106,376) (99,010) (6,820) 44,063
(Continued on next page)
73
<PAGE>
USAir Group, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1993 (dollars in thousands except per share amounts)
========================================================================================================================
<CAPTION>
Adjustments
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, 1992 213,153 49,581 1,211,765 (1,218,230) (106,376) (99,010) (6,820) 44,063
Reversion of 1,600 shares
of restricted stock
previously granted - (1) (19) - - 31 - 11
Sale of 11,500,000 shares
of common stock - 11,500 219,391 - - - - 230,891
Exercise of 33,500 options - - (929) - 1,506 - - 577
Sale of 466,400 shares of
treasury stock - - (13,283) - 20,979 - - 7,696
Dividends declared (preferred
stock):
Series A-$92.50 per share - - - (33,115) - - - (33,115)
Series B-$4.375 per
depository share - - - (18,651) - - - (18,651)
Series F-$700 per share - - - (17,967) - - - (17,967)
Series T-Variable dividend
rate - see Note 8 - - - (1,833) - - - (1,833)
Amortization of deferred
compensation - - 421 - - 4,022 - 4,443
Equity reduction for minimum
pension liability - - - - - - (35,575) (35,575)
Net loss - - - (393,116) - - - (393,116)
------- ------- --------- ---------- -------- -------- -------- ----------
Balance December 31, 1993 $213,153 $ 61,080 $1,417,346 $(1,682,912) $ (83,891) $ (94,957) $ (42,395) $ (212,576)
======= ======= ========= ========== ======== ======= ======== ==========
See accompanying Notes to Financial Statements
74
</TABLE>
<PAGE>
USAir Group, Inc.
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of USAir Group, Inc. ("USAir Group" or the "Company") and
its wholly-owned subsidiaries USAir, Inc. ("USAir"), Piedmont
Airlines, Inc. ("Piedmont") (formerly Henson Aviation, Inc.),
Jetstream International Airlines, Inc. ("Jetstream"), Pennsylvania
Commuter Airlines, Inc. ("PCA"), USAir Leasing and Services, Inc.
("Leasing"), USAir Fuel Corporation and Material Services Company,
Inc. All significant intercompany accounts and transactions have
been eliminated.
At December 31, 1992, USAM Corp. ("USAM"), a subsidiary of
USAir, owned 11% of the Covia Partnership ("Covia") which owned and
operated a computerized reservation system ("CRS"). In September
1993, Covia purchased the assets of the corporation that owned and
operated the Galileo CRS which provided CRS services to travel
agent subscribers in Europe. Covia was then separated into three
new entities. As a result, at December 31, 1993, USAM owns 11% of
the Galileo International Partnership which owns and operates the
Galileo CRS, approximately 11% of the Galileo Japan Partnership
which markets the Galileo CRS in Japan, and approximately 21% of
the Apollo Travel Services Partnership which markets the Galileo
CRS in the U.S. and Mexico. USAM accounts for these investments
using the equity method.
On August 1, 1992, two wholly-owned USAir Group's commuter
airline subsidiaries, Allegheny Commuter Airlines, Inc. and PCA,
merged. PCA, the surviving entity, operates under the name of
Allegheny Commuter Airlines, with headquarters in Middletown,
Pennsylvania.
On July 15, 1992, USAir Group completed the sale of three of
its wholly-owned subsidiaries: Piedmont Aviation Services, Inc.,
Air Service, Inc. and Aviation Supply Corporation. The Company
realized a gain of $10.3 million as a result of the sale. The
three former subsidiaries engaged in fixed base operations and the
sale and repair of aircraft and aircraft components. These
subsidiaries were included in the accounts until their sale.
On October 9, 1991, USAir reached agreement for the sale of
certain assets of its wholly-owned subsidiary Pacific Southwest
Airmotive ("Airmotive"). Airmotive discontinued operations in the
third quarter of 1991. USAir did not realize any material gain or
loss on the sale and discontinuance of Airmotive's operations.
75
<PAGE>
USAir Group's principal operating subsidiary, USAir, and its
three commuter airline subsidiaries, Piedmont, Jetstream and PCA,
operate within one industry (air transportation); therefore, no
segment information is provided.
Certain 1992 and 1991 amounts have been reclassified to
conform with 1993 classifications.
(b) Cash and Cash Equivalents
For financial statement purposes, the Company considers all
highly liquid investments purchased with a maturity of three months
or less to be cash equivalents.
(c) Materials and Supplies
Inventories of materials and supplies are valued at average
cost and are charged to operations as consumed. An allowance for
obsolescence is provided for flight equipment expendable parts.
76
<PAGE>
(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 principal asset classifications is provided on a straight-line
basis to estimated residual values over estimated depreciable lives
as follows:
<TABLE>
<CAPTION>
Depreciable
Assets Lives Residual Values
------ ----------- ---------------
(years) (in millions)
<S> <C> <C>
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 2.5-5.0
BAe-146 18 3.0
McDonnell Douglas MD-80 20 7.5
Douglas DC-9-30 17 3.0
Fokker 100 20 5.0
Fokker F28 6-8 1.0-2.0
Commuter aircraft 10-17 0.4-1.5
Improvement to leased aircraft life of lease -
Ground property, equipment and 1-10 or
leasehold improvements life of lease -
Buildings 25-30 -
</TABLE>
Property acquired under capital lease is amortized on a
straight-line basis over the term of the lease and charged to
depreciation expense.
(e) Goodwill, Other Intangibles and Other Assets
Goodwill, the cost in excess of fair value of identified net
assets acquired, is being amortized on a straight-line basis over
40 years as other non-operating expense. Accumulated amortization
at December 31, 1993 and 1992 was $98 million and $82 million,
respectively.
77
<PAGE>
Intangible assets consist of purchased operating rights at
various airports, purchased route authorities, and the intangible
assets associated with the underfunded amounts of certain pension
plans. The operating rights, valued at purchase cost or appraised
value if acquired from Piedmont Aviation, Inc. ("Piedmont Avia-
tion") or Pacific Southwest Airlines ("PSA"), are being amortized
over periods ranging from ten to 25 years as Other Rent and Landing
Fees Expense. The purchased route authorities are amortized over
periods of 25 years as other operating expense. Accumulated
amortization at December 31, 1993 and 1992 was $72 million and $65
million, respectively. The decrease in Other Intangibles, net in
1993 is primarily attributable to the $47 million reclassification
of two London routes to Other Assets as a result of USAir's
relinquishment of these routes as contemplated by the January 21,
1993 Investment Agreement ("Investment Agreement") between the
Company and British Airways Plc ("BA"). USAir relinquished its
Charlotte to London route authority in January 1994. In addition,
takeoff and landing slots at Washington National Airport were
purchased from Northwest Airlines, Inc. ("Northwest") for $10
million during 1993.
(f) Restricted Cash and Investments
Restricted cash and investments consist primarily of deposits
in trust accounts to collateralize letters of credit or workers
compensation policies and short-term investments restricted for
specified construction projects. These amounts are classified as
Other Assets on the accompanying balance sheets.
(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 rental
expense.
(h) Passenger Revenue Recognition
Passenger ticket sales are recognized as revenue when the
transportation service is rendered. 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 carrier which renders the
service or by refund to the passenger.
(i) Frequent Traveler Awards
USAir accrues the estimated incremental cost of providing
outstanding travel awards earned by participants in its Frequent
Traveler Program.
78
<PAGE>
(j) Investment Tax Credit
Investment tax credit benefits are recorded using the "flow-
through" method as a reduction of the Federal income tax provision.
(k) Earnings Per Share
Earnings per share is computed by dividing net loss, after
deducting preferred stock dividend requirements, by the weighted
average number of shares of Common Stock outstanding, net of
treasury stock. USAir Group's outstanding redeemable Series A
Cumulative Convertible Preferred Stock ("Series A Preferred
Stock"), Series B Cumulative Convertible Preferred Stock ("Series
B Preferred Stock"), redeemable Series F Cumulative Senior
Preferred Stock ("Series F Preferred Stock"), redeemable Series T
Cumulative Convertible Exchangeable Senior Preferred Stock ("Series
T Preferred Stock) and common stock equivalents are anti-dilutive.
(l) Swap Agreements
USAir has entered into hedging arrangements to reduce its
exposure to fluctuations in the price of jet fuel. Net settlements
are recorded as adjustments to aviation fuel expense. USAir is
party to such hedging arrangements with several entities. Under
these arrangements, the Company's maximum commitments, which are
offset by amounts received under the arrangements, totaled
approximately $100.3 million and $158.7 million at December 31,
1993 and 1992, respectively. Although the agreements expose the
Company to credit loss in the event of nonperformance by the other
parties to the agreements, the Company does not anticipate such
nonperformance.
The Company has entered into interest rate swap transactions
to manage interest rate exposure. Net settlements are recorded as
an adjustment to interest expense. The Company is party to such
interest rate swap agreements with banks and other financial
institutions. The notional principal amounts of these agreements
were $150 million and $400 million at December 31, 1993 and 1992,
respectively. Under these swap agreements, the Company pays
interest at fixed rates averaging 9.8% and 9.7% at December 31,
1993 and 1992, respectively, and receives floating rate interest
payments based on three-month LIBOR. Although the agreements,
which expire in 1995, 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.
(2) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Unless a quoted market price indicates otherwise, the fair
values of cash and investments generally approximate carrying
values because of the short maturity of these instruments. The
79
<PAGE>
Company has estimated the fair value of long-term debt based on
quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of similar remaining
maturities. The estimated fair values of the Series A Preferred
Stock, Series F Preferred Stock and Series T Preferred Stock are
obtained by consulting with an independent external valuation
source. The fair values of interest rate swap agreements, energy
swap agreements and foreign currency contracts are obtained from
dealer quotes whereby 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 instru-
ments are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1993 1992
-------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Cash and short-
term invest-
ments $ 368,347 $ 368,347 $ 296,038 $ 296,038
Restricted cash
and investments 173,357 173,305 159,151 159,096
Long-term debt (ex-
cludes capital
lease obliga-
tions) 2,426,461 2,477,523 2,378,041 2,228,679
Redeemable pre-
ferred stock 758,719 718,633 358,000 319,000
Interest rate swap
agreements:
In a net payable
position - (14,492) - (27,423)
Energy swap agree-
ments:
In a net payable
position - (10,352) - (1,003)
Foreign currency
contracts:
In a net payable
position - (1,874) - (1,168)
</TABLE>
80
<PAGE>
(3) LONG-TERM DEBT
Details of long-term debt are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Senior Debt:
12 7/8% Senior Debentures due 2000 $ 77,000 $ 96,000
10% Senior Notes due 2003 300,000 -
6.9% to 14.3% U. S. Government
Guaranteed Obligations,
Installments due 1994 to 1995 6,180 35,266
10 1/2% to 13 1/8% Equipment Trust
Certificates, Installments due 1994 972 8,265
4.1% to 13 5/8% Equipment Financing
Agreements, Installments due 1994
to 2016 1,890,418 1,531,899
3.9% to 8.6% Airport Facility Revenue
Bonds and Notes, Installments due
1994 to 2022 27,620 29,720
4.3% to 5% Aircraft Purchase Deposit
Financing, Installments due 1994 to
1999 120,311 229,484
Other 3,960 4,535
--------- ---------
2,426,461 1,935,169
Credit Agreement Borrowings - 430,000
Capital Lease Obligations 105,389 136,922
Other - 12,872
--------- ---------
Total 2,531,850 2,514,963
Less Current Maturities 87,833 250,019
--------- ---------
$2,444,017 $2,264,944
========= =========
</TABLE>
81
<PAGE>
Maturities of long-term debt and debt under capital leases for
the next five years are as follows:
(in thousands)
1994 $ 87,833
1995 75,344
1996 73,464
1997 84,027
1998 152,180
Thereafter 2,059,002
In addition to the varying interest rate on Credit Agreement
borrowings as described below, interest rates on $239 million
principal amount of long-term debt at December 31, 1993 are subject
to adjustment to reflect prime rate and other rate changes.
The Company and a group of banks are parties to a Credit
Agreement dated as of March 30, 1987, as amended (the "Credit
Agreement") which makes a $300 million revolving credit facility
available to the Company as of December 31, 1993. The Credit
Agreement expires on September 30, 1994. At December 31, 1993,
loans under the Credit Agreement, at the option of the Company,
would have borne interest at a reference rate, a Eurodollar rate
plus 2.50% - 2.65% per annum, determined by the Company's coverage
ratio discussed below, or a bid rate if offered by a lending bank.
During 1993, 1992 and 1991, the maximum amount of credit agreement
borrowings outstanding at any month end was $250 million, $450
million and $733 million, respectively. All outstanding Credit
Agreement borrowings were paid off in May 1993 and no other funds
were borrowed during the remainder of 1993. The average amount of
Credit Agreement borrowings outstanding and weighted average
interest rate for 1993 were $37 million and 5.8%, respectively.
The average amount of Credit Agreement borrowings outstanding and
the weighted average interest rate for 1992 were $174 million and
6.2%, respectively. The average amount of Credit Agreement
borrowings and the weighted average interest rate for 1991 were
$510 million and 8.3%, respectively.
On June 21, 1993, USAir Group entered into the Seventh
Amendment to the Credit Agreement. The Seventh Amendment increased
the limit of unsecured debt of subsidiaries to $300 million from
$200 million. On December 21, 1993, the Company obtained a waiver
under the Credit Agreement which further increased the limit of
unsecured debt of subsidiaries to $620 million for the period
commencing December 21, 1993 and ending on the final annual
reduction date of September 30, 1994. This waiver also exempted
the Company from compliance, for the quarter ended December 31,
1993, with the coverage ratio test which must be maintained as part
of the Credit Agreement. The Company would not otherwise have
complied with this test as of December 31, 1993 but was in
compliance with the other financial covenants required to be
82
<PAGE>
maintained as part of the Credit Agreement. USAir Group is
currently unable to borrow under the Credit Agreement because it is
in violation of a minimum net worth covenant thereunder. In
addition, based on current projections of its results for 1994,
USAir Group expects that it will not be in compliance with the
coverage ratio test and possibly other financial covenants at
March 31, 1994 and during the remainder of the year. There can be
no assurance that USAir Group will be able to obtain a waiver of
compliance with these covenants or arrange a replacement facility.
Certain USAir, Piedmont and PCA aircraft and engines with a net
book value of $247 million at December 31, 1993 secure the Credit
Agreement.
Equipment financings totaling $2.0 billion are collateralized
by aircraft and engines with a net book value of $2.2 billion at
December 31, 1993.
An aggregate of $32 million of future principal payments of
the Equipment Financing Agreements are payable in Japanese Yen.
This foreign currency exposure has been hedged to maturity.
Although the Company is exposed to credit loss in the event of non-
performance by the counterparty to the hedge agreement, the Company
does not anticipate such non-performance.
On February 2, 1994, USAir sold $175 million principal amount
of 9 5/8% Senior Notes ("9 5/8% Senior Notes") which are uncondi-
tionally guaranteed by the Company. The 9 5/8% Senior Notes are
not reflected in the above table because they were sold after
December 31, 1993.
(4) COMMITMENTS AND CONTINGENCIES
(a) Operating Environment
The economic conditions in the United States, fare competition
and the emergence and growth of lower cost, lower fare carriers in
the domestic airline industry are factors affecting the financial
condition of USAir Group. Industry capacity has recently failed to
mirror changes in demand due primarily to the continued delivery of
new aircraft and secondarily, to the prolonged operation of certain
major U.S. carriers under the protection of Chapter 11 of the
Bankruptcy Code. USAir competes with at least one major airline on
most of its routes between major cities. Although the economy
generally has shown signs of improvement, the Company expects that
the competitive environment in the airline industry, the entry of
low cost, low fare carriers into USAir's markets, and the excess
capacity in the domestic airline industry will continue to have an
adverse effect on USAir's passenger revenue for the foreseeable
future. The extent or duration of these conditions cannot be
reasonably determined at this time.
83
<PAGE>
(b) Lease Commitments
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 administra-
tive 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. Most
leases also include renewal options and some aircraft leases
include purchase options.
The following amounts applicable to capital leases are
included in property and equipment:
<TABLE>
<CAPTION>
December 31,
---------------------
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Flight equipment $266,743 $310,870
Ground property and equipment 10,961 10,961
------- -------
277,704 321,831
Less accumulated amortization 184,999 208,588
------- -------
$ 92,705 $113,243
======= =======
</TABLE>
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<PAGE>
At December 31, 1993, obligations under capital and noncancel-
able operating leases for future minimum lease payments were as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in thousands)
<S> <C> <C>
1994 $ 34,591 $ 771,593
1995 26,358 763,924
1996 22,492 737,464
1997 21,697 745,817
1998 10,687 706,161
Thereafter 38,362 7,935,534
------- ----------
Total minimum lease payments 154,187 $11,660,493
==========
Less amount representing interest 48,798
-------
Present value of net minimum lease
payments $105,389
=======
</TABLE>
Rental expense under operating leases for 1993, 1992 and 1991
was $781 million, $707 million and $605 million, respectively.
Rental expense for 1993 excludes a charge of $9 million related to
certain airport facilities where USAir has, among other things,
discontinued or reduced its service. Rental expense for 1992
excludes a charge of $72 million related to USAir's grounded BAe-
146 fleet. Rental expense for 1991 excludes a credit of $9 million
for the BAe-146 fleet.
(c) Legal Proceedings
The Company and various subsidiaries have been named as
defendants in various suits and proceedings which involve, among
other things, environmental concerns and employment matters. These
suits and proceedings are in various stages of litigation, and the
status of the law with respect to several of the issues involved is
unsettled. For these reasons the outcome of these suits and
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.
In 1989 and 1990, a number of U.S. air carriers, including
USAir, received two Civil Investigative Demands ("CIDs") from the
U.S. Department of Justice ("DOJ") (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)
related to investigations of price fixing in the domestic airline
industry.
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<PAGE>
The investigations by the DOJ culminated in the filing of a
lawsuit against Airline Tariff Publishing Company ("ATPCo") and
eight major air carriers, including USAir, alleging that the
defendants had agreed to fix prices in violation of Section 1 of
the Sherman Act through the methods used to disseminate fare data
to ATPCo, an airline-owned fare publishing service. To avoid the
costs associated with protracted litigation and an uncertain
outcome, USAir and another carrier decided to settle the lawsuit by
entering into a consent decree to modify their fare-filing
practices in certain respects and to implement compliance programs
that would include education of employees regarding the carriers'
responsibilities under the consent decree. Accordingly, the
consent decree and the U.S. Government's complaint were filed
contemporaneously in the U.S. District Court for the District of
Columbia in December 1992. Due to certain legal requirements
associated with the settlement of government antitrust suits, the
consent decree could not be entered until a notice and comment
period had expired. On November 1, 1993, after it had reviewed the
comments, the Court entered the consent decree. USAir does not
believe that the fare-filing practices reflected in the consent
decree will have a material adverse effect on its financial
condition or on its ability to compete. In March 1994, the
remaining six air carrier defendants agreed to the entry of a
separate consent decree to settle the lawsuit. This consent decree
cannot be entered by the Court until a notice and comment period
has expired. When that consent decree is entered, USAir can
petition the Court to have its consent decree amended to conform
with the other settlement and the Court will enter the amended
consent decree.
On March 19, 1993, the U.S. District Court in Atlanta, Georgia
entered a settlement involving USAir and five other U.S. air
carrier defendants in the Domestic Air Transportation Antitrust
Litigation class action lawsuit. The class action suit, which was
filed in July 1990, alleged that the airlines used ATPCo to signal
and communicate carrier pricing intentions and otherwise limit
price competition for travel to and from numerous hub airports.
Under the terms of the settlement, the six air carriers will pay
$45 million in cash and issue $396.5 million in certificates valid
for purchase of domestic air travel on any of the six airlines.
USAir's share of the cash portion of the settlement, $5 million,
was recorded in results of operations for the second quarter of
1992. The certificates provide a dollar-for-dollar discount
against the cost of a ticket generally of up to a maximum of 10%
per ticket, depending on the cost of the ticket. It is possible
that this settlement could have a dilutive effect on USAir's
passenger transportation revenue and associated cash flow.
However, due to the interchangeability of the certificates among
the six carriers involved in the settlement, the possibility that
carriers not party to the settlement will honor the certificates,
and the potential stimulative effect on travel created by the
certificates, USAir cannot reasonably estimate the impact of this
86
<PAGE>
settlement on future passenger revenue and cash flows. USAir has
employed the incremental cost method to estimate a range of costs
attributable to the exercise of the certificates, based on the
assumption that the estimated maximum number of certificates to be
redeemed for travel on USAir will be related to USAir's market
share relative to the total market share of the six carriers
involved in the settlement. USAir's estimated percentage of such
market share is less than 9%. Incremental costs include unit costs
for passenger food, beverages and supplies, fuel, liability
insurance, and denied boarding compensation expenses expected to be
incurred on a per passenger basis. USAir has estimated that its
incremental cost will not be material based on the equivalent free
trips associated with the settlement.
The Attorney General of the State of Florida and the Attorneys
General of several other states are investigating whether several
major airlines, including USAir, have engaged in price fixing and
other unlawful restraints of trade. Certain of these Attorneys
General have issued document requests to USAir and several other
airlines requiring them to provide certain information and
documents. At this time, USAir cannot predict the manner in which
these investigations will be resolved and if the resolution will
have an adverse effect on USAir's results of operations or
financial position.
(d) Aircraft Commitments
At December 31, 1993 USAir's new aircraft on firm order,
options for new aircraft and scheduled payments for new aircraft
orders (including progress payments, buyer furnished equipment,
spares, and capitalized interest) were:
<TABLE>
Delivery Period - Firm Orders
-----------------------------------------
<CAPTION>
There-
1994 1995 1996 1997 1998 after Total Options
---- ---- ---- ---- ---- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing
767-200ER - - - - - - - 2
757-200 5 7 8 - - - 20 12
737 Series - - - 12 12 16 40 63
--- --- --- --- --- --- --- ---
Total 5 7 8 12 12 16 60 77
=== === === === === === === ===
Payments
(millions) $284 $321 $381 $428 $435 $451 $2,300
=== === === === === === =====
</TABLE>
USAir may elect, under certain circumstances, to convert
Boeing 737 Series and Boeing 767 Series firm order or option
deliveries to Boeing 757-200 deliveries. If USAir were to elect
such a substitution, the payments presented in the table above
would change. USAir is currently in negotiations with Boeing
87
<PAGE>
regarding, among other things, the above schedule of new aircraft
deliveries.
In addition, USAir has a commitment to purchase hushkits for
certain of its McDonnell Douglas DC-9-30 aircraft and a substantial
portion of its Boeing 737-200 aircraft. The installation of these
hushkits will bring the aircraft into compliance with Federal
Aviation Administration ("FAA") Stage 3 noise level requirements.
The projected payments associated with the purchase of the hushkits
are: $29.1 million - 1994; $12.0 million - 1995; $42.3 million -
1996; $43.4 million - 1997; $44.0 million - 1998; and $30.8 million
thereafter.
(e) Concentration of Credit Risk
USAir Group does not believe it is subject to any significant
concentration of credit risk. At December 31, 1993, most of the
Company's receivables related to tickets sold to individual
passengers through the use of major credit cards (48%) or to
tickets sold by other airlines (17%) and used by passengers on
USAir or the commuter subsidiaries. These receivables are short-
term, generally being settled shortly after sale or in the month
following usage. Bad debt losses, which have been minimal in the
past, have been considered in establishing allowances for doubtful
accounts.
(f) Guarantees
At December 31, 1993, USAir guaranteed payments of certain
debt obligations of the Galileo International Partnership amounting
to approximately $16 million.
(5) SALE OF RECEIVABLES
USAir is party to an agreement ("Receivables Agreement") to
sell, on a revolving basis, undivided interest of up to $240
million in a pool of designated receivables. Approximately $141
million was available for sale at December 31, 1993 based on
receivable balances at that date. The maximum amount available
under the Receivables Agreement to be sold gradually reduces from
$240 million at December 31, 1993, to $190 million on June 30,
1994. The Receivables Agreement expires on December 21, 1994.
USAir had no outstanding amounts due under the Receivable Agreement
at December 31, 1993. The net amounts sold reduce receivables in
the accompanying balance sheet by $220 million and $188 million at
December 31, 1992 and 1991, respectively. Included in the accounts
payable balances at December 31, 1992 and 1991, are $74 million and
$64 million, respectively, which represent funds held by USAir
related to previously sold receivables that had been collected.
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<PAGE>
USAir obtained a waiver from the purchaser of the receivables
and its operating agent, exempting USAir from compliance with the
coverage ratio financial covenant in the Receivables Agreement for
the quarter ended December 31, 1993. USAir is currently unable to
sell receivables under the Receivables Agreement because it is in
violation of a minimum net worth covenant thereunder. In addition,
based on current projections of its results for 1994, USAir expects
that it will not be in compliance with the coverage ratio test and
possibly other financial covenants at March 31, 1994 and during the
remainder of the year. There can be no assurance that USAir will
be able to obtain a waiver of compliance with these covenants or to
arrange a replacement facility.
(6) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). FAS 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. No
cumulative adjustment at January 1, 1993, and no income tax credit
for the year ended December 31, 1993, were recognized due to the
FAS 109 limitation in recognizing benefits for net operating
losses.
The Company files a consolidated Federal income tax return
with its wholly-owned subsidiaries.
The components of the provision (credit) for income taxes are
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current provision (credit):
Federal $ - $ - $ (24,523)
State - - (405)
------ ------ --------
Total current credit 0 0 (24,928)
------ ------ --------
Deferred provision (credit):
Federal - - (84,368)
State - - (247)
------ ------ --------
Total deferred credit 0 0 (84,615)
------ ------ --------
Provision (credit) for
income taxes $ 0 $ 0 $(109,543)
====== ====== ========
</TABLE>
89
<PAGE>
The significant components of deferred income tax expense/-
(benefit) for the year ended December 31, 1993, are as follows:
Deferred tax benefit (exclusive of the
other components listed below) $(136,191)
Adjustments to deferred tax assets and
liabilities for enacted changes in tax
laws and rates (8,880)
Increase for the year in the valuation
allowance for deferred tax assets 145,071
--------
Total $ 0
========
For the years ended December 31, 1992 and 1991 deferred income
taxes result from differences in the recognition of revenue and
expenses and investment tax credits for tax and financial reporting
purposes. The major items resulting in these differences and the
related tax effects are shown in the following chart:
<TABLE>
<CAPTION>
1992 1991
---- ----
(in thousands)
<S> <C> <C>
Equipment depreciation and
amortization $ 70,441 $ 87,219
Gain on sale and leaseback
transactions (55,238) (60,727)
Net operating loss carryforward 53,753 (138,044)
Alternative minimum tax 0 36,335
Employee benefits (36,015) 26,671
Tax benefits purchased/sold 6,752 9,672
Investment tax credits (2,372) (14,466)
Leasing transactions (33,296) (24,236)
Frequent traveler program (2,815) (7,492)
Other (1,210) 453
------- --------
Total deferred provision (credit) $ 0 $ (84,615)
======= ========
</TABLE>
90
<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:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Tax provision (credit)
computed at statutory
rate $(137,591) $(204,278) $(141,033)
State income taxes, net of
Federal tax benefit - - (430)
Book expenses not deductible
for tax purposes 10,390 22,770 31,920
Limitation in recognizing
tax benefit of net
operating loss 136,081 181,508 -
Adjustments to deferred
tax assets and liabilities
for enacted changes in tax
laws and rates (8,880) - -
-------- -------- --------
Provision (credit) for
income taxes $ 0 $ 0 $(109,543)
======== ======== ========
Effective tax rate 0% 0% 26.4%
======== ======== ========
</TABLE>
91
<PAGE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1993 are presented below:
(in thousands)
Deferred tax assets:
Leasing transactions $ 132,551
Tax benefits purchased/sold 79,434
Gain on sale and leaseback transactions 164,613
Employee benefits 430,257
Net operating loss carryforwards 557,494
Alternative minimum tax credit carryforwards 21,146
Investment tax credit carryforwards 49,802
Other deferred tax assets 62,615
---------
Total gross deferred tax assets 1,497,912
Less valuation allowance (564,838)
---------
Net deferred tax assets 933,074
Deferred tax liabilities:
Equipment depreciation and amortization (874,640)
Other deferred tax liabilities (58,434)
---------
Net deferred tax liabilities (933,074)
---------
Net deferred taxes $ 0
=========
The valuation allowance for deferred tax assets as of
January 1, 1993, was $420 million. The increase in the valuation
allowance during 1993 was $145 million.
At December 31, 1993, the Company had unused net operating
losses of $1.5 billion for Federal tax purposes, which expire in
the years 2005-2008. The Company also has available, to reduce
future taxes payable, $460 million alternative minimum tax net
operating losses expiring in 2007 and 2008, $50 million of
investment tax credits expiring in 2002 and 2003, and $21 million
of 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.
92
<PAGE>
(7) BRITISH AIRWAYS PLC INVESTMENT
On January 21, 1993, USAir Group and BA entered into the
Investment Agreement under which a wholly-owned subsidiary of BA
purchased certain series of convertible preferred stock during 1993
(see Note 8 - Redeemable Preferred Stock) and BA entered into code
sharing and wet lease arrangements with USAir contemplated by the
Investment Agreement. On March 7, 1994, BA announced that it would
not make any additional investments in the Company until the
outcome of measures by the Company to reduce its costs and improve
its financial results is known.
At December 31, 1993, the preferred stock held by BA con-
stituted approximately 22% of the total voting interest in the
Company. To the extent permitted by foreign ownership restrictions
which are applicable by statute regulations or interpretation by
regulatory authorities, including the U.S. Department of Transpor-
tation ("DOT") ("Foreign Ownership Restrictions"), the preferred
stock owned by BA votes on all matters presented to the Company's
stockholders for a vote and has voting power equal to the underly-
ing shares of Common Stock. Under the Investment Agreement, on
January 21, 1993, BA designated three of its officers to serve on
the Company's Board of Directors. The Company has agreed to use
its best efforts to place these designees on the slate of nominees
for election as Directors of the Company.
In addition to BA's holdings of the Company's preferred stock
at December 31, 1993, BA has the option, which it has announced it
will not exercise under current circumstances, to purchase, at a
minimum, an additional $450 million of the Company's preferred
stock. Under certain circumstances, BA is entitled, at its option,
to purchase, on or prior to January 21, 1996, 50,000 shares of
Series C Cumulative Convertible Senior Preferred Stock ("Series C
Preferred Stock") resulting in an additional cash investment in the
Company of $200 million, and, on or prior to January 21, 1998,
25,000 shares of Series E Cumulative Convertible Senior Preferred
Stock ("Series E Preferred Stock") resulting in an additional cash
investment in the Company of $250 million. If the DOT approves all
the transactions and acts contemplated by the Investment Agreement,
at the election of either BA or the Company on or prior to
January 21, 1998, BA's purchase of the Series C Preferred Stock
(unless previously consummated) and BA's purchase of the Series E
Preferred Stock must be consummated under certain circumstances.
On March 15, 1993, the DOT issued an order ("DOT Order")
stating, among other things, that BA's initial investment does not
impair USAir's citizenship under current U.S. Foreign Ownership
Restrictions. However, the DOT instituted a proceeding to consider
whether USAir will remain a U.S. citizen if the transactions and
acts contemplated by the Investment Agreement, including the
possible sale of Series C Preferred Stock and Series E Preferred
93
<PAGE>
Stock, to BA, 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 USAir. The DOT Order states that the DOT
expects and advises USAir and BA 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 USAir's
citizenship. In any event, on March 7, 1994, BA announced it would
not make any additional investments in the Company under current
circumstances. USAir cannot predict the outcome of the proceedings
or if further transactions contemplated under the Investment
Agreement, including the sale of Series C and Series E Preferred
Stock to BA, will be consummated. The sale of additional preferred
stock to BA on June 10, 1993 (see Note 8(c)), did not result in
BA's ownership of voting stock in the Company exceeding applicable
foreign ownership restrictions and therefore does not affect the
Company's U.S. citizenship under those restrictions.
(8) REDEEMABLE PREFERRED STOCK
(a) Series A Preferred Stock
At December 31, 1993, 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, outstanding which
was convertible into 9,239,944 shares of the Company's Common Stock
at a conversion price of approximately $38.74 per share. The
Series A Preferred Stock ranks pari passu with the Series F
Cumulative Convertible Senior Preferred Stock ("Series F Preferred
Stock"), without par value, and Series T-_ Cumulative Convertible
Exchangeable Senior Preferred Stock ("Series T Preferred Stock"),
without par value, and senior to the Series B Cumulative Convert-
ible Preferred Stock ("Series B Preferred Stock"), without par
value, Junior Participating Preferred Stock, Series D ("Series D
Preferred Stock"), without par value, and the Common Stock, with
respect to dividend payments and the distribution of assets. At
December 31, 1993, the Series A Preferred Stock is entitled to
approximately 25.81 votes per share (determined by dividing the
$1,000 liquidation preference per share of Series F Preferred Stock
by the $38.74 conversion price), or a total of 9,239,944 votes, and
votes together with the Series F Preferred Stock, the 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 redeemable on August 7, 1999
at $1,000 per share. The Company has the right to redeem the stock
at a 10% premium 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 USAir Group. There have been no changes in
the balance sheet value of the Series A Preferred Stock since its
issuance in 1989.
94
<PAGE>
(b) Series F Preferred Stock
At December 31, 1993, the Company had outstanding 30,000
shares of its 7% Series F Preferred Stock which was convertible
into 15,458,658 shares of the Company's Common Stock at a conver-
sion price of approximately $19.41 per share. The Series F
Preferred Stock ranks pari passu with the Series A Preferred Stock
and Series T Preferred Stock and senior to the Series B Preferred
Stock, Series D Preferred Stock, and the Common Stock, with respect
to dividend payments and the distribution of assets. At December
31, 1993, each share of Series F Preferred Stock was entitled to
approximately 515.29 votes per share to the extent permitted by the
existing Foreign Ownership Restrictions and votes with the
Company's Series A Preferred Stock, the Series T Preferred Stock
and the Company's Common Stock as a single class. 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 preferred stock held by BA,
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 subsidiaries' operating certificates and authorities under
Foreign Ownership Restrictions, and it is assumed for this purpose
that Series F Preferred Stock will be fully converted before any
other preferred stock held by BA.
The Series F Preferred Stock is convertible at any time on or
after January 21, 1997 to the extent that such conversion would not
violate U.S. Foreign Ownership Restrictions. 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. If BA has not
purchased the Series C Preferred Stock by January 21, 1996, then
the Company may at its option redeem, in whole or in part, Series
F Preferred Stock at the higher of market value or the price of
$10,000 per share, plus accrued dividends. The Series F Certifi-
cate provides that if on any one occasion on or prior to Janu-
ary 21, 1996, any court or regulatory authority issues a final
order that any material part of the Investment Agreement is
unenforceable (except pursuant to bankruptcy or like event), then
the conversion price of Series F Preferred Stock shall be reduced
by 10.2564%. There have been no changes in the balance sheet value
of the Series F Preferred Stock since its issuance in 1993.
(c) Series T Preferred Stock
Under the Investment Agreement, BA 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 BA Percentage ("BA Percentage") which approximates
BA's fully diluted ownership percentage based on BA's current and
95
<PAGE>
potential holdings in the Company. The BA Percentage is calculated
without regard to Foreign Ownership Restrictions at the time of the
calculation. BA may exercise such preemptive or optional purchase
rights by purchasing, from time-to-time, a series of Series T
Preferred Stock.
At December 31, 1993, the Company had two series of the
Series T Preferred Stock outstanding. On June 10, 1993, BA
exercised its preemptive purchase right by purchasing 9,919.8
shares of a series of the Series T Preferred Stock ("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 Preferred Stock ("T-1 Preferred Stock") for approximately
$1.5 million. BA's preemptive right was triggered by the issuance
of Common Stock, as described in Note 8 - Stockholders' Equity, and
BA's optional purchase rights were triggered by the Company's
issuance of additional shares of Common Stock through the exercise
of options under various employee stock option plans and through
the sale of shares to certain defined contribution plans during the
period from January 21, 1993 to March 31, 1993. On March 7, 1994,
BA advised the Company that it would not exercise its optional
purchase rights to buy three additional series of Series T
Preferred Stock triggered by the Company's issuance of common stock
pursuant to certain employee benefit plans during the second, third
and fourth quarters of 1993.
There have been no changes in the balance sheet value of the
Series T-1 Preferred Stock and Series T-2 Preferred Stock since
their issuance in 1993.
The terms of all series of the 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
378.79 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 487.80 shares of
Common Stock or Non-Voting Class ET stock. With respect to the
Series T Preferred Stock, dividends are payable quarterly in
arrears, at 50 basis points over the three-month LIBOR rate. Any
shares of the Series T Preferred Stock held by any person other
than BA 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.
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
liquidation preference of the shares to be exchanged and bearing
interest at the dividend rate. Any accrued dividends on the Series
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<PAGE>
T Preferred Stock to be exchanged will be treated as accrued
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 consis-
tent with the terms of the Series T Preferred Stock.
(9) STOCKHOLDERS' EQUITY
(a) Common Stock
The Company had 150,000,000 and 100,000,000 authorized shares
of Common Stock, par value $1, at December 31, 1993 and 1992,
respectively. If BA purchases the Series C Preferred Stock (see
Note 6 - British Airways Plc Investment), the number of authorized
shares of various classes of Common Stock will increase to
300,000,000. BA has indicated, however, that it will not make any
additional investments in the Company under current circumstances.
At December 31, 1993, approximately 52,618,000 shares were reserved
for issuance upon the conversion of preferred stock and for
offerings under employee stock purchase, stock option and stock
incentive plans.
On May 4, 1993, the Company sold 11.5 million shares of
previously unissued Common Stock at $20.75 per share through a
public, underwritten offering. The offering netted proceeds of
approximately $231 million.
(b) Preferred Stock and Senior Preferred Stock
At December 31, 1993, 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, 43,000
shares were issued as Series B Preferred Stock and 1,035,000 shares
were reserved as Series D Preferred Stock. Also, at December 31,
1993, 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 were issued as Series T Preferred Stock.
(c) Series B Preferred Stock
At December 31, 1993, the Company had 4,263,050 Depositary
Shares, representing 42,630.5 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 De-
positary Share. The Series B Preferred Stock ranks junior to the
Company's Series A Preferred Stock, the Series F Preferred Stock
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<PAGE>
and the Series T Preferred Stock and senior to the Series D
Preferred Stock and 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 not redeemable prior to
May 15, 1994. The Series B Preferred Stock is redeemable, at the
option of the Company and with consent of the holders of Series F
Preferred Stock, on or after May 15, 1994, (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 initially at a redemption price of approximately $53.06
per 1/100 of a share and thereafter at prices declining to $50 per
1/100 of a share (equivalent to $5,000 per share of Series B
Preferred Stock) on or after May 15, 2001, plus dividends accrued
and accumulated but unpaid to the redemption date.
(d) Preferred Stock Purchase Rights
Each outstanding share of Common Stock is accompanied by one
Preferred Share Purchase Right ("Right") and each outstanding share
of Series A Preferred Stock, Series F Preferred Stock and Series T
Preferred Stock is accompanied by a Right for each share into which
it is convertible. Each Right entitles the holder to buy 1/100th
of a share of Series D Preferred Stock at an exercise price of $175
per Right. The Rights expire on June 29, 1996. As long as the
Rights remain outstanding, the Company will issue one Right with
each new share of Common Stock issued upon the conversion of any
preferred stock into, or the exercise of any options for, Common
Stock, as long as such preferred stock or options were outstanding
prior to the Rights becoming exercisable.
Generally, the Rights become exercisable only if a party other
than, under certain circumstances, BA acquires 20% or more of the
Company's Common Stock or announces a tender offer for 20% or more
of the Common Stock. The Rights are redeemable at $.03 per Right
at any time before 20% or more of the Company's Common Stock has
been acquired. If at any time after the Rights become exercisable
and before they have been redeemed the Company is involved in a
merger or other business combination transaction, the Rights will
automatically entitle a holder, other than a holder of 20% or more
of the Company's Common Stock, to receive, upon exercise of each
Right, a number of shares of Common Stock, or a number of common
shares of the acquiring company, as the case may be, having a
market value of two times the exercise price of each Right. In
addition, at any time after the acquisition of 30% or more of the
Common Stock by any person and prior to the acquisition by such
person of 50% or more of the Common Stock, the Board of Directors
of the Company may exchange the Rights (other than Rights owned by
such person which have become void), in whole or in part, at an
98
<PAGE>
exchange ratio of one share of Common Stock, or 1/100th of a share
of Series D Preferred Stock, per Right.
Until the first to occur of the redemption or expiration of
the Rights, the Company will issue one Right with each new share of
Common Stock issued upon the conversion of any securities into, or
the exercise of any options or warrants for, Common Stock if such
securities, options or warrants were outstanding prior to when
Rights became exercisable.
(e) 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 its
Common Stock in open market transactions. In 1989, approximately
2.1 million shares were repurchased. The Company sold approximate-
ly 500,000 shares and approximately 390,000 shares of its treasury
stock during 1993 and 1992, respectively. The remaining shares are
carried on the accompanying balance sheet at the average acquisi-
tion cost.
(f) Employee Stock Option and Purchase Plans
During 1992, the Company's stockholders approved the 1992
Stock Option Plan ("1992 Plan") which allows for the issuance of
stock options to purchase up to 8,125,000 shares of USAir Group
Common Stock to USAir employees who participate in the previously
announced cost reduction program. Under the stock option program,
employees whose pay was or is currently being reduced receive
options to purchase 50 shares of Common Stock at a price not less
than $15 per share for each $1,000 of salary reduction. The
Company will grant stock options under the 1992 Plan only in
connection with salary reductions. Participating employees have
five years from the grant date to exercise such options. Options,
with an exercise price of $15, have been granted to purchase ap-
proximately five million shares of Common Stock in conjunction with
salary reductions. The Company plans to seek authority from its
stockholders at its 1994 Annual Meeting to reduce the number of
shares reserved for this plan.
At December 31, 1993, 5.3 million shares of Common Stock are
reserved for the granting of stock options or restricted stock
under the Company's 1984 Stock Option and Stock Appreciation Rights
("SARs") Plan and 1988 Stock Incentive Plan. These plans provide
that options may be granted as either nonqualified or incentive
stock options. Options awarded prior to 1991, except for those
that reverted, have vested. Options awarded during 1991, 1992 and
1993, except under the 1992 Plan, become exercisable generally
within three years from date of grant. Optionees may also receive
SARs which permit them to receive, in lieu of the right to exercise
the stock option, an amount equivalent to the difference between
the stock option price and the fair market value of the Common
99
<PAGE>
Stock on the date of exercising the right. This amount may be paid
in stock, in cash, or in any combination of the two. Also,
restricted stock award grants for 57,000 shares and 111,600 shares
were outstanding at December 31, 1993 and 1992, respectively.
Deferred compensation related to the restricted stock, which vests
over periods of up to five years, amounted to $.3 million and $ .6
million at December 31, 1993 and 1992, respectively.
As of December 31, 1993, options to acquire approximately 9
million shares under all three plans, including 85,000 SARs, were
outstanding at a weighted average exercise price of $18.77. Of
those outstanding, approximately six million options were exercis-
able at December 31, 1993. Options were exercised to purchase
approximately 33,500 and 6,000 shares of Common Stock at average
exercise prices of $17.24 and $10.44 during 1993 and 1992,
respectively.
(g) Dividend Restrictions
The Company's Credit Agreement does not contain specific
provisions which restrict the payment of dividends by USAir Group.
The amount of dividends, however, is indirectly restricted through
the existence of certain covenants contained in the Credit
Agreement. At December 31, 1993, under the most restrictive of
these provisions, the Company's ability to pay dividends is limited
to approximately $77 million.
(10) EMPLOYEE STOCK OWNERSHIP PLAN
In August 1989, USAir established an Employee Stock Ownership
Plan ("ESOP"). The Company sold 2,200,000 shares of Common Stock
to an Employee Stock Ownership Trust to hold on behalf of USAir's
employees, exclusive of officers, in accordance with the terms of
the Trust and the ESOP. Financing of approximately $111.4 million
for the Trust's purchase of the shares was provided by USAir
through a 9 3/4% loan to the Trust, and an additional $2.2 million
was contributed to the Trust by USAir. The loan is being repaid
with contributions made by USAir. The contributions are made in
amounts equal to the periodic loan payments as they come due, less
dividends available for loan payment. The amount of dividends used
for debt service by the ESOP was $127,000 in 1991. As the loan is
repaid over time, participating employees receive allocations of
the Common Stock purchased by the Trust. The initial maturity of
the loan is 30 years. However, the ESOP provides that if the
Company's profitability as measured by return on sales exceeds
certain goals during the life of the ESOP, USAir's contributions
and the repayment of the loan will be accelerated. Contributions
made by USAir and therefore loan repayments made by the Trust were
$11.4 million in 1993, 1992 and 1991. The interest portion of
these contributions was $10.5 million in 1993, $10.6 million in
1992 and $10.7 million in 1991. Approximately 366,000 shares of
Common Stock have been allocated to employees. USAir recognized
100
<PAGE>
approximately $4 million of compensation expense related to the
ESOP in each of 1993, 1992 and 1991 based on shares allocated to
employees (the "shares allocated" method). Deferred compensation
related to the ESOP amounted to approximately $95 million, $98
million and $102 million at December 31, 1993, 1992 and 1991,
respectively.
(11) 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 USAir maintenance employees and provides
benefits of stated amounts for specified periods of service.
Qualified defined benefit plans for substantially all other
employees provide benefits based on years of service and compensa-
tion. The qualified defined benefit plans are funded, on a current
basis, to meet requirements of the Employee Retirement Income
Security Act of 1974.
The defined benefit pension plan for USAir non-contract
employees was frozen at the end of 1991 for all non-contract
participants, resulting in a one-time book gain of approximately
$107 million in 1991. All non-contract plan participants became
100% vested at the time of the freeze. As a result of this plan
curtailment, the accrual of service costs related to defined
benefits for USAir non-contract employees ceased at the end of
1991. USAir implemented a defined contribution pension plan for
non-contract employees in January 1993.
101
<PAGE>
The funded status of the qualified defined benefit plans at
December 31, 1993 and 1992 was as follows:
<TABLE>
<CAPTION>
1993 1992
Plans in Which Plans in Which
----------------- -----------------
Plan Accumu- Plan Accumu-
Assets lated Assets lated
Exceed Benefits Exceed Benefits
Accumu- Exceed Accumu- Exceed
lated Plan lated Plan
Benefits Assets Benefits Assets
-------- ------ -------- ------
(in millions)
<S> <C> <C> <C> <C>
Fair value of plan assets $1,904 $ 176 $1,751 $ 157
Actuarial present value of
benefits for service
rendered to date:
Accumulated benefits
based on salaries to
date 1,858 286 1,360 222
Additional benefits
based on estimated
future salary levels 643 2 462 -
----- ----- ----- -----
Projected benefit
obligation 2,501 288 1,822 222
----- ----- ----- -----
Projected benefit obligation
over plan assets (597) (112) (71) (65)
Unrecognized net transition
asset (32) (13) (36) (15)
Unrecognized prior service
cost 15 73 17 77
Unrecognized net loss 627 52 147 19
----- ----- ----- -----
Pension (liability)
prepaid before
adjustment 13 - 57 16
Adjustment to recognize
minimum liability - (110) - (81)
----- ----- ----- -----
Pension (liability) prepaid
as adjusted and recognized
in Consolidated Balance
Sheets $ 13 $ (110) $ 57 $ (65)
===== ===== ===== =====
</TABLE>
102
<PAGE>
Approximately 97% of the accumulated benefit obligation was
vested at December 31, 1993 and 1992. Unrecognized transition
assets are being amortized over periods up to 27 years. The
weighted average discount rate used to determine the actuarial
present value of the projected benefit obligation was 7.6% and
8.75% as of December 31, 1993 and 1992, respectively. The expected
long-term rate of return on plan assets used in 1993 and 1992 was
9.5%. Rates of 3% to 6% were used to estimate future salary
levels. At December 31, 1993, plan assets consisted of approxi-
mately 8% in cash equivalents and short-term debt investments, 37%
in equity investments, and 55% in fixed income and other invest-
ments. At December 31, 1992, plan assets consisted of approximate-
ly 4% in cash equivalents and short-term debt investments, 70% in
equity investments, and 26% in fixed income and other investments.
The following items are the components of the net pension cost
for the qualified defined benefit plans:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost (benefits
earned during the year) $ 93 $ 81 $ 99
Interest cost on projected
benefit obligation 189 171 168
Actual return on plan assets (226) (115) (353)
Net amortization and deferral 40 (64) 201
---- ---- ----
Net pension cost $ 96 $ 73 $ 115
==== ==== ====
</TABLE>
Net pension cost for 1993 and 1991 presented above excludes a
settlement charge of approximately $33.9 million and $21.6 million,
respectively, related to "early-out" incentive programs offered to
a limited number of USAir employees during the years. No such
charges were incurred in 1992.
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 principal
pension plans if it were not for limitations imposed by income tax
regulations.
103
<PAGE>
The following table sets forth the non-qualified plans' status
at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in millions)
<S> <C> <C>
Fair value of plan assets $ - $ -
Actuarial present value of benefits
for service rendered to date:
Accumulated benefits based on
salaries to date 31 19
Additional benefits based on
estimated future salary levels 2 1
---- ----
Projected benefit obligation 33 20
---- ----
Projected benefit obligation over
plan assets (33) (20)
Unrecognized net transition asset - -
Unrecognized prior service cost 1 1
Unrecognized net loss 5 2
Pension (liability) prepaid ---- ----
before adjustment (27) (17)
Adjustment to recognize minimum
liability (6) (3)
---- ----
Unfunded accrued supplementary costs
as adjusted and recognized in
Consolidated Balance Sheets $ (33) $ (20)
==== ====
</TABLE>
Net supplementary pension cost for the two years included the
following components:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in millions)
<S> <C> <C>
Service cost (benefits earned during
the year) $ - $ -
Interest cost on projected benefit
obligation 2 2
Actual return on plan assets - -
Net amortization and deferral 12 7
---- ----
Net periodic supplementary pension cost $ 14 $ 9
==== ====
</TABLE>
The discount rate used to determine the actuarial present
value of the projected benefit obligation was 7.5% and 8.75% as of
December 31, 1993 and 1992, respectively. Rates of 3% to 6% were
used to estimate future salary levels.
104
<PAGE>
In addition to the qualified and non-qualified defined benefit
plans described above, USAir also contributes to certain defined
contribution plans primarily for employees not covered under a
collective bargaining agreement. Company contributions are based
on a formula which considers the age and pre-tax earnings of each
employee and the amount of employee contributions. The Company's
contribution expense was $42 million for 1993. The Company
recognized no such expense in 1992 or 1991.
(b) Postretirement Benefits Other Than Pensions
USAir offers medical and life insurance benefits to employees
who retire from the Company and their eligible dependents. The
medical benefits provided by USAir are coordinated with Medicare
benefits. Retirees generally contribute amounts towards the cost
of their medical expenses based on years of service with the
Company. USAir 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 the pay-as-you-go basis.
USAir adopted Statement of Financial Accounting Standards No.
106 ("FAS 106") during 1992 and elected to record the January 1,
1992 Accumulated Postretirement Benefit Obligation ("APBO") using
the immediate recognition approach. The cumulative effect of
adopting FAS 106 was $745.7 million ($628.1 million net of tax
benefit).
The following table sets forth the financial status of the
plans as of December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in millions)
<S> <C> <C>
Accumulated Postretirement Benefit
Obligation (APBO):
Retirees $ 291 $ 192
Fully eligible active plan participants 153 138
Other plan participants 356 404
---- ----
Total APBO 800 734
Unrecognized prior service credit 179 111
Unrecognized net gain (loss) (54) 6
---- ----
Accrued postretirement benefit cost $ 925 $ 851
==== ====
</TABLE>
105
<PAGE>
The components of net periodic postretirement benefit cost are
as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in millions)
<S> <C> <C>
Service cost (benefits attributed to
employee service during the year) $ 31 $ 46
Interest cost on APBO 56 69
Net amortization and deferral (12) -
---- ----
Net periodic postretirement benefit cost $ 75 $ 115
==== ====
</TABLE>
The postretirement benefit expense for 1993 presented above
excludes a charge of approximately $15.5 million related to "early
out" programs offered to a limited number of employees during the
year. No such charges were incurred in 1992 or 1991.
The discount rate used to determine the APBO was 7.75% and
8.75% at December 31, 1993 and 1992, respectively. The assumed
health care cost trend rate used in measuring the APBO was 10.5% in
1993 and 1994, declining by 1% per year after 1994 to an ultimate
rate of 4.5%. If the assumed health care cost trend rate were
increased by one percentage point, the APBO at December 31, 1993
would be increased by 10% and 1993 periodic postretirement benefit
cost would increase 13%.
Prior to the adoption of FAS 106, USAir recognized expense for
retiree health care at an estimated monthly rate (based on
payments) and recognized expense for death benefits when paid. The
expense using this methodology was approximately $8 million for
1991.
(c) Postemployment Benefits
USAir adopted Statement of Financial Accounting Standards No.
112, "Employer's Accounting for Postemployment Benefits" ("FAS
112"), during 1993. FAS 112 requires the use of an accrual method
to recognize postemployment benefits such as disability-related
benefits. The cumulative effect at January 1, 1993 of adopting FAS
112 was $43.7 million.
106
<PAGE>
(12) SUPPLEMENTAL BALANCE SHEET INFORMATION
The components of certain accounts in the accompanying balance
sheets are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in thousands)
<S> <C> <C>
(a) Cash and cash equivalents:
Cash $ 16,638 $ 9,049
Investments, at cost which
approximates market 351,709 286,989
-------- --------
$ 368,347 $ 296,038
======== ========
(b) Receivables, net:
Accounts receivable $ 374,838 $ 191,015
Less allowance for doubtful
accounts 10,818 11,668
-------- --------
$ 364,020 $ 179,347
======== ========
(c) Materials and supplies, net:
Materials and supplies $ 457,190 $ 460,627
Less allowance for obsolescence 95,171 85,678
-------- --------
$ 362,019 $ 374,949
======== ========
(d) Accrued expenses:
Salaries and wages $ 256,853 $ 217,551
Rents 451,304 448,621
All other 474,729 472,312
--------- ---------
$1,182,886 $1,138,484
========= =========
</TABLE>
(13) NON-RECURRING AND UNUSUAL ITEMS
(a) 1993
The Company's results for 1993 include non-recurring charges
of (i) $43.7 million for the cumulative effect of an accounting
change, as required by FAS 112 which was adopted during the third
quarter of 1993, retroactive to January 1, 1993; (ii) $68.8 million
for severance, early retirement and other personnel-related
expenses recorded primarily during the third quarter of 1993 in
connection with a workforce reduction of approximately 2,500 full-
time positions between November 1993 and the first half of 1994;
(iii) $36.8 million based on a projection of the repayment of
certain employee pay reductions, recorded in the fourth quarter of
107
<PAGE>
1993; (iv) $13.5 million for certain airport facilities at
locations where USAir has, among other things, discontinued or
reduced its service, recorded in the fourth quarter of 1993; (v)
$8.8 million for a loss on USAir's investment in the Galileo
International Partnership which operates a computerized reserva-
tions system, recorded in the fourth quarter of 1993; and (vi)
$18.4 million credit related to non-operating aircraft recorded in
the second quarter of 1993.
(b) 1992
The Company's results for 1992 include (i) a charge of $628.1
million for the cumulative effect of an accounting change as
required by FAS 106, effective January 1, 1992; (ii) a $107.4
million charge related to certain aircraft which have been
withdrawn from service, recorded in the fourth quarter of 1992;
(iii) a $34.1 million non-operating loss related to the sale of ten
MD-82 aircraft which USAir eliminated from its fleet plan, recorded
in the fourth quarter of 1992; and (iv) a $10.3 million gain on the
sale of three wholly-owned subsidiaries, recorded in the third
quarter of 1992 (see Note (1)).
(c) 1991
The Company's results for 1991 include (i) a $107 million pre-
tax gain related to freezing of the fully funded non-contract
employee pension plan; (ii) a $21.6 million pre-tax expense related
to early retirement incentives offered to certain employees during
1991; (iii) a $21 million pre-tax charge to establish an additional
reserve for USAir's grounded BAe-146 fleet; and (iv) $18.5 million,
net, in miscellaneous non-recurring charges.
108
<PAGE>
(14) SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table presents selected quarterly financial data
for 1993 and 1992:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1993 (in millions except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues $1,716 $1,816 $1,749 $1,802
Operating income (loss) $ 2 $ 66 $ (110) $ (33)
Income (loss) before
cumulative effect of
accounting change -
as reported $ (61) $ 6 $ (178) $ (116)
Cumulative effect of
accounting change -
FAS 112 (44) - - -
----- ----- ----- -----
Net loss $ (105) $ 6 $ (178) $ (116)
===== ===== ===== =====
Net loss applicable to
common stockholders -
as reported $ (78) $ (13) $ (197) $ (135)
Cumulative effect of
accounting change -
FAS 112 (44) - - -
----- ----- ----- -----
Net loss applicable to
common stockholders $ (122) $ (13) $ (197) $ (135)
===== ===== ===== =====
Loss per common share -
As reported $(1.65) $ (.23) $(3.33) $(2.29)
Cumulative effect of
accounting change (.92) - - -
----- ----- ----- -----
Loss per common share $(2.57) $ (.23) $(3.33) $(2.29)
===== ===== ===== =====
(continued on next page)
109
<PAGE>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1992 (in millions except per share amounts)
Operating revenues $1,651 $1,700 $1,700 $1,635
Operating loss $ (49) $ (68) $ (61) $ (153)
Loss before cumulative
effect of accounting
change $ (110) $ (131) $ (106) $ (254)
Cumulative effect of
accounting change -
FAS 106 (628) - - -
----- ----- ----- -----
Net loss $ (738) $ (131) $ (106) $ (254)
===== ===== ===== =====
Net loss applicable to
common stockholders $ (751) $ (144) $ (118) $ (267)
Loss per common share -
Before cumulative
adjustment $(2.63) $(3.07) $(2.52) $(5.66)
Cumulative adjustment (13.44) - - -
----- ----- ----- -----
Loss per common share $(16.07) $(3.07) $(2.52) $(5.66)
====== ===== ===== =====
See Note 13 - Non-Recurring and Unusual Items.
Note:
The sum of the four quarters may not equal yearly totals due
to rounding of quarterly results.
</TABLE>
110
<PAGE>
Item 8B. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
USAir, Inc.
Independent Auditors' Report
The Stockholder and Board of Directors
USAir, Inc.:
We have audited the accompanying consolidated balance sheets
of USAir, Inc. and subsidiaries ("USAir") as of December 31, 1993
and 1992, and the related consolidated statements of operations,
cash flows, and changes in stockholder's equity for each of the
years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of USAir'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 USAir, Inc. and subsidiaries as of December 31, 1993
and 1992, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31,
1993 in conformity with generally accepted accounting principles.
As discussed in Note 9 to the consolidated financial state-
ments, effective January 1, 1993, USAir changed its method of
accounting for postemployment benefits and effective January 1,
1992, USAir changed its method of accounting for postretirement
benefits other than pensions.
KPMG PEAT MARWICK
Washington, D. C.
February 25, 1994
111
<PAGE>
<TABLE>
USAir, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, (in thousands)
==================================================================================================
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Operating Revenues
Passenger transportation $6,081,788 $ 5,785,830 $5,687,892
Cargo and freight 170,500 169,534 162,326
Other 370,760 280,258 198,952
Non-airline - - 19,798
--------- ---------- ---------
Total operating revenues 6,623,048 6,235,622 6,068,968
Operating Expenses
Personnel costs 2,698,039 2,492,424 2,392,698
Aviation fuel 677,859 720,649 769,419
Commissions 559,793 537,688 513,295
Other rent and landing fees 455,887 391,215 336,142
Aircraft rent 431,616 496,061 351,881
Aircraft maintenance 308,890 318,986 362,401
Depreciation and amortization 279,077 282,567 272,493
Other, net 1,340,627 1,365,621 1,247,003
Non-airline, net - - 33,473
--------- ---------- ---------
Total operating expenses 6,751,788 6,605,211 6,278,805
--------- ---------- ---------
Operating loss (128,740) (369,589) (209,837)
Other Income (Expense)
Interest income 24,794 48,866 33,829
Interest expense (238,628) (229,643) (201,811)
Interest capitalized 17,754 27,181 34,398
Other, net (50,228) (66,491) (39,505)
--------- ---------- ---------
Other income (expense), net (246,308) (220,087) (173,089)
--------- ---------- ---------
Loss before taxes and cumulative effect of
accounting changes (375,048) (589,676) (382,926)
Income tax credit - - (98,831)
--------- ---------- ---------
Loss before cumulative effect of accounting
changes (375,048) (589,676) (284,095)
Cumulative effect of changes in method of
accounting for postemployment benefits
in 1993 and for postretirement benefits
other than pensions (net of tax benefit
of $106,721) in 1992 (43,749) (638,822) -
--------- ---------- ---------
Net loss $ (418,797) $(1,228,498) $ (284,095)
========= ========== =========
See accompanying Notes to Consolidated Financial Statements.
112
</TABLE>
<PAGE>
<TABLE>
USAir, Inc.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (in thousands)
====================================================================================================
<CAPTION>
1993 1992
---- ----
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 367,835 $ 295,432
Receivable from parent company 16,092 291,522
Receivables, net 367,403 177,775
Materials and supplies, net 338,808 358,658
Prepaid expenses and other 78,131 133,178
--------- ----------
Total current assets 1,168,269 1,256,565
Property and Equipment
Flight equipment 4,824,031 4,245,020
Ground property and equipment 1,045,306 1,013,388
Less accumulated depreciation and amortization (1,786,817) (1,562,422)
--------- ---------
4,082,520 3,695,986
Purchase deposits 156,621 341,667
--------- ---------
Property and equipment, net ($162,000 and $432,000
pledged for parent company debt at December 31, 1993
and 1992, respectively) 4,239,141 4,037,653
Other Assets
Goodwill, net 542,666 558,718
Other intangibles, net 295,988 362,650
Other assets 563,404 502,590
--------- ---------
Total other assets 1,402,058 1,423,958
--------- ---------
$6,809,468 $6,718,176
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt $ 85,715 $ 116,999
Accounts payable 316,843 405,421
Traffic balances payable and unused tickets 659,606 622,428
Accrued expenses 1,150,062 1,103,486
--------- ---------
Total current liabilities 2,212,226 2,248,334
Long-Term Debt, Net of Current Maturities
Long-term debt 2,441,935 1,960,745
Notes payable - parent company 105,080 130,185
--------- ---------
Total long-term debt, net of current maturities 2,547,015 2,090,930
Deferred Credits and Other Liabilities
Deferred gains, net 434,586 462,221
Postretirement benefits other than pensions, non-current 907,093 841,260
Non-current pension liability and other 300,497 213,439
--------- ---------
Total deferred credits and other liabilities 1,642,176 1,516,920
Commitments and Contingencies
Stockholder's Equity
Common stock, par value $1 per share, authorized
1,000 shares, issued and outstanding 1,000 shares 1 1
Paid-in capital 2,416,131 2,416,131
Retained earnings (deficit) (1,966,117) (1,547,320)
Adjustment for minimum pension liability (41,964) (6,820)
--------- ---------
Total stockholder's equity 408,051 861,992
--------- ---------
$6,809,468 $6,718,176
========= =========
See accompanying Notes to Consolidated Financial Statements.
113
</TABLE>
(PAGE>
<TABLE>
USAir, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, (in thousands)
===================================================================================================
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents beginning of year $ 295,432 $ 312,460 $ 406,637
Cash flows from operating activities
Net loss (418,797) (1,228,498) (284,095)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation and amortization 279,077 282,567 273,246
Deferred income taxes - (105,765) (67,242)
Loss on disposition of property 15,005 40,756 9,232
Other 22,586 7,695 19,436
Changes in certain assets and liabilities
Decrease (increase) in receivables (59,916) 25,596 (221,646)
Decrease (increase) in materials, supplies,
prepaid expenses and intangible pension assets 32,069 (108,526) (76,815)
Increase (decrease) in traffic balances payable
and unused tickets 37,178 109,072 32,346
Increase (decrease) in accounts payable and
accrued expenses 80,778 245,758 124,822
Increase (decrease) in postretirement benefits
other than pensions, non-current 65,833 841,260 -
-------- -------- --------
Net cash provided by (used for) operating activities 53,813 109,915 (190,716)
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (125,981) (34,852) (2,820)
Additions to other property (136,236) (248,935) (88,826)
Proceeds from disposition of property 176,019 298,386 246,228
Change in restricted cash and investments (14,221) (95,331) (63,735)
Other (311) (8,293) 807
--------- -------- --------
Net cash provided by (used for) investing activities (100,730) (89,025) 91,654
Cash flows from financing activities
Issuance of debt 329,556 64,620 100,000
Reduction of debt (210,236) (102,538) (95,115)
-------- -------- --------
Net cash provided by (used for) financing activities 119,320 (37,918) 4,885
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 72,403 (17,028) (94,177)
-------- -------- --------
Cash and cash equivalents end of year $ 367,835 $ 295,432 $ 312,460
======== ======== ========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions $ 343,188 $ 219,611 $ 92,455
Issuance of parent company debt for aircraft acquisitions $ 76,094 $ 213,038 $ 241,436
Issuance of debt for other property acquisitions $ 669 $ - $ 4,200
Issuance of parent company debt for other property
acquisitions $ - $ 18,620 $ -
Reduction of debt - aircraft related $ 47,685 $ - $ -
Reduction of parent company debt applied to intercompany
receivable $ 79,539 $ 161,070 $ -
Proceeds from disposition of property applied against debt $ - $ - $ 42,975
Aircraft acquisitions - transfer from affiliated company $ 70,700 $ - $ -
Proceeds from disposition of property applied to inter-
company receivable $ - $ 87,730 $ -
Supplemental Information
Cash paid during the year for interest, net of amounts
capitalized $ 221,811 $ 180,066 $ 152,078
======== ======== ========
Cash received during the year for income tax refunds,
net of taxes paid $ - $ 28,170 $ 36,536
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
114
<PAGE>
<TABLE>
USAir, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
THREE YEARS ENDED DECEMBER 31, 1993 (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, 1990 $ 1 $2,416,131 $ (34,727) $ - $ 2,381,405
Net loss - - (284,095) - (284,095)
--- --------- --------- -------- ----------
Balance December 31, 1991 1 2,416,131 (318,822) - 2,097,310
Net loss - - (1,228,498) - (1,228,498)
Equity reduction for minimum
pension liability - - - (6,820) (6,820)
--- --------- ---------- ------- ----------
Balance December 31, 1992 1 2,416,131 (1,547,320) (6,820) 861,992
Net loss - - (418,797) - (418,797)
Equity reduction for minimum
pension liability - - - (35,144) (35,144)
--- --------- ---------- ------- ----------
Balance December 31, 1993 $ 1 $2,416,131 $(1,966,117) $(41,964) $ 408,051
=== ========= ========== ======= ==========
See accompanying Notes to Consolidated Financial Statements.
115
<PAGE> USAir, Inc.
Notes to Consolidated Financial Statements
</TABLE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of USAir, Inc. ("USAir") and its wholly-owned subsidiary
USAM Corp. ("USAM"). USAir is a wholly-owned subsidiary of USAir
Group, Inc. ("USAir Group" or "the Company"). All significant
intercompany accounts and transactions have been eliminated.
At December 31, 1992, USAM owned 11% of the Covia Partnership
("Covia") which owned and operated a computerized reservation
system ("CRS"). In September 1993, Covia purchased the assets of
the corporation that owned and operated the Galileo CRS which
provided services to travel agent subscribers in Europe. Covia was
then separated into three new entities. As a result, at Decem-
ber 31, 1993, USAM owns 11% of the Galileo International Partner-
ship which owns and operates the Galileo CRS, approximately 11% of
the Galileo Japan Partnership which markets the Galileo CRS in
Japan and approximately 21% of the Apollo Travel Services Partner-
ship which markets the Galileo CRS in the U.S. and Mexico. USAM
accounts for these investments using the equity method.
On October 9, 1991, USAir reached agreement for the sale of
certain assets of its wholly-owned subsidiary Pacific Southwest
Airmotive ("Airmotive"). Airmotive discontinued operations in the
third quarter of 1991. USAir did not realize any material gain or
loss on the sale and discontinuance of Airmotive's operations.
Certain 1992 and 1991 amounts have been reclassified to
conform with 1993 classifications.
(b) Cash and Cash Equivalents
For financial statement purposes, the Company considers all
highly liquid investments purchased with a maturity of three months
or less to be cash equivalents.
(c) Materials and Supplies
Inventories of materials and supplies are valued at average
cost and are charged to operations as consumed. An allowance for
obsolescence is provided for flight equipment expendable parts.
116
<PAGE>
(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 principal asset classifications is provided on a straight-line
basis to estimated residual values over estimated depreciable lives
as follows:
<TABLE>
<CAPTION>
Depreciable
Assets Lives Residual Values
------ ----------- ---------------
(years) (in millions)
<S> <C> <C>
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 2.5-5.0
BAe-146 18 3.0
McDonnell Douglas MD-80 20 7.5
Douglas DC-9-30 17 3.0
Fokker 100 20 5.0
Fokker F28 6-8 1.0-2.0
Commuter aircraft 15 1.5
Improvement to leased aircraft life of lease -
Ground property, equipment and 1-10 or
leasehold improvements life of lease -
Buildings 30 -
</TABLE>
Property acquired under capital lease is amortized on a
straight-line basis over the term of the lease and charged to
depreciation expense.
(e) Goodwill, Other Intangibles and Other Assets
Goodwill, the cost in excess of fair value of identified net
assets acquired, is being amortized on a straight-line basis over
40 years as other non-operating expense. Accumulated amortization
at December 31, 1993 and 1992 was $98 million and $82 million,
respectively.
117
<PAGE>
Intangible assets consist of purchased operating rights at
various airports, purchased route authorities, and the intangible
assets associated with the underfunded amounts of certain pension
plans. The operating rights, valued at purchase cost or appraised
value if acquired from Piedmont Aviation, Inc. ("Piedmont Avia-
tion") or Pacific Southwest Airlines ("PSA"), are being amortized
over periods ranging from ten to 25 years as Other Rent and Landing
Fees Expense. The purchased route authorities are amortized over
periods of 25 years as other operating expense. Accumulated
amortization at December 31, 1993 and 1992 was $72 million and $64
million, respectively. The decrease in Other Intangibles, net in
1993 is primarily attributable to the $47 million reclassification
of two London routes to Other Assets as a result of USAir's
relinquishment of these routes as contemplated by the January 21,
1993 Investment Agreement ("Investment Agreement") between the
Company and British Airways Plc ("BA"). USAir relinquished its
Charlotte to London route authority in January 1994. In addition,
takeoff and landing slots at Washington National Airport were
purchased from Northwest Airlines, Inc. ("Northwest") for $10
million during 1993.
(f) Restricted Cash and Investments
Restricted cash and investments consist primarily of deposits
in trust accounts to collateralize letters of credit or workers
compensation policies and short-term investments restricted for
specified construction projects. These amounts are classified as
Other Assets on the accompanying balance sheets.
(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 rental
expense.
(h) Passenger Revenue Recognition
Passenger ticket sales are recognized as revenue when the
transportation service is rendered. 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 carrier which renders the
service or by refund to the passenger. Approximately $29 million
and $28 million of amounts owed to wholly-owned subsidiaries of
USAir Group for passenger transportation revenue are included in
Traffic Balances Payable and Unused Tickets at December 31, 1993
and 1992, respectively.
118
<PAGE>
(i) Frequent Traveler Awards
USAir accrues the estimated incremental cost of providing
outstanding travel awards earned by participants in its Frequent
Traveler Program.
(j) Investment Tax Credit
Investment tax credit benefits are recorded using the "flow-
through" method as a reduction of the Federal income tax provision.
(k) Swap Agreements
USAir has entered into hedging arrangements to reduce its
exposure to fluctuations in the price of jet fuel. Net settlements
are recorded as adjustments to aviation fuel expense. USAir is
party to such hedging arrangements with several entities. Under
these arrangements, the Company's maximum commitments, which are
offset by amounts received under the arrangements, totaled
approximately $100.3 million and $158.7 million at December 31,
1993 and 1992, respectively. Although the agreements expose the
Company to credit loss in the event of nonperformance by the other
parties to the agreements, the Company does not anticipate such
nonperformance.
(2) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Unless a quoted market price indicates otherwise, the fair
values of cash and investments generally approximate carrying
values because of the short maturity of these instruments. USAir
has estimated the fair value of long-term debt based on quoted
market prices for the same or similar issues or on the current
rates offered to the Company for debt of similar remaining
maturities. The fair values of energy swap agreements and foreign
currency contracts are obtained from dealer quotes whereby these
values represent the estimated amount USAir would receive or pay to
terminate such agreements.
119
<PAGE>
The estimated fair values of USAir's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1993 1992
-------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Cash and short-
term invest-
ments $ 367,835 $ 367,835 $ 295,432 $ 295,432
Restricted cash
and investments 173,357 173,305 159,151 159,096
Long-term debt (ex-
cludes capital
lease obliga-
tions) 2,528,348 2,569,031 2,074,001 1,920,603
Energy swap agree-
ments:
In a net payable
position - (10,352) - (1,003)
Foreign currency
contracts:
In a net payable
position - (1,874) - (1,168)
</TABLE>
120
<PAGE>
(3) LONG-TERM DEBT
Details of long-term debt are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Senior Debt:
12 7/8% Senior Debentures due 2000 $ 77,000 $ 96,000
10% Senior Notes due 2003 300,000 -
6.9% to 14.3% U. S. Government
Guaranteed Obligations,
Installments due 1994 to 1995 6,180 35,266
10 1/2% to 13 1/8% Equipment Trust
Certificates, Installments due 1994 972 8,265
4.1% to 13 5/8% Equipment Financing
Agreements, Installments due 1994
to 2016 1,887,822 1,528,018
6.3% to 12% Intercompany Aircraft
Loans with USAir Group, Install-
ments due 1994 to 2016 105,080 130,452
3.9% to 8.6% Airport Facility Revenue
Bonds and Notes, Installments due
1994 to 2022 27,620 29,720
4.3% to 5% Aircraft Purchase Deposit
Financing, Installments due 1994 to
1999 120,311 229,484
Other 3,363 3,924
--------- ---------
2,528,348 2,061,129
Capital Lease Obligations 104,382 133,928
Other - 12,872
--------- ---------
Total 2,632,730 2,207,929
Less Current Maturities 85,715 116,999
--------- ---------
$2,547,015 $2,090,930
========= =========
</TABLE>
121
<PAGE>
Maturities of long-term debt and debt under capital leases for
the next five years are as follows:
(in thousands)
1994 $ 85,715
1995 75,691
1996 75,715
1997 86,496
1998 155,234
Thereafter 2,153,879
Interest rates on $239 million principal amount of long-term
debt at December 31, 1993 are subject to adjustment to reflect
prime rate and other rate changes.
Equipment financings totaling $2.1 billion are collateralized
by aircraft and engines with a net book value of $2.2 billion at
December 31, 1993. In addition, certain USAir aircraft and engines
with a net book value of $162 million collateralize USAir Group's
Credit Agreement borrowings.
An aggregate of $32 million of future principal payments of
the Equipment Financing Agreements are payable in Japanese Yen.
This foreign currency exposure has been hedged to maturity.
Although the Company is exposed to credit loss in the event of non-
performance by the counterparty to the hedge agreement, the Company
does not anticipate such non-performance.
On February 2, 1994, USAir sold $175 million principal amount
of 9 5/8% Senior Notes ("9 5/8% Senior Notes") which are uncondi-
tionally guaranteed by the Company. The 9 5/8% Senior Notes are
not reflected in the above table because they were sold after
December 31, 1993.
(4) COMMITMENTS AND CONTINGENCIES
(a) Operating Environment
The economic conditions in the United States, fare competition
and the emergence and growth of low cost, low fare carriers in the
domestic airline industry are factors affecting the financial
condition of USAir. Industry capacity has recently failed to
mirror changes in demand due primarily to the continued delivery of
new aircraft and secondarily, to the prolonged operation of certain
major U.S. carriers under the protection of Chapter 11 of the
Bankruptcy Code. USAir competes with at least one major airline on
most of its routes between major cities. Although the economy
generally has shown signs of improvement, the Company expects that
the competitive environment in the airline industry, the entry of
low cost, low fare carriers into USAir's markets, and the excess
122
<PAGE>
capacity in the domestic airline industry will continue to have an
adverse effect on USAir's passenger revenue for the foreseeable
future. The extent or duration of these conditions cannot be
reasonably determined at this time.
(b) Lease Commitments
USAir leases certain aircraft, engines, computer and ground
equipment, in addition to the majority of its ground facilities.
Ground facilities include executive offices, overhaul and mainte-
nance 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. Most leases also include
renewal options and some aircraft leases include purchase options.
The following amounts applicable to capital leases are
included in property and equipment:
<TABLE>
<CAPTION>
December 31,
---------------------
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Flight equipment $264,462 $302,873
Ground property and equipment 10,961 10,961
------- -------
275,423 313,834
Less accumulated amortization 183,091 202,007
------- -------
$ 92,332 $111,827
======= =======
</TABLE>
123
<PAGE>
At December 31, 1993, obligations under capital and noncancel-
able operating leases for future minimum lease payments were as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
(in thousands)
<S> <C> <C>
1994 $ 33,910 $ 726,738
1995 25,961 727,390
1996 22,492 705,233
1997 21,697 715,707
1998 10,687 677,539
Thereafter 38,362 7,873,539
------- ----------
Total minimum lease payments 153,109 $11,426,146
==========
Less amount representing interest 48,727
-------
Present value of net minimum lease
payments $104,382
=======
</TABLE>
Rental expense under operating leases for 1993, 1992 and 1991
was $739 million, $678 million and $576 million, respectively.
Rental expense for 1993 excludes a charge of $9 million related to
certain airport facilities where USAir has, among other things,
discontinued or reduced its service. Rental expense for 1992
excludes a charge of $72 million related to USAir's grounded BAe-
146 fleet. Rental expense for 1991 excludes a credit of $9 million
for the BAe-146 fleet.
(c) Legal Proceedings
USAir and various subsidiaries have been named as defendants
in various suits and proceedings which involve, among other things,
environmental concerns and employment matters. These suits and
proceedings are in various stages of litigation, and the status of
the law with respect to several of the issues involved is unset-
tled. For these reasons the outcome of these suits and 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.
In 1989 and 1990, a number of U.S. air carriers, including
USAir, received two Civil Investigative Demands ("CIDs") from the
U.S. Department of Justice ("DOJ") (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)
related to investigations of price fixing in the domestic airline
industry.
124
<PAGE>
The investigations by the DOJ culminated in the filing of a
lawsuit against Airline Tariff Publishing Company ("ATPCo") and
eight major air carriers, including USAir, alleging that the
defendants had agreed to fix prices in violation of Section 1 of
the Sherman Act through the methods used to disseminate fare data
to ATPCo, an airline-owned fare publishing service. To avoid the
costs associated with protracted litigation and an uncertain
outcome, USAir and another carrier decided to settle the lawsuit by
entering into a consent decree to modify their fare-filing
practices in certain respects and to implement compliance programs
that would include education of employees regarding the carriers'
responsibilities under the consent decree. Accordingly, the
consent decree and the U.S. Government's complaint were filed
contemporaneously in the U.S. District Court for the District of
Columbia in December 1992. Due to certain legal requirements
associated with the settlement of government antitrust suits, the
consent decree could not be entered until a notice and comment
period had expired. On November 1, 1993, after it had reviewed the
comments, the Court entered the consent decree. USAir does not
believe that the fare-filing practices reflected in the consent
decree will have a material adverse effect on its financial
condition or on its ability to compete. In March 1994, the
remaining six air carrier defendants agreed to the entry of a
separate consent decree to settle the lawsuit. This consent decree
cannot be entered until a notice and comment period has expired.
When that consent decree is entered, USAir can petition the Court
to have its consent decree amended to conform with the other
settlement and the Court will enter the amended consent decree.
On March 19, 1993, the U.S. District Court in Atlanta, Georgia
entered a settlement involving USAir and five other U.S. air
carrier defendants in the Domestic Air Transportation Antitrust
Litigation class action lawsuit. The class action suit, which was
filed in July 1990, alleged that the airlines used ATPCo to signal
and communicate carrier pricing intentions and otherwise limit
price competition for travel to and from numerous hub airports.
Under the terms of the settlement, the six air carriers will pay
$45 million in cash and issue $396.5 million in certificates valid
for purchase of domestic air travel on any of the six airlines.
USAir's share of the cash portion of the settlement, $5 million,
was recorded in results of operations for the second quarter of
1992. The certificates provide a dollar-for-dollar discount
against the cost of a ticket generally of up to a maximum of 10%
per ticket, depending on the cost of the ticket. It is possible
that this settlement could have a dilutive effect on USAir's
passenger transportation revenue and associated cash flow.
However, due to the interchangeability of the certificates among
the six carriers involved in the settlement, the possibility that
carriers not party to the settlement will honor the certificates,
and the potential stimulative effect on travel created by the
certificates, USAir cannot reasonably estimate the impact of this
settlement on future passenger revenue and cash flows. USAir has
125
<PAGE>
employed the incremental cost method to estimate a range of costs
attributable to the exercise of the certificates, based on the
assumption that the estimated maximum number of certificates to be
redeemed for travel on USAir will be related to USAir's market
share relative to the total market share of the six carriers
involved in the settlement. USAir's estimated percentage of such
market share is less than 9%. Incremental costs include unit costs
for passenger food, beverages and supplies, fuel, liability
insurance, and denied boarding compensation expenses expected to be
incurred on a per passenger basis. USAir has estimated that its
incremental cost will not be material based on the equivalent free
trips associated with the settlement.
The Attorney General of the State of Florida and the Attorneys
General of several other states are investigating whether several
major airlines, including USAir, have engaged in price fixing and
other unlawful restraints of trade. Certain of these Attorneys
General have issued document requests to USAir and several other
airlines requiring them to provide certain information and
documents. At this time, USAir cannot predict the manner in which
these investigations will be resolved and if the resolution will
have an adverse effect on USAir's results of operations or
financial position.
(d) Aircraft Commitments
At December 31, 1993, USAir's new aircraft on firm order,
options for new aircraft and scheduled payments for new aircraft
orders (including progress payments, buyer furnished equipment,
spares, and capitalized interest) were:
<TABLE>
<CAPTION>
Delivery Period - Firm Orders
-----------------------------------------
There-
1994 1995 1996 1997 1998 after Total Options
---- ---- ---- ---- ---- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing
767-200ER - - - - - - - 2
757-200 5 7 8 - - - 20 12
737 Series - - - 12 12 16 40 63
--- --- --- --- --- --- --- ---
Total 5 7 8 12 12 16 60 77
=== === === === === === === ===
Payments
(millions) $284 $321 $381 $428 $435 $451 $2,300
=== === === === === === =====
</TABLE>
USAir may elect, under certain circumstances, to convert
Boeing 737 Series and Boeing 767 Series firm order or option
deliveries to Boeing 757-200 deliveries. If USAir were to elect
such a substitution, the payments presented in the table above
would change. USAir is currently in negotiations with Boeing
126
<PAGE>
regarding, among other things, the above schedule of new aircraft
deliveries.
In addition, USAir has a commitment to purchase hushkits for
certain of its McDonnell Douglas DC-9-30 aircraft and a substantial
portion of its Boeing 737-200 aircraft. The installation of these
hushkits will bring the aircraft into compliance with Federal
Aviation Administration ("FAA") Stage 3 noise level requirements.
The projected payments associated with the purchase of the hushkits
are: $29.1 million - 1994; $12.0 million - 1995; $42.3 million -
1996; $43.4 million - 1997; $44.0 million - 1998; and $30.8 million
thereafter.
(e) Concentration of Credit Risk
USAir does not believe it is subject to any significant
concentration of credit risk. At December 31, 1993, most of
USAir's receivables related to tickets sold to individual passen-
gers through the use of major credit cards (47%) or to tickets sold
by other airlines (16%) and used by passengers on USAir or USAir
Group's commuter subsidiaries. These receivables are short-term,
generally being settled shortly after sale or in the month
following usage. Bad debt losses, which have been minimal in the
past, have been considered in establishing allowances for doubtful
accounts.
(f) Guarantees
At December 31, 1993, USAir guaranteed payments of certain
debt obligations of the Galileo International Partnership amounting
to approximately $16 million. In addition, at December 31, 1993,
USAir guaranteed payments of debt and lease obligations of USAir
Group's three wholly-owned subsidiaries amounting to approximately
$148 million.
(5) SALE OF RECEIVABLES
USAir is party to an agreement ("Receivables Agreement") to
sell, on a revolving basis, undivided interest of up to $240
million in a pool of designated receivables. Approximately $141
million was available for sale at December 31, 1993 based on
receivable balances at that date. The maximum amount available
under the Receivable Agreement to be sold gradually reduces from
$240 million at December 31, 1993, to $190 million on June 30,
1994. The Receivables Agreement expires on December 21, 1994.
USAir had no outstanding amounts due under the Receivable Agreement
at December 31, 1993. The net amounts sold reduce receivables in
the accompanying balance sheet by $220 million and $188 million at
December 31, 1992 and 1991, respectively. Included in the accounts
payable balances at December 31, 1992 and 1991, are $74 million and
$64 million, respectively, which represent funds held by USAir
related to previously sold receivables that had been collected.
127
<PAGE>
USAir obtained a waiver from the purchaser of the receivables
and its operating agent, exempting USAir from compliance with the
coverage ratio financial covenant in the Receivables Agreement for
the quarter ended December 31, 1993. USAir is currently unable to
sell receivables under the Receivables Agreement because it is in
violation of a minimum net worth covenant thereunder. In addition,
based on current projections of its results for 1994, USAir expects
that it will not be in compliance with the coverage ratio test and
possibly other financial covenants at March 31, 1994 and during the
remainder of the year. There can be no assurance that USAir will
be able to obtain a waiver of compliance with these covenants or
arrange a replacement facility.
(6) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). FAS 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. No
cumulative adjustment at January 1, 1993, and no income tax credit
for the year ended December 31, 1993, were recognized due to the
FAS 109 limitation in recognizing benefits for net operating
losses. USAir files a consolidated Federal income tax return with
its parent USAir Group pursuant to a tax allocation agreement.
The components of the provision (credit) for income taxes are
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current provision (credit):
Federal $ - $ - $ (22,307)
State - - -
------ ------ --------
Total current credit - - (22,307)
------ ------ --------
Deferred provision (credit):
Federal - - (76,524)
State - - -
------ ------ --------
Total deferred credit - - (76,524)
------ ------ --------
Provision (credit) for
income taxes $ - $ - $ (98,831)
====== ====== ========
</TABLE>
128
<PAGE>
The significant components of deferred income tax ex-
pense/(benefit) for the year ended December 31, 1993, are as
follows:
(in thousands)
Deferred tax benefit (exclusive of the
other components listed below) $(121,847)
Adjustments to deferred tax assets and
liabilities for enacted changes in tax
laws and rates (9,429)
Increase for the year in the valuation
allowance for deferred tax assets 131,276
--------
Total $ 0
========
For the years ended December 31, 1992 and 1991, deferred
income taxes result from differences in the recognition of revenue
and expenses and investment tax credits for tax and financial
reporting purposes. The major items resulting in these differences
and the related tax effects are shown in the following chart:
<TABLE>
<CAPTION>
1992 1991
---- ----
(in thousands)
<S> <C> <C>
Equipment depreciation and
amortization $ 67,582 $ 82,476
Gain on sale and leaseback
transactions (55,514) (60,049)
Net operating loss carryforward 55,671 (122,439)
Alternative minimum tax 0 32,702
Employee benefits (35,737) 26,238
Tax benefits purchased/sold 7,464 10,144
Investment tax credits (2,372) (13,495)
Leasing transactions (33,527) (24,482)
Frequent traveler program (2,815) (7,383)
Other (752) (236)
------- -------
Total deferred provision (credit) $ 0 $(76,524)
======= =======
</TABLE>
129
<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:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Tax provision (credit)
computed at statutory rate $(146,579) $(200,490) $(130,194)
Book expenses not deductible
for tax purposes 9,348 21,256 31,363
Limitation in recognizing
tax benefit of net
operating loss 146,660 179,234 -
Adjustments to deferred tax
assets and liabilities for
enacted changes in tax laws
and rates (9,429) - -
-------- -------- --------
Provision (credit) for
income taxes $ - $ - $ (98,831)
======== ======== ========
Effective tax rate 0% 0% 25.8%
======== ======== ========
</TABLE>
130
<PAGE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1993 are presented below:
(in thousands)
Deferred tax assets:
Leasing transactions $ 129,276
Tax benefits purchased/sold 79,434
Gain on sale and leaseback transactions 162,400
Employee benefits 429,312
Net operating loss carryforwards 508,240
Alternative minimum tax credit carryforwards 20,881
Investment tax credit carryforwards 47,880
Other deferred tax assets 61,210
---------
Total gross deferred tax assets 1,438,633
Less valuation allowance (568,816)
---------
Net deferred tax assets 869,817
Deferred tax liabilities:
Equipment depreciation and amortization (840,584)
Other deferred tax liabilities (29,233)
---------
Net deferred tax liabilities (869,817)
---------
Net deferred taxes $ 0
=========
The valuation allowance for deferred tax assets as of
January 1, 1993, was $438 million. The increase in the valuation
allowance for 1993 was $131 million.
At December 31, 1993, the Company had unused net operating
losses of $1.3 billion for Federal tax purposes, which expire in
the years 2005-2008. USAir also has available, to reduce future
taxes payable, $429 million alternative minimum tax net operating
losses expiring in 2007 and 2008, $47 million of investment tax
credits expiring in 2002 and 2003, and $20 million of 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.
(7) STOCKHOLDER'S EQUITY
USAir Group owns all of the outstanding common stock of USAir.
USAir Group's Credit Agreement includes a provision that limits
USAir's ability to declare dividends to USAir Group.
131
<PAGE>
(8) EMPLOYEE STOCK OWNERSHIP PLAN
In August 1989, USAir established an Employee Stock Ownership
Plan ("ESOP"). USAir Group sold 2,200,000 shares of its Common
Stock to an Employee Stock Ownership Trust to hold on behalf of
USAir's employees, exclusive of officers, in accordance with the
terms of the Trust and the ESOP. Financing of approximately $111.4
million for the Trust's purchase of the shares was provided by
USAir through a 9 3/4% loan to the Trust, and an additional $2.2
million was contributed to the Trust by USAir. The loan is being
repaid with contributions made by USAir. The contributions are
made in amounts equal to the periodic loan payments as they come
due, less dividends available for loan payment. The amount of
dividends used for debt service by the ESOP was $127,000 in 1991.
As the loan is repaid over time, participating employees receive
allocations of the Common Stock purchased by the Trust. The
initial maturity of the loan is 30 years. However, the ESOP
provides that if the Company's profitability as measured by return
on sales exceeds certain goals during the life of the ESOP, USAir's
contributions and the repayment of the loan will be accelerated.
Contributions made by USAir and therefore loan repayments made by
the Trust were $11.4 million in 1993, 1992 and 1991. The interest
portion of these contributions was $10.5 million in 1993, $10.6
million in 1992 and $10.7 million in 1991. Approximately 366,000
shares of Common Stock have been allocated to employees. USAir
recognized approximately $4 million of compensation expense related
to the ESOP in each of 1993, 1992 and 1991 based on shares
allocated to employees (the "shares allocated" method). Deferred
compensation related to the ESOP amounted to approximately $95
million, $98 million and $102 million at December 31, 1993, 1992
and 1991, respectively.
(9) EMPLOYEE BENEFIT PLANS
(a) Pension Plans
USAir has several pension plans in effect covering substan-
tially all employees. One qualified defined benefit plan covers
USAir maintenance employees and provides benefits of stated amounts
for specified 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 are funded, on a current basis, to meet requirements of the
Employee Retirement Income Security Act of 1974.
The defined benefit pension plan for USAir non-contract
employees was frozen at the end of 1991 for all non-contract
participants, resulting in a one-time book gain of approximately
$107 million in 1991. All non-contract plan participants became
100% vested at the time of the freeze. As a result of this plan
curtailment, the accrual of service costs related to defined
132
<PAGE>
benefits for USAir non-contract employees ceased at the end of
1991. USAir implemented a defined contribution pension plan for
non-contract employees in January 1993.
The funded status of the qualified defined benefit plans at
December 31, 1993 and 1992 was as follows:
<TABLE>
<CAPTION>
1993 1992
Plans in Which Plans in Which
----------------- -----------------
Plan Accumu- Plan Accumu-
Assets lated Assets lated
Exceed Benefits Exceed Benefits
Accumu- Exceed Accumu- Exceed
lated Plan lated Plan
Benefits Assets Benefits Assets
-------- ------ -------- ------
(in millions)
<S> <C> <C> <C> <C>
Fair value of plan assets $1,897 $ 172 $1,742 $ 157
Actuarial present value of
benefits for service
rendered to date:
Accumulated benefits
based on salaries to
date 1,853 282 1,355 222
Additional benefits
based on estimated
future salary levels 637 - 457 -
----- ----- ----- -----
Projected benefit
obligation 2,490 282 1,812 222
----- ----- ----- -----
Projected benefit obligation
over plan assets (593) (110) (70) (65)
Unrecognized net transition
asset (33) (13) (36) (15)
Unrecognized prior service
cost 15 72 15 77
Unrecognized net loss 624 51 147 19
----- ----- ----- -----
Pension (liability) prepaid
before adjustment 13 - 56 16
Adjustment to recognize
minimum liability - (110) - (81)
----- ----- ----- -----
Pension (liability) prepaid
as adjusted and recognized
in Consolidated Balance
Sheets $ 13 $ (110) $ 56 $ (65)
===== ===== ===== =====
</TABLE>
133
<PAGE>
Approximately 97% of the accumulated benefit obligation was
vested at December 31, 1993 and 1992. Unrecognized transition
assets are being amortized over periods up to 27 years. The
weighted average discount rate used to determine the actuarial
present value of the projected benefit obligation was 7.6% and
8.75% as of December 31, 1993 and 1992, respectively. The expected
long-term rate of return on plan assets used in 1993 and 1992 was
9.5%. Rates of 3% to 6% were used to estimate future salary
levels. At December 31, 1993, plan assets consisted of approxi-
mately 8% in cash equivalents and short-term debt investments, 37%
in equity investments, and 55% in fixed income and other invest-
ments. At December 31, 1992, plan assets consisted of approximate-
ly 4% in cash equivalents and short-term debt investments, 70% in
equity investments, and 26% in fixed income and other investments.
The following items are the components of the net pension cost
for the qualified defined benefit plans:
1993 1992 1991
---- ---- ----
(in millions)
Service cost (benefits
earned during the year) $ 90 $ 79 $ 98
Interest cost on projected
benefit obligation 188 171 168
Actual return on plan assets (224) (114) (353)
Net amortization and deferral 40 (65) 201
---- ---- ----
Net pension cost $ 94 $ 71 $ 114
==== ==== ====
Net pension cost for 1993 and 1991 presented above excludes a
charge of approximately $33.9 million and $21.6 million, respec-
tively, related to "early-out" incentive programs offered to a
limited number of USAir employees during the years. No such
charges were incurred in 1992.
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 principal
pension plans if it were not for limitations imposed by income tax
regulations.
134
<PAGE>
The following table sets forth the non-qualified plans' status
at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in millions)
<S> <C> <C>
Fair value of plan assets $ - $ -
Actuarial present value of benefits
for service rendered to date:
Accumulated benefits based on
salaries to date 28 16
Additional benefits based on
estimated future salary levels 2 1
---- ----
Projected benefit obligation 30 17
---- ----
Projected benefit obligation over
plan assets (30) (17)
Unrecognized net transition asset - -
Unrecognized prior service cost 1 -
Unrecognized net loss 4 2
Pension (liability) prepaid ---- ----
before adjustment (25) (15)
Adjustment to recognize minimum
liability (5) (2)
---- ----
Unfunded accrued supplementary costs
as adjusted and recognized in
Consolidated Balance Sheets $ (30) $ (17)
==== ====
</TABLE>
135
<PAGE>
Net supplementary pension cost for the two years included the
following components:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in millions)
<S> <C> <C>
Service cost (benefits earned during
the year) $ - $ -
Interest cost on projected benefit
obligation 2 2
Actual return on plan assets - -
Net amortization and deferral 12 6
---- ----
Net periodic supplementary pension cost $ 14 $ 8
==== ====
</TABLE>
The discount rate used to determine the actuarial present
value of the projected benefit obligation was 7.5% and 8.75% as of
December 31, 1993 and 1992, respectively. Rates of 3% and 6% were
used to estimate future salary levels.
In addition to the qualified and non-qualified defined benefit
plans described above, USAir also contributes to certain defined
contribution plans primarily for employees not covered under a
collective bargaining agreement. Company contributions are based
on a formula which considers the age and pre-tax earnings of each
employee and the amount of employee contributions. USAir's
contribution expense was $42 million for 1993. USAir recognized no
such expense in 1992 and 1991.
(b) Postretirement Benefits Other Than Pensions
USAir offers medical and life insurance benefits to employees
who retire from the Company and their eligible dependents. The
medical benefits provided by USAir are coordinated with Medicare
benefits. Retirees generally contribute amounts towards the cost
of their medical expenses based on years of service with the
Company. USAir 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 the pay-as-you-go basis.
USAir adopted Statement of Financial Accounting Standards No.
106 ("FAS 106") during 1992 and elected to record the January 1,
1992 Accumulated Postretirement Benefit Obligation ("APBO") using
the immediate recognition approach. The cumulative effect of
adopting FAS 106 was $745.5 million ($638.8 million net of tax
benefit).
136
<PAGE>
The following table sets forth the financial status of the
plans as of December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in millions)
<S> <C> <C>
Accumulated Postretirement Benefit
Obligation (APBO):
Retirees $ 291 $ 192
Fully eligible active plan participants 153 138
Other plan participants 356 404
----- -----
Total APBO 800 734
Unrecognized prior service credit 179 111
Unrecognized net gain (loss) (54) 6
----- -----
Accrued postretirement benefit cost $ 925 $ 851
===== =====
The components of net periodic postretirement benefit cost are
as follows:
1993 1992
---- ----
(in millions)
Service cost (benefits attributed to
employee service during the year) $ 31 $ 46
Interest cost on APBO 56 69
Net amortization and deferral (12) -
----- -----
Net periodic postretirement benefit cost $ 75 $ 115
===== =====
</TABLE>
The postretirement benefit expense for 1993 presented above
excludes a charge of approximately $15.5 million related to "early-
out" programs offered to a limited number of employees during the
year. No such charges were incurred in 1992 or 1991.
The discount rate used to determine the APBO was 7.75% and
8.75% at December 31, 1993 and 1992, respectively. The assumed
health care cost trend rate used in measuring the APBO was 10.5% in
1993 and 1994, declining by 1% per year after 1994 to an ultimate
rate of 4.5%. If the assumed health care cost trend rate were
increased by 1 percentage point, the APBO at December 31, 1993
would be increased by 10% and 1993 periodic postretirement benefit
cost would increase 13%.
Prior to the adoption of FAS 106, USAir recognized expense for
retiree health care at an estimated monthly rate (based on
payments) and recognized expense for death benefits when paid. The
expense using this methodology was approximately $8 million for
1991.
137
<PAGE>
(c) Postemployment Benefits
USAir adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" ("FAS
112"), during 1993. FAS 112 requires the use of an accrual method
to recognize postemployment benefits such as disability-related
benefits. The cumulative effect at January 1, 1993 of adopting FAS
112 was $43.7 million.
(10) SUPPLEMENTAL BALANCE SHEET INFORMATION
The components of certain accounts in the accompanying balance
sheets are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in thousands)
<S> <C> <C>
(a) Cash and cash equivalents:
Cash $ 16,126 $ 8,443
Investments, at cost which
approximates market 351,709 286,989
-------- --------
$ 367,835 $ 295,432
======== ========
(b) Receivables, net:
Accounts receivable $ 377,998 $ 189,183
Less allowance for doubtful
accounts 10,595 11,408
-------- --------
$ 367,403 $ 177,775
======== ========
(c) Materials and supplies, net:
Materials and supplies $ 431,400 $ 442,233
Less allowance for obsolescence 92,592 83,575
-------- --------
$ 338,808 $ 358,658
======== ========
(d) Accrued expenses:
Salaries and wages $ 252,865 $ 214,562
Rents 431,065 429,028
All other 466,132 459,896
--------- ---------
$1,150,062 $1,103,486
========= =========
</TABLE>
138
<PAGE>
(11) NON-RECURRING AND UNUSUAL ITEMS
(a) 1993
USAir's results for 1993 include non-recurring charges of (i)
$43.7 million for the cumulative effect of an accounting change, as
required by FAS 112 which was adopted during the third quarter of
1993, retroactive to January 1, 1993; (ii) $68.8 million for
severance, early retirement and other personnel-related expenses
recorded primarily during the third quarter of 1993 in connection
with a workforce reduction of approximately 2,500 full-time
positions between November 1993 and the first half of 1994; (iii)
$36.8 million based on a projection of the repayment of certain
employee pay reductions, recorded in the fourth quarter of 1993;
(iv) $13.5 million for certain airport facilities at locations
where USAir has, among other things, discontinued or reduced its
service, recorded in the fourth quarter of 1993; (v) $8.8 million
for a loss on USAir's investment in the Galileo International
Partnership, which operates a computerized reservation system,
recorded in the fourth quarter of 1993; and (vi) $18.4 million
credit related to non-operating aircraft, recorded in the second
quarter of 1993.
(b) 1992
USAir's results for 1992 include (i) a charge of $628.1
million for the cumulative effect of an accounting change as
required by FAS 106, effective January 1, 1992; (ii) a $107.4
million charge related to certain aircraft which have been
withdrawn from service, recorded in the fourth quarter of 1992; and
(iii) a $34.1 million non-operating loss related to the sale of ten
MD-82 aircraft which USAir eliminated from its fleet plan, recorded
in the fourth quarter of 1992.
(c) 1991
USAir's results for 1991 include (i) a $107 million a pre-tax
gain related to freezing of the fully funded non-contract employee
pension plan; (ii) a $21.6 million pre-tax expense related to early
retirement incentives offered to certain employees during 1991;
(iii) a $21 million pre-tax charge to establish an additional
reserve for USAir's grounded BAe-146 fleet; and (iv) a $18.5
million, net, in miscellaneous pre-tax non-recurring charges.
139
<PAGE>
(12) SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table presents selected quarterly financial data
for 1993 and 1992:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in millions except per share amounts)
<S> <C> <C> <C> <C>
1993
Operating revenues $1,605 $1,693 $1,634 $1,690
Operating income (loss) $ (13) $ 44 $ (121) $ (38)
Income (loss) before
cumulative effect of
accounting change -
as reported $ (65) $ (8) $ (183) $ (119)
Cumulative effect of
accounting change -
FAS 112 (44) - - -
----- ----- ----- -----
Net loss $ (109) $ (8) $ (183) $ (119)
===== ===== ===== =====
1992
Operating revenues $1,533 $1,580 $1,593 $1,530
Operating loss $ (54) $ (78) $ (69) $ (169)
Loss before cumulative
effect of accounting
change $ (100) $ (125) $ (109) $ (256)
Cumulative effect of
accounting change -
FAS 106 (639) - - -
----- ----- ----- -----
Net loss $ (739) $ (125) $ (109) $ (256)
===== ===== ===== =====
See Note 11 - Non-Recurring and Unusual Items.
Note:
The sum of the four quarters may not equal yearly totals due
to rounding of quarterly results.
</TABLE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
140
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF USAir Group, Inc.
Each of the persons listed below is currently a director of
the Company and was elected in 1993 by the stockholders of the
Company. Each director of the Company is also a director of USAir.
Except as noted otherwise, the following biographies disclose the
age and describe the business experience of each Director for at
least the past five years. As required by the Investment Agreement,
the Board of Directors amended the Company's By-Laws on January 21,
1993 to increase the authorized number of directors by three and
immediately thereafter elected Messrs. Marshall, Maynard and
Stevens to fill the new directorships. Under the Investment
Agreement, the Company is required to use its best efforts to
ensure that the slate of persons nominated by the Company for
election as directors of the Company includes that number of
persons designated by BA that is the percentage of the total then
authorized number of directors, which is currently 16, of the
Company that is nearest to but not greater than the percentage (but
in no event greater than 25%) of the aggregate voting power of the
securities that vote with the Common Stock as a single class for
the election of directors of the Company then held by BA and its
wholly-owned subsidiaries. Under this provision of the Investment
Agreement, BA is entitled to designate three directors to the Board
of Directors and has accordingly designated Messrs. Marshall,
Maynard and Stevens.
Served
as
Director
since
--------
Warren E. Buffett, 63.... Mr. Buffett has been Chairman 1993
and Chief Executive Officer
of Berkshire Hathaway Inc.
(insurance, candy, retailing,
manufacturing and publishing)
since 1970. He is also a
Director of Capital Cities/
ABC, Inc., The Coca-Cola
Company, The Gillette Comp-
pany and Salomon Inc. Mr.
Buffett is a member of the
Finance and Planning
Committee of the Board of
Directors.
141
<PAGE>
Edwin I. Colodny, 67..... Mr. Colodny is of counsel to 1975
the law firm of Paul, Has-
tings, Janofsky & Walker. He
retired as Chairman of the
Company and of USAir in July
1992. He served as Chief
Executive Officer of USAir
from 1975 until retiring as an
employee of USAir in June 1991.
Mr. Colodny is a Director of
Martin Marietta Corporation,
Comsat Corporation and Ester-
line Technologies, Inc., and
is a member of the Board of
Trustees of the University of
Rochester. He is a member of
the Finance and Planning and
Nominating Committees of
the Board of Directors.
Mathias J. DeVito, 63.... Mr. DeVito is Chairman of the 1981
Board and Chief Executive
Officer of The Rouse Com-
pany (real estate develop-
ment and management). He also
serves as a Director of
First Maryland Bancorp and
subsidiaries of The Rouse
Company. He is a member of
the Board of the Business
Committee for the Arts and
former Chair of the Greater
Baltimore Committee. Mr.
DeVito is Chairman of the
Compensation and Benefits
Committee and a member of
the Finance and Planning
Committee of the Board of
Directors.
George J. W. Goodman, 63.. Mr. Goodman is President of 1978
Continental Fidelity, Inc.
which provides editorial and
investment services. He is
the author of a number of
books and articles on finance
and economics under the pen
name "Adam Smith" and is the
host of a television series
of that name seen on public
broadcasting stations in the
U.S. and on other networks
142
<PAGE>
abroad. He is a Director of
Cambrex Corporation. Mr.
Goodman also serves as a mem-
ber of the Advisory Committee
of the Center for International
Relations at Princeton Univer-
sity, and is a Trustee of the
Urban Institute. He is a mem-
ber of the Compensation and
Benefits and Finance and
Planning Committees of the
Board of Directors.
John W. Harris, 47....... Mr. Harris is President of 1991
The Harris Group (real estate
development). From 1972
through 1991, he was President
of The Bissell Companies,
Inc. (real estate development).
He is a Director of Southern
Bell Telephone and Telegraph
Company. Mr. Harris is former
Chairman of the Greater
Charlotte Chamber of Commerce
and a member of the Board
of Trustees of the University
of North Carolina and serves
on the boards of several
community service organiza-
tions. He is a member of
the Audit and Compensation
and Benefits Committees of
the Board of Directors.
Edward A. Horrigan, Jr., 64 Mr. Horrigan is Chairman and 1987
Chief Executive Officer of
Liggett Group Inc. (consumer
products), a position he
has held since May 1993. He
is also the retired Vice
Chairman of the Board of RJR
Nabisco, Inc. and retired
Chairman and Chief Executive
Officer of R. J. Reynolds
Tobacco Company, Winston
-Salem, North Carolina
(consumer products). He is a
Director of the Haggai Foun-
dation. Mr. Horrigan is a
member of the Audit and
Nominating Committees of
the Board of Directors.
143
<PAGE>
Robert LeBuhn, 61......... Mr. LeBuhn is Chairman of 1966
Investor International (U.S.),
Inc. (investments) and is a
Director of Acceptance Insur-
ance Companies, Amdura Corp.,
Lomas Financial Corp. and
Cambrex Corporation. He is
Trustee and President of the
Geraldine R. Dodge Foun-
dation, Morristown, New Jersey
and is a member of the New
York Society of Security
Analysts. He is Chairman
of the Finance and Planning
Committee and a member of the
Nominating Committee of the
Board of Directors.
Sir Colin Marshall, 60.... Sir Colin was elected Chairman 1993
of BA in February 1993. Prev-
iously, he had been Chief
Executive of BA and a member
of BA's Board of Directors
since 1983. Sir Colin is a
Director of Grand Metropolitan
plc, HSBC Holdings Plc, and IBM
United Kingdom Holdings Limited.
He is a member of the Finance
and Planning Committee of the
Board of Directors.
Roger P. Maynard, 51...... Mr. Maynard has been Director 1993
of Corporate Strategy of BA
since 1991. Previously, from
1987, he had held various
positions at BA, including
Director of Investor Relations
& Marketplace Performance and
Executive Vice President
North America. Mr. Maynard is
a member of the Nominating
and Compensation and Benefits
Committees of the Board of
Directors.
144
<PAGE>
John G. Medlin, Jr, 60.... Mr. Medlin is Chairman of the 1987
Board and, until December 31,
1993, was Chief Executive
Officer of Wachovia Corpor-
ation (bank holding company).
Mr. Medlin also serves as a
Director of BellSouth Company,
Media General, Inc., National
Services Industries, Inc. and
RJR Nabisco, Inc. He is Chair-
man of the Nominating Committee
and a member of the Compen-
sation and Benefits Committee
of the Board of Directors.
Hanne M. Merriman, 52..... Mrs. Merriman is the Principal 1985
in Hanne Merriman Associates
(retail business consultants).
Previously, she served as
President of Nan Duskin, Inc.
(retailing), President and
Chief Executive Officer of
Honeybee, Inc., a division of
Spiegel, Inc., and President
of Garfinckel's, a division of
Allied Stores Corporation. Mrs.
Merriman is a Director of
CIPSCO, Inc. Central Public
Service Company, State Farm
Mutual Automobile Insurance
Company, The Rouse Company
and Ann Taylor Stores
Corporation. She is a member
of the National Women's Forum
and a Trustee of The
American-Scandinavian Founda-
tion. She was a member of the
Board of Directors of the
Federal Reserve Bank of
Richmond, Virginia from 1984-
1990 and served as
Chairman in 1989-1990. Mrs.
Merriman is Chairman of the
Audit Committee and is a member
of the Nominating Committee of
the Board of Directors.
145
<PAGE>
Charles T. Munger, 70..... Mr. Munger is Vice Chairman of 1993
Berkshire Hathaway Inc. (insur-
ance, candy, retailing, manu-
facturing and publishing) of
which he has been an officer
and Director since 1975. He is
Chairman of Daily Journal
Corporation and is a Director
of Salomon Inc. and Wesco
Financial Corporation. Mr.
Munger is a member of the
Audit Committee of the Board
of Directors.
Seth E. Schofield, 54..... Mr. Schofield was elected 1989
Chairman of the Board of
Directors of the Company
and USAir in June 1992.
In June 1991 he was elected
President and Chief Execu-
tive Officer of the Company
and of USAir. In June 1990
he was elected President
and Chief Operating Officer
of USAir. He had served as
Executive Vice President-
Operations of USAir since
1981. Mr. Schofield joined
USAir in 1957 and has held
various corporate staff
positions. Mr. Schofield
is a Director of the Erie
Insurance Group, the
PNC Bank, N.A., the
Greater Washington Board
of Trade, the Flight
Safety Foundation, and the
Greater Pittsburgh Council
of the Boy Scouts of
America. Mr. Schofield is
Chairman of the Board of
Directors of the Greater
Pittsburgh Chamber of
Commerce, and a Board
Member of the Pennsylvania
Business Roundtable, Penn's
Southwest Association and
the Virginia Business
Council. He is also a
member of the Allegheny
Conference on Community
146
<PAGE>
Development and the
Federal City Council.
Richard P. Simmons, 62.... Mr. Simmons is Chairman of 1987
the Board and Chairman of
the Executive Committee
of Allegheny Ludlum Corp.
and served as its
President and Chief Execu-
tive Officer from 1980 to
1990. Allegheny Ludlum pro-
duces stainless steel and
other high alloyed steels.
Mr. Simmons is also a
Director and Chairman of
the Executive Committee
of PNC Bank Corp. and
Consolidated Natural Gas.
He is a member of the Ameri-
can Institute of Mining,
Metallurgical and Petroleum
Engineers and is a fellow and
Distinguished Life Member of
the American Society for
Metals. Mr. Simmons is a
member of the M.I.T. Corpor-
ation and serves on the
boards of several community
service organizations. He
is a member of the Audit and
Finance and Planning
Committees of the Board of
Directors.
Raymond W. Smith, 56..... Mr. Smith is Chairman of 1990
the Board and Chief Executive
Officer of Bell Atlantic Com-
pany, which is engaged princi-
pally in the telecommunications
business and is one of the
seven regional companies
formed as a result of the
divestiture of the Bell
System. Previously, Mr.
Smith had served as Vice
Chairman and President of
Bell Atlantic and Chairman
of The Bell Telephone Com-
pany of Pennsylvania. He is
a member of the Board of
Directors of CoreStates
Financial Company, a
147
<PAGE>
trustee of the University of
Pittsburgh and is active in
many civic and cultural
organizations. He is a mem-
ber of the Compensation
and Benefits and Nominating
Committees of the Board of
Directors.
Derek M. Stevens, 55...... Mr. Stevens has been Chief 1993
Financial Officer of and a
Director of BA since 1989.
Previously, from 1981, he
was Finance Director of TSB
Group plc (financial
institution). Mr. Stevens is
a member of the Audit Commit-
tee of the Board of Directors.
The law firm of Paul, Hastings, Janofsky and Walker, with
which Mr. Colodny is affiliated on an Of Counsel basis, provided
legal services to USAir during 1993 and is expected to provide such
services during 1994.
The following persons are executive officers of the Company.
<TABLE>
<CAPTION>
Executive
Officer of
Age as of the Company
Name 3/31/94 Position(s) Since
---- --------- ----------- -----------
<S> <C> <C> <C>
Seth E. Schofield 54 Chairman of the Board, 1983
President and Chief
Executive Officer of the
Company; Chairman of the
Board, President and Chief
Executive Officer of USAir
W. Thomas Lagow 52 Executive Vice President- 1992
Marketing of USAir
James T. Lloyd 52 Executive Vice President, 1987
General Counsel and
Secretary of the Company;
Executive Vice President
and General Counsel of USAir
John R. Long III 45 Executive Vice President- 1983
Customer Services of USAir
148
<PAGE>
Frank L. Salizzoni 55 Executive Vice President- 1990
Finance of the Company
and USAir
Michael R. Schwab 48 Executive Vice President- 1989
Operations of USAir
Bruce R. Aubin 63 Senior Vice President- 1994
Maintenance Operations
of USAir
Robert L. Fornaro 41 Senior Vice President- 1992
Planning of USAir
John P. Frestel, Jr. 54 Senior Vice President- 1989
Human Resources of USAir
John W. Harper 53 Senior Vice President- 1992
Information Services of
USAir
Nancy Risque Rohrbach 47 Vice President-Public & 1994
Community Relations of
the Company and Senior
Vice President-Public &
Community Relations of
USAir
</TABLE>
For purposes of Rule 405 under the Securities Act of 1933,
Messrs. Lagow, Long, Schwab, Fornaro, Frestel, Harper and Ms.
Risque Rohrbach are deemed to be executive officers of the Company.
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. All the executive officers
except Ms. Risque Rohrbach and Messrs. Lagow, Salizzoni, Aubin,
Frestel, Fornaro and Harper have been actively engaged in the
business and affairs of the Company and USAir during the past five
years. The business experience of the officers listed above since
January 1, 1989 is as follows:
Mr. Schofield was elected Executive Vice President of the
Company in July 1989. At that time he was also elected Vice
Chairman of the Board of the Company and of USAir. Mr. Schofield
served as Executive Vice President-Operations of USAir until his
election as President and Chief Operating Officer of USAir in June
1990. Effective on July 1, 1991, Mr. Schofield was elected
President and Chief Executive Officer of both the Company and
USAir. Effective on July 1, 1992, Mr. Schofield was elected
Chairman of the Board of Directors of both the Company and USAir.
149
<PAGE>
Mr. Lagow was Senior Vice President-Market Planning of
Northwest Airlines until February 1988, when he became Senior Vice
President-Planning of United Airlines. Mr. Lagow held that
position until he was elected Executive Vice President-Marketing of
USAir in February 1992.
Mr. Lloyd engaged in the private practice of law in Washing-
ton, D.C. from 1967 until election as Vice President, General
Counsel and Secretary of the Company and as Senior Vice President
and General Counsel of USAir in 1987. He served in those capaci-
ties until his election as Executive Vice President, Secretary and
General Counsel of the Company and Executive Vice President and
General Counsel of USAir in January 1991.
Mr. Long served as Senior Vice President-Administration of
USAir until his election as Senior Vice President-Customer
Operations of USAir in June 1989. He served in that capacity until
his election as Senior Vice President-Customer Services in March
1991. Mr. Long served as Senior Vice President-Customer Services
until his election as Executive Vice President-Customer Services in
May 1992.
Mr. Salizzoni was Vice Chairman and Chief Financial Officer of
Trans World Airlines and Trans World Corporation until 1987, when
he became Vice Chairman and Chief Financial Officer of TW Services,
Inc. He was Chairman and Chief Executive Officer of TW Services
from April 1987 until August 1989, just before that company went
private. Mr. Salizzoni was associated with Mancusco and Co. from
August 1989 until he was elected Executive Vice President-Finance
of the Company and of USAir in November 1990.
Mr. Schwab served as Vice President-Management Information
Systems of USAir until his election as Senior Vice President-
Management Information Systems of USAir in July 1989. Mr. Schwab
served in that capacity until his election as Executive Vice
President-Operations in April 1991. He also served as President of
USAM Corp. from April 1988 through April 1991.
Mr. Aubin was Executive Advisor to the Vice Chairman,
President and Chief Executive Office of Air Canada and, prior to
that position, Senior Vice President Technical Operations and Chief
Technical Officer of Air Canada during the relevant time. He was
elected Senior Vice President-Maintenance Operations of USAir in
January 1994.
Mr. Fornaro was Vice President-Research of Jesup & Lamont
Securities until February 1988, when he became Senior Vice
President-Marketing of Braniff, Inc. In August 1988, Mr. Fornaro
became Senior Vice President-Market Planning of Northwest Airlines,
the position he held until February 1992. He was elected Senior
Vice President-Planning of USAir in March 1992.
150
<PAGE>
Mr. Frestel was Vice President-Personnel and Labor Relations
for The Atchinson, Topeka & Santa Fe Railway during the relevant
time, and was a Director of that company from June 1988, until his
election as Senior Vice President-Human Resources of USAir in
January 1989.
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 the Company and
USAir in December 1991. He served in that position until his
election as Senior Vice President-Information Systems of USAir in
October 1992.
Ms. Rohrbach was a public policy and communications consultant
during 1993. She was Assistant Secretary of Labor for Policy at
the U.S. Department of Labor during 1991-1992. Ms. Rohrbach served
on the White House staff as a member of the legislative liaison
team (1981-1986) and subsequently as Assistant to the President and
Secretary to the Cabinet (1987-1988). In 1989 and 1990, she was a
resident fellow at Harvard University's Institute of Politics, a
consultant to the Department of Energy and in the private sector.
From 1988-1993, she also served as a member of the National
Commission on Children. She was elected Vice President-Public and
Community Relations of the Company and Senior Vice President-Public
and Community Relations of USAir in January 1994.
Item 11. EXECUTIVE COMPENSATION
Compensation of Directors
Each director, except Mr. Schofield, is paid a retainer fee of
$18,000 per year for service on the Board of Directors of the
Company and a fee of $600 per Board meeting or committee meeting
attended. Consistent with a comprehensive cost reduction program at
USAir, the retainer fee was reduced by 20% to $14,400 for an
eighteen-month period commencing January 1, 1992 and ending on June
30, 1993. Mr. LeBuhn, Chairman of the Finance and Planning
Committee, Mr. DeVito, Chairman of the Compensation Committee, and
Mrs. Merriman, Chairman of the Audit Committee each receives an
additional fee of $2,000 per year for serving in those respective
capacities. Mr. Medlin, Chairman of the Nominating Committee,
receives an additional fee of $1,000 per year for serving in that
capacity. Mr. Schofield receives a salary in his capacity as an
officer of USAir and receives no additional compensation as a
director of the Company and USAir.
In 1987 the Company established a retirement plan for
directors who are not also employees of the Company and its
subsidiaries. The plan provides that such directors shall be
eligible to receive retirement benefits thereunder if they have
attained seventy years of age and served at least five consecutive
years on the Board of Directors or, if they have not attained age
151
<PAGE>
seventy, have served for at least ten consecutive years on the
Board of Directors. Eligible directors receive an annual retirement
benefit equal to the highest annual retainer in effect for active
directors during the five years prior to retirement. If the annual
retainer for active directors is increased, the annual retirement
benefit paid to retired directors is increased by an amount equal
to 50% of the increase in retainer paid to active directors. If a
director dies prior to retirement and had served for at least five
consecutive years on the Board of Directors, the deceased
director's surviving spouse is eligible under the plan to receive,
for a period of five years following such death, an annual death
benefit equal to 50% of the annual retainer paid to such director
at the time of his or her death. If a retired eligible director
dies, the director's surviving spouse is eligible under the plan to
receive, for a period of five years following such death, 50% of
the annual retirement benefit payable to the director at the time
of his or her death. The plan is administered by the Compensation
Committee.
152
<PAGE>
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The Summary Compensation Table below sets forth the compensation paid during
the years indicated to each of the Chief Executive Officer and the four
remaining most highly compensated executive officers of the Company (including
its subsidiaries).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- ------------------------
OTHER
NAME AND PRINCIPAL ANNUAL RESTRICTED STOCK ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS(E) OPTIONS COMPENSATION(F)
------------------ ---- -------- ----- ------------ ---------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Seth E. Schofield(A).... 1993 $475,635(C) $0 $275,601(D) -- -- $ 64,302
Chairman, President and 1992 $412,981(C) $0 $174,792(D) -- 5,569 $ 38,495
Chief Executive Officer 1991 $466,827 $0 * -- 375,000 *
of the Company and of
USAir
W. Thomas Lagow(B)...... 1993 $310,058(C) $0 -- -- -- $282,521(G)
Executive Vice 1992 $234,258(C) $0 -- -- 153,211 $142,617(H)
President--Marketing of
USAir
Frank L. Salizzoni...... 1993 $317,558(C) $0 $ 45,374(D) -- -- $ 52,222
Executive Vice 1992 $231,249(C) $0 $ 26,892(D) -- 2,800 $ 34,382
President--Finance of 1991 $275,000 $0 * -- 150,000 *
the Company and of
USAir
James T. Lloyd.......... 1993 $257,365(C) $0 $ 73,215(D) -- -- $ 36,188
Executive Vice 1992 $211,058(C) $0 $ 47,974(D) -- 2,492 $ 21,382
President, General 1991 $246,096 $0 * -- 150,000 *
Counsel and Secretary
of the Company;
Executive Vice
President and General
Counsel of USAir
Michael R. Schwab....... 1993 $257,365(C) $0 $ 27,621(D) -- -- $ 30,067
Executive Vice 1992 $211,058(C) $0 $ 18,720(D) -- 2,492 $ 40,935(I)
President--Operations 1991 $222,308 $0 * -- 150,000 *
of USAir
</TABLE>
- --------
* Under the SEC's transition rules, no disclosure is required.
(A) Mr. Schofield was elected Chief Executive Officer effective June 1, 1991.
(B) Mr. Lagow's employment with USAir commenced on February 7, 1992.
(C) Amounts disclosed reflect reductions in salary during (i) 1993 of $24,365,
$14,942, $12,250, $10,904 and $10,904, and (ii) 1992 of $87,019, $49,272,
$43,750, $38,942 and $38,942 for Messrs. Schofield, Lagow, Salizzoni,
Lloyd and Schwab, respectively, which were implemented for all USAir
officers for a fifteen-month period commencing on January 1, 1992 and
ending on March 29, 1993 pursuant to a comprehensive cost reduction
program at USAir.
(D) Amounts disclosed include for (i) 1993, $271,288, $33,259, $73,215, and
$27,621 and (ii) 1992, $171,410, $22,523, $47,974 and $16,784, received by
Messrs. Schofield, Salizzoni, Lloyd and Schwab, respectively, to cover
incremental tax liability resulting from income derived from the lapsing
of restrictions on disposition of Restricted Stock. Any amounts disclosed
in the column that are in excess of the amounts disclosed in the preceding
sentence represent income derived from personal travel on USAir.
(E) At December 31, 1993, Messrs. Schofield, Salizzoni, Lloyd and Schwab owned
30,000, 6,000, 4,000 and 3,200 shares of Restricted Stock, respectively.
At the fair market value of the Common Stock on that date, these holdings
of Restricted Stock were valued at $386,250, $77,250, $51,500, $41,200,
respectively.
(F) Under USAir's split dollar life insurance plan, described under
"Additional Benefits" below, individual life insurance coverage is
available to the named officers. During 1992, each officer paid the amount
of the premium associated with the term life component of the coverage. In
1993, USAir commenced paying the premium associated with this coverage. In
1992 and 1993, USAir paid the remainder of the premium associated with the
whole life component of the coverage. If all assumptions as to life
expectancy and other factors occur in accordance with projections, USAir
expects to recover the premiums it pays with respect to the whole life
component of the coverage. The following amounts reflect the value of the
benefits accrued during the years indicated, calculated on an actuarial
basis, ascribed to the insurance policies purchased on the lives of the
named officers (plus, with respect to 1993, the dollar value of premiums
paid by USAir with respect to term life insurance): 1993--Mr. Schofield--
$29,328, Mr. Lagow--$9,716, Mr. Salizzoni--$26,010, Mr. Lloyd--$17,291 and
Mr. Schwab--$11,170; 1992--Mr. Schofield--$38,495; Mr. Lagow--$12,902; Mr.
Salizzoni--$34,382; Mr. Lloyd--$21,382 and Mr. Schwab--$15,555. During
1993, USAir made contributions of $34,974, $22,805, $26,212, $18,897 and
$18,897 to the accounts of Messrs. Schofield, Lagow, Salizzoni, Lloyd and
Schwab in certain defined contribution pension plans.
(G) Upon the commencement of his employment, USAir agreed to pay Mr. Lagow $1
million over four years, which amount was intended to compensate him for
restricted stock and stock options which he forfeited when he left his
former employer. The amount disclosed includes the first installment,
$250,000, of the total payment.
(H) Amount disclosed also reflects $125,000 paid to Mr. Lagow in the form of a
"sign-on bonus" and $4,715 for reimbursement of relocation expenses.
(I) Amount disclosed also reflects $25,380 for reimbursement of relocation
expenses.
153
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End
Option/SAR Values
The following table provides information on the number of
options held by the named executive officers at fiscal year-end
1993. None of the officers exercised any options during 1993 and
none of the unexercised options held by these officers were
in-the-money based on the fair market value of the Common Stock on
December 31, 1993 ($12.875).
<TABLE>
<CAPTION>
Number of Unexercised
Options/SARs
at Fiscal Year-End
----------------------------
Name Exercisable Unexercisable
- -------------------- ----------- -------------
<S> <C> <C>
Seth E. Schofield... 170,069 225,000
W. Thomas Lagow..... 33,211 120,000
Frank L. Salizzoni.. 62,800 90,000
James T. Lloyd...... 79,742 84,250
Michael R. Schwab... 77,992 87,000
Retirement Benefits
Prior to 1993, USAir's Retirement Plan (the "Retirement Plan")
for its salaried employees was comprised of two qualified plans.
The Retirement Plan was designed so that the two plans, when
aggregated, would provide noncontributory benefits based upon both
years of service and the employee's highest three-year average
annual compensation (up to a maximum of $235,840 in 1993) during
the last ten calendar years of service, including any incentive
compensation awards. The primary plan is a defined benefit plan
which provides a benefit based on the factors mentioned above. The
primary plan is integrated with the Social Security program so that
the benefits provided thereunder are reduced by a portion of the
employee's benefits from Social Security. USAir's contributions to
the primary plan are not allocated to the account of any particular
employee. The primary plan was frozen on December 31, 1991, and
accordingly, retirement benefits payable under the plan were
determinable on that date.
The secondary plan is a target benefit defined contribution
plan. The secondary plan was established in 1983 as a result of
changes to the Internal Revenue Code (the "Code"), which lowered
the maximum benefit payable from a defined benefit plan. In the
event that the benefit produced under the primary plan formula
cannot be accrued for any employee covered by such plan because of
the limit on benefits payable under defined benefit plans,
contributions will be made on behalf of such employee to the
secondary plan. Such contributions will be calculated to provide
154
<PAGE>
the benefit produced under the formula in the primary plan in
excess of such limit, to the extent permitted under the Code's
limitation on the contributions to defined contribution plans.
USAir's contributions to the secondary plan are allocated to
individual employees' accounts. During 1993, no contributions were
made to any executive officer's account. The secondary plan was
also frozen on December 31, 1991.
Under the Retirement Plan, benefits usually begin at the
normal retirement age of 65. The Retirement Plan also provides
benefits for employees electing early retirement from ages 55
through 64. If such an election is made, the benefits may be
reduced to reflect the longer interval over which the benefits
will be paid. Executive officers participate in the Retirement
Plan on the same basis as other employees of USAir.
Contributions to and benefits payable under the Retirement
Plan must be in compliance with the applicable guidelines or
maximums established by the Code. USAir has adopted an unfunded
supplemental plan which will provide those benefits which would
otherwise be payable to officers under the Retirement Plan, but
which, under the Code, are not permitted to be funded or paid
through the qualified plans maintained by USAir. Benefit accruals
under the supplemental plan also ceased upon the freezing of the
Retirement Plan on December 31, 1991. Such supplemental plan
provides that any benefits under the unfunded supplemental plan
will be paid in the form of a single, lump sum payment. Such
supplemental plans are specifically provided for under applicable
law and have been adopted by many corporations under similar
circumstances. Messrs. Schofield, Salizzoni and Lloyd are
currently entitled to receive retirement benefits in excess of the
limitations established by the Code.
155
<PAGE>
The following table presents the noncontributory benefits
payable per year for life to employees under the Retirement Plan
and the unfunded supplemental plan described above, assuming normal
retirement in the current year. The table also assumes the retiree
would be entitled to the maximum Social Security benefit in
addition to the amounts shown.
</TABLE>
<TABLE>
<CAPTION>
Final Earnings
as defined in Noncontributory Pension Based
the Plan on Years of Service
- -----------------------------------------------------------------
10 Yrs 15 Yrs 20 Yrs 25 Yrs 30 Yrs 35 Yrs
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000.. $ 19,871 $ 29,806 $ 39,742 $ 49,677 $ 54,677 $ 54,677
200,000.. 43,871 65,806 87,742 109,677 119,677 119,677
300,000.. 67,871 101,806 135,742 169,677 184,677 184,677
400,000.. 91,871 137,806 183,742 229,677 249,677 249,677
500,000.. 115,871 173,806 231,742 289,677 314,677 314,677
600,000.. 139,871 209,806 279,742 349,677 379,677 379,677
700,000.. 163,871 245,806 327,742 409,677 444,677 444,677
800,000.. 187,871 281,806 375,742 469,677 509,677 509,677
</TABLE>
The values reflected in the above chart represent the
application of the Retirement Plan formula to the specified amounts
of compensation and years of service. The credited years of
service under the Retirement Plan for each of the individuals
included in the Summary Compensation Table are as follows: Mr.
Schofield-32 years, Mr. Lagow-2 years, Mr. Salizzoni-3 years, Mr.
Lloyd-7 years and Mr. Schwab-6 years.
USAir has entered into agreements with Messrs. Lagow,
Salizzoni, Lloyd and Schwab which provide for a supplement to their
retirement benefits under the Retirement Plan. This supplement is
designed to provide such persons with those benefits they would
have received had they been employed by USAir for the minimum
number of years to be entitled to full retirement benefits under
the Retirement Plan.
USAir adopted, effective January 1, 1993, a defined contribu-
tion retirement program for its eligible non-contract employees
(the "Retirement Savings Plan") as a replacement for the Retirement
Plan described above. Under the Retirement Savings Plan, eligible
156
<PAGE>
employees may elect to contribute on a tax-deferred basis up to 13%
of their pre-tax compensation, subject to a maximum annual
contribution of $8,994 in 1993. USAir will also contribute to each
employee's account in the Retirement Savings Plan (i) a matching
contribution equal to 50% of each employee's contribution, subject
to a maximum of 2% of the employee's annual pre-tax compensation,
(ii) a basic contribution which ranges, depending on the employee's
age, from 2% to 8% of the employee's annual pre-tax compensation
and (iii) if USAir's pre-tax profit margin, as defined, exceeds
certain thresholds, a profit sharing contribution up to a maximum
of 7.5% of an employee's annual pre-tax compensation. USAir made no
contributions under the profit sharing component of the Retirement
Savings Plan in 1993. Pre-tax compensation is defined for purposes
of the Retirement Savings Plan as all compensation which USAir must
report as wages on an employee's Form W-2, plus an employee's tax
deferred contributions under such Plan up to a maximum of $235,840
in 1993. USAir also established a non-qualified supplemental
defined contribution plan (the "Supplemental Savings Plan") in
1993, which credits amounts to accounts of certain officers who
participate in the Retirement Savings Plan but who are adversely
affected by the maximum benefit limitations under qualified plans
imposed by the Code. Amounts obligated to be paid by USAir under
the Supplemental Savings Plan will be deposited in a trust
established for the benefit of the participants. See the "All
Other Compensation" column of the Summary Compensation Table for
the amounts contributed or allocated in 1993 to Messrs. Schofield,
Lagow, Salizzoni, Lloyd and Schwab under the Retirement Savings
Plan and the Supplemental Savings Plan.
Under the Retirement Savings Plan and the Supplemental Savings
Plan, participants may direct the investment of their contributions
and USAir's contributions to their accounts among certain invest-
ment funds. Participants' contributions are fully vested when
made. USAir's contributions vest when the participant has been
employed by USAir for at least two years.
Additional Benefits
USAir has in effect an Officers' Supplemental Benefit Plan,
which provides certain benefits to a current or retired officer's
spouse and children under age 19 following the officer's death.
These benefits include: (i) dependent survivors' monthly income
benefit and (ii) dependent survivors' health care insurance.
A dependent survivors' monthly income benefit is payable to the
eligible spouse or children of a deceased officer or retired
officer in an amount equal to 20% of the monthly basic rate of
salary payable to the officer the day prior to death or, in the
case of a deceased retired officer, the day prior to retirement.
Monthly income benefits will be reduced by the amount of any spouse
protection benefit payable from Retirement Plan funds, and are
subject to cessation upon the occurrence of certain specified
157
<PAGE>
events. In no case are monthly income benefits payable for more
than 19 years following the date of death.
The eligible surviving spouse or children of a deceased
officer or retired officer are also entitled to receive dependent
survivors' health care insurance, which provides the medical, major
medical and dental insurance benefits generally available to
dependents of salaried employees of USAir. Eligibility for this
coverage ceases upon the occurrence of certain specified
events.
USAir also maintains a split-dollar life insurance plan under
which individual term life insurance is available to its officers
in the amount of three times base salary. The plan also provides
for accrual of a cash value component for each officer who holds a
policy. Under the plan, during 1993, USAir paid the premiums on
the term and whole life insurance components of the policy. The
premium attributable to the term life insurance of the policy is
treated as income to the participant. At death, prior to transfer
of the policy to the participant, the beneficiary receives the
amount of the coverage less any amount necessary to reimburse the
employer for its investment, and the employee is entitled to any
additional proceeds. Upon transfer of the policy to the partici-
pant, the participant is entitled to the cash surrender value of
the policy in excess of the amount payable to the employer for
recovery of its investment. See the "All Other Compensation"
column of the Summary Compensation Table for information concerning
compensation with respect to Messrs. Schofield, Lagow, Salizzoni,
Lloyd and Schwab that was attributable to the split dollar life
insurance plan.
Arrangements Concerning Termination of Employment and Change of
Control
USAir currently has employment contracts (the "Employment
Contracts") with the executive officers (the "Executives") named in
the Summary Compensation Table. The terms of the Employment
Contracts extend until the earlier of the fourth anniversary
thereof or the Executive's normal retirement date and are subject
to automatic one-year annual extensions on each anniversary date
(to the fourth anniversary of such anniversary date) unless advance
written notice is given by USAir. In exchange for each Executive's
commitment to devote his or her full business efforts to USAir, the
agreements provide that each Executive will be re-elected to a
responsible executive position with duties substantially similar to
those in effect during the prior year and will receive (1) an
annual base salary at a rate not less than that in effect during
the previous year, (2) incentive compensation as provided in the
contract and (3) insurance, disability, medical and other benefits
generally granted to other officers. In the event of a change of
control, as defined in each Employment Contract, the term of each
Employment Contract is automatically extended until the earlier of
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<PAGE>
the fourth anniversary of the change of control date or the
Executive's normal retirement date. As a result of amendments to
the Employment Contracts entered into in June 1992, the acquisition
of 20% or more of the outstanding securities of the Company under
circumstances in which the acquiror would obtain the power to elect
20% or more of the members of the Board of Directors was added to
the definition of a change of control under the Employment
Contracts. To the extent permitted by Foreign Ownership Restric-
tions and assuming the consummation of the Second Purchase (the
"Second Closing") results in BA's electing at least 20% of the
Board of Directors, the Second Closing would be treated as a change
of control and would result in extension of the term of each
Employment Contract until the earlier of the fourth anniversary of
the Second Closing or the Executive's normal retirement date. On
March 7, 1994, BA announced that it would not make any additional
investments in the Company under current circumstances. See Item
1. "Business-British Airways Announcement Regarding Additional
Investments in the Company; Code Sharing."
The Employment Contracts provide that, should USAir or any
successor fail to re-elect the Executive to his or her position,
assign the Executive to inappropriate duties which result in a
diminution in the Executive's position, authority or responsibili-
ties, fail to compensate the Executive as provided in the Employ-
ment Contract, transfer the Executive in violation of the Employ-
ment Contract, fail to require any successor to USAir to comply
with the Employment Contract or otherwise terminate the Executive's
employment in violation of the Employment Contract, the Executive
may elect to treat such failure as a breach of the Employment
Contract if the Executive then terminates employment. As liquidat-
ed damages as the result of an event not following a change of
control that is deemed to be a breach of the Employment Contracts,
USAir or its successor would be required to pay the Executive an
amount equal to his or her annual base salary for the then
remaining term of the Employment Contract, and to continue granting
certain employee benefits for the then remaining term of the
Executive's Employment Contract. If the breach follows a change of
control, the Executive would be entitled to receive (i) an amount
equal to the product of three times the sum of the Executive's
annual base salary plus an annual bonus, (ii) a lump sum equal to
the actuarial equivalent of the pension benefits which the
Executive would have received had he or she remained employed by
USAir until the end of the term of the Employment Contract, (iii)
medical benefits until such time as the Executive qualifies for
group medical benefits from another employer, (iv) travel benefits
for the Executive's life, (v) reimbursement of reductions in salary
sustained by the Executive as a result of a comprehensive cost
reduction program initiated by USAir in October 1991, and (vi)
continuation of certain other benefits during the remainder of the
term of the Employment Contract. In addition, except under the
circumstances described in the immediately following paragraph,
during the 30-day period immediately following the first anniversa
159
<PAGE>
ry of a change of control any Executive could elect to terminate
his or her Employment Contract for any reason and receive the
liquidated damages described in the immediately preceding sentence.
Each Employment Contract provides that if USAir breaches the
Employment Contract, as described above, each Executive shall be
entitled to recover from USAir reasonable attorney's fees in
connection with enforcement of such Executive's rights under the
Employment Contract. Each Employment Contract also provides that
any payments the Executive receives in the event of a termination
shall be increased, if necessary, such that, after taking into
account all taxes he or she would incur as a result of such
payments, the Executive would receive the same after-tax amount he
or she would have received had no excise tax been imposed under
Section 4999 of the Code.
In order to facilitate consummation of the acts and transac-
tions contemplated by the Investment Agreement, the Executives
agreed in January 1993 to an amendment to their Employment
Contracts that will become effective upon the Second Closing (i) to
eliminate their right to elect to terminate their Employment
Contracts without any reason during the 30-day period immediately
following the first anniversary of the Second Closing; (ii) that
USAir may transfer the Executive's employment to any location that
meets certain criteria in the Employment Contracts without such
relocation constituting a breach of the Employment Contracts; (iii)
that consummation of the Second Closing would be treated as the
only change of control with respect to BA; and (iv) that following
the Second Closing, USAir may make certain changes in benefit plans
affecting the Executives that are not material, as that term is
defined in the Employment Contracts, provided that the changes
apply to all eligible officers of USAir and are approved by a
majority of the directors of the Company not elected by BA.
Currently, under the Company's 1984 Stock Option and Stock
Appreciation Rights Plan (the "1984 Plan") and 1988 Stock Incentive
Plan (the "1988 Plan," and together with the 1984 Plan, the
"Plans"), pursuant to which employees of the Company and its
subsidiaries have been awarded stock options and stock appreciation
rights with respect to Common Stock and, in the case of the 1988
Plan, shares of Restricted Stock, occurrence of a change of
control, as defined, would make all granted options immediately
exercisable without regard to the vesting provisions thereof. In
addition, grantees would be able, during the 60-day period
immediately following a change of control (the "Cash-out Right"),
to surrender all unexercised stock options not issued in tandem
with stock appreciation rights under the Plans to the Company for
a cash payment equal to the excess, if any, of the fair market
value of the Common Stock over the exercise prices of such stock
options or the positive value of any stock appreciation rights. As
described above, in June 1992, the Company amended the definition
of a change of control in the Plans with the result that, to the
extent permitted by Foreign Ownership Restrictions and assuming the
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<PAGE>
Second Closing results in BA's electing at least 20% of the Board
of Directors, the Second Closing would be treated as a change of
control thereunder. As of March 1, 1994, there were unexercised
stock options to purchase 548,310 shares of Common Stock (of which
84,600 had tandem stock appreciation rights) under the 1984 Plan
and unexercised stock options to purchase 3,625,500 shares of
Common Stock (none of which had tandem stock appreciation rights)
under the 1988 Plan. (As of March 1, 1994, 3,177,400 of the
3,625,500 options outstanding under the 1988 Plan and 322,910 of
the 548,310 options outstanding under the 1984 Plan were exercis-
able pursuant to their normal vesting schedule.) The weighted
average exercise price of all the outstanding stock options was
approximately $23.15. On February 28, 1994, the closing price of
a share of Common Stock on the NYSE was $11.375. See the "Aggre-
gated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values" table for information regarding stock options
held by the Executives.
Currently, 50,400 shares of Restricted Stock previously
granted to the Executives may (i) become free of transfer restric-
tions upon their normal vesting schedule or (ii) be subject to
accelerated vesting upon a termination of employment which triggers
the payment of liquidated damages under the Employment Contracts,
as discussed above, regardless of whether the termination occurred
following a change of control as defined in the Employment
Contracts. See "Beneficial Security Ownership" for information
regarding Restricted Stock owned by the Executives.
With respect to Mr. Lagow, in order to induce him to accept
its offer of employment in 1992, USAir agreed, among other things,
to pay Mr. Lagow $1 million in four equal installments, each
installment being due and payable on the first four anniversaries
of the commencement of his employment by USAir, provided Mr. Lagow
remains employed by USAir. This payment was intended to compensate
Mr. Lagow for stock options and restricted stock which he forfeited
when he left his former employer. In the event of a change of
control under his Employment Contract or wrongful termination
thereunder, USAir has also agreed to pay Mr. Lagow in a lump sum
any unpaid balance of this obligation.
Notwithstanding anything to the contrary set forth in any of
the Company's or USAir's filings under the Securities Act of 1933,
as amended (the "Securities Act"), or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), that incorporates by
reference this Proxy Statement, in whole or in part, the following
Report and Performance Graph shall not be incorporated by reference
into any such filings.
161
<PAGE>
Report of the Compensation and Benefits Committee of the Board of
Directors
The Compensation Committee policies with respect to compensa-
tion of the Company's executive officers are to:
1. Attract and retain talented and experienced senior
management by offering compensation that is competitive with
respect to other major U.S. airlines and other U.S. companies of
comparable size.
2. Motivate senior management to provide a high-quality
product to consumers with the ultimate goal of maximizing profit-
ability and stockholder returns by offering incentive and long-term
compensation that is linked to return on sales and the market value
of the Common Stock.
The Compensation Committee has played an active role in the
oversight and review of all executive compensation paid to
executive officers of the Company during the last fiscal year.
Ordinarily, the Compensation Committee and the full Board of
Directors, in consultation with the Senior Vice President-Human
Resources of USAir and, if warranted, an independent compensation
consultant, annually review the total compensation package
(comprised of base salary, incentive compensation, and long-term
incentive compensation) of the Chairman, President and Chief
Executive Officer. The Compensation Committee reviews the market
rate for peer-level positions of the other major domestic passenger
carriers including, but not limited to, the three other airline
companies included in the S&P Airline Index, which is reflected in
the "Performance Graph." Based primarily on this comparison, the
Compensation Committee establishes the Chief Executive Officer's
base salary. Mr. Schofield does not participate in Compensation
Committee or Board of Directors deliberations or decision-making
regarding any aspect of his compensation.
Correspondingly, the Compensation Committee established the
compensation reported for 1993 for the Company's other executive
officers, including the four officers named in the Summary
Compensation Table, based upon a comparison of peer positions at
the other major U.S. airlines including, but not limited to, the
three other airline companies included in the S&P Airline Index,
which is reflected in the "Performance Graph."
The principal elements of the Company's compensation paid to
the executive officers in the last completed fiscal year are
discussed below.
Base Salary. As part of a comprehensive program to reduce
costs at USAir, the Compensation Committee reduced the salaries of
the executive officers and the other officers of USAir for a
fifteen month period commencing on January 1, 1992 and ending on
162
<PAGE>
March 29, 1993. The Compensation Committee reduced each ex-
ecutive's base salary in accordance with the following graduated
schedule:
~ First $20,000 of salary reduced by 0%
~ Next $30,000 of salary reduced by 10%
($20,000 to $50,000)
~ Next $50,000 of salary reduced by 15%
($50,000 to $100,000)
~ Any amount of salary in excess of $100,000
reduced by 20%.
Each of the executive officers agreed to the reductions in
salary, which otherwise would have constituted grounds for the
executives to have terminated their employment agreements with
USAir. The amounts of salary not paid in 1992 and 1993 to Mr.
Schofield and the other four executive officers named in the
Summary Compensation Table are disclosed in footnote (C) to that
table.
As stated above, the Compensation Committee establishes the
base salaries of the Company's executive officers primarily by
reference to the salaries of officers holding comparable positions
at other major U.S. airlines including, but not limited to, the
three other airline companies included in the S&P Airline Index,
which is reflected in the "Performance Graph." Historically, the
Compensation Committee had awarded merit increases based on
measuring individual performance against objectives. However, due
to the Company's poor financial performance, the Compensation
Committee last awarded merit increases in executive base salaries
in 1989. Since 1989 the Compensation Committee had increased the
salaries of executive officers solely as a result of a promotion or
an increase in responsibilities. The Company commissioned an
independent compensation consultant to conduct a comprehensive
study of the salaries of comparable airline officers in 1992. The
study disclosed that the salaries (prior to the fifteen-month
reduction described above) of most officers were substantially
below those of salaries for analogous positions at major competi-
tors. Following the study, in July 1992, the Compensation
Committee prospectively set the salaries of executive officers
generally at the median of the comparative range adjusted by
individual performance and experience, effective April 1993.
In connection with the same review, the Compensation Committee
proposed to increase Mr. Schofield's base salary (before adjustment
for the fifteen-month salary reductions) from $500,000 to $590,000,
effective April 1993. Because the Company has continued to sustain
losses, Mr. Schofield declined to accept the increase in base
salary.
163
<PAGE>
Annual Cash Incentive Compensation Program: The Compensation
Committee adopted the Executive Incentive Compensation Plan
effective on January 1, 1988. The plan is administered by the
Compensation Committee. All officers, including executive
officers, of the Company are eligible to participate in this plan.
The Compensation Committee is authorized to grant awards under
this plan only if the Company achieves for a fiscal year a two
percent or greater return on sales ("ROS"). The target level of
performance is four percent ROS. If the Company achieves the
target performance of four percent ROS, the full target percentage
(which varies depending on position) is applied against the
individual's base salary for the year to determine the target bonus
award (the "Target Award") for the individual.
Target Awards for executive officers range between 30% and 50%
of base salary. If the minimum level of performance of two percent
ROS is achieved, 50% of the Target Award would be available for
distribution. If the maximum level of performance of six percent
ROS is achieved, 200% of the Target Award would be available for
payment. The Compensation Committee may adjust awards made to
executive officers based on individual performance; however, no
award may exceed 250% of the Target Award for any individual. The
Compensation Committee last approved payments to executive officers
under this plan for the fiscal year ended December 31, 1988. The
Company has not achieved the minimum two percent ROS in any fiscal
year, and the Compensation Committee has not made any awards under
the plan, since then.
Long-Term Incentive Programs
Stock Options: The executive officers of the Company partici-
pate in the Company's 1984 Stock Option and Stock Appreciation
Rights Plan (the "1984 Plan") and 1988 Stock Incentive Plan (the
"1988 Plan", and together with the 1984 Plan, the "Plans") which
are both administered by the Compensation Committee.
The Compensation Committee is authorized to grant options
under these Plans only at an exercise price equal to the fair
market value of a share of Common Stock on the date of grant.
During 1993, the Compensation Committee did not grant any options
from either of the Plans to the executive officers.
The Compensation Committee determines the size of any option
grant under the Plans based upon (i) the Compensation Committee's
perceived value of the grant to motivate and retain the individual
executive, (ii) a comparison of long-term incentive practices
within the commercial airline industry, (iii) a comparison of
awards provided to peer executives within the Company and (iv) the
number of outstanding options held by the grantee and the exercise
prices of these options. Although the Compensation Committee
164
<PAGE>
supports and encourages stock ownership in the Company by executive
officers, it has not promulgated any standards regarding levels of
ownership by executive officers.
Pursuant to the reductions in the executive officers' salaries
discussed above, in 1992 the Compensation Committee granted these
persons non-qualified stock options to purchase 50 shares of Common
Stock at $15 per share for each $1,000 of salary foregone during
the wage reduction program, as is the case for each USAir employee
whose pay was reduced pursuant to the program.
165
<PAGE>
Restricted Stock
The Compensation Committee did not award any Restricted
Stock under the 1988 Plan during 1993. (Grants of Restricted Stock
are not authorized under the 1984 Plan). From 1988-1990, the
Compensation Committee granted Restricted Stock to a total of nine
executive officers, some of whom are no longer employed by USAir.
During 1993, restrictions on disposition expired on a total of
23,200 shares of Restricted Stock held by Mr. Schofield, which
shares were originally granted between 1988 and 1990. Restrictions
on disposition also lapsed during 1993 on a total of 10,900 shares
of Restricted Stock held by Messrs. Salizzoni, Lloyd and Schwab,
which shares were originally granted between 1988 and 1990.
The Omnibus Budget Reconciliation Act of 1993 added Section
162(m) to the Internal Revenue Code. Section 162(m) provides that
companies will not be entitled to a tax deduction for certain
compensation paid to any executive officer to the extent that the
compensation exceeds $1 million in a taxable year. The Compensa-
tion Committee is studying Section 162(m) and the proposed rules
thereunder and is in the process of determining whether to
recommend that the Company take the necessary measures to conform
its compensation to Section 162(m).
The Compensation Committee will continue to review all
compensation and benefit matters presented to it and will act based
upon the best information available in the best interests of the
Company, its stockholders and employees.
Mathias J. DeVito, Chairman
George J. W. Goodman
John W. Harris
Roger P. Maynard
John G. Medlin, Jr.
Raymond W. Smith
166
<PAGE>
PERFORMANCE GRAPH
This graph compares the performance of the Company's Common
Stock during the period January 1, 1989 to December 31, 1993 with
the S&P 500 Index and the S&P Airline Index. The graph depicts the
results of investing $100 in the Company's Common Stock, the S&P
500 Index and the S&P Airline Index at closing prices on Decem-
ber 31, 1988. The stock price performance shown on the graph is
not necessarily indicative of future performance. The S&P Airline
Index consists of AMR Corporation, Delta Air Lines, Inc., UAL
Corporation and the Company.
<TABLE>
<CAPTION>
As of December 31,
------------------------------------
1/1/89 1989 1990 1991 1992 1993
------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Index $100 $129 $127 $155 $163 $172
S&P Airline Index 100 127 93 120 107 113
USAir Group, Inc. 100 97 46 35 37 38
</TABLE>
167
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following information pertains to Common Stock, Series A
Preferred Stock, Series F Preferred Stock, Series T Preferred Stock
and Depositary Shares ("Depositary Shares"), each representing
1/100 of a share of the Company's $437.50 Series B Cumulative
Convertible Preferred Stock, without par value ("Series B Preferred
Stock"), beneficially owned by all directors and executive officers
of the Company as of March 1, 1994. Unless indicated otherwise,
the information refers to ownership of Common Stock. Unless
indicated otherwise by footnote, the owner exercises sole voting
and investment power over the securities (other than unissued
securities, the ownership of which has been imputed to such owner).
<TABLE>
<CAPTION>
Number of Percent of
Owner Shares(1) Class(2)
----- --------- ---------
<S> <C> <C>
Directors
Warren E. Buffett........ -(3) (3)
Edwin I. Colodny......... 169,512(4)
Mathias J. DeVito........ 700
George J. W. Goodman..... 200 Depositary Shares(5)
John W. Harris........... 400
Edward A. Horrigan, Jr... 500
Robert LeBuhn............ 8,000
Sir Colin Marshall....... -(6) (6)
Roger P. Maynard......... -(6) (6)
John G. Medlin, Jr....... 2,000
Hanne M. Merriman........ 1,500
Charles T. Munger........ -(3) (3)
Seth E. Schofield........ 421,789(7)
Richard P. Simmons....... 5,000
Raymond W. Smith......... 500
Derek M. Stevens......... -(6) (6)
Executive Officers
W. Thomas Lagow....... 63,211(8)
Frank L. Salizzoni.... 167,800(9)
James T. Lloyd........ 191,492(10)
Michael R. Schwab..... 186,492(11)
26 directors and execu-
tive officers of the
Company as a group..... 1,484,232(12) 2.4%
- ------
(1) The persons listed also own a number of Preferred Share
Purchase Rights (the "Rights") equal to their Common Stock
holdings, or, in the case of the Series A Preferred Stock,
</TABLE>
168
<PAGE>
Series F Preferred Stock and Series T Preferred Stock, Common
Stock receivable upon conversion. In addition, such Rights are
issuable on a one-for-one basis with respect to shares of
Common Stock receivable upon exercise of stock options or
conversion of Depositary Shares.
(2) Percentages are shown only where they exceed one percent of
the number of shares outstanding and, in the case of Common
Stock holdings are based on shares of Common Stock outstanding
(exclusive of treasury stock) on March 1, 1994.
(3) Various affiliates of Berkshire Hathaway Inc. ("Berkshire")
are recordholders of 358,000 or 100% of the outstanding shares
of Series A Preferred Stock. Messrs. Buffett and Munger are
Chairman and Chief Executive Officer and Vice Chairman,
respectively, of Berkshire and may be deemed to control that
company. Messrs. Buffett and Munger each disclaims beneficial
ownership of Series A Preferred Stock. Series A Preferred
Stock is currently convertible into 9,239,944 shares of Common
Stock, which represents approximately 10.5% of the total
voting interest represented by Common Stock, Series F Pre-
ferred Stock, Series T Preferred Stock and Series A Preferred
Stock at March 1, 1994.
(4) The listing of Mr. Colodny's holding includes 67,000 shares of
Common Stock issuable within 60 days of March 1, 1994 upon
exercise of stock options.
(5) Mr. Goodman's holdings of Depositary Shares is convertible
into 498 shares of Common Stock.
(6) A wholly-owned subsidiary of BA is recordholder of 30,000 or
100% of the outstanding shares of Series F Preferred Stock,
152.1 or 100% of the outstanding shares of the Series T-1
Preferred Stock and 9,919.8 or 100% of the outstanding shares
of the Series T-2 Preferred Stock pursuant to the Investment
Agreement. Messrs. Marshall, Maynard and Stevens are Chair-
man, Director of Corporate Strategy and Chief Financial Offic-
er, respectively, of BA and have been designated by BA to act
as directors of the Company pursuant to the Investment
Agreement. Messrs. Marshall, Maynard and Stevens each dis-
claims beneficial ownership of Series F Preferred Stock and
Series T Preferred Stock.
(7) The listing of Mr. Schofield's holding includes 335,069 shares
of Common Stock issuable within 60 days of March 1, 1994 upon
exercise of stock options, and 30,000 shares of Common Stock
subject to certain restrictions upon disposition ("Restricted
Stock").
(8) The listing of Mr. Lagow's holding reflects shares of Common
Stock issuable within 60 days of March 1, 1994 upon exercise
of stock options.
(9) The listing of Mr. Salizzoni's holding includes 152,800 shares
of Common Stock issuable within 60 days of March 1, 1994 upon
exercise of stock options and 6,000 shares of Restricted
Stock.
(10) The listing of Mr. Lloyd's holding includes 169,742 shares of
Common Stock issuable within 60 days of March 1, 1994 upon
169
<PAGE>
exercise of stock options and 4,000 shares of Restricted
Stock.
(11) The listing of Mr. Schwab's holding includes 167,992 shares of
Common Stock issuable within 60 days of March 1, 1994 upon
exercise of stock options and 3,200 shares of Restricted
Stock.
(12) The listing of all directors' and officers' holdings includes
1,193,583 shares of Common Stock issuable within 60 days of
March 1, 1994 upon exercise of stock options and 50,400 shares
of Restricted Stock.
The only persons known to the Company (from Company records
and reports on Schedules 13D and 13G filed with the Securities and
Exchange Commission (the "SEC")) which owned, as of March 1, 1994,
more than 5% of its Common Stock, Series A Preferred Stock, Series
F Preferred Stock and Series T Preferred Stock are listed below:
<TABLE>
<CAPTION>
Amount and
Name and address nature of Percent
of beneficial beneficial of
Title of Class owner ownership Class(1)
- -------------- ----------------- ---------- --------
<S> <C> <C> <C>
Series A Preferred Berkshire Hathaway Inc. 358,000(2) 100%(3)
Stock 1440 Kiewit Plaza
Omaha, Nebraska 68131
Series F Preferred BritAir Acquisition 30,000(4) 100%(5)
Stock Corp. Inc.
75-20 Astoria Blvd.
Jackson Heights,
New York 11370
Series T Preferred BritAir Acquisition (6) 100%(5)
Stock Corp. Inc. (6)
75-20 Astoria Blvd.
Jackson Heights
New York 11370
Common Stock The Equitable Com- 6,307,503(7) 10.6%(8)
panies Incorporated
787 Seventh Avenue
New York
New York 10019
Common Stock Brinson Holdings, Inc. 4,832,200(9) 8.2%
209 South LaSalle
Chicago,
Illinois 60604
- ---------
</TABLE>
(1) Represents percent of class of stock outstanding (exclusive of
170
<PAGE>
treasury stock) on March 1, 1994.
(2) Number of shares as to which such person has shared voting
power-358,000; shared dispositive power-358,000.
(3) These shares of Series A Preferred Stock are owned directly by
affiliates of Berkshire, are convertible, under certain
circumstances and subject to certain antidilution adjustments,
into 9,239,944 shares of Common Stock and represent approxi-
mately 10.5% of the combined voting power of the outstanding
Common Stock, Series A Preferred Stock, Series F Preferred
Stock and Series T Preferred Stock, voting as a single class,
at March 1, 1994. A number of Rights, equal to the number of
shares of Common Stock into which the Series A Preferred Stock
is convertible, is also owned by this person. As disclosed
above, two directors of the Company, Messrs. Buffett and
Munger, may be deemed to control Berkshire and disclaim
beneficial ownership of Series A Preferred Stock.
(4) Number of shares as to which BA has sole voting power and sole
dispositive power-30,000.
(5) BritAir Acquisition Corp. Inc. is a wholly-owned subsidiary of
BA and owns Series F Preferred Stock and Series T Preferred
Stock pursuant to the Investment Agreement. Series F Preferred
Stock and Series T Preferred Stock are convertible, under
certain circumstances on or after January 21, 1997 and subject
to certain antidilution adjustments and Foreign Ownership
Restrictions, into a total of 15,458,658 and 3,831,695 shares
of Common Stock, respectively. Together, the Series F Pre-
ferred Stock and Series T Preferred Stock represent approxi-
mately 21.9% of the combined voting power of the outstanding
Common Stock, Series A Preferred Stock, Series F Preferred
Stock and Series T Preferred Stock, voting as a single class,
at March 1, 1994. A number of Rights, equal to the number of
shares of Common Stock into which the Series F Preferred Stock
and Series T Preferred Stock are convertible, is owned by this
person. As disclosed above, three directors of the Company,
Messrs. Marshall, Maynard and Stevens, have been designated by
BA to act as directors of the Company pursuant to the Invest-
ment Agreement and disclaim beneficial ownership of Series F
Preferred Stock and Series T Preferred Stock.
(6) Reflects 152.1 or 100% of the outstanding shares of Series T-1
Preferred Stock and 9,919.8 or 100% of the outstanding shares
of Series T-2 Preferred Stock. BA has sole voting power and
sole dispositive power as to all these outstanding shares of
Series T Preferred Stock.
(7) The Schedule 13G dated January 6, 1994 disclosing such
ownership was jointly filed by such person with five French
mutual insurance companies ("Mutuelles AXA") and AXA. The
Schedule 13G indicated that each of Mutuelles AXA, as a group,
and AXA expressly declares that the filing of the Schedule 13G
should not be construed as an admission that it is, for
purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended, the beneficial owner of any securities
covered by the Schedule 13G. The Company is investigating
171
<PAGE>
whether, owing to the investment of Mutuelles AXA and AXA
(collectively, "AXA") in the Equitable Companies Incorporated
("Equitable"), AXA is the beneficial owner of these shares.
If it is determined that AXA is the beneficial owner, then
self-effectuating provisions of the Company's restated
certificate of incorporation, as amended, would provide that
the subject shares would be non-voting shares. The Company
does not know whether Equitable would cause such shares to be
sold in the event such shares have no voting rights. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations-Industry Globalization and Regula-
tion" for information regarding U.S. statutory limitations on
foreign ownership of U.S. air carriers and Item 1. "Business-
British Airways Investment Agreement" and notes (4), (5) and
(6) above for information regarding BA's ownership interest in
the Company.
(8) Number of shares as to which person has sole voting power-
5,669,403; shared voting power-1,300; no voting power-636,800;
sole dispositive power-6,305,703; shared dispositive power-
none; no dispositive power-1,800.
(9) The shares are owned by a direct and an indirect subsidiary of
the person. Number of shares as to which such subsidiaries
have sole voting power-4,832,200; sole dispositive power-
4,832,200.
In connection with BA's purchase of the Series T Preferred
Stock in June 1993, Messrs. Marshall, Maynard and Stevens and BA
were required by Section 16 of the Securities Exchange Act of 1934,
as amended, and rules thereunder to file by July 10, 1993, Form 4
reports disclosing this change of ownership. Messrs. Marshall,
Maynard and Stevens and BA filed these reports on September 14,
1993.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
172
<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. FINANCIAL STATEMENTS
(i) The following consolidated financial statements of
USAir Group are included in Part II, Item 8A of this report:
- Consolidated Statements of Operations for each of the
Three Years Ended December 31, 1993
- Consolidated Balance Sheets at December 31, 1993 and
1992
- Consolidated Statements of Cash Flows for each of the
Three Years Ended December 31, 1993
- Consolidated Statements of Changes in Stockholders'
Equity for each of the Three Years Ended December 31,
1993
- Notes to Consolidated Financial Statements
(ii) The following consolidated financial statements of
USAir are included in Part II, Item 8B of this report:
- Consolidated Statements of Operations for each of the
Three Years Ended December 31, 1993
- Consolidated Balance Sheets at December 31, 1993 and
1992
- Consolidated Statements of Cash Flows for each of the
Three Years Ended December 31, 1993
- Consolidated Statements of Changes in Stockholder's
Equity for each of the Three Years Ended December 31,
1993
- Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
(i) Independent Auditors' Report on Consolidated Financial
Statement Schedules of USAir Group.
- Consolidated Financial Statement Schedules - Three
Years Ended December 31, 1993:
V - Property, Equipment and Leasehold Improvements
VI - Accumulated Depreciation and Amortization of Prop-
erty, Equipment and Leasehold Improvements
VII - Guarantees of Securities of Other Issuers
VIII - Valuation and Qualifying Accounts and Reserves
X - Supplementary Income Statement Information
173
<PAGE>
(ii) Independent Auditors' Report on Consolidated Financial
Statement Schedules of USAir.
- Consolidated Financial Statement Schedules - Three
Years Ended December 31, 1993:
IV - Indebtedness to Related Parties - Not Current
V - Property, Equipment and Leasehold Improvements
VI - Accumulated Depreciation and Amortization of Prop-
erty, Equipment and Leasehold Improvements
VII - Guarantees of Securities of Other Issuers
VIII - Valuation and Qualifying Accounts and Reserves
X - Supplementary Income Statement Information
All other schedules are omitted because they are not appli-
cable 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.
(b) Reports on Form 8-K
During the quarter ended December 31, 1993, the Company and
USAir filed Current Reports dated September 23, October 20, and
November 4, 1993, on Form 8-K regarding the Second Waiver dated
September 15, 1993 to the Credit Agreement, results for the quarter
ended September 30, 1993 and the sale of $337.7 million of pass
through certificates, respectively. The Company and USAir filed a
Current Report dated January 18, 1994 on Form 8-K regarding the
Third Waiver dated as of December 21, 1993 to the Credit Agreement.
In addition, the Company and USAir filed a Current Report dated
January 25, 1994 on Form 8-K regarding the press release dated
January 25, 1994 of USAir Group, Inc. and USAir, Inc., with
consolidated statements of operations for each company. On
March 9, 1994, the Company and USAir filed a Current Report on Form
8-K disclosing projected losses for the first quarter and year 1994
and the initiation of negotiations with the leadership of USAir's
unions regarding pay reductions and productivity improvements.
3. EXHIBITS
Designation Description
3.1 Restated Certificate of Incorporation of USAir Group
(incorporated by reference to Exhibit 3.1 to USAir
Group's Registration Statement on Form 8-B dated
January 27, 1983), including the Certificate of Amend-
ment dated May 13, 1987 (incorporated by reference to
Exhibit 3.1 to USAir Group's and USAir's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1987), the Certificate of Increase dated June 30, 1987
(incorporated by reference to Exhibit 3 to USAir
Group's and USAir's Quarterly Report on Form 10-Q for
174
<PAGE>
the quarter ended June 30, 1987), the Certificate of
Increase dated October 16, 1987 (incorporated by
reference to Exhibit 3.1 to USAir Group's and USAir's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1987), the Certificate of Increase dated
August 7, 1989 (incorporated by reference to Exhibit
3.1 to USAir Group's Annual Report on Form 10-K for the
year ended December 31, 1989), the Certificate of
Increase dated April 9, 1992, the Certificate of
Increase dated January 21, 1993, and as amended by
Amendment No. 1 dated May 26, 1993 (incorporated by
reference to Appendix II to USAir Group's Proxy State-
ment dated April 26, 1993).
3.2 By-Laws of USAir Group (incorporated by reference to
Exhibit 3.2 to USAir Group's and USAir's Annual Report
on Form 10-K for the year ended December 31, 1992).
3.3 Rights Agreement, dated as of July 29, 1989, as amended
and restated as of January 21, 1993, between USAir
Group and Chemical Bank, as Rights Agent (incorporated
by reference to Exhibit 28.4 to USAir Group's Current
Report on Form 8-K dated January 21, 1993).
3.4 Restated Certificate of Incorporation of USAir (in-
corporated by reference to Exhibit 3.1 to USAir's
Registration Statement on Form 8-B dated January 27,
1983).
3.5 By-Laws of USAir (incorporated by reference to Exhibit
3.5 to USAir Group's and USAir's Annual Report on Form
10-K for the year ended December 31, 1992).
4.1 Amended Certificate of Designation, Preferences, and
Rights of the Series D of Junior Preferred Stock of
USAir Group (incorporated by reference to Exhibit 4(c)
to USAir Group's Current Report on Form 8-K dated
August 11, 1989).
4.2 Certificate of Designation of Series A Cumulative
Convertible Preferred Stock of USAir Group (incorpo-
rated by reference to Exhibit 4(b) to USAir Group's
Current Report on Form 8-K dated August 11, 1989).
4.3 Certificate of Designation of Series B Cumulative
Convertible Preferred Stock of USAir Group (incorpo-
rated by reference to Exhibit 3.3 to Amendment No. 4 to
USAir Group's Registration Statement on Form S-3
(Registration No. 33-39540) dated May 17, 1991).
175
<PAGE>
4.4 Agreement between USAir Group and Berkshire Hathaway
Inc. dated August 7, 1989 (incorporated by reference to
Exhibit 4(a) to USAir Group's Current Report on Form 8-
K dated August 11, 1989).
4.5 Certificate of Designation of Series F Cumulative
Convertible Senior Preferred Stock of USAir Group
(incorporated by reference to Exhibit 28.2 to USAir
Group's Current Report on Form 8-K dated January 21,
1993).
4.6 Form of Certificate of Designation of Series T-_
Cumulative Exchangeable Convertible Senior Preferred
Stock of USAir Group (incorporated by reference to
Appendix VII to USAir Group's Proxy Statement dated
April 26, 1993).
Neither USAir Group nor USAir is filing any instrument
(with the exception of holders of exhibits 10.1(a-h))
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 USAir. Copies of such instruments will
be furnished to the Securities and Exchange Commission
upon request.
10.1(a) Credit Agreement dated as of March 30, 1987 and Amended
and Restated as of October 21, 1988 among the Banks
named therein and USAir Group (incorporated by
reference to Exhibit 28.2 to Amendment No. 1 dated
October 28, 1988 to Piedmont's Registration Statement
on Form S-3 No. 33-24870 dated October 7, 1988).
10.1(b) First Amendment, dated as of July 28, 1989, to USAir
Group's Amended and Restated Credit Agreement (incor-
porated by reference to Exhibit 10.1(b) to USAir
Group's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.1(c) Second Amendment, dated as of February 15, 1990, to
USAir Group's Amended and Restated Credit Agreement
(incorporated by reference to Exhibit 10.1 to USAir
Group's Current Report on Form 8-K dated October 26,
1990).
10.1(d) Third Amendment, dated as of September 30, 1990, to
USAir Group's Amended and Restated Credit Agreement
(incorporated by reference to Exhibit 10.2 to USAir
Group's Current Report on Form 8-K dated October 26,
1990).
176
<PAGE>
10.1(e) Fourth Amendment, dated as of March 29, 1991, to USAir
Group's Amended and Restated Credit Agreement (incor-
porated by reference to the Exhibit to USAir Group's
Current Report on Form 8-K dated April 23, 1991).
10.1(f) Fifth Amendment, dated as of April 26, 1991, to USAir
Group's Amended and Restated Credit Agreement (incor-
porated by reference to Exhibit 28.7 to USAir Group's
Registration Statement on Form S-8 No. 33-39540 dated
April 26, 1991).
10.1(g) Sixth Amendment, dated as of October 14, 1992, to USAir
Group's Amended and Restated Credit Agreement (incor-
porated by reference to Exhibit 28.3 to USAir Group's
and USAir's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992).
10.1(h) Seventh Amendment, dated as of June 21, 1993, to USAir
Group's Amended and Restated Credit Agreement (incor-
porated by reference to Exhibit 28 to USAir Group's
Current Report on Form 8-K filed on July 1, 1993).
10.2(a) Supplemental Agreement No. 16, dated July 19, 1990, to
Purchase Agreement No. 1102 between USAir and The
Boeing Company (incorporated by reference to Exhibit
10.2(a) to USAir Group's Annual Report on Form 10-K for
the year ended December 31, 1990).
10.2(b) Supplemental Agreement No. 17, dated November 28, 1990,
to Purchase Agreement No. 1102 between USAir and The
Boeing Company (incorporated by reference to Exhibit
10.2(b) to USAir Group's Annual Report on Form 10-K for
the year ended December 31, 1990).
10.2(c) Supplemental Agreement No. 18, dated December 23, 1991,
to Purchase Agreement No. 1102 between USAir and The
Boeing Company (incorporated by reference to Exhibit
10.2(c) to USAir Group's Annual Report on Form 10-K for
the year ended December 31, 1991).
10.3 Purchase Agreement No. 1725 dated December 23, 1991
between USAir and The Boeing Company (incorporated by
reference to Exhibit 10.3 to USAir Group's and USAir's
Annual Report on Form 10-K for the year ended Decem-
ber 31, 1991).
10.4 USAir, Inc. Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.3 to USAir
Group's Annual Report on Form 10-K for the year ended
December 31, 1989).
177
<PAGE>
10.5 USAir, Inc. Officers' Supplemental Benefit Plan
(incorporated by reference to Exhibit 10.5 to USAir's
Annual Report on Form 10-K for the year ended
December 31, 1980).
10.6 USAir, Inc. Supplementary Retirement Benefit Plan
(incorporated by reference to Exhibit 10.5 to USAir
Group's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.7 USAir Group's 1984 Stock Option and Stock Appreciation
Rights Plan (incorporated by reference to Exhibit A to
USAir Group's Proxy Statement dated March 30, 1984).
10.8 USAir Group's 1988 Stock Incentive Plan (incorporated
by reference to Exhibit 10.15 to USAir Group's Annual
Report on Form 10-K for the year ended December 31,
1987).
10.9 USAir Group's 1992 Stock Option Plan (incorporated by
reference to Exhibit A to USAir Group's Proxy Statement
dated March 30, 1992).
10.10 Employment Agreement between USAir and its President
and Chief Executive Officer (which is similar in form
to the employment agreements of USAir Group's other
executive officers) (incorporated by reference to
Exhibit 10.9 to USAir Group's and USAir's Annual Report
on Form 10-K for the year ended December 31, 1991).
10.11 Agreements providing supplemental retirement benefits
for the following officers of USAir: Executive Vice
President and General Counsel (incorporated by
reference to Exhibit 10.14 to USAir Group's Annual
Report on Form 10-K for the year ended December 31,
1987), Executive Vice President-Operations, Senior Vice
President-Corporate Communications and Senior Vice
President-Human Resources (incorporated by reference to
Exhibit 10.9 to USAir Group's Annual Report on Form 10-
K for the year ended December 31, 1989).
10.12(a) Trust Agreement dated as of August 1, 1989 between
USAir Group and Wachovia Bank and Trust Company, N.A.,
as Trustee (incorporated by reference to Exhibit
10.10(a) to USAir Group's Annual Report on Form 10-K
for the year ended December 31, 1989).
10.12(b) Trust Agreement dated as of August 1, 1989 between
USAir and Wachovia Bank and Trust Company, N.A., as
Trustee (incorporated by reference to Exhibit 10.10(b)
to USAir Group's Annual Report on Form 10-K for the
year ended December 31, 1989).
178
<PAGE>
10.13 Investment Agreement dated as of January 21, 1993
between USAir Group and British Airways Plc
(incorporated by reference to Exhibit 28.1 to USAir
Group's and USAir's Current Report on Form 8-K filed on
January 28, 1993, as amended by Amendment No. 1 on Form
8 filed on April 13, 1993).
10.13(a) Amendment dated as of February 21, 1994 to the
Investment Agreement dated as of January 21, 1993
between USAir Group and British Airways Plc.
11 Computation of primary and fully diluted earnings per
share of USAir Group for the five years ended
December 31, 1993.
21 Subsidiaries of USAir Group and USAir.
23.1 Consent of the Auditors of USAir 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 USAir 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 USAir
Group, authorizing their signatures on this report.
24.2 Powers of Attorney signed by the directors of USAir,
authorizing their signatures on this report.
179
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, USAir Group, Inc. has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
USAir Group, Inc.
By: /s/Seth E. Schofield
---------------------------------
Seth E. Schofield
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
Date: March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of USAir Group, Inc. and in the capacities and on the dates
indicated.
March 25, 1994 By: /s/Seth E. Schofield
---------------------------------
Seth E. Schofield
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
March 25, 1994 By: /s/Frank L. Salizzoni
---------------------------------
Frank L. Salizzoni
Executive Vice President-Finance
(Principal Financial Officer)
March 25, 1994 By: /s/Ann Greer-Rector
---------------------------------
Ann Greer-Rector
Vice President & Controller
(Principal Accounting Officer)
March 25, 1994 By: *
--------------------------------
Warren E. Buffett
Director
180
<PAGE>
March 25, 1994 By: *
---------------------------------
Edwin I. Colodny
Director
March 25, 1994 By: *
--------------------------------
Mathias J. DeVito
Director
March 25, 1994 By: *
--------------------------------
George J. W. Goodman
Director
March 25, 1994 By: *
---------------------------------
John W. Harris
Director
March 25, 1994 By: *
---------------------------------
Edward A. Horrigan, Jr.
Director
March 25, 1994 By: *
---------------------------------
Robert LeBuhn
Director
March 25, 1994 By: *
---------------------------------
Sir Colin Marshall
Director
March 25, 1994 By: *
---------------------------------
Roger P. Maynard
Director
March 25, 1994 By: *
---------------------------------
John G. Medlin, Jr.
Director
181
<PAGE>
March 25, 1994 By: *
---------------------------------
Hanne M. Merriman
Director
March 25, 1994 By: *
--------------------------------
Charles T. Munger
Director
March 25, 1994 By: *
---------------------------------
Richard P. Simmons
Director
March 25, 1994 By: *
---------------------------------
Raymond W. Smith
Director
March 25, 1994 By: *
--------------------------------
Derek M. Stevens
Director
By: /s/Frank L. Salizzoni
------------------------------
Frank L. Salizzoni
Attorney-In-Fact
182
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, USAir, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
USAir, Inc.
By: /s/Seth E. Schofield
---------------------------------
Seth E. Schofield
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
Date: March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of USAir, Inc. and in the capacities and on the dates
indicated.
March 25, 1994 By: /s/Seth E. Schofield
---------------------------------
Seth E. Schofield
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
March 25, 1994 By: /s/Frank L. Salizzoni
---------------------------------
Frank L. Salizzoni
Executive Vice President-Finance
(Principal Financial Officer)
March 25, 1994 By: /s/Ann Greer-Rector
---------------------------------
Ann Greer-Rector
Vice President & Controller
(Principal Accounting Officer)
March 25, 1994 By: *
--------------------------------
Warren E. Buffett
Director
183
<PAGE>
March 25, 1994 By: *
---------------------------------
Edwin I. Colodny
Director
March 25, 1994 By: *
--------------------------------
Mathias J. DeVito
Director
March 25, 1994 By: *
--------------------------------
George J. W. Goodman
Director
March 25, 1994 By: *
---------------------------------
John W. Harris
Director
March 25, 1994 By: *
---------------------------------
Edward A. Horrigan, Jr.
Director
March 25, 1994 By: *
---------------------------------
Robert LeBuhn
Director
March 25, 1994 By: *
---------------------------------
Sir Colin Marshall
Director
March 25, 1994 By: *
---------------------------------
Roger P. Maynard
Director
March 25, 1994 By: *
---------------------------------
John G. Medlin, Jr.
Director
184
<PAGE>
March 25, 1994 By: *
---------------------------------
Hanne M. Merriman
Director
March 25, 1994 By: *
--------------------------------
Charles T. Munger
Director
March 25, 1994 By: *
---------------------------------
Richard P. Simmons
Director
March 25, 1994 By: *
---------------------------------
Raymond W. Smith
Director
March 25, 1994 By: *
--------------------------------
Derek M. Stevens
Director
By: /s/Frank L. Salizzoni
------------------------------
Frank L. Salizzoni
Attorney-In-Fact
185
<PAGE>
Independent Auditors' Report
On Consolidated Financial Statement Schedules - USAir Group, Inc.
The Stockholders and Board of Directors
USAir Group, Inc.:
Under date of February 25, 1994, we reported on the consoli-
dated balance sheets of USAir Group, Inc. and subsidiaries
("Group") as of December 31, 1993 and 1992, and the related
consolidated statements of operations, cash flows, and changes in
stockholders' equity (deficit) for each of the years in the three-
year period ended December 31, 1993, as included in Item 8A in this
annual report on Form 10-K for the year 1993. In connection with
our audits of the aforementioned consolidated financial statements,
we also audited the related consolidated financial statement
schedules as listed in Item 14(a)2(i). These consolidated
financial statement schedules are the responsibility of Group's
management. Our responsibility is to express an opinion on these
consolidated financial statement schedules based on our audits.
In our opinion, such consolidated financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK
Washington, D. C.
February 25, 1994
186
<PAGE>
<TABLE>
USAir Group, Inc.
SCHEDULE V
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
<CAPTION>
Other
Changes,
Balance At Retire- Add Balance
Beginning Additions ments (Deduct) At Close
Of Year At Cost (1) (2) Of Year
---------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Flight Equipment $4,545,771 $740,440 $254,877 $ 17 $5,031,351
Ground Property
and Equipment 1,041,718 75,614 42,894 88 1,074,526
--------- ------- ------- ---- ---------
$5,587,489 $816,054 $297,771 $ 105 $6,105,877
========= ======= ======= ==== =========
(1) Retirements include $182 million for McDonnell Douglas MD-82 aircraft ($172 million of which
is reflected in 1993 additions) sold to a third party and $39 million for Boeing 727-200 air-
craft under capital lease that were returned to the lessor.
(2) Other Changes consist primarily of reclassification.
187
<PAGE>
USAir Group, Inc.
SCHEDULE V
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1992
(in thousands)
<CAPTION>
Other
Changes,
Balance At Retire- Add Balance
Beginning Additions ments (Deduct) At Close
Of Year At Cost (1) (2) Of Year
---------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Flight Equipment $4,592,725 $338,096 $385,550 $ 500 $4,545,771
Ground Property
and Equipment 1,017,256 102,403 77,526 (415) 1,041,718
--------- ------- ------- ----- ---------
$5,609,981 $440,499 $463,076 $ 85 $5,587,489
========= ======= ======= ===== =========
(1) Flight equipment retirements include $265 million for aircraft sold in sale and leaseback
transactions.
(2) Other Changes consist primarily of reclassification.
188
<PAGE>
USAir Group, Inc.
SCHEDULE V
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1991
(in thousands)
<CAPTION>
Other
Changes,
Balance At Retire- Add Balance
Beginning Additions ments (Deduct) At Close
Of Year At Cost (1) (2) Of Year
---------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Flight Equipment $4,390,762 $452,263 $250,317 $ 17 $4,592,725
Ground Property
and Equipment 1,002,069 46,969 31,791 9 1,017,256
--------- ------- ------- ----- ---------
$5,392,831 $499,232 $282,108 $ 26 $5,609,981
========= ======= ======= ===== =========
(1) Flight equipment retirements include $170 million for aircraft sold in sale and leaseback
transactions.
(2) Other Changes consist principally of reclassification.
189
<PAGE>
USAir Group, Inc.
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
<CAPTION>
Other
Additions Changes,
Balance At Charged Retire- Add Balance
Beginning To ments (Deduct) At Close
Of Year Income (1) (2) Of Year
---------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Flight Equipment $1,134,586 $205,383 $58,747 $ 740 $1,281,962
Ground Property
and Equipment 530,834 100,947 30,090 205 601,896
--------- ------- ------ ----- ---------
$1,665,420 $306,330 $88,837 $ 945 $1,883,858
========= ======= ====== ===== =========
(1) Retirements include $39 million for Boeing 727-200 aircraft under capital lease that were
returned to the lessor.
(2) Other Changes consist primarily of reclassification.
190
<PAGE>
USAir Group, Inc.
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1992
(in thousands)
<CAPTION>
Other
Balance At Additions Changes,
Beginning Charged Add Balance
Of Year To Retire- (Deduct) At Close
(1) Income ments (2) Of Year
---------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Flight Equipment $ 979,854 $203,870 $ 48,616 $(522) $1,134,586
Ground Property
and Equipment 480,863 105,498 55,353 (174) 530,834
--------- ------- ------- ---- --------
$1,460,717 $309,368 $103,969 $(696) $1,665,420
========= ======= ======= ==== =========
(1) Certain beginning amounts have been reclassified to conform with 1992 and 1993 classifications.
(2) Other Changes consist primarily of reclassification.
191
<PAGE>
USAir Group, Inc.
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1991
(in thousands)
<CAPTION>
Other
Additions Changes,
Balance At Charged Add Balance
Beginning To Income Retire- (Deduct) At Close
Of Year (1) ments (2) Of Year (1)
---------- --------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Flight Equipment $ 848,832 $192,658 $61,661 $ 25 $ 979,854
Ground Property
and Equipment 389,129 106,446 15,337 625 480,863
--------- ------- ------ ---- --------
$1,237,961 $299,104 $76,998 $ 650 $1,460,717
========= ======= ====== ==== =========
(1) Certain 1991 amounts have been reclassified to conform with 1992 and 1993 classifications.
(2) Other Changes consist primarily of reclassification.
192
<PAGE>
USAir Group, Inc.
SCHEDULE VII
GUARANTEES OF SECURITIES OF OTHER ISSUERS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in millions)
<CAPTION>
Name of Issuer of Securities Title of Issue Total Amount
Guaranteed by Person for of Each Class of Guaranteed And
Which Statement is Filed Securities Guaranteed Outstanding Nature of Guarantee
- -------------------------- --------------------- -------------- -------------------
Guaranteed by USAir, Inc.:
- -------------------------
<S> <C> <C> <C>
The Galileo International Unsecured borrowings under $16 Principal and interest
Partnership revolving credit facilities ==
193
<PAGE>
USAir Group, Inc.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<CAPTION>
Allowance for
Uncollectible Inventory
Accounts Obsolescence
------------- ------------
<S> <C> <C>
Balance December 31, 1990 $ 8,461 $ 66,131
Additions charged to income 13,065 15,575
Amounts charged to reserve (10,059) (3,911)
Other (1) - 139
------- -------
Balance December 31, 1991 11,467 77,934
Additions charged to income 9,927 16,693
Amounts charged to reserve (8,065) (6,197)
Other (2) (1,661) (2,752)
------ -------
Balance December 31, 1992 11,668 85,678
Additions charged to income 12,064 12,136
Amounts charged to reserve (12,914) (2,643)
------- -------
Balance December 31, 1993 $ 10,818 $ 95,171
======= =======
(1) Includes a reduction in the reserve balance related to the sale of Pacific Southwest
Airmotive inventory and reclassification.
(2) Represents the reserve balances of Air Services, Inc., Aviation Supply Corporation and
Piedmont Aviation Services, Inc. which were sold in July 1992.
Certain 1991 amounts have been reclassified to conform with 1992 and 1993 classifications.
194
<PAGE>
USAir Group, Inc.
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
Presented below are amounts that are included in the Consolidated Statement of Operations
for each of the years in the three-year period ended December 31, 1993 which exceed one percent
of total operating revenues:
<CAPTION>
1993 1992 (1) 1991 (1)
---- ---- ----
<S> <C> <C> <C>
Maintenance and Repairs $899,698 $862,368 $840,372
======= ======= =======
Taxes $ 50,540 $ 67,677 $ 69,980
======= ======= =======
Advertising Costs $ 59,361 $ 83,637 $ 70,446
======= ======= =======
(1) Certain 1992 and 1991 amounts have been reclassified to conform with 1993 classifications.
195
</TABLE>
<PAGE>
Independent Auditors' Report
On Consolidated Financial Statement Schedules - USAir, Inc.
The Stockholder and Board of Directors
USAir, Inc.:
Under date of February 25, 1994, we reported on the
consolidated balance sheets of USAir, Inc. and subsidiaries
("USAir") as of December 31, 1993 and 1992, and the related
consolidated statements of operations, cash flows, and changes in
stockholder's equity for each of the years in the three-year period
ended December 31, 1993, as included in Item 8B in this annual
report on Form 10-K for the year 1993. In connection with our
audits of the aforementioned consolidated financial statements, we
also audited the related consolidated financial statement schedules
as listed in Item 14(a)2(ii). These consolidated financial
statement schedules are the responsibility of USAir's management.
Our responsibility is to express an opinion on these consolidated
financial statement schedules based on our audits.
In our opinion, such consolidated financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK
Washington, D. C.
February 25, 1994
196
<PAGE>
<TABLE>
USAir, Inc.
SCHEDULE IV
INDEBTEDNESS OF AND TO RELATED PARTIES - NOT CURRENT
(in thousands)
<CAPTION>
Balance Balance
Beginning End
Of Year Additions Deductions Of Year
--------- --------- ---------- -------
Payables
--------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
USAir Group, Inc. $130,185 $102,444 (1) $127,549 (1) $105,080
======= ======= ======= =======
Year ended December 31, 1992
USAir Group, Inc. $ 98,027 $231,658 (1) $199,500 (1) $130,185
======= ======= ======= =======
Year ended December 31, 1991
USAir Group, Inc. $ - $241,436 (1) $143,409 (1) $ 98,027
======= ======= ======= =======
(1) Loans for aircraft and other property purchases.
197
<PAGE>
USAir, Inc.
SCHEDULE V
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
<CAPTION>
Other
Changes,
Balance At Retire- Add Balance
Beginning Additions ments (Deduct) At Close
Of Year At Cost (1) (2) Of Year
---------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Flight Equipment $4,245,020 $733,885 $241,770 $86,896 $4,824,031
Ground Property
and Equipment 1,013,388 73,932 42,014 - 1,045,306
--------- ------- ------- ------ ---------
$5,258,408 $807,817 $283,784 $86,896 $5,869,337
========= ======= ======= ====== =========
(1) Retirements include $182 million for McDonnell Douglas MD-82 aircraft ($172 million of which
is reflected in 1993 additions) sold to a third party and $39 million for Boeing 727-200 air-
craft under capital leases that were returned to the lessor.
(2) Other Changes consist primarily of the transfer of flight equipment from USAir Leasing and
Services, Inc.
198
<PAGE>
USAir, Inc.
SCHEDULE V
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1992
(in thousands)
<CAPTION>
Other
Balance At Retire- Changes, Balance
Beginning Additions ments Add At Close
Of Year At Cost (1) (Deduct) Of Year
---------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Flight Equipment $4,295,551 $393,550 $384,935 $(59,146) $4,245,020
Ground Property
and Equipment 974,497 96,249 57,358 - 1,013,388
--------- ------- ------- ------- ---------
$5,270,048 $489,799 $442,293 $(59,146) $5,258,408
========= ======= ======= ======= =========
(1) Flight equipment retirements include $265 million for aircraft sold in sale and leaseback
transactions.
199
<PAGE>
USAir, Inc.
SCHEDULE V
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1991
(in thousands)
<CAPTION>
Other
Balance At Retire- Changes, Balance
Beginning Additions ments Add At Close
Of Year At Cost (1) (Deduct) Of Year
---------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Flight Equipment $4,079,915 $447,244 $231,608 $ - $4,295,551
Ground Property
and Equipment 961,324 42,979 29,806 - 974,497
--------- ------- ------- ------- ---------
$5,041,239 $490,223 $261,414 $ - $5,270,048
========= ======= ======= ======= =========
(1) Flight equipment retirements include $170 million for aircraft sold in sale and leaseback
transactions.
200
<PAGE>
USAir, Inc.
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
<CAPTION>
Other
Changes,
Balance At Additions Retire- Add Balance
Beginning Charged To ment (Deduct) At Close
Of Year Income (1) (2) Of Year
---------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Flight Equipment $1,043,524 $180,799 $47,855 $22,341 $1,198,809
Ground Property
and Equipment 518,898 98,278 29,285 117 588,008
--------- ------- ------ ------ ---------
$1,562,422 $279,077 $77,140 $22,458 $1,786,817
========= ======= ====== ====== =========
(1) Retirements include $39 million for Boeing 727-200 aircraft under capital leases that were
returned to the lessor.
(2) Other Changes consist of $16 million for flight equipment transferred from USAir Leasing
and Services, Inc. and reclassification.
201
<PAGE>
USAir, Inc.
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1992
(in thousands)
<CAPTION>
Other
Balance At Changes,
Beginning Additions Add Balance
Of Year Charged To Retire- (Deduct) At Close
(1) Income (1) ment (2) Of Year
---------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Flight Equipment $ 908,131 $180,010 $ 48,028 $3,411 $1,043,524
Ground Property
and Equipment 463,623 102,557 47,402 120 518,898
--------- ------- ------- ----- --------
$1,371,754 $282,567 $ 95,430 $3,531 $1,562,422
========= ======= ======= ===== =========
(1) Certain amounts have been reclassified to conform with 1992 and 1993 classifications.
(2) Other Changes consist primarily of reclassification.
202
<PAGE>
USAir, Inc.
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1991
(in thousands)
<CAPTION>
Other
Additions Changes,
Balance At Charged To Add Balance
Beginning Income Retire- (Deduct) At Close
Of Year (1) ment (2) Of Year (1)
---------- ---------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Flight Equipment $ 783,079 $170,912 $ 46,538 $ 678 $ 908,131
Ground Property
and Equipment 375,254 102,334 14,526 561 463,623
--------- ------- ------- ----- --------
$1,158,333 $273,246 $ 61,064 $1,239 $1,371,754
========= ======= ======= ===== =========
(1) Certain 1991 amounts have been reclassified to conform with 1992 and 1993 classifications.
(2) Other Changes consist primarily of reclassification.
203
<PAGE>
USAir, Inc.
SCHEDULE VII
GUARANTEES OF SECURITIES OF OTHER ISSUERS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in millions)
<CAPTION>
Name of Issuer of Securities Title of Issue Total Amount
Guaranteed by Person for of Each Class of Guaranteed And
Which Statement is Filed Securities Guaranteed Outstanding Nature of Guarantee
- --------------------------- --------------------- -------------- -------------------
Guaranteed by USAir, Inc.:
- -------------------------
<S> <C> <C> <C>
The Galileo International Unsecured borrowings under $ 16 Principal and interest
Partnership revolving credit facilities
Piedmont Airlines, Inc. (1) Lease Obligations 103 Lease payments
Jetstream International
Airlines, Inc. (1) Lease Obligations 45 Lease payments
---
Total amount guaranteed by USAir, Inc. $164
===
(1) Wholly-owned by USAir Group, Inc.
204
<PAGE>
USAir, Inc.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<CAPTION>
Allowance for
Uncollectible Inventory
Accounts Obsolescence
------------- ------------
<S> <C> <C>
Balance December 31, 1990 $ 7,081 $ 64,173
Additions charged to income 12,307 10,829
Amounts charged to reserve (9,649) (1,967)
Other (1) - 139
------- -------
Balance December 31, 1991 9,739 73,174
Additions charged to income 9,200 12,949
Amounts charged to reserve (7,531) (2,548)
------ -------
Balance December 31, 1992 11,408 83,575
Additions charged to income 11,990 11,103
Amounts charged to reserve (12,803) (2,086)
------- -------
Balance December 31, 1993 $ 10,595 $ 92,592
======= =======
(1) Includes a reduction in the reserve balance related to the sale of Pacific Southwest
Airmotive inventory and reclassification.
Certain 1991 amounts have been reclassified to conform with 1992 and 1993 classifications.
205
<PAGE>
USAir, Inc.
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
Presented below are amounts that are included in the Consolidated Statement of Operations
for each of the years in the three-year period ended December 31, 1993 which exceed one percent
of total operating revenues:
<CAPTION>
1993 1992 1991 (1)
---- ---- ----
<S> <C> <C> <C>
Maintenance and Repairs $813,722 $781,744 $769,365
======= ======= =======
Taxes $ 47,526 $ 65,191 $ 67,373
======= ======= =======
Advertising Costs $ 59,355 $ 83,468 $ 70,100
======= ======= =======
(1) Certain 1991 amounts have been reclassified to conform with 1992 and 1993 classifications.
206
<PAGE>
Exhibit 10.13(a)
As of February 21, 1994
R. P. Maynard
Director Corporate Strategy
British Airways Plc
Speedbird House
P. O. Box 10
Heathrow Airport
Hounslow, Middlesex TW6 2JA
England
Dear Roger:
You and we had discussions on August 26, 1993 concerning
certain issues arising under the Investment Agreement between us
dated January 21, 1993 (the "Investment Agreement") and concerning
the proper Conversion Price for the Series E Preferred Stock
referred to therein. Capitalized terms in this letter have the
meanings given thereto in, and section references herein are
references to, the Investment Agreement. This letter sets forth our
joint understanding on these issues.
1. Clauses (a) and (b) of Section 9.2 shall each be amended
to add new clauses (v) and (vi) to the end of the first sentence
thereof to read as follows: "plus (v) shares of Common Stock issued
following the date hereof other than pursuant to (ii) above, plus
(vi) shares of Common Stock issuable upon exercise or conversion of
then outstanding warrants, options and convertible securities and
all other securities exercisable for shares of Common Stock (other
than those issuable pursuant to Stock Option Plans, Compensation
and Benefit Plans or any Employee Stock Plan or upon conversion of
the Series A Preferred Stock or Series B Preferred Stock)."
Immediately following new clause (vi) in each of Section 9.2(a) and
9.2(b) a new sentence shall be added, to read as follows: "The
aggregate number of shares of Common Stock under (i) through (vi)
shall be calculated without duplication."
<PAGE>
Exhibit 10.13(a)
R. P. Maynard
British Airways Plc
February 21, 1994
2. Clauses (a) and (b)(i) of the definition of Conversion
Price in the Series E Certificate of Designation shall be amended
to be $21.844165. As of the date hereof, the conversion prices of
the Series F Preferred Stock, the Series C Preferred Stock and
Series E Preferred Stock are $19.406358, $19.792594 and $21.739266,
respectively, as a result of antidilution adjustments to date.
3. Clause (y) of the definition in Section 9.1(a) of
Investor Percentage shall be amended to read as follows: "(y) the
sum (without duplication) of (A) the number of shares of Common
Stock then outstanding, plus (B) the number of shares of Common
Stock issuable upon exercise or conversion of then outstanding
warrants, options and convertible securities and all other then
outstanding securities exercisable for shares of Common Stock
(other than those issuable pursuant to Stock Option Plans,
Compensation and Benefit Plans or any Employee Stock Plan or upon
conversion of the Series A Preferred Stock or Series B Preferred
Stock), plus (C) any shares of Common Stock directly or indirectly
issuable (without regard to then existing Foreign Ownership
Restrictions) upon conversion of any Preferred Shares, Notes or
Non-Preferred Shares which are then owned by the Investor and its
wholly-owned subsidiaries or which the Investor or any of its
wholly-owned subsidiaries then has a right to acquire (without
regard to then existing Foreign Ownership Restrictions) pursuant to
this Agreement."
4. The term "then has the right to acquire" in clause (iv)
of Section 9.2(a) and 9.2(b) shall be deemed to include shares of
Common Stock issuable on conversion of the new series of Series T
Preferred Stock, the number of shares of which is then being
computed.
5. If the Investor Percentage changes during a quarter as
a result of issuances of securities covered by Section 9.1 and the
Investor's notification to the Company that Investor will not
exercise or exercise in part its preemptive purchase rights
resulting from such issuances, the calculations under Section 9.2
for such quarter shall be made by applying the respective Investor
Percentage in effect during the portions of such quarter preceding
and following the events which caused such change(s) (the timing of
which shall be determined in accordance with the fourth sentence of
this paragraph 5) against the issuances of Common Stock (and the
related weighted average issuance price determined in accordance
with Appendix A hereto) during the corresponding portion of such
quarter. The total number of shares of Series T Preferred Stock or
Non-Preferred Shares, as the case may be, that Investor shall have
the right to acquire for the entire quarter pursuant to Section 9.2
<PAGE>
Exhibit 10.13(a)
R. P. Maynard
British Airways Plc
February 21, 1994
shall be determined by adding the number of shares Investor has the
right to acquire for each portion of such quarter. The conversion
price of such new series of Series T Preferred Stock or the
purchase price per Non-Preferred Share, as the case may be, shall
be determined, in accordance with Appendix A hereto, by calculating
the weighted average of the conversion prices of the shares of
Series T Preferred Stock, or the purchase prices of the Non-
Preferred Shares, as the case may be, for each such portion of such
quarter that Investor has the right to purchase calculated in
accordance with the terms of Section 9.2(a) or 9.2(b) of the
Investment Agreement. With respect to the issuances of Common
Stock or other securities as to which the Investor has preemptive
rights under Section 9.1, the Investor Percentage shall be deemed
to change on the date the Investor gives notice of its intention to
exercise its rights under Section 9.1 (or if it gives no such
notice, on the day following the last day it could give such notice
pursuant to Section 9.1). The new Investor Percentage during a
quarter shall be calculated as of the date it is deemed to change
and shall include in Common Stock outstanding the shares of Common
Stock being issued or the shares of Common Stock issuable upon
exercise or conversion of the warrants, options or convertible
securities and all other securities exercisable for shares of
Common Stock being issued. In no event, and notwithstanding any
other provision of Section 9.2, shall the consummation of the
purchase of the new series of Series T Preferred Stock or of Non-
Preferred Shares, as the case may be, pursuant to Section 9.2
precede the actual applicable issuances of Common Stock, warrants,
options or convertible securities triggering preemptive purchase
rights under Section 9.1 referred to in the next preceding
sentence.
6. Each Series T Certificate of Designation (Exhibit E to
the Investment Agreement) shall be amended to add the phrase "at
any time after [(A) with respect to issuances of Series T Preferred
Stock pursuant to Section 9.1 of the Investment Agreement, insert
the date that the applicable Special Issuance, as defined in
Section 8(f), occurs and (B) with respect to issuances of Series T
Preferred Stock pursuant to Section 9.2 of the Investment
Agreement, insert the date of the last day of the calendar quarter
pertaining to such series of Series T Preferred Stock]" after the
words (X) "shall" in the first line of Section 8 (d) (i) and (Y)
"Common Stock)" in the third line of Section 8 (d) (ii) thereof.
<PAGE>
Exhibit 10.13(a)
R. P. Maynard
British Airways Plc
February 21, 1994
Please indicate that you concur in these amendments and
interpretive understandings by signing in the place indicated
below.
Very truly yours,
USAir Group, Inc.
/s/James T. Lloyd
_________________________________
By: James T. Lloyd
Executive Vice President,
General Counsel and Secretary
Agreed:
British Airways Plc
/s/R. P. Maynard
_____________________________
By:
Dated:
<PAGE>
USAir Group, Inc.
EXHIBIT 11
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(dollars in thousands, except per share amounts)
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Adjustments to Net Loss
Loss before accounting changes $(349,367) $ (600,818) $(305,258) $(454,448) $ (63,176)
Preferred dividend requirement (73,651) (51,766) (44,306) (33,115) (13,246)
-------- ---------- -------- -------- --------
Net loss applicable to common
stock before accounting changes (423,018) (652,584) (349,564) (487,563) (76,422)
Accounting changes (43,749) (628,098) - - -
-------- ---------- -------- -------- --------
Net loss applicable to common
stock and common stock equivalents
used for primary computation (466,767) (1,280,682) (349,564) (487,563) (76,422)
Fully Diluted Adjustments
Assume conversion of preferred
stock and convertible debentures
Preferred dividend requirements 73,651 51,766 44,306 33,115 13,246
Reduction of interest and debt
issue expense, net - - - 24 20
-------- ---------- -------- -------- --------
Adjusted net loss applicable
to common stock assuming
full dilution $(393,116) $(1,228,916) $(305,258) $(454,424) $ (63,156)
======== ========== ======== ======== ========
Adjustments to Shares Outstanding
Average number of shares of common
stock 55,070 47,026 45,864 44,763 44,051
Primary Adjustments (1)
Assume exercise of options and
common stock equivalents - - - - -
Total average number of common -------- ---------- -------- -------- --------
and common equivalent shares
used for primary computation 55,070 47,026 45,864 44,763 44,051
======== ========== ======== ======== ========
Average number of shares of common
stock 55,070 47,026 45,864 44,763 44,051
Fully Diluted Adjustments (2)
Assume exercise of options 517 - 12 7 66
Assume conversion of preferred
stock and debentures
Preferred stock 38,642 17,463 12,928 5,967 2,387
Convertible debentures - - - 11 11
Total average number of -------- ---------- -------- -------- --------
shares assumed to be
outstanding after full
conversion 94,229 64,489 58,804 50,748 46,515
======== ========== ======== ========= ========
Loss Per Common Share
Primary (1)
Before accounting changes $ (7.68) $ (13.88) $ (7.62) $ (10.89) $ (1.73)
Effect of accounting changes (0.80) (13.35) - - -
-------- ---------- -------- -------- --------
Primary loss per common share $ (8.48) $ (27.23) $ (7.62) $ (10.89) $ (1.73)
======== ========== ======== ======== ========
Fully diluted (2)
Before accounting changes $ (3.71) $ (9.32) $ (5.19) $ (8.95) $ (1.36)
Effect of accounting changes (0.46) (9.74) - - -
-------- ---------- -------- -------- --------
Fully diluted loss per common
share $ (4.17) $ (19.06) $ (5.19) $ (8.95) $ (1.36)
======== ========== ======== ======== ========
(1) The assumed exercise of options and common stock equivalents which are anti-dilutive are not
included in the computation and presentation of primary earnings per share.
(2) The assumed exercise of options and conversion of preferred stock are anti-dilutive but are
included in accordance with Regulation S-K Item 601(a)(11).
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF USAIR GROUP, INC. AND USAIR, INC.
USAir Group, Inc.
- -----------------
USAir, Inc.
Piedmont Airlines, Inc. (formerly Henson Airlines, Inc.)
Jetstream International Airlines, Inc.
Pennsylvania Commuter Airlines, Inc. (d/b/a/ Allegheny Commuter
Airlines)
USAir Leasing and Services, Inc.
USAir Fuel Corporation
Material Services Corp.
USAir, Inc. (the following companies are also indirect subsidiaries
- -------------------------------------------------------------------
of USAir Group, Inc.)
- ---------------------
USAM Corp.
Pacific Southwest Airmotive (substantially all of the assets of
this company were sold on October 9, 1991)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
USAir Group, Inc.
We consent to the incorporation by reference in the Registration
Statements on Form S-8 Nos. 2-98828, 33-26762, 33-39896, 33-44835,
33-60618 and 33-60620 and the Registration Statement on Form S-3
No. 33-41821 of USAir Group, Inc., of our reports dated February
25, 1994 relating to the consolidated balance sheets of USAir
Group, Inc. and subsidiaries as of December 31, 1993 and 1992 and
the related consolidated statements of operations, cash flows and
changes in stockholders' equity, and the related consolidated
financial statement schedules for each of the years in the three-
year period ended December 31, 1993 which reports appear in the
December 31, 1993 annual report on Form 10-K of USAir Group, Inc.
and USAir, Inc.
KPMG PEAT MARWICK
Washington, D.C.
March 25, 1994
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
USAir, Inc.
We consent to the incorporation by reference in the Registration
Statement on Form S-3 No. 33-35509 of USAir, Inc., of our reports
dated February 25, 1994 relating to the consolidated balance sheets
of USAir, Inc. and subsidiaries as of December 31, 1993 and 1992
and the related consolidated statements of operations, cash flows
and changes in stockholders' equity, and the related consolidated
financial statement schedules for each of the years in the three-
year period ended December 31, 1993 which reports appear in the
December 31, 1993 annual report on Form 10-K of USAir Group, Inc.
and USAir, Inc.
KPMG PEAT MARWICK
Washington, D.C.
March 25, 1994
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Warren E. Buffett,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14 day of January, 1994.
/s/Warren E. Buffett (L.S.)
---------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edwin I. Colodny,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
25 day of January, 1994.
/s/Edwin I. Colodny (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Mathias J. DeVito,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14 day of January, 1994.
/s/Mathias J. DeVito (L.S.)
---------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, George J. W. Goodman,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
13 day of January, 1994.
/s/George J. W. Goodman (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John W. Harris,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
26 day of January, 1994.
/s/J. W. Harris (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edward A. Horrigan,
Jr., Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14 day of January, 1994.
/s/Edward A. Horrigan, Jr. (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert LeBuhn,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14th day of January, 1994.
/s/Robert LeBuhn (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Colin Marshall,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
15 day of January, 1994.
/s/C. Marshall (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Roger P. Maynard,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
15 day of January, 1994.
/s/R. Maynard (L.S.)
---------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John G. Medlin, Jr.,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
19th day of January, 1994.
/s/John G. Medlin, Jr. (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Hanne M. Merriman,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14 day of January, 1994.
/s/Hanne M. Merriman (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Charles T. Munger,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
24th day of January, 1994.
/s/Charles T. Munger (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Richard P. Simmons,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
13th day of January, 1994.
/s/Richard P. Simmons (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Raymond W. Smith,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14 day of January, 1994.
/s/R. W. Smith (L.S.)
----------------------------------
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Derek M. Stevens,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
26 day of January, 1994.
/s/Derek M. Stevens (L.S.)
---------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Warren E. Buffett,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14 day of January, 1994.
/s/Warren E. Buffett (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edwin I. Colodny,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
25 day of January, 1994.
/s/Edwin I. Colodny (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Mathias J. DeVito,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14 day of January, 1994.
/s/Mathias J. DeVito (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, George J. W. Goodman,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
13 day of January, 1994.
/s/George J. W. Goodman (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John W. Harris,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
26 day of January, 1994.
/s/J. W. Harris (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edward A. Horrigan,
Jr., Director of USAir, Inc., (the "Company"), do hereby constitute
and appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14 day of January, 1994.
/s/Edward A. Horrigan, Jr. (L.S.)
---------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert LeBuhn,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14th day of January, 1994.
/s/Robert LeBuhn (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Colin Marshall,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
15 day of January, 1994.
/s/C. Marshall (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Roger P. Maynard,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
15 day of January, 1994.
/s/R. P. Maynard (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John G. Medlin, Jr.,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
19th day of January, 1994.
/s/John G. Medlin, Jr. (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Hanne M. Merriman,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14 day of January, 1994.
/s/Hanne M. Merriman (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Charles T. Munger,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
24th day of January, 1994.
/s/Charles T. Munger (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Richard P. Simmons,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
13th day of January, 1994.
/s/Richard P. Simmons (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Raymond W. Smith,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
14 day of January, 1994.
/s/R. W. Smith (L.S.)
------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Derek M. Stevens,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and Frank L. Salizzoni, 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, 1993 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
26 day of January, 1994.
/s/Derek M. Stevens (L.S.)
------------------------------
