<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This preliminary prospectus supplement relates to an effective registration +
+statement under the Securities Act of 1933, but is not complete and may be +
+changed. This preliminary prospectus supplement is not an offer to sell these +
+securities and it is not soliciting an offer to buy these securities in any +
+state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 13, 1999
PRELIMINARY PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 30, 1999
$468,268,000
Filed Pursuant to Rule 424(a)
Registration No. 333-79825
[LOGO OF US AIRWAYS APPEARS HERE]
1999-1 Pass Through Trusts
Pass Through Certificates, Series 1999-1
--------
This prospectus supplement relates to pass through certificates to be issued
by two separate pass through trusts that we will form. Each pass through
certificate represents an ownership interest in the property held by the trust
that issued the certificate. The proceeds of this financing will be used to
finance 20 Airbus aircraft. The certificates do not represent interests in or
obligations of US Airways or any of our affiliates.
We are offering only the class A and class B certificates by this prospectus
supplement. Simultaneously with this offering, class C certificates in the
aggregate face amount of $121,517,000* will be issued by a third pass through
trust in a separate private sale.
Interest related to the certificates will be paid semiannually, on each
January 20 and July 20, beginning January 20, 2000. Principal payments related
to the certificates are expected to be paid on January 20 and July 20 in
scheduled years, beginning on July 20, 2000, in the case of the class A
certificates and January 20, 2001, in the case of the class B certificates.
In most cases, scheduled payments relating to the certificates will be made
first on the class A certificates and second on the class B certificates.
AIG Matched Funding Corp. will provide a liquidity facility for each class of
certificates in an amount sufficient to make three semiannual interest payments
if a pass through trust does not have enough funds to make those interest
payments.
The certificates will not be listed on any national securities exchange.
Investing in the Certificates Involves Risks. See "Risk Factors" Beginning on
Page S-23.
<TABLE>
<CAPTION>
Pass Through Interest Final Expected Price to
Certificates Face Amount* Rate Distribution Date* Public (/1/)
------------ ------------ -------- ------------------ ------------
<S> <C> <C> <C> <C>
1999-1A................... $384,884,000 January 20, 2019 100%
1999-1B................... $ 83,384,000 January 20, 2019 100%
</TABLE>
*Estimates only. Subject to change.
(/1/Plus)accrued interest, if any, from the date of issuance.
The total proceeds from the sale of the class A and class B certificates will
be $468,268,000. We will arrange to pay the underwriters a commission of $ .
The class A and class B certificates will be issued in book-entry form only on
or about August , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus to which it relates is
truthful or complete. Any representation to the contrary is a criminal offense.
Credit Suisse First Boston
Deutsche Banc Alex. Brown Donaldson, Lufkin & Jenrette
Goldman, Sachs & Co. Salomon Smith Barney
The date of this prospectus supplement is August , 1999
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
Presentation of Information............................................... S-5
Prospectus Supplement Summary............................................. S-6
The Offering............................................................. S-6
Certificates............................................................. S-6
Pass Through Trusts...................................................... S-6
Secured Promissory Notes................................................. S-7
Delayed Aircraft Financing and Termination of Delivery Period............ S-8
Summary of Terms of Certificates......................................... S-9
Secured Promissory Notes and the Aircraft................................ S-10
Loan to Aircraft Value Ratios............................................ S-11
Cash Flow Structure...................................................... S-12
The Offering.............................................................. S-13
Summary Financial and Operating Data...................................... S-21
Risk Factors.............................................................. S-23
Risk Factors Relating to US Airways...................................... S-23
Risk Factors Relating to the Airline Industry............................ S-26
Risk Factors Relating to the Certificates and the Offering............... S-28
Forward-Looking Statements................................................ S-31
US Airways................................................................ S-31
Domestic Service......................................................... S-32
Expanding International Service.......................................... S-33
Code Sharing Relationships............................................... S-34
The US Airways and American Airlines Marketing Relationship.............. S-34
Labor Agreements......................................................... S-34
Fleet Rationalization and the Airbus Aircraft............................ S-34
US Airways' Market Position.............................................. S-35
Sabre, Inc. Agreement.................................................... S-35
On-Line Reservation System............................................... S-36
Change in Culture -- A New Outlook....................................... S-36
Legal Proceedings........................................................ S-36
Use of Proceeds........................................................... S-37
Description of the Certificates........................................... S-38
General.................................................................. S-38
Payments and Distributions............................................... S-39
Pool Factors............................................................. S-41
Reports to Certificateholders............................................ S-43
Indenture Defaults and Certain Rights upon an Indenture Default.......... S-44
Purchase Rights of Certificateholders.................................... S-46
PTC Event of Default..................................................... S-46
Merger, Consolidation and Transfer of Assets............................. S-46
Modifications of the Pass Through Trust Agreements and Certain Other
Agreements.............................................................. S-47
Obligation to Purchase Secured Promissory Notes.......................... S-49
Termination of the Pass Through Trusts................................... S-56
The Pass Through Trustees................................................ S-56
Book-Entry; Delivery and Form............................................ S-56
Description of the Deposit Agreements..................................... S-56
General.................................................................. S-57
Unused Deposits.......................................................... S-57
Distribution upon Occurrence of a Triggering Event....................... S-58
Distribution upon Occurrence of a Termination Event...................... S-58
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Depositary............................................................... S-58
Description of the Escrow Agreements...................................... S-59
Description of the Liquidity Facilities................................... S-60
General.................................................................. S-60
Drawings................................................................. S-60
Reimbursement of Drawings................................................ S-62
Liquidity Events of Default.............................................. S-63
Liquidity Provider....................................................... S-63
Description of the Intercreditor Agreement................................ S-64
Intercreditor Rights..................................................... S-64
Priority of Distributions................................................ S-65
The Subordination Agent.................................................. S-66
Description of the Aircraft and the Appraisals............................ S-67
The Aircraft............................................................. S-67
The Appraisals........................................................... S-68
Deliveries of Aircraft................................................... S-69
Substitute Aircraft...................................................... S-69
Description of the Secured Promissory Notes............................... S-69
General.................................................................. S-69
Subordination............................................................ S-70
Principal and Interest Payments.......................................... S-70
Redemption............................................................... S-71
Security................................................................. S-72
Loan to Value Ratios of Secured Promissory Notes......................... S-72
Limitation of Liability.................................................. S-73
Indenture Defaults, Notice and Waiver.................................... S-74
Remedies................................................................. S-75
Modification of Indentures and Leases.................................... S-78
Indemnification.......................................................... S-78
The Leases and the Owned Aircraft Indentures............................. S-78
U.S. Income Tax Matters................................................... S-85
General.................................................................. S-85
Tax Treatment of the Pass Through Trusts and Certificateholders.......... S-85
Effect of Subordination on Certificateholders of Subordinated Trusts..... S-86
Sale or Other Disposition of the Certificates............................ S-86
Foreign Certificateholders............................................... S-86
Information Reporting and Backup Withholding............................. S-87
Certain Connecticut Taxes................................................. S-87
ERISA Considerations...................................................... S-88
General.................................................................. S-88
Plan Assets Issues....................................................... S-88
Prohibited Transaction Exemptions........................................ S-89
Underwriter Exemption May Apply to Purchase of Class A Certificates by
Plans................................................................... S-89
Special Considerations Applicable to Insurance Company General Accounts.. S-90
Underwriting.............................................................. S-91
Class A and Class B Certificates......................................... S-91
Notice to Canadian Residents.............................................. S-92
Resale Restrictions...................................................... S-92
Representations of Purchasers............................................ S-92
Rights of Action (Ontario Purchasers).................................... S-93
Enforcement of Legal Rights.............................................. S-93
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Notice to British Columbia Residents...................................... S-93
Taxation and Eligibility for Investment................................... S-93
Purchase of Class C Certificates........................................... S-93
Legal Matters.............................................................. S-94
Experts.................................................................... S-94
</TABLE>
<TABLE>
<S> <C>
Glossary............................................................ Appendix I
Appraisal Letters................................................... Appendix II
</TABLE>
S-3
<PAGE>
PROSPECTUS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Forward-Looking Statements........... 1
Summary.............................. 2
The Offering........................ 2
Certificates........................ 2
Pass Through Trusts................. 3
Secured Promissory Notes............ 3
Delayed Financing................... 4
Cash Flow Structure................. 5
Transaction Structure for Leased
Aircraft........................... 6
Transaction Structure for Owned
Aircraft........................... 7
Additional Information.............. 7
US Airways........................... 8
Ratio of Earnings to Fixed Charges... 8
Use of Proceeds...................... 9
Description of the Certificates...... 9
General............................. 9
Payments and Distributions.......... 13
Pool Factors........................ 14
Reports to Certificateholders....... 15
Voting of Secured Promissory Notes.. 15
Events of Default and Certain Rights
upon an Event of Default........... 16
Merger, Consolidation and Transfer
of Assets.......................... 18
Modifications of the Basic
Agreement.......................... 18
Modification of Indenture and
Related Agreements................. 19
Cross-Subordination Issues.......... 19
Termination of the Pass Through
Trusts............................. 20
Delayed Purchase of Secured
Promissory Notes................... 20
Liquidity Facility and Other Credit
Enhancements....................... 20
The Pass Through Trustee............ 20
Book-Entry Registration............. 21
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Description of the Secured Promissory
Notes............................... 24
General............................. 24
Principal and Interest Payments..... 25
Redemption.......................... 25
Security............................ 25
Ranking of Secured Promissory
Notes.............................. 27
Payments Under Leases and Limitation
of Liability....................... 28
Defeasance of the Indentures and the
Secured Promissory Notes in Certain
Circumstances...................... 28
Assumption of Obligations by US
Airways............................ 29
Parent Guarantee.................... 29
Intercreditor Issues................ 30
Owner Participant; Revisions to
Agreements......................... 30
U.S. Income Tax Matters.............. 30
General............................. 30
Tax Treatment of the Pass Through
Trusts and Certificateholders...... 31
Effect of Subordination on
Certificateholders of Subordinated
Trusts............................. 31
Original Issue Discount............. 32
Sale or Other Disposition of the
Certificates....................... 32
Foreign Certificateholders.......... 32
Information Reporting and Backup
Withholding........................ 32
ERISA Considerations................. 33
Plan of Distribution................. 33
Selling Certificateholders........... 35
Legal Opinions....................... 35
Experts.............................. 35
Where You Can Find More Information.. 36
Incorporation of Certain Documents by
Reference........................... 37
</TABLE>
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
S-4
<PAGE>
PRESENTATION OF INFORMATION
These offering materials consist of this prospectus supplement and the
accompanying prospectus. This prospectus supplement describes the terms of this
offering and replaces any inconsistent information in the prospectus.
For convenience, throughout this prospectus supplement, the words we, us,
ours or similar words refer to US Airways and the word parent or other similar
words refer to US Airways Group. In addition, for convenience, throughout this
prospectus supplement we may refer to pass through certificates as certificates
and to the holder of a pass through certificate as a certificateholder.
We have given capitalized terms specific meanings for purposes of this
prospectus supplement. The capitalized terms and their meanings are in the
"Glossary" attached as Appendix I to this prospectus supplement.
S-5
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this prospectus supplement
and the prospectus, and may not contain all the information that is important
to you. For more complete information about the certificates or us, you should
read this entire prospectus supplement and the prospectus, as well as the
materials filed with the SEC that are considered to be part of the prospectus.
See "Incorporation of Certain Documents by Reference" in the prospectus.
The Offering
This supplement describes our offering of pass through certificates to help
finance or refinance aircraft that we will own or lease.
The remainder of this prospectus supplement will describe the offering of
the pass through certificates in more detail. We will begin by describing the
pass through certificates and the pass through trusts that issue the pass
through certificates. We will also describe the various agreements relating to
the certificates. This prospectus supplement then describes the secured
promissory notes that the pass through trusts will acquire and, in the case of
promissory notes secured by aircraft leased to us, the owner trusts that issue
those secured promissory notes.
Certificates
Pass through certificates are securities that evidence an ownership interest
in a pass through trust. The holders of the certificates issued by a pass
through trust will be the beneficiaries of that trust. A certificateholder's
beneficial interest in a pass through trust will be a pro rata interest in the
property of that trust equal to the ratio of the aggregate face amount of all
of the certificates owned by the holder to the aggregate face amount of all of
the certificates issued by that trust. Each certificate will represent a
beneficial interest only in the property of the pass through trust that issued
the certificate. A certificate will not represent an interest in, or rights to,
the property of any pass through trust other than the pass through trust that
issued the certificate.
Class A, class B and class C certificates will be issued. Each series of
certificates will be issued by a separate pass through trust. We are offering
only the class A and class B certificates by this prospectus supplement. The
class C certificates will be issued in a separate simultaneous private sale.
As described in this prospectus supplement, each class of certificates is
entitled to the benefits of a separate liquidity facility provided by AIG
Matched Funding Corp. The liquidity facility is a revolving credit agreement
that will provide the pass through trustee with an additional source of funds
to make up to three consecutive scheduled semiannual interest payments relating
to the certificates. The liquidity facility may not be used to make any payment
of principal.
Pass Through Trusts
We will form a separate pass through trust to issue each series of
certificates. We will form each pass through trust with State Street Bank and
Trust Company of Connecticut, National Association, as pass through trustee.
State Street Bank and Trust Company will guaranty the performance and
obligations of State Street Bank and Trust Company of Connecticut, National
Association under the pass through trust agreement. Each pass through trust
will be governed by a trust instrument that creates the trust and sets forth
the powers of the trustee and the rights of the beneficiaries. The trust
instrument for each pass through trust will consist of a basic pass through
trust agreement among US Airways, US Airways Group and the pass through
trustee, and a supplement to the basic pass through trust agreement. US Airways
Group will not guarantee our obligations under the pass through trust agreement
or any other agreement described in this prospectus supplement.
S-6
<PAGE>
This prospectus supplement describes, among other things, the property that
will be held by each pass through trust. This property will include promissory
notes secured by aircraft that we will own or lease. Payments of principal and
interest on the secured promissory notes owned by a pass through trust will be
passed through to holders of certificates issued by that trust, according to
the terms of the pass through trust agreement under which that trust was
formed. Each pass through trust also will hold other property described in this
prospectus supplement.
Secured Promissory Notes
The secured promissory notes owned by a pass through trust may consist of
any combination of:
. Promissory notes issued by an owner trust and secured by an aircraft
owned by that trust and leased to us. We refer to these types of secured
promissory notes as leased aircraft notes.
. Promissory notes issued by us and secured by an aircraft owned by us. We
refer to these types of secured promissory notes as owned aircraft
notes.
Leased Aircraft Notes. Leased aircraft notes will be issued by a bank,
trust company, financial institution or other entity solely in its capacity as
owner trustee in a leveraged lease transaction. In a leveraged lease
transaction, one or more entities will form an owner trust to acquire an
aircraft, and that owner trust will lease the aircraft to us. In the leasing
industry, the entity that is the beneficiary of the owner trust is referred to
as an owner participant. The owner participant will contribute a portion of the
purchase price of the aircraft to the owner trust. The transaction is called a
"leveraged" lease because the remainder of the owner trust's purchase price of
the aircraft is financed through the issuance of leased aircraft notes. Leased
aircraft notes may also be issued to refinance an aircraft previously financed
in a leveraged lease transaction or otherwise.
The leased aircraft notes are issued under a separate indenture and security
agreement between the owner trustee and a bank, trust company, financial
institution or other entity, as loan trustee. The loan trustee under a leased
aircraft indenture will act as a trustee for the holders of the leased aircraft
notes issued under that leased aircraft indenture.
In a leveraged lease transaction, we will pay or advance rent and other
amounts to the owner trustee in its capacity as lessor under the lease. The
owner trustee will use the rent and other amounts received by it to make
payments of principal and interest on the leased aircraft notes. The owner
trustee also will assign its rights to receive basic rent and certain other
payments to the loan trustee as security for its obligations to pay principal
of, premium, if any, and interest on the leased aircraft notes. Payments or
advances made under a lease and related agreements will at all times be
sufficient to make scheduled payments of principal of, and interest on, the
leased aircraft notes issued to finance the aircraft subject to that lease.
We will not have any obligation to pay principal of, or interest on, the
leased aircraft notes. Holders of leased aircraft notes will not have recourse
against us for the payment of principal of, or interest on, the leased aircraft
notes.
Owned Aircraft Notes. We may finance or refinance aircraft that we own by
issuing owned aircraft notes. Owned aircraft notes relating to an owned
aircraft will be issued under a separate indenture and security agreement
relating to that owned aircraft. Each separate indenture and security agreement
relating to owned aircraft notes will be between us and a bank, trust company,
financial institution or other entity, as loan trustee. We refer to the
indenture and security agreement entered into for the issuance of owned
aircraft notes as an
S-7
<PAGE>
owned aircraft indenture. The loan trustee under an owned aircraft indenture
will act as a trustee for the holders of the owned aircraft notes issued under
that owned aircraft indenture.
Holders of owned aircraft notes will have recourse against us for payment of
principal of, and interest on, the owned aircraft notes.
Because we often refer to owned aircraft indentures and leased aircraft
indentures together, we sometimes refer to them collectively as the indentures.
Delayed Aircraft Financing and Termination of Delivery Period
The certificates will be issued prior to the delivery of the aircraft
described in this prospectus supplement. At first, the proceeds from the sale
of the certificates will be held in escrow and deposited with ABN AMRO Bank
N.V., acting through its Chicago branch, as depositary. The depositary will
hold the deposits until the deposits are withdrawn to be used to purchase
secured promissory notes or, in the case of deposits that are not used to
purchase secured promissory notes, until returned to certificateholders. The
depositary will pay interest on amounts held as deposits as described later in
this prospectus supplement.
The escrow agent will withdraw and distribute to the holders of the
certificates any deposits remaining after the delivery period termination date.
The delivery period termination date is the earlier of July 20, 2000 or the
date all aircraft described in this prospectus supplement are financed.
Each certificateholder's interest in the corresponding deposit will be
evidenced by an escrow receipt attached to the certificate. The escrow receipts
may not be detached from the certificates, and must be transferred together
with the certificate to which it is attached and may not be transferred unless
the certificate to which it is attached also is transferred.
S-8
<PAGE>
Summary of Terms of Certificates*
<TABLE>
<CAPTION>
Class A Class B Class C
Certificates Certificates Certificates
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Aggregate Face Amount... $384,884,000 $83,384,000 $121,517,000
Ratings:
Moody's............... A2 Baa1 Baa3
Standard & Poor's..... AA- A BBB
Initial Loan to Aircraft
Value (cumulative)(1).. 40.73% 49.57% 62.45%
Expected Principal
Distribution Windows
(in years)............. 0.9-19.4 1.4-19.4 4.9-19.4
Initial Average Life (in
years from issuance
date).................. 12.10 9.52 12.62
Regular Distribution
Dates.................. January 20 and July 20 January 20 and July 20 January 20 and July 20
Final Expected Regular
Distribution Date...... January 20, 2019 January 20, 2019 January 20, 2019
Final Maturity Date..... July 20, 2020 July 20, 2020 July 20, 2020
Minimum Denomination.... $1,000 $1,000 $1,000
Section 1110
Protection............. Yes Yes Yes
Liquidity Facility 3 semiannual 3 semiannual 3 semiannual
Coverage............... interest interest interest
payments payments payments
</TABLE>
- --------------------
* The amounts of certificates offered and the terms of the certificates are
estimates only and subject to change.
(1) These percentages are calculated as of July 20, 2000, the first regular
distribution date after all aircraft are scheduled to have been delivered.
Regular distribution dates will be January 20 and July 20 of each year. In
making these calculations, we have assumed that all aircraft financed from
the proceeds of the sale of the certificates offered by this prospectus
supplement will be delivered prior to July 20, 2000. We also have assumed
that the maximum principal amount of the secured promissory notes described
in this prospectus supplement will be issued and that the aggregate
appraised aircraft base value will be $943,226,700 as of July 20, 2000. The
appraised base value is only an estimate of aircraft value and may not
reflect current market conditions. See "Description of the Aircraft and the
Appraisals--The Appraisals."
S-9
<PAGE>
Secured Promissory Notes and the Aircraft
The following chart provides information about the secured promissory notes
that we expect to be held in the pass through trusts and about the aircraft
that we expect to secure those promissory notes:
<TABLE>
<CAPTION>
Maximum Maximum
Principal Principal Principal
Amount of Amount of Amount of
Series A Series B Series C
Expected Scheduled Secured Secured Secured
Registration Manufacturer's Delivery Promissory Promissory Promissory Appraised
Aircraft Type Number Serial Number Month(1) Notes* Notes(2)* Notes(2)* Base Value(3)
------------- ------------ -------------- -------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Airbus A319-100......... N717UW 1069 August 1999 $15,843,631 $ 2,859,237 $ 5,804,338 $ 38,980,000
Airbus A319-100......... N718UW 1077 August 1999 15,939,309 2,763,559 5,804,339 38,980,000
Airbus A320-200......... N107US 1052 August 1999 18,702,123 3,781,021 7,116,856 45,030,000
Airbus A320-200......... N108UW 1061 August 1999 18,702,123 3,781,021 7,116,856 45,030,000
Airbus A319-100......... N719US 1084 September 1999 15,862,662 2,879,255 5,816,457 39,030,000
Airbus A319-100......... N720US 1089 September 1999 15,862,662 2,879,255 5,816,457 39,030,000
Airbus A320-200......... N109UW 1065 September 1999 18,603,315 3,865,829 7,130,856 45,030,000
Airbus A319-100......... N721UW 1095 October 1999 15,788,922 2,999,709 5,830,955 39,250,000
Airbus A319-100......... N722US 1097 October 1999 15,788,922 2,999,709 5,830,955 39,250,000
Airbus A319-100......... N723UW 1109 October 1999 15,924,217 2,864,415 5,830,955 39,250,000
Airbus A319-100......... N724UW 1122 November 1999 15,972,033 2,848,789 5,840,945 39,250,000
Airbus A319-100......... N725UW 1135 November 1999 15,972,033 2,848,789 5,840,945 39,250,000
Airbus A320-200......... N110UW 1112 November 1999 18,929,871 3,508,431 7,161,698 45,350,000
Airbus A320-200......... N111US 1114 November 1999 18,929,871 3,508,431 7,161,698 45,350,000
Airbus A319-100......... N726US 1136 December 1999 15,848,794 2,991,954 5,847,129 39,260,000
Airbus A319-100......... N727UW 1147 December 1999 15,997,257 2,843,491 5,847,129 39,260,000
Airbus A319-100......... N728UW 1169 January 2000 16,113,107 2,755,203 5,855,683 39,560,000
Airbus A319-100......... N729US 1178 February 2000 16,019,005 2,870,765 5,862,343 39,560,000
Airbus A330-300......... N670UW 315 March 2000 42,023,856 19,677,452 5,000,000 108,110,000
Airbus A330-300......... N671UW 323 April 2000 42,060,285 19,322,677 5,000,406 108,150,000
</TABLE>
- --------------------
* Estimates only and subject to change.
(1) The delivery date for any aircraft is the date that we expect the aircraft
to be delivered by the manufacturer. This date may be delayed or
accelerated. We have the option to substitute other aircraft if the
delivery of any aircraft is expected to be delayed for more than 30 days
after the month scheduled for delivery of that aircraft or beyond the
delivery period termination date. See "Description of the Aircraft and the
Appraisals--Substitute Aircraft." We may take delivery of an aircraft and
finance that aircraft under this offering up to 120 days after such
delivery (or such longer period as we may elect with approval from the
rating agencies).
(2) For optimization purposes, the actual principal amount of the series B or
the series C secured promissory notes issued for any aircraft may be less
than the amounts shown in this table. The aggregate principal amount of all
the secured promissory notes of each series will not be more than the
aggregate face amount of the certificates of the corresponding class.
(3) The appraised base value of each aircraft is the lesser of the mean and
median base values of that aircraft as appraised by three independent
appraisal and consulting firms. The appraised base values are projected
values as of the month each aircraft is expected to be delivered by the
manufacturer. The appraisals are based on assumptions that may not reflect
current market conditions. An appraisal is only an estimate of value and
should not be relied on as a measure of actual sales value at any time. See
"Risk Factors--Risk Factors Relating to the Certificates and the Offering--
Appraisals and Realizable Value of Aircraft."
S-10
<PAGE>
Loan to Aircraft Value Ratios*
The following table shows the assumed aggregate loan to aircraft value
("LTV") ratios for each class of certificates as of July 20, 2000 and as of
each subsequent July 20, assuming each pass through trust acquires the maximum
principal amount for each aircraft prior to the delivery period termination
date. In a default situation, the LTV ratios for secured promissory notes
issued to finance individual aircraft may be more relevant than the aggregate
LTV ratios shown below. This is because any proceeds from the sale of an
aircraft or other exercise of default remedies will not be used to cover any
shortfalls on the secured promissory notes relating to any other aircraft. See
"Description of the Secured Promissory Notes--Loan to Value Ratio of Secured
Promissory Notes." The LTV ratios for any class of certificates as of dates
prior to July 20, 2000 are not relevant because the property of the pass
through trusts prior to that date will not include all the secured promissory
notes expected to be acquired by the pass through trusts. The table should not
be considered a forecast or prediction of expected or likely LTV ratios but
simply a mathematical calculation based on one set of assumptions. See "Risk
Factors--Risk Factors Relating to the Certificates and the Offering--Appraisals
and Realizable Value of Aircraft."
<TABLE>
<CAPTION>
Assumed Class A Class B Class C
Regular Aggregate Certificates Certificates Certificates Class A Class B Class C
Distribution Aircraft Pool Pool Pool Certificates Certificates Certificates
Date Value(1) Balance(2) Balance(2) Balance(2) LTV(3) LTV(3) LTV(3)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
July 20, 2000 $943,226,700 $384,169,869 $83,384,000 $121,517,000 40.73% 49.57% 62.45%
July 20, 2001 914,667,900 366,773,340 77,605,435 121,517,000 40.10 48.58 61.87
July 20, 2002 886,109,100 354,346,999 71,491,803 121,517,000 39.99 48.06 61.77
July 20, 2003 857,550,300 343,067,584 65,048,622 121,517,000 40.01 47.59 61.76
July 20, 2004 828,991,500 331,944,328 60,152,113 121,137,819 40.04 47.30 61.91
July 20, 2005 800,432,700 321,363,119 56,294,355 120,001,955 40.15 47.18 62.17
July 20, 2006 771,873,900 310,443,338 48,337,705 117,137,182 40.22 46.48 61.66
July 20, 2007 743,315,100 293,557,159 41,602,491 113,092,996 39.49 45.09 60.30
July 20, 2008 714,756,300 279,426,203 37,271,491 108,980,690 39.09 44.31 59.56
July 20, 2009 686,197,500 264,472,422 34,900,939 103,909,208 38.54 43.63 58.77
July 20, 2010 657,638,700 250,574,545 32,490,773 98,433,183 38.10 43.04 58.01
July 20, 2011 629,079,900 235,954,729 29,365,394 75,876,817 37.51 42.18 54.24
July 20, 2012 600,521,100 218,646,729 26,525,105 47,813,438 36.41 40.83 48.79
July 20, 2013 571,962,300 187,426,948 18,665,910 15,470,474 32.77 36.03 38.74
July 20, 2014 543,403,500 128,115,003 17,213,742 14,699,756 23.58 26.74 29.45
July 20, 2015 511,933,600 94,745,402 14,901,287 13,699,756 18.51 21.42 24.09
July 20, 2016 355,442,000 39,018,194 10,610,659 13,690,656 10.98 13.96 17.81
July 20, 2017 326,773,200 16,601,372 7,671,431 8,048,891 5.08 7.43 9.89
July 20, 2018 98,775,200 281,980 3,304,522 1,601,050 0.29 3.63 5.25
July 20, 2019 0 0 0 0 NA NA NA
</TABLE>
- --------------------
* The classes of certificates, the aircraft, the periodic outstanding pool
balances and the resulting LTV ratios for each class of certificates are
estimates only and subject to change.
(1) We have assumed the initial appraised value of each aircraft, determined as
described under "--Secured Promissory Notes and the Aircraft," declines by
3% per year for the first 15 years after the year of delivery of that
aircraft, by 4% per year for the next 5 years and by approximately 5% per
year after the first 20 years. Other depreciation assumptions would result
in important differences in the LTV ratios.
(2) The "pool balance" for each pass through trust or for the certificates
issued by any pass through trust indicates, as of any date, the portion of
the original aggregate face amount of the certificates issued by that pass
through trust that has not been distributed to certificateholders. In
calculating the outstanding pool balances, we have assumed that the pass
through trusts will acquire the maximum principal amount of secured
promissory notes for all aircraft.
(3) The LTV ratios for each class of certificates were calculated by dividing
(a) the expected outstanding pool balance of that class together with the
expected outstanding pool balance of all other classes senior in right of
payment to that class after giving effect to the distributions expected to
be made on the applicable distribution date, by (b) the assumed value of
all of the aircraft on that date based on the assumptions described above.
The outstanding pool balances and LTV ratios may change if, among other
things, the aggregate principal amount of the secured promissory notes
acquired by the pass through trusts is less than the maximum permitted
under the terms of this offering, or the amortization of the secured
promissory notes differs from the assumed amortization schedule calculated
for purposes of this prospectus supplement.
S-11
<PAGE>
Cash Flow Structure
The following diagram illustrates the cash flow structure for payments on
the certificates and on the secured promissory notes owned by the pass through
trusts.
[Diagram omitted, which shows that we will pay to the loan trustee for
leased aircraft and owned aircraft (a) the lease rental payments, which are
assigned by the loan trustee, on leased aircraft and (b) the mortgage payments
on owned aircraft. From those lease rental payments and mortgage payments, the
loan trustee will make secured promissory note payments on the series A, the
series B and the series C secured promissory notes with respect to all aircraft
to the subordination agent. Excess rental payments will be paid by the loan
trustee to the lessors for leased aircraft. From those secured promissory note
payments, the subordination agent will pay principal, premium, if any, and
interest to the pass through trustee for the class A trust, the pass through
trustee for the class B trust and the pass through trustee for the class C
trust, which in turn will pay this principal, premium, if any, and interest to
the holders of class A certificates, the holders of class B certificates and the
holders of class C certificates, respectively. The subordination agent may also
receive advances, if any, and pay reimbursements, if any, to the liquidity
provider. The applicable depositary will make interest payments on the deposits
to the paying agent on behalf of the escrow agent. From such interest payments,
the paying agent on behalf of the escrow agent will make payments to the holders
of the class A certificates, the holders of class B certificates and the holders
of class C certificates. ]
- --------------------
(1) The owner trustee will assign to the loan trustee its right to receive
these payments and we will make these payments directly to the loan trustee.
(2) Each aircraft leased to US Airways will be subject to a separate lease and
a related indenture. Each owned aircraft will be subject to a separate
indenture.
(3) These payments will be made from payments on the secured promissory notes
as supplemented by the liquidity facilities.
(4) The proceeds of the public offering of the class A and class B certificates
and the proceeds of the private placement of the class C certificates
initially will be held in escrow and deposited with the depositary. The
depositary will hold such funds as interest-bearing deposits. Each pass
through trust will withdraw funds from the deposits relating to that pass
through trust to purchase the corresponding series of secured promissory
notes from time to time as each aircraft is financed. The scheduled payments
of interest on the secured promissory notes and on the deposits relating to
that pass through trust, taken together, will be sufficient to pay accrued
interest on the outstanding certificates of that pass through trust. The
liquidity facilities will not cover interest on the deposits. If any funds
remain as deposits with respect to any pass through trust at the end of the
delivery period, such funds will be withdrawn by the escrow agent and
distributed to the holders of the certificates issued by such pass through
trust, together with accrued and unpaid interest thereon and, in the case of
deposits relating to the class A and class B certificates, a premium payable
by US Airways, provided that no premium will be paid with respect to unused
deposits attributable to the failure of an aircraft to be delivered prior to
the end of the delivery period for any reason that was not caused by US
Airways' fault or negligence.
S-12
<PAGE>
THE OFFERING
Certificates Offered........ .Class A certificates
.Class B certificates
Class C certificates are not offered by this
prospectus supplement, but are being sold at
the same time in a separate private sale.
Use of Proceeds............. The proceeds from the sale of the certificates
will ultimately be used to purchase secured
promissory notes issued to finance the
acquisition of 20 Airbus aircraft to be
operated by us and our affiliates.
Subordination Agent, Pass
Through Trustee, Paying
Agent and Loan Trustee..... State Street Bank and Trust Company of
Connecticut, National Association.
Escrow Agent................ First Security Bank, National Association.
Depositary.................. ABN AMRO Bank N.V., acting through its Chicago
branch.
Liquidity Provider.......... AIG Matched Funding Corp.
Trust Property.............. The property of each pass through trust will
include:
. Secured promissory notes.
. All rights under the liquidity facility for
that pass through trust.
. Funds from time to time deposited with the
pass through trustee in accounts relating to
that pass through trust.
. Rights of the pass through trust to acquire
secured promissory notes under a note
purchase agreement.
. Rights of the pass through trust under the
related escrow and paying agent agreement.
. Rights of the pass through trust under the
intercreditor agreement described below under
"--Intercreditor Agreement."
Regular Distribution
Dates...................... January 20 and July 20, commencing on January
20, 2000.
Record Dates................ The fifteenth day preceding the related
distribution date.
Distributions by Pass
Through Trustee............ Each pass through trustee will distribute all
payments of principal, premium, if any, and
interest received on the secured promissory
notes held in that pass through trust to the
holders of certificates issued by that pass
through trust.
S-13
<PAGE>
Each pass through trustee will distribute all
scheduled payments of principal and interest
made on the secured promissory notes on regular
distribution dates.
Each pass through trustee will distribute
principal, premium, if any, and interest made
on the secured promissory notes resulting from
any early redemption or purchase of those
secured promissory notes on a special
distribution date. Each pass through trustee
will also distribute any premium that we pay in
connection with the return of any unused
deposit. Such distribution of premium will be
on a special distribution date. Each pass
through trustee will provide the
certificateholder with at least 15 days' notice
prior to any special distribution.
Distributions by a pass through trustee to
certificateholders generally are subject to the
intercreditor and subordination provisions
described below.
Distribution by the Paying
Agent...................... The paying agent will distribute all payments
of interest on the deposits and any unused
deposits relating to each pass through trust,
to the holders of certificates issued by that
pass through trust.
Intercreditor Agreement..... The pass through trustees and the liquidity
provider will enter into an intercreditor
agreement that states how payments made on the
secured promissory notes and payments made
under the liquidity facilities will be shared
and distributed among pass through trustees and
the liquidity provider. The intercreditor
agreement also sets forth agreements among the
pass through trustees and the liquidity
provider relating to who will control the
exercise of remedies under the secured
promissory notes and the indentures.
There are no cross-default provisions in the
indentures or in the leases. This means that if
the secured promissory notes relating to an
aircraft are in default, and the secured
promissory notes issued with respect to the
remaining aircraft are not in default, no
remedies will be exercisable with respect to
the remaining aircraft.
Subordination............... By virtue of the intercreditor agreement, the
secured promissory notes are cross-
subordinated. This means that payments received
on a junior class of secured promissory notes
relating to one aircraft may be applied
according to the priority of payment provisions
in the intercreditor agreement to make payments
relating to a more senior class of
certificates. Under the intercreditor
agreement, distributions on the certificates
will be made in the following order:
. first, to reimburse the liquidity provider;
. second, to the holders of the class A
certificates;
. third, to the holders of the class B
certificates; and
. fourth, to the holders of the class C
certificates.
S-14
<PAGE>
The subordination provisions may permit
distributions to junior certificateholders
after a default on the secured promissory notes
even if more senior certificateholders have not
been repaid in full. The subordination
provisions do not apply to payments relating to
the deposits or received from the liquidity
provider.
Control of Loan Trustee..... As long as there is no continuing default under
an indenture, the holders of a majority of the
outstanding principal amount of secured
promissory notes issued under that indenture
will be entitled to direct the loan trustee in
taking action under that indenture. If an
indenture default is continuing, the
controlling party may direct the loan trustee
to exercise remedies, which may include
accelerating the secured promissory notes under
that indenture or foreclosing the lien on the
aircraft securing those secured promissory
notes. In exercising remedies during the nine
months after the earlier of (a) the
acceleration of the secured promissory notes
issued under any indenture or (b) our
bankruptcy, the controlling party may not sell
the secured promissory notes or the aircraft
subject to the lien of that indenture for less
than certain specified minimums or modify lease
rental payments for that aircraft below a
specified threshold.
The controlling party will be:
. The class A pass through trustee.
. Upon final distribution of the aggregate
outstanding balance of the class A
certificates, together with accrued and
unpaid interest, to the holders of class A
certificates, the class B pass through
trustee.
. Upon final distribution of the aggregate
outstanding balance of the class B
certificates, together with accrued and
unpaid interest, to the holders of class B
certificates, the class C pass through
trustee.
Under certain circumstances, the liquidity
provider may elect to act as the controlling
party. See "Description of the Intercreditor
Agreement--Intercreditor Rights."
Right to Buy Other Classes
of Certificates............ If we are in bankruptcy or another triggering
event has occurred, the certificateholders may
have the right to buy the more senior classes
of certificates. See "Description of the
Certificates--Purchase Rights of
Certificateholders." This right to buy is based
on the following:
. The class B certificateholders will have the
right to purchase all the class A
certificates.
. The class C certificateholders will have the
right to purchase all the class A and class B
certificates.
S-15
<PAGE>
The purchase price will be the outstanding
balance of the applicable classes of
certificates plus accrued and unpaid interest,
plus any other amounts then due to the
certificateholders of those classes.
Liquidity Facilities........ Under the liquidity facility for each pass
through trust, the liquidity provider will, if
necessary, make advances in an aggregate amount
sufficient to pay interest on up to three
successive semiannual regular distribution
dates at the applicable interest rate for the
certificates of that pass through trust. The
liquidity facilities may not be used to pay any
other amount relating to the certificates and
will not cover interest on deposits held with
the depositary.
The holders of the certificates to be issued by
each pass through trust will be entitled to
receive and keep the proceeds of advances under
the liquidity facility for that pass through
trust. This is because the subordination
provisions will not apply to the proceeds of
advances under the liquidity facilities.
On receipt of each advance under any liquidity
facility, the subordination agent will, to the
extent of available funds, reimburse the
liquidity provider for the amount of that
advance. That reimbursement obligation and all
interest, fees and other amounts owing to the
liquidity provider will rank senior to all
classes of certificates in right of payment.
Escrowed Funds.............. Funds paid to the escrow agent by a class of
certificateholders will be deposited with a
depositary and held as deposits under a
separate deposit agreement for the pass through
trust that issued that class of certificates.
Funds may be withdrawn by the escrow agent at
the direction of the pass through trustee for
that class of certificates to purchase secured
promissory notes prior to the delivery period
termination date. On each regular distribution
date, the depositary will pay to the paying
agent interest accrued on the deposits relating
to that pass through trust at a rate equal to
the interest rate applicable to the
certificates issued by that pass through trust.
The paying agent, on behalf of the escrow
agent, will pay that interest to that class of
certificateholders. The deposits relating to a
pass through trust and interest paid on the
deposits will not be subject to the
subordination provisions. Except as noted in
the next paragraph, the deposits cannot be used
to pay any other amount relating to the
certificates.
Unused Escrowed Funds....... We may not use all the deposits held in escrow
prior to the delivery period termination date.
This may happen because of delays in the
delivery of aircraft or other reasons. If any
funds remain as deposits with respect to any
pass through trust after the delivery period
termination date, they will be withdrawn by the
escrow agent for that pass through trust and
distributed, with accrued and unpaid interest,
to the holders of escrow receipts
S-16
<PAGE>
relating to the respective pass through trust.
The holders of escrow receipts will receive at
least 15 days' prior written notice of this
distribution. That distribution will also
include a premium payable by us, provided that
no premium will be paid on unused deposits
attributable to the failure of an aircraft to
be delivered prior to the delivery period
termination date for any reason that was not
our fault or was not caused by our negligence.
Any premium paid on unused deposits will not be
subject to the subordination provisions. See
"Description of the Deposit Agreements--Unused
Deposits."
Obligation to Purchase
Secured Promissory Notes... Under the note purchase agreement, the class A,
class B and class C pass through trustees will
be obligated to purchase the series A, series B
and series C secured promissory notes,
respectively, issued for each aircraft.
In the case of a leased aircraft, the terms of
the financing agreements entered into may
differ from the forms of those agreements
described in this prospectus supplement because
we or the owner participant may request
changes. However, under the note purchase
agreement, the terms of those financing
agreements must (a) contain mandatory document
terms that are included in the note purchase
agreement with only those modifications as are
permitted by the note purchase agreement and
(b) not vary mandatory economic terms that are
included in the note purchase agreement. In
addition, we must (a) certify to the pass
through trustees that any modifications to the
forms of the financing agreements do not
materially and adversely affect the
certificateholders, and (b) we must obtain
written confirmation from each rating agency
that the use of versions of agreements modified
in any material respect will not result in a
withdrawal, suspension or downgrading of the
rating of any class of certificates. The pass
through trustees will not be obligated to
purchase secured promissory notes if, at the
time of issuance, we are in bankruptcy or
certain other specified events have occurred.
In addition, so long as Airbus Industrie
Financial Services is the registered or
beneficial owner of any of the class C
certificates, the class C pass through
trustee's obligation to purchase series C
secured promissory notes relating to the
financing of an aircraft will be subject to the
satisfaction of certain additional conditions
precedent. See "Description of the
Certificates--Obligation to Purchase Secured
Promissory Notes."
Secured Promissory Notes
(a) Issuer.................. Leased Aircraft. Promissory notes secured by
aircraft leased by us will be issued by an
owner trustee. We expect that First Security
Bank, National Association, will be the owner
trustee for all aircraft that are leased to us
under this prospectus supplement. These secured
promissory notes will not be recourse to the
owner trustee in its individual capacity. We
have an obligation to provide funds under the
related lease and related documents in amounts
sufficient to pay scheduled payments on those
secured promissory notes.
Owned Aircraft. We will be the issuer of
promissory notes secured by aircraft that we
own.
S-17
<PAGE>
(b) Interest................ The secured promissory notes held in the class
A pass through trust and the class B pass
through trust will accrue interest at the
annual rate for the certificates issued by that
pass through trust shown on the cover page of
this prospectus supplement. The secured
promissory notes held in the class C pass
through trust will accrue interest as described
in the section captioned "Purchase of Class C
Certificates." Interest on all secured
promissory notes will be payable on January 20
and July 20 of each year, commencing on January
20, 2000. Interest is calculated on the basis
of a 360-day year consisting of twelve 30-day
months.
(c) Principal............... Principal payments on the series A, series B
and series C secured promissory notes are
scheduled to begin on July 20, 2000, January
20, 2001 and July 20, 2004, respectively.
(d) Redemption and Aircraft Event of Loss. If an aircraft under
Purchase................... the related financing agreements is lost,
destroyed or damaged beyond repair or other
events of loss occur with respect to an
aircraft, all the secured promissory notes
issued for that aircraft will be redeemed,
unless we replace the aircraft under the
related financing agreements. This redemption
price will be the unpaid principal amount of
those secured promissory notes, together with
accrued interest, but without any premium.
Optional Redemption. The issuer of the secured
promissory notes for an aircraft may elect to
redeem the notes prior to maturity. This
redemption price will be the unpaid principal
amount of those secured promissory notes,
together with accrued interest plus a premium.
See "Description of the Secured Promissory
Notes--Redemption."
Purchase by Owner. If an event of default under
a lease between us and an owner trustee occurs
and is continuing, the applicable owner trustee
or owner participant of an aircraft may elect
to purchase all the secured promissory notes
with respect to that aircraft, subject to the
terms of the leased aircraft indenture. The
purchase price will be the unpaid principal
amount of those secured promissory notes,
together with accrued interest, but without any
premium except under certain circumstances
specified in the relevant leased aircraft
indenture. In the case of an owned aircraft, we
will have no comparable right to purchase the
secured promissory notes.
(e) Security................ The secured promissory notes issued for each
aircraft will be secured by a security interest
in that aircraft and, in the case of each
leased aircraft, in the related owner trustee's
rights under the lease for that aircraft,
subject to limited exceptions.
The secured promissory notes are not cross-
collateralized. This means that the secured
promissory notes issued for an aircraft will
not be secured by any other aircraft or lease.
Any proceeds
S-18
<PAGE>
from the sale of an aircraft or from the
exercise of other default remedies for an
aircraft will not be available to cover
shortfalls with respect to any other aircraft.
The secured promissory notes are cross-
subordinated under the intercreditor agreement.
This means that payments received on a junior
class of secured promissory notes issued for
one aircraft may be applied to make payments
relating to a more senior class of
certificates.
There are no cross-default provisions in the
indentures or in the leases. This means that if
the secured promissory notes issued for one
aircraft are in default and the secured
promissory notes issued for the remaining
aircraft are not in default, no remedies will
be exercisable with respect to the remaining
aircraft.
(f) Section 1110
Protection.................. Our outside counsel will provide its opinion to
the pass through trustees that the loan trustee
will be entitled to the benefits of Section
1110 of the U.S. Bankruptcy Code with respect
to the relevant aircraft. See "Description of
the Secured Promissory Notes--Remedies."
U.S. Income Tax Matters..... No pass through trust will itself be subject to
U.S. federal income taxation. Each U.S. person
acquiring an interest in the certificates is
required to report on its federal income tax
return its pro rata share of the entire income
from the relevant deposits, and its pro rata
share of the entire income from the secured
promissory notes and other property held by the
relevant pass through trust. See "U.S. Income
Tax Matters" in this prospectus supplement and
in the prospectus.
ERISA Considerations........ In general, employee benefit plans subject to
Title I of ERISA or Section 4975 of the U.S.
tax code, or entities that may be deemed to
hold the assets of those plans, will be
eligible to purchase the certificates, subject
to the conditions and circumstances that apply
to those plans. Each person who acquires a
certificate will be deemed to have represented
and warranted that either: (a) no employee
benefit plan assets have been used to purchase
that certificate or (b) the purchase and
holding of that certificate are exempt from the
prohibited transaction restrictions of ERISA
and Section 4975 of the U.S. tax code pursuant
to one or more prohibited transaction statutory
or administrative exemptions. See "ERISA
Considerations."
S-19
<PAGE>
Rating of the It is a condition to the issuance of the class
Certificates............... A and class B certificates that the
certificates have at least the following
ratings from Moody's Investors Service and
Standard & Poor's Ratings Services:
<TABLE>
<CAPTION>
Standard
Certificates Moody's & Poor's
------------ ------- --------
<S> <C> <C>
Class A A2 AA-
Class B Baa1 A
</TABLE>
A rating is not a recommendation to purchase,
hold or sell certificates. Ratings do not
address market price or suitability for a
particular investor. There can be no assurance
that these ratings will not be lowered or
withdrawn by a rating agency.
<TABLE>
<CAPTION>
Standard
Moody's & Poor's
------- --------
<S> <C> <C>
Short Term................. P-1 A-1+
Rating of the Depositary....
Threshold Rating for the
Liquidity Provider.........
Short Term
Class A................... P-1 A-1+
Class B................... P-1 A-1+
Class C................... P-1 A-1
</TABLE>
Liquidity Provider Rating... The liquidity provider meets the threshold
ratings requirement for each class of
certificates.
S-20
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following tables summarize certain of our consolidated financial data
and certain operating data. The following selected consolidated financial data
for the years ended December 31, 1998, 1997, 1996, 1995, and 1994 is derived
from our audited consolidated financial statements, which are incorporated by
reference in our prospectus and should be read in conjunction with our audited
consolidated financial statements. Our consolidated financial data for the six
months ended June 30, 1999 and 1998 is derived from our unaudited condensed
consolidated financial statements, which are incorporated by reference in our
prospectus, which include all adjustments, consisting solely of normal
recurring accruals, that we consider necessary for the fair presentation of the
financial position and results of our operations for these periods. Operating
results for the six months ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999. Our
selected consolidated financial data should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated financial
statements, including the notes to the consolidated financial statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
-------------- --------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(Unaudited)
(in millions of dollars, except ratios and
operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Data
Operating Revenues...... $4,288 $4,292 $8,556 $8,501 $7,704 $6,985 $6,579
Operating Expenses...... 3,928 3,737 7,566 7,915 7,335 6,750 7,096
------ ------ ------ ------ ------ ------ ------
Operating Income
(Loss)................. 360 555 990 586 369 235 (517)
Other Income (Expense),
Net.................... 307 (59) (54) 87 (178) (198) (199)
------ ------ ------ ------ ------ ------ ------
Income (Loss) Before
Taxes.................. 667 496 936 673 191 37 (716)
Provision (Credit) for
Income Taxes........... 261 200 377 (379) 8 4 --
------ ------ ------ ------ ------ ------ ------
Net Income (Loss)....... $ 406 $ 296 $ 559 $1,052 $ 183 $ 33 $ (716)
====== ====== ====== ====== ====== ====== ======
Ratio of Earnings to
Fixed Charges.......... 3.7 2.9 2.7 2.2 1.3 1.1 +
Operating Data(1)
Revenue passenger miles
(millions)(2).......... 20,439 20,326 41,253 41,579 38,943 37,618 37,941
Available seat miles
(millions)(3).......... 28,924 27,831 56,723 58,294 56,885 58,163 61,027
Passenger load
factor(4).............. 70.7% 73.0% 72.7% 71.3% 68.5% 64.7% 62.2%
Breakeven passenger load
factor(5).............. 65.4% 65.4% 65.7% 66.4% 67.9% 64.9% 67.3%
Passenger revenue per
available seat mile
(cents)(6)............. 12.10 12.74 12.38 12.20 11.95 10.78 9.70
Operating cost per
available seat mile
(cents)(7)............. 12.55 12.46 12.34 12.33 12.69 11.40 11.02
Average yield per
revenue passenger mile
(cents)(8)............. 17.12 17.45 17.02 17.10 17.46 16.66 15.61
Average passenger
journey (miles)(9)..... 736 710 711 709 688 664 638
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
(in millions of dollars)
<S> <C> <C>
Financial Data--Balance Sheet
Assets:
Cash and Cash Equivalents............................ $ 602 $ 604
Short-term Investments............................... 549 598
Other Current Assets................................. 1,146 1,187
Total Property and Equipment......................... 3,419 3,282
Other Assets, Net(10)................................ 1,851 2,027
------ ------
Total Assets....................................... $7,567 $7,698
====== ======
Liabilities and Stockholder's Equity:
Current Liabilities.................................. $2,457 $2,155
Long-term Debt, Net of Current Maturities............ 1,878 1,954
Deferred Credits and Other Noncurrent Liabilities.... 3,128 2,987
Stockholder's Equity(10)............................. 104 602
------ ------
Total Liabilities and Stockholder's Equity......... $7,567 $7,698
====== ======
</TABLE>
- --------------------
+ For the year ended December 31, 1994, earnings were not sufficient to cover
fixed charges. Additional earnings of approximately $721 million for the
year ended December 31, 1994 would have been required to achieve a ratio of
1.0. For purposes of calculating this ratio, earnings consist of pre-tax
income, fixed charges, capitalized interest and amortization of previously
capitalized interest. Fixed charges consist of interest expense,
amortization of debt issue expense and the portion of rental expense
representative of interest expense.
(1) All our operations including the operations of our low-cost product,
MetroJet, which commenced service June 1, 1998. These statistics include
free frequent travelers and related miles they flew. All nonrecurring items
and some revenues and expenses associated with our capacity purchase
arrangements with some affiliated airlines have been excluded from these
calculations for better comparability between periods.
(2) Revenue passengers multiplied by the number of miles they flew. Includes
scheduled service only (excludes charter service).
(3) Seats available multiplied by the number of miles flown (a measure of
capacity). Includes scheduled service only (excludes charter service).
(4) Percentage of aircraft seating capacity that is actually used (calculated
by dividing revenue passenger miles by available seat miles). Includes
scheduled service only (excludes charter service).
(5) Percentage of aircraft seating capacity that must be used in order for the
airline to break-even at the pre-tax income level.
(6) Passenger transportation revenue divided by available seat miles (a measure
of unit revenue). Includes scheduled service only (excludes charter
service).
(7) Total operating expenses divided by available seat miles (a measure of unit
cost).
(8) Passenger transportation revenue divided by revenue passenger miles (a
measure of the average revenue received for each mile a revenue passenger
is carried). Includes scheduled service only (excludes charter service).
(9) Includes scheduled service only (excludes charter service).
(10) As of June 30, 1999 and December 31, 1998, Other Assets, Net included
accounts receivable from our parent of $305 million and $306 million,
respectively. In addition, as of June 30, 1999 and December 31, 1998, our
Stockholder's Equity was reduced by accounts receivable due from our
parent of $1.8 billion and $1.1 billion, respectively.
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<PAGE>
RISK FACTORS
You should carefully read the following risk factors before purchasing any
certificates.
Risk Factors Relating to US Airways
Leverage and Liquidity
We have a higher proportion of debt compared to our equity capital than most
of our principal competitors. A majority of our property and equipment is
subject to liens securing indebtedness. We require substantial cash resources
in order to meet scheduled debt and lease payments and to finance day-to-day
operations. As a result, we may be less able than some of our competitors to
withstand a prolonged recession in the airline industry or respond as flexibly
to changing economic and competitive conditions.
As of June 30, 1999, we had:
. $1.15 billion of cash, cash equivalents and short-term investments;
. a ratio of current assets to current liabilities of 0.93 to 1; and
. $1.94 billion of long-term debt and capital lease obligations.
Our ability to fulfill our short-term and long-term cash needs and to
service our debt obligations depends upon a variety of factors, including:
. the rates we pay to acquire resources vital to our operations, such as
labor and aviation fuel;
. the prices we can obtain for our services;
. our ability to compete effectively in the market;
. the absence of adverse general economic changes;
. unit operating cost reductions; and
. our ability to attract new capital.
We can give no assurances that any of these factors will produce an outcome
favorable to us. We continue to actively address our high cost structure. A
sustained reduction of unit cost is especially critical to us becoming more
competitive with airlines with lower unit operating costs and with those with
greater financial strength.
Our parent has agreed to acquire up to 430 new Airbus aircraft, accompanying
jet engines and ancillary assets. As of August 5, 1999, our parent had 105
Airbus A320 Family single-aisle aircraft on firm order, 112 Airbus A320 Family
aircraft subject to reconfirmation prior to delivery and options for 160
additional Airbus A320 Family aircraft. Of the remaining A320 Family aircraft
on firm order, 35 aircraft scheduled for delivery between years 2000 and 2002
are subject to cancellation with 18 months' notice and payment of a
cancellation fee. We expect the new single-aisle aircraft to replace certain
aircraft operated by US Airways and US Airways Shuttle. In addition, our parent
had seven Airbus A330-300 aircraft on firm order, seven Airbus widebody
aircraft subject to reconfirmation and options for 16 additional Airbus
widebody aircraft. We expect to use the Airbus A330-300 aircraft primarily in
the transatlantic markets. As of December 31, 1998, the minimum determinable
payments associated with our parent's purchase agreements for Airbus aircraft,
including progress payments, payments at delivery, buyer-furnished equipment,
spares, capitalized interest, penalty payments, cancellation fees and/or
nonrefundable deposits, were estimated to be $1.3 billion for 1999, $2.1
billion in 2000 and $9 million in 2001. Our parent may from time to time assign
its rights and obligations with respect to the purchase of the new Airbus
aircraft to us.
We anticipate financing the acquisition of aircraft for which the purchase
rights have been assigned to us with a combination of enhanced pass through
trust certificates, other debt, leveraged leases and cash. To date, we have
used cash to purchase all of our new Airbus aircraft and completed leveraged
lease transactions for each
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aircraft soon after delivery. Because we are currently funding our parent's
purchase deposits for Airbus aircraft and because we expect our parent to
continue to assign its purchase rights to us, this financing will result in a
significant increase in our financial obligations. We currently have
commitments or letters of intent that we believe will provide financing for at
least 25% of the anticipated purchase price of all of our firm-order Airbus
aircraft. These commitments include a financing commitment between us and an
affiliate of Airbus Industrie, G.I.E. Subject to the conditions described
below, that affiliate will fulfill its commitment for the aircraft being
financed with the proceeds of the certificates by Airbus Industrie Financial
Services purchasing the class C certificates. However, we need further
financing or internally-generated funds to satisfy our capital commitments for
the balance of the aircraft purchase price and for other aircraft-related
expenditures. Other capital expenditures, such as purchases of training
simulators, and aircraft parts and components, also are expected to increase
with the acquisition of the new aircraft and jet engines. There can be no
assurance that enough financing will be available for all aircraft and other
capital expenditures not covered by committed financing.
We are currently unable to predict the full impact that the purchase of the
new aircraft will have on our future operating cash flows. We expect decreases
in some expenses as we replace several older, diverse aircraft types with
newer, more efficient aircraft. We are, however, experiencing increases in
certain expenses resulting from our growth plans, including higher ownership
costs and costs associated with integrating new aircraft types into our
operating fleet. An economic downturn, additional government regulation,
intensified competition from lower-cost competitors or increases in the cost of
aviation fuel could have a material adverse effect on our results of
operations, financial condition and future prospects.
Financial History
We recorded net income of $406 million and $296 million for the six-month
periods ended June 30, 1999 and June 30, 1998, respectively, $559 million for
1998, $1.05 billion for 1997, $183 million for 1996 and $33 million for 1995.
However, we recorded net losses in excess of $3.2 billion on revenues of
approximately $35.9 billion from 1989 through 1994. Historically, the United
States airline industry's results have correlated with the performance of the
economy. We are unable to predict whether the favorable economic conditions of
the last several years will continue.
Our financial results for the first six months of 1999 were adversely
affected by inclement weather (snow/ice storms) in the eastern United States,
the recent conversion of certain of our information systems (including
reservations, airport customer services and flight tracking systems) to those
provided by Sabre, Inc., competitive pressures and operational difficulties.
The effects on US Airways' operations of the inclement weather, compounded by
the systems conversions, were particularly acute during the first quarter of
1999. The new systems resulted in changes to many basic work processes--
temporarily affecting the efficiency at which certain processes were performed
(including increasing employee overtime). In the first quarter of 1999, we were
forced to cancel an unusually large number of planned flights, which increased
our cost per available seat mile since we were geared to operate a larger
schedule. As we cancelled flights, our costs did not decrease proportionally--
only expenses such as aviation fuel, landing fees and commissions were avoided.
At the same time, we lost a portion of the revenue from the cancelled flights.
The information systems difficulties lingered into the second quarter of 1999.
In addition, pilot training constraints negatively affected our financial
results for the second quarter of 1999. Our capacity growth estimates for the
remainder of 1999 and full-year 1999 have been revised downward primarily due
to these pilot training constraints and due to delays in returning aircraft to
service from scheduled maintenance visits. These factors stem from certain
structural transformations, including the integration of new Airbus aircraft
into our operating fleet, the growth of MetroJet (i.e., the need to reconfigure
aircraft), the retirement of certain older aircraft and the planned replacement
of US Airways Shuttle's B727-200 aircraft with Airbus aircraft. These factors
have contributed to an increase in cancellations of planned flights in the
second quarter of 1999, compared to the second quarter of 1998 and 1997. We are
unable to determine the timing of when these factors will be resolved or to
quantify the impact these factors will have on our financial performance. For
the balance of the year, we expect to experience continued revenue pressures.
In this regard, third quarter revenues and unit cost are being negatively
impacted by lower than expected completions of scheduled flights. The passenger
dissatisfaction resulting from this circumstance is also anticipated to have a
continuing negative impact.
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Transactions with US Airways Group
Historically, we have funded some of the activities and financing
transactions of our parent. As of June 30, 1999, our parent owed us $2.4
billion, of which $2.1 billion was not expected to be collected prior to June
30, 2000 including $1.8 billion classified as a component of stockholder's
equity. This reflects an increase from December 31, 1997 when our parent owed
us $419 million. The increase is due primarily to our funding of our parent's
common stock purchase programs and our parent's obligations for purchase
deposits for new flight equipment, including new Airbus aircraft. From January
1998, when our parent's first common stock purchase program was authorized,
through June 30, 1999, our parent had purchased a total of 30.4 million shares
of its common stock at a total cost of $1.75 billion.
High Personnel Costs
Our personnel costs are the largest single component of our operating costs
(approximately 38% for the six months ended June 30, 1999). Our unit operating
costs, including our personnel costs, generally are higher than those of our
competitors. We believe that we must substantially reduce our operating cost
structure to achieve sustained improved financial performance.
The current status of our principal labor union agreements is as follows:
. Pilots. Our pilots ratified a five year labor agreement in October
1997. The agreement became effective on January 1, 1998 and may be
amended after January 1, 2003. The labor agreement includes various
provisions that we believe will help address our high cost structure,
including work rule changes and linking the compensation of our pilots
to the compensation of pilots at several other major domestic air
carriers. The new contract also includes provisions that allowed us to
launch our MetroJet service, our competitive response to low-cost, low-
fare competition, and introduce regional jet aircraft on certain routes
operated by US Airways Express.
. Flight Attendants. Our labor agreement with our flight attendants has
been subject to being amended since January 1997 and we are currently in
ongoing negotiations with the Association of Flight Attendants. Earlier
in 1999, the parties requested mediation from the National Mediation
Board and ongoing negotiations are being assisted by a federal mediator.
. Passenger Service. Our passenger service employees voted for
representation by the Communications Workers of America on September 27,
1997. The election was a re-run election mandated by the National
Mediation Board. As a result of a legal challenge filed by us, the
certification of the Communications Workers of America as the bargaining
representative based on the 1997 re-run election was invalidated by the
court. After the court decision, we increased the wages for these
employees to achieve parity with other major carriers. On June 25, 1999,
the National Mediation Board ordered that a new re-run election be held.
The ballots for this election have been mailed and we anticipate the
results to be counted on August 20, 1999.
. Mechanics. We reached a tentative agreement with the mechanics and
related employees, represented by the International Association of
Machinists and Aerospace Workers, on June 6, 1999. The agreement links
compensation for our mechanical employees to compensation for similar
employees at several other major domestic airlines. The agreement also
includes other provisions which will help address our personnel cost
structure in comparison to other carriers and will increase
productivity. However, while the agreement was accepted by the
International Association of Machinists and Aerospace Workers
negotiating committee, it was rejected by the membership in the
ratification vote. Negotiations with the International Association of
Machinists and Aerospace Workers resumed in August 1999 and are being
assisted by a federal mediator. If we cannot reach an agreement with the
International Association of Machinists and Aerospace Workers and the
National Mediation Board releases the parties from mediation, and either
party thereafter rejects binding arbitration as a means to resolve the
dispute, a 30 day cooling off period will commence. If a 30 day cooling
off period is commenced, we anticipate that this would have an adverse
effect on short term
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revenues. If during such cooling off period the parties do not reach an
agreement, either party can resort to self-help remedies including,
without limitation, work stoppages by the mechanics and related
employees and hiring of replacement workers by us. We cannot predict the
outcome or the timing of such negotiations at this time.
. Fleet Service. Our fleet service employees, represented by the
International Association of Machinists and Aerospace Workers, ratified
an initial labor contract, on April 1, 1999. The new contract, covering
approximately 6,000 employees, is based on pay parity with other major
domestic airlines.
. Other. Our flight dispatchers ratified a new collective bargaining
agreement on July 29, 1999 covering approximately 195 flight
dispatchers. Our flight crew training instructors ratified a new
collective bargaining agreement on May 3, 1999 covering approximately
125 flight crew training instructors. The United Steel Workers has also
been certified in Canada as the bargaining representative for 98
passenger service workers in Canada. These negotiations for an initial
contract are ongoing.
We cannot predict the outcome or the timing of our current negotiations
with our unionized employees at this time. We may not be able to obtain
meaningful wage and benefit concessions and productivity improvements from our
unionized employees in our current negotiations, which would impede our drive
to lower costs.
Geographical Concentration
A substantial portion of our flights are to or from cities in the Eastern
United States. As of June 1999, approximately 84% of our departures originated
from, and approximately 55% of our capacity as measured by available seat
miles was deployed within, the United States east of the Mississippi River.
Accordingly, severe weather, downturns in the economy and air traffic control
problems in the Eastern United States adversely affect our results of
operations and financial condition more than they affect airlines that do not
have flights concentrated in the Eastern United States.
Year 2000 Matters
For a discussion of our preparations for Year 2000 issues related to our
information technology and non-information technology systems, see our Annual
Report on Form 10-K for the year ended December 31, 1998 and our Quarterly
Reports on Form 10-Q.
Risk Factors Relating to the Airline Industry
General Industry Conditions
The airline industry is highly competitive and susceptible to price
discounting and similar promotions. We believe that, for the foreseeable
future, demand for more profitable "business fares" will remain essentially
flat and demand for lower-profit "leisure fares," which are affected by the
general economy, will remain highly price sensitive. These conditions will
make it difficult for airlines, including us, to implement regular price
increases. Therefore, we believe we must reduce our cost structure in order to
ensure our long-term financial stability.
Current Competitive Position
Most of our operations are in competitive markets. We compete with at least
one major airline on most of our routes between major cities. We also compete
with all forms of ground transportation.
Vigorous price competition exists in the airline industry. Competitors
frequently offer sharply reduced discount fares and other promotions to
increase the number of passengers during normally slack travel periods, to
generate cash flow and to increase market share in selected markets. We often
elect to match discount or promotional fares in certain markets in order to
compete in those discounted markets. We and our affiliates recently have
experienced an increase in pricing pressures and competition.
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Significant Impact of Low-Cost, Low-Fare Competition
Our foremost competitive threat is the growth of low-cost, low-fare
competition in our primary operating region, the Eastern United States. Our
primary low-cost, low-fare competition is Southwest Airlines and Delta Express.
Southwest Airlines has exhibited steady growth within the Eastern United States
since launching service at Baltimore-Washington International Airport in 1993.
In October 1996, Delta Air Lines, a major air carrier which was itself
experiencing pressure from low-cost, low-fare competition, launched Delta
Express, its low-cost product.
Direct competition with low-cost, low-fare competitors has typically
resulted in lower average revenue received for each mile a revenue passenger is
carried. Our Northeast-Florida service has been particularly affected by low-
cost, low-fare competition. We have the highest unit operating cost, as
measured by operating cost per available seat mile or cost per available seat
mile, of all major domestic air carriers. Our cost per available seat mile was
12.55 cents for the first six months of 1999 and 12.46 cents for the first six
months of 1998. In contrast, Southwest Airlines reported unit operating costs
of 7.40 cents for the first six months of 1999 and 1998.
We launched MetroJet, our competitive response to low-cost, low-fare
competition, on June 1, 1998. We believe that MetroJet is enabling us to
compete effectively against low-cost, low-fare competitors in the markets in
which MetroJet operates. We also believe that MetroJet improves the
attractiveness of our overall product line, particularly with respect to
predominately leisure markets such as service between the Northeast United
States and Florida.
Aviation Fuel
Aviation fuel costs represent a significant portion of our operating costs.
These costs were approximately 7% of our operating costs for the six months
ended June 30, 1999. Significant increases in aviation fuel costs could
materially and adversely affect our results of operations. Fuel prices continue
to be susceptible to, among other factors, political events and market factors
that we cannot control. If a fuel supply shortage resulting from a disruption
of oil imports or otherwise occurs, higher fuel prices or curtailment of
scheduled service could result.
Regulatory Matters
We are subject to a wide range of government regulation. Changes in
government regulation can have a material impact on our results of operations
and financial condition. In recent years, for example, the Federal Aviation
Administration ("FAA") has issued or proposed mandates relating to, among other
things:
. flight data recorders that measure more parameters than most original
equipment flight data recorders;
. cargo hold fire detection/suppression systems;
. ground proximity warning systems;
. the retirement of older aircraft;
. collision avoidance systems;
. airborne windshear avoidance systems;
. noise abatement; and
. increased inspections and maintenance procedures to be conducted on
certain aircraft.
We expect to continue to incur expenditures relating to compliance with
noise and aging aircraft modifications and fire safety. In addition, several
airports have increased substantially the rates charged to airlines. The
ability of airlines to contest these increases is restricted by federal
legislation, United States Department of Transportation ("DOT") regulations and
judicial decisions.
The FAA has designated John F. Kennedy International Airport, Chicago O'Hare
International Airport, LaGuardia Airport, and Washington's Ronald Reagan
Washington National Airport, as "high-density traffic airports" and limited the
number of departure and arrival slots available to air carriers at those
airports. Currently, slots at the high-density traffic airports may be
voluntarily sold or transferred between air carriers. The DOT has in the past
reallocated slots to other air carriers and reserves the right to add or
withdraw slots. The DOT awarded slots to several low-cost, low-fare air
carriers during October 1997. However, these slots
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<PAGE>
were "created" and not confiscated from incumbent air carriers. Various
amendments to the slot system, proposed from time to time by the FAA, members
of Congress and others, could, if adopted, significantly affect operations at
the high-density traffic airports or expand slot controls to other airports.
Some of these proposals could restrict the number of flights, limit the
ownership transferability of slots, increase the risk of slot withdrawal, or
otherwise decrease the value of slots. Legislation pending before Congress
would eliminate the high-density rule at Kennedy, O'Hare and LaGuardia. Passage
of such legislation could have a significant impact on our results of
operations and financial condition. We hold a substantial number of slots at
both LaGuardia and Reagan National. These slots are valuable assets and
important to our overall business strategy. We cannot predict whether any of
the current proposals before Congress will be adopted or, if adopted, precisely
how their implementation would impact our current operations at LaGuardia.
Legislation has been enacted that provides for increased review of airline
joint ventures by the DOT. In April 1998, the DOT issued proposed rules
designed to regulate perceived anti-competitive behavior directed at new
entrants in the airline industry. Legislation was enacted requiring, among
other things, the National Research Council of the National Academy of Sciences
to complete a comprehensive study pertaining to competitive issues in the
airline industry prior to the DOT's implementation of those rules. We cannot
predict whether or when any proposed rules will be adopted.
Working with members of Congress, Air Transport Association members
developed a voluntary Airline Customer Service Commitment, which was announced
in June 1999. As a result of this commitment, members of Congress agreed not to
pursue various consumer-oriented legislative proposals at this time. In return,
U.S. air carriers agreed voluntarily to publish and implement plans to address
consumer concerns in a variety of areas. We are in the process of developing
our plan, which we intend to publish in September 1999 and implement in
December 1999.
We cannot predict what laws and regulations will be adopted, what changes to
aviation treaties and agreements between the United States and foreign
governments may be effected or how we might be affected by any of the
foregoing. We may be adversely affected by future laws or regulations.
Risks Factors Relating to the Certificates and the Offering
Appraisals and Realizable Value of Aircraft
Three independent appraisal and consulting firms have prepared base value
appraisals of the aircraft. Letters summarizing these appraisals are attached
to this prospectus supplement as Appendix II. These appraisals, which are based
on the base value of the aircraft, rely on assumptions and methodologies and
may not reflect current market conditions that could affect the fair market
value of the aircraft. Base value is the theoretical value for an aircraft that
assumes a balanced market, while current market value is the value for an
aircraft in the actual market. The appraisals were prepared without physical
inspection of the aircraft. Appraisals based on other assumptions and
methodologies may result in valuations that are materially different from those
contained in the appraisals. See "Description of the Aircraft and the
Appraisals--The Appraisals."
An appraisal is only an estimate of value. It does not indicate the price at
which an aircraft may be purchased from the aircraft manufacturer or the price
at which an aircraft may be sold in connection with the exercise of remedies
under any indenture. Therefore, the appraisal should not be relied upon as a
measure of the actual sales value of the aircraft. The proceeds realized upon a
sale of any aircraft may be less than its appraised value. In particular, the
appraisals of the aircraft to be delivered after the date of this prospectus
supplement are estimates of values as of future delivery dates. The value of an
aircraft, if remedies are exercised under the applicable indenture, will depend
on market and economic conditions, the supply of similar aircraft, the
availability of buyers, the condition of the aircraft and other factors. As a
result, aircraft sale proceeds on any exercise of remedies may not be enough to
pay the total amount due on the certificates.
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Control Over Collateral; Sale of Collateral
If a default under an indenture is continuing, the pass through trustee or
the liquidity provider that is the controlling party may direct the loan
trustee under that indenture to exercise remedies under that indenture.
Remedies exercisable under an indenture may include accelerating the applicable
secured promissory notes under the indenture or foreclosing the lien on the
aircraft securing those secured promissory notes. See "Description of the
Certificates--Indenture Defaults and Certain Rights Upon an Indenture Default."
The controlling party will be:
. The class A pass through trustee.
. Upon final distribution of the aggregate outstanding balance of the
class A certificates, together with accrued and unpaid interest, to the
holders of class A certificates, the class B pass through trustee.
. Upon final distribution of the aggregate outstanding balance of the
class B certificates, together with accrued and unpaid interest, to the
holders of class B certificates, the class C pass through trustee.
Under certain circumstances, the Liquidity Provider may elect to act as the
controlling party. See "Description of the Intercreditor Agreement--
Intercreditor Rights."
During the continuation of any indenture default, the controlling party may
accelerate and sell the secured promissory notes issued under that indenture,
subject to certain limitations. See "Description of the Intercreditor
Agreement--Intercreditor Rights--Sale of Secured Promissory Notes or Aircraft."
The market for secured promissory notes during any indenture default may be
very limited, and there can be no assurance as to the price at which they could
be sold. If the controlling party sells any secured promissory notes for less
than their outstanding principal amount, some certificateholders will receive a
smaller amount of principal distributions than expected and will not have any
claim for the shortfall against us, any owner trustee, any owner participant or
any pass through trustee.
Ratings of the Certificates
It is a condition to the issuance of the class A and class B certificates
that they receive at least the following ratings from Moody's and Standard &
Poor's.
<TABLE>
<CAPTION>
Moody's Standard & Poor's
------- -----------------
<S> <C> <C>
Class A Certificates............................... A2 AA--
Class B Certificates............................... Baa1 A
</TABLE>
A rating is not a recommendation to purchase, hold or sell certificates,
because that rating does not address market price or suitability for a
particular investor. A rating may not remain for any given period of time and
may be lowered or withdrawn entirely by a rating agency if at any time, in its
judgment, circumstances in the future, including the downgrading of us, the
depositary or the liquidity provider, so warrant.
The rating of each class of certificates is based primarily on the default
risk of the secured promissory notes purchased by that class and the depositary
for that class, the availability of the liquidity facility for the benefit of
holders of that class of certificates, the collateral value provided by the
aircraft relating to the secured promissory notes and the subordination
provisions that apply to the certificates. Standard & Poor's has indicated that
its rating applies to a unit consisting of certificates representing the trust
property and escrow receipts initially representing beneficial interests in
certain rights to $468,268,000 of deposits under the escrow agreements. Amounts
deposited under the escrow agreements are not our property and are not entitled
to the benefits of Section 1110 of the U.S. Bankruptcy Code. Neither the
certificates nor the escrow receipts may be separately assigned or transferred.
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<PAGE>
Agreements May Change
The actual participation agreements, leases and leased aircraft indentures
that we enter into may differ from the descriptions of these agreements in this
prospectus supplement because we or the owner participant may request changes.
The degree to which these agreements may change is limited because:
. the agreements are required to contain certain mandatory document terms
and mandatory economic terms, described in this prospectus supplement
under the heading "Description of the Certificates--Obligations to
Purchase Secured Promissory Notes";
. we must certify that changes to the form agreements do not materially
and adversely affect the certificateholders; and
. if we use forms of financing agreements that are modified in any
material respect from forms attached to the Note Purchase Agreement or
otherwise approved by the rating agencies, we are obligated to obtain
written confirmation from the rating agencies that the use of those
versions of agreements will not result in a withdrawal, downgrade or
suspension of the rating of any class of certificates.
Note Purchase Agreement; Class C Certificates
The note purchase agreement contains conditions to the class C pass through
trustee's obligation to enter into the participation agreement to purchase the
series C secured promissory notes to be issued in any particular financing
transaction that do not apply to the class A or the class B pass through
trustees' obligations to purchase series A and series B secured promissory
notes. These additional conditions are part of the Airbus financing commitment
and remain in effect only for so long as Airbus Industrie Financial Services
owns any class C certificates. We have no reason to believe that these
additional conditions will not be satisfied at all times during the delivery
period. If, however, at the time of the closing of a financing with respect to
any aircraft, these additional conditions are not satisfied, we will still be
obligated to finance that aircraft but will not issue any series C secured
promissory notes with respect to that aircraft.
Any series C secured promissory notes that are expected to be issued and are
not purchased by the class C pass through trustee will reduce the aggregate
amount of payments made to the subordination agent under the intercreditor
agreement. As a result, less money will be available to support the payment
obligations on the class A and class B certificates, which rank senior in right
of distributions to the class C certificates.
Unused Escrowed Funds
We may not use all of the deposits held in escrow prior to the delivery
period termination date. See "Description of the Deposit Agreements--Unused
Deposits." If any funds remain as deposits with respect to any pass through
trust after the delivery period termination date, those remaining funds will be
withdrawn by the escrow agent for that pass through trust and distributed, with
accrued and unpaid interest, to the certificateholders of that pass through
trust. In addition, we will pay a premium with respect to those remaining
deposits unless the deposits are returned under the circumstances described in
the following sentence. We will not pay a premium for any deposits that are
returned if such deposits are returned because an aircraft is not delivered
prior to the delivery period termination date for any reason that is not our
fault or caused by our negligence. See "Description of the Deposit Agreements--
Unused Deposits."
Limited Market for Resales of the Certificates
Prior to the offering of the class A and class B certificates, these
certificates were not publicly traded. Neither we nor any pass through trust
intends to apply for listing of the class A and class B certificates on any
securities exchange or otherwise. We have been advised by the underwriters that
they presently intend to make a market in the class A or class B certificates,
as permitted by applicable laws and regulations, after
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consummation of the offering of the certificates. None of the underwriters is
obligated, however, to make a market in the certificates and any market-making
activity may be discontinued at any time without notice at the sole discretion
of each underwriter. There can be no assurance that an active public market for
the class A and class B certificates will develop or that an investment in
these certificates will be liquid.
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the information incorporated by reference
from the prospectus include forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. We prepare forward-
looking statements using estimates of future revenues, expenses, activity
levels and economic and market conditions, many of which are outside of our
control. These forward-looking statements involve risks, uncertainties and
other factors that may cause our actual results to differ materially from the
results we discuss in the forward-looking statements. These risks,
uncertainties and other factors include, among others:
. economic conditions;
. labor costs;
. aviation fuel costs;
. competitive pressures on pricing--particularly from lower-cost
competitors;
. weather conditions;
. governmental legislation;
. consumer perceptions of our products;
. demand for air transportation in the markets in which we operate;
. other operational matters discussed in this prospectus supplement; and
. other risks and uncertainties listed from time to time in reports we
periodically file with the SEC.
The preparation of forward-looking statements also involves other factors
and assumptions not listed above. If the assumptions used to prepare the
forward-looking statements prove incorrect, the actual results may differ
materially from the results discussed.
US AIRWAYS
We are a certificated air carrier engaged primarily in the business of
transporting passengers, property and mail. We are the principal operating
subsidiary of our parent, accounting for approximately 90% of our parent's
consolidated operating revenues for 1998.
We carried approximately 58 million passengers in 1998 and currently rank as
the sixth largest domestic air carrier, as ranked by total revenue passenger
miles, based on our review and analysis of our and other airline press
releases. We also code share with nine air carriers that operate under the
trade name "US Airways Express" and with Shuttle, Inc. Under a code share
arrangement, one carrier places its designator code and sells tickets on
flights of another carrier. Our combined system served 202 destinations
worldwide as of July 1999. As of June 30, 1999, we had more than 39,500 full-
time equivalent employees.
We have established a new foundation on which we are moving forward with
achieving our long-term strategic objective of establishing ourself as a
competitive global airline:
. a labor contract with our pilots;
. agreements between our parent and an affiliate of Airbus Industrie,
G.I.E. to purchase up to 400 aircraft from the Airbus A320 Family of
single-aisle aircraft, which aircraft are expected to replace certain
older aircraft that we or our parent's other subsidiaries operate and up
to 30 Airbus widebody aircraft, which we expect to use primarily in
transatlantic markets;
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. an expanded and substantially improved line of products including new
international service and international business class, and expanded
regional jet service on certain routes operated by US Airways Express;
. the MetroJet service--our competitive response to low-cost, low-fare
competition; and
. a contract with Sabre, Inc. that we believe will provide long-term cost
savings and enhancements to our information services requirements.
Domestic Service
Our major connecting hubs are located at airports in Charlotte, Philadelphia
and Pittsburgh. We also have substantial operations at the Baltimore-Washington
International Airport, Boston's Logan International Airport, LaGuardia and
Reagan National Airport. As of June 1999, measured by departures, we were the
largest airline at each of these airports and are the largest air carrier in
many other smaller eastern cities such as Albany, Buffalo, Hartford,
Providence, Richmond, Rochester and Syracuse based on information provided by
OAG Worldwide, a division of Reed Business Information. We also are the leading
airline from the Northeast United States to Florida, based on information
provided by OAG Worldwide. As of June 1999, approximately 84% of our departures
were from east of the Mississippi River. In addition, approximately 55% of our
capacity, as determined by available seat miles, was deployed within the United
States east of the Mississippi River.
Four Northeast United States corridor cities are the core of our network:
Boston, New York, Philadelphia and Washington. With the exception of Newark
Airport and Washington Dulles Airport, we are the number one carrier in terms
of number of departures at these metro regions' airports as of June 1999. We
believe that our intra-East Coast core provides a platform for growth by
allowing us to leverage our intra-East Coast short-haul presence into long-haul
operations.
MetroJet
In response to the entrance and growth of "low-cost, low-fare" competition,
including competition from Southwest Airlines and Delta Express, we launched
our "MetroJet" product on June 1, 1998. Through the use of a cross-functional
employee task force, the MetroJet product was developed to serve the following
mission: "To Serve the Low-Fare Demands of the Marketplace Effectively While
Competing at a Profitable Level Against Low-Cost Carriers."
MetroJet is designed to be competitive with Southwest Airlines in terms of
labor costs, asset utilization and the on-board product offered. Southwest
Airlines still maintains advantages relating to the cost of employee benefits
and productivity and to the cost of distribution, but we believe that these
advantages have been significantly reduced. We believe MetroJet will maintain a
revenue premium advantage over Southwest Airlines by virtue of the following
factors:
. strong East Coast presence;
. broad-based Dividend Miles program;
. seat assignments at the airport;
. existing customer base;
. vast travel agency network;
. reciprocal club room access for members of US Airways Clubs and American
Airlines' Admirals Club; and
. a marketing agreement with American Airlines to share frequent flyer
miles.
Due to these factors, we also anticipate carrying a few more passengers per
departure than our low-cost competitors, as well as a broader yield mix of
passengers. See "--The US Airways and American Airlines Marketing
Relationship."
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We believe we will realize cost savings from MetroJet due to increased asset
utilization and labor costs that are significantly below that of our mainline
operations principally due to the fact that the MetroJet service is largely a
conversion of our mainline service. We also realize cost savings due to the
increased utilization of our fleet. MetroJet currently operates 41 Boeing B737-
200 aircraft and currently serves 22 cities. We anticipate that MetroJet will
operate approximately 46 aircraft by the end of 1999. Our new pilot labor
agreement allows for additional expansion; MetroJet can comprise up to 25% of
our system, as measured by revenue block hours. Although MetroJet has grown at
a dramatic rate since its introduction, its growth rate is expected to slow
until after the summer of 2000 when additional aircraft become available for
reassignment from our other operations.
US Airways Shuttle
Our parent's wholly-owned subsidiary, Shuttle, Inc., operates under the
trade name "US Airways Shuttle." Shuttle, Inc. operates 11 Boeing B727-200
aircraft and currently provides high frequency service between LaGuardia and
Logan International Airport and between LaGuardia and Reagan National Airport.
Shuttle, Inc. expects to retire certain of its Boeing B727-200 aircraft in
1999. These aircraft will be replaced by Airbus A320 aircraft.
In July 1999, we expanded our US Airways Shuttle product to encompass
certain routes that we formerly operated. The new US Airways Shuttle service,
which we operate, includes hourly service during certain times between Reagan
National Airport and Logan International Airport. Commencing in September 1999,
the new US Airways Shuttle service will also include hourly service during
certain times between Dulles International Airport and both LaGuardia Airport
and Logan International Airport. US Airways Shuttle continues to offer hourly
service during certain times between LaGuardia Airport and Reagan National
Airport and between LaGuardia Airport and Logan International Airport, routes
operated by Shuttle, Inc.
Expanding International Service
As a part of our strategy to become a competitive global airline, we have
expanded and intend to continue to expand our international service. As of June
1999, we had increased our weekly flights to Europe from 42 to 77 over the
preceding two-and-one-half years. In July 1998, we announced our order for up
to 30 Airbus widebody aircraft and the plans for a new international terminal
at Philadelphia International Airport, our primary international gateway. This
commitment to expand international service also is exemplified by the
introduction of "Envoy Class" in December 1997.
In June 1999, we increased service to both London and Paris. On June 12,
1999, we inaugurated daily service to London's Gatwick Airport from Charlotte,
North Carolina, having obtained commercially viable takeoff and landing slots
for that service. On June 19, 1999, we began a second daily service from
Philadelphia to Paris, in addition to the existing service from Pittsburgh to
Paris, which was initiated in October 1998, for a total of three daily trips.
Also in June 1999, we temporarily suspended service to Amsterdam, pending the
arrival of new aircraft to augment our international fleet.
In May 1999, Northwest Airlines and Alitalia filed an application with the
DOT for antitrust immunity, the approval of which is a precondition for
initiation of an open skies regime between the United States and Italy. If that
application is approved and open skies goes into effect in Italy, it would
enable us to initiate service from Philadelphia to Milan.
In April 1999, we filed with the DOT for authority to serve London's Gatwick
Airport from Pittsburgh, a right not currently available under the restrictive
bilateral aviation agreement known as Bermuda II. In addition, we have filed
with the DOT for authority to serve London's Heathrow Airport from Charlotte,
Philadelphia, Pittsburgh and Boston. We anticipate moving our operations from
Gatwick Airport to Heathrow Airport at the earliest possible time. The
availability of operating rights at Heathrow Airport currently is constrained
by the bilateral aviation treaty between the United States and the United
Kingdom. Negotiations between the United States and the United Kingdom on a new
bilateral agreement appear to be stalled indefinitely.
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Our transatlantic available seat miles in 1998 were 15% greater than for
1997, which in 1997 were approximately 35% greater than for 1996, and has more
than doubled from 1995 levels. We continue to explore additional international
opportunities.
Code Sharing Relationships
We have code-sharing arrangements with nine air carriers that operate under
the trade name "US Airways Express," including our parent's wholly-owned
subsidiaries Allegheny Airlines, Piedmont Airlines and PSA Airlines and with
Shuttle, Inc. Typically, under a code-share arrangement, one air carrier places
its designator code and sells tickets on flights of another carrier. Through
service agreements, we provide reservations and, at certain stations, ground
support services, in return for service fees. The US Airways Express network
feeds traffic into our route system at several points, primarily at our hubs.
As of June 30, 1999, US Airways Express served 170 airports in the continental
United States, Canada and the Bahamas, including 71 airports that we also
serve. In 1998, US Airways Express air carriers carried approximately 12
million passengers, approximately 59% of whom connected to our flights. We also
have code-share arrangements with Deutsche BA for certain intra-Germany
flights.
The US Airways and American Airlines Marketing Relationship
On April 23, 1998, we and American Airlines announced a marketing
relationship that gives customers of both companies important new benefits,
including combined access to both frequent traveler programs: our Dividend
Miles and American Airlines' AAdvantage. Under the program, effective August 1,
1998, members who belong to Dividend Miles and AAdvantage are able to claim
awards for travel on both airlines. In addition, US Airways Club and American
Airlines' Admirals Club members now enjoy reciprocal access to each airlines'
airport clubs. During August 1998, the second phase of the marketing
relationship was launched: enabling Dividend Miles and AAdvantage members who
belong to both programs to combine miles when claiming a travel award on either
airline. The third phase of the relationship, allowing AAdvantage members to
earn AAdvantage miles as well as Dividend Miles on certain US Airways Shuttle
flights (through December 31, 1999), was unveiled in early October 1998.
Labor Agreements
A five-year labor contract with our pilots became effective January 1, 1998.
This contract provides our pilots with job security, guaranteed capacity growth
and the opportunity to share in the success of the airline through stock
options. The labor agreement includes various provisions that we believe will
help address our high cost structure, including work rule changes and linking
our pilots' compensation to the compensation of pilots at several other major
domestic air carriers. The contract also includes provisions that allowed us to
launch MetroJet and introduce regional jet aircraft on certain routes operated
by US Airways Express. We currently are negotiating agreements with our flight
attendants, mechanics and passenger service employees. See "Risk Factors--Risk
Factors Relating to US Airways--High Personnel Costs."
Fleet Rationalization and the Airbus Aircraft
We are committed to rationalizing our fleet through our parent's order for
up to 400 new aircraft from the Airbus A320 Family of single-aisle aircraft and
our parent's order for up to 30 new Airbus widebody aircraft. Prior to taking
delivery of any new Airbus aircraft, our operating fleet consisted of eight
different aircraft models--six within the 95-150 seat range--a diversity that
reflects the different airlines that have merged with or been acquired by us
over the years. As of June 30, 1999, we operated 321 aircraft, excluding Airbus
A320 Family aircraft, in the 95-150 seat category, including 47 DC-9s, 64 737-
200s, 31 MD-80s and 40 Fokker-100s. The complexity of, and mechanical
differences in, our fleet create inefficiencies with respect to aircraft
maintenance, flight scheduling, flight crew and maintenance training and
inventory management (spare parts).
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We believe the addition of the Airbus A320 Family of aircraft to our fleet
will allow us to enjoy economies of consolidation in terms of training costs,
ground support equipment and spare aircraft parts. We expect the Airbus
aircraft to serve the dual purposes of retiring older fleet types while growing
the fleet overall. We expect the Airbus aircraft to give us the flexibility to
further increase capacity through the exercise of options for additional
aircraft. The addition of the Airbus single-aisle aircraft also provides more
seats with lower direct operating costs per plane mile. As we modernize our
fleet over the next several years, we believe we will realize a reduction in
maintenance and fuel costs associated with retiring aircraft. A newer fleet is
generally expected to have greater dispatch reliability, which is expected to
enhance further our revenues. However, we have experienced and will continue to
experience increases in certain ownership costs such as interest expense,
depreciation and aircraft rent expense in conjunction with the higher ownership
and/or rental costs associated with the new aircraft. We also are experiencing
increases in certain expenses and pilot training constraints, each associated
in part with the integration of new Airbus aircraft into our fleet, which have
adversely affected our financial performance.
We also believe that upgrading our fleet to include the Airbus A320 Family
of aircraft will provide us with added flexibility in assigning aircraft to
routes based on customer volume and demand. As the full-passenger ranges of the
Airbus A320 Family of aircraft range from 2,500 to 2,900 nautical miles, these
aircraft can be dispatched non-stop from any of our three domestic hub cities
to most major cities on the West Coast. Additionally, the Airbus A320-200
aircraft will be overwater equipped and have the range for Caribbean flying.
Our parent's recent order for up to 30 Airbus widebody aircraft is designed
to take advantage of fleet commonality in order to increase our savings, in
addition to providing certain customer service benefits. We expect to use these
aircraft in transatlantic markets. The savings in training costs, ground
support equipment and spare parts will be compounded because the Airbus
widebody aircraft are consistent in cockpit design with the Airbus A320 Family
aircraft. The decision to select the Airbus A330-300 was based, in part, on the
desire to obtain properly-sized planes in order to upgrade existing routes as
well as to introduce service in new markets. We anticipate that, by combining
the Airbus widebody deliveries with the Airbus A320 Family deliveries, we will
have one of the most modern commercial air carrier fleets within a few years
time. We also believe that the Airbus A330-300 offers exceptional passenger
appeal together with comfort and efficiency in international service.
US Airways' Market Position
Historically, demand for air transportation has tended to mirror general
economic conditions. Since early 1995, general domestic economic conditions
have been relatively favorable with the level of demand for air transportation
exhibiting a strong correlation. In addition, over the same time period, we and
our affiliated carriers have experienced favorable pricing and capacity trends
in the markets in which we and our affiliated carriers operate as a result of
these economic conditions. However, recently we have experienced an increase in
pricing pressures from our competitors.
Most of the markets in which we and our affiliated carriers operate are
highly competitive, especially with respect to leisure traffic. Crucial to our
ability to compete effectively is our ongoing effort to reduce our
traditionally high cost structure. We expect the Airbus single-aisle aircraft
to bring substantial operational cost savings to us over time. In addition, we
have developed our own cost-effective response to the low-cost, low-fare
competition by launching our MetroJet service.
Sabre, Inc. Agreement
We entered into an extensive contract with Sabre, Inc. under which Sabre,
Inc. assumed responsibility, as of January 1, 1998, for substantially all our
information technology requirements. We expect the agreement with Sabre, Inc.
to result in substantial information system enhancements and efficiencies,
particularly in the areas of reservations, passenger check-in, yield management
and aircraft and crew scheduling. Sabre, Inc. also
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has assumed responsibility for the majority of our Year 2000 compliance
efforts. During transition, however, the new information systems (including
reservations, airport customer services and flight tracking systems) resulted
in changes to many basic work processes temporarily affecting the efficiency at
which certain processes were performed, including increases in employee
overtime. For additional information regarding the Sabre, Inc. agreement and
our Year 2000 compliance efforts, see our Annual Report on Form 10-K for the
year ended December 31, 1998 and our Quarterly Reports on Form 10-Q.
On-Line Reservation System
In October 1998, we launched an on-line internet reservation system called
"Personal Travelworks." The new system offers customers the ability to make
their own travel arrangements for our flights and for flights on MetroJet, US
Airways Shuttle and US Airways Express. Visitors to www.usairways.com and the
new MetroJet internet site, www.flymetrojet.com, can make travel reservations,
purchase tickets and obtain flight schedules, ticket prices and other travel
information on-line.
Change in Culture--A New Outlook
We are engaged in a process to change how the airline is perceived both
internally and externally. Hundreds of front-line employees, who have extensive
first-hand knowledge and experience to offer, have been involved in cross-
functional task forces to address some of our most important service issues. We
have instituted a company-wide policy to "make exceptional service a way of
life at US Airways" and have identified teamwork and training as the
centerpieces of our efforts. We have offered training called "Creating
Impressions of Excellence" to the majority of our employees. We will continue
through ongoing training and employee involvement to focus on creating a
customer focused airline.
Our efforts to change external perceptions of the airline have produced
measurable benefits. We have been working to improve our performance with
respect to several areas traditionally identified in the industry as barometers
of customer satisfaction, such as on-time arrivals and lost baggage problems.
As a result of these strategic initiatives, researchers at Wichita State
University and the University of Nebraska named us as the top airline for 1998
on April 19, 1999 in a study compiling Airline Quality Ratings. This
independent analysis of industry performance has been compiled since 1991. We
were ranked as the top airline in terms of best overall service in 1998 as
measured by the DOT composite statistics of five selected major United States
airlines. The rankings for the first quarter of 1999 were as follows:
<TABLE>
<CAPTION>
First Quarter 1999
---------------------------------------------
On-
Composite First Time Consumer Lost Involuntary Denied
Airline Quarter 1999* Arrival Complaints Baggage Boardings
- ------- --------------- ------- ---------- ------- ------------------
<S> <C> <C> <C> <C> <C>
US Airways....... 2 5 3 1 3
American......... 4 4 4 3 2
Delta............ 1 1 1 2 5
Northwest........ 2 2 5 4 1
United........... 5 3 2 5 4
</TABLE>
- ---------------------
* Composite average of DOT rankings of on-time arrivals, lost baggage,
consumer complaints and involuntarily denied boardings. Past rankings are
not necessarily indicative of future rankings.
Legal Proceedings
We are involved in legal proceedings arising out of an aircraft accident in
September 1994 near Pittsburgh in which 127 passengers and five crew members
lost their lives. With respect to this accident, the NTSB held hearings in
January and November 1995, and held a final hearing in March 1999, at which it
issued the final accident investigation report. The report concluded that the
probable cause of the accident involved a
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malfunction of the aircraft's rudder system. Wrongful death cases are pending
in a consolidated multi-district litigation in the U.S. District Court for the
Western District of Pennsylvania and in state court in Cook County, Illinois.
Although we have settled approximately 90% of the cases and claims arising from
the Pittsburgh accident, we expect that it will be at least a year before all
the settlements and/or related litigation are concluded. A trial has been set
for November 1999 in the Illinois litigation. We are fully insured with respect
to this litigation and, therefore, believe that the litigation will not have a
material adverse effect on our financial condition or results of operations.
In May 1995, we, our parent, and the Retirement Income Plan for Pilots of US
Airways, Inc. were sued in federal district court for the District of Columbia
by 481 active and retired pilots alleging that defendants had incorrectly
interpreted the plan provisions and erroneously calculated benefits under the
plan. The plaintiffs sought damages in excess of $70 million. In May 1996, the
court issued a decision granting our motion to dismiss the majority of the
complaint for lack of jurisdiction, deciding that the dispute must be resolved
through the arbitration process under the Railway Labor Act because the plan
was collectively bargained. The court retained jurisdiction over one count of
the complaint alleging a violation of a disclosure requirement under ERISA. The
plaintiffs have attempted to appeal the district court's dismissal before the
U.S. Court of Appeals for the District of Columbia. In January of 1998, the
Court of Appeals dismissed plaintiffs' appeal for lack of jurisdiction because
the lower court order was not final. The plaintiffs moved for an order
certifying the lower court order as final. The district court granted the
motion to certify and the plaintiffs appealed to the U.S. Court of Appeals for
the District of Columbia. In February 1999, the U.S. Court of Appeals upheld
the district court's decision originally granted in May 1998 in our favor. In
May 1999, the plaintiffs filed a petition for certiorari with the U.S. Supreme
Court. In July 1999, we filed a brief in opposition to the plaintiff's petition
for certiorari with the U.S. Supreme Court.
The City and County of San Francisco have sued a number of San Francisco
International Airport tenants for the recovery of approximately $18 million of
costs incurred with respect to the characterization and cleanup of soil and
groundwater contamination at the airport. We have been identified by the City
and County of San Francisco as a potentially responsible party. We and the City
and County of San Francisco have entered into an agreement to resolve this
matter, which is subject to approval by the Court in August 1999.
We and our parent have been named as defendants in three lawsuits recently
filed in U.S. District Court for the Eastern District of Michigan. Northwest
Airlines is also named as a defendant in each action, while Delta Air Lines and
the Airlines Reporting Corporation are named as defendants in two of the cases.
The complaints are brought on behalf of a class of airline passengers who
originated or terminated their trips at the defendant carriers' respective
hubs. These passengers allege that they paid excessive fares due to the
respective airlines' enforcement of ticketing rules which prohibit the use of a
connecting segment coupon which is part of a through-fare ticket where the
passenger does not fly or intend to fly the entire ticketed itinerary.
Plaintiffs allege monopolization and restraint of trade in violation of federal
antitrust laws. They seek recovery of unquantified treble-damages and an
injunction prohibiting future enforcement of the rules at issue. We believe the
claims against us are without merit and intend to pursue a vigorous defense.
USE OF PROCEEDS
The proceeds from the sale of the certificates will be deposited with the
depositary on behalf of the applicable escrow agent for the benefit of the
certificateholders of the pass through trusts. Upon the request of the pass
through trustees, the escrow agent will withdraw the deposits and deliver such
proceeds to the pass through trustees to purchase one or more secured
promissory notes.
If an owner trustee issues the secured promissory notes, the owner trustee
will use the proceeds of the sale of the secured promissory notes to finance or
refinance a portion of the purchase price of an aircraft. Upon the purchase of
an aircraft by an owner trustee, the aircraft will be leased by the owner
trustee to us. In addition, we expect to lease or sublease some of the aircraft
to US Airways Shuttle.
If we issue the secured promissory notes, we will use the proceeds from the
sale of the secured promissory notes to finance or refinance the purchase of
aircraft that we will own.
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DESCRIPTION OF THE CERTIFICATES
The following is a summary of the general terms and provisions of the
certificates. This description supplements and, to the extent it is
inconsistent with the description of the certificates in the prospectus,
replaces that description. The statements under this caption are summaries and
do not purport to be complete and are qualified in their entirety by reference
to all the provisions of the Basic Agreement, a form of which was filed with
the SEC on June 2, 1999 as an exhibit to our Registration Statement on Form S-
3, and to all the provisions of the certificates, the pass through trust
supplements, the Deposit Agreements, the Escrow Agreements and the
Intercreditor Agreement, each of which will be filed as an exhibit to an Annual
Report on Form 10-K, a Quarterly Report on Form 10-Q, or to a Current Report on
Form 8-K that we will file with the SEC.
Except as otherwise indicated, the following summary relates to each of the
pass through trusts and the certificates issued by each pass through trust. The
terms and conditions governing each of the pass through trusts will be
substantially the same, except as described under "Description of the
Intercreditor Agreement--Priority of Distributions" below and except that the
principal amount and scheduled principal repayments of the secured promissory
notes held by each pass through trust and the interest rate and maturity date
of the secured promissory notes held by each pass through trust will differ.
The references to sections in parentheses in the following summary are to the
relevant sections of the Basic Agreement unless otherwise indicated.
General
Each certificate will represent a fractional undivided interest in one of
the three US Airways 1999-1 pass through trusts: the class A pass through
trust, the class B pass through trust and the class C pass through trust,
collectively referred to as the pass through trusts. The pass through trusts
will be formed pursuant to the Basic Agreement and three separate supplements
to the Basic Agreement. We will refer to each supplement as a pass through
trust supplement and we will refer to the Basic Agreement as supplemented by
the pass through trust supplements collectively as the pass through trust
agreements. We will refer to the certificates to be issued by the class A pass
through trust, the class B pass through trust and the class C pass through
trust as the class A certificates, the class B certificates and the class C
certificates, respectively.
The property of each pass through trust will consist of:
. Subject to the Intercreditor Agreement, secured promissory notes
acquired under the Note Purchase Agreement and issued, at our election,
either (a) on a nonrecourse basis by the Owner Trustees of separate
owner trusts for a separate leveraged lease transaction for each leased
aircraft to finance or refinance a portion of the purchase price of such
leased aircraft by the Owner Trustee, in which case the applicable
leased aircraft will be leased to US Airways and, in certain instances,
subleased by US Airways to US Airways Shuttle, an affiliate of US
Airways, or (b) on a recourse basis by US Airways in connection with
each separate secured loan transaction for each owned aircraft to
finance a portion of the purchase price of such owned aircraft by us.
. The rights of such pass through trust to acquire secured promissory
notes under the Note Purchase Agreement.
. The rights of such pass through trust under the applicable Escrow
Agreement to request the Escrow Agent to withdraw from the Depositary
funds sufficient to enable each such pass through trust to purchase
secured promissory notes on the delivery of each aircraft during the
Delivery Period.
. The rights of such pass through trust under the Intercreditor Agreement
(including all monies receivable in respect of such rights).
. Monies receivable under the Liquidity Facility for such pass through
trust.
. Funds from time to time deposited with the pass through trustee in
accounts relating to such pass through trust.
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The certificates of each pass through trust will be issued in fully
registered form only and will be subject to the provisions described below
under "--Book-Entry; Delivery and Form." Certificates will be issued only in
minimum denominations of $1,000 or integral multiples of $1,000, except that
one certificate of each pass through trust may be issued in a different
denomination. (Section 3.01)
The certificates will represent interests in the respective pass through
trusts, and all payments and distributions on the certificates will be made
only from the property of the related pass through trust. (Section 3.09) The
certificates will not represent an interest in or obligation of US Airways, the
pass through trustees, any of the Loan Trustees or Owner Trustees in their
individual capacities, any Owner Participant or any affiliate of any of them.
Our parent, US Airways Group, will not guarantee our obligations under the pass
through trust agreement or any other agreement described in this prospectus
supplement.
Under the Escrow Agreement for each pass through trust, the holder of a
certificate of any such pass through trust will also be the holder of an Escrow
Receipt affixed to the certificate. The holder of an Escrow Receipt will be
entitled to certain rights with respect to amounts held in certain accounts
established under the Escrow Agreement. Those accounts will be funded by
payments made by the Depositary under the applicable Deposit Agreement.
Any transfer of a certificate will have the effect of transferring the
corresponding rights with respect to such accounts. Escrow Receipts may not be
separately transferred by the holder of a certificate. Rights with respect to
the Deposits, payments and withdrawals to be made under the applicable Deposit
Agreement and the Escrow Agreement for a pass through trust, except for the
right to request withdrawals for the purchase of secured promissory notes, will
not constitute property of such pass through trust.
Payments and Distributions
The following description of distributions on the certificates should be
read together with the description of the Intercreditor Agreement because the
Intercreditor Agreement may change the effect of the following provisions in a
default situation. See "Description of the Intercreditor Agreement--Priority of
Distributions." Each payment of interest on the Deposits with respect to each
pass through trust will be made by the Depositary to the Paying Agent and will
be distributed by the Paying Agent to the Receiptholders on the date receipt of
such payment is confirmed by the Paying Agent. Each payment of principal,
premium, if any, and interest on the secured promissory notes or payments on or
with respect to other trust property held in each pass through trust will be
distributed by the pass through trustee to certificateholders of such pass
through trust on the date receipt of such payment is confirmed by the pass
through trustee, except in the case of certain types of Special Payments.
The Deposits held with respect to each of the class A and class B pass
through trusts and the secured promissory notes held in each such pass through
trust, in the aggregate, will accrue interest at the applicable annual rate for
certificates to be issued by such pass through trust shown on the cover page of
this prospectus supplement. Such interest will be payable on January 20 and
July 20 of each year, commencing on January 20, 2000 (or, in the case of
secured promissory notes issued after such date, commencing with the first such
date to occur after initial issuance of such secured promissory notes). The
Deposits held with respect to the class C pass through trust and secured
promissory notes held in such pass through trust will accrue interest at the
annual rate for certificates to be issued by such pass through trust set forth
under "Purchase of Class C Certificates." Such interest will be payable January
20 and July 20 each year, commencing on January 20, 2000 (or, in the case of
secured promissory notes issued after such date commencing with the first such
date to occur after initial issuance of such secured promissory notes). The
interest rate applicable to each class of certificates is referred to as the
Stated Interest Rate for such pass through trust. All such interest payments
will be distributed to certificateholders of such pass through trust on each
such date until the final Distribution Date for such pass through trust,
subject to the Intercreditor Agreement in the case of payments on the secured
promissory notes. Interest is calculated on the basis of a 360-day year
consisting of twelve 30-day months.
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<PAGE>
Payments of interest applicable to the certificates to be issued by each of
the pass through trusts will be supported by a separate Liquidity Facility to
be provided by the Liquidity Provider for the benefit of the holders of such
certificates in an aggregate amount sufficient to pay interest on the
certificates at the Stated Interest Rate for such pass through trust on the
next three successive Regular Distribution Dates (without regard to any future
payments of principal on such certificates).
The Liquidity Facility with respect to each pass through trust does not
cover interest payable by the Depositary on the Deposits relating to such pass
through trust. The Liquidity Facility for any class of certificates will not
provide for drawings thereunder to pay for principal of or premium on the
certificates of such class or any interest on the certificates of such class in
excess of the Stated Interest Rate for such class or more than three semiannual
installments of interest thereon or principal of or interest or premium on the
certificates of any other class. (Liquidity Facilities, Section 2.2;
Intercreditor Agreement, Section 3.6)
Payments of principal of the secured promissory notes are scheduled to be
received by the pass through trustee on January 20 and July 20 in certain
years, depending upon the terms of the secured promissory notes held in the
respective pass through trust.
The Paying Agent under each Escrow Agreement will distribute on each Regular
Distribution Date to the certificateholders of the pass through trust to which
such Escrow Agreement relates all Scheduled Payments received in respect of the
related Deposits, the receipt of which is confirmed by the Paying Agent on such
Regular Distribution Date. The pass through trustee of each pass through trust
will distribute, subject to the Intercreditor Agreement, on each Regular
Distribution Date to the certificateholders of such pass through trust all
Scheduled Payments received in respect of secured promissory notes held on
behalf of such pass through trust, the receipt of which is confirmed by the
pass through trustee on such Regular Distribution Date. Each certificateholder
of each pass through trust will be entitled to receive its proportionate share,
based upon its fractional interest in such pass through trust, of any
distribution in respect of Scheduled Payments of interest on the Deposits
relating to such pass through trust and, subject to the Intercreditor
Agreement, of principal or interest on secured promissory notes held by the
Subordination Agent on behalf of such pass through trust. Each such
distribution of Scheduled Payments will be made by the applicable Paying Agent
or pass through trustee to the certificateholders of record of the relevant
pass through trust on the record date applicable to such Scheduled Payment
(generally 15 days prior to each Regular Distribution Date) subject to certain
exceptions. (Sections 4.01 and 4.02; Escrow Agreement, Section 2.3) If a
Scheduled Payment is not received by the applicable Paying Agent or pass
through trustee on a Regular Distribution Date but is received within five days
after such Regular Distribution Date, it will be distributed on the date
received to such holders of record. If it is received after such five-day
period, it will be treated as a Special Payment and distributed as described
below.
Any payment in respect of, or any proceeds of, any secured promissory note,
any Trust Indenture Estate under a Leased Aircraft Indenture or any Collateral
under an Owned Aircraft Indenture, other than a Scheduled Payment, will be
distributed on, in the case of an early redemption or a purchase of any secured
promissory note, the date of such early redemption or purchase (which is a
Business Day), and otherwise on the Business Day specified for distribution of
such Special Payment pursuant to a notice delivered by each pass through
trustee as soon as practicable after the pass through trustee has received
funds for such Special Payment. Any such distribution will be subject to the
Intercreditor Agreement.
Any unused Deposits to be distributed after the Delivery Period Termination
Date or the occurrence of a Triggering Event, together with accrued and unpaid
interest on the Deposits, will be distributed on a date 15 days after the
Paying Agent has received notice of the event requiring such distribution (also
a Special Distribution Date). However, if such date is within ten days before
or after a Regular Distribution Date, such Special Payment will be made on such
Regular Distribution Date. Payments made on or with respect to a Deposit are
not subject to the Intercreditor Agreement.
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<PAGE>
Each Paying Agent, in the case of the Deposits, and each pass through
trustee, in the case of trust property, will mail a notice to the
certificateholders of the applicable pass through trust stating the scheduled
Special Distribution Date, the related record date, the amount of the Special
Payment and the reason for the Special Payment. In the case of a redemption or
purchase of the secured promissory notes held in the related pass through trust
or any distribution of unused Deposits after the Delivery Period Termination
Date or the occurrence of a Triggering Event, such notice will be mailed not
less than 15 days prior to the date such Special Payment is scheduled to be
distributed, and in the case of any other Special Payment, such notice will be
mailed as soon as practicable after the pass through trustee has confirmed that
it has received funds for such Special Payment. (Section 4.02(c); Trust
Supplements, Section 3.01; Escrow Agreement, Sections 2.3 and 2.6) Each
distribution of a Special Payment, other than a final distribution, on a
Special Distribution Date for any pass through trust will be made by the Paying
Agent or the pass through trustee, as applicable, to the certificateholders of
record of such pass through trust on the record date applicable to such Special
Payment. (Section 4.02(b); Escrow Agreement, Section 2.3) See "--Indenture
Defaults and Certain Rights upon an Indenture Default" and "Description of the
Secured Promissory Notes--Redemption."
Each pass through trust agreement will require that the pass through trustee
establish and maintain a Certificate Account for the deposit of payments
representing Scheduled Payments received by such pass through trustee. Each
pass through trust agreement will require that the pass through trustee
establish and maintain a Special Payments Account for the deposit of payments
representing Special Payments received by such pass through trustee. A Special
Payments Account will be non-interest bearing except in certain circumstances
where the pass through trustee may invest amounts in such account in certain
permitted investments. The terms of each pass through trust agreement will
require the pass through trustee to deposit any Scheduled Payments relating to
the applicable pass through trust received by it in the Certificate Account of
such pass through trust and to deposit any Special Payments so received by it
in the Special Payments Account of such pass through trust. (Section 4.01;
Trust Supplements, Section 3.01) All amounts so deposited will be distributed
by the pass through trustee on a Regular Distribution Date or a Special
Distribution Date, as appropriate. (Section 4.02; Trust Supplements, Section
3.01)
Each Escrow Agreement requires that the Paying Agent establish and maintain,
for the benefit of the Receiptholders, one or more Paying Agent Accounts, which
are to be non-interest bearing. The terms of the Escrow Agreement will require
the Paying Agent to deposit interest on Deposits relating to such pass through
trust and any unused Deposits withdrawn by the Escrow Agent in the Paying Agent
Account. All amounts so deposited will be distributed by the Paying Agent on a
Regular Distribution Date or Special Distribution Date, as appropriate.
The final distribution for each pass through trust will be made only upon
presentation and surrender of the certificates for such pass through trust at
the office or agency of the pass through trustee specified in the notice given
by the pass through trustee of such final distribution. The pass through
trustee will mail such notice of the final distribution to the
certificateholders of such pass through trust, specifying the date set for such
final distribution and the amount of such distribution. (Trust Supplements,
Section 7.01) See "--Termination of the Pass Through Trusts" below.
Distributions in respect of certificates issued in global form will be made as
described in "--Book-Entry; Delivery and Form" below.
If any Distribution Date is on a day that is not a Business Day,
distributions scheduled to be made on such Regular Distribution Date or Special
Distribution Date will be made on the next succeeding Business Day with the
same force and effect as if made on such scheduled date and without additional
interest.
Pool Factors
The following table sets forth the Assumed Amortization Schedule for the
secured promissory notes held in each pass through trust and resulting Pool
Factors with respect to such pass through trust. The actual aggregate principal
amortization schedule applicable to a pass through trust and the resulting Pool
Factors with
S-41
<PAGE>
respect to such pass through trust may differ from those set forth below,
because the amortization schedule for the secured promissory notes issued with
respect to an aircraft may vary from such illustrative amortization schedule so
long as it complies with the Mandatory Economic Terms. The scheduled
distribution of principal payments for any pass through trust will be affected
if any secured promissory notes held in such pass through trust are redeemed or
purchased or if a default in payment on such secured promissory notes occurred.
As a result, the aggregate principal amortization schedule applicable to a pass
through trust and the resulting Pool Factors may differ from those set forth in
the following table.
<TABLE>
<CAPTION>
Class A Class B Class C
Trust Trust Trust
Promissory Promissory Class B Promissory
Notes Class A Notes Trust Notes Class C
Scheduled Trust Scheduled Expected Scheduled Trust
Payments of Expected Payments of Pool Payments of Expected
Date Principal* Pool Factor Principal* Factor Principal* Pool Factor
- ---- ------------- ----------- ------------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
January 20, 2000 $ 0.00 $ 0.00 $ 0.00
July 20, 2000 714,130.85 0.00 0.00
January 20, 2001 8,262,803.52 2,233,645.96 0.00
July 20, 2001 9,133,725.63 3,544,919.52 0.00
January 20, 2002 5,692,081.62 2,587,332.61 0.00
July 20, 2002 6,734,259.13 3,526,299.33 0.00
January 20, 2003 4,751,378.98 3,213,279.46 0.00
July 20, 2003 6,528,036.12 3,229,901.30 0.00
January 20, 2004 4,893,207.44 2,005,707.75 0.00
July 20, 2004 6,230,048.87 2,890,801.04 379,181.10
January 20, 2005 4,779,694.72 1,975,477.35 0.00
July 20, 2005 5,801,513.65 1,882,281.15 1,135,864.38
January 20, 2006 4,555,298.16 3,382,259.70 135,446.91
July 20, 2006 6,364,483.18 4,574,390.05 2,729,325.48
January 20, 2007 8,127,812.03 4,858,756.36 1,163,289.03
July 20, 2007 8,758,367.37 1,876,456.96 2,880,897.00
January 20, 2008 8,330,557.67 2,792,503.74 1,986,887.61
July 20, 2008 5,800,398.08 1,538,496.95 2,125,418.22
January 20, 2009 7,185,716.83 940,127.24 3,455,341.39
July 20, 2009 7,768,063.66 1,430,424.12 1,616,140.82
January 20, 2010 8,766,500.67 1,028,729.67 3,686,680.35
July 20, 2010 5,131,376.81 1,381,436.99 1,789,345.07
January 20, 2011 8,189,696.38 1,322,652.44 11,837,575.94
July 20, 2011 6,430,119.64 1,802,726.28 10,718,789.59
January 20, 2012 10,116,215.74 1,567,588.07 17,090,731.20
July 20, 2012 7,191,783.89 1,272,700.62 10,972,648.19
January 20, 2013 21,266,929.94 2,187,602.04 21,889,329.25
July 20, 2013 9,952,851.29 5,671,592.79 10,453,634.95
January 20, 2014 53,436,148.02 1,452,168.27 770,717.54
July 20, 2014 5,875,797.43 0.00 0.00
January 20, 2015 30,138,176.32 764,455.08 0.00
July 20, 2015 3,231,424.79 1,547,999.78 1,000,000.00
January 20, 2016 14,016,151.57 1,396,075.71 0.00
July 20, 2016 41,711,055.95 2,894,553.13 9,100.48
January 20, 2017 21,406,531.06 0.00 5,347,364.57
July 20, 2017 1,010,290.79 2,939,227.63 294,399.69
January 20, 2018 16,319,392.24 3,544,555.60 6,447,841.74
July 20, 2018 0.00 822,353.25 0.00
January 20, 2019 281,979.95 3,304,522.04 1,601,049.50
</TABLE>
- ---------------------
* Estimates only and subject to change.
S-42
<PAGE>
The Pool Factor and Pool Balance of each pass through trust will be
recomputed if there has been an early redemption, purchase, or default in the
payment of principal or interest in respect of one or more of the secured
promissory notes held in a pass through trust, as described in "--Indenture
Defaults and Certain Rights Upon an Indenture Default" and "Description of the
Secured Promissory Notes--Redemption," or a special distribution attributable
to unused Deposits after the Delivery Period Termination Date, the occurrence
of a Triggering Event or, in the case of the class C pass through trust, our
failure to satisfy certain conditions set forth in the Note Purchase Agreement,
as described in "Description of the Deposit Agreements."
Reports to Certificateholders
On each Distribution Date, the applicable Paying Agent and pass through
trustee will include with each distribution by it of a Scheduled Payment or
Special Payment to certificateholders of the related pass through trust a
statement setting forth the following information (per $1,000 aggregate
principal amount of certificate for such pass through trust, except as to the
amounts described in items (1) and (6) below):
(1) The aggregate amount of funds distributed on such Distribution Date
under the pass through trust agreement and under the Escrow Agreement,
indicating the amount allocable to each source.
(2) The amount of such distribution under the pass through trust agreement
allocable to principal and the amount allocable to premium, if any.
(3) The amount of such distribution under the pass through trust agreement
allocable to interest.
(4) The amount of such distribution under the Escrow Agreement allocable to
interest.
(5) The amount of such distribution under the Escrow Agreement allocable to
unused Deposits, if any.
(6) The Pool Balance and the Pool Factor for such pass through trust.
(Trust Supplements, Section 3.02(a))
So long as the certificates are registered in the name of DTC, or its
nominee, on the record date prior to each Distribution Date, the applicable
pass through trustee will request from DTC a securities position listing
setting forth the names of all DTC Participants reflected on DTC's books as
holding interests in the certificates on such record date. On each Distribution
Date, the applicable Paying Agent and pass through trustee will mail to each
such DTC Participant the statement described above and will make available
additional copies as requested by such DTC Participant for forwarding to
certificate owners. (Trust Supplements, Section 3.02(a))
In addition, after the end of each calendar year, the applicable pass
through trustee and Paying Agent will furnish to each certificateholder of each
pass through trust at any time during the preceding calendar year a report
containing the sum of the amounts determined pursuant to clauses (1), (2), (3),
(4) and (5) above with respect to the pass through trust for such calendar year
or, in the event such person was a certificateholder during only a portion of
such calendar year, for the applicable portion of such calendar year, and such
other items as are readily available to such pass through trustee and which a
certificateholder reasonably requests as necessary for the purpose of such
certificateholder's preparation of its U.S. federal income tax returns. (Trust
Supplements, Section 3.02(b)) Such report and such other items will be prepared
on the basis of information supplied to the applicable pass through trustee by
the DTC Participants and will be delivered by such pass through trustee to such
DTC Participants to be available for forwarding by such DTC Participants to
certificate owners in the manner described above. (Trust Supplements, Section
3.02(b)) At such time, if any, as the certificates are issued in the form of
definitive certificates, the applicable Paying Agent and pass through trustee
will prepare and deliver the information described above to each
certificateholder of record of each pass through trust as the name and period
of ownership of such certificateholder appears on the records of the registrar
of the certificates.
S-43
<PAGE>
Indenture Defaults and Certain Rights upon an Indenture Default
An event of default under a Leased Aircraft Indenture will include an event
of default under the related lease. We will refer to an event of default under
a lease as a Lease Event of Default. See "Description of the Secured Promissory
Notes--Indenture Defaults, Notice and Waiver." Since the secured promissory
notes issued under an Indenture will be held in more than one pass through
trust, a continuing Indenture Default under such Indenture would affect the
secured promissory notes held by each such pass through trust. There are no
cross-default provisions in the Indentures or in the leases. This means that
events resulting in an Indenture Default under any particular Indenture may or
may not result in an Indenture Default under any other Indenture, and a Lease
Event of Default under any particular lease may or may not constitute a Lease
Event of Default under any other lease. If an Indenture Default occurs in fewer
than all of the Indentures, notwithstanding the treatment of secured promissory
notes issued under any Indenture under which an Indenture Default has occurred,
payments of principal and interest on all of the secured promissory notes will
continue to be distributed to the holders of the certificates as originally
scheduled, subject to the Intercreditor Agreement. See "Description of the
Intercreditor Agreement--Priority of Distributions."
Under a Leased Aircraft Indenture, the applicable Owner Trustee and Owner
Participant will have the right under certain circumstances to cure Indenture
Defaults that result from the occurrence of a Lease Event of Default under the
related lease. If the Owner Trustee or the Owner Participant exercises any such
cure right, the Indenture Default will be deemed to have been cured.
If the same institution acts as pass through trustee of multiple pass
through trusts, in the absence of instructions from the certificateholders of
any such pass through trust, such pass through trustee could be faced with a
potential conflict of interest upon an Indenture Default. In such event, the
pass through trustee will resign as pass through trustee of one or all such
pass through trusts, and a successor trustee will be appointed in accordance
with the terms of the applicable pass through trust agreement. State Street
Bank and Trust Company of Connecticut, National Association, will be the
initial pass through trustee under each pass through trust.
After the occurrence and during the continuation of an Indenture Default,
the Controlling Party will direct the Loan Trustee under such Indenture in the
exercise of remedies under such Indenture and may accelerate and sell all (but
not less than all) of the secured promissory notes issued under such Indenture
to any person, subject to certain limitations. See "Description of the
Intercreditor Agreement--Intercreditor Rights--Sale of Secured Promissory Notes
or Aircraft." The proceeds of such sale will be distributed pursuant to the
provisions of the Intercreditor Agreement. Any such proceeds so distributed to
any pass through trustee upon any such sale will be deposited in the applicable
Special Payments Account and will be distributed to the certificateholders of
the applicable pass through trust on a Special Distribution Date. (Sections
4.01 and 4.02)
The market for secured promissory notes at the time of the existence of an
Indenture Default may be very limited and there can be no assurance as to the
price at which they can be sold. If any such secured promissory notes are sold
for less than their outstanding principal amount, certain certificateholders
will receive a smaller amount of principal distributions than anticipated and
will not have any claim for the shortfall against US Airways, any Liquidity
Provider, any Owner Trustee, any Owner Participant or any pass through trustee.
Any Special Payment made to the pass through trustee of any pass through
trust by the Subordination Agent following an Indenture Default will be
deposited in the Special Payments Account for such pass through trust and will
be distributed to the certificateholders of such pass through trust on a
Special Distribution Date. (Sections 4.01 and 4.02; Trust Supplements, Section
3.01) In addition, if, following an Indenture Default under any Leased Aircraft
Indenture, the applicable Owner Participant or Owner Trustee exercises its
option to redeem or purchase the outstanding secured promissory notes issued
under such Leased Aircraft Indenture, the price paid by such Owner Participant
or Owner Trustee for the secured promissory notes issued under such Leased
Aircraft Indenture and distributed to such pass through trust by the
Subordination Agent will be deposited in the Special Payments Account for such
pass through trust and will be distributed to the certificateholders of such
pass through trust on a Special Distribution Date. (Sections 4.01 and 4.02)
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<PAGE>
Any funds representing payments received with respect to any defaulted
secured promissory notes, or the proceeds from the sale of any secured
promissory notes, held by the pass through trustee in the Special Payments
Account for such pass through trust will, to the extent practicable, be
invested and reinvested by such pass through trustee in Permitted Investments
at our direction pending the distribution of such funds on a Special
Distribution Date. (Section 4.04)
Each pass through trust agreement will provide that the pass through trustee
of the related pass through trust will, within 90 days after the occurrence of
any default known to the pass through trustee, give to the certificateholders
of such pass through trust notice, transmitted by mail, of such uncured or
unwaived default with respect to such pass through trust known to it. However,
except in the case of default in a payment of principal, premium, if any, or
interest on any of the secured promissory notes held in such pass through
trust, the applicable pass through trustee will be protected in withholding
such notice if it in good faith determines that the withholding of such notice
is in the interests of such certificateholders. The term "default" as used in
this paragraph only with respect to any pass through trust means the occurrence
of an Indenture Default under any Indenture pursuant to which secured
promissory notes held by such pass through trust were issued, as described
above, except that in determining whether any such Indenture Default has
occurred, any grace period or notice in connection with such Indenture Default
will be disregarded. (Section 7.02)
Each pass through trust agreement will contain a provision entitling the
pass through trustee of the related pass through trust, subject to the duty of
such pass through trustee during a default to act with the required standard of
care, to be offered reasonable security or indemnity by the holders of the
certificates of such pass through trust before proceeding to exercise any right
or power under such pass through trust agreement at the request of such
certificateholders. (Section 7.03(e))
Subject to certain qualifications set forth in each pass through trust
agreement and to the Intercreditor Agreement, the certificateholders of each
pass through trust holding certificates evidencing fractional undivided
interests aggregating not less than a majority in interest in such pass through
trust will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the pass through trustee with
respect to such pass through trust or pursuant to the terms of the
Intercreditor Agreement, or exercising any trust or power conferred on such
pass through trustee under such pass through trust agreement or the
Intercreditor Agreement, including any right of such pass through trustee as
Controlling Party under the Intercreditor Agreement or as holder of the secured
promissory notes. (Section 6.04)
In certain cases, the certificateholders of a pass through trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such pass through trust may on behalf of the holders of all the certificates
of such pass through trust waive any past "event of default" under such pass
through trust (i.e., any Indenture Default under any Indenture pursuant to
which secured promissory notes held by such pass through trust were issued) and
its consequences or, if the pass through trustee of such pass through trust is
the Controlling Party, may direct the pass through trustee to instruct the
applicable Loan Trustee to waive any past Indenture Default and its
consequences, except (a) a default in the deposit of any Scheduled Payment or
Special Payment or in the distribution of any Scheduled Payment or Special
Payment, (b) a default in payment of the principal, premium, if any, or
interest with respect to any of the secured promissory notes and (c) a default
in respect of any covenant or provision of the pass through trust agreement
that cannot be modified or amended without the consent of each
certificateholder of such pass through trust affected by such default. (Section
6.05) Each Indenture will provide that, with certain exceptions, the holders of
the majority in aggregate unpaid principal amount of the secured promissory
notes issued under such Indenture may on behalf of all such holders waive any
past default or Indenture Default under such Indenture. Notwithstanding such
provisions of the Indentures, under the Intercreditor Agreement only the
Controlling Party will be entitled to waive any such past default or Indenture
Default.
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<PAGE>
Purchase Rights of Certificateholders
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the pass through trustee and to each
certificateholder of the same class:
. the class B certificateholders will have the right to purchase all, but
not less than all, of the class A certificates; and
. the class C certificateholders will have the right to purchase all of
the class A and class B certificates.
In each case, the purchase price will be equal to the Pool Balance of the
relevant class or classes of certificates plus accrued and unpaid interest on
such Pool Balance to the date of purchase, without premium, but including any
other amounts due to the certificateholders of such class or classes. Such
purchase right may be exercised by any certificateholder of the class or
classes entitled to such right. In each case, if prior to the end of the ten-
day period, any other certificateholder of the same class notifies the
purchasing certificateholder that the other certificateholder wants to
participate in such purchase, then such other certificateholder may join with
the purchasing certificateholder to purchase the certificates pro rata based on
the interest in the pass through trust held by each certificateholder. (Trust
Supplements, Section 4.01)
PTC Event of Default
A PTC Event of Default under each pass through trust agreement means the
failure to pay:
. The outstanding Pool Balance of the applicable class of certificates
within ten Business Days of the Final Maturity Date for such class.
. Interest due on such class of certificates within ten Business Days of
any Distribution Date (unless the Subordination Agent has made Interest
Drawings, or withdrawals from the Cash Collateral Account for such class
of certificates, in an aggregate amount sufficient to pay such interest
and has distributed such amount to the relevant pass through trustee).
(Section 1.01)
Any failure to make expected principal distributions for any class of
certificates on any Regular Distribution Date (other than the Final Maturity
Date) will not constitute a PTC Event of Default for such certificates. A PTC
Event of Default for the most senior outstanding class of certificates
resulting from an Indenture Default under all Indentures will constitute a
"Triggering Event." See "Description of the Intercreditor Agreement--Priority
of Distributions--After a Triggering Event" for a discussion of the
consequences of a Triggering Event.
Merger, Consolidation and Transfer of Assets
We will be prohibited from consolidating with or merging into any other
corporation or transferring substantially all of our assets as an entirety to
any other entity unless:
. The surviving successor corporation or transferee is validly existing
under the laws of the United States or any state of the United States or
the District of Columbia.
. The surviving successor corporation or transferee is a "citizen of the
United States" (as defined in the Transportation Code) holding an air
carrier operating certificate issued by the Secretary of Transportation
pursuant to Chapter 447 of Title 49, United States Code, if, and so long
as, such status is a condition of entitlement to the benefits of Section
1110 of the U.S. Bankruptcy Code.
. The surviving successor corporation or transferee expressly assumes all
of our obligations contained in the Basic Agreement and any pass through
trust supplement, the Note Purchase Agreement, the Indentures, the
Participation Agreements, the leases and any other operative documents.
. We deliver a certificate and an opinion or opinions of counsel
indicating that such transaction, in effect, complies with such
conditions.
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<PAGE>
In addition, after giving effect to such transaction, no Lease Event of
Default, in the case of a leased aircraft, or Indenture Default, in the case of
an owned aircraft, will have occurred and be continuing. (Section 5.02; Trust
Supplement, Section 8.01, Leased Aircraft Participation Agreement, Section
7(v); Owned Aircraft Participation Agreement, Section 7(e))
The Basic Agreement, the pass through trust supplements, the Note Purchase
Agreement, the Indentures, the Participation Agreements and the leases will not
contain any covenants or provisions that would give any pass through trustee or
certificateholders protection in the event of a highly leveraged transaction,
including transactions effected by management or affiliates, which may or may
not result in a change in control of US Airways.
Modifications of the Pass Through Trust Agreements and Certain Other Agreements
Each pass through trust agreement will contain provisions permitting, at our
request, the execution of amendments or supplements to such pass through trust
agreement or, if applicable, to the Deposit Agreements, the Escrow Agreements,
the Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility, without the consent of the holders of any of the certificates of such
pass through trust:
. To provide for the formation of a pass through trust, to issue an
additional series of certificates and to enter into pass through trust
supplements setting forth the terms of any series of certificates.
. To evidence the succession of another corporation to us and the
assumption by such corporation of our obligations under such pass
through trust agreement, the Note Purchase Agreement or any Liquidity
Facility.
. To add to our covenants for the benefit of holders of such certificates
or to surrender any right or power conferred upon us in such pass
through trust agreement, the Intercreditor Agreement, the Note Purchase
Agreement or any Liquidity Facility.
. To correct or supplement any provision of such pass through trust
agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility which may be defective or inconsistent with any other provision
in such pass through trust agreement, the Deposit Agreements, the Escrow
Agreements, the Intercreditor Agreement, the Note Purchase Agreement or
any Liquidity Facility, as applicable, or to cure any ambiguity or to
modify any other provision with respect to matters or questions arising
under such pass through trust agreement, the Deposit Agreements, the
Escrow Agreements, the Intercreditor Agreement, the Note Purchase
Agreement or any Liquidity Facility, provided that such action will not
materially adversely affect the interests of the holders of such
certificates.
. To correct any mistake in such pass through trust agreement, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility.
. To give effect to or provide for a Replacement Facility, as provided in
the Intercreditor Agreement.
. To comply with any requirement of the SEC, any applicable law, rules or
regulations of any exchange or quotation system on which the
certificates are listed, or any regulatory body.
. To modify, eliminate or add to the provisions of such pass through trust
agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility to such extent as is necessary to continue the qualification of
such pass through trust agreement (including any supplemental agreement)
under the Trust Indenture Act of 1939, or any similar federal statute
enacted after the execution of such pass through trust agreement, and to
add to such pass through trust agreement, the Deposit Agreements, the
Escrow Agreements, the Intercreditor Agreement, the Note Purchase
Agreement or any Liquidity Facility such other provisions as may be
expressly permitted by the Trust Indenture Act.
S-47
<PAGE>
. To evidence and provide for the acceptance of appointment under such
pass through trust agreement, the Deposit Agreements, the Escrow
Agreements, the Intercreditor Agreement, the Note Purchase Agreement or
any Liquidity Facility by a successor pass through trustee and to add to
or change any of the provisions of such pass through trust agreement,
the Deposit Agreements, the Escrow Agreements, the Intercreditor
Agreement, the Note Purchase Agreement or any Liquidity Facility as is
necessary to provide for or facilitate the administration of the pass
through trusts under the Basic Agreement by more than one pass through
trustee.
In each case, such modification or supplement may not adversely affect the
status of the pass through trust as a grantor trust under Subpart E, Part I of
Subchapter J of Chapter 1 of Subtitle A of the Code for U.S. federal income tax
purposes. (Section 9.01; Trust Supplements, Section 6.01)
A majority of the certificateholders of a pass through trust may amend or
supplement the provisions of the pass through trust agreement, the Deposit
Agreements, the Escrow Agreements, the Intercreditor Agreement, the Note
Purchase Agreement or any Liquidity Facility to the extent applicable to such
certificateholders or of modifying the rights and obligations of such
certificateholders under such pass through trust agreement, the Deposit
Agreements, the Escrow Agreements, the Intercreditor Agreement, the Note
Purchase Agreement or any Liquidity Facility. No such amendment or supplement
may, without the consent of the holder of each certificate so affected by such
amendment or supplement:
. Reduce in any manner the amount of, or delay the timing of, any receipt
by the pass through trustee (or, with respect to the Deposits, the
Receiptholders) of payments with respect to the secured promissory notes
held in such pass through trust or distributions in respect of any
certificate related to such pass through trust (or, with respect to the
Deposits, payments to be made to Receiptholders), or change the date or
place of any payment in respect of any certificate, or make
distributions payable in coin or currency other than that provided for
in such certificates, or impair the right of any certificateholder of
such pass through trust to institute suit for the enforcement of any
such payment when due.
. Permit the disposition of any secured promissory note held in such pass
through trust, except as provided in such pass through trust agreement,
or otherwise deprive such certificateholder of the benefit of the
ownership of the applicable secured promissory notes.
. Alter the priority of distributions specified in the Intercreditor
Agreement in a manner materially adverse to such certificateholders.
. Reduce the percentage of the aggregate fractional undivided interests of
the pass through trust provided for in such pass through trust
agreement, the consent of the holders of which is required for any such
supplemental trust agreement or for any waiver provided for in such pass
through trust agreement.
. Modify any of the provisions relating to the rights of the
certificateholders in respect of the waiver of events of default or
receipt of payment except to increase any percentage of
certificateholders required to effect a waiver or to add to the list of
provisions that may not be altered without the consent of each
certificateholder affected thereby. (Section 9.02; Trust Supplements,
Section 6.02)
In the event that a pass through trustee, as holder (or beneficial owner
through the Subordination Agent) of any secured promissory note in trust for
the benefit of the certificateholders of the relevant pass through trust or as
Controlling Party under the Intercreditor Agreement, receives (directly or
indirectly through the Subordination Agent) a request for a consent to any
amendment, modification, waiver or supplement under any Indenture, any
Participation Agreement, any lease, any secured promissory note or any other
related document, such pass through trustee will promptly send a notice of such
proposed amendment, modification, waiver or supplement to each
certificateholder of the relevant pass through trust registered on the register
of such pass
S-48
<PAGE>
through trust as of the date of such notice. Such pass through trustee will
request from such certificateholders a direction as to:
. Whether or not to take or refrain from taking (or direct the
Subordination Agent to take or refrain from taking) any action which a
holder of such secured promissory note or the Controlling Party has the
option to direct.
. Whether or not to give or execute (or direct the Subordination Agent to
give or execute) any waivers, consents, amendments, modifications or
supplements as a holder of such secured promissory note or as
Controlling Party.
. How to vote (or direct the Subordination Agent to vote) any secured
promissory note if a vote has been called for with respect to such
amendment, modification, waiver or supplement.
Provided such a request for certificateholder direction has been made, in
directing any action or casting any vote or giving any consent as the holder of
any secured promissory note (or in directing the Subordination Agent in any of
the foregoing) the pass through trustee will:
. Other than as Controlling Party, vote for or give consent to any such
action with respect to such secured promissory note in the same
proportion as that of (x) the aggregate face amount of all certificates
actually voted in favor of or for giving consent to such action by such
direction of certificateholders to (y) the aggregate face amount of all
outstanding certificates of the relevant pass through trust.
. As the Controlling Party, vote as directed in such certificateholder
direction by the certificateholders evidencing fractional undivided
interests aggregating not less than a majority in interest in the
relevant pass through trust.
For purposes of the certificateholder directions described above, a
certificate is deemed "actually voted" if the certificateholder has delivered
to the pass through trustee an instrument evidencing such certificateholder's
consent to such direction prior to one Business Day before the pass through
trustee directs such action or casts such vote or gives such consent.
Notwithstanding the foregoing, but subject to certain rights of the
certificateholders under the relevant pass through trust agreement and subject
to the Intercreditor Agreement, the pass through trustee may, in its own
discretion and at its own direction, consent and notify the relevant Loan
Trustee of such consent (or direct the Subordination Agent to consent and
notify the relevant Loan Trustee of such consent) to any amendment,
modification, waiver or supplement under the relevant Indenture, Participation
Agreement or lease, any relevant secured promissory note or any other related
document, if an Indenture Default under any Indenture has occurred and is
continuing, or if such amendment, modification, waiver or supplement does not
materially adversely affect the interests of the certificateholders. (Section
10.01)
Obligation to Purchase Secured Promissory Notes
Each pass through trustee will be obligated to purchase the secured
promissory notes issued with respect to the aircraft during the Delivery
Period, subject to the terms and conditions of the Note Purchase Agreement and
the applicable Participation Agreement. Under the Note Purchase Agreement, we
agree to finance each aircraft in the manner provided in the Note Purchase
Agreement. We will have the option of entering into a leveraged lease financing
or a secured debt financing with respect to each aircraft.
. If we choose to enter into a leveraged lease financing with respect to
an aircraft, the Note Purchase Agreement provides for the relevant
parties to enter into a Participation Agreement, a lease and a Leased
Aircraft Indenture relating to the financing of such leased aircraft.
. If we choose to enter into a secured debt financing with respect to an
aircraft that we own, the Note Purchase Agreement provides for the
relevant parties to enter into a Participation Agreement and an Owned
Aircraft Indenture relating to the financing of such owned aircraft.
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<PAGE>
Transaction Structure for Leased Aircraft
The following diagram illustrates transactions in connection with the
purchase of secured promissory notes by the pass through trustees to finance
leased aircraft. We anticipate that separate transactions similar to the
transactions illustrated in the diagram will occur for each leased aircraft
financed with the proceeds of the offering of the certificates. At our request
or at the request of an Owner Participant, the structure illustrated below may
change so that the actual cash flows on the closing of any lease financing may
vary.
[Diagram omitted, which shows leased aircraft notes will be issued by an
owner trustee in a leveraged lease transaction. The diagram shows that we will
sell the leased aircraft to an owner trust that will, in turn, lease the
aircraft back to us. The owner participant is the beneficial owner of the owner
trust and contributes a portion of the purchase price of the aircraft. The owner
trust will enter into an indenture with the loan trustee providing for a
security interest in the leased aircraft, the assignment of the lease and the
issuance of secured promissory notes to finance the remaining portion of the
purchase price of the aircraft. The owner trustee will sell the class A, class B
and class C secured promissory notes to the class A, class B and class C pass
through trusts, respectively. The class A, class B and class C pass through
trusts will sell certificates to series A, series B and series C
certificateholders, respectively, for cash. The proceeds from the sale of the
certificates initially will be held in escrow and deposited with the applicable
depositary. As each aircraft is financed, the class A, class B and class C pass
through trusts will withdraw amounts from the depositary necessary to purchase
the applicable secured promissory notes and pass such amounts through to the
loan trustee who in turn will forward the proceeds to the owner trust as payment
for the secured promissory notes.]
- --------------------
(1) We may sell aircraft we own to the owner trust in a leveraged lease
transaction. In some instances, the owner trust may purchase aircraft
directly from the manufacturer or from other persons.
(2) Each leased aircraft will be subject to a separate lease.
(3) Because the owner trustee assigns these payments to the loan trustee, we
will make these payments directly to the loan trustee.
(4) Because the sale of the certificates occurs prior to the closing of each
leveraged lease transaction, the proceeds from the sale of certificates
will initially be held in escrow by the escrow agent and deposited with the
depositary. The depositary will hold such funds as interest-bearing
deposits. In connection with each leveraged lease transaction, amounts are
withdrawn from the deposit for the respective pass through trust and used
to acquire secured promissory notes.
S-50
<PAGE>
Transaction Structure for Owned Aircraft
The following diagram illustrates transactions in connection with the
purchase of secured promissory notes by the pass through trustees to finance
owned aircraft. We anticipate that separate transactions similar to the
transactions illustrated in the diagram will occur for each owned aircraft
financed with the proceeds of the offering of the certificates.
[Diagram omitted, which shows that we may finance or refinance aircraft
that we own through the issuance of owned aircraft notes. The diagram also shows
that we will enter into an indenture with the loan trustee providing for a
security interest in the owned aircraft and the issuance of secured promissory
notes. We will sell the class A, class B and class C secured promissory notes to
the class A, class B and class C pass through trusts, respectively. The class A,
class B and class C pass through trusts will sell certificates to series A,
series B and series C certificateholders, respectively, for cash. The proceeds
from the sale of the certificates initially will be held in escrow and deposited
with the applicable depositary. As each aircraft is financed, the class A, class
B and class C pass through trusts will withdraw amounts from the depositary
necessary to purchase the applicable secured promissory notes and pass such
amounts through to the loan trustee who will in turn forward the proceeds to us
as payment for the secured promissory notes. We will then purchase owned
aircraft from those proceeds.]
- --------------------
(1) Because the sale of the certificates occurs prior to the financing of each
owned aircraft, the proceeds from the sale of certificates will initially
be held in escrow by the escrow agent and deposited with the depositary.
The depositary will hold such funds as interest-bearing deposits. In
connection with the closing of each owned aircraft financing, amounts are
withdrawn from the deposit for the respective pass through trust and used
to acquire secured promissory notes.
S-51
<PAGE>
Mandatory Terms
The description of the Participation Agreements, the lease, the Leased
Aircraft Indenture and the Owned Aircraft Indenture in this prospectus
supplement is based on the forms of such agreements to be utilized pursuant to
the Note Purchase Agreement. In the case of a leased aircraft, the terms of the
agreements actually entered into may differ from the forms of such agreements
and, as a result, may differ from the description of such agreements contained
in this prospectus supplement. See "Description of the Secured Promissory
Notes." However, under the Note Purchase Agreement, the terms of such
agreements are required to (a) contain the Mandatory Document Terms (as such
Mandatory Document Terms are permitted to vary in accordance with the terms of
the Note Purchase Agreement) and (b) not vary the Mandatory Economic Terms. In
addition, we must certify to the pass through trustees that any such
modifications do not materially and adversely affect the certificateholders and
we must obtain written confirmation from each Rating Agency that the use of
versions of such agreements modified in any material respect will not result in
a withdrawal, suspension or downgrading of the rating of any class of
certificates.
Under the Note Purchase Agreement, it is a condition precedent to the
obligation of each pass through trustee to purchase the secured promissory
notes related to the financing of an aircraft that no Triggering Event has
occurred. The pass through trustees have no right or obligation to purchase
secured promissory notes after the Delivery Period Termination Date. So long as
Airbus Industrie Financial Services ("AIFS") is the registered or beneficial
owner of any of the class C certificates, the class C pass through trustee's
obligation to purchase series C secured promissory notes relating to the
financing of an aircraft will be subject to the satisfaction of certain
additional conditions precedent. The additional conditions to the class C pass
through trustee's obligation to purchase series C secured promissory notes to
be issued in any financing include:
. the absence of a material payment default by our parent under its
purchase agreement with an affiliate of Airbus;
. the absence of a material payment default under other financing
arrangements with Airbus or its affiliates;
. we must continue to hold an air carrier operating certificate required
for lessors to us or lenders secured by the aircraft to be entitled to
the benefits of Section 1110 of the U.S. Bankruptcy Code;
. the absence of certain bankruptcy-related events or other material
events that result, or could result, in the termination of the aircraft
purchase agreement between our parent and an affiliate of Airbus;
. the satisfaction of certain liquidity conditions; and
. compliance with certain parameters relating to the amount of financing
on an aircraft-by-aircraft basis and the aggregate amount of financing
that an affiliate of Airbus is obligated to provide.
We expect that the foregoing conditions will be satisfied at all times.
However, no assurances can be given and if the conditions are not satisfied
with respect to any aircraft, we will still be obligated to finance such
aircraft except that no series C secured promissory notes will be issued with
respect to such aircraft.
The "Mandatory Economic Terms," as defined in the Note Purchase Agreement,
will require, among other things, that:
. The principal amount of the series A secured promissory notes issued
with respect to an aircraft equals the principal amount of series A
secured promissory notes indicated for each such aircraft as set forth
in "Prospectus Supplement Summary--Secured Promissory Notes and the
Aircraft" under the column "Principal Amount of Series A Secured
Promissory Notes."
. The maximum principal amount of the series B and series C secured
promissory notes issued with respect to an aircraft must not exceed the
principal amount of series B and series C secured promissory notes
indicated for each aircraft as set forth in "Prospectus Supplement
Summary--Secured Promissory Notes and the Aircraft" under the columns
"Maximum Principal Amount of Series B Secured Promissory Notes" and
"Maximum Principal Amount of Series C Secured Promissory Notes."
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. The initial loan to aircraft value with respect to an aircraft (with the
value of any aircraft for these purposes to equal the Assumed Appraised
Value) must not exceed the percentages set forth in the following table:
<TABLE>
<CAPTION>
Series A Series B Series C
Secured Secured Secured
Aircraft Promissory Promissory Promissory
Type Notes Notes Notes
-------- ---------- ---------- ----------
<S> <C> <C> <C>
Airbus A319 40.89% 48.02% 62.92%
Airbus A320 41.74 49.93 65.73
Airbus A330 38.89 57.07 61.70
</TABLE>
. The loan to aircraft value ratio for each series of secured promissory
notes for each aircraft (computed (a) after aggregating the principal
amount of all series of secured promissory notes that ranks senior to
the series of secured promissory notes for which loan to aircraft value
is being calculated and (b) as of the date of the issuance of the
secured promissory notes on the basis of the Assumed Appraised Value of
such aircraft and the Depreciation Assumption) must not exceed as of any
Regular Distribution Date after secured promissory notes are issued for
that aircraft (assuming no default in the payment of the secured
promissory notes) the percentages set forth in the following table:
<TABLE>
<CAPTION>
Series A Series B Series C
Secured Secured Secured
Aircraft Promissory Promissory Promissory
Type Notes Notes Notes
-------- ---------- ---------- ----------
<S> <C> <C> <C>
Airbus A319 43.22% 48.96% 66.00%
Airbus A320 44.09 49.93 67.00
Airbus A330 38.89 57.07 61.70
</TABLE>
. The initial average life of the series A secured promissory notes, the
series B secured promissory notes and the series C secured promissory
notes on any aircraft must not extend beyond 13.5 years, 10.5 years and
13.5 years, respectively, from the Issuance Date.
. The interest rate applicable to each series of secured promissory notes
must equal the rate applicable to the certificates issued by the
corresponding pass through trust.
. The past due rate applicable to each series of secured promissory notes
must not be less than the interest rate applicable to such series of
secured promissory notes plus 1% per annum.
. The original aggregate principal amount of all of the secured promissory
notes of each series must not exceed the original aggregate face amount
of the certificates issued by the corresponding pass through trust.
. The payment dates for the secured promissory notes and basic rent under
the leases must be January 20 and July 20.
. The basic lease term for each lease must expire by its terms on or after
the latest maturity date of the related secured promissory notes.
. As of the Delivery Period Termination Date, the average life of the
class A certificates, the class B certificates and the class C
certificates must not be more than 12.1 years, 9.6 years and 12.7 years,
respectively, from the Issuance Date (computed without regard to the
acceleration of any secured promissory notes and after giving effect to
any special distribution on the certificates after the Issuance Date
required in respect of unused Deposits).
. As of the Delivery Period Termination Date and each Regular Distribution
Date after the Delivery Period Termination Date, the loan to aircraft
value ratio for each class of certificates (computed (a) after
aggregating the face amount of the class or classes of certificates that
rank senior to the class of certificates for which loan to aircraft
value is being calculated and (b) as of any such date on the basis of
the Assumed Appraised Value of all aircraft that have been delivered and
the Depreciation Assumption), must not exceed (assuming no default in
the payment of the secured promissory notes
S-53
<PAGE>
and after giving effect to Scheduled Payments) 40.8% in the case of the
class A certificates, 51.0% in the case of the class B certificates and
63.0% in the case of the class C certificates.
. The final expected distribution date of each class of certificates is as
set forth in the "Prospectus Supplement Summary--Summary of Terms of
Certificates."
. Each installment of basic rent, together with any advances or payments
by us and any payment of deferred equity amounts by an Owner Participant
under the leases and related agreements must be sufficient for the Owner
Trustee to pay in full, on the date on which each installment of basic
rent, advance, other payment or deferred equity is due, any payments
scheduled to be made on account of principal of, and interest on, the
related secured promissory notes. If an Owner Participant is required to
make a deferred equity payment to be used by an Owner Trustee to pay
principal of, and interest on, the secured promissory notes and the
Owner Participant fails to make the payment, we will be required to
provide the Owner Trustee with funds sufficient to make the payment.
Termination values (or other comparable termination amounts), together
with all other amounts payable by US Airways upon termination of any
lease, and the amount of premium, if any payable by the Owner Trustee,
must be sufficient to pay amounts due with respect to the related
secured promissory notes.
. The amounts payable under the all-risk aircraft hull insurance
maintained with respect to each aircraft must be sufficient to pay the
applicable termination value (or other comparable termination amount),
subject to certain rights of self-insurance.
. (a) The past due rate in the Indentures and the leases, (b) the Make-
Whole Premium payable under the Indentures, (c) the provisions relating
to the redemption and purchase of secured promissory notes in the
Indentures and (d) the minimum liability insurance amount on aircraft in
the leases, in each case must be no less favorable to the Loan Trustees,
Subordination Agent, the Liquidity Provider, the pass through trustees
and the Note Holders than as set forth in the Aircraft Operative
Agreements annexed to the Note Purchase Agreement.
. The indemnification of the Loan Trustees, Subordination Agent, Liquidity
Provider, pass through trustees, the Escrow Agents and the Note Holders
with respect to certain taxes and expenses, in each case must not be
materially less favorable to the Loan Trustees, Subordination Agent, the
Liquidity Provider, the pass through trustees, the Escrow Agents and the
Note Holders than as set forth in the Aircraft Operative Agreements
annexed to the Note Purchase Agreement.
The "Mandatory Document Terms" prohibit modifications in any material
adverse respect as regards the interests of the Loan Trustees, Subordination
Agent, Liquidity Provider or the Note Holders to certain specified provisions
of the Aircraft Operative Agreements annexed to the Note Purchase Agreement,
as follows:
. In the case of the Indentures, the following modifications are
prohibited:
(1) modifications to the granting clause of the Indentures so as (A) to
deprive the Note Holders of a first priority security interest in
(a) the aircraft, (b) certain of our parent's rights under its
aircraft purchase agreement with an affiliate of the aircraft
manufacturer and, (c) in the case of a leased aircraft, the lease or
(B) to eliminate the obligations intended to be secured by the
Indenture;
(2) modifications to certain provisions relating to the issuance,
redemption, purchase, payments, and ranking of the secured
promissory notes (including the obligation to pay the Make-Whole
Premium in certain circumstances);
(3) modifications to certain provisions regarding Indenture Defaults,
remedies relating to Indenture Defaults and rights of the Owner
Trustee and Owner Participant in such circumstances;
(4) modifications to certain provisions requiring the Loan Trustee to
act upon instructions of the Note Holders and regarding the rights
of the Owner Trustee and the Owner Participant to take actions under
the lease;
S-54
<PAGE>
(5) modifications to certain provisions relating to any replaced
airframe or engines with respect to an aircraft;
(6) modifications to the provisions regarding amendments to the
Indenture and the related Aircraft Operative Agreements;
(7) modifications to the provisions stating that the Indenture may not
be construed to give any person any legal or equitable claim under
the Indenture except for the Loan Trustee, the Note Holders and
certain other parties specified in the Indenture;
(8) modifications to the provision that New York law will govern the
Indentures; and
(9) modifications to the provision stating that all votes of the Note
Holders will be governed by the vote of a majority in interest of
the Note Holders, except as otherwise expressly provided in the
Indenture.
. In the case of the leases, the following modifications are prohibited:
(1) modifications to certain provisions regarding our unconditional
obligation to pay, prepay or advance basic rent, termination value
and certain other amounts to the Owner Trustee in an aggregate
amount at least equal to scheduled interest and principal;
(2) modification of our obligations to record the Leased Aircraft
Indenture with the FAA and to maintain such Indenture as a first-
priority perfected mortgage on the related aircraft;
(3) modification of our obligations to furnish certain opinions with
respect to a replacement airframe; and
(4) modification of our obligations to consent to the assignment of the
lease by the Owner Trustee as collateral under the Leased Aircraft
Indenture, as well as modifications which would either alter the
provision that New York law will govern the lease or would deprive
the Loan Trustee of rights expressly granted to it under the
leases.
. In the case of the Participation Agreements, the following modifications
are prohibited:
(1) modifications to certain conditions to the obligations of the pass
through trustees to purchase the secured promissory notes issued
with respect to an aircraft involving (a) good title to such
aircraft, (b) obtaining a certificate of airworthiness with respect
to such aircraft, (c) delivery of an opinion of outside counsel
with respect to the entitlement to the benefits of Section 1110
with respect to such aircraft and the delivery of certain other
legal opinions and (d) filings of certain documents with the FAA;
(2) modifications to the provisions restricting the Note Holder's
ability to transfer such secured promissory notes;
(3) modifications to certain provisions requiring the delivery of a
legal opinion with respect to the lien of the applicable Indenture
in the case of a reregistration of the aircraft;
(4) modifications to the provision that New York law will govern the
Participation Agreement; and
(5) modification to the provision stating that it is the intent of the
parties that the Loan Trustee is entitled to the benefits of
Section 1110 of the U.S. Bankruptcy Code with respect to
repossession of the applicable aircraft if we are a debtor in a
case under Chapter 11 of the U.S. Bankruptcy Code.
. In the case of all of the Aircraft Operative Agreements, modifications
are prohibited that materially and adversely affect the interests of the
Note Holders, the Subordination Agent, Liquidity Provider or the Loan
Trustee in the definition of "Make-Whole Premium."
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<PAGE>
Notwithstanding the foregoing, any such Mandatory Document Term may be
modified to correct or supplement any such provision which may be defective or
to cure any ambiguity or correct any mistake, provided that any such action
does not materially and adversely affect the interests of the Note Holders, the
Subordination Agent, the Liquidity Provider, Loan Trustees or the
certificateholders.
Termination of the Pass Through Trusts
Our obligations and those of the applicable pass through trustee with
respect to a pass through trust will terminate upon the distribution to
certificateholders of such pass through trust of all amounts required to be
distributed to them pursuant to the applicable pass through trust agreement and
the disposition of all property held in such pass through trust. The applicable
pass through trustee will send to each certificateholder of such pass through
trust notice of the termination of such pass through trust, the amount of the
proposed final payment and the proposed date for the distribution of such final
payment for such pass through trust. The final payment to any certificateholder
of such pass through trust will be made only upon surrender of such
certificateholder's certificates at the office or agency of the applicable pass
through trustee specified in such notice of termination. (Trust Supplements,
Section 7.01)
The Pass Through Trustees
The pass through trustee for each pass through trust will be State Street
Bank and Trust Company of Connecticut, National Association.
Book-Entry; Delivery and Form
Upon issuance, each class of certificates will be represented by one or more
fully registered global certificates. Each global certificate will be deposited
with, or on behalf of, DTC and registered in the name of Cede & Co., the
nominee of DTC. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between DTC
Participants through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly. Interests
in a global certificate may also be held through the Euroclear System and Cedel
Bank societe anonyme. See "Description of the Certificates--Book-Entry;
Delivery and Form" in the prospectus for a discussion of the book-entry
procedures applicable to the certificates and the limited circumstances under
which definitive certificates may be issued for the certificates.
So long as such book-entry procedures are applicable, no certificateholder
will be entitled to receive a certificate representing such person's interest
in such certificates. Unless and until physical certificates are issued under
the limited circumstances described in the prospectus, all references to
actions by certificateholders refers to actions taken by DTC upon instructions
from DTC Participants, and all references herein to distributions, notices,
reports and statements to certificateholders refer, as the case may be, to
distributions, notices, reports and statements to DTC or Cede, as the
registered holder of such certificates, or to DTC Participants for distribution
to certificateholders in accordance with DTC procedures.
DESCRIPTION OF THE DEPOSIT AGREEMENTS
The following is a description of the particular terms of the Deposit
Agreements. The statements under this caption are summaries and do not purport
to be complete and are qualified in their entirety by reference to all the
provisions of the Deposit Agreements, each of which will be filed as an exhibit
to an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q, or to a
Current Report on Form 8-K to be filed by us with the SEC. The provisions of
the Deposit Agreements are substantially identical except as otherwise
indicated.
S-56
<PAGE>
General
Under the Escrow Agreements, the Escrow Agent with respect to each pass
through trust will enter into a separate Deposit Agreement with the applicable
Depositary. (Escrow Agreements, Section 1.2) Under the Deposit Agreements, the
Depositary will establish separate deposit accounts in the name of the Escrow
Agent. On the Issuance Date, the proceeds relating to the offering of each
series of certificates will be deposited into the applicable Deposit Account by
the Underwriters (or, in the case of the class C certificates, by the initial
purchaser of such certificates), in each case, on behalf of such Escrow Agent.
On each Regular Distribution Date, the Depositary will pay to the Paying
Agent on behalf of the applicable Escrow Agent, for distribution to the holders
of Escrow Receipts relating to the applicable pass through trust, an amount
equal to interest accrued on the Deposits relating to such pass through trust
during the relevant interest period at a rate per annum equal to the interest
rate applicable to the certificates issued by such pass through trust.
In connection with the financing of each delivered aircraft during the
Delivery Period, the pass through trustee for each of the pass through trusts
will request that the Escrow Agent relating to the applicable pass through
trust withdraw from the Deposits relating to the applicable pass through trust
funds sufficient to enable the pass through trustee of such pass through trust
to purchase the secured promissory note of the series applicable to such pass
through trust issued with respect to such aircraft. Accrued but unpaid interest
on all such Deposits withdrawn will be paid on the next Regular Distribution
Date. Any portion of any Deposit withdrawn which is not used to purchase such
secured promissory note will be re-deposited by each pass through trustee into
an account relating to the applicable pass through trust.
The Deposits relating to the pass through trusts and interest paid on such
Deposits will not be subject to the subordination provisions of the
Intercreditor Agreement and will not be available to pay any other amount in
respect of the certificates.
Unused Deposits
The pass through trustees' obligations to purchase the secured promissory
notes issued with respect to each aircraft are subject to satisfaction of
conditions at the time of delivery, as set forth in the Note Purchase Agreement
and the Participation Agreements. See "Description of the Certificates--
Obligation to Purchase Secured Promissory Notes." Because the aircraft are
scheduled for delivery from time to time during the Delivery Period, no
assurance can be given that all such conditions will be satisfied at the time
of delivery for each aircraft. Moreover, the scheduled delivery date of any
aircraft is subject to delays in the manufacturing process and to the aircraft
manufacturer's right to postpone deliveries under the purchase agreement
between its affiliate and our parent, the actual delivery date of any aircraft
may be delayed beyond its currently scheduled delivery date. See "Description
of the Aircraft and Appraisals--Deliveries of Aircraft." Depending on the
circumstances of the financing of each aircraft, the maximum aggregate
principal amount of secured promissory notes may not be issued. In addition, so
long as AIFS holds any class C certificates, the conditions to the obligations
of the class C pass through trustee to purchase the series C secured promissory
notes differ from those applicable to the series A and series B secured
promissory notes. See "Description of the Certificates--Obligation to Purchase
Secured Promissory Notes." If for any aircraft the conditions to the class A
and class B pass through trustees' obligation to purchase series A and series B
secured promissory notes are satisfied, but the conditions to the class C pass
through trustee's purchase of series C secured promissory notes are not, we
will be obligated to finance such aircraft, but such financing may not include
series C secured promissory notes.
If any funds remain as Deposits with respect to any pass through trust after
the Delivery Period Termination Date, such funds will be withdrawn by the
Escrow Agent and distributed, with accrued and unpaid interest to the holders
of Escrow Receipts relating to the respective pass through trust. Any return of
unused Deposits will be made after at least 15 days' prior written notice. Such
distribution will include, in the case of Deposits relating to the class A and
class B certificates, a premium payable by us equal to the Deposit Make-
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Whole Premium with respect to the remaining Deposits applicable to each such
pass through trust, provided that no Deposit Make-Whole Premium will be paid by
us for any Deposits that are returned if such deposits are returned because an
aircraft is not delivered prior to the Delivery Period Termination Date for any
reason that is not our fault or caused by negligence.
Distribution upon Occurrence of a Triggering Event
If a Triggering Event occurs prior to the Delivery Period Termination Date,
the Escrow Agent for the pass through trusts will withdraw any funds then held
as Deposits with respect to such pass through trusts and cause such funds, with
accrued and unpaid interest, but without any premium, to be distributed to the
holders of Escrow Receipts relating to such pass through trusts by the Paying
Agent on behalf of the Escrow Agent. Any return of unused deposits will be made
after at least 15 days' prior written notice. Accordingly, if a Triggering
Event occurs prior to the Delivery Period Termination Date, the pass through
trusts will not acquire secured promissory notes issued with respect to
aircraft delivered after the occurrence of such Triggering Event.
Distribution upon Occurrence of a Termination Event
If an event occurs that entitles an affiliate of Airbus to terminate its
financing commitment to us at a time when AIFS holds any of the class C
certificates, the Escrow Agent for the class C pass through trust will withdraw
funds then held as Deposits with respect to the class C pass through trust and
cause such funds, with accrued and unpaid interest thereon but without any
premium, to be distributed to the holders of Escrow Receipts relating to such
pass through trust by the Paying Agent, on behalf of the Escrow Agent. Any such
return of unused Deposits will be made after at least 15 days' prior written
notice. So long as no Triggering Event has occurred, aircraft delivered from
and after the time an Airbus Financing Termination Event has occurred may still
be financed but no series C secured promissory notes will be issued in respect
of such aircraft.
Depositary
ABN AMRO Bank N.V., acting through its Chicago branch, will act as
Depositary.
ABN AMRO Bank N.V. is a direct subsidiary of ABN AMRO Holding N.V., an
international multi-bank holding company. At December 31, 1998, ABN AMRO
Holding N.V. reported consolidated assets amounting to approximately $505
billion (based on the exchange rate at December 31, 1998 of U.S. $1.00 to NLG
1.886). The accounting principles applied in the preparation of the financial
statements of ABN AMRO Bank N.V. may not conform to U.S. generally accepted
accounting principles.
ABN AMRO Bank N.V. has long-term unsecured debt ratings of Aa2 from Moody's
and AA from Standard & Poor's and short-term unsecured debt ratings of P-1 from
Moody's and A-1+ from Standard & Poor's.
ABN AMRO Bank N.V.'s Chicago branch was initially licensed by the
Commissioner of Banks and Real Estate for the State of Illinois on October 1,
1973. The Chicago branch is an unincorporated branch of ABN AMRO Bank N.V. and
is not a separate subsidiary. The branch is located at 135 South LaSalle
Street, Chicago, Illinois 60674-9135.
The Depositary has not been involved in the preparation of, and does not
accept responsibility for, this prospectus supplement.
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DESCRIPTION OF THE ESCROW AGREEMENTS
The following is a description of the particular terms of the Escrow
Agreements. The statements under this caption are summaries only and do not
purport to be complete and are qualified in their entirety by reference to all
of the provisions of the Escrow Agreements, each of which will be filed as an
exhibit to an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q, or
to a Current Report on Form 8-K to be filed by us with the SEC. The provisions
of the Escrow Agreements are substantially identical except as otherwise
indicated.
First Security Bank, National Association, as escrow agent in respect of the
pass through trusts, State Street Bank and Trust Company of Connecticut,
National Association, as paying agent on behalf of the Escrow Agent in respect
of each such pass through trust, the pass through trustee of each of the pass
through trusts and the Underwriters (in the case of the class A and class B
pass through trusts) or the initial purchaser of the class C certificates (in
the case of the class C pass through trust) will enter into a separate Escrow
Agreement for the benefit of the certificateholders of each such pass through
trust as holders of the Escrow Receipts affixed to such certificates. The cash
proceeds of the offering of certificates will be deposited by the Underwriters
or the initial purchaser of the class C pass through trust certificates, as
applicable, on behalf of the Escrow Agent (for the benefit of Receiptholders)
with the Depositary as Deposits relating to such pass through trusts.
Each Escrow Agent will permit the pass through trustee of the related pass
through trust to cause funds to be withdrawn from such Deposits on or prior to
the Delivery Period Termination Date so that such pass through trustee may
purchase the related secured promissory notes under the Note Purchase
Agreement. In addition, the Escrow Agent will direct the Depositary to pay
interest on the Deposits accrued in accordance with the Deposit Agreement to
the Paying Agent for distribution to the Receiptholders.
Each Escrow Agreement requires that the Paying Agent establish and maintain,
for the benefit of the related Receiptholders, one or more non-interest-bearing
Paying Agent Account(s). The Paying Agent will deposit interest on Deposits and
any unused Deposits withdrawn by the Escrow Agent in the related Paying Agent
Account. The Paying Agent will distribute these amounts on a Regular
Distribution Date or Special Distribution Date, as appropriate. Each
Receiptholder, by its acceptance of an Escrow Receipt, is deemed to agree that
it will look solely to funds deposited in the Paying Agent Account for any
payment or distribution due to such Receiptholder under the Escrow Agreement
and the Escrow Receipt and that it will have no recourse against us, the pass
through trustee that issued the certificate to which the Escrow Receipt is
attached, the Paying Agent or the Escrow Agent, except as provided in the
Escrow Agreement and the pass through trust agreement pursuant to which the
certificate to which the Escrow Receipt is attached was issued.
Upon receipt by the Depositary of a portion of the cash proceeds from this
offering of certificates, the Escrow Agent will issue one or more Escrow
Receipts. An Escrow Receipt will be affixed by the relevant pass through
trustee to each certificate. Each Escrow Receipt evidences a fractional
undivided interest in amounts from time to time deposited into the Paying Agent
Account and is limited in recourse to amounts deposited into such account. An
Escrow Receipt may not be assigned or transferred except in connection with the
assignment or transfer of the certificate to which it is affixed. Each Escrow
Receipt will be registered by the Escrow Agent in the same name and manner as
the certificate to which it is affixed.
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DESCRIPTION OF THE LIQUIDITY FACILITIES
The following description of the particular terms of the Liquidity
Facilities and certain provisions of the Intercreditor Agreement supplements
(and, to the extent inconsistent therewith, replaces) the description of the
general terms and provisions relating to the Intercreditor Agreement and the
description of credit enhancements set forth in the prospectus.
The statements under this caption are summaries and do not purport to be
complete and are qualified in their entirety by reference to all of the
provisions of the Liquidity Facilities and the Intercreditor Agreement, each of
which will be filed as an exhibit to an Annual Report on Form 10-K, a Quarterly
Report on Form 10-Q, or a Current Report on Form 8-K that we will file with the
SEC. The provisions of the Liquidity Facilities are substantially identical
except as otherwise indicated.
General
The Liquidity Provider will enter into a separate revolving credit agreement
with the Subordination Agent (each, a "Liquidity Facility") with respect to the
certificates of each pass through trust pursuant to which the Liquidity
Provider will, if necessary, make one or more advances to the Subordination
Agent that will be used solely to pay interest on such certificates when due,
subject to certain limitations. The Liquidity Facility for each pass through
trust is intended to enhance the likelihood of timely receipt by the
certificateholders of such pass through trust of the interest passed through to
them at the Stated Interest Rate for such certificates on up to three
consecutive semiannual Regular Distribution Dates. If interest payment defaults
occur that exceed the amount covered by or available under the Liquidity
Facility for a pass through trust, the certificateholders of such pass through
trust will bear their allocable share of the deficiencies to the extent that
there are no other sources of funds. Although AIG Matched Funding Corp. is the
initial Liquidity Provider for each pass through trust, AIG Matched Funding
Corp. may be replaced by one or more other entities with respect to the pass
through trusts under certain circumstances. Therefore, the Liquidity Provider
for the pass through trusts may differ.
Drawings
The aggregate amount available under the Liquidity Facility for each pass
through trust at July 20, 2000, the first Regular Distribution Date after the
scheduled Delivery Period Termination Date, assuming that secured promissory
notes in the maximum principal amount with respect to all aircraft are acquired
by the pass through trusts and that all interest and principal due on or prior
to July 20, 2000, is paid, will be as follows:
<TABLE>
<CAPTION>
Pass Through Trust Available Amount
------------------ ----------------
<S> <C>
Class A..................................................... $
Class B.....................................................
Class C.....................................................
</TABLE>
Except as otherwise provided below, the Liquidity Facility for each pass
through trust will enable the Subordination Agent to make Interest Drawings
under the Liquidity Facility on any Distribution Date to pay interest then due
and payable on the certificates of such pass through trust at the Stated
Interest Rate for such pass through trust to the extent that the amount, if
any, available to the Subordination Agent on such Distribution Date is not
sufficient to pay such interest. The maximum amount available to be drawn under
a Liquidity Facility with respect to any pass through trust on any Distribution
Date to fund any shortfall of interest on certificates of such pass through
trust will not exceed the then Maximum Available Commitment under such
Liquidity Facility. (Liquidity Facilities, Section 2.02(a); Intercreditor
Agreement, Section 3.6(a))
The Liquidity Facility for any class of certificates will not provide for
drawings:
. to pay for principal of or premium on the certificates of such class;
. to pay for any interest on the certificates of such class in excess of
the Stated Interest Rate for such class or to pay for more than three
consecutive semiannual installments of interest in excess of the Maximum
Available Commitment under such Liquidity Facility;
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. to pay for principal of or interest or premium on the certificates of
any other class; or
. to pay for amounts payable with respect to the Deposits relating to such
pass through trust. (Liquidity Facilities, Section 2.02; Intercreditor
Agreement, Section 3.6)
Each payment by the Liquidity Provider will reduce by the same amount the
Maximum Available Commitment under such Liquidity Facility, subject to
reinstatement as described below. With respect to any Interest Drawings under a
Liquidity Facility, upon reimbursement of the Liquidity Provider in full for
the amount of such Interest Drawings plus interest thereon, the Maximum
Available Commitment under such Liquidity Facility will be reinstated to an
amount not to exceed the then Required Amount of such Liquidity Facility;
provided, however, that such Liquidity Facility will not be so reinstated at
any time if (a) a Liquidity Event of Default has occurred and is continuing and
(b) less than 65% of the then aggregate outstanding principal amount of all
secured promissory notes are Performing Secured Promissory Notes. With respect
to any other drawings under such Liquidity Facility, amounts available to be
drawn thereunder are not subject to reinstatement. Following the reduction of
the Pool Balance for the applicable pass through trust, the maximum commitment
of the Liquidity Facility for such pass through trust will be automatically
reduced from time to time to an amount equal to the Required Amount for such
pass through trust. (Liquidity Facilities, Section 2.04(a))
If at any time the short-term unsecured debt rating of the Liquidity
Provider for any pass through trust then issued by either rating agency is
lower than the Threshold Rating applicable to such pass through trust, the
Liquidity Facility provided by such Liquidity Provider may be replaced by a
Replacement Facility. The provider of any Replacement Facility will have the
same rights (including, without limitation, priority distribution rights and
rights as Controlling Party) under the Intercreditor Agreement as the replaced
Liquidity Provider.
If such Liquidity Facility is not replaced with a Replacement Facility
within 10 days after notice of the downgrading and as otherwise provided in the
Intercreditor Agreement, the Subordination Agent will make a Downgrade Drawing
in an amount equal to the then Maximum Available Commitment under such
Liquidity Facility. The Subordination Agent will deposit the proceeds of any
Downgrade Drawing in a Cash Collateral Account for such class of certificates
and will use these proceeds for the same purposes and under the same
circumstances and subject to the same conditions as cash payments of Interest
Drawings under such Liquidity Facility would be used. (Liquidity Facilities,
Section 2.02(c); Intercreditor Agreement, Section 3.6(c))
The Liquidity Facility for each pass through trust will provide that the
relevant Liquidity Provider's obligations under such Liquidity Facility will
expire on the earliest of:
. 364 days after the Issuance Date.
. The date on which the Subordination Agent delivers to such Liquidity
Provider a certification that all of the certificates of such pass
through trust have been paid in full.
. The date on which the Subordination Agent delivers to such Liquidity
Provider a certification that a Replacement Facility has been
substituted for such Liquidity Facility.
. The fifth Business Day following receipt by the Subordination Agent of a
Termination Notice from such Liquidity Provider (see "--Liquidity Events
of Default").
. The date on which no amount is or may (by reason of reinstatement)
become available for drawing under such Liquidity Facility.
. The date on which the Liquidity Provider makes a Downgrade Drawing, a
Non-Extension Drawing or a Final Drawing. (Liquidity Facilities,
Sections 1.01 and 2.04(b))
Each Liquidity Facility will provide that the scheduled expiration date of
such Liquidity Facility may be extended for additional 364-day periods by
mutual agreement.
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The Intercreditor Agreement will provide for the replacement of any
Liquidity Facility for any pass through trust if it is scheduled to expire
earlier than 15 days after the Final Maturity Date for the certificates of such
pass through trust if such Liquidity Facility is not extended at least 25 days
prior to its then scheduled expiration date. If such Liquidity Facility is not
so extended or replaced by the 25th day prior to its then scheduled expiration
date, the Subordination Agent will make a Non-Extension Drawing in an amount
equal to the then Maximum Available Commitment. The Subordination Agent will
deposit the proceeds of the Non-Extension Drawing in the Cash Collateral
Account for the related class of certificates as cash collateral to be used for
the same purposes and under the same circumstances, and subject to the same
conditions, as cash payments of Interest Drawings under such Liquidity Facility
would be used. (Liquidity Facilities, Section 2.02(b); Intercreditor Agreement,
Section 3.6(d))
Subject to certain limitations, we may, at our option, arrange for a
Replacement Facility at any time to replace any Liquidity Facility for any pass
through trust (including without limitation any Replacement Facility described
in the following sentence). In addition, any Liquidity Provider may, at its
option, arrange for a Replacement Facility (a) to replace a non-extended
Liquidity Facility during the period no earlier than 40 days and no later than
25 days prior to the then scheduled expiration date of such Liquidity Facility
or (b) after the short-term unsecured debt rating of the Liquidity Provider is
downgraded below the applicable Threshold Rating (Intercreditor Agreement,
Section 3.6(c) and (e)). If any Replacement Facility is provided at any time
after a Downgrade Drawing or a Non-Extension Drawing under any Liquidity
Facility, the funds with respect to
such Liquidity Facility on deposit in the Cash Collateral Account for such pass
through trust will be returned to the Liquidity Provider being replaced.
(Intercreditor Agreement, Section 3.6(f))
Upon receipt by the Subordination Agent of a Termination Notice with respect
to any Liquidity Facility from the applicable Liquidity Provider, the
Subordination Agent will request a Final Drawing under such Liquidity Facility
in an amount equal to the then Maximum Available Commitment under such
Liquidity Facility. The Subordination Agent will hold the proceeds of such
Final Drawing in the Cash Collateral Account for the related pass through trust
as cash collateral to be used for the same purposes and under the same
circumstances, and subject to the same conditions, as cash payments of Interest
Drawings under such Liquidity Facility would be used. (Liquidity Facilities,
Section 2.02(d); Intercreditor Agreement, Section 3.6(i))
Reimbursement of Drawings
The Subordination Agent must reimburse amounts drawn under any Liquidity
Facility by reason of an Interest Drawing, Final Drawing, Downgrade Drawing or
Non-Extension Drawing and interest on such drawings, but only to the extent
that the Subordination Agent has funds available to make such payments.
(Liquidity Facilities, Sections 2.05, 2.06, 2.09)
Interest Drawings and Final Drawings
Amounts drawn by reason of an Interest Drawing or Final Drawing will be
immediately due and payable, together with interest on the amount of such
drawing. (Liquidity Facilities, Section 2.05) From the date of each such
drawing to (but excluding) the third business day following the applicable
Liquidity Provider's receipt of the notice of such Interest Drawing, interest
will accrue at the Base Rate plus 1.75% per annum. Thereafter, interest will
accrue at LIBOR for the applicable interest period plus 1.75% per annum. In the
case of the Final Drawing, however, the Subordination Agent may (x) convert the
Final Drawing into a drawing bearing interest at the Base Rate plus 1.75% per
annum on the last day of an interest period for such Drawing or (y) elect to
maintain the Final Drawing as a drawing bearing interest at the Base Rate plus
1.75% per annum. (Liquidity Facilities, Section 3.07)
Downgrade Drawings and Non-Extension Drawings
The amount drawn under any Liquidity Facility by reason of a Downgrade
Drawing or a Non-Extension Drawing will be treated as follows:
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. Such amount will be released on any Distribution Date to the applicable
Liquidity Provider to the extent that such amount exceeds the Required
Amount.
. Any portion of such amount withdrawn from the Cash Collateral Account
for such certificates to pay interest on such certificates will be
treated in the same way as Interest Drawings.
. The balance of such amount will be invested in certain specified
eligible investments.
Any Downgrade Drawing or any Non-Extension Drawing under any of the
Liquidity Facilities, other than any portion of such drawing applied to the
payment of interest on the certificates, will bear interest (x) subject to
clause (y) below, in an amount equal to the investment earnings on amounts
deposited in the Cash Collateral Account attributable to such Liquidity
Facility plus a specified margin on the outstanding amount from time to time of
such Downgrade Drawing or Non-Extension Drawing and (y) from and after the
date, if any, on which it is converted into a Final Drawing as described below
under "--Liquidity Events of Default," at a rate equal to LIBOR for the
applicable Interest Period (or, as described in the first paragraph under "--
Interest Drawings and Final Drawings," the Base Rate) plus 1.75% per annum.
(Liquidity Facilities, Section 2.06(a) and 3.07(e))
Liquidity Events of Default
If any Liquidity Event of Default under any Liquidity Facility has occurred
and is continuing and less than 65% of the aggregate outstanding principal
amount of all secured promissory notes are Performing Secured Promissory Notes,
the applicable Liquidity Provider may, in its discretion, give a Termination
Notice. Delivery to the Subordination Agent of a Termination Notice will have
the following consequences:
. The related Liquidity Facility will expire on the fifth business day
after the date on which such Termination Notice is received by the
Subordination Agent.
. The Subordination Agent will promptly request, and the applicable
Liquidity Provider will make, a Final Drawing under the applicable
Liquidity Facility in an amount equal to the then Maximum Available
Commitment under such Liquidity Facility.
. Any Drawing remaining unreimbursed as of the date of termination will be
automatically converted into a Final Drawing under such Liquidity
Facility.
. All amounts owing to the applicable Liquidity Provider automatically
will be accelerated. (Liquidity Facilities, Section 6.01)
Notwithstanding the foregoing, the Subordination Agent will be obligated to
pay amounts owing to the applicable Liquidity Provider only to the extent the
Subordination Agent has funds to pay such amounts after giving effect to the
payments in accordance with the provisions set forth under "Description of the
Intercreditor Agreement--Priority of Distributions." (Liquidity Facilities,
Section 2.09)
Upon the circumstances described below under "Description of the
Intercreditor Agreement--Intercreditor Rights--Controlling Party," a Liquidity
Provider may become the Controlling Party with respect to the exercise of
remedies under the Indentures. (Intercreditor Agreement, Section 2.6(c))
Liquidity Provider
The initial Liquidity Provider for each class of certificates will be AIG
Matched Funding Corp., a corporation organized under the laws of the State of
Delaware. The liquidity provider is an indirect wholly-owned subsidiary of
American International Group, Inc., a holding company which is engaged through
its subsidiaries in a broad range of insurance and insurance-related activities
and financial services. AIG Matched Funding Corp. has short-term debt ratings
that will qualify it to act as Liquidity Provider for each class of
certificates. The description of AIG Matched Funding Corp. set out above has
been provided by AIG Matched Funding Corp. AIG Matched Funding Corp. has not,
however, been involved in the preparation of and does not accept responsibility
for the prospectus or this prospectus supplement other than this description.
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DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following description of the particular terms of the Intercreditor
Agreement supplements (and, to the extent inconsistent with the prospectus,
replaces) the description of the general terms and provisions relating to the
Intercreditor Agreement set forth in the prospectus. The statements made under
the caption are summaries and do not purport to be complete and are qualified
in their entirety by reference to all of the provisions of the Intercreditor
Agreement, which will be filed as an exhibit to an Annual Report on Form 10-K,
a Quarterly Report on Form 10-Q, or a Current Report on Form 8-K that we will
file with the SEC.
Intercreditor Rights
General
The Intercreditor Agreement will be among each pass through trustee, the
Liquidity Provider and the Subordination Agent. The secured promissory notes
will be registered in the name of the Subordination Agent or its nominee as
agent and trustee for the applicable pass through trustee solely for the
purpose of facilitating the enforcement of the other provisions of the
Intercreditor Agreement.
Controlling Party
With respect to any Indenture at any given time, the Loan Trustee under such
Indenture will be directed in taking, or refraining from taking, any action
under such Indenture or with respect to the secured promissory notes issued
under such Indenture, by the holders of at least a majority of the outstanding
principal amount of the secured promissory notes issued under such Indenture,
so long as no Indenture Default (which, with respect to leased aircraft, has
not been cured by the applicable Owner Trustee or Owner Participant) has
occurred and is continuing under such Indenture. For so long as the
Subordination Agent is the registered holder of the secured promissory notes,
the Subordination Agent will act with respect to the preceding sentence in
accordance with the directions of the pass through trustees for whom the
secured promissory notes issued under such Indenture are held as trust
property, to the extent constituting, in the aggregate, directions with respect
to the required principal amount of secured promissory notes. (Intercreditor
Agreement, Section 2.6(a))
At any time an Indenture Default has occurred and is continuing under an
Indenture (which, with respect to leased aircraft, has not been cured by the
applicable Owner Trustee or Owner Participant), the Loan Trustee under such
Indenture will be directed in taking, or refraining from taking, any action
under such Indenture or with respect to the secured promissory notes issued
under such Indenture, including acceleration of such secured promissory notes
or foreclosing the lien on the related aircraft, by the Controlling Party,
subject to the limitations described below. (Intercreditor Agreement, Section
2.6(a)) Notwithstanding the foregoing, no amendment, modification, consent or
waiver will, without the consent of each Liquidity Provider, reduce the amount
of rent, supplemental rent or termination values payable by us under any lease
or reduce the amount of principal or interest payable by us under any secured
promissory note issued under any Owned Aircraft Indenture. (Intercreditor
Agreement, Section 9.1(b)). See "Description of the Certificates--Indenture
Defaults and Certain Rights Upon an Indenture Default" for a description of the
rights of the certificateholders of each pass through trust to direct the
respective pass through trustees.
The Liquidity Provider holding a majority in interest of the unreimbursed
Liquidity Obligations will have the right to become the Controlling Party with
respect to any Indenture at any time after 18 months from the earliest to occur
of (x) the date on which the entire available amount under any Liquidity
Facility has been drawn (for any reason other than a Downgrade Drawing or a
Non-Extension Drawing) and remains unreimbursed, (y) the date on which the
entire amount of any Downgrade Drawing or Non-Extension Drawing has been
withdrawn from the relevant Cash Collateral Account to pay interest on the
relevant class of certificates and remains unreimbursed and (z) the date on
which all secured promissory notes have been accelerated (provided that if such
acceleration occurs prior to the Delivery Period Termination Date, the
aggregate principal amount thereof exceeds $300 million). (Intercreditor
Agreement, Section 2.6(c))
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For purposes of giving effect to the rights of the Controlling Party, the
pass through trustees (other than the Controlling Party) will irrevocably
agree, and the certificateholders (other than the certificateholders
represented by the Controlling Party) will be deemed to agree by virtue of
their purchase of certificates, that the Subordination Agent, as record holder
of the secured promissory notes, will exercise its voting rights in respect of
the secured promissory notes as directed by the Controlling Party.
(Intercreditor Agreement, Section 2.6(b)) For a description of certain
limitations on the Controlling Party's rights to exercise remedies, see
"Description of the Secured Promissory Notes--Remedies."
Sale of Secured Promissory Notes or Aircraft
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party will be entitled to accelerate and,
subject to the provisions of the immediately following sentence, sell all (but
not less than all) of the secured promissory notes issued under such Indenture
to any person. So long as any certificates are outstanding, during nine months
after the earlier of (x) the acceleration of the secured promissory notes under
any Indenture or (y) our bankruptcy or insolvency, without the consent of each
pass through trustee, no aircraft subject to the lien of such Indenture or such
secured promissory notes may be sold, if the net proceeds from such sale would
be less than the Minimum Sale Price for such aircraft or such secured
promissory notes. In addition, with respect to any leased aircraft, the amount
and payment dates of rentals payable by us under the lease for such leased
aircraft may not be adjusted, if, as a result of such adjustment, the
discounted present value of all such rentals would be less than 75% of the
discounted present value of the rentals payable by us under such lease before
giving effect to such adjustment. (Intercreditor Agreement, Section 4.1)
Priority of Distributions
Before a Triggering Event
So long as no Triggering Event has occurred, payments in respect of the
secured promissory notes and certain other payments received on any
Distribution Date will be promptly distributed by the Subordination Agent on
such Distribution Date in the following order of priority:
. to the Liquidity Provider to the extent required to pay the Liquidity
Expenses;
. to the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations;
. to the Liquidity Provider to the extent required to pay or reimburse the
Liquidity Provider for the Liquidity Obligations (other than amounts
payable pursuant to the two preceding clauses) and/or, if applicable, to
replenish each Cash Collateral Account up to the Required Amount;
. to the class A pass through trustee to the extent required to pay
Expected Distributions on the class A certificates;
. to the class B pass through trustee to the extent required to pay
Expected Distributions on the class B certificates;
. to the class C pass through trustee to the extent required to pay
Expected Distributions on the class C certificates; and
. to the Subordination Agent and each pass through trustee for the payment
of certain fees and expenses.
After a Triggering Event
Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times after such Triggering Event, all funds
received by the Subordination Agent in respect of the secured
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promissory notes and certain other payments will be promptly distributed by the
Subordination Agent in the following order of priority:
. to the Subordination Agent, any pass through trustee, any
certificateholder and the Liquidity Provider to the extent required to
pay certain out-of-pocket costs and expenses actually incurred by the
Subordination Agent or any pass through trustee or to reimburse any
certificateholder or the Liquidity Provider in respect of payments made
to the Subordination Agent or any pass through trustee in connection
with the protection or realization of the value of the secured
promissory notes or any property held in any Trust Indenture Estate or
any Collateral;
. to the Liquidity Provider to the extent required to pay the Liquidity
Expenses;
. to the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations;
. to the Liquidity Provider to the extent required to pay the outstanding
amount of all Liquidity Obligations and/or, if applicable, with respect
to any particular Liquidity Facility, unless (x) less than 65% of the
aggregate outstanding principal amount of all secured promissory notes
are Performing Secured Promissory Notes and a Liquidity Event of Default
has occurred and is continuing under such Liquidity Facility or (y) a
Final Drawing has occurred under such Liquidity Facility, to replenish
the Cash Collateral Account with respect to such Liquidity Facility up
to the Required Amount for the related class of certificates (less the
amount of any repayments of Interest Drawings under such Liquidity
Facility while sub-clause (x) of this clause is applicable);
. to the Subordination Agent, any pass through trustee or any
certificateholder to the extent required to pay certain fees, taxes,
charges and other amounts payable;
. to the class A pass through trustee to the extent required to pay
Adjusted Expected Distributions on the class A certificates;
. to the class B pass through trustee to the extent required to pay
Adjusted Expected Distributions on the class B certificates; and
. to the class C pass through trustee to the extent required to pay
Adjusted Expected Distributions on the class C certificates.
After a Triggering Event occurs and any secured promissory note becomes a
Non-Performing Secured Promissory Note, the Subordination Agent will obtain LTV
Appraisals of the aircraft securing such secured promissory note as soon as
practicable and additional LTV Appraisals on or prior to each anniversary of
the date of such initial LTV Appraisals; provided that if the Controlling Party
reasonably objects to the appraised value of the aircraft shown in such LTV
Appraisals, the Controlling Party has the right to obtain or cause to be
obtained substitute LTV Appraisals (including LTV Appraisals based upon
physical inspection of such aircraft). (Intercreditor Agreement, Section
4.1(a))
Interest Drawings under the Liquidity Facility and withdrawals from the Cash
Collateral Account, in each case in respect of interest on the certificates of
any pass through trust, will be distributed to the pass through trustee for
such pass through trust, notwithstanding the priority of distributions set
forth in the Intercreditor Agreement and otherwise described in this prospectus
supplement.
The Subordination Agent
State Street Bank and Trust Company of Connecticut, National Association,
will be the "Subordination Agent" under the Intercreditor Agreement. We and our
affiliates may from time to time enter into banking and trustee relationships
with the Subordination Agent and its affiliates. The Subordination Agent's
address is State
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Street Bank and Trust Company of Connecticut, National Association, 225 Asylum
Street, Hartford, Connecticut 06103.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. The Controlling Party may remove the Subordination Agent for cause
as provided in the Intercreditor Agreement. In such circumstances, a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Any resignation or removal of the Subordination Agent and
appointment of a successor Subordination Agent does not become effective until
acceptance of the appointment by the successor Subordination Agent.
(Intercreditor Agreement, Section 8.1)
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
The Aircraft
The aircraft consist of thirteen Airbus Model A319-100 aircraft, five Airbus
Model A320-200 aircraft and two Airbus Model A330-300 aircraft, all of which
are scheduled for delivery from August 1999 to April 2000 (the "Delivery
Period"). The aircraft have been designed to be in compliance with Stage 3
noise level standards, which are the most restrictive regulatory standards
currently in effect in the United States for aircraft noise abatement.
The Airbus Model A319-100 and Airbus Model A320-200 aircraft both are
capable of flying from our major Northeast United States hubs to West Coast
markets. The seating capacity of the A319-100 aircraft is approximately 120
passengers. The engine type utilized on the Airbus Model A319-100 aircraft will
be the CFM International, Inc. CFM-56-5. The seating capacity of the Airbus
Model A320-200 aircraft is approximately 142 passengers. The engine type
utilized on the Airbus Model A320-200 aircraft will be the CFM International,
Inc. CFM-56-5.
The Airbus Model A330-300 aircraft is a twin-engine long range aircraft
capable of flying from our major United States hubs to any of our transatlantic
destinations. The seating capacity of the A330-300 aircraft is approximately
274 passengers in a three-class cabin arrangement. The aircraft powered by two
Pratt & Whitney PW4168A engines, is capable of flying flight segments of up to
5,100 nautical miles.
These aircraft are more fully described in the attached appraisals.
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<PAGE>
The Appraisals
The table below sets forth the appraised base values of the aircraft, as
determined by the Appraisers.
<TABLE>
<CAPTION>
Appraiser's Valuation
Expected Scheduled ----------------------------------------------------
Registration Manufacturer's Delivery Appraised
Aircraft Type Number Serial Number Month(1) AISI AvSolutions MBA Base Value(2)
------------- ------------ -------------- -------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Airbus A319-100......... N717UW 1069 August 1999 $ 41,640,000 $ 38,980,000 $ 38,950,000 $ 38,980,000
Airbus A319-100......... N718UW 1077 August 1999 41,640,000 38,980,000 38,950,000 38,980,000
Airbus A320-200......... N107US 1052 August 1999 46,080,000 45,030,000 44,420,000 45,030,000
Airbus A320-200......... N108UW 1061 August 1999 46,080,000 45,030,000 44,420,000 45,030,000
Airbus A319-100......... N719US 1084 September 1999 41,660,000 38,980,000 39,030,000 39,030,000
Airbus A319-100......... N720US 1089 September 1999 41,660,000 38,980,000 39,030,000 39,030,000
Airbus A320-200......... N109UW 1065 September 1999 46,100,000 45,030,000 44,510,000 45,030,000
Airbus A319-100......... N721UW 1095 October 1999 41,670,000 39,250,000 39,110,000 39,250,000
Airbus A319-100......... N722US 1097 October 1999 41,670,000 39,250,000 39,110,000 39,250,000
Airbus A319-100......... N723UW 1109 October 1999 41,670,000 39,250,000 39,110,000 39,250,000
Airbus A319-100......... N724UW 1122 November 1999 41,690,000 39,250,000 39,190,000 39,250,000
Airbus A319-100......... N725UW 1135 November 1999 41,690,000 39,250,000 39,190,000 39,250,000
Airbus A320-200......... N110UW 1112 November 1999 46,140,000 45,350,000 44,700,000 45,350,000
Airbus A320-200......... N111US 1114 November 1999 46,140,000 45,350,000 44,700,000 45,350,000
Airbus A319-100......... N726US 1136 December 1999 41,710,000 39,250,000 39,260,000 39,260,000
Airbus A319-100......... N727UW 1147 December 1999 41,710,000 39,250,000 39,260,000 39,260,000
Airbus A319-100......... N728UW 1169 January 2000 41,730,000 39,560,000 39,340,000 39,560,000
Airbus A319-100......... N729US 1178 February 2000 41,740,000 39,560,000 39,420,000 39,560,000
Airbus A330-300......... N670UW 315 March 2000 108,110,000 106,200,000 117,210,000 108,110,000
Airbus A330-300......... N671UW 323 April 2000 108,150,000 106,950,000 117,450,000 108,150,000
</TABLE>
- ---------------------
(1) The delivery date for any aircraft is the date that we expect the aircraft
to be delivered by the manufacturer. This date may be delayed or
accelerated. We have the option to substitute other aircraft if the
delivery of any aircraft is expected to be delayed for more than 30 days
after the month scheduled for delivery of that aircraft or beyond the
delivery period termination date. See "--Substitute Aircraft." We may take
delivery of an aircraft and finance that aircraft under this offering up to
120 days after such delivery (or such longer period as we may elect with
approval from the rating agencies).
(2) The appraised base value of each aircraft set forth above is the lesser of
the mean and median base values of such aircraft as appraised by three
independent appraisal and consulting firms, and projected as of the
scheduled delivery month of each aircraft. Such appraisals are based upon
varying assumptions (which assumptions may not reflect current market
conditions) and methodologies. An appraisal is only an estimate of value
and should not be relied upon as a measure of realizable value. See "Risk
Factors--Risk Factors Relating to the Certificates and the Offering--
Appraisals and Realizable Value of Aircraft."
For purposes of the foregoing chart, AISI, AvSolutions and MBA were asked to
provide their respective opinions as to the appraised base value of each
aircraft as of June 24, 1999 for AvSolutions, July 28, 1999 for MBA, and June
30, 1999 for AISI and as projected as of the scheduled delivery month of each
such aircraft. As part of this process, all three Appraisers performed "desk-
top" appraisals without any physical inspection of the aircraft. The appraisals
are based on various assumptions and methodologies, which vary among the
appraisers and may not reflect current market conditions that could affect the
fair market value of the aircraft. The Appraisers have delivered letters
summarizing their respective appraisals. Copies of such letters are attached to
this prospectus supplement as Appendix II. We refer you to such summaries for
the definition of appraised base value and a discussion of the assumptions and
methodologies used in each of the appraisals.
An appraisal is only an estimate of value, is not indicative of the price at
which an aircraft may be purchased from the manufacturer and should not be
relied upon as a measure of sales value. The proceeds realized upon a sale of
any aircraft may be less than the appraised value of such aircraft. The value
of the aircraft upon the exercise of remedies under the applicable Indenture
will depend on market and economic conditions, the availability of buyers, the
condition of the aircraft and other similar factors. Accordingly, there can be
no assurance that the proceeds realized upon any such exercise with respect to
the secured promissory
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<PAGE>
notes and the aircraft pursuant to the applicable Indenture would equal the
appraised value of such aircraft or be sufficient to satisfy in full payments
due on the secured promissory notes issued under such Indenture or the
certificates.
Deliveries of Aircraft
All of the aircraft are scheduled for delivery from August 1999 through
April 2000 under two purchase agreements between our parent and an affiliate of
Airbus. See the table under "--The Appraisals" for the scheduled month of
delivery of each aircraft. Under the purchase agreements, delivery of an
aircraft may be delayed due to "Excusable Delay," which is defined to include
delays in delivery or failure to deliver or perform due to causes reasonably
beyond Airbus' or any associated contractor's control or not occasioned by
Airbus' or any associated contractor's fault, misconduct or negligence. We
cannot predict whether adjustments in such schedule will be required.
The Note Purchase Agreement provides that the Delivery Period will expire on
the Delivery Period Termination Date.
If delivery of any aircraft is delayed by more than 30 days after the month
scheduled for delivery or beyond July 20, 2000, we have the right to replace
such aircraft with a substitute aircraft, subject to certain conditions. See
"--Substitute Aircraft." If delivery of any aircraft is delayed beyond the
Delivery Period Termination Date and we do not exercise our right to replace
such aircraft with a substitute aircraft, there will be unused Deposits that
will be distributed to certificateholders together with accrued and unpaid
interest thereon and, in certain circumstances, a Deposit Make-Whole Premium
with respect to the class A and the class B certificates. See "Description of
the Deposit Agreements--Unused Deposits."
Substitute Aircraft
If the delivery date for any aircraft is delayed (a) more than 30 days after
the month scheduled for delivery, or (b) beyond July 20, 2000, we may identify
for delivery a substitute aircraft for such aircraft meeting the following
conditions:
. a substitute aircraft must be the same model (either A319, A320 or A330)
as the aircraft for which delivery was delayed and delivered by the
manufacturer to US Airways after August 30, 1999.
. we will be obligated to obtain written confirmation from each rating
agency that substituting such substitute aircraft for the replaced
aircraft will not result in a withdrawal, suspension or downgrading of
the ratings of any class of certificates.
DESCRIPTION OF THE SECURED PROMISSORY NOTES
The following description of the terms of the secured promissory notes
supplements (and, to the extent inconsistent with the prospectus, replaces) the
description of the general terms and provisions relating to the secured
promissory notes, the Indentures, the leases, the Participation Agreements, the
Leased Aircraft Trust Agreements and the Note Purchase Agreement set forth in
the prospectus. The summaries make use of terms defined in and are qualified in
their entirety by reference to all of the provisions of the secured promissory
notes, the Indentures, the leases, the Participation Agreements, the Leased
Aircraft Trust Agreements and the Note Purchase Agreement, forms of which will
be filed as exhibits to an Annual Report on Form 10-K, a Quarterly Report on
Form 10-Q, or a Current Report on Form 8-K that we will file with the SEC.
Except as otherwise indicated, the following summaries relate to the secured
promissory notes, the Indenture, the lease, the Participation Agreement and the
Leased Aircraft Trust Agreement that may be applicable to each aircraft.
General
The secured promissory notes will be issued for each aircraft in three
series: the series A secured promissory notes, the series B secured promissory
notes and the series C secured promissory notes, collectively referred to as
the secured promissory notes.
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<PAGE>
The secured promissory notes with respect to each leased aircraft will be
issued under a separate Leased Aircraft Indenture between First Security Bank,
National Association, as Owner Trustee, and State Street Bank and Trust Company
of Connecticut, National Association, as Loan Trustee. We currently intend for
all eighteen A319/A320 aircraft described in this prospectus supplement to be
leased aircraft.
The secured promissory notes with respect to each owned aircraft will be
issued under a separate Owned Aircraft Indenture between us and State Street
Bank and Trust Company of Connecticut, National Association, as Loan Trustee.
The secured promissory notes are secured obligations of US Airways. We
currently intend for the two A330 aircraft described in this prospectus
supplement to be owned aircraft.
These current intentions are subject to change without notice to
certificateholders.
The Indentures will not provide for defeasance, or discharge upon deposit of
cash or certain obligations of the United States, notwithstanding the
description of defeasance in the prospectus.
In the case of a leased aircraft, we will lease each aircraft from the
related Owner Trustee under a separate lease. Under each lease and the related
Aircraft Operative Agreements, we will, in general, be obligated to make or
cause to be made rental and other payments or advances to the related Loan
Trustee on behalf of the related Owner Trustee. Such rental and other payments
or advances will be at least sufficient to pay in full when due all payments
required to be made on the secured promissory notes issued with respect to such
leased aircraft. The secured promissory notes issued with respect to the leased
aircraft are not our direct obligations and we do not guarantee payment or
performance of the leased aircraft notes. Our obligations under each lease and
the related Aircraft Operative Agreements are general unsecured obligations.
Subordination
Series B secured promissory notes issued in respect of an aircraft will be
subordinated in right of payment to series A secured promissory notes issued in
respect of such aircraft; series C secured promissory notes issued in respect
of such aircraft will be subordinated in right of payment to such series B
secured promissory notes. (Leased Aircraft Indentures, Section 2.15 and Article
III; Owned Aircraft Indentures, Section 2.15 and Article III) On each scheduled
payment date, (a) payments of interest and principal due on series A secured
promissory notes issued in respect of an aircraft will be made prior to
payments of interest and principal due on series B secured promissory notes
issued in respect of such aircraft; and (b) payments of interest and principal
due on series B secured promissory notes issued in respect of an aircraft will
be made prior to payments of interest and principal due on series C secured
promissory notes issued in respect of such aircraft. (Leased Aircraft
Indentures, Article III; Owned Aircraft Indentures, Article III)
Principal and Interest Payments
Subject to the provisions of the Intercreditor Agreement, interest paid on
the secured promissory notes held in each pass through trust will be passed
through to the certificateholders of each such pass through trust on the dates
and at the rate per annum set forth on the cover page of this prospectus
supplement with respect to the class A and class B pass through trusts and set
forth under "Purchase of Class C Certificates" with respect to the class C
certificates until the final expected Regular Distribution Date for such pass
through trust. Subject to the provisions of the Intercreditor Agreement,
principal paid on the secured promissory notes held in each pass through trust
will be passed through to the certificateholders of such pass through trust in
scheduled amounts on the dates set forth in this prospectus supplement until
the final expected Regular Distribution Date for such pass through trust.
Interest will be payable on the unpaid principal amount of each secured
promissory note at the rate applicable to such secured promissory note on
January 20 and July 20 of each year, commencing on the first such date to occur
after initial issuance of such secured promissory note. Such interest will be
computed on the
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basis of a 360-day year of twelve 30-day months. Overdue amounts of principal,
Make-Whole Premium and interest on such series of secured promissory notes will
bear interest at a rate equal to at least 1.00% per annum over the applicable
rate on such series of secured promissory notes.
Scheduled principal payments on the secured promissory notes will be made on
January 20 and July 20 in certain years, commencing on July 20, 2000 in the
case of the class A certificates and January 20, 2000 in the case of the class
B certificates. See "Description of the Certificates--Pool Factors" for a
discussion of the scheduled payments of principal of the secured promissory
notes and possible revisions to such scheduled payments.
The final payment made under each secured promissory note will be in an
amount sufficient to discharge in full the unpaid principal amount, Make-Whole
Premium (if any) and to the extent permitted by law, interest and any other
amounts payable but unpaid with respect to such secured promissory note.
If any date scheduled for a payment of principal, premium (if any) or
interest with respect to the secured promissory notes is not a Business Day,
such payment will be made on the next succeeding Business Day with the same
force and effect as if made on such scheduled payment date and without any
additional interest.
Redemption
If an Event of Loss occurs with respect to an aircraft and we do not replace
such aircraft under the related lease (in the case of a leased aircraft) or
under the related Owned Aircraft Indenture (in the case of an owned aircraft),
the secured promissory notes issued with respect to such aircraft will be
redeemed, in whole, in each case at a price equal to the aggregate unpaid
principal amount thereof, together with accrued interest thereon, to the date
of redemption and other amounts payable to the holders of the secured
promissory notes under the applicable Indenture and Participation Agreement,
but without premium. Such redemption will be on a Special Distribution Date.
(Indentures, Section 2.10(a)) If we exercise our right to terminate a lease
under our voluntary termination, early buyout or burdensome buyout options
under such lease, the secured promissory notes relating to the applicable
leased aircraft will be redeemed (unless we elect to assume the secured
promissory notes on a full recourse basis), in whole, on a Special Distribution
Date at a price equal to the aggregate unpaid principal amount thereof,
together with accrued interest thereon to, but not including, the date of
redemption, plus a Make-Whole Premium. (Leased Aircraft Indentures, Section
2.10(b)) See "--The Leases--Lease Termination."
All, but not less than all, of the secured promissory notes issued with
respect to a leased aircraft may be redeemed prior to maturity with our
consent, and all of the secured promissory notes issued with respect to the
owned aircraft may be redeemed in whole prior to maturity at any time at our
option, in each case at a price equal to 100% of the unpaid principal thereof,
together with accrued interest thereon to, but not including, the date of
redemption, plus, a Make-Whole Premium. (Indentures, Section 2.11) If notice of
such a redemption is given in connection with a refinancing of secured
promissory notes with respect to a leased aircraft, such notice may be revoked
at any time not later than three days prior to the proposed redemption date.
(Leased Aircraft Indentures, Section 2.12)
If, with respect to a leased aircraft, (a) one or more Lease Events of
Default have occurred and are continuing or (b) the secured promissory notes
with respect to such aircraft have been accelerated or the Loan Trustee with
respect to such secured promissory notes takes action or notifies the
applicable Owner Trustee that it intends to take action to foreclose the lien
of the related Leased Aircraft Indenture or otherwise commence the exercise of
any significant remedy under such Indenture or the related lease or if certain
events occur in a bankruptcy proceeding involving us, then in each case all,
but not less than all, of the secured promissory notes issued with respect to
such leased aircraft may be purchased by the related Owner Trustee or Owner
Participant on the applicable purchase date at a price equal to the aggregate
unpaid principal thereof, together with accrued
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and unpaid interest thereon to, but not including, the date of purchase, but
without any premium (provided that a Make-Whole Premium is payable if such
secured promissory notes are to be purchased pursuant to clause (a) when a
Lease Event of Default has occurred and has been continuing for less than 180
days). (Leased Aircraft Indentures, Section 2.14) We as owner of the owned
aircraft have no comparable right under the Owned Aircraft Indentures to
purchase the secured promissory notes under such circumstances.
Security
The secured promissory notes issued with respect to each aircraft will be
secured by a first priority security interest in the aircraft, the related
lease and all rent under such lease (with respect to leased aircraft), as well
as all rents, profits and other income of such aircraft, certain rights under
the aircraft purchase agreement between our parent and an affiliate of the
aircraft manufacturer, all requisition proceeds with respect to such aircraft,
all insurance proceeds with respect to the aircraft (other than proceeds under
third party liability policies and under policies maintained by the Owner
Participant), all monies and securities deposited with the related Loan
Trustee, and all proceeds of the foregoing. (Indentures, Granting Clause)
Unless an Indenture Default with respect to an aircraft has occurred and is
continuing, the related Loan Trustee may not exercise the Owner Trustee's
rights under the related lease except such Owner Trustee's right to receive
rent. The assignment by the Owner Trustee to the Loan Trustee of its rights
under the related lease excludes, among other things, the rights of the Owner
Trustee in its individual and trust capacities and of the Owner Participant
relating to the indemnification by us for certain matters, proceeds of public
liability insurance in respect of the aircraft payable as a result of insurance
claims made, or losses suffered, by the Owner Trustee or the Loan Trustee in
their respective individual capacities or by the Owner Participant, proceeds of
insurance maintained with respect to the aircraft by the Owner Participant
(whether directly or through the Owner Trustee) or the Owner Trustee in its
individual capacity and permitted under the lease and certain reimbursement
payments made by us to the Owner Trustee and the Owner Participant. (Indenture,
Granting Clause)
The secured promissory notes will not be cross-collateralized. This means
that the secured promissory notes issued in respect of any one aircraft will
not be secured by any of the other aircraft, replacement aircraft (as described
in "--The Leases--Events of Loss") or the leases related to such other
aircraft. There will not be any cross-default provisions in the Indentures or
leases. This means that events resulting in an event of default under any
particular Indenture or lease may or may not result in an event of default
occurring under any other Indenture or lease. If the secured promissory notes
issued with respect to one or more aircraft are in default and the secured
promissory notes issued with respect to the remaining aircraft are not in
default, no remedies will be exercisable under the Indentures with respect to
such remaining aircraft.
The secured promissory notes issued under each Leased Aircraft Indenture are
not our obligations and we do not guarantee such secured promissory notes.
Payments or advances made under a lease and the related Aircraft Operative
Agreements will at all time be sufficient to make scheduled payments or
principal of, and interest on, the secured promissory notes issued to finance
the aircraft subject to such lease. See "Description of the Secured Promissory
Notes--General."
Loan to Value Ratios of Secured Promissory Notes
The following tables set forth illustrative loan to aircraft value ratios
for the secured promissory notes issued in respect of aircraft as of the July
20 Regular Distribution Dates that occur after the scheduled date of original
issuance of such secured promissory notes, assuming that the secured promissory
notes in the maximum principal amount are issued in respect of each such
aircraft. The following tables apply both to leased aircraft and owned
aircraft. We used these examples to prepare the Assumed Amortization Schedule,
although the amortization schedule for the secured promissory notes issued with
respect to an aircraft may vary from such assumed schedule so long as it
complies with the Mandatory Economic Terms. This means that the schedules set
forth below may not be applicable in the case of any particular aircraft. See
"Description of the Certificates--Pool Factors." The LTV was obtained by
dividing (a) the outstanding balance (assuming no payment default) of such
secured promissory notes determined immediately after giving effect to the
payments
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<PAGE>
scheduled to be made on each such Regular Distribution Date by (b) the assumed
value (the "Assumed Aircraft Value") of the aircraft securing such secured
promissory notes.
The following tables are based on the Depreciation Assumption. Other rates
or methods of depreciation would result in materially different loan to
aircraft value ratios, and no assurance can be given (a) that the depreciation
rates and method assumed for the purposes of the tables are the ones most
likely to occur or (b) as to the actual future value of any aircraft. The
tables should not be considered a forecast or prediction of expected or likely
loan to aircraft value ratios, but only a mathematical calculation based on one
set of assumptions.
<TABLE>
<CAPTION>
Airbus Model A319-100 Airbus Model A320-200 Airbus Model A330-300
---------------------------- ---------------------------- ----------------------------
Secured Secured Secured
Promissory Promissory Promissory
Note Assumed Loan Note Assumed Loan Note Assumed Loan
Outstanding Aircraft to Outstanding Aircraft to Outstanding Aircraft to
Balance Value Value Balance Value Value Balance Value Value
Date (Millions) (Millions) Ratio (Millions) (Millions) Ratio (Millions) (Millions) Ratio
- ---- ----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
July 20, 2000........... $23.99 $39.25 61.1% $28.22 $43.68 64.6% $66.38 $108.15 61.4%
July 20, 2001........... 23.49 38.07 61.7 27.69 42.33 65.4 60.70 104.91 57.9
July 20, 2002........... 22.92 36.90 62.1 26.87 40.98 65.6 58.82 101.66 57.9
July 20, 2003........... 22.15 35.72 62.0 25.97 39.63 65.5 57.38 98.42 58.3
July 20, 2004........... 21.48 34.54 62.2 25.20 38.28 65.8 55.87 95.17 58.7
July 20, 2005........... 20.83 33.36 62.4 24.37 36.92 66.0 54.57 91.93 59.4
July 20, 2006........... 20.24 32.19 62.9 23.48 35.57 66.0 50.02 88.68 56.4
July 20, 2007........... 19.54 31.01 63.0 22.59 34.22 66.0 43.10 85.44 50.4
July 20, 2008........... 18.76 29.83 62.9 21.70 32.87 66.0 38.80 82.19 47.2
July 20, 2009........... 18.14 28.65 63.3 20.80 31.52 66.0 34.00 78.95 43.1
July 20, 2010........... 17.43 27.48 63.4 19.91 30.17 66.0 29.99 75.71 39.6
July 20, 2011........... 13.80 26.30 52.5 17.65 28.82 61.2 25.18 72.46 34.8
July 20, 2012........... 11.82 25.12 47.1 14.26 27.47 51.9 20.07 69.22 29.0
July 20, 2013........... 9.68 23.94 40.4 11.77 26.12 45.1 14.47 65.97 21.9
July 20, 2014........... 7.37 22.77 32.4 9.08 24.77 36.7 10.99 62.73 17.5
July 20, 2015........... 4.89 21.59 22.7 6.19 22.97 27.0 7.44 59.48 12.5
July 20, 2016........... 4.89 20.02 24.4 6.19 21.16 29.3 5.27 55.16 9.6
July 20, 2017........... 4.18 18.45 22.7 3.81 19.36 19.7 2.25 50.83 4.4
July 20, 2018........... 1.42 16.88 8.4 0.47 17.56 2.7 0.00 0.00 NA
July 20, 2019........... 0.00 0.00 NA 0.00 0.00 NA 0.00 0.00 NA
</TABLE>
Limitation of Liability
The secured promissory notes issued with respect to the leased aircraft are
not our direct obligations or guaranteed by us, by any Owner Participant or by
the Loan Trustees or the Owner Trustees in their individual capacities. None of
the Owner Trustees, the Owner Participants or the Loan Trustees, or any of
their affiliates, will be personally liable to any holder of a secured
promissory note or, in the case of the Owner Trustees and the Owner
Participants, to the Loan Trustees for any amounts payable under the secured
promissory notes or, except as provided in each Leased Aircraft Indenture, for
any liability under such Leased Aircraft Indenture. Generally, all payments of
principal of, premium, if any, and interest on the secured promissory notes
issued with respect to any leased aircraft (other than payments made in
connection with an optional redemption or purchase of secured promissory notes
issued with respect to a leased aircraft by the related Owner Trustee or the
related Owner Participant) will be made only from the assets subject to the
lien of the Indenture with respect to such leased aircraft or the income and
proceeds received by the related Loan Trustee (including rent payable and other
amounts provided by us under the lease and related documents with respect to
such leased aircraft). In some cases, an Owner Participant may be required to
make payments to an Owner Trustee that are to be used by the Owner Trustee to
pay principal of, and interest on, the secured promissory notes. If an Owner
Participant is required to make payments to be used by an Owner Trustee to pay
principal of, and interest on,
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the secured promissory notes and the Owner Participant fails to make the
payment, we will be required to provide the Owner Trustee with funds sufficient
to make the payment.
The secured promissory notes issued with respect to any owned aircraft will
be our direct obligations.
Except as otherwise provided in the Indentures, no Owner Trustee or Loan
Trustee, in its individual capacity, will be answerable or accountable under
the Indentures or under the secured promissory notes under any circumstances
except, among other things, for its own willful misconduct or gross negligence.
None of the Owner Participants will have any duty or responsibility under any
of the Leased Aircraft Indentures or the secured promissory notes to the Loan
Trustees or to any holder of any secured promissory note.
Indenture Defaults, Notice and Waiver
Indenture Defaults under each Indenture include:
. in the case of a Leased Aircraft Indenture, the occurrence of any Lease
Event of Default under the related lease (other than the failure to make
certain indemnity payments and other payments to the related Owner
Trustee or Owner Participant unless a notice is given by such Owner
Trustee to the Loan Trustee that such failure will constitute a Lease
Event of Default);
. the failure by the related Owner Trustee (other than as a result of a
Lease Default or Lease Event of Default) in the case of a Leased
Aircraft Indenture, or us, in the case of an Owned Aircraft Indenture,
to pay any interest or principal or premium, if any, when due, under
such Indenture or under any secured promissory note issued under such
Indenture that continues for more than 10 Business Days, in the case of
principal, interest or Make-Whole Premium, and, in all other cases, 10
Business Days after the relevant Owner Trustee or Owner Participant
receives written demand from the related Loan Trustee or holder of a
secured promissory note;
. the failure by the related Owner Participant or the related Owner
Trustee (in its individual capacity), in the case of a Leased Aircraft
Indenture, or us, in the case of an Owned Aircraft Indenture, to
discharge certain liens that continue after notice and specified cure
periods;
. any representation or warranty made by the related Owner Trustee or
Owner Participant in a Leased Aircraft Indenture, the related
Participation Agreement, or certain related documents furnished to the
Loan Trustee or any holder of a secured promissory note being false or
incorrect when made in any material respect that continues to be
material and adverse to the interests of the Loan Trustee or Note
Holders and remains unremedied after notice and specified cure periods;
. any representation or warranty made by us in an Owned Aircraft
Indenture, the related Participation Agreement, or certain related
documents furnished to the Loan Trustee or any holder of a secured
promissory note being false or incorrect when made in any material
respect that continues to be material and adverse to the interests of
the Loan Trustee or Note Holders and remains unremedied after notice and
specified cure periods;
. failure by the related Owner Trustee or Owner Participant (in the case
of leased aircraft) or us (in the case of owned aircraft) to perform or
observe any covenant or obligation for the benefit of the Loan Trustee
or holders of secured promissory notes under such Indenture or certain
related documents that continues after notice and specified cure
periods;
. the registration of the related aircraft ceasing to be effective as a
result of the Owner Participant (in the case of a leased aircraft) or us
(in the case of an owned aircraft) not being a citizen of the United
States, as defined in Title 49 of the United States Code relating to
aviation (subject to a cure period); or
. the occurrence of certain events of bankruptcy, reorganization or
insolvency of the related Owner Trustee or Owner Participant (in the
case of a leased aircraft) or us (in the case of the owned aircraft).
(Indentures, Section 4.02)
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. in the case of the Owned Aircraft Indenture, failure by us to carry and
maintain insurance in accordance with the terms of such Indenture with
respect to the aircraft.
There will not be any cross-default provisions in the Indentures or in the
leases. This means that events resulting in an Indenture Default under any
particular Indenture may or may not result in an Indenture Default occurring
under any other Indenture, and a Lease Event of Default under any particular
lease may or may not result in a Lease Event of Default under any other lease.
If we fail to make any semiannual basic rental payment due under any lease,
within a specified period after such failure the applicable Owner Trustee may
furnish to the Loan Trustee the amount due on the secured promissory notes
issued with respect to the related leased aircraft, together with any interest
thereon on account of such delayed payment. In that case, the Loan Trustee and
the holders of outstanding secured promissory notes issued under such Indenture
may not exercise any remedies otherwise available under such Indenture or such
lease as the result of such failure to make such rental payment, unless such
Owner Trustee has previously cured each of the three immediately preceding
semiannual basic rental payment defaults or the Owner Trustee has cured an
aggregate of six previous semiannual basic rental payment defaults. The
applicable Owner Trustee also may cure any other default by us in the
performance of its obligations under any lease that can be cured by the payment
of money. (Leased Aircraft Indenture, Section 4.03)
The holders of a majority in aggregate unpaid principal amount of the
secured promissory notes issued under an Indenture, by notice to the Loan
Trustee, may on behalf of all the holders of secured promissory notes issued
under such Indenture waive any existing default and its consequences under such
Indenture, except a default in the payment of the principal of, or premium or
interest on any such secured promissory notes or a default in respect of any
covenant or provision of such Indenture that cannot be modified or amended
without the consent of each holder of secured promissory notes. In the case of
Leased Aircraft Indentures, the ability to waive existing defaults may depend
on actions of the applicable Owner Participant. (Indentures, Section 4.08)
Remedies
Each Indenture provides that if an Indenture Default occurs and is
continuing, the related Loan Trustee may, and upon receipt of written demand
from the holders of a majority in principal amount of the secured promissory
notes outstanding under such Indenture will, subject to the applicable Owner
Participant's or Owner Trustee's right to cure in the case of Leased Aircraft
Indentures declare the principal of all such secured promissory notes issued
under such Indenture immediately due and payable, together with all accrued but
unpaid interest thereon (without the Make-Whole Premium). The holders of a
majority in principal amount of secured promissory notes outstanding under such
Indenture may rescind any such declaration at any time before the judgment or
decree for the payment of the money so due is entered if (a) there has been
paid to the related Loan Trustee an amount sufficient to pay all principal and
interest on any such secured promissory notes, to the extent such amounts have
become due otherwise than by such declaration of acceleration and (b) all other
Indenture Defaults and events which with the giving of notice or lapse of time
or both would become Indenture Defaults under such Indenture have been cured or
waived. (Indentures, Section 4.04(b))
Each Indenture provides that if an Indenture Default under such Indenture
has occurred and is continuing, the related Loan Trustee may exercise certain
rights or remedies available to it under such Indenture or under applicable
law, including (if, in the case of a leased aircraft, the corresponding lease
has been declared in default) one or more of the remedies under such Indenture
or such lease with respect to the aircraft subject to such lease. If a Lease
Event of Default has occurred and is continuing under the corresponding lease
in the case of Leased Aircraft Indentures, the related Loan Trustee's right to
exercise remedies under such Indenture is subject, with certain exceptions, to
its having accelerated the maturity of the secured promissory notes and
proceeded to exercise one or more of the remedies under the lease to terminate
the lease (in the event that it is not commercially reasonable to take
possession of the aircraft) or take possession of and/or sell the aircraft;
provided that the requirement to exercise such remedies under such lease does
not apply in circumstances where such exercise has been involuntarily stayed or
prohibited by applicable law or court order for a
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continuous period in excess of 60 days subsequent to an entry for an order for
relief or such other period as may be specified in Section 1110(a)(1)(A) of the
U.S. Bankruptcy Code (the "Section 1110 Period") (plus an additional period if
any resulting from (a) us or our trustee in such proceeding assuming, or
agreeing to perform our obligations under, such lease with the approval of the
applicable court, (b) such Loan Trustee's consent to an extension of such 60-
day period, (c) the assumption of the lease by us during the Section 1110
Period with the approval of the applicable court, or (d) such Loan Trustee's
failure to give any requisite notice). See "--The Leases--Events of Default
under the Leases." Such remedies may be exercised by the related Loan Trustee
to the exclusion of the related Owner Trustee, subject to certain conditions
specified in such Indenture, and us, subject to the terms of such lease. Any
aircraft sold in the exercise of such remedies will be free and clear of any
rights of those parties, including, if a Lease Event of Default has occurred
and is continuing, our rights under the lease with respect to such aircraft. No
exercise of any remedies by the related Loan Trustee may affect our rights
under any lease unless a Lease Event of Default has occurred and is continuing
under such lease. The Owned Aircraft Indenture will not contain such
limitations on the Loan Trustee's ability to exercise remedies upon an
Indenture Default under an Owned Aircraft Indenture. (Indentures, Section 4.04;
Leases, Section 15)
If a bankruptcy proceeding involving us under the U.S. Bankruptcy Code
occurs, all of the rights of the Owner Trustee as lessor under a particular
lease will be exercised by the Owner Trustee in accordance with the terms
thereof unless (a) during the Section 1110 Period we or the trustee in such
proceeding do not assume or agree to perform our obligations under such lease,
(b) at any time after assuming or agreeing to perform such obligations, we or
such trustee cease to perform such obligations or (c) the related Loan Trustee
takes action, or notifies the Owner Trustee that such Loan Trustee intends to
take action, to foreclose the lien of the related Leased Aircraft Indenture or
otherwise commence the exercise of any significant remedy in accordance with
the Leased Aircraft Indenture. The Owner Trustee's exercise of such rights
shall be subject to certain limitations and, in no event may the Owner Trustee
reduce the amount or change the time of any payment in respect of the secured
promissory notes or adversely affect the validity or enforceability of the lien
under the Leased Aircraft Indenture by depriving the holder of the secured
promissory notes of the benefits thereof.
If the secured promissory notes issued in respect of one aircraft are in
default, the secured promissory notes issued in respect of the other aircraft
may not be in default, and, if not, no remedies will be exercisable under the
applicable Indentures with respect to such other aircraft.
Section 1110 of the U.S. Bankruptcy Code provides that the right of lessors,
conditional vendors and holders of security interests with respect to
"equipment" (as defined in Section 1110 of the U.S. Bankruptcy Code) to take
possession of such equipment in compliance with the provisions of a lease,
conditional sale contract or security agreement, as the case may be, is not
affected after 60 days after the filing of petition under Chapter 11 of the
U.S. Bankruptcy Code by:
. the automatic stay provision of the U.S. Bankruptcy Code, which
provision enjoins repossessions by creditors for the duration of the
reorganization period;
. the provision of the U.S. Bankruptcy Code allowing the trustee in
reorganization to use property of the debtor during the reorganization
period;
. Section 1129 of the U.S. Bankruptcy Code (which governs the confirmation
of plans of reorganization in Chapter 11 cases); and
. any power of the bankruptcy court to enjoin a repossession.
Section 1110 of the U.S. Bankruptcy Code provides that the right to take
possession of an aircraft may not be exercised for 60 days following the date
of commencement of the reorganization proceedings and may not be exercised at
all after such 60-day period (or such longer period consented to by the lessor,
conditional vendor or holder of a security interest), if the trustee in
reorganization agrees to perform the debtor's
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obligations that become due on or after such date and cures all existing
defaults (other than defaults that are a breach of a provision relating to the
financial condition, bankruptcy, insolvency or reorganization of the debtor).
"Equipment" is defined in Section 1110 of the U.S. Bankruptcy Code, in part, as
"an aircraft, aircraft engine, propeller, appliance, or spare part (as defined
in section 40102 of title 49) that is subject to a security interest granted
by, leased to, or conditionally sold to a debtor that is a citizen of the U.S.
(as defined in section 40102 of title 49) holding an air carrier operating
certificate issued by the Secretary of Transportation pursuant to chapter 447
of title 49 for aircraft capable of carrying 10 or more individuals or 6,000
pounds or more of cargo."
Skadden, Arps, Slate, Meagher & Flom (Illinois), our special counsel, has
advised the Loan Trustees that, if we become a debtor under Chapter 11 of the
U.S. Bankruptcy Code, the Loan Trustee would be entitled to the benefits of
Section 1110 of the U.S. Bankruptcy Code with respect to the airframe and
engines comprising the related aircraft, but may not be entitled to such
benefits with respect to any replacement of an aircraft after an Event of Loss
in the future. The replacement of any aircraft is conditioned upon the
contemporaneous delivery of an opinion of counsel to the effect that the
related Loan Trustee's entitlement to benefits of Section 1110 of the U.S.
Bankruptcy Code would not be diminished as a result of such replacement. This
opinion is subject to certain qualifications and assumptions, including the
assumptions that we are and will continue to be a citizen of the U.S. holding
an air carrier operating certificate issued by the Secretary of Transportation
pursuant to chapter 447 of title 49 of the U.S. Code for aircraft capable of
carrying 10 or more individuals or 6,000 pounds or more of cargo. See "--The
Leases--Events of Loss." The opinion of Skadden, Arps, Slate, Meagher & Flom
(Illinois) does not address the availability of Section 1110 with respect to
the bankruptcy proceedings of any possible sublessee of an aircraft, or to any
possible lessee of an owned aircraft if it is leased by us. However, we have
also been advised by Skadden, Arps, Slate, Meagher & Flom (Illinois) that if
the aircraft is leased by us to one of our affiliates, we would be entitled to
the benefits of Section 1110 of the U.S. Bankruptcy Code with respect to the
airframe and engines comprising the related aircraft. This opinion is also
subject to certain qualifications and assumptions, including the assumptions
that such affiliate is and will continue to be a citizen of the U.S. holding an
air carrier operating certificate issued by the Secretary of Transportation
pursuant to chapter 447 of title 49 of the U.S. Code for aircraft capable of
carrying 10 or more individuals or 6,000 pounds or more of cargo. For a
description of certain limitations on the Loan Trustee's exercise of rights
contained in the Indenture, see "--Indenture Defaults, Notice and Waiver."
A 1998 Colorado district court decision, Western Pacific Airlines, Inc. v.
GATX (In re Western Pacific Airlines, Inc.), 219 B.R. 305, on rehearing, 221
B.R. 1 (D. Colo. 1998), appeal dismissed as moot, vacatur denied, 1999 WL
454469 (10th Cir., July 7, 1999), ruled that Section 1110 of the U.S.
Bankruptcy Code does not apply in a case after the trustee timely makes the
agreement specified in Section 1110(a)(1)(A) of the U.S. Bankruptcy Code and
timely cures defaults outstanding as of the date of the Chapter 11 petition or
that occur during the first sixty days of the case, with the result, among
others, that the ability of a lessor to exercise remedies based on a default
that occurs after the first 60 days of the Chapter 11 case would be subject to
the automatic stay. We have been advised by our special counsel, Skadden, Arps,
Slate, Meagher & Flom (Illinois) to the effect that, and accordingly, we
believe that, this decision construes Section 1110 of the U.S. Bankruptcy Code
in a manner that is inconsistent with both the language of Section 1110 of the
U.S. Bankruptcy Code and the legislative history explaining the purpose and
operation of Section 1110 of the U.S. Bankruptcy Code and accordingly believes
that the decision is an incorrect interpretation of Section 1110 of the U.S.
Bankruptcy Code.
If a bankruptcy, insolvency, receivership or like proceedings is commenced
involving an Owner Participant, it is possible that, notwithstanding that the
applicable leased aircraft is owned by the related Owner Trustee in trust, such
leased aircraft and the related lease and secured promissory notes might become
part of such proceeding. In such event, payments under such lease or on such
secured promissory notes may be interrupted and the ability of the related Loan
Trustee to exercise its remedies under the related Leased Aircraft Indenture
might be restricted, although such Loan Trustee would retain its status as a
secured creditor in respect of the related lease and the related leased
aircraft.
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Modification of Indentures and Leases
Without the consent of holders of a majority in principal amount of the
secured promissory notes outstanding under any Indenture, the provisions of
such Indenture and any related lease, Participation Agreement or Leased
Aircraft Trust Agreement may not be amended or modified, except to the extent
indicated below.
Subject to certain limitations, certain provisions of any Leased Aircraft
Indenture, and of the related lease, Participation Agreement, and Leased
Aircraft Trust Agreement, may be amended or modified by the parties to those
agreements without the consent of any holders of the secured promissory notes
outstanding under such Indenture. In the case of each lease, such provisions
include, among others, provisions relating to (a) the return to the related
Owner Trustee of the related leased aircraft under the terms of such lease
(except to the extent that such amendment would affect the rights or exercise
of remedies under the lease) and (b) the renewal of such lease and our option
pursuant to the terms of such lease to terminate the lease or to purchase the
related leased aircraft so long as the same would not adversely affect the
Note Holders. (Leased Aircraft Indenture, Section 9.01(a)) In addition, any
Indenture may be amended without the consent of the holders of secured
promissory notes issued under such Indenture to, among other things, cure any
defect or inconsistency in such Indenture or such secured promissory notes,
provided that such change does not adversely affect the interests of any such
holder. (Leased Aircraft Indenture, Section 9.01(c); Owned Aircraft Indenture,
Section 10.01(c))
Without the consent of each Liquidity Provider and the holder of each
secured promissory note outstanding under any Indenture affected thereby, no
amendment or modification of such Indenture may among other things (a) reduce
the principal amount of, or premium, if any, or interest payable on, any
secured promissory notes issued under such Indenture or change the date on
which any principal, premium, if any, or interest is due and payable, (b)
permit the creation of any security interest with respect to the property
subject to the lien of such Indenture, except as permitted by such Indenture,
or deprive any holder of a secured promissory note issued under such Indenture
of the benefit of the lien of such Indenture upon the property subject to such
Indenture or (c) reduce the percentage in principal amount of outstanding
secured promissory notes issued under such Indenture necessary to modify or
amend any provision of such Indenture or to waive compliance with such
Indenture. (Leased Aircraft Indenture, Section 9.01(b); Owned Aircraft
Indenture, Section 10.01(c))
Indemnification
We are required to indemnify each Loan Trustee, each Owner Participant,
each Owner Trustee, each Liquidity Provider, the Subordination Agent, the
Escrow Agent and each pass through trustee, but not the holders of
certificates (unless otherwise expressly agreed by us), for certain losses,
claims and other matters. We are required under certain circumstances to
indemnify each Owner Participant against the loss of depreciation deductions
and certain other benefits allowable for certain income tax purposes with
respect to the related leased aircraft.
The Leases and the Owned Aircraft Indentures
We will lease each leased aircraft from an Owner Trustee under a lease. We
will own each owned aircraft.
Lease Term and Lease Payments
We will lease each leased aircraft from an Owner Trustee for a term
commencing on the closing of a leveraged lease financing and expiring on a
date not earlier than the latest maturity date of the relevant secured
promissory notes issued in such leveraged lease transaction, unless terminated
prior to the originally scheduled expiration date as permitted by such lease.
We will make semiannual payments of basic rent under each lease on each rent
payment date (or, if such day is not a Business Day, on the next Business
Day).
The Owner Trustee will assign all payments of basic rent and certain other
payments that we are required to pay or advance under the lease or related
documents to the related Loan Trustee. The Loan Trustee will, on
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behalf of the Owner Trustee, apply the funds assigned to it under the related
Indenture to pay scheduled principal of, premium, if any, and interest due from
such Owner Trustee on the secured promissory notes issued under such Indenture.
The balance of any basic rent or other assigned amount under each lease and
related Aircraft Operative Agreements, after payment of amounts due on the
secured promissory notes issued under such Indenture, will be paid over to the
applicable Owner Trustee. In certain cases, the basic rent and other payments
under a lease may be adjusted, but each lease will provide that under no
circumstances will amounts that we are required to pay or advance under the
lease and related documents be less than the scheduled payments on the related
secured promissory notes. In some cases, an Owner Participant may be required
to make payments to an Owner Trustee that are to be used by the Owner Trustee
to pay principal of, and interest on, the secured promissory notes. If an Owner
Participant is required to make payments to be used by an Owner Trustee to pay
principal of, and interest on, the secured promissory notes and the Owner
Participant fails to make the payment, we will be required to provide the Owner
Trustee with funds sufficient to make the payment. Our obligations to pay rent
and to cause other payments to be made under each lease and under the Aircraft
Operative Agreements will be general unsecured obligations.
Owned Aircraft Payments
Semiannual payments of interest on the secured promissory notes issued by us
under an Owned Aircraft Indenture are payable January 20 and July 20 of each
year, commencing on the first such date after issuance thereof. Payments of
principal of the secured promissory notes issued by us under an Owned Aircraft
Indenture are payable January 20 and July 20 in certain years or in full on
final maturity.
Net Lease; Maintenance
Under the terms of each lease, our obligations in respect of each leased
aircraft will be those of a lessee under a "net lease." This means that we will
be obligated under each lease, among other things, to keep each aircraft
subject to such lease, duly registered and insured, to pay all costs of
operating the aircraft and to maintain, service, repair and overhaul such
aircraft so as to keep it in as good an operating condition as when delivered
to us, ordinary wear and tear excepted, and in such condition as required to
maintain the applicable airworthiness certificate for the aircraft in good
standing at all times (other than during temporary periods of storage or during
certain periods of permitted maintenance or modification). (Leases, Section
7(a)(1))
Possession, Sublease and Transfer
We may operate an aircraft, or, subject to certain restrictions, we may
permit certain other persons to operate an aircraft. Normal interchange,
pooling and similar agreements customary in the commercial airline industry
with respect to any airframe or engine are permitted. We are also permitted to
enter into subleases with United States entities and foreign entities that have
their principal executive office in specified countries. (Leases, Section
7(b)(x)). We also may sublease an aircraft to Shuttle, Inc. or any other
affiliate so long as such affiliate is a "citizen of the United States" (as
defined in the Transportation Code) holding an air carrier operating
certificate issued by the Secretary of Transportation pursuant to Chapter 447
of Title 49, United States Code, if, and so long as, such status is a condition
of entitlement to the benefits of Section 1110 of the U.S. Bankruptcy Code. All
subleases will be subject and subordinate to the related lease. It is uncertain
to what extent the relevant Loan Trustee's security interest would be
recognized if an aircraft is registered or located in a jurisdiction not a
party to the Convention on the International Recognition of Rights in Aircraft
(Geneva 1948) (the "Convention"). In the case of an Indenture Default, the
ability of the related Loan Trustee to realize upon its security interest in an
aircraft could be adversely affected as a legal or practical matter if such
aircraft were registered or located outside the United States.
Registration
We are required to keep each aircraft duly registered under the
Transportation Code with the FAA except (in the case of a leased aircraft) if
the relevant Owner Trustee or the relevant Owner Participant fails to meet
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the applicable citizenship requirements. We are also required to record each
lease (in the case of a leased aircraft) and Indenture and certain other
documents under the Transportation Code. (Leases, Section 7(a)(1); Owned
Aircraft Indenture, Section 7.02) Each Indenture will be effective to create a
valid security interest in the aircraft that is subject to such Indenture. When
the Indenture and other appropriate documents are filed with the FAA and in
accordance with the Transportation Code and Uniform Commercial Code financing
statements are filed in all appropriate jurisdictions, the Loan Trustee will
have a first-priority, perfected security interest in such aircraft whenever it
is located in the United States or any of its territories and possessions. The
Convention provides that such security interest will also be recognized, with
certain limited exceptions, in those jurisdictions that have ratified or adhere
to the Convention.
So long as no Lease Event of Default exists, we have the right to register
the aircraft subject to such lease in a country other than the United States at
our own expense, subject to certain conditions set forth in the related
Participation Agreement. These conditions include a requirement that the lien
of the applicable Indenture will continue as a first priority security interest
in the applicable aircraft. (Leases, Section 7(a)(1); Participation Agreements,
Section 7(d)). The Owned Aircraft Indentures and related documents contain
comparable provisions with respect to registration of the owned aircraft.
Liens
We are required to maintain each aircraft free of any liens, other than the
rights of the parties under the Aircraft Operative Agreements and other than
certain limited liens permitted under such Aircraft Operative Agreements. Such
permitted liens include, but are not limited to:
(a) liens for taxes either not yet due or being contested in good faith by
appropriate proceedings;
(b) materialmen's, mechanics' and other similar liens arising in the
ordinary course of business and securing obligations that either are
not yet delinquent for more than sixty (60) days or are being contested
in good faith by appropriate proceedings;
(c) judgment liens so long as such judgment is discharged or vacated within
sixty (60) days or the execution of such judgment is stayed pending
appeal or discharged, vacated or reversed within sixty (60) days after
expiration of such stay; and
(d) any other lien as to which we have provided a bond or other security
adequate in the reasonable opinion of the Owner Trustee;
provided that in the case of each of the liens described in the foregoing
clauses (a) and (b) such liens and proceedings do not involve any material risk
of the sale, forfeiture or loss of such aircraft or any interest in such
aircraft. (Leases, Section 6; Owned Aircraft Indenture, Section 7.01)
Replacement of Parts; Alterations
We are obligated to replace all aircraft parts at our expense that may from
time to time be incorporated or installed in or attached to any aircraft and
that may become lost, damaged beyond repair, worn out, destroyed, stolen,
seized, confiscated or permanently rendered unfit for use. We or any permitted
sublessee have the right, at our own expense, to add further parts and
accessories and make such alterations, modifications and additions with respect
to each aircraft as we deem desirable in the proper conduct of our business and
to remove parts which we deem to be obsolete or no longer suitable or
appropriate for use, so long as such alteration, modification, addition or
removal does not materially diminish the value, utility or remaining useful
life of the related aircraft. (Leases, Sections 8(a) and 8(c); Owned Aircraft
Indenture, Sections 7.03(a) and 7.03(c))
Insurance
We are required to maintain, at our expense (or at the expense of a
permitted lessee, in the case of the owned aircraft, or a permitted sublessee
in the case of a leased aircraft), all-risk aircraft hull insurance covering
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each aircraft, at all times in an amount (taking into account any permitted
self-insurance) not less than the termination value (or comparable amount) for
the aircraft. However, after giving effect to self-insurance permitted as
described below, the amount payable under such insurance may be less than such
amounts payable with respect to the secured promissory notes. (Leases, Section
11; Owned Aircraft Indenture, Section 7.04)
In addition, we are obligated to maintain (or cause to be maintained)
comprehensive airline liability insurance at our expense, including, without
limitation, passenger liability, bodily injury and property damage liability,
cargo liability and contractual liability insurance with respect to each
aircraft. Such liability insurance must be underwritten by insurers of
nationally or internationally recognized responsibility. The amount of such
liability insurance coverage per occurrence may not be less than the amount of
comprehensive airline liability insurance from time to time applicable to
aircraft of the same type that we own, lease or operate that operate on similar
routes as such aircraft.
We are also required to maintain war-risk, hijacking or allied perils
insurance if we (or any permitted sublessee) operate any aircraft, airframe or
engine in any area of recognized hostilities or if we (or any permitted
sublessee) maintain such insurance with respect to other aircraft operated on
the same international routes or areas on or in which the aircraft is operated.
(Leases, Section 11; Owned Aircraft Indenture, Section 7.04)
We may self-insure under a program applicable to all aircraft in our fleet,
but the amount of such self-insurance in the aggregate may not exceed 50% of
the highest replacement value of any single aircraft in our fleet or 1.5% of
the average aggregate insurable value (during the preceding policy year) of all
aircraft on which we carry insurance, whichever is less, unless an insurance
broker of national standing shall certify that the standard among all other
major United States airlines is a higher level of self-insurance, in which
case, we may self-insure the aircraft to such higher level. In addition, we may
self-insure to the extent of any applicable deductible per aircraft that does
not exceed industry standards for major United States airlines. (Leases,
Section 11; Owned Aircraft Indenture, Section 7.04)
In respect of each aircraft, we are required to name as additional insured
parties the relevant Loan Trustee and holders of the secured promissory notes
and (in the case of a leased aircraft) the relevant Owner Participant and Owner
Trustee, in its individual capacity and as owner of such aircraft, and the
Liquidity Provider under all liability, hull and property and war risk,
hijacking and allied perils insurance policies required with respect to such
aircraft. In addition, the insurance policies will be required to provide that,
in respect of the interests of such additional insured persons, the insurance
will not be invalidated or impaired by any of our acts or omissions or by any
act or omission of any permitted sublessees, or any other person. (Leases,
Section 11; Owned Aircraft Indenture, Section 7.04)
Lease Termination
We may terminate any lease (a) on any Rent Payment Date (or if the
applicable Owner Participant agrees on scheduled monthly termination dates)
occurring after the end of the calendar year in which the seventh (7th)
anniversary of the occurrence of the lease commencement date, if we make a good
faith determination that the aircraft subject to such lease is obsolete or
surplus to our needs or (b) on the tenth, thirteenth or sixteenth anniversaries
of the date on which the lease commenced. We are required to give notice of our
intention to exercise our right of termination described in this paragraph at
least one hundred twenty (120) days prior to the proposed date of termination,
which notice may be withdrawn up to fifteen (15) days prior to such proposed
date; provided that we may give only two (2) such termination notices. In such
a situation, unless the Owner Trustee elects to retain title to such aircraft
or, in the case of clause (b) above, we elect to purchase the aircraft at a
purchase price equal to the greater of termination value (or comparable
termination amount) or fair market value, we are required to use commercially
reasonable efforts to sell such aircraft as an agent for such Owner Trustee,
and the Owner Trustee will sell such aircraft on the date of termination to the
highest cash bidder. If such sale occurs, the secured promissory notes related
thereto are required to be prepaid. If the net proceeds to be received from
such sale are less than the termination value (or comparable termination
amount) for such
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aircraft (which will be set forth in a schedule to each lease), we are required
to pay to the applicable Owner Trustee an amount equal to the excess, if any,
of the applicable termination value (or comparable termination amount) for such
aircraft over such net proceeds. If we elect to purchase the aircraft, either
(a) the secured promissory notes related thereto will be prepaid or (b) subject
to receipt of the tax opinion and Section 1110 opinion described under "--
Renewal and Purchase Options," we will assume such secured promissory notes on
a full recourse basis. Upon payment of the termination value (or comparable
amount) or, in the case of a purchase by us, the payment of the applicable
purchase price, and an amount equal to the Make-Whole Premium, if any, payable
on such date of payment, together with certain additional amounts, the lien of
the relevant Indenture will be released, the relevant lease will terminate, and
our obligation after the date of such payments to make scheduled rent payments
under such lease will cease. (Leases, Section 9; Leased Aircraft Indentures,
Section 2.10)
The Owner Trustee has the option to retain title to the aircraft if we have
given a notice of termination under the lease. In such event, such Owner
Trustee will pay to the applicable Loan Trustee an amount sufficient to prepay
the outstanding secured promissory notes issued with respect to such aircraft
(including accrued interest) and the Loan Trustee will be paid the Make-Whole
Premium, in which case the lien of the relevant Indenture will be released, the
relevant lease will terminate and our obligation after the date of such
payments to make scheduled rent payments under such lease will cease. (Leases,
Section 9; Leased Aircraft Indentures, Section 2.10)
Events of Loss
If an Event of Loss occurs with respect to the airframe or the airframe and
engines of an aircraft, we must elect within sixty (60) days after such
occurrence either to make payment with respect to such Event of Loss or to
replace such airframe and any such engines. Not later than the earlier of (a)
the first Business Day following the 120th day following the date of occurrence
of such Event of Loss and (b) an earlier Business Day irrevocably specified
fifteen (15) days in advance by notice from us to the Owner Trustee (in the
case of a leased aircraft) and the Loan Trustee, we must either (a) pay to the
applicable Owner Trustee the termination value (or comparable termination
amount) of such aircraft (or, in the case of an owned aircraft, pay to the
applicable Loan Trustee the outstanding principal amount of the secured
promissory notes relating to such aircraft plus accrued and unpaid interest
thereon), together with certain additional amounts, but, in any case, without
any Make-Whole Premium or (b) substitute an airframe (or airframe and one or
more engines, as the case may be) for the airframe, or airframe and engine(s),
that suffered such Event of Loss. (Leases, Section 10(a); Leased Aircraft
Indentures, Section 2.10; Owned Aircraft Indentures, Section 5.06)
If we elect to replace an airframe (or airframe and one or more engines, as
the case may be) that suffered such Event of Loss, we will, in the case of a
leased aircraft, convey to the related Owner Trustee title to an airframe (or
airframe and one or more engines, as the case may be) or, in the case of an
Owned Aircraft Indenture, subject such airframe (or airframe and one or more
engines) to the lien of the Owned Aircraft Indenture, and such replacement
airframe or airframe and engines must be the same model as the airframe or
airframe and engines to be replaced or an improved model, with a value, utility
and remaining useful life at least equal to the airframe or airframe and
engines to be replaced, assuming that such airframe and such engines had been
maintained in accordance with the related lease or Owned Aircraft Indenture, as
the case may be. We are also required to provide to the relevant Loan Trustee
and (in the case of a leased aircraft) the relevant Owner Trustee and Owner
Participant reasonably acceptable opinions of counsel to the effect, among
other things, that (a) certain specified documents have been duly filed under
the Transportation Code and (b) such Owner Trustee and Loan Trustee will be
entitled to receive the benefits of Section 1110 of the U.S. Bankruptcy Code
with respect to any such replacement airframe (unless, as a result of a change
in law or court interpretation, such benefits are not then available). (Leases,
Section 10(a); Owned Aircraft Indenture, Section 5.06)
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If we elect not to replace such airframe, or airframe and engine(s), then
upon payment of the outstanding principal amount of the secured promissory
notes issued with respect to such aircraft (in the case of an owned aircraft)
or the termination value (or comparable termination amount) for such aircraft
(in the case of a leased aircraft), together with all additional amounts then
due and unpaid with respect to such aircraft, which must be at least sufficient
to pay in full as of the date of payment thereof the aggregate unpaid principal
amount under such secured promissory notes together with accrued but unpaid
interest thereon and all other amounts due and owing in respect of such secured
promissory notes, the lien of the Indenture and (in the case of a leased
aircraft) the lease relating to such aircraft will terminate with respect to
such aircraft, our obligation thereafter to make the scheduled rent payments
(in the case of a leased aircraft) or interest and principal payments (in the
case of an owned aircraft) will cease and (in the case of a leased aircraft)
the related Owner Trustee will transfer all of its right, title and interest in
and to the related aircraft to us. The termination value (or comparable
termination amount) and other payments made under the leases by us will be
deposited with the applicable Loan Trustee. Amounts in excess of the amounts
due and owing under the secured promissory notes issued with respect to such
aircraft will be distributed by such Loan Trustee to the applicable Owner
Trustee or to us, as the case may be. (Leases, Section 10; Leased Aircraft
Indentures, Section 3.02; Owned Aircraft Indentures, Sections 3.02 and 5.06)
If an Event of Loss occurs with respect to an engine alone, we will be
required to replace such engine within one hundred twenty (120) days after the
occurrence of such Event of Loss with another engine, free and clear of all
liens (other than certain permitted liens). In the case of A319 and A320
aircraft, such replacement engine will be (a) a CFM International Model 56-5
(or improved) type engine or (b) a CFM engine or another manufacturer's engine
suitable for use on the relevant airframe and having a value and utility equal
to or greater than a CFM Model 56-5 type engine, assuming that such engine had
been maintained in accordance with the relevant lease. In the case of A330
aircraft, such replacement engine will be (a) a Pratt & Whitney Model 4168A (or
improved) type engine or (b) another Pratt & Whitney or another manufacturer's
engine suitable for use on the relevant airframe and having a value and utility
equal to or greater than a Pratt & Whitney Model 4168A type engine. (Leases,
Section 10(b); Owned Aircraft Indenture, Section 5.06(b))
Renewal and Purchase Options
At the end of the term of each lease after final maturity of the related
secured promissory notes and subject to certain conditions, we have certain
options to renew such lease for additional limited periods. In addition, we
have the right at the end of the term of each lease to purchase the aircraft
subject to such lease for an amount to be calculated in accordance with the
terms of such lease. (Leases, Section 19)
In addition, we may have the right to purchase an aircraft from the
applicable Owner Trustee prior to the expiration of the term of such lease. If
we purchase an aircraft from the applicable Owner Trustee prior to the end of
the term, we may assume, as our direct obligations, the secured promissory
notes issued with respect to such aircraft. We may only assume the secured
promissory notes if, among other things, we have provided opinions of counsel
to the effect that (a) holders of such secured promissory notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such assumption and will be subject to federal income tax on the same amount
and in the same manner and at the same time as would have been the case if such
assumption had not occurred and (b) the Loan Trustee will be entitled to the
benefits of Section 1110 of the U.S. Bankruptcy Code with respect to the
airframe and engines comprising such aircraft, as long as we continue to be a
citizen of the United States as defined in Section 40102 of Title 49 of the
Code holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to Chapter 447 of Title 49 of the Code for aircraft
capable of carrying 10 or more individuals or 6,000 pounds or more of cargo.
(Leases, Section 19 and Section 20; Participation Agreements, Section 7(u))
Events of Default under the Leases
The following events constitute Lease Events of Default under each lease:
. Our failure to make any payment of basic rent within five (5) Business
Days after the same has become due or termination value (or comparable
termination amount) within ten (10) Business Days after receipt by us of
written notice that the same is past due.
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. Our failure to make a payment of supplemental rent (other than
termination value (or comparable termination amount)) when the same has
become due and for thirty (30) days after we receive written demand for
such payment (provided that failure to pay any amount that is excluded
from the lien of the Indenture shall not constitute an event of default
unless notice is given by the Owner Participant).
. Our failure to carry and maintain insurance on and in respect of the
aircraft, airframe and engines, in accordance with the provisions of
such lease.
. Our failure to perform or observe in any material respect any other
covenant or agreement to be performed or observed by us under such lease
or the related Aircraft Operative Agreements (other than our related tax
indemnity agreement with the Owner Participant), and such failure
continuing unremedied for a period of thirty (30) days after written
notice of such failure by the applicable Owner Trustee or Loan Trustee
unless such failure is capable of being corrected and we are diligently
proceeding to correct such failure, in which case there is no Lease
Event of Default unless and until such failure continues unremedied for
a period of three hundred sixty (360) days after the receipt of such
notice.
. Any representation or warranty made by us in such lease or the related
Aircraft Operative Agreements (other than our related tax indemnity
agreement with the Owner Participant) proves to have been untrue or
inaccurate in any material respect at the time made, such representation
or warranty is material at the time in question and the same remains
uncured (to the extent of the adverse impact thereof) for more than
thirty (30) days after receipt by us of written notice.
. The occurrence of certain voluntary events of our bankruptcy,
reorganization or insolvency or the occurrence of involuntary events of
bankruptcy, reorganization or insolvency which continues undismissed,
unvacated or unstayed for a period of ninety (90) days. (Leases, Section
14)
Indenture Events of Default under the Owned Aircraft Indenture are discussed
above under "--Indenture Defaults, Notice and Waiver."
Remedies Exercisable upon Events of Default under the Lease
If a Lease Event of Default has occurred and is continuing, the applicable
Owner Trustee may (or, so long as the Indenture is in effect, the applicable
Loan Trustee may, subject to the terms of the Indenture) exercise one or more
of the remedies provided in such lease with respect to the related aircraft.
These remedies include the right to repossess and use or operate such aircraft,
to rescind or terminate such lease, to sell or re-lease such aircraft free and
clear of our rights, except as set forth in the lease, and retain the proceeds,
and to require us to pay, as liquidated damages any due and unpaid basic rent
plus an amount equal to, at such Owner Trustee's (or, subject to the terms of
the relevant Leased Aircraft Indenture, the Loan Trustee's) option, either (a)
the excess of the present value of all unpaid rent during the remainder of the
term of such lease over the present value of the fair market rental value of
such aircraft for the remainder of the term of such lease or, (b) the excess of
the termination value (or comparable termination amount) of such aircraft over
the fair market sales value of such aircraft or, if such aircraft has been
sold, the net sales proceeds from the sale of such aircraft. If the Loan
Trustee has validly terminated such lease, the Loan Trustee may not sell or
lease or otherwise afford the use of such aircraft, without the consent of the
Owner Participant, to us or any of our affiliates. (Leased Aircraft Indentures,
Section 4.04)
Transfer of Owner Participant Interests
Subject to certain restrictions, each Owner Participant may transfer all or
any part of its interest in the related leased aircraft. (Participation
Agreements, Section 7(k))
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U.S. INCOME TAX MATTERS
General
The following summary describes the material U.S. federal income tax
consequences to certificateholders of the purchase, ownership and disposition
of the certificates offered by this prospectus supplement and in the opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to US Airways, is
accurate in all material respects with respect to the matters discussed in this
prospectus supplement. This summary restates and supplements the summary of
U.S. federal income tax consequences set forth in the prospectus. Except as
otherwise specified, the summary is addressed to the initial beneficial owners
of certificates that are citizens or residents of the United States,
corporations, partnerships or other entities created or organized in or under
the laws of the United States or any state therein, or estates, the income of
which is subject to U.S. federal income taxation regardless of its source, or
trusts if a court within the U.S. is able to exercise primary jurisdiction over
the administration of the trust and one or more U.S. persons have the authority
to control all substantial decisions of the trust that will hold the
certificates as capital assets. This summary does not address the tax treatment
of U.S. certificateholders that may be subject to special tax rules, for
example, banks or insurance companies, nor does it address the tax treatment of
U.S. certificateholders that do not acquire certificates at the initial
offering price as part of the initial offering. This summary is not a
comprehensive description of all of the tax considerations that may be relevant
to a decision to purchase certificates. It does not describe any tax
consequences arising under the laws of any state, locality or taxing
jurisdiction other than the United States.
The summary is based on laws, regulations, rulings and decisions in effect
on the date of this prospectus supplement. Changes to existing law could have a
retroactive effect and could alter the tax consequences discussed below. No
rulings have been sought from the IRS with respect to the federal income tax
consequences, discussed below, and no assurances can be given that the IRS will
not take contrary positions. The pass through trusts are not indemnified for
any federal income taxes that may be imposed upon them, and the imposition of
those taxes on a pass through trust could result in a reduction in the amounts
available for distribution to the certificateholders of that pass through
trust. Prospective investors should consult their own tax advisors with respect
to the federal, state, local and foreign tax consequences to them of the
purchase, ownership and disposition of the certificates.
Tax Treatment of the Pass Through Trusts and Certificateholders
Each pass through trust will not itself be subject to U.S. federal income
taxation. Each U.S. certificateholder will be required to report on its federal
income tax return its pro rata share of the entire income from the secured
promissory notes and any other property held in the related pass through trust,
in accordance with the U.S. certificateholder's method of accounting.
Accordingly, each U.S. certificateholder's share of interest paid on the
secured promissory notes will be taxable as ordinary income, as it is paid or
accrued, and a U.S. certificateholder's share of any premium paid on redemption
of a secured promissory note will be treated as capital gain. If the proceeds
from the sale of certificates are invested with a depositary or held pursuant
to an escrow arrangement prior to the purchase of secured promissory notes by a
pass through trust, each U.S. certificateholder's share of interest paid on the
resulting deposits will be taxable as ordinary income as it is paid or accrued.
If certificates issued by a pass through trust are supported by a liquidity
facility, any amounts received by the pass through trust under the liquidity
facility for unpaid interest will be treated for U.S. federal income tax
purposes as having the same characteristics as the payments they replace.
Each U.S. certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding pass through trust as provided in Section 162 or 212 of
the Internal Revenue Code of 1986, referred to as the Code. Certain fees and
expenses, including fees paid to the pass through trustee and the provider of
the liquidity facility, if applicable, will be paid by parties other than the
certificateholders. These fees and expenses could be treated as constructively
received by the pass through trust, in which event a U.S. certificateholder
could be required to include in income and entitled to deduct its pro rata
share of the fees and expenses. If a U.S. certificateholder is an individual,
estate or trust, the
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deduction for the certificateholder's share of fees or expenses will be allowed
only to the extent that all of the certificateholder's miscellaneous itemized
deductions, including the certificateholder's share of fees and expenses,
exceed 2% of the certificateholder's adjusted gross income. In addition, in the
case of U.S. certificateholders who are individuals, certain otherwise
allowable itemized deductions will be subject generally to additional
limitations on itemized deductions under applicable provisions of the Code.
Effect of Subordination on Certificateholders of Subordinated Trusts
In the event that any pass through trust is subordinated in right of payment
to any other pass through trust and the subordinated trust receives less than
the full amount of the interest, principal or premium paid with respect to the
secured promissory notes held by it because of the subordination of the pass
through trust, the certificateholders of the subordinated trust would probably
be treated for federal income tax purposes as if they had (a) received as
distributions their full share of principal, interest, or premium, (b) paid
over to a preferred class of certificateholders an amount equal to their share
of the amount of the shortfall, and (c) retained the right to reimbursement of
the amount of the shortfall to the extent of future amounts payable to the
certificateholders of the subordinated trust on account of the shortfall.
Under this analysis, (a) subordinated certificateholders incurring a
shortfall would be required to include as current income any interest or other
income of the subordinated trust that was a component of the shortfall, even
though such amount was in fact paid to a preferred class of certificateholders,
(b) a loss would only be allowed to subordinated certificateholders when their
right to receive reimbursement of the shortfall becomes worthless (i.e., when
it becomes clear that funds will not be available from any source to reimburse
the shortfall), and (c) reimbursement of the shortfall prior to a claim of
worthlessness would not be taxable income to certificateholders because the
amount reimbursed would have been included in income. These results should not
significantly affect the inclusion of income for certificateholders on the
accrual method of accounting, but could accelerate inclusion of income to
certificateholders on the cash method of accounting by, in effect, placing them
on the accrual method.
Sale or Other Disposition of the Certificates
Upon the sale, exchange or other disposition of a certificate, a U.S.
certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the sale or exchange (other than any
amount attributable to accrued but unpaid interest that the U.S.
certificateholder has not included in gross income previously, which will be
taxable as ordinary income) and the U.S. certificateholder's adjusted tax basis
in the secured promissory notes and other property held by the corresponding
pass through trust and any deposits. Any gain or loss will be long-term capital
gain or loss to the extent attributable to property held by the pass through
trust for more than one year. In the case of individuals, estates, and trusts,
the maximum U.S. federal income tax rate on long-term capital gains generally
is 20%.
Foreign Certificateholders
Under present U.S. federal income tax law, assuming certain certification
requirements are satisfied (which include identification of the beneficial
owner of a certificate), and subject to the discussion of backup withholding
below:
. interest paid (including any original issue discount) on a certificate
to, or on behalf of, any beneficial owner of a certificate that is not a
U.S. person will not be subject to U.S. federal income tax or
withholding tax provided that (a) the non-U.S. certificateholder does
not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of an Owner Participant or US
Airways, (b) the non-U.S. certificateholder is not (A) a bank receiving
interest pursuant to a loan agreement entered into in the ordinary
course of its trade or business, or (B) a controlled foreign corporation
for U.S. tax purposes that is related to an Owner Participant or US
Airways, and (c) the
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interest payments are not effectively connected with the non-U.S.
certificateholder's conduct of a U.S. trade or business; and
. a non-U.S. certificateholder will not be subject to U.S. federal income
tax on any capital gain realized on the sale, exchange or other
disposition of a certificate, unless (a) the non-U.S. certificateholder
is an individual who is present in the United States for 183 days or
more during the taxable year of the sale or exchange and certain other
requirements are met or (b) the gain is effectively connected with the
non-U.S. certificateholder's conduct of a U.S. trade or business.
The certification referred to above may be made on an IRS Form W-8 or
substantially similar substitute form.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain
payments within the United States of principal, interest, original issue
discount and premium on the certificates, and to payments of the proceeds of
certain sales of certificates made to U.S. certificateholders other than
certain exempt recipients (such as corporations). A 31% backup withholding tax
may apply to the payments if the holder fails or has failed to provide an
accurate taxpayer identification number or otherwise establish an exemption or
fails to report in full interest income. With respect to non-U.S.
certificateholders, payments made on a certificate and proceeds from the sale
of a certificate owned by a non-U.S. certificateholder will generally not be
subject to information reporting requirements or the backup withholding tax if
the non-U.S. certificateholder provides the required certification of its non-
U.S. status or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a refund or credit against the
certificateholder's U.S. federal income tax liability, if any, provided the
required information is furnished to the IRS.
The Treasury Department recently issued final regulations governing backup
withholding and information reporting requirements. The regulations do not
significantly alter the substantive withholding and information reporting
requirements discussed above; they unify current certification procedures and
forms and clarify reliance standards. The regulations will generally become
effective for payments made after December 31, 2000.
CERTAIN CONNECTICUT TAXES
The pass through trustee is a national banking association with its
corporate trust office in Connecticut. Bingham Dana LLP, counsel to the pass
through trustee, has advised us that, in its opinion, under currently
applicable law, assuming that each pass through trust will not be taxable as a
corporation for federal income tax purposes, but, rather, will be classified
for such purposes as a grantor trust or as a partnership, (a) the pass through
trusts will not be subject to any tax (including, without limitation, net or
gross income, tangible or intangible property, net worth, capital, franchise
or doing business tax), fee or other governmental charge under the laws of the
State of Connecticut or any political subdivision thereof and (b) certificate
owners that are not residents of or otherwise subject to tax in Connecticut
will not be subject to any tax (including, without limitation, net or gross
income, tangible or intangible property, net worth, capital, franchise or
doing business tax), fee or other governmental charge under the laws of the
State of Connecticut or any political subdivision thereof as a result of
purchasing, owning (including receiving payments with respect to) or selling a
certificate.
Neither the pass through trusts nor the certificate owners will be
indemnified for any state or local taxes imposed on them, and the imposition
of any such taxes on a pass through trust could result in a reduction in the
amounts available for distribution to the certificate owners of such pass
through trust. In general, should a certificate owner or a pass through trust
be subject to any state or local tax which would not be imposed if the pass
through trust were administered in a different jurisdiction in the United
States or if the pass through trustee
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were located in a different jurisdiction in the United States, the pass through
trustee will either relocate the administration of the pass through trust to
such other jurisdiction or resign and, in the event of such a resignation, a
new pass through trustee in such other jurisdiction will be appointed.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to Title I of
ERISA ("ERISA Plans"), and on those persons who are fiduciaries with respect to
ERISA Plans. Investments by ERISA Plans are subject to ERISA's general
fiduciary requirements, including, but not limited to, the requirement of
investment prudence and diversification and the requirement that an ERISA
Plan's investments be made in accordance with the documents governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (as well as those plans that
are not subject to ERISA but which are subject to Section 4975 of the Code,
such as individual retirement accounts (together with ERISA Plans, "Plans"))
and certain persons (referred to as "parties in interest" or "disqualified
persons") having certain relationships to such Plans, unless a statutory or
administrative exemption is applicable to the transaction. A party in interest
or disqualified person who engages in a prohibited transaction may be subject
to excise taxes and other penalties and liabilities under ERISA and the Code
and such transactions may have to be rescinded.
Under a 1993 decision of the United States Supreme Court, insurance company
general accounts in which Plans have invested may themselves be treated as
holding Plan assets and deemed subject to ERISA's fiduciary requirements and
prohibited transaction rules.
Any Plan fiduciary which proposes to cause a Plan to purchase any
certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Code to such an investment, and to confirm that such
purchase and holding will not constitute or result in a non-exempt prohibited
transaction or any other violation of an applicable requirement of ERISA.
Governmental plans and certain church plans, while not subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of ERISA and Section 4975 of the Code, may nevertheless be subject
to state or other federal laws that are substantially similar to the foregoing
provisions of ERISA and the Code. Fiduciaries of any such plans should consult
with their counsel before purchasing any certificates.
Plan Assets Issues
The Department of Labor has promulgated a regulation, 29 CFR Section 2510.3-
101 (the "Plan Asset Regulation"), describing what constitutes the assets of a
Plan with respect to the Plan's investment in an entity for purposes of ERISA
and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan
invests (directly or indirectly) in a certificate, the Plan's assets will
include both the certificate and an undivided interest in each of the
underlying assets of the corresponding pass through trust, including the
secured promissory notes held by such pass through trust, unless it is
established that equity participation in the pass through trust by benefit plan
investors (including but not limited to Plans and entities whose underlying
assets include Plan assets by reason of an employee benefit plan's investment
in the entity) is not "significant" within the meaning of the Plan Asset
Regulation. In this regard, the extent to which there is equity participation
in a particular pass through trust by, or on behalf of, employee benefit plans
will not be monitored. If the assets of a pass through trust are deemed to
constitute the assets of a Plan, transactions involving the assets and
operations of such pass through trust could be subject to the prohibited
transaction provisions of ERISA and Section 4975 of the Code.
S-88
<PAGE>
Prohibited Transaction Exemptions
In addition, whether or not the assets of a pass through trust are deemed to
be Plan assets under the Plan Asset Regulation, the fiduciary of a Plan that
proposes to purchase and hold any certificates should consider, among other
things, whether such purchase and holding may involve (i) the direct or
indirect extension of credit to a party in interest or a disqualified person,
(ii) the sale or exchange of any property between a Plan and a party in
interest or a disqualified person, or (iii) the transfer to, or use by or for
the benefit of, a party in interest or a disqualified person, of any Plan
assets. Such parties in interest or disqualified persons could include, without
limitation, us and our affiliates, the Owner Participants, the Underwriters,
the pass through trustees, the Escrow Agent, the Depositary, the Owner Trustees
and the Liquidity Provider. Moreover, if certificates are purchased by a Plan
and certificates of a subordinate class are held by a party in interest or a
disqualified person with respect to such Plan, the exercise by the holder of
the subordinate class of certificates of its right to purchase the senior
classes of certificates upon the occurrence and during the continuation of a
Triggering Event could be considered to constitute a prohibited transaction
unless a statutory or administrative exemption were applicable. See
"Description of the Certificates--Purchase Rights of Certificateholders."
Depending on the identity of the Plan fiduciary making the decision to acquire
or hold certificates on behalf of a Plan, Prohibited Transaction Class
Exemption ("PTCE") 91-38 (relating to investments by bank collective investment
funds), PTCE 84-14 (relating to transactions effected by a "qualified
professional asset manager"), PTCE 95-60 (relating to investments by an
insurance company general account), PTCE 96-23 (relating to transactions
directed by an in-house professional asset manager) or PTCE 90-1 (relating to
investments by insurance company pooled separate accounts) (collectively, the
"Class Exemptions") could provide an exemption from the prohibited transaction
provisions of ERISA and Section 4975 of the Code. However, there can be no
assurance that any of these Class Exemptions or any other exemption will be
available with respect to any particular transaction involving the
certificates.
Each person who acquires or accepts a certificate or an interest therein,
will be deemed by such acquisition or acceptance to have represented and
warranted that either: (i) no Plan assets have been used to purchase such
certificate or an interest therein or (ii) the purchase and holding of such
certificate or interest therein are exempt from the prohibited transaction
restrictions of ERISA and Section 4975 of the Code pursuant to one or more
prohibited transaction statutory or administrative exemptions.
Underwriter Exemption May Apply to Purchase of Class A Certificates by Plans
In addition to the Class Exemptions referred to above, an individual
exemption may apply to the purchase, holding and secondary market sale of class
A certificates by Plans, provided that certain specified conditions are met. In
particular, the Department of Labor has issued individual administrative
exemptions to the Underwriters which are substantially the same as the
administrative exemption issued to The First Boston Corporation, Prohibited
Transaction Exemption 89-90 et al. (54 Fed. Reg. 42597 (October 17, 1989)), as
amended (the "Underwriter Exemption"). The Underwriter Exemption generally
exempts from the application of certain, but not all, of the prohibited
transaction provisions of Section 406 of ERISA and Section 4975 of the Code
certain transactions relating to the initial purchase, holding and subsequent
secondary market sale of pass through certificates which represent an interest
in a trust that holds secured credit instruments that bear interest or are
purchased at a discount in transactions by or between business entities
(including secured promissory notes secured by leases) and certain other
assets, provided that certain conditions set forth in the Underwriter Exemption
are satisfied.
The Underwriter Exemption sets forth a number of general and specific
conditions which must be satisfied for a transaction involving the initial
purchase, holding or secondary market sale of certificates representing a
beneficial ownership interest in a trust to be eligible for exemptive relief
thereunder. In particular, the Underwriter Exemption requires that the
acquisition of certificates by a Plan be on terms that are at least as
favorable to the Plan as they would be in an arm's-length transaction with an
unrelated party; the rights and interests evidenced by the certificates not be
subordinated to the rights and interests evidenced by other certificates of the
same trust estate; the certificates at the time of acquisition by the Plan be
rated in one of the
S-89
<PAGE>
three highest generic rating categories by Moody's, Standard & Poor's, Duff &
Phelps Inc. or Fitch Investors Service, Inc.; and the investing Plan be an
accredited investor as defined in Rule 501(a)(1) of Regulation D of the SEC
under the Securities Act.
In addition, the trust corpus generally must be invested in qualifying
receivables, such as the secured promissory notes, but may not in general
include a pre-funding account (except for a limited amount of pre-funding which
is invested in qualifying receivables within a limited period of time following
the closing not to exceed three months).
In reviewing the potential applicability of the Underwriter Exemption with
their legal advisors, Plans should note that an investment in a certificate
will evidence both an interest in the respective pass through trust as well as
an interest in the Deposits held in escrow by an Escrow Agent for the benefit
of the certificateholder. See "Description of the Deposit Agreements" and
"Description of the Escrow Agreements." Under the terms of the Escrow
Agreement, the proceeds from the Offering of the class A and class B
certificates of each class will be paid over by the Underwriters to the
Depositary on behalf of the Escrow Agent (for the benefit of such
certificateholders as the holders of the Escrow Receipts) and will not
constitute property of the pass through trusts. Under the terms of each Escrow
Agreement, the Escrow Agent will be irrevocably instructed to enter into the
Deposit Agreements with the Depositary and to effect withdrawals upon the
receipt of appropriate notice from the relevant pass through trustee so as to
enable such pass through trustee to purchase the identified secured promissory
notes on the terms and conditions set forth in the Note Purchase Agreement.
Pending such withdrawals, the Deposit Agreements will remain plan assets
subject to the fiduciary responsibility and prohibited transaction provisions
of ERISA and Section 4975 of the Code.
There can be no assurance that the Department of Labor would agree that the
Underwriter Exemption will be applicable to class A certificates in these
circumstances. In particular, the Department of Labor might assert that the
escrow arrangement is tantamount to an impermissible pre-funding rendering the
Underwriter Exemption inapplicable. In addition, even if all of the conditions
of the Underwriter Exemption are satisfied with respect to the class A
certificates, no assurance can be given that the Underwriter Exemption would
apply with respect to all transactions involving the class A certificates or
the assets of the class A pass through trust. In particular, the Underwriter
Exemption may not apply to the purchase by class B certificateholders or class
C certificateholders of class A certificates in connection with the exercise of
their rights upon the occurrence and during the continuance of a Triggering
Event. See "Description of the Certificates--Purchase Rights of
Certificateholders." Therefore, the fiduciary of a Plan considering the
purchase of a class A certificate should consider the availability of the
exemptive relief provided by the Underwriter Exemption, as well as the
availability of any other Class Exemptions that may be applicable.
The Underwriter Exemption will not in any event apply to the class B or
class C certificates.
Special Considerations Applicable to Insurance Company General Accounts
Under a 1993 decision of the United States Supreme Court, insurance company
general accounts in which Plans have invested may themselves be treated as
holding Plan assets and deemed subject to ERISA's fiduciary requirements and
prohibited transaction rules. Any potential investor that is an insurance
company using assets of its general account should consider that decision as
well as the effects of Section 401(c) of ERISA and the proposed regulations
issued thereunder by the Department of Labor.
As of the date hereof, the DOL has issued proposed regulations under Section
401(c). If the General Account Regulations are adopted substantially in the
form in which proposed, the General Account Regulations may not exempt the
assets of insurance company general accounts from treatment as "plan assets"
after December 31, 1998. The proposed regulations should not, however,
adversely affect the applicability of PTCE 95-60 to purchases of certificates
by insurance company general accounts.
S-90
<PAGE>
UNDERWRITING
Class A and Class B Certificates
Subject to the terms and conditions set forth in the underwriting agreement
among us and the underwriters, we have agreed to cause the class A pass through
trust and the class B pass through trust to sell to each of the underwriters,
and each of such underwriters has severally agreed to purchase the respective
aggregate amounts of class A and class B certificates set forth after their
names below.
<TABLE>
<CAPTION>
Principal Amount Principal Amount
of Class A of Class B
Underwriters Certificates Certificates
------------ ---------------- ----------------
<S> <C> <C>
Credit Suisse First Boston Corporation... $ $
Deutsche Bank Securities Inc.............
Donaldson, Lufkin & Jenrette Securities
Corporation.............................
Goldman, Sachs & Co......................
Salomon Smith Barney Inc.................
------------ -----------
Total.................................. $384,884,000 $83,384,000
============ ===========
</TABLE>
The underwriting agreement provides that the underwriters will be obligated
to purchase all of the class A and class B certificates if any class A and
class B certificates are purchased. If an underwriter defaults on its purchase
commitment, the purchase commitments of non-defaulting underwriters may be
increased or the offering of certificates may be terminated. The underwriters'
obligation to purchase the class A and class B certificates is conditioned on
the concurrent issuance and purchase of the class C certificates. The
underwriters have no obligations with respect to the class C certificates.
We estimate that our expenses associated with the offer and sale of the
class A and class B certificates will be approximately $ .
The underwriters propose to offer the class A and class B certificates
initially at the public offering price for each such class set forth on the
cover page of this prospectus supplement, and to selling group members at such
price less a concession not in excess of the amounts for the respective class
set forth below. The underwriters may allow, and such selling group members may
reallow, a discount to other broker/dealers not in excess of the amounts for
the respective class set forth below. After the initial public offering, the
public offering prices and such concessions may be changed.
<TABLE>
<CAPTION>
Concession
Pass Through to Selling Reallowance
Certificate Designation Group Members Discount
----------------------- ------------- -----------
<S> <C> <C>
Class A........................................... % %
Class B........................................... % %
</TABLE>
The certificates are a new issue of securities with no established trading
market. We do not intend to apply for the listing of the class A and class B
certificates on a national securities exchange. We have been advised by the
underwriters that they presently intend to make a secondary market in the class
A and class B certificates, as permitted by applicable laws and regulations. No
underwriter is obligated, however, to make a market in the class A and class B
certificates, and any such market-making may be discontinued at any time at the
sole discretion of such underwriter. Accordingly, no assurance can be given as
to the liquidity of, or trading markets for, the class A and class B
certificates.
The underwriting agreement provides that we will reimburse the Underwriters
for certain expenses and will indemnify the underwriters against liabilities
under the Securities Act, or contribute to payments which the underwriters may
be required to make in respect thereof.
S-91
<PAGE>
From time to time, one or more of the underwriters or their affiliates may
perform investment banking and advisory services for, and may provide general
financing and banking services to, us.
We expect that delivery of the class A and class B certificates will be made
against payment therefor on or about the closing date specified on the cover
page of this prospectus supplement, which will be the business day
following the date of pricing of the class A and class B certificates (such
settlement cycle being referred to as "T+ "). Under Rule 15c6-1 of the SEC
under the Securities Exchange Act of 1934, trades in the secondary market
generally are required to settle in three business days, unless the parties to
any such trade expressly agree otherwise. Accordingly, purchasers who wish to
trade class A and class B certificates on the date of pricing or the next
succeeding business days will be required, by virtue of the fact that such
certificates initially will settle in T+ , to specify an alternate settlement
cycle at the time of any trade to prevent a failed settlement and should
consult their own advisor.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the class A and
class B certificates in the open market after the distribution has been
completed in order to cover syndicate short positions.
. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when the class A and class B certificates
originally sold by such syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions.
Such stabilizing transactions, syndicate covering transactions and penalty bids
may cause the prices of the class A and class B certificates to be higher than
they would otherwise be in the absence of such transactions. These
transactions, if commenced, may be discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the class A and class B certificates in Canada is being
made only on a private placement basis exempt from the requirement that we
prepare and file a prospectus with the securities regulatory authorities in
each province where trades of the certificates are effected. Accordingly, any
resale of the class A and class B certificates in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the class A and class B
certificates.
Representations of Purchasers
Each purchaser of class A and class B certificates in Canada who receives a
purchase confirmation will be deemed to represent to us and the dealer from
whom such purchase confirmation is received that (a) such purchaser is entitled
under applicable provincial securities laws to purchase such certificates
without the benefit of a prospectus qualified under such securities laws, (b)
where required by law, that such purchaser is purchasing as principal and not
as agent, and (c) such purchase has reviewed the text above under "Resale
Restrictions."
S-92
<PAGE>
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgement obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of class A and class B certificates to whom the Securities Act
(British Columbia) applies is advised that such purchaser is required to file
with the British Columbia Securities Commission a report within ten days of the
sale of any such certificates acquired by such purchaser pursuant to this
offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained
from us. Only one such report must be filed in respect of the class A and class
B certificates acquired on the same date and under the same prospectus
exemption.
Taxation and Eligibility for Investment
Canadian purchasers of class A and class B certificates should consult their
own legal and tax advisors with respect to the tax consequences of an
investment in the class A and class B certificates in their particular
circumstances and with respect to the eligibility of the class A and class B
certificates for investment by the purchaser under relevant Canadian
legislation.
PURCHASE OF CLASS C CERTIFICATES
Subject to the terms and conditions set forth in the Purchase Agreement, we
will cause the class C pass through trust to sell to AIFS, a wholly-owned
subsidiary of Airbus Industrie G.I.E. ("Airbus"), the aggregate face amount of
the class C certificates set forth on the cover page of this prospectus
supplement. The interest rate on the class C certificates will be not greater
than % and not less than % per annum. The final expected Distribution Date
for the class C certificates is January 20, 2019. Interest paid on the secured
promissory notes held in the class C pass through trust will be passed through
to the certificateholders of such pass through trust on each January 20 and
July 20, beginning on January 20, 2000 until the final expected Regular
Distribution Date for such pass through trust.
AIFS will purchase the class C certificates, subject to certain conditions,
for 100% of their principal amounts. We will not pay to AIFS any commission or
any other compensation in connection with the sale of the class C certificates
to AIFS, except that we will reimburse AIFS and its affiliates for legal and
certain other expenses incurred by them in connection with the registration of
the class C certificates. The Purchase Agreement permits AIFS to sell the class
C certificates from time to time in one or more transactions at a fixed price
or prices, which may be changed, or at market prices prevailing at the time of
sale (if any), at prices related to such prevailing market prices (if any) or
at negotiated prices, provided that any such sale complies with the securities
laws. Pursuant to a Registration Agreement between us and AIFS (the
"Registration Agreement"), we will use our best efforts to effect a registered
exchange offer under the Securities Act of
S-93
<PAGE>
1933, to exchange the class C certificates for exchange certificates, which
will have terms identical in all material respects to the class C certificates
(except that the exchange certificates will not contain terms with respect to
transfer restrictions). If we determine that registration of the exchange offer
is not available or would violate applicable law or interpretations of the
staff of the SEC, or at the request of a holder not eligible to participate in
the exchange offer or under certain other limited circumstances described in
the Registration Agreement, we will use our best efforts to register the class
C certificates for resale under the Securities Act through a shelf registration
statement (the "Shelf Registration Statement").
It is expected that delivery of the class C certificates will be made
against payment therefor on or about , which will be the business day
following the date of pricing of the class C certificates. AIFS's obligation to
purchase the class C certificates is conditioned on the concurrent issuance and
purchase of the class A and class B certificates.
LEGAL MATTERS
The validity of the certificates is being passed upon for us by Skadden,
Arps, Slate, Meagher & Flom (Illinois) and its affiliates and for the
Underwriters by Milbank, Tweed, Hadley & McCloy LLP, New York, New York.
Skadden, Arps, Slate, Meagher & Flom (Illinois) and its affiliates and Milbank,
Tweed, Hadley & McCloy LLP will rely on the opinion of Bingham Dana LLP,
counsel for State Street Bank & Trust Company of Connecticut, National
Association, as pass through trustee, as to matters of Connecticut law relating
to the authorization, execution and delivery of the pass through trust
agreement, each pass through trust supplement and the certificates by State
Street Bank & Trust Company of Connecticut, National Association.
EXPERTS
The consolidated financial statements of US Airways and its subsidiary and
US Airways Group and its subsidiaries as of December 31, 1998 and 1997, and for
each of the years in the three-year period ended December 31, 1998 which are
included in US Airways' and US Airways Group's combined Annual Report on Form
10-K for the year ended December 31, 1998, have been incorporated by reference
in the prospectus accompanying this prospectus supplement in reliance upon the
reports of KPMG LLP, independent certified public accountants, incorporated by
reference, and upon the authority of KPMG LLP as experts in accounting and
auditing.
The references to AISI, AvSolutions and MBA, and to their respective
appraisal reports, each dated as of June 30, 1999, June 24, 1999 and July 28,
1999, respectively, are included herein in reliance upon the authority of each
such firm as an expert with respect to the matters contained in its appraisal
report.
S-94
<PAGE>
GLOSSARY
"Adjusted Expected Distributions" means, with respect to the certificates of
any pass through trust on any Distribution Date (for purposes of this
definition, the "Current Distribution Date"), the sum of (1) accrued and unpaid
interest on such certificates (excluding interest, if any, payable with respect
to the Deposits relating to such pass through trust) and (2) the greater of:
(A) the difference between (x) the Pool Balance of such certificates as
of the immediately preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date, the original aggregate
face amount of the certificates of such pass through trust) and (y) the
Pool Balance of such certificates as of the Current Distribution Date
calculated on the basis that (i) the principal of the Non-Performing
Secured Promissory Notes held in such pass through trust has been paid in
full and such payments have been distributed to the holders of such
certificates, (ii) the principal of the Performing Secured Promissory Notes
held in such pass through trust has been paid when due (but without giving
effect to any acceleration of Performing Secured Promissory Notes) and such
payments have been distributed to the holders of such certificates and
(iii) the principal of any secured promissory notes formerly held in such
pass through trust that have been sold pursuant to the Intercreditor
Agreement has been paid in full and such payments have been distributed to
the holders of such certificates, but without giving effect to any
reduction in the Pool Balance as a result of any distribution attributable
to Deposits occurring after the immediately preceding Distribution Date
(or, if the Current Distribution Date is the first Distribution Date,
occurring after the initial issuance of the certificates of such pass
through trust), and
(B) the amount of the excess, if any, of (i) the Pool Balance of such
class of certificates as of the immediately preceding Distribution Date
(or, if the Current Distribution Date is the first Distribution Date, the
original aggregate face amount of the certificates of such pass through
trust), less the amount of the Deposits for such class of certificates as
of such preceding Distribution Date (or, if the Current Distribution Date
is the first Distribution Date, the original aggregate amount of the
Deposits for such class of certificates) other than any portion of such
Deposits thereafter used to acquire secured promissory notes pursuant to
the Note Purchase Agreement (the amount described in this clause (i), the
"Current Pool Balance"), over (ii) the Aggregate LTV Collateral Amount for
such class of certificates for the Current Distribution Date;
provided that, until the date of the initial LTV Appraisals, clause (B) will
not apply.
For purposes of calculating Adjusted Expected Distributions with respect to
the certificates of any pass through trust, any premium paid on the secured
promissory notes held in such pass through trust that has not been distributed
to the certificate holders of such pass through trust (other than such premium
or a portion thereof applied to the payment of interest on the certificates of
such pass through trust or the reduction of the Pool Balance of such pass
through trust) will be added to the amount of Adjusted Expected Distributions.
(Intercreditor Agreement, Section 1.1)
"Aggregate LTV Collateral Amount" for any class of certificates for any
Distribution Date means the sum of the applicable LTV Collateral Amounts for
each aircraft, minus the Pool Balance for each class of certificates, if any,
senior to such class, after giving effect to any distribution of principal on
such Distribution Date with respect to such senior class or classes.
(Intercreditor Agreement Section 1.1)
"AIFS" means Airbus Industrie Financial Services.
"Airbus" means Airbus Industrie, G.I.E.
"Airbus Financing Termination Event" means the occurrence of an event that
entitles the affiliate of Airbus that has provided a financing commitment to US
Airways to terminate such financing commitment.
A-1
<PAGE>
"Aircraft Operative Agreements" means, collectively, the Participation
Agreements, leases and Indentures.
"Appraised Current Market Value" means, for any aircraft, the lower of the
average and the median of the three most recent appraisals of such aircraft.
"Appraisers" means the independent aircraft appraisal and consulting firms
of Aircraft Information Services, Inc. ("AISI"), AvSolutions, Inc.
("AvSolutions"), and Morten Beyer and Agnew, Inc. ("MBA"). (Intercreditor
Agreement, Section 1.1)
"Assumed Amortization Schedule" means the assumed amortization schedule for
the secured promissory notes set forth in the table on page S-42 of the
prospectus supplement.
"Assumed Appraised Value" means, with respect to any aircraft, the value
for such aircraft set forth in the "Prospectus Supplement Summary--Secured
Promissory Notes and the Aircraft" under the column "Appraised Base Value."
"Average Life Date" for any secured promissory note to be redeemed means
the date which follows the redemption date by a period equal to the then
Remaining Weighted Average Life of such secured promissory note.
"Base Rate" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum is at all times to be equal to (a) the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a business day, for the next preceding
business day) by the Federal Reserve Bank of New York, or if such rate is not
so published for any day that is a business day, the average of the quotations
for such day for such transactions received by the applicable Liquidity
Provider from three Federal funds brokers of recognized standing selected by
it, plus (b) one quarter of one percent ( 1/4 of 1%) per annum. (Liquidity
Facility, Section 1.01)
"Basic Agreement" means the pass through trust agreement between US
Airways, US Airways Group and State Street Bank and Trust Company of
Connecticut, National Association, as trustee, dated as of July 30, 1999.
References to the Basic Agreement are references to the pass through trust
agreement without regard to any supplements.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks are authorized or required to close in New York, New
York, Hartford, Connecticut, Pittsburgh, Pennsylvania or Salt Lake City, Utah.
"Cash Collateral Account" means, for each class of certificates, the
account in the name of the Subordination Agent into which the proceeds of any
Downgrade Drawing, Non-Extension Drawing and Final Drawing will be deposited.
(Intercreditor Agreement, Section 1.1)
"Certificate Account" means one or more non-interest bearing accounts
established and maintained by the pass through trustee, for the deposit of
payments representing Scheduled Payments received by such pass through
trustee. (Basic Agreement, Section 4.01)
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all of the Loan Trustee's right, title and interest in
the property described in the granting clause of an Owned Aircraft Indenture.
"Controlling Party" means:
.The class A pass through trustee.
A-2
<PAGE>
. Upon payment of Final Distributions to the holders of class A
certificates, the class B pass through trustee.
. Upon payment of Final Distributions to the holders of class B
certificates, the class C pass through trustee.
Under certain circumstances, the Liquidity Provider may elect to act as the
Controlling Party. (Intercreditor Agreement, Section 2.6)
"Convention" means the Convention on the International Recognition of Rights
in Aircraft (Geneva 1948).
"Delivery Period" means the period commencing on the Issuance Date and
ending on the Delivery Period Termination Date.
"Delivery Period Termination Date" means the earlier of (a) the date on
which all aircraft that we are required to finance with the proceeds of this
offering have been financed and (b) July 20, 2000.
"Deposit" means the proceeds of this offering that are deposited with the
Depositary and under the applicable Deposit Agreement.
"Deposit Account" means the accounts established in the name of the Escrow
Agent with respect to each pass through trust under the applicable Deposit
Agreement.
"Deposit Agreements" means the class A, class B and class C deposit
agreements, collectively, to be dated as of the Issuance Date between the
Escrow Agent and the Depositary.
"Deposit Make-Whole Premium" means, with respect to the distribution of
unused Deposits to holders of the class A certificates and the class B
certificates, as of any date of determination, an amount equal to the excess,
if any, of (a) the present value of the excess of (i) the scheduled payment of
principal and interest to maturity of the secured promissory notes, assuming
the maximum principal amount thereof (the "Maximum Amount") minus the Non-
Premium Amount were issued, on each remaining Regular Distribution Date for
such class under the Assumed Amortization Schedule over (ii) the scheduled
payment of principal and interest to maturity of the secured promissory notes
actually acquired by the pass through trustee for such class on each such
Regular Distribution Date, such present value computed by discounting such
excess on a semiannual basis on each Regular Distribution Date (assuming a 360-
day year of twelve 30-day months) using a discount rate equal to the Treasury
Yield plus basis points in the case of the class A certificates, and
basis points in the case of the class B certificates over (b) the amount of
such unused Deposits to be distributed to the holders of such certificates
minus the Non-Premium Amount plus accrued and unpaid interest on such net
amount to but excluding the date of determination from and including the
preceding Regular Distribution Date (or if such date of determination precedes
the first Regular Distribution Date, the date of issuance of the certificates).
(Note Purchase Agreement, Annex A)
"Depositary" means ABN AMRO Bank N.V., acting through its Chicago branch,
for all classes of certificates.
"Depreciation Assumption" means the assumption that the initial appraised
value of each aircraft declines by 3% per year for the first 15 years after the
delivery of that aircraft, by 4% per year for the next 5 years and by
approximately 5% per year after the first 20 years.
"Distribution Date" means each Special Distribution Date and Regular
Distribution Date.
"Downgrade Drawing" means a drawing by the Subordination Agent of the
Maximum Available Commitment under a Liquidity Facility at the time of such
drawing as a result of the downgrading of the
A-3
<PAGE>
short-term unsecured debt rating of the Liquidity Provider below the
applicable Threshold Rating. (Liquidity Facility, Section 2.02(c);
Intercreditor Agreement, Section 3.6(c))
"Drawing" means any Interest Drawing, Downgrade Drawing, Non-Extension
Drawing or Final Drawing.
"DTC" means The Depository Trust Company.
"DTC Participants" means those securities brokers and dealers, banks, trust
companies and clearing corporations for whom DTC effects, directly or
indirectly, book-entry transfers and pledges of security deposited with DTC.
"Escrow Agent" means First Security Bank, National Association and any
successor appointed pursuant to the terms of an Escrow Agreement.
"Escrow Agreements" means the class A, class B and class C escrow and
paying agent agreements, collectively, to be dated as of the Issuance Date,
among the Escrow Agent, the Paying Agent, a pass through trustee and the
Underwriters (in the case of the class A and class B pass through trusts) or
the initial purchaser of the class C certificates (in the case of the class C
pass through trust).
"Escrow Receipt" means one or more receipts issued by the Escrow Agent
under the applicable Escrow Agreement that will be affixed by the relevant
pass through trustee to each certificate and will evidence a fractional
undivided interest in amounts deposited in the applicable Paying Agent
Account.
"Event of Loss" with respect to an aircraft, airframe or any engine means
any of the following events with respect to such property:
. The destruction of such property, damage to such property beyond economic
repair or rendition of such property permanently unfit for normal use.
. Any damage to such property which results in an insurance settlement with
respect to such property on the basis of a total loss or a constructive
or compromised total loss.
. Any theft or disappearance of such property for a period of 180
consecutive days or more (or, if earlier, the expiration of the term in
the case of a leased aircraft).
. The requisition for use of such property by any governmental entity
(other than a requisition for use by the U.S. government or any
government of registry of the aircraft) for a period exceeding 180
consecutive days (or, if earlier, the expiration of the term in the case
of a leased aircraft).
. The requisition for use by the U.S. government (or any government of
registry of the aircraft) that continues until the 30th day after the
last day of the term of the relevant lease (unless, in the case of a
leased aircraft, the applicable Owner Trustee has elected not to treat
such event as an Event of Loss).
. The condemnation, confiscation, requisition or taking of title to such
property for more than 30 days (or, if earlier, the expiration of the
term in the case of leased aircraft).
. As a result of any law, rule, regulation, order or other action by the
FAA or any governmental body of the government of registry of the
aircraft, the use of such property in the normal course of business of
air transportation is prohibited for a period of one hundred eighty (180)
consecutive days, unless we (or any lessee or sublessee) have undertaken
and are diligently carrying forward all steps which are necessary or
desirable to permit the normal use of such property by us (or such lessee
or sublessee), but in any event an Event of Loss will occur if such
"grounding" extends for a period of more than three hundred sixty (360)
days (or, if earlier, the expiration of the term in the case of a leased
aircraft); provided that no Event of Loss will occur if such "grounding"
has been applicable to our entire fleet of
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the applicable type of aircraft and we, prior to the expiration of one
year from the prohibition of such use, have conformed at least one such
aircraft in our fleet to the requirements of any such law, rule,
regulation, order or other action and commenced regular commercial use of
the same in such jurisdiction and are diligently carrying forward, in a
manner which does not discriminate against applicable property in so
conforming such property, all steps which are necessary or desirable to
permit the normal use of such property by us (or such lessee or sublessee)
but in any event an Event of Loss will occur if such use is prohibited for
a period of two (2) consecutive years or, in the case of such leased
aircraft, such use is prohibited at the expiration of the term.
. Any divestiture of title to or interest in an engine in connection with
pooling or certain other arrangements will be treated as an Event of Loss
with respect to such engine. (Leases, Section 10; Owned Aircraft
Indenture, Section 5.06)
"Expected Distributions" means, with respect to the certificates of any pass
through trust on any Distribution Date (for purposes of this distribution, the
"Current Distribution Date"), the sum of (1) accrued and unpaid interest on
such certificates (excluding interest, if any, payable with respect to the
Deposits relating to such pass through trust) and (2) the difference between:
(A) the Pool Balance of such certificates as of the immediately
preceding Distribution Date (or, if the Current Distribution Date is the
first Distribution Date, the original aggregate face amount of the
certificates of such pass through trust); and
(B) the Pool Balance of such certificates as of the Current Distribution
Date calculated on the basis that (x) the principal of the secured
promissory notes held in such pass through trust has been paid when due
(whether at stated maturity or upon redemption, prepayment, purchase,
acceleration or otherwise) and such payments have been distributed to the
holders of such certificates and (y) the principal of any secured
promissory notes formerly held in such pass through trust that have been
sold pursuant to the Intercreditor Agreement has been paid in full and such
payments have been distributed to the holders of such certificates, but
without giving effect to any reduction in the Pool Balance as a result of
any distribution attributable to Deposits occurring after the immediately
preceding Distribution Date (or, if the Current Distribution Date is the
first Distribution Date, occurring after the initial issuance of the
certificates of such pass through trust).
For purposes of calculating Expected Distributions with respect to the
certificates of any pass through trust, any premium paid on the secured
promissory notes held in such pass through trust that has not been distributed
to the certificateholders of such pass through trust (other than such premium
or a portion thereof applied to the payment of interest on the certificates of
such pass through trust or the reduction of the Pool Balance of such pass
through trust) shall be added to the amount of such Expected Distributions.
(Intercreditor Agreement, Section 1.1)
For purposes of determining the priority of distributions on account of the
redemption, purchase or prepayment of all of the secured promissory notes
issued pursuant to an Indenture, clause (1) of the definition of Expected
Distributions is deemed to read as follows: "(1) accrued, due and unpaid
interest on such certificates (excluding interest, if any, payable with respect
to the Deposits relating to such pass through trust) together with (without
duplication) accrued and unpaid interest on a portion of such certificates
equal to the outstanding principal amount of the secured promissory notes being
redeemed, purchased or prepaid (immediately prior to such redemption, purchase
or prepayment)." (Intercreditor Agreement, Section 2.4(b))
"Final Distributions" means, with respect to the certificates of any pass
through trust on any Distribution Date, the sum of (x) the aggregate amount of
all accrued and unpaid interest on such certificates (excluding interest
payable, if any, on the Deposits relating to such pass through trust) and (y)
the Pool Balance of such certificates as of the immediately preceding
Distribution Date (less the amount of the Deposits for such class of
certificates as of such preceding Distribution Date other than any portion of
such Deposits thereafter used to
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acquire secured promissory notes pursuant to the Note Purchase Agreement). For
purposes of calculating Final Distributions with respect to the certificates of
any pass through trust, any premium paid on the secured promissory notes held
in such pass through trust that has not been distributed to the
certificateholders of such pass through trust (other than such premium or a
portion thereof applied to the payment of interest on the certificates of such
pass through trust or the reduction of the Pool Balance of such pass through
trust) will be added to the amount of such Final Distributions. (Intercreditor
Agreement, Section 1.1)
"Final Drawing" means a drawing by the Subordination Agent under a Liquidity
Facility in an amount equal to the Maximum Available Commitment under such
Liquidity Facility at the time of such drawing as a result of the termination
of such Liquidity Facility by the applicable Liquidity Provider. (Liquidity
Facilities, Section 2.02(d); Intercreditor Agreement 3.6(i))
"Final Maturity Date" means, for the class A certificates July 20, 2020, for
the class B certificates July 20, 2020 and for the class C certificates July
20, 2020. (Intercreditor Agreement, Section 1.1)
"Indenture" means each of the Leased Aircraft Indentures and the Owned
Aircraft Indentures.
"Indenture Default" means an event of default under any Indenture as the
term "Event of Default" is defined under that Indenture.
"Intercreditor Agreement" means the intercreditor agreement to be dated as
of the Issuance Date among the pass through trustees, the Liquidity Provider
and the Subordination Agent.
"Interest Drawing" means a drawing made by the Subordination Agent under the
Liquidity Facility on any Distribution Date to pay interest then due and
payable on the certificates of the applicable pass through trust at the Stated
Interest Rate for such pass through trust. (Liquidity Facility, Section
2.02(a); Intercreditor Agreement, Section 3.6(a))
"Issuance Date" means the date of the initial issuance of the certificates.
"Lease Default" means any event that with the giving of notice, or lapse of
time, or both would become a Lease Event of Default.
"Lease Event of Default" means an event of default under any lease as the
term "Event of Default" is defined under that lease.
"Leased Aircraft Indenture" means each trust indenture and security
agreement entered into in connection with the financing of an aircraft that we
will lease.
"Leased Aircraft Trust Agreement" means, with respect to each aircraft, the
trust agreement between the related Owner Trustee and the related Owner
Participant.
"LIBOR" means, with respect to any interest period (a) the rate per annum
appearing on display page 3750 (British Bankers Association--LIBOR) of the Dow
Jones Markets Service (or any successor or substitute therefor) at
approximately 11:00 A.M. (London time) two business days before the first day
of such interest period, as the rate for dollar deposits with a maturity
comparable to such interest period, or (b) if the rate calculated pursuant to
clause (a) above is not available, the average (rounded upwards, if necessary,
to the next 1/16 of 1%) of the rates per annum at which deposits in dollars are
offered for the relevant interest period by three banks of recognized standing
selected by the applicable Liquidity Provider in the London interbank market at
approximately 11:00 A.M. (London time) two business days before the first day
of such interest period in an amount approximately equal to the principal
amount of the LIBOR advance to which such interest period is to apply and for a
period comparable to such interest period. (Liquidity Facilities, Section 1.01)
"Liquidity Event of Default" means the occurrence of either (a) the
acceleration of all the secured promissory notes (provided, that if such
acceleration occurs during the Delivery Period, the aggregate principal amount
thereof exceeds $300 million) or (b) certain bankruptcy or similar events
involving US Airways. (Liquidity Facilities, Section 1.01)
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"Liquidity Expenses" means the Liquidity Obligations other than (a) the
principal amount of any Drawings under the Liquidity Facility and (b) any
interest accrued on any Liquidity Obligations. (Intercreditor Agreement,
Section 1.1)
"Liquidity Facility" means each of the revolving credit agreements dated as
of the Issuance Date between the Liquidity Provider and Subordination Agent
with respect to each pass through trust entered into by the Liquidity Provider
with the Subordination Agent with respect to the certificates of each pass
through trust pursuant to which the Liquidity Provider will, if necessary, make
one or more advances to the Subordination Agent that will be used solely to pay
up to three consecutive semi annual installments of interest on such
certificates when due, subject to certain limitations.
"Liquidity Obligations" means all principal, interest, fees and other
amounts owing to the Liquidity Provider under the Liquidity Facilities or
certain other agreements. (Intercreditor Agreement, Section 1.1)
"Liquidity Provider" means AIG Matched Funding Corp. and any successor
liquidity provider.
"Loan Trustee" means the indenture trustee under any Indenture.
"LTV Appraisal" means a current fair market value appraisal (which may be a
"desk-top" appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts. (Intercreditor Agreement, Sections 1.1 and 4.1(a))
"LTV Collateral Amount" of any aircraft for any class of certificates means,
as of any Distribution Date, the lesser of (a) the LTV Ratio for such class of
certificates multiplied by the Appraised Current Market Value of such aircraft
(or with respect to any such aircraft which has suffered an Event Loss, the
amount of the insurance proceeds paid to the related Loan Trustee in respect of
such aircraft to the extent then held by such Loan Trustee (and/or on deposit
in the Special Payments Account) or payable to such Loan Trustee in respect of
such aircraft) and (b) the outstanding principal amount of the secured
promissory notes secured by such aircraft after giving effect to any principal
payments of such secured promissory notes on or before such Distribution Date.
(Intercreditor Agreement, Section 1.1)
"LTV Ratio" means for the class A certificates %, for the class B
certificates % and for the class C certificates %. (Intercreditor Agreement,
Section 1.1)
"Make-Whole Premium" means, with respect to any secured promissory note, the
amount (as determined by an independent investment banker selected by US
Airways and reasonably acceptable to the relevant Loan Trustees and related
Owner Participants, if any) by which (a) the present value of the remaining
scheduled payments of principal and interest from the redemption date to
maturity of such secured promissory note computed by discounting each payment
on a semiannual basis from each payment date under the applicable Indenture
(assuming a 360-day year of twelve 30-day months) using a discount rate equal
to the Treasury Yield exceeds (b) the outstanding principal amount of such
secured promissory note plus accrued interest to the date of determination.
"Mandatory Document Terms" means the Mandatory Document Terms described
under "Description of Certificates--Obligation to Purchase Secured Promissory
Notes."
"Mandatory Economic Terms" means the Mandatory Economic Terms described
under "Description of Certificates--Obligation to Purchase Secured Promissory
Notes."
"Maximum Available Commitment" means the amount, at the time of
determination under each Liquidity Facility, equal to the then Required Amount
of such Liquidity Facility less the aggregate amount of each Interest Drawing
outstanding under such Liquidity Facility at such time, provided that following
a Downgrade
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Drawing, a Final Drawing or a Non-Extension Drawing under a Liquidity Facility,
the Maximum Available Commitment under such Liquidity Facility will be zero.
(Liquidity Facility, Section 1.01)
"Minimum Sale Price" means, with respect to any aircraft or the secured
promissory notes issued in respect of such aircraft, at any time, the lesser of
(x) 75% of the Appraised Current Market Value of such aircraft and (y) the
aggregate outstanding principal amount of such secured promissory notes, plus
accrued and unpaid interest on such secured promissory notes. (Intercreditor
Agreement, Section 1.1)
"Non-Extension Drawing" means a drawing by the Subordination Agent of the
Maximum Available Commitment under a Liquidity Facility at the time of such
drawing, as a result of such Liquidity Facility not being extended or replaced
by the 25th day prior to its then scheduled expiration date. (Liquidity
Facility, Section 2.02(b); Intercreditor Agreement, Section 3.6(d))
"Non-Performing Secured Promissory Note" means a secured promissory note
that is not a Performing Secured Promissory Note.
"Non-Premium Amount" means the amount equal to unused Deposits to be
distributed due to the failure of an aircraft to be delivered prior to the
Delivery Period Termination Date due to any reason not occasioned by US
Airways' fault or negligence.
"Note Holders" means registered holders of the secured promissory notes.
"Note Purchase Agreement" means the note purchase agreement dated as of the
Issuance Date among US Airways, the pass through trustees, the Subordination
Agent, the Escrow Agent and the Paying Agent.
"Note Purchase Termination Events" means certain bankruptcy-related events
or other material events that result, or could result, in the termination of
the aircraft purchase agreement between US Airways Group and an affiliate of
Airbus.
"Owned Aircraft Indenture" means each indenture and security agreement
entered into in connection with the financing of an aircraft that we own.
"Owner Participant" means the owner of the beneficial interest of an owner
trust in a leveraged lease transaction.
"Owner Trustee" means the trustee of an owner trust in a leveraged lease
transaction.
"Participation Agreement" means (a) in the case of a leased aircraft, an
agreement among US Airways, the pass through trustees, the applicable Owner
Trustee, the applicable Owner Participant, the Loan Trustee and the
Subordination Agent stating the terms and conditions under which the parties
will participate in a leveraged lease financing relating to an aircraft and (b)
in the case of an owned aircraft, an agreement among US Airways, the pass
through trustees, the Loan Trustee and the Subordination Agent stating the
terms and conditions under which the parties will participate in a mortgage
financing relating to an aircraft.
"Paying Agent" means State Street Bank and Trust Company of Connecticut,
National Association and any successor appointed in accordance with the terms
of the Escrow Agreement.
"Paying Agent Account" means a non-interest bearing deposit account
established by the Paying Agent at State Street Bank and Trust Company of
Connecticut, National Association in the name of the Escrow Agent.
"Performing Secured Promissory Note" means a secured promissory note with
respect to which no payment default has occurred and is continuing (without
giving effect to any acceleration); provided that if a bankruptcy proceeding is
commenced involving US Airways under the U.S. Bankruptcy Code, (a) any payment
default existing during the 60-day period under Section 1110(a)(1)(A) of the
U.S. Bankruptcy Code (or such
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longer period as may apply under Section 1110(b) of the U.S. Bankruptcy Code)
(the "Section 1110 Period") will not be taken into consideration, unless during
the Section 1110 Period the trustee in such proceeding or US Airways refuses to
assume or agree to perform our obligations under the lease related to such
secured promissory note (in the case of a leased aircraft) or under the Owned
Aircraft Indenture related to such secured promissory note (in the case of an
owned aircraft), and (b) any payment default occurring after the date of the
order of relief in such proceeding will not be taken into consideration if such
payment default is cured under Section 1110(a)(1)(B) of the U.S. Bankruptcy
Code before the later of 30 days after the date of such default or the
expiration of the Section 1110 Period. (Intercreditor Agreement, Section 1.1)
"Permitted Investments" means obligations of the United States or agencies
or instrumentalities thereof for the payment of which the full faith and credit
of the United States is pledged and which mature in not more than 60 days after
the date of acquisition thereof or such lesser time as is required for the
distribution of any such funds on a Special Distribution Date. (Basic
Agreement, Section 1.01)
"Pool Balance" means for each pass through trust, the original aggregate
face amount of the certificates of such pass through trust less the aggregate
amount of all payments made in respect of the certificates of such pass through
trust or in respect of Deposits relating to such pass through trust other than
payments made in respect of interest or premium on the certificates or the
Deposits or reimbursement of any costs or expenses incurred in connection with
the certificates or the Deposits. The Pool Balance for each pass through trust
or for the certificates issued by any pass through trust as of any Distribution
Date will be computed after giving effect to any special distribution with
respect to unused Deposits, payment of principal of the secured promissory
notes or payment with respect to other trust property held in such pass through
trust and the distribution to be made on that date. (Trust Supplements, Section
2.01)
"Pool Factor" means as of any Distribution Date the quotient (rounded to the
seventh decimal place) computed by dividing (a) the Pool Balance of such pass
through trust by (b) the original aggregate face amount of the certificates of
such pass through trust. The Pool Factor for each pass through trust or for the
certificates issued by any pass through trust as of any Distribution Date will
be computed after giving effect to any special distribution with respect to
unused Deposits, payment of principal of the secured promissory notes or
payments with respect to other trust property held in such pass through trust
and the distribution of the trust property to be made on that date. (Trust
Supplements, Section 2.01) The Pool Factor for each pass through trust will be
1.0000000 on the Issuance Date of the certificates. After the Issuance Date,
the Pool Factor for each pass through trust will decline to reflect reductions
in the Pool Balance of such pass through trust.
"PTC Event of Default" means, with respect to each pass through trust
agreement means for each class of certificates, the failure to pay within 10
Business Days of the applicable due date: (a) the outstanding Pool Balance of
the applicable class of certificates on the Final Maturity Date for such class
of certificates; or (b) interest due on such class of certificates on any
Distribution Date (unless the Subordination Agent has made a drawing under the
applicable Liquidity Facility in an amount sufficient to pay such interest and
has distributed such amount to the applicable pass through trustee).
(Intercreditor Agreement, Section 1.1)
"Purchase Agreement" means the purchase agreement to be entered into between
us and AIFS relating to the class C certificates.
"Rating Agency" means collectively at any time, each nationally recognized
rating agency that we have requested to rate the certificates and that is then
rating the certificates. The initial Rating Agencies will be Moody's Investors
Service and Standard & Poor's Ratings Services.
"Receiptholder" means a holder of an Escrow Receipt.
"Regular Distribution Dates" means January 20 and July 20 of each year.
"Remaining Weighted Average Life" of a secured promissory note, at the
redemption date of such secured promissory note, means the number of days equal
to the quotient obtained by dividing (a) the sum of the products obtained by
multiplying (1) the amount of each then remaining installment of principal of
such secured promissory note, including the payment due on the maturity date of
such secured promissory note, by
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(2) the number of days from and including the redemption date to but excluding
the scheduled payment date of such principal installment, by (b) the then
unpaid principal amount of such secured promissory note.
"Rent Payment Dates" means, with respect to each lease, January 20 and July
20 during the term of such lease.
"Replacement Facility" for any Liquidity Facility means an irrevocable
liquidity facility (or liquidity facilities) in substantially the form of the
replaced Liquidity Facility, including reinstatement provisions, or in such
other form (which may include a letter of credit) as will permit the Rating
Agencies to confirm in writing their respective ratings then in effect for the
certificates (before downgrading of such ratings, if any, as a result of the
downgrading of the applicable Liquidity Provider), in a face amount (or in an
aggregate face amount) equal to the amount of interest payable on the
certificates of such pass through trust (at the Stated Interest Rate for such
pass through trust, and without regard to expected future principal payments)
on the three Regular Distribution Dates following the date of replacement of
such Liquidity Facility and issued by a person (or persons) having unsecured
short-term debt ratings issued by both Rating Agencies that are equal to or
higher than the Threshold Rating for the relevant class. (Intercreditor
Agreement, Section 1.1)
"Required Amount" means, for any day and with respect to any pass through
trust, the sum of the aggregate amount of interest, calculated at the Stated
Interest Rate applicable to the certificates issued by such pass through trust,
that would be payable on such certificates on each of the three successive
semiannual Regular Distribution Dates immediately following such day or, if
such day is a Regular Distribution Date, on such day and the succeeding two
semiannual Regular Distribution Dates, in each case calculated based on the
Pool Balance for such class on such day and without regard to expected future
payments of principal on such certificates. (Intercreditor Agreement, Section
1.1)
"Scheduled Payment" means the scheduled payment of interest on the Deposits
and the scheduled payment of interest or principal on the secured promissory
notes or any payment of interest on the corresponding class of certificates as
specified on the cover page of the prospectus supplement at the Stated Interest
Rate for such class of certificates, with funds drawn under the applicable
Liquidity Facility; provided, however, that any payment of principal, premium,
if any, or interest resulting from the redemption of purchase of any secured
promissory note will not constitute a Scheduled Payment.
"Special Distribution Date" means each date on which a Special Payment will
be distributed to certificateholders.
"Special Payment" means any payment received by a pass through trustee other
than a Scheduled Payment.
"Special Payments Account" means one or more accounts established and
maintained by the pass through trustee for the deposit of payments representing
Special Payments received by such pass through trustee.
"Stated Interest Rate" means for any class of certificates, the interest
rate applicable to such class of certificates as specified on the cover page of
the prospectus supplement in the case of the class A and class B certificates
and as specified in the pass through trust agreement for the class C pass
through trust in the case of the class C certificates.
"Subordination Agent" means State Street Bank and Trust Company of
Connecticut, National Association or any successor Subordination Agent
appointed in accordance with the Intercreditor Agreement.
"Termination Notice" means a notice given by the applicable Liquidity
Provider of the termination of such Liquidity Facility. (Liquidity Facilities,
Sections 1.01, 6.01)
"Threshold Rating" means the short-term unsecured debt rating of P-1 by
Moody's and A-1+ by Standard & Poor's, in the case of the class A Liquidity
Provider and the class B Liquidity Provider, and the short-term unsecured debt
rating of P-1 by Moody's and A-1 by Standard & Poor's, in the case of the class
C Liquidity Provider. (Intercreditor Agreement, Section 1.1)
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"Treasury Yield" means, at the time of determination and for purposes of
determining the Make-Whole Premium and the Deposit Make-Whole Premium, the
interest rate (expressed as a semiannual equivalent and as a decimal and, in
the case of United States Treasury bills, converted to a bond equivalent yield)
determined to be the per annum rate equal to the semiannual yield to maturity
for United States Treasury securities maturing on the Average Life Date of such
secured promissory note and trading in the public securities markets either as
determined by interpolation between the most recent weekly average yield to
maturity for two series of United States Treasury securities trading in the
public securities markets, (a) one maturing as close as possible to, but
earlier than, the Average Life Date of such secured promissory note and (b) the
other maturing as close as possible to, but later than, the Average Life Date
of such secured promissory note, in each case as published in the most recent
H.15(519) or, if a weekly average yield to maturity for United States Treasury
securities maturing on the Average Life Date of such secured promissory note is
reported in the most recent H.15(519), such weekly average yield to maturity as
published in such H.15(519). "H.15(519)" means the weekly statistical release
designated as such, or any successor publication, published by the Board of
Governors of the Federal Reserve System. The date of determination of a Make-
Whole Premium will be the third Business Day prior to the applicable payment or
redemption date and the "most recent H.15(519)" means the H.15(519) published
prior to the close of business on the third Business Day prior to the
applicable payment or redemption date.
"Triggering Event" means (x) the occurrence of an Indenture Default under
all of the Indentures resulting in a PTC Event of Default with respect to the
most senior class of certificates then outstanding, (y) the acceleration of all
of the outstanding secured promissory notes (provided that, with respect to the
period prior to the Delivery Period Termination Date, the aggregate principal
balance of such secured promissory notes is in excess of $300,000,000) or (z)
certain bankruptcy or similar events involving US Airways. (Intercreditor
Agreement, Section 1.1)
"Trust Indenture Estate" means all of the Loan Trustee's right, title and
interest in the property described in the granting clause of a Leased Aircraft
Indenture, excluding any property excluded from the lien of such Leased
Aircraft Indenture.
"Trust Supplements" means each of the three pass through trust supplements
dated as of the Issuance Date between US Airways and the pass through trustee.
"Underwriters" means Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc., Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities
Corporation and Salomon Smith Barney Inc.
"Underwriting Agreement" means the agreement among US Airways and the
Underwriters relating to the purchase of the class A and class B certificates.
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[Aircraft Information Services, Inc. Logo Appears Here]
30 June 1999
Mr. Jeffery A. McDougle
Treasurer
US Airways, Inc.
2345 Crystal Dr.
Arlington, VA 22227
Subject: AISI Report No.:A9S021BVO
AISI Sight Unseen New Aircraft Base Value Appraisal, Thirteen A319-
100, Five A320-200 and Two A330-300 Aircraft.
Reference: (a) Credit Suisse First Boston Email 15 June 1999
(b) Credit Suisse First Boston Fax 24 June 1999
Dear Mr. McDougle:
Aircraft Information Services, Inc. (AISI) is pleased to offer US Airways, Inc.,
our opinion of the sight unseen base market value of various new aircraft
scheduled to be delivered from the manufacturer between August 1999 and April
2000 as listed and defined in Table I.
1. Methodology and Definitions
---------------------------
The method used by AISI in its valuation of the Aircraft was based both on a
review of information and Aircraft specifications supplied by the client and
also on a review of present and past market conditions, various expert opinions
(such as aircraft brokers and financiers) and information contained in AISI's
databases that help determine aircraft availability and price data and thus
arrive at the appraised base values for the new aircraft to be delivered to US
Airways, Inc.
The standard terms of reference for commercial aircraft value are `half-life
base market value' and `half-life current market value' of an `average'
aircraft. Base value is a theoretical value that assumes a balanced market
while current market value is the value in the real market; both assume a
hypothetical average aircraft condition. AISI value definitions are consistent
with the current definitions of the International Society of Transport Aircraft
Trading (ISTAT). AISI is a member of that organization and employs an ISTAT
Certified and Senior Certified Aircraft Appraiser.
<PAGE>
30 June 1999
AISI File No. A9S021BVO
Page - 2 -
AISI defines `base value' as that of a transaction between equally willing and
informed buyer and seller, neither under compulsion to buy or sell, for a single
unit cash transaction with no hidden value or liability, and with supply and
demand of the sale item roughly in balance. Base values are typically given for
aircraft in `new' condition, `average half-life' condition, or in a specifically
described condition unique to a single aircraft at a specific time. An
`average' aircraft is an operable airworthy aircraft in average physical
condition and with average accumulated flight hours and cycles, with clear title
and standard unrestricted certificate of airworthiness, and registered in an
authority which does not represent a penalty to aircraft value or liquidity,
with no damage history and with inventory configuration and level of
modification which is normal for its intended use and age. AISI assumes average
condition unless otherwise specified in this report. `Half-life' condition
assumes that every component or maintenance service which has a prescribed
interval that determines its service life, overhaul interval or interval between
maintenance services, is at a condition which is one-half of the total interval.
It should be noted that AISI and ISTAT value definitions apply to a transaction
involving a single aircraft, and that transactions involving more than one
aircraft are often executed at considerable and highly variable discounts to a
single aircraft price, for a variety of reasons relating to an individual buyer
or seller.
AISI defines a `current market value', which is synonymous with the older term
`fair market value' as that value which reflects the real market conditions,
whether at, above or below the base value conditions. Assumption of a single
unit sale and definitions of aircraft condition, buyer/seller qualifications and
type of transaction remain unchanged from that of base value. Current market
value takes into consideration the status of the economy in which the aircraft
is used, the status of supply and demand for the particular aircraft type, the
value of recent transactions and the opinions of informed buyers and sellers.
Current market value assumes that there is no short term time constraint to buy
or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are less volatile than current market values and tend
to diminish regularly with time. Base values are normally inappropriate to
determine near term values. AISI encourages the use of current market values to
consider the probable near term value of an aircraft.
2. Valuation
---------
Following is AISI's opinion of the base market value for the subject aircraft on
their respective scheduled delivery dates in current US Dollars. Valuations are
presented in Table I subject to the assumptions, definitions and disclaimers
herein.
<PAGE>
30 June 1999
AISI File No. A9S021BVO
Page - 3 -
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgments that reflect conditions and values which
are current at the time of this report. The values and conditions reported upon
are subject to any subsequent change. AISI shall not be liable to any party for
damages arising out of reliance or alleged reliance on this report, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
John D. McNicol
Vice President
Appraisals & Forecasts
<PAGE>
US AIRWAYS, Inc. - AISI File # A9S021BVO
30-Jun-99
Table I
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Scheduled Aircraft
Manufacturer's Delivery Aircraft Serial Registration New Delivery Base Value
Date Number Number Current USDollars
- ---------------------------------------------------------------------------------------------
A319-100, CFM56-5B Engines, 166, 400lb MTOW
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aug-99 1069 N717UW $41,640,000
- -----------------------------------------------------------------------------------------------
Aug-99 1077 N718UW $41,640,000
- -----------------------------------------------------------------------------------------------
Sep-99 1084 N719US $41,660,000
- -----------------------------------------------------------------------------------------------
Sep-99 1089 N720US $41,660,000
- -----------------------------------------------------------------------------------------------
Oct-99 1095 N721UW $41,670,000
- -----------------------------------------------------------------------------------------------
Oct-99 1097 N722US $41,670,000
- -----------------------------------------------------------------------------------------------
Oct-99 1109 N723UW $41,670,000
- -----------------------------------------------------------------------------------------------
Nov-99 1122 N724UW $41,690,000
- -----------------------------------------------------------------------------------------------
Nov-99 1135 N725UW $41,690,000
- -----------------------------------------------------------------------------------------------
Dec-99 1136 N726US $41,710,000
- -----------------------------------------------------------------------------------------------
Dec-99 1147 N727UW $41,710,000
- -----------------------------------------------------------------------------------------------
Jan-00 1169 N728UW $41,730,000
- -----------------------------------------------------------------------------------------------
Feb-00 1178 N729US $41,740,000
- -----------------------------------------------------------------------------------------------
<CAPTION>
A320-200, CFM56-5B Engines, 169,700lb MTOW
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aug-99 1052 N107US $46,080,000
- -----------------------------------------------------------------------------------------------
Aug-99 1061 N108UW $46,080,000
- -----------------------------------------------------------------------------------------------
Sep-99 1065 N109UW $46,100,000
- -----------------------------------------------------------------------------------------------
Nov-99 1112 N110UW $46,140,000
- -----------------------------------------------------------------------------------------------
Nov-99 1114 N111US $46,140,000
- -----------------------------------------------------------------------------------------------
<CAPTION>
A330-300, PW4168A Engines, 507,000lb MTOW
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mar-00 315 N670UW $108,110,000
- -----------------------------------------------------------------------------------------------
Apr-00 323 N671UW $108,150,000
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
June 24, 1999
Mr. Jeffery McDougle
Treasurer
US Airways, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Dear Mr. McDougle:
AvSOLUTIONS is pleased to provide this opinion on the base value, as of
June 1999, of thirteen Airbus Industrie A319-100 aircraft, five Airbus Industrie
A320-200 aircraft and two Airbus Industrie A330-300 aircraft (the aircraft).
The Airbus A319-100 aircraft are powered by CFM International CFM56-5B engines
and the Airbus A320-200 aircraft are powered by CFM International CFM56-5B
engines. The Airbus A330-300 aircraft are powered by Pratt & Whitney PW 4168A
engines. The total of twenty aircraft will be delivered new to US Airways, Inc.
from the third quarter of 1999 through the second quarter of 2000. A listing of
the particular aircraft is provided as attachment 1 of this document.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
BASE VALUE
- ----------
Base value is the appraiser's opinion of the underlying economic value of
an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of its
"highest and best use". An aircraft's base value is founded in the historical
trend of values and in the projection of future value trends and presumes an
arm's length, cash transaction between willing, able and knowledge parties,
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
CURRENT FAIR MARKET VALUE
- -------------------------
According to the International Society of Transport Aircraft Trading's
(ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes,
the quoted FMV is the appraiser's opinion of the most likely trading price that
may be generated for an aircraft under the market circumstances that are
perceived to exist at the time in question. The fair market value assumes that
the aircraft is valued for its highest and best use, that the parties to the
hypothetical sales transaction are willing, able, prudent and knowledgeable, and
under no unusual pressure for a prompt sale, and that the transaction would be
negotiated in an open and unrestricted market on an arm's length basis, for cash
equivalent consideration, and given an adequate amount of time for effective
market exposure to prospective buyers, which AvSOLUTIONS considers to be ten to
twenty months.
<PAGE>
Page 2
US Airways, Inc.
APPRAISAL METHODOLOGY
- ---------------------
The method employed by AvSOLUTIONS to appraise the current and future
values of aircraft and the associated equipment addresses the factors that
influence the market value of an aircraft, such as its age, condition,
configuration, the population of similar aircraft, similar aircraft on the
market, operating costs, cost to acquire a new aircraft, and the state of demand
for transportation services.
To achieve this objective, cross-sectional data concerning the values of
aircraft in each of several general categories is collected and analyzed. Cross-
sectional data is then postulated and compared with reported market values at a
specified point in time. Such data reflects the effect of deterioration in
aircraft performance due to usage and exposure to the elements, as well as the
effect of obsolescence due to the evolutionary development and implementation of
new designs and materials.
The product of the analysis identifies the relationship between the value
of each aircraft and its characteristics, such as age, model designation,
service configuration and engine type. Once the relationship is identified, one
can then postulate the effects of the difference between the economic
circumstances at the time when the cross-sectional data were collected and the
current situation. Therefore, if one can determine the current value of an
aircraft in one category, it is possible to estimate the current values of all
aircraft in that category.
The manufacturer and size of the aircraft usually determine the specific
category to which it is assigned. Segregating the world airplane fleet in this
manner accommodates the potential effects of different size and different design
philosophies.
The variability of the data used by AvSOLUTIONS to determine the current
and future market values implies that the actual value realized will fall within
a range of values. Therefore, if a contemplated value falls within the specified
confidence range, AvSOLUTIONS cannot reject the hypothesis that it is a
reasonable representation of the current market situation.
LIMITING CONDITIONS AND ASSUMPTIONS
- -----------------------------------
In order to conduct this valuation, AvSOLUTIONS is solely relying on
information as supplied by US Airways, Inc. or Credit Suisse First Boston, and
from data within AvSOLUTIONS' own database. In determining the base value of the
subject aircraft, the following assumptions have been researched and determined:
<PAGE>
Page 3
US Airways, Inc.
1. AvSOLUTIONS has not inspected these aircraft or their maintenance records;
accordingly, AvSOLUTIONS cannot attest to their specific location or condition.
2. The aircraft will be delivered new to US Airways, Inc. between the third
quarter of 1999 and the second quarter of 2000.
3. The aircraft will be certified, maintained and operated under United States
Federal Aviation Regulation (FAR) part 121.
4. All mandatory inspections and Airworthiness Directives have been complied
with.
5. The aircraft have no damage history.
6. The aircraft are in good condition.
7. AvSOLUTIONS considers the economic useful life of these aircraft to be at
least 32 years.
Based upon the above methodology, considerations and assumptions, it is
AvSOLUTIONS' opinion that the base value of each aircraft is as listed in
attachment 1.
<PAGE>
Page 4
US Airways, Inc.
STATEMENT OF INDEPENDENCE
- -------------------------
This appraisal report represents the opinion of AvSOLUTIONS, and is
intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no
responsibility or legal liability for actions taken or not taken by the Client
or any other party with regard to the subject aircraft. By accepting this
report, the Client agrees that AvSOLUTIONS shall bear no responsibility or legal
liability regarding this report. Further, this report is prepared for the
exclusive use of the Client and shall not be provided to other parties without
the Client's express consent.
Aviation Solutions Inc. (AvSOLUTIONS) hereby states that this valuation
report has been independently prepared and fairly represents the subject
aircraft and AvSOLUTIONS' opinion of their values. Aviation Solutions Inc.
(AvSOLUTIONS) further states that it has no present or contemplated future
interest or association with the subject aircraft.
Signed,
Bryant Lynch
Manager, Commercial Appraisals
<PAGE>
ATTACHMENT 1
EETC COLLATERAL SUMMARY
<TABLE>
<CAPTION>
==========================================================================================
Aircraft Aircraft Tail Delivery Engines Serial MTOW Base Value
Number Number Mo/Yr Number (pounds)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
1 Airbus A319-100 N717UW Aug-99 CFM56-5B 1069 166,400 $38,980,000
- ------------------------------------------------------------------------------------------
2 Airbus A319-100 N718UW Aug-99 CFM56-5B 1077 166,400 $38,980,000
- ------------------------------------------------------------------------------------------
3 Airbus A319-100 N719US Sep-99 CFM56-5B 1084 166,400 $38,980,000
- ------------------------------------------------------------------------------------------
4 Airbus A319-100 N720US Sep-99 CFM56-5B 1089 166,400 $38,980,000
- ------------------------------------------------------------------------------------------
5 Airbus A319-100 N721UW Oct-99 CFM56-5B 1095 166,400 $39,250,000
- ------------------------------------------------------------------------------------------
6 Airbus A319-100 N722US Oct-99 CFM56-5B 1097 166,400 $39,250,000
- ------------------------------------------------------------------------------------------
7 Airbus A319-100 N723UW Oct-99 CFM56-5B 1109 166,400 $39,250,000
- ------------------------------------------------------------------------------------------
8 Airbus A319-100 N724UW Nov-99 CFM56-5B 1122 166,400 $39,250,000
- ------------------------------------------------------------------------------------------
9 Airbus A319-100 N725UW Nov-99 CFM56-5B 1135 166,400 $39,250,000
- ------------------------------------------------------------------------------------------
10 Airbus A319-100 N726US Dec-99 CFM56-5B 1136 166,400 $39,250,000
- ------------------------------------------------------------------------------------------
11 Airbus A319-100 N727UW Dec-99 CFM56-5B 1147 166,400 $39,250,000
- ------------------------------------------------------------------------------------------
12 Airbus A319-100 N728UW Jan-00 CFM56-5B 1169 166,400 $39,560,000
- ------------------------------------------------------------------------------------------
13 Airbus A319-100 N729US Feb-00 CFM56-5B 1178 166,400 $39,560,000
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================
Aircraft Aircraft Tail Delivery Engines Serial MTOW Base Value
Number Number Mo/Yr Number (pounds)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
14 Airbus A320-200 N107US Aug-99 CFM56-5B 1052 169,700 $45,030,000
- ------------------------------------------------------------------------------------------
15 Airbus A320-200 N108UW Aug-99 CFM56-5B 1061 169,700 $45,030,000
- ------------------------------------------------------------------------------------------
16 Airbus A320-200 N109UW Sep-99 CFM56-5B 1065 169,700 $45,030,000
- ------------------------------------------------------------------------------------------
17 Airbus A320-200 N110UW Nov-99 CFM56-5B 1112 169,700 $45,350,000
- ------------------------------------------------------------------------------------------
18 Airbus A320-200 N111US Nov-99 CFM56-5B 1114 169,700 $45,350,000
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================
Aircraft Aircraft Tail Delivery Engines Serial MTOW Base Value
Number Number Mo/Yr Number (pounds)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
19 Airbus A330-300 N670UW Mar-00 PW4168A 315 507,000 $106,200,000
- ------------------------------------------------------------------------------------------
20 Airbus A330-300 N671UW Apr-00 PW4168A 323 507,000 $106,950,000
==========================================================================================
</TABLE>
<PAGE>
MORTEN BEYER & AGNEW
--------------------
Aviation Consulting Firm
Appraisal of 20 Aircraft (EETC)
PREPARED FOR:
USAirways
JULY 28, 1999
WASHINGTON, D.C. LONDON
8180 GREENSBORO DRIVE LAHINCH 62, LASHMERE
SUITE 1000 COPTHORNE
MCLEAN, VIRGINIA 22102 WEST SUSSEX
PHONE +703 847 6598 PHONE +44 1342 716248
FAX +703 847 1911 FAX +44 1342 718967
<PAGE>
I. Introduction and Executive Summary
Morten Beyer & Agnew, Inc. (MBA), has been retained by USAirways to determine
the Current Base Value of (13) A319-100, (5) A320-200 and (2) A330-300 aircraft,
delivered new. The aircraft are further identified in Section II of this report.
Based on the information set forth further in this report, it is our opinion
that the Current Base Value of this portfolio is $966,360,000 as noted in
Section IV.
MBA uses the definition of certain terms, such as Current Market Value and Base
Value, as promulgated by the Appraisal Program of International Society of
Transport Aircraft Trading (ISTAT), a non-profit association of management
personnel from banks, leasing companies, airlines, manufacturers, brokers, and
others who have a vested interest in the commercial aviation industry and who
have established a technical and ethical certification program for expert
appraisers.
ISTAT defines Current Market Value (CMV) as the appraiser's opinion of the most
likely trading price that may be generated for an aircraft under market
conditions that are perceived to exist at the time in question. Current Market
Value assumes that the aircraft is valued for its highest, best use; that the
parties to the hypothetical sale transaction are willing, able, prudent and
knowledgeable and under no unusual pressure for a prompt sale; and that the
transaction would be negotiated in an open and unrestricted market on an arm's-
length basis, for cash or equivalent consideration, and given an adequate amount
of time for effective exposure to prospective buyers.
The ISTAT definition of Base Value (BV) has, essentially, the same elements of
Market Value except that the market circumstances are assumed to be in a
reasonable state of equilibrium. Thus, Base Value pertains to an idealized
aircraft and market combination, but will not necessarily reflect the actual
Current Market Value of the aircraft in question. BV is founded in the
historical trend of values and is generally used to analyze historical values or
to project future values.
1
<PAGE>
II. Aircraft
<TABLE>
<CAPTION>
Scheduled Mfr.
Aircraft Tail # S/N Delivery Date MTOW(lbs.)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A319-100 N717UW 1069 8-99 166,400
(141,094 std.)
----------------------------------------------------------------------------
N718UW 1077 8-99
----------------------------------------------------------------------------
N719US 1084 9-99
----------------------------------------------------------------------------
N720US 1089 9-99
----------------------------------------------------------------------------
N721UW 1095 10-99
----------------------------------------------------------------------------
N722US 1097 10-99
----------------------------------------------------------------------------
N723UW 1109 10-99
----------------------------------------------------------------------------
N724UW 1122 11-99
----------------------------------------------------------------------------
N725UW 1135 11-99
----------------------------------------------------------------------------
N726US 1136 12-99
----------------------------------------------------------------------------
N727UW 1147 12-99
----------------------------------------------------------------------------
N728UW 1169 1-00
----------------------------------------------------------------------------
N729US 1178 2-00
- ----------------------------------------------------------------------------------------------------------------------------
A320-200 N107US 1052 8-99 169,700
(162,038 std.)
----------------------------------------------------------------------------
N108UW 1061 8-99
----------------------------------------------------------------------------
N109UW 1065 9-99
----------------------------------------------------------------------------
N110UW 1112 11-99
----------------------------------------------------------------------------
N111US 1114 11-99
- ----------------------------------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Base Value includes adjustment for additional MTOW.
<TABLE>
<CAPTION>
Scheduled Mfr.
Aircraft Tail # S/N Delivery Date MTOW(lbs.)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A330-300 N670UW 315 3-00 507,000
(467,375 std.)
----------------------------------------------------------------------------
N671UW 323 4-00
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Base Value includes adjustment for additional MTOW.
2
<PAGE>
III. Current Market Conditions
----------------
[PICTURE OF AIRBUS A319/A320 APPEARS HERE] AIRBUS A319/A320
----------------
The A320 was Airbus' first all new design since the launch of the original A300
in 1971. The program was initiated in 1983 and logged almost 400 orders prior
to first delivery in 1988. The A320s are now offered with both the CFM-56 and
the IAE V-2500 engine, with the CFM version having a long head start. At
5/31/99, 725 A320s have been delivered and 446 more are on order. There are 97
orders (23.5 percent of the A320 total) and numerous options held by leasing
companies. The A320 has achieved a wide market base on all continents, with a
total of 76 current operators to date.
The A321, a stretched version designed to directly challenge the 757-200 and
bridge the gap between the A320 and A330/340, was launched in 1989. The first
deliveries were made to Lufthansa and Alitalia in early 1994. Seating in the
A321 was increased to 186 (and more in all-coach configurations) from a nominal
150 in the A320 and the gross weight increased by 19,200 pounds. As of 5/31/99
there were 130 A321s delivered and 132 on order.
The A319 is the opposite of the A321--that is, a truncated version of the
original aircraft. The program was officially launched with a modest six-
aircraft order by leasing giant ILFC in late 1992. Prospects were not
encouraging as more than one year went by before subsequent orders were placed.
However, Air Canada provided a major boost to Airbus with an order of 35 A319s
in April 1994. Ironically, the carrier had reportedly decided against ordering
new aircraft to replace its aging DC-9 fleet when Fokker Aircraft convinced the
carrier to re-examine the benefits of new airframes. ACA Chairman Hollis Harris
agreed, but Fokker lost the battle to its European competitor. As of the end of
May 1999, 593 A319s have been ordered, 133 delivered, and 442 are on order.
The Northwest and Air Canada situations are significant due to the Airbus family
concept factor, (common type ratings and minimal differences training for pilots
of the A319 through A340 aircraft), which is the core of the manufacturer's goal
to develop entire fleets with major carriers. Air Canada, which operates A320s
already, chose this Airbus concept with both the A319 order and an eight-plane
A340 order as well. Northwest Airlines, which operates 67 A320s (and has 3 on
order) ordered 50 A319s and switched their A340 order for 16 A330s for delivery
beyond 2000. Other carriers, including Air France and Lufthansa, operate at
least three of these five types, but the European influence may tilt decision-
makers at airlines such as these. Airbus believes its concept will give its new
designs significant advantages over Boeing aircraft, and the 1997 and 1998 order
books indicate it is doing just that. MBA believes the combination of extremely
efficient designs and the inherent savings in training and other costs make the
Airbus family an attractive avenue for an entire fleet refurbishment, as US
Airways' commitment for up to 400-some aircraft appears to justify.
3
<PAGE>
The A320 family incorporates an increased amount of composites in its secondary
structure compared to older jets, a complete fly-by-wire control system, and a
computerized flight management system which, when engaged, virtually precludes
putting the aircraft into stalls or other extreme conditions. This system has
been blamed by some for two early incidents in which the crews placed the
aircraft in an untenable position close to the ground with the system
disconnected and from which it was unable to recover. These two aircraft were
totally cleared by the airworthiness authorities, as well as one involved in a
third incident in which the crew made a below-minimum approach in bad weather
and struck high ground. This third aircraft had no ground proximity warning
device installed, a device now required by the French government and long
required by many others. In general, all these components have held up well in
service, and the reliability of the aircraft has been excellent.
United's 1994 order for 50 A320s, plus an option for 50 more was announced as a
727 replacement, of which United still operates 53 and has 32 A320s on order.
It is obvious that other airlines will use their large orders to surplus older
aircraft as well. Alitalia, with 22 A321s in service and 3 on order, is
replacing its stable of MD-82s. As mentioned, Air Canada's commitments for the
A319 will eventually go to reduce the fleet count of DC-9s. Thus the advent of
the A320 family is hastening the retirement of older, far less efficient jets.
The A320s currently in service are operating at seat mile costs as low as half
of that for older aircraft. The combination of all the above factors leads us
to believe the A320 family will enjoy a long production run and in-service
useful life, with strong residual values.
The A320 also offers the advantage of being able to carry seven LD-3 cargo
containers--a feat not even the 767 can perform. The fuselage is approximately
10 inches wider than that of the 727/737/757 series, offering wider aisles and
roomier seats--a feature much appreciated by passengers. There are no cargo or
Combi models currently offered by Airbus, although such a configuration is
obviously possible. The exception is the A300 `Beluga' outsized special cargo
aircraft, which is already being leased for commercial applications.
Economics
The A320/321 vies with the 757 for top honors as the most efficient aircraft in
service. Great fuel efficiency, new technology design and low operating cost
parameters all combine to give these aircraft among the lowest seat mile costs
of any being built or in service. The MBA Model indicates that both will
produce very satisfactory operating and net ratios well into the next century.
The A319 will not be quite as favorable, as is the case with most truncated
derivatives (747SP, L-1011-500). They will, however, provide enough incentive
for larger carriers (likely with Airbus aircraft already) to order and place
them at the bottom of the capacity scale in their fleets.
4
<PAGE>
---------------
[PICTURE OF AIRBUS A330-A300 APPEARS HERE] AIRBUS A330-300
---------------
The A330 and A340 projects were launched simultaneously in 1989 and quickly
racked up over 200 orders in two years for the new aircraft. Both aircraft
utilize the same basic airframe and wing, and have identical dimensions in the
basic models. The A330 is a big twin-engine aircraft, and the A340 utilizes
four CFM-56 engines to obtain greater range and payload capability over water.
Both aircraft continue the A300/310 fuselage cross section and design concepts,
but are 33 feet longer than the A300. Gross weight for the initial delivery
aircraft is about 140,000 pounds greater than the A300-B4 for the A330, and over
200,000 pounds greater for the A340.
The A330 offers significantly greater capacity and lower seat mile costs than
the Boeing 767 or the older A300s. The A330/340 now both come in two
configurations, a standard body long-range aircraft, and a shorter-bodied
longer-range model. In a nine-abreast, all economy configuration the A330/340
can carry 440 passengers, giving it a capacity close to the 747, identical to
the 777-200 series and 10-to-20 percent greater than the DC-10/MD-11 or the L-
1011.
Prior to the 777, the A340's principal competitor was the MD-11. The three-year
head start for the MD-11 was an initial marketing advantage, as some carriers
were unwilling (among other things) to wait for the A340. However, many others
did. The A340 has significant operating advantages over the MD-11 in that it
has a lower gross weight and less engine thrust, thus reducing fuel consumption.
MBA estimates specific fuel burn at 25 percent less per seat than the MD-11 and
2 percent greater than a 777-200 at comparable seating densities.
We do not believe the A330/340 will make obsolete any of the earlier widebodies,
though evidence exists that the A300-600 line was all but finished with the
introduction of the A330. It will, however, hasten their replacement in the
fleets of the major carriers, and increase the number on the market available
for low cost services, cargo conversions, or alternative military missions. As
we predicted last year, the economic superiority of the big Airbuses and the B-
777s brought an end to the MD-11 production.
Economics
The MBA Economic Model shows the A330 to have one of the highest operating and
net margins of any aircraft due to its excellent cost characteristics and great
operating efficiency. Cost per seat mile is among the lowest of any aircraft
type, and the wide range of capabilities of the A330, from domestic medium-
range, high density to long-range ETOPS international routes, makes it very
desirable.
Current Operating Airlines
Aer Lingus, Cathay Pacific, Dragonair, Garuda Indonesia, Korean, LTU, Malaysia,
Philippine Airlines, Sabena, Thai International
5
<PAGE>
Current Confirmed Orders
Aer Lingus, Air Canada, Air Inter Europe, Asiana, Cathay Pacific, Continental,
Dragonair, Euralair, Garuda Indonesia, Gulf Air, Korean, LTU, Malaysia,
Northwest Airlines, Philippine, Thai International, TWA, USAirways
[GRAPHICS APPEARS HERE]
6
<PAGE>
IV. Valuation
<TABLE>
<CAPTION>
Scheduled Mfr.
Aircraft Tail # S/N Delivery Date MTOW(lbs.) * Base Value
($000,000)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A319-100 N717UW 1069 8-99 166,400 38.95
(141,094 std.)
--------------------------------- ---------
N718UW 1077 8-99 38.95
--------------------------------- ---------
N719US 1084 9-99 39.03
--------------------------------- ---------
N720US 1089 9-99 39.03
--------------------------------- ---------
N721UW 1095 10-99 39.11
--------------------------------- ---------
N722US 1097 10-99 39.11
--------------------------------- ---------
N723UW 1109 10-99 39.11
--------------------------------- ---------
N724UW 1122 11-99 39.19
--------------------------------- ---------
N725UW 1135 11-99 39.19
--------------------------------- ---------
N726US 1136 12-99 39.26
--------------------------------- ---------
N727UW 1147 12-99 39.26
--------------------------------- ---------
N728UW 1169 1-00 39.34
--------------------------------- ---------
N729US 1178 2-00 39.42
- ----------------------------------------------------------------------------
A320-200 N107US 1052 8-99 169,700 44.42
(162,038 std.)
--------------------------------- ---------
N108UW 1061 8-99 44.42
--------------------------------- ---------
N109UW 1065 9-99 44.51
--------------------------------- ---------
N110UW 1112 11-99 44.70
--------------------------------- ---------
N111US 1114 11-99 44.70
- ----------------------------------------------------------------------------
Total 731.70
- ----------------------------------------------------------------------------
<CAPTION>
Scheduled Mfr.
Aircraft Tail # S/N Delivery Date MTOW(lbs.) * Base Value
($000,000)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A330-300 N670UW 315 3-00 507,000 117.21
(467,375 std.)
--------------------------------- ----------
N671UW 323 4-00 117.45
- -----------------------------------------------------------------------------
Total 234.66
- -----------------------------------------------------------------------------
</TABLE>
* Base Value includes adjustment for additional MTOW.
In developing the Base Value of this aircraft, MBA did not inspect the aircraft
nor its historical maintenance documentation, but relied on partial information
supplied by the Client. Therefore, we used certain assumptions that are
generally accepted industry practice to calculate the value of aircraft when
more detailed information is not available. The principal assumptions are as
follows for each aircraft:
1. The aircraft is delivered new.
2. The specifications of the aircraft are those most common for an
aircraft of this type new delivery.
3. The aircraft is in a standard airline configuration.
4. Its modification status is comparable to that most common for an
aircraft of its type and vintage.
5. No accounting is made for lease obligations or terms of ownership.
7
<PAGE>
V. Covenants
This report has been prepared for the exclusive use of US Airways and shall not
be provided to other parties by MBA without the express consent of US Airways.
MBA certifies that this report has been independently prepared and that it fully
and accurately reflects MBA's opinion as to the Current Base Value. MBA further
certifies that it does not have, and does not expect to have, any financial or
other interest in the subject or similar aircraft.
This report represents the opinion of MBA as to the Current Base Value of the
subject aircraft and is intended to be advisory only in nature. Therefore, MBA
assumes no responsibility or legal liability for any actions taken or not taken
by US Airways or any other party with regard to the subject aircraft. By
accepting this report, all parties agree that MBA shall bear no such
responsibility or legal liability.
PREPARED BY:
Bryson P. Monteleone
Director of Operations
REVIEWED BY:
Morten S. Beyer
Chairman and CEO
ISTAT Certified Appraiser Fellow
8
<PAGE>
PROSPECTUS
$1,500,000,000
US AIRWAYS, INC.
US AIRWAYS GROUP, INC.
PASS THROUGH CERTIFICATES
----------------
This prospectus relates to pass through certificates to be issued by one or
more trusts that we will form, as creator of each pass through trust, and a
national or state bank or trust company, as trustee. The trustee will hold all
property owned by a trust in trust for the benefit of holders of pass through
certificates issued by that trust. Each pass through certificate issued by a
trust will represent a beneficial interest in all property held by that trust.
We will describe the specific terms of any offering of pass through
certificates in a prospectus supplement to this prospectus. You should read
this prospectus and the applicable prospectus supplement carefully before you
invest.
----------------
This prospectus may not be used to consummate sales of pass through
certificates unless accompanied by a prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is July 30, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Forward-Looking Statements.................................................. 1
Summary..................................................................... 2
US Airways.................................................................. 8
Ratio of Earnings to Fixed Charges.......................................... 8
Use of Proceeds............................................................. 9
Description of the Certificates............................................. 9
Description of the Secured Promissory Notes................................. 24
U.S. Income Tax Matters..................................................... 30
ERISA Considerations........................................................ 33
Plan of Distribution........................................................ 33
Selling Certificateholders.................................................. 35
Legal Opinions.............................................................. 35
Experts..................................................................... 35
Where You Can Find More Information......................................... 36
Incorporation of Certain Documents by Reference............................. 37
</TABLE>
i
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement delivered with this prospectus and
the information incorporated by reference include forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. We
prepare forward-looking statements using estimates of future revenues,
expenses, activity levels and economic and market conditions, many of which are
outside of our control. These forward-looking statements involve risks,
uncertainties and other factors that may cause our actual results to differ
materially from the results we discuss in the forward-looking statements. These
risks, uncertainties and other factors include, but are not limited to:
. general economic and business conditions;
. labor costs;
. aviation fuel costs;
. competitive pressures on pricing--particularly from lower-cost
competitors;
. weather conditions;
. governmental legislation;
. consumer perceptions of our products; and
. demand for air transportation in the markets in which we operate.
The preparation of forward-looking statements also involves other factors and
assumptions not identified above. If the assumptions used to prepare the
forward-looking statements prove incorrect, the actual results may differ
materially from the results discussed.
1
<PAGE>
SUMMARY
The Offering
This prospectus and each supplement to this prospectus describe US Airways'
offering of pass through trust certificates to help finance or refinance
aircraft that we own or lease. Our parent, US Airways Group may guarantee some
of our obligations relating to the certificates. For convenience, throughout
this prospectus, the words we, us, ours or similar words refer to US Airways
and the words parent, parent guarantor or other similar words refer to US
Airways Group.
The remainder of this prospectus and the related prospectus supplement will
describe the offering of the pass through certificates in more detail. We will
begin by describing the pass through certificates and the pass through trusts
that issue the pass through certificates. We will also describe the various
agreements relating to the certificates. This prospectus then describes the
secured promissory notes that the pass through trusts will acquire and, in the
case of promissory notes secured by aircraft leased to us, the owner trusts
that issue those secured promissory notes.
Certificates
We may offer and sell pass through certificates from time to time by this
prospectus. For convenience, we may:
.refer to "pass through certificates" as "certificates;" and
.refer to the holder of a "pass through certificate" as a
"certificateholder."
Pass through certificates are securities that evidence an ownership interest
in a pass through trust. The holders of the certificates issued by a pass
through trust will be the beneficiaries of that trust. A certificateholder's
beneficial interest in a pass through trust will be a pro rata interest in the
property of that trust equal to the ratio of the value of all of the
certificates owned by the holder to the value of all of the certificates issued
by that trust. Each certificate will represent a beneficial interest only in
the property of the pass through trust that issued the certificate. A
certificate will not represent an interest in, or rights to, the property of
any pass through trust other than the pass through trust that issued the
certificate.
Multiple series of certificates may be issued. If more than one series of
certificates is issued, each series of certificates will be issued by a
separate pass through trust. The economic terms of any series of certificates
will be described in the prospectus supplement relating to that series of
certificates.
The prospectus supplement relating to a series of certificates will be
delivered with this prospectus. The prospectus supplement will describe, among
other things, the property that will be held by each pass through trust. This
property will include promissory notes secured by aircraft we own or lease.
Payments of principal and interest on the secured promissory notes owned by a
pass through trust will be passed through to holders of certificates issued by
that trust in accordance with the terms of the pass through trust agreement
pursuant to which the trust was formed.
If certificates of any series are entitled to the benefits of a liquidity
facility or other form of credit enhancement, the prospectus supplement
relating to that series will describe the terms of the liquidity facility or
other form of credit enhancement. A liquidity facility is a revolving credit
agreement, letter of credit, bank guarantee, insurance policy or other
instrument or agreement that will increase the likelihood that the
certificateholders will receive timely payments of interest in respect of the
certificates. While a liquidity facility is designed to increase the likelihood
of the timely payment of interest, it is not a guarantee of the timely or
ultimate payment of principal.
We may offer and sell up to $1,500,000,000 of aggregate initial offering
price of certificates pursuant to this prospectus and related prospectus
supplements. The initial offering price may be denominated in United States
dollars or foreign currencies based on the applicable exchange rate at the time
of sale.
2
<PAGE>
Pass Through Trusts
We will form a separate pass through trust to issue each series of
certificates. Each pass through trust will be formed by us, as creator of each
pass through trust, and a national or state bank or trust company, as trustee.
Each pass through trust will be governed by a trust instrument that creates the
trust and sets forth the powers of the trustee and the rights of the
beneficiaries. The trust instrument for each pass through trust will consist of
a basic pass through trust agreement among us, our parent and the pass through
trustee and a supplement to the basic pass through trust agreement. In the
event our parent does not guarantee any certificates, it may be released from
the basic pass through trust agreement.
Unless otherwise stated in a prospectus supplement, State Street Bank and
Trust Company of Connecticut, National Association will be the trustee of each
pass through trust. The performance and obligations of State Street Bank and
Trust Company of Connecticut, N.A., under the pass through trust agreement will
be guaranteed by its parent, State Street Bank and Trust Company.
Each pass through trust will pass through to holders of its certificates
payments that it receives on the property that it owns. The property of each
pass through trust may consist of:
. secured promissory notes of one or more series; and
. other property described in the applicable prospectus supplement.
Secured Promissory Notes
The secured promissory notes owned by a pass through trust may consist of any
combination of:
. Promissory notes issued by an owner trust and secured by an aircraft
owned by that trust and leased to us. We refer to these types of secured
promissory notes as leased aircraft notes.
. Promissory notes issued by us and secured by an aircraft owned by us. We
refer to these types of secured promissory notes as owned aircraft
notes.
Leased Aircraft Notes. Except as specified in a prospectus supplement, leased
aircraft notes will be issued by a bank, trust company, financial institution
or other entity solely in its capacity as owner trustee in a leveraged lease
transaction. In a leveraged lease transaction, one or more persons will form an
owner trust to acquire an aircraft and then that owner trust will lease the
aircraft to us. In the leasing industry, the person that is the beneficiary of
the owner trust is referred to as an owner participant. The owner participant
will contribute a portion of the purchase price of the aircraft to the owner
trust. The transaction is called a "leveraged" lease because the remainder of
the owner trust's purchase price of the aircraft is financed through the
issuance of indebtedness in the form of leased aircraft notes. Leased aircraft
notes may also be issued to refinance an aircraft previously financed in a
leveraged lease transaction or otherwise.
These leased aircraft notes are issued pursuant to a separate indenture and
security agreement between the owner trustee and a bank, trust company,
financial institution or other entity, as loan trustee. The loan trustee under
a leased aircraft indenture will act as a trustee for the holders of the leased
aircraft notes issued under that leased aircraft indenture.
In a leveraged lease transaction, we will pay or advance rent and other
amounts to the owner trustee in its capacity as lessor under the lease. The
owner trustee will use the payments and certain other amounts received by it to
make payments of principal and interest on the leased aircraft notes. The owner
trustee also will assign its rights to receive basic rent and certain other
payments to the loan trustee as security for its obligations to pay principal
of, premium, if any, and interest on the secured promissory notes. Payments or
advances made under a lease and related agreements will at all times be
sufficient to make scheduled payments of principal of, and interest on, the
leased aircraft notes issued to finance the aircraft subject to that lease. Our
obligations under a lease and related agreements may be guaranteed by our
parent. If our parent guarantees our obligations under a lease or any related
agreement, the terms of the guarantee will be described in the applicable
prospectus supplement.
3
<PAGE>
We will not have any obligation to pay principal of, or interest on, the
leased aircraft notes. Holders of leased aircraft notes will not have recourse
against us or our parent if it guarantees the related lease or any other
agreement, for the payment of principal of, or interest on, the leased aircraft
notes.
Owned Aircraft Notes. We may finance or refinance aircraft that we own
through the issuance of owned aircraft notes. Owned aircraft notes relating to
an owned aircraft will be issued under a separate indenture and security
agreement relating to that owned aircraft. Each separate indenture and security
agreement relating to owned aircraft notes will be between us and a bank, trust
company, financial institution or other entity, as loan trustee. The indenture
and security agreement entered into in connection with the issuance of owned
aircraft notes will be referred to as an owned aircraft indenture. The loan
trustee under an owned aircraft indenture will act as a trustee for the holders
of the owned aircraft notes issued under that owned aircraft indenture. Our
obligation to pay principal of, and interest on, the owned aircraft notes may
be guaranteed by our parent. If our parent guarantees the payment of principal
of, and interest on, the owned aircraft notes, we will describe the terms of
the guarantee in the applicable prospectus supplement.
Holders of owned aircraft notes will have recourse against us and, if it
guarantees the lease, our parent, for payment of principal of, and interest on,
the owned aircraft notes.
Because we often refer to owned aircraft indentures and leased aircraft
indentures together, we sometimes refer to them collectively as the indentures.
Delayed Financing
If any portion of the proceeds of an offering of a series of certificates is
not used to purchase secured promissory notes on the date the certificates are
issued, those proceeds will be temporarily invested in other property such as
short-term securities or will be invested with a depositary or held in an
escrow arrangement pending the purchase of secured promissory notes. These
arrangements and this additional property will be described in the prospectus
supplement.
4
<PAGE>
Cash Flow Structure
Set forth below is a diagram illustrating the cash flows relating to the
certificates. This diagram assumes that the pass through trustees enter into an
intercreditor agreement, but does not include the effect of any liquidity
facility or similar credit enhancements or prefunding arrangements, each of
which will be described in the prospectus supplement if they are applicable.
[Diagram omitted, which shows that we will pay to the loan trustee for
leased aircraft and owned aircraft (a) the lease rental payments, which are
assigned by the loan trustee, on leased aircraft and (b) the mortgage payments
on owned aircraft. From those lease rental payments and mortgage payments, the
loan trustee will make secured promissory note payments on the Series A, the
Series B and the Series C secured promissory notes with respect to all aircraft
to the subordination agent. Excess rental payments will be paid by the loan
trustee to the lessors for leased aircraft. From those secured promissory note
payments, the subordination agent will pay principal, premium, if any, and
interest to the pass through trustee for the Class A trust, the pass through
trustee for the Class B trust and the pass through trustee for the Class C
trust, which in turn will pay this principal, premium, if any, and interest to
the holders of Class A certificates, the holders of Class B certificates and the
holders of Class C certificates, respectively. The diagram also shows that, in
the case of leased aircraft, our parent may guarantee our lease rental payments
and that, in the case of owned aircraft, our parent may guarantee our owned
aircraft payments.]
5
<PAGE>
Transaction Structure for Leased Aircraft
Set forth below is a diagram illustrating cash flows that we expect to occur
on the closing date for a leveraged lease financing. We anticipate that
separate transactions similar to the transaction illustrated in the diagram
will occur for each leased aircraft financed with the proceeds of the offering
of the certificates. The structure illustrated below may change, in which case
a revised diagram will be included in the prospectus supplement.
[Diagram omitted, which shows leased aircraft notes will be issued by an
owner trustee in a leveraged lease transaction. The diagram shows that our
parent may guarantee our obligation to make lease rental payments. The diagram
shows that we will sell the leased aircraft to an owner trust that will, in
turn, lease the aircraft back to us. The owner participant is the beneficial
owner of the owner trust and contributes a portion of the purchase price of the
aircraft. The owner trust will enter into an indenture with the loan trustee
providing for a security interest in the leased aircraft, the assignment of the
lease and the issuance of secured promissory notes to finance the remaining
portion of the purchase price of the aircraft. The owner trustee will sell the
Class A, Class B and Class C secured promissory notes to the Class A, Class B
and Class C pass through trusts, respectively. The Class A, Class B and Class C
pass through trusts will sell certificates to Series A, Series B and Series C
certificateholders, respectively, for cash. The proceeds from the sale of the
certificates will be passed through from the Class A, Class B and Class C pass
through trusts to the loan trustee who in turn will forward the proceeds to the
owner trust as payment for the secured promissory notes.]
6
<PAGE>
Transaction Structure for Owned Aircraft
Set forth below is a diagram illustrating cash flows that we expect to occur
on the closing date for an owned aircraft financing. We anticipate that
separate transactions similar to the transaction illustrated in the diagram
will occur for each owned aircraft financed with the proceeds of the offering
of the certificates. The structure illustrated below may change, in which case
a revised diagram will be included in the prospectus supplement.
[Diagram omitted, which shows that we may finance or refinance aircraft
that we own through the issuance of owned aircraft notes. The diagram shows that
our parent may guarantee our obligation to make owned aircraft payments. The
diagram also shows that we will enter into an indenture with the loan trustee
providing for a security interest in the owned aircraft and the issuance of
secured promissory notes. We will sell the Class A, Class B and Class C secured
promissory notes to the Class A, Class B and Class C pass through trusts,
respectively. The Class A, Class B and Class C pass through trusts will sell
certificates to Series A, Series B and Series C certificateholders,
respectively, for cash. The proceeds from the sale of the certificates will be
passed through from the Class A, Class B and Class C pass through trusts to the
loan trustee who will in turn forward the proceeds to us as payment for the
secured promissory notes. We will then purchase owned aircraft from those
proceeds.]
Additional Information
We will describe the specific terms of each series of certificates that we
may offer and sell from time to time in a prospectus supplement.
7
<PAGE>
US AIRWAYS
We are a certificated air carrier engaged primarily in the business of
transporting passengers, property and mail. We are the principal operating
subsidiary of US Airways Group, accounting for approximately 90% of US Airways
Group's consolidated operating revenues for the first three months of 1999.
We carried approximately 58 million passengers in 1998 and currently rank as
the sixth largest domestic air carrier, as ranked by total revenue passenger
miles, based on our review and analysis of our and other airline press
releases. Our mainline service includes our domestic and international jet
aircraft operations, exclusive of low-cost product MetroJet. Outside of our
mainline service, our system includes our code share partners US Airways
Express and Shuttle, Inc. Under a code share arrangement, one carrier places
its designator code and sells tickets on flights of another carrier. The
combined US Airways system served 202 destinations worldwide as of March 1999.
As of March 31, 1999, US Airways had more than 38,000 full-time equivalent
employees.
Our major connecting hubs are located at airports in Charlotte, Philadelphia
and Pittsburgh. We also have substantial operations at the Baltimore-Washington
International Airport, Boston's Logan International Airport, New York's
LaGuardia Airport and Washington's Ronald Reagan Washington National Airport.
As of March 1999, measured by departures, we were the largest airline at each
of these airports and are the largest air carrier in many other smaller eastern
cities such as Albany, Buffalo, Hartford, Providence, Richmond, Rochester and
Syracuse, based on information provided by OAG Worldwide, a division of Reed
Business Information. We also are the leading airline from the Northeast United
States to Florida, based on information provided by OAG Worldwide. As of March
1999, approximately 84% of our departures and approximately 56% of our
capacity, as determined by available seat miles, were deployed within the
United States east of the Mississippi River.
US Airways and US Airways Group both are Delaware corporations, with
executive offices located at 2345 Crystal Drive, Arlington, Virginia 22227. Our
telephone number is (703) 872-7000 and our parent's telephone number is (703)
872-5306.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for US
Airways and US Airways Group and their consolidated subsidiaries for the
periods indicated:
<TABLE>
<CAPTION>
Three months
ended
March 31, Year ended December 31,
-------------- ------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
US Airways............................... 1.8 2.2 2.7 2.2 1.3 1.1 *
US Airways Group......................... 1.5 2.1 2.5 2.1 1.5 1.2 **
</TABLE>
- --------
* For the year ended December 31, 1994, US Airways' earnings were not
sufficient to cover its fixed charges. Additional earnings of $721 million
would have been required to achieve a ratio of earnings to fixed charges of
1.0.
** For the year ended December 31, 1994, US Airways Group's earnings were not
sufficient to cover its fixed charges. Additional earnings of $690 million
would have been required to achieve a ratio of earnings to fixed charges of
1.0.
For purposes of calculating the ratios of earnings to fixed charges, earnings
consist of pretax income, fixed charges, capitalized interest and amortization
of previously capitalized interest. Fixed charges consist of interest expense,
amortization of debt issue expense and the portion of rental expense
representative of interest expense.
8
<PAGE>
USE OF PROCEEDS
Except as set forth in the applicable prospectus supplement, each pass
through trustee will use the proceeds from the sale of certificates issued by
its pass through trust to purchase one or more secured promissory notes.
If an owner trustee issues the secured promissory notes, the owner trustee
will use the proceeds of the sale of the secured promissory notes to finance a
portion of the purchase price of an aircraft or to refinance indebtedness or
equity interests previously issued in respect of an aircraft. Upon the purchase
of an aircraft by an owner trustee, the aircraft will be leased by the owner
trustee to us.
If we issue the secured promissory notes, we will use the proceeds from the
sale of the secured promissory notes to finance the purchase of an aircraft
which we will own or to refinance indebtedness or equity interests previously
issued in respect of an aircraft.
If a pass through trustee does not use all of the proceeds of any offering of
certificates to purchase secured promissory notes on the date those
certificates are issued, the proceeds of the offering not used to purchase
secured promissory notes will be held for the benefit of the certificateholders
under arrangements that we will describe in the applicable prospectus
supplement. If the pass through trustee does not use a portion of the proceeds
to purchase secured promissory notes by the date specified in the applicable
prospectus supplement, it will return the unused portion of the proceeds to the
certificateholders.
In addition, we may offer certificates subject to delayed aircraft financing
arrangements. For example, we may cause the proceeds from the sale of
certificates to be invested with a depositary or cause the proceeds to be held
in an escrow arrangement until they are used to purchase secured promissory
notes. In these circumstances, we will describe in the applicable prospectus
supplement how the proceeds of the certificates will be held or applied during
any delayed aircraft financing period, including any depositary or escrow
arrangement.
DESCRIPTION OF THE CERTIFICATES
The following description is a summary of the terms of the certificates that
we expect will be common to all series of certificates. We will describe the
financial terms and other specific terms of any series of certificates in a
prospectus supplement. Since the terms of a specific series of certificates may
differ from the general information provided below, you should rely on the
information in the prospectus supplement instead of the information in this
prospectus if the information in the prospectus supplement is different from
the information below. To the extent that any provision in any prospectus
supplement is inconsistent with any provision in this summary, the provision of
the prospectus supplement will control.
Because the following description is a summary, it does not describe every
aspect of the certificates, and it is subject to and qualified in its entirety
by reference to all the provisions of the pass through trust agreement and the
applicable supplements to the pass through trust agreement. For convenience, we
will refer to the pass through trust agreement among the pass through trustee,
our parent guarantor and us as the "Basic Agreement," and to the Basic
Agreement as supplemented by the applicable supplements as the pass through
trust agreement. The form of Basic Agreement has been filed as an exhibit to
the registration statement of which this prospectus is a part. The supplement
to the Basic Agreement relating to each series of certificates and the forms of
the other agreements described in this prospectus and the applicable prospectus
supplement will be filed as exhibits to a post-effective amendment to the
registration statement of which this prospectus is a part, a Current Report on
Form 8-K, a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K, as
applicable, filed by us or our parent guarantor with the SEC.
General
Except as amended by a supplement to the Basic Agreement, the terms of the
Basic Agreement generally will apply to all of the pass through trusts that we
form to issue certificates by this prospectus. We will create a
9
<PAGE>
separate pass through trust for each series of certificates by entering into a
separate supplement to the Basic Agreement. Each supplement to the Basic
Agreement will contain the additional terms governing the specific pass through
trust to which it relates and, to the extent inconsistent with the Basic
Agreement, will supersede the Basic Agreement.
Certificates will be issued pursuant to the pass through trust agreement.
Unless otherwise stated in the applicable prospectus supplement, each pass
through certificate will be issued in minimum denominations of $1,000 or a
multiple of $1,000.
Each certificate will represent a fractional undivided interest in the
property of the pass through trust that issued the pass through certificate.
All payments and distributions made on or with respect to a pass through
certificate will be made only from the property owned by the pass through trust
that issued the pass through certificate. The certificates do not represent an
interest in or obligation of US Airways, US Airways Group, the pass through
trustee, any of the owner trustees or loan trustees, in their individual
capacities, or any owner participant. Each holder of a pass through certificate
will be deemed to agree to look solely to the income and proceeds from the
property of the pass through trust as provided in the pass through trust
agreement.
The property of each pass through trust for which a series of certificates
will be issued will include:
. the secured promissory notes held in the pass through trust;
. all monies at any time paid on or with respect to secured promissory
notes held by the pass through trust;
. all monies due and to become due under the secured promissory notes held
by the pass through trust;
. if so specified in the relevant prospectus supplement, rights under any
escrow arrangement to withdraw the proceeds from escrow either to
purchase secured promissory notes or to return unused proceeds to the
holders of that series of certificates;
. funds from time to time deposited with the pass through trustee in
accounts relating to that pass through trust; and
. if so specified in the relevant prospectus supplement, rights under
intercreditor agreements relating to cross-subordination arrangements
and monies receivable under a liquidity facility.
As described in more detail below, the rights of a pass through trust to
receive monies due or to become due under secured promissory notes held by that
pass through trust may be subject to the effect of any cross-subordination
provisions contained in an intercreditor agreement described in the prospectus
supplement for a series of certificates.
An intercreditor agreement refers to an agreement among the pass through
trusts and, if applicable, a liquidity provider under a liquidity facility, as
creditors of the issuers of the secured promissory notes owned by the pass
through trusts. An intercreditor agreement will set forth the terms and
conditions upon which payments made on or in respect of the secured promissory
notes and payments made under any liquidity facility will be received, shared
and distributed among the several pass through trusts and the liquidity
provider. In addition, the intercreditor agreement will set forth agreements
among the pass through trusts and the liquidity provider relating to the
exercise of remedies under the secured promissory notes and the indentures.
Cross-subordination refers to a concept where payments on a junior class of
secured promissory notes issued under one indenture are distributed to a pass
through trust that holds a senior class of promissory notes issued under a
different indenture. The effect of this distribution mechanism is that holders
of a junior class of promissory notes issued under one indenture will not
actually receive payments made on or with respect to that junior class of
promissory notes until the holders of senior classes of promissory notes issued
under other indentures have received all scheduled payments on their notes.
10
<PAGE>
Secured promissory notes owned by a pass through trust may be leased
aircraft notes, owned aircraft notes or a combination of leased aircraft notes
and owned aircraft notes.
Leased aircraft notes will be issued in connection with the leveraged lease
of an aircraft to us. Except as set forth in the applicable prospectus
supplement, each leased aircraft will be leased to us under a lease between
us, as lessee, and an owner trustee, as lessor. Each owner trustee will issue
leased aircraft notes on a non-recourse basis under a separate leased aircraft
indenture between it and the applicable loan trustee. The owner trustee will
use the proceeds of the sale of the leased aircraft notes to finance or
refinance a portion of the purchase price paid or to be paid by the owner
trustee for the applicable leased aircraft. The owner trustee will obtain the
remainder of the funding for the leased aircraft from an equity contribution
from the owner participant that is the beneficiary of the owner trust and, to
the extent set forth in the applicable prospectus supplement, additional debt
secured by the applicable leased aircraft or other sources. A leased aircraft
also may be subject to other financing arrangements. Generally, neither the
owner trustee nor the owner participant will be personally liable for any
principal or interest payable under any leased aircraft indenture or any
leased aircraft notes. In some cases, an owner participant may be required to
make payments to an owner trustee that are to be used by the owner trustee to
pay principal of, and interest on, the secured promissory notes. If an owner
participant is required to make payments to be used by an owner trustee to pay
principal of, and interest on, the secured promissory notes and the owner
participant fails to make the payment, we will be required to provide the
owner trustee with funds sufficient to make the payment. We will make payments
or advances under a lease and the related documents sufficient to pay when due
all scheduled principal and interest payments on the leased aircraft notes
issued to finance the aircraft subject to that lease. Our parent may guarantee
our obligations under the leases and related agreements.
We will issue owned aircraft notes under separate owned aircraft indentures.
Owned aircraft notes will be issued in connection with the financing or
refinancing of an aircraft that we own. Owned aircraft notes will be
obligations that have recourse to us and the related aircraft. Our parent may
guarantee payments of principal of, and interest on, owned aircraft notes. Any
owned aircraft may secure additional debt or be subject to other financing
arrangements.
An indenture may provide for the issuance of multiple series of secured
promissory notes. If an indenture provides for multiple series of secured
promissory notes, it may also provide for differing priority of payments among
the different series. All secured promissory notes issued under an indenture
that are entitled to the same priority of payment will be referred to as a
"class." Secured promissory notes issued under an indenture may be held in
more than one pass through trust, and one pass through trust may hold secured
promissory notes issued under more than one indenture. Unless otherwise
provided in a prospectus supplement, only secured promissory notes of a single
class may be held in the same pass through trust.
Except as set forth in the prospectus supplement for any series of
certificates, interest payments on the secured promissory notes held by a pass
through trust will be passed through to the registered holders of certificates
of that pass through trust at the annual rate shown on the cover page of the
prospectus supplement for the certificates issued by that pass through trust.
The certificateholders' right to receive payments made in respect of the
secured promissory notes is subject to the effect of any cross- subordination
provisions described in the prospectus supplement for a series of
certificates.
We refer you to the prospectus supplement that accompanies this prospectus
for a description of the specific series of certificates being offered by this
prospectus and the applicable prospectus supplement, including:
. the specific designation, title and amount of the certificates;
. the initial public offering price, amounts payable on and distribution
dates for the certificates;
. the currency or currencies (including currency units) in which the
certificates may be denominated;
. the specific form of the certificates, including whether or not the
certificates are to be issued in accordance with a book-entry system;
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. a description of the secured promissory notes to be purchased by the
pass through trust issuing that series of certificates, including (a)
the period or periods within which, the price or prices at which, and
the terms and conditions upon which the secured promissory notes may or
must be redeemed or defeased in whole or in part, by us or an owner
trustee, (b) the payment priority of the secured promissory notes in
relation to any other secured promissory notes issued with respect to
the related aircraft and (c) any intercreditor or other rights or
limitations between or among the holders of secured promissory notes of
different priorities issued with respect to the same aircraft;
. a description of the aircraft to be financed with the proceeds of the
issuance of the secured promissory notes;
. a description of the note purchase agreement setting forth the terms and
conditions upon which that pass through trust will purchase secured
promissory notes;
. a description of the indentures under which the secured promissory notes
to be purchased by that pass through trust will be issued;
. a description of the events of default, the remedies exercisable upon
the occurrence of such events of default and any limitations on the
exercise of such remedies under the indentures pursuant to which the
secured promissory notes to be purchased by that pass through trust will
be issued;
. if the certificates relate to leased aircraft, a description of the
leases to be entered into by the owner trustees and us, including (a)
the names of the owner trustees that will own the leased aircraft and
lease the leased aircraft to us and (b) a description of the events of
default under the leases and, the remedies exercisable upon an event of
default;
. if the certificates relate to leased aircraft, a description of the
provisions of the leased aircraft indentures governing (a) the rights of
the related owner trustee and/or owner participant to cure our failure
to pay rent under the leases and (b) any limitations on the exercise of
remedies with respect to the leased aircraft notes;
. if the certificates relate to leased aircraft, a description of the
participation agreements that will set forth the terms and conditions
upon which the owner participant, the owner trustee, the pass through
trustees, the loan trustee and we agree to enter into a leveraged lease
transaction;
. if the certificates relate to an owned aircraft, a description of the
participation agreements that will set forth the terms and conditions
upon which the applicable pass through trustees, the loan trustee and we
agree to enter into a financing transaction for the owned aircraft;
. a description of the limitations, if any, on amendments to leases,
indentures, pass through trust agreements, participation agreements and
other material agreements entered into in connection with the issuance
of secured promissory notes;
. a description of any cross-default provisions in the indentures;
. a description of any agreement among the holders of secured promissory
notes and any liquidity provider governing the receipt and distribution
of monies with respect to the secured promissory notes and the
enforcement of remedies under the indentures, including a description of
any applicable intercreditor and cross-subordination arrangements;
. a description of any cross-collateralization provisions in the
indentures;
. a description of any liquidity facility or other credit enhancement
relating to the certificates;
. if the certificates relate to aircraft that have not yet been delivered
or financed, a description of any deposit or escrow agreement or other
arrangement providing for the deposit and investment of funds pending
the purchase of secured promissory notes and the financing of an owned
aircraft or leased aircraft;
. a description of any guarantee of our obligation to make payments with
respect to a leased aircraft or to make principal and interest payments
with respect to owned aircraft notes;
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. the names of the underwriters, dealers or agents, if any, through or to
which we will sell the certificates, the compensation, if any, of
underwriters, dealers or agents and the net proceeds from the offering
of the certificates;
. the material United States federal income tax considerations applicable
to the certificates; and
. any other special terms pertaining to the certificates.
The concept of cross-default mentioned above refers to a situation where a
default under one indenture or lease automatically triggers a default under
other indentures or leases. We currently do not expect any indentures or leases
to contain cross-default provisions. The concept of cross-collateralization
mentioned above refers to the situation where an aircraft mortgaged to secure
obligations incurred under one indenture also serves as collateral for
obligations under one or more other indentures. If the indentures that are
cross-collateralized relate to aircraft that we lease, the lease assigned to a
loan trustee to secure obligations under one indenture may also serve as
collateral under one or more other indentures. We currently do not expect any
indentures to be cross-collateralized.
If any certificates are denominated in one or more foreign currencies or
currency units, the restrictions, certain United States federal income tax
considerations, specific terms and other information with respect to the
certificates and the foreign currency or currency units will be set forth in
the applicable prospectus supplement.
Payments and Distributions
We will make rental and other payments and advances for a leased aircraft
under the lease and other documents relating to that leased aircraft. In order
to secure its obligations to pay the principal of, and interest on, the leased
aircraft notes issued to finance or refinance a portion of the purchase price
of a leased aircraft, the applicable owner trustee will assign the scheduled
rental payments under the lease and may assign certain other payments or
advances under other related documents to the applicable loan trustee. As is
customary in the leveraged leasing industry, indemnities, insurance and similar
payments due under a lease and other documents may be excluded from any
assignment. Pursuant to the terms of the applicable indenture, the loan trustee
will, on behalf of the applicable owner trustee, apply the proceeds of the
payments and advances assigned to the loan trustee to make the corresponding
scheduled payments of principal of, and interest on, the leased aircraft notes
issued under that indenture. The loan trustee will distribute payments of
principal of, and interest on, the leased aircraft notes to the pass through
trustee for each pass through trust that holds those leased aircraft notes.
After the loan trustee has made all scheduled payments of principal of, and
interest on, the leased aircraft notes issued under the applicable indenture,
the loan trustee will, except under certain circumstances, pay the remaining
balance, if any, to the owner trustee for the benefit of the owner participant.
Distribution of payments by a loan trustee to a pass through trustee may be
affected by the terms of an intercreditor agreement.
We will make scheduled payments of principal of, and interest on, the unpaid
amount of the owned aircraft notes to the loan trustee under the indenture
pursuant to which those owned aircraft notes were issued. The loan trustee will
distribute payments of principal of, and interest on, the owned aircraft notes
to the pass through trustee for each pass through trust that holds those owned
aircraft notes.
Each certificateholder will be entitled to receive a pro rata share of any
distribution in respect of payments of principal of, and interest on, the
secured promissory notes held in the pass through trust that issued its
certificate. A pass through trustee's right to receive payments distributed by
a loan trustee may be affected by the terms of an intercreditor agreement. The
terms of any intercreditor agreement and any cross-subordination will be in the
prospectus supplement relating to a series of certificates.
Each pass through trust will receive scheduled payments of principal of, and
interest on, the secured promissory notes held by it and will, in turn,
distribute those scheduled payments to its certificateholders on the
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regular distribution dates and in the currencies specified in the prospectus
supplement relating to its certificates. However, a pass through trust may not
be able to distribute scheduled payments of principal and interest to its
certificateholders as scheduled in the prospectus supplement if the secured
promissory notes held by the pass through trust are in default or if payments
are diverted to other pass through trusts in accordance with an intercreditor
agreement. In addition to distributions of scheduled payments of principal and
interest on regular distribution dates, if the applicable series of
certificates is entitled to the benefits of a liquidity facility, the pass
through trustee will also distribute on a regular distribution date payments
received as a result of a drawing or other payments made under a liquidity
facility. The prospectus supplement relating to the certificates will describe
the terms of any liquidity facility or other form of credit enhancement.
A pass through trustee may from time to time receive payments of principal
of, and interest on, secured promissory notes on dates other than scheduled
payment dates. These special payments may occur if the secured promissory notes
owned by the pass through trust are sold or redeemed early, or if a scheduled
payment is paid more than five days late. Each pass through trustee will
distribute special payments to its certificateholders on dates determined as
described in the applicable prospectus supplement. In the event a special
payment is received by a pass through trustee, the pass through trustee will
mail a notice to its certificateholders of record stating the anticipated
distribution date for the payment. Scheduled payments that are not more than
five days late will be treated as regular payments and paid to
certificateholders of record on the regular distribution dates.
If any regular distribution date or special distribution date is not a
business day, distributions scheduled to be made on that date may be made on
the next succeeding business day without additional interest.
Pool Factors
Unless otherwise described in the applicable prospectus supplement, the "pool
balance" for each pass through trust or for the certificates issued by any pass
through trust indicates, as of any date, the portion of the original aggregate
face amount of the certificates issued by that pass through trust that has not
been distributed to certificateholders. The pool balance for each pass through
trust as of any distribution date will be computed after giving effect to any
distribution to certificateholders to be made on that date.
Unless otherwise described in the applicable prospectus supplement, the "pool
factor" for a pass through trust as of any distribution date for that trust is
the quotient (rounded to the seventh decimal place) computed by dividing (a)
the pool balance by (b) the aggregate original face amount of the certificates
issued by that pass through trust. The pool factor for a pass through trust as
of any distribution date will be computed after giving effect to the payment of
principal, if any, on the secured promissory notes or other property of that
pass through trust and distribution to certificateholders of the payment of
principal to be made on that date. The pool factor for a pass through trust
initially will be 1.0000000. The pool factor for a pass through trust will
decline as described in this prospectus and the related prospectus supplement
to reflect reductions in the pool balance of that pass through trust. As of any
distribution date for a pass through trust, certificateholder will have a pro
rata share of the pool balance of that pass through trust equal to the product
obtained by multiplying the original denomination of the holder's pass through
certificate by the pool factor for the pass through trust that issued that pass
through certificate.
Each pass through trust will have a separate pool factor. We expect the pool
factor for each pass through trust to decline in proportion to the scheduled
repayments of principal on the secured promissory notes held by that pass
through trust. However, the pool factor for a pass through trust will not
decline in proportion to scheduled repayments of principal if there is an early
redemption or purchase of secured promissory notes held by a pass through trust
or if a default occurs in the repayment of secured promissory notes held by a
pass through trust. In the event of a redemption, purchase or default, the pool
factor and the pool balance of each pass through trust affected by the
redemption, purchase or default will be recomputed.
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Reports to Certificateholders
The pass through trustee will include with each distribution to
certificateholders a statement setting forth the following information:
. the amount of the distribution allocable to principal and the amount
allocable to premium, if any;
. the amount of the distribution allocable to interest;
. the pool balance and the pool factor for the pass through trust after
giving effect to the distribution; and
. any additional or different information as may be described in the
applicable prospectus supplement.
As long as the certificates are registered in the name of DTC or its
nominee, on the record date prior to each distribution to certificateholders,
the pass through trustee will request from DTC a securities position listing
containing the names of all DTC participants reflected on DTC's books as
holding interests in the certificates on that record date. On each
distribution date, the applicable pass through trustee will mail to each DTC
participant holding certificates the statement described above and will make
available additional copies as requested by the DTC participants for
forwarding to certificateholders.
After the end of each calendar year, each pass through trustee will prepare
for each person that was a holder of one or more of its pass through
certificates at any time during the preceding calendar year a report
containing the sum of the amount of distributions allocable to principal,
premium and interest with respect to that pass through trust for the preceding
calendar year or, in the event the person was a holder of a pass through
certificate during only a portion of the preceding calendar year, for the
applicable portion of the preceding calendar year. In addition, each pass
through trustee will prepare for each person that was a holder of one or more
of its pass through certificates at any time during the preceding calendar
year any other items that are readily available to the pass through trustee
and which a certificateholder reasonably requests as necessary for the purpose
of preparing its federal income tax returns. The reports and other items
described in this section will be prepared on the basis of information
supplied to the pass through trustee by DTC participants and will be delivered
by the pass through trustee to DTC participants to be available for forwarding
by DTC participants to certificateholders in the manner described above.
If the certificates are issued in the form of physical certificates, the
pass through trustee of that pass through trust will prepare and deliver the
information described above to each record holder of a pass through
certificate issued by that pass through trust as the name and period of
ownership of the holder appears on the records of the registrar of the
certificates.
Voting of Secured Promissory Notes
A pass through trustee has the right to vote and give consents and waivers
with respect to the secured promissory notes held by that pass through trust.
However, the pass through trustee's right to vote and give consents or waivers
may be restricted or may be exercisable by another person in accordance with
the terms of an intercreditor agreement, as described in the applicable
prospectus supplement. The pass through trust agreement will set forth:
. the circumstances in which a pass through trustee may direct any action
or cast any vote with respect to the secured promissory notes held in
its pass through trust at its own discretion;
. the circumstances in which a pass through trustee will seek instructions
from its certificateholders; and
. if applicable, the percentage of certificateholders required to direct
the pass through trustee to take action.
If the holders of certificates are entitled to the benefits of a liquidity
facility, and the liquidity facility is used to make any payments to
certificateholders, the provider of the liquidity facility may be entitled to
exercise rights to vote or give consents and waivers with respect to the
secured promissory notes held by the pass through trust that issued the
certificates, as described in the applicable prospectus supplement.
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Events of Default and Certain Rights upon an Event of Default
The prospectus supplement will describe the events of default that can occur
under the pass through trust agreement and under the indentures relating to the
secured promissory notes held by the related pass through trust.
Defaults under a leased aircraft indenture will include events of default
under the lease that we are a party to that is assigned as security under that
leased aircraft indenture. The owner trustee and the owner participant may have
rights to cure the defaults under a leased aircraft indenture that result from
a default under the lease. The applicable prospectus supplement will describe
these cure rights. Unless otherwise provided in a prospectus supplement, with
respect to any certificates entitled to the benefits of a liquidity facility, a
drawing under that liquidity facility for the purpose of making a payment of
interest as a result of our failure to have made a corresponding payment under
the lease will not cure a default related to our failure to make the payment.
Unless otherwise provided in a prospectus supplement, all of the secured
promissory notes issued under the same indenture will relate to a specific
aircraft and there will be no cross-collateralization or cross-default
provisions in the indentures. This means that events resulting in a default
under a particular indenture will not necessarily result in a default under any
other indenture. If a default occurs in fewer than all of the indentures,
payments of principal of, and interest on, the secured promissory notes issued
under indentures with respect to which a default has not occurred will continue
to be made as originally scheduled.
The pass through trustees, as holders of the secured promissory notes, may
enter into an intercreditor agreement that may have the practical effect of
subordinating a junior class of secured promissory notes issued under one
indenture to senior classes of secured promissory notes under other indentures.
This concept, referred to as cross-subordination, is described above under
"Description of the Certificates--General" and, if applicable, will be
described in the applicable prospectus supplement.
If the secured promissory notes outstanding under an indenture are held by
more than one pass through trust, then the ability of the holders of
certificates issued by any one pass through trust to cause the loan trustee to
take actions under an indenture may be limited. In particular, a pass through
trustee's ability to direct a loan trustee to take action under an indenture
will depend, in part, on the proportion of (a) the aggregate principal amount
of the secured promissory notes outstanding under the indenture that are held
in that pass through trust to (b) the aggregate principal amount of all secured
promissory notes outstanding under the indenture. This means that a pass
through trustee may not have the ability to direct a loan trustee to accelerate
secured promissory notes or exercise remedies under an indenture without the
concurrence of the other pass through trustees. In addition, the ability of a
pass through trustee to exercise remedies under an indenture may be limited by
the terms of an intercreditor agreement.
If the secured promissory notes outstanding under an indenture are held by
more than one pass through trust, then each pass through trust will hold
secured promissory notes with different terms than the secured promissory notes
held in the other pass through trusts. In these circumstances, the holders of
certificates issued by different pass through trusts may have divergent or
conflicting interests. As long as the same institution acts as the pass through
trustee of each pass through trust, in the absence of instructions from the
holders of certificates issued by each pass through trust, the pass through
trustee could for the same reason be faced with a potential conflict of
interest upon a default under an indenture. If the pass through trustee is
faced with a conflict of interest because that pass through trustee acts as
pass through trustee for multiple trusts, the pass through trustee faced with
the conflict will resign as trustee of one or all the pass through trusts, and
one or more successor pass through trustees will be appointed in accordance
with the terms of each pass through trust agreement.
The prospectus supplement for a series of certificates will describe whether
and under what circumstances a pass through trustee may or will sell all or
part of the secured promissory notes held in the pass through trust. A pass
through trustee's right to sell secured promissory notes may be restricted or
may be exercisable by another person, if the applicable series of certificates
are subject to any intercreditor, subordination or similar
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arrangements. If the certificates of any series are subject to any
intercreditor, subordination or similar arrangement, the proceeds from the sale
of the related secured promissory notes will be distributed as contemplated by
those arrangements. To the extent received by any pass through trustee,
proceeds from the sale of secured promissory notes will be treated as special
payments, deposited in a special payments accounts and distributed to the
certificateholders of the pass through trust on a special distribution date.
The market for secured promissory notes in default may be very limited, and
neither we nor the pass through trustee can assure you that they could be sold
for a reasonable price. In addition, as long as the same institution acts as
pass through trustee of multiple pass through trusts, it may be faced with a
conflict in deciding which secured promissory notes to sell to available
buyers. If the pass through trustee sells any secured promissory notes with
respect to which a default under an indenture exists for less than their
outstanding principal amount, the certificateholders of that pass through trust
will receive a smaller amount of principal distributions than anticipated and
will not have any claim for the shortfall against us, our parent, any owner
trustee, any owner participant or any pass through trustee. Neither a pass
through trustee nor the holders of certificates will be able to take any action
with respect to any secured promissory notes unless a default has occurred
under the indenture relating to those secured promissory notes.
Following a default under an indenture, all payments received by a pass
through trustee or with respect to secured promissory notes issued under the
indenture, other than scheduled payments received on or within five days of the
date the scheduled payments are due, will be treated as special payments and
deposited in a special payments account. All amounts deposited in the special
payments account will be distributed to the certificateholders on a special
distribution date. The rights of any pass through trustee to receive payments
made on or with respect to any secured promissory note following a default
under any indenture may be limited by intercreditor, subordination or similar
arrangements.
Any funds held in the special payments account for a pass through trust will,
to the extent practicable, be invested and reinvested by the pass through
trustee in permitted short-term investments pending the distribution of those
funds on a special distribution date. Permitted investments will be specified
in the related prospectus supplement.
The Basic Agreement provides that the pass through trustee of each pass
through trust will give to the certificateholders of that pass through trust
notice of all uncured or unwaived defaults known to it with respect to that
pass through trust. The Basic Agreement requires each pass through trustee to
provide the notice of default within 90 days after the occurrence of the
default. However, except in the case of default in the payment of principal,
premium, if any, or interest on any of the secured promissory notes held in a
pass through trust, the pass through trustee will be protected in withholding a
notice of default if it in good faith determines that withholding the notice is
in the interest of the certificateholders. The term "default" as used in this
paragraph means only the occurrence of a default under an indenture with
respect to secured promissory notes held in a pass through trust as described
above, except that in determining whether any default under an indenture has
occurred, any related grace period or notice will be disregarded.
The Basic Agreement requires the pass through trustee to act with a specified
standard of care while a default is continuing under an indenture. In addition,
the Basic Agreement contains a provision entitling the pass through trustee to
be offered reasonable security or indemnification by the certificateholders of
the pass through trust before proceeding to exercise any right or power under
the Basic Agreement at the request of those certificateholders.
The prospectus supplement for a series of certificates will specify the
percentage of certificateholders entitled to waive, or to instruct the pass
through trustee to waive, any past default with respect to the related pass
through trust. The prospectus supplement for a series of certificates also will
specify the percentage of certificateholders entitled to waive, or to instruct
the pass through trustee or the loan trustee to waive, any past default, or
rescind or annul any direction given under any indenture.
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Merger, Consolidation and Transfer of Assets
We will be prohibited from consolidating with or merging into any other
corporation or transferring substantially all of our assets as an entirety to
any other corporation unless:
. the surviving, successor or transferee corporation:
. is validly existing under the laws of the United States or any of
its states;
. is a citizen of the United States (as defined in Title 49 of the
United States Code relating to aviation (the "Transportation Code"))
holding an air carrier operating certificate issued by the Secretary
of Transportation pursuant to Chapter 447 of Title 49, United States
Code, if, and so long as, such status is a condition of entitlement
to the benefits of Section 1110 of the Bankruptcy Code relating to
the rights of creditors of an airline in the event of the airline's
bankruptcy; and
. expressly assumes all of our obligations contained in the Basic
Agreement and any supplement to the Basic Agreement, the note
purchase agreement, any indentures, any participation agreements
and, with respect to aircraft leased by us, the applicable leases;
and
. we have delivered a certificate and an opinion or opinions of counsel
indicating that the transaction, in effect, complies with these
conditions.
Modifications of the Basic Agreement
The Basic Agreement contains provisions permitting us, our parent and the
pass through trustee of each pass through trust to enter into a supplement to
the pass through trust agreement, without the consent of the holders of any of
the certificates issued by a pass through trust in order to do the following,
among others:
. to provide for the formation of a pass through trust and the issuance of
a series of certificates and to set forth the terms of the certificates;
. to evidence the succession of another corporation or entity to us or our
parent and the assumption by that corporation or entity of our or our
parent's obligations under the pass through trust agreement;
. to add to our or our parent's covenants for the benefit of holders of
certificates, or to surrender any right or power in the pass through
trust agreement conferred upon us or our parent;
. to cure any ambiguity or correct or supplement any defective or
inconsistent provision of the pass through trust agreement, so long as
those changes will not materially adversely affect the interests of the
holders of the certificates, or to cure any ambiguity or correct any
mistake or, to give effect to or provide for replacement liquidity
facilities, if applicable, to the certificates;
. to comply with any requirement of the SEC, any applicable law, rules or
regulations of any exchange or quotation system on which any
certificates may be listed or of any regulatory body;
. to modify, eliminate or add to the provisions of the pass through trust
agreement to the extent necessary to continue the qualification of the
pass through trust agreement under the Trust Indenture Act of 1939, and
to add to the pass through trust agreement other provisions as may be
expressly permitted by the Trust Indenture Act excluding, however, the
provisions referred to in section 316(a)(2) of the Trust Indenture Act
as in effect at the date of the Basic Agreement or any corresponding
provision in any similar Federal statute enacted after that date;
. to provide for a successor pass through trustee or to add to or change
any provision of the pass through trust agreement as necessary to
facilitate the administration of the pass through trusts created under
the pass through trust agreement by more than one pass through trustee;
. to provide certain information to the pass through trustee as required
in the pass through trust agreement;
. to release our parent from the Basic Agreement, but only if our parent
has not executed a guarantee in respect of any lease or secured
promissory note; and
. to make any other amendments or modifications to the Basic Agreement so
long as those amendments or modifications apply only to certificates of
a series issued after the date of the amendment or modification.
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No supplement to the pass through trust agreement may be made that will
adversely affect the status of any pass through trust as a grantor trust for
United States federal income tax purposes, without the consent of the
certificateholders.
The Basic Agreement also contains provisions permitting us, our parent and
the pass through trustee of each pass through trust, with the consent of a
majority in interest of the certificateholders of the pass through trust and,
with respect to any aircraft leased by us, with the consent of the applicable
owner trustee, which cannot be unreasonably withheld, to execute a supplement
to the pass through trust agreements adding any provisions to or changing or
eliminating any of the provisions of the Basic Agreement, to the extent
relating to that pass through trust, and the applicable pass through trust
supplement, or modifying the rights of the certificateholders, except that no
supplement may, without the consent of each affected certificateholder:
. reduce in any manner the amount of, or delay the timing of, any receipt
by the pass through trustee of payments on the secured promissory notes
held in the pass through trust or distributions in respect of any pass
through certificate issued by the pass through trust, or change the date
or place of any payment in respect of any pass through certificate, or
make distributions payable in currency other than that provided for in
the certificates, or impair the right of any certificateholder to
institute suit for the enforcement of any payment when due;
. permit the disposition of any secured promissory note held in the pass
through trust, except as provided in the pass through trust agreement,
or otherwise deprive any certificateholder of the benefit of the
ownership of the applicable secured promissory notes;
. reduce the percentage of the aggregate fractional undivided interests of
the pass through trust provided for in the applicable supplement to the
Basic Agreement that is required in order to obtain the consent of the
holders for that supplement or for any waiver provided for in the Basic
Agreement or the supplement;
. modify any of the provisions relating to the rights of the
certificateholders in respect of the waiver of events of default or
receipt of payment except to increase any such percentage or to provide
that certain other provisions of the Basic Agreement and any applicable
supplement cannot be waived or modified without the consent of all
applicable certificateholders;
. alter the priority of distributions described in any applicable
intercreditor agreement, in a manner materially adverse to the interests
of the certificateholders of the pass through trust; or
. adversely affect the status of any pass through trust as a grantor trust
for United States federal income tax purposes.
Modification of Indenture and Related Agreements
The prospectus supplement will specify the pass through trustee's obligations
in the event that a pass through trustee, as the holder of any secured
promissory notes held in a pass through trust, receives a request for its
consent to any amendment, modification or waiver under the indenture under
which the secured promissory notes were issued, under the lease relating to the
aircraft leased by us that was financed with the proceeds of the secured
promissory notes, under any liquidity facility or under other documents
relating to the secured promissory notes.
Cross-Subordination Issues
The secured promissory notes issued under an indenture may be held in more
than one pass through trust, and one pass through trust may hold secured
promissory notes issued under more than one indenture. Unless otherwise
provided in a prospectus supplement, only secured promissory notes of the same
class may be held in the same pass through trust. In this event, payments made
on account of a junior class of certificates issued under a prospectus
supplement may, under circumstances described in the prospectus supplement, be
subordinated to the prior payment of all amounts owing to certificateholders of
a pass through trust that holds a senior class of secured promissory notes
issued under any indenture. The prospectus supplement related to an
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issuance of certificates will describe any cross-subordination provisions and
any related terms, including the percentage of certificateholders under any
pass through trust that is permitted to:
. grant waivers of defaults under any indenture under which secured
promissory notes held by that pass through trust were issued;
. consent to the amendment or modification of any indenture under which
secured promissory notes held by that pass through trust were issued; or
. direct the exercise of remedial actions under any indenture under which
secured promissory notes held by that pass through trust were issued.
Termination of the Pass Through Trusts
The obligations of the parties to each pass through trust agreement will
terminate upon the distribution to certificateholders of that pass through
trust of all amounts required to be distributed to them under the pass through
trust agreement. The pass through trustee will send to each certificateholder
of record of the pass through trust notice of the termination of that pass
through trust, the amount of the proposed final payment and the proposed date
for the distribution of the final payment for that pass through trust. The
final distribution to any certificateholder will be made only upon surrender of
the certificateholder's certificates at the office or agency of the pass
through trustee, paying agent or transfer agent, as specified in the notice of
termination.
Delayed Purchase of Secured Promissory Notes
If all of the proceeds from the sale of the certificates are not used on the
date the certificates are issued to purchase the secured promissory notes
contemplated to be held in the pass through trust that issued those
certificates, the secured promissory notes may be purchased by the pass through
trustee at any time on or prior to the date specified in the applicable
prospectus supplement. In this event, the portion of the proceeds from the sale
of the certificates that are not used to purchase secured promissory notes on
the date the certificates are issued will be held under an arrangement
described in the applicable prospectus supplement pending the purchase of the
secured promissory notes. The arrangements with respect to the payment of
interest on funds held pending purchase of secured promissory notes will also
be described in the applicable prospectus supplement. If any proceeds are not
subsequently used to purchase secured promissory notes by the final date for
purchase of secured promissory notes specified in the applicable prospectus
supplement, the proceeds will be returned to the holders of the certificates.
Liquidity Facility and Other Credit Enhancements
A prospectus supplement may provide that one or more payments of interest to
be paid with respect to the certificates of one or more series will be
supported by a liquidity facility issued by an institution identified in the
related prospectus supplement. The provider of a liquidity facility for the
holders of a series of certificates may have a claim on property of the pass
through trust senior to the claims of the holders of the certificates of that
series as described in the related prospectus supplement. The prospectus
supplement will also specify the circumstances under which a liquidity provider
will be entitled to direct the exercise of remedies under any indenture. The
prospectus supplement will also describe any other credit enhancements, if any,
that may apply to the certificates.
The Pass Through Trustee
Unless otherwise provided in the prospectus supplement for any series of
certificates, the pass through trustee for each series of certificates will be
State Street Bank and Trust Company of Connecticut, National Association. With
certain exceptions as to itself in its individual capacity, the pass through
trustee makes no representations as to the validity or sufficiency of the Basic
Agreement, the pass through trust supplements, the
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certificates, the secured promissory notes, the indentures, the leases or other
related documents. The pass through trustee will not be liable with respect to
any series of certificates for any action taken or omitted to be taken by it in
good faith in accordance with the direction of the holders of a majority in
face amount of outstanding certificates of that series issued under the Basic
Agreement. Subject to those provisions, the pass through trustee will be under
no obligation to exercise any of its rights or powers under the Basic Agreement
at the request of any holders of certificates issued under the Basic Agreement
unless they have offered to the pass through trustee indemnity satisfactory to
it. The Basic Agreement provides that the pass through trustee in its
individual or any other capacity may acquire and hold certificates issued under
the Basic Agreement and may, in accordance with the Basic Agreement, otherwise
deal with us and, with respect to the aircraft leased by us, any owner trustee
with the same rights it would have if it were not the pass through trustee.
The pass through trustee may resign with respect to any or all of the pass
through trusts at any time, in which event we will be obligated to appoint a
successor pass through trustee. If the pass through trustee ceases to be
eligible to continue as pass through trustee with respect to a pass through
trust or becomes incapable of acting as pass through trustee or becomes
insolvent, we may remove that pass through trustee, or any certificateholder of
the applicable pass through trust for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the pass through trustee and the appointment of
a successor pass through trustee. Any resignation or removal of the pass
through trustee with respect to a pass through trust and appointment of a
successor pass through trustee for the pass through trust does not become
effective until acceptance of the appointment by the successor pass through
trustee. Under these resignation and successor pass through trustee provisions,
it is possible that a different pass through trustee could be appointed to act
as the successor pass through trustee with respect to each pass through trust.
All references in this prospectus to the pass through trustee should be read to
take into account the possibility that the pass through trusts could have
different successor pass through trustees in the event of a resignation or
removal.
The Basic Agreement provides that we will pay the pass through trustee's fees
and expenses and indemnify the pass through trustee against certain
liabilities.
Book-Entry Registration
General
Unless otherwise specified in the applicable prospectus supplement, the
certificates will be subject to the procedures and provisions described below.
Upon issuance, each series of certificates will be represented by one or more
fully registered global certificates. This means that one physical certificate
or a number of physical certificates representing all of the certificates will
be registered with the Depository Trust Company ("DTC"). Each global
certificate will be deposited with, or on behalf of, DTC and registered in the
name of Cede & Co. ("Cede"), the nominee of DTC. Certificateholders will not be
entitled to receive a physical certificate representing an interest in its
certificates, except as set forth below under "--Physical Certificates". Unless
and until physical certificates are issued under the limited circumstances
described below, all references in this prospectus and any prospectus
supplement to actions by certificateholders will refer to actions taken by DTC
upon instructions from DTC participants, and all references to distributions,
notices, reports and statements to certificateholders will refer, as the case
may be, to distributions, notices, reports and statements to DTC or Cede, as
the registered holder of the certificates, or to DTC participants for
distribution to certificateholders in accordance with DTC procedures.
DTC has advised us that DTC is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New
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York Uniform Commercial Code and "clearing agency" registered pursuant to
Section 17A of the Securities Exchange Act of 1934.
Under the New York Uniform Commercial Code, a "clearing corporation" is
defined as:
. a person that is registered as a "clearing agency" under the federal
securities laws;
. a federal reserve bank; or
. any other person that provides clearance or settlement services with
respect to financial assets that would require it to register as a
clearing agency under the federal securities laws but for an exclusion
or exemption from the registration requirement, if its activities as a
clearing corporation, including promulgation of rules, are subject to
regulation by a federal or state governmental authority.
A "clearing agency" is an organization established for the execution of
trades by transferring funds, assigning deliveries and guaranteeing the
performance of the obligations of parties to trades.
DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between DTC participants
through electronic book-entry changes in the accounts of DTC participants. The
ability to execute transactions through book-entry changes in accounts
eliminates the need for transfer of physical certificates. DTC participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of DTC
participants and by the New York Stock Exchange, the American Stock Exchange,
and the National Association of Securities Dealers. Banks, brokers, dealers,
trust companies and other entities that clear through or maintain a custodial
relationship with a DTC participant either directly or indirectly have indirect
access to the DTC system.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of the
certificates among DTC participants on whose behalf it acts with respect to the
certificates and to receive and transmit distributions of principal, premium,
if any, and interest with respect to the certificates. DTC participants and
indirect DTC participants with which certificateholders have accounts similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their respective customers. Certificateholders that are
not DTC participants or indirect DTC participants but desire to purchase, sell
or otherwise transfer ownership of, or other interests in, the certificates may
do so only through DTC participants and indirect DTC participants. In addition,
certificateholders will receive all distributions of principal, premium, if
any, and interest from the pass through trustee through DTC participants or
indirect DTC participants, as the case may be. Under a book-entry format,
certificateholders may experience some delay in their receipt of payments
because payments with respect to the certificates will be forwarded by the pass
through trustee to Cede, as nominee for DTC. We expect DTC to forward payments
in same-day funds to each DTC participant who is credited with ownership of the
certificates in an amount proportionate to the principal amount of that DTC
participant's holdings of beneficial interests in the certificates, as shown on
the records of DTC or its nominee. We also expect that DTC participants will
forward payments to indirect DTC participants or certificateholders, as the
case may be, in accordance with standing instructions and customary industry
practices. DTC participants will be responsible for forwarding distributions to
certificateholders. Accordingly, although certificateholders will not possess
physical certificates, DTC's rules provide a mechanism by which
certificateholders will receive payments on the certificates and will be able
to transfer their interests.
Unless and until physical certificates are issued under the limited
circumstances described below, the only physical certificateholder will be
Cede, as nominee of DTC. Certificateholders will not be recognized by the pass
through trustee as registered owners of certificates under the pass through
trust agreement. Certificateholders will be permitted to exercise the rights
under the pass through trust agreement only indirectly through DTC and DTC
participants. DTC has advised us that it will take any action permitted to be
taken by a certificateholder under the pass through trust agreement only at the
direction of one or more DTC participants to whose accounts with DTC the
certificates are credited. Additionally, DTC has advised us that in the event
any action requires approval by certificateholders of a certain percentage of
the beneficial interests in a pass through trust, DTC will take such action
only at the direction of and on behalf of DTC participants whose
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holdings include undivided interests that satisfy any such percentage. DTC may
take conflicting actions with respect to other undivided interests to the
extent that such actions are taken on behalf of DTC participants whose holdings
include those undivided interests. DTC will convey notices and other
communications to DTC participants, and DTC participants will convey notices
and other communications to indirect DTC participants and to certificateholders
in accordance with arrangements among them. Arrangements among DTC and its
direct and indirect participants are subject to any statutory or regulatory
requirements as may be in effect from time to time. DTC's rules applicable to
itself and DTC participants are on file with the SEC.
A certificateholder's ability to pledge the certificates to persons or
entities that do not participate in the DTC system, or otherwise to act with
respect to such certificates may be limited due to the lack of a physical
certificate to evidence ownership of the certificates and because DTC can only
act on behalf of DTC participants, who in turn act on behalf of indirect DTC
participants.
None of us, our parent or the pass through trustees will have any liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the certificates held by Cede, as nominee for
DTC, for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for the performance by DTC, any DTC
participant or any indirect DTC participant of their respective obligations
under the rules and procedures governing their obligations.
The applicable prospectus supplement will specify any additional book-entry
registration procedures applicable to certificates denominated in a currency
other than United States dollars.
The information contained in this prospectus concerning DTC and its book
entry system has been obtained from sources we believe to be reliable, but we
take no responsibility for the accuracy thereof.
Same-Day Settlement and Payment
As long as the certificates are registered in the name of DTC or its nominee,
we will make all payments under any lease or any owned aircraft indenture in
immediately available funds. The pass through trustees will pass through to DTC
all payments received from us, including the final distribution of principal
with respect to the certificates of any pass through trust in immediately
available funds.
Any certificates registered in the name of DTC or its nominee will trade in
DTC's Same-Day Funds Settlement System until maturity. DTC will require
secondary market trading activity in the certificates to settle in immediately
available funds. We cannot give any assurance as to the effect, if any, of
settlement in same-day funds on trading activity in the certificates.
Physical Certificates
Physical certificates will be issued in paper form to certificateholders or
their nominees, rather than to DTC or its nominee, only if:
. we advise a pass through trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository
with respect to the certificates and we or the pass through trustee is
unable to locate a qualified successor;
. we elect to terminate the book-entry system through DTC; or
. after the occurrence of certain events of default or other events
specified in the related prospectus supplement, certificateholders
owning at least a majority in interest in a pass through trust advise
the applicable pass through trustee, us and DTC through DTC participants
that the continuation of a book-entry system through DTC participants is
no longer in the certificateholders' best interest.
If physical certificates are to be issued by a pass through trust, the
applicable pass through trustee will notify all certificateholders through DTC
of the availability of physical certificates. Upon surrender by DTC of
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certificates representing the global physical certificates and receipt of
instructions for re-registration, the pass through trustee will reissue the
certificates as physical certificates to certificateholders.
After physical certificates are issued, the pass through trustee or a paying
agent will make distributions of principal, premium, if any, and interest with
respect to certificates directly to holders in whose names the physical
certificates were registered at the close of business on the applicable record
date. Except for the final payment to be made with respect to a certificate,
the pass through trustee or a paying agent will make distributions by check
mailed to the addresses of the registered holders as they appear on the
register maintained by the pass through trustee. The pass through trustee or a
paying agent will make the final payment with respect to any pass through
certificate only upon presentation and surrender of the applicable pass through
certificate at the office or agency specified in the notice of final
distribution to certificateholders.
Physical certificates will be freely transferable and exchangeable at the
office of the pass through trustee upon compliance with the requirements set
forth in the pass through trust agreement. Neither the pass through trustee nor
any transfer or exchange agent will impose a service charge for any
registration of transfer or exchange. However, the pass through trustee or
transfer or exchange agent will require payment of a sum sufficient to cover
any tax or other governmental charge.
DESCRIPTION OF THE SECURED PROMISSORY NOTES
The statements made under this caption are summaries of terms that we expect
will be common to all secured promissory notes. Where no distinction is made
between the leased aircraft notes and the owned aircraft notes or between their
respective indentures, the statements refer to all secured promissory notes and
all indentures. Most of the financial and other specific terms of any series of
secured promissory notes will be described in a prospectus supplement to be
attached to this prospectus. Since the terms of the secured promissory notes
may differ from the general information provided below, you should rely on the
information in the prospectus supplement instead of the information in this
prospectus if the information in the prospectus supplement is different from
the information below.
The following information is a summary and does not describe every aspect of
the secured promissory notes. The summary is subject to all the provisions of
the applicable secured promissory notes, indentures, leases, note purchase
agreements, pass through trust agreements, participation agreements,
intercreditor and subordination agreements, liquidity facilities and other
agreements and arrangements relating to any series of secured promissory notes.
Additional provisions with respect to the secured promissory notes and the
associated aircraft financing transactions will be described in the applicable
prospectus supplement. To the extent that any provision in any prospectus
supplement is inconsistent with any provisions in this summary, the provision
of the prospectus supplement will control.
General
The secured promissory notes will be issued under indentures. Promissory
notes secured by an aircraft that is leased to us will be non-recourse and will
be issued under an indenture between an owner trustee and a loan trustee.
Promissory notes secured by an aircraft that is owned by us will be recourse to
us and will be issued under an indenture between a loan trustee and us.
The leased aircraft notes will be non-recourse obligations of the applicable
owner trustee. All of the leased aircraft notes issued under the same indenture
will relate to and will be secured by one or more specific aircraft leased to
us. Unless otherwise specified in the applicable prospectus supplement, leased
aircraft notes will not be secured by any other aircraft.
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We will be the issuer of owned aircraft notes. The owned aircraft notes will
be our direct recourse obligations. All of the owned aircraft notes issued
under the same indenture will relate to, and will be secured by, one or more
specific aircraft that we own. Unless otherwise specified in the applicable
prospectus supplement, the owned aircraft notes will not be secured by any
other aircraft.
If specified in a prospectus supplement, we will have the right (a) to
arrange a sale and leaseback of one or more aircraft that we own referred to in
the prospectus supplement and the assumption, on a non-recourse basis, of the
related owned aircraft notes by an owner trustee or (b) to substitute other
aircraft, cash or U.S. government securities or a combination thereof in place
of the aircraft that we own securing the related owned aircraft notes. The
terms and conditions of any sale and leaseback or aircraft substitution will be
described in the applicable prospectus supplement.
If specified in a prospectus supplement, one of our affiliates may act as an
owner participant in a leveraged lease transaction. If one of our affiliates
acts as owner participant, it may transfer its interest in the owner trust to a
third party at any time during the term of the lease. In connection with that
transfer, the lease and other documents may be amended and the secured
promissory notes issued under the applicable indenture may be amended or
refinanced.
Principal and Interest Payments
The secured promissory notes will bear interest at the rates set forth in the
applicable indenture. We expect that the rates set forth in the applicable
indenture for each series of secured promissory notes will be the same rate as
the annual rate for the certificates issued by the pass through trust that
purchases that series of secured promissory notes. Interest on the secured
promissory notes will be payable by the issuer of those secured promissory
notes on each day that is a regular distribution date for the certificates
issued by the pass through trust that purchases those secured promissory notes.
The issuer of any series of secured promissory notes will repay principal in
accordance with the schedule set forth in the applicable prospectus supplement.
The principal amortization schedule for each individual aircraft financing will
vary to reflect the economic terms of the individual financing.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to a secured promissory note is not a business day, the
payment will be made on the next succeeding business day without any additional
interest, unless otherwise provided in the applicable prospectus supplement.
Redemption
The applicable prospectus supplement will describe the circumstances under
which the secured promissory notes may be redeemed or purchased prior to their
stated maturity date, in whole or in part. In addition, the prospectus
supplement will describe the premium, if any, applicable upon redemptions or
purchases and other terms applying to the redemptions or purchases of the
secured promissory notes.
Security
The leased aircraft notes will be secured by:
. an assignment by the related owner trustee to the related loan trustee
of that owner trustee's rights, except for certain rights described
below, under the lease or leases or other agreements with respect to the
related aircraft leased by us, including the right to receive payments
of rent under the applicable lease; and
. a mortgage granted to the related loan trustee in the aircraft financed
by the issue of those leased aircraft notes, subject to our rights under
the lease or leases relating to that aircraft and other property rights,
if any, described in the applicable prospectus supplement.
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With respect to the leased aircraft, the assignment by the related owner
trustee to the related loan trustee of its rights under the related lease will
exclude, among other things:
. rights of the owner trustee and the related owner participant to
indemnification by us for certain matters;
. insurance proceeds payable to the owner trustee in its individual
capacity and to the owner participant under liability insurance that we
maintain pursuant to the lease or that the owner trustee or the owner
participant maintains;
. insurance proceeds payable to the owner trustee or to the owner
participant under certain casualty insurance maintained by the owner
trustee or the owner participant pursuant to the lease; and
. any rights of the owner participant or the owner trustee to enforce
payment of the foregoing amounts and their respective rights to the
proceeds of the foregoing indemnification and insurance.
In addition, the assignment will be limited to provide that, unless and until
a default occurs and is continuing under an indenture with respect to a leased
aircraft, the related loan trustee may exercise only limited rights of the
related owner trustee under the related lease.
All of the leases will be net leases. Under a net lease, we are obligated,
among other things and at our expense, to cause each aircraft leased by us to
be duly registered, to pay all costs of operating the aircraft and to maintain,
service, repair and overhaul, or cause to be maintained, serviced, repaired and
overhauled, the aircraft.
Unless otherwise specified in the applicable prospectus supplement, the
secured promissory notes will not be cross-collateralized and consequently the
secured promissory notes issued in respect of any one aircraft will not be
secured by any other aircraft or, in the case of leased aircraft notes, the
lease related to any other aircraft.
The owned aircraft notes will be secured by a mortgage granted to the related
loan trustee of all of our right, title and interest in and to the applicable
aircraft owned by us. Under the terms of each owned aircraft indenture, we will
be obligated, among other things and at our expense, to cause each owned
aircraft to be duly registered, to pay all costs of operating the aircraft and
to maintain, service, repair and overhaul, or cause to be maintained, serviced,
repaired or overhaul, the aircraft.
The prospectus supplement will describe the required insurance coverage with
respect to the aircraft financed with the proceeds from the pass through
certificates issued.
Except in certain circumstances, we will keep each aircraft registered under
the Transportation Code. In addition, we will record the indentures, the leases
and other documents necessary for a valid conveyance of an interest in the
aircraft under the Transportation Code. Each indenture will be effective to
create a valid security interest in the aircraft that is subject to that
indenture. When that indenture and other appropriate documents are filed with
the FAA in accordance with the Transportation Code and uniform commercial code
financing statements are filed in all appropriate jurisdictions, the loan
trustee will have a perfected security interest in the related aircraft
whenever it is located in the United States or any of its territories and
possessions.
The Convention on the International Recognition of Rights in aircraft (the
"Convention") provides that this security interest will also be recognized,
with certain limited exceptions, in those jurisdictions that have ratified or
adhere to the Convention. We will have the right, subject to certain
conditions, at our own expense to register each aircraft in countries other
than the United States. Each aircraft may also be operated by us or under
lease, sublease or interchange arrangements in countries that are not parties
to the Convention. The extent to which the related loan trustee's security
interest would be recognized in an aircraft located in a country that is not a
party to the Convention, and the extent to which such security interest would
be recognized in a jurisdiction adhering to the Convention if the aircraft is
registered in a jurisdiction not a party to the Convention, is uncertain.
Moreover, in the case of a default under an indenture, the ability of the
related loan trustee to realize upon its security interest in an aircraft could
be adversely affected as a legal or practical matter if such aircraft is
registered or located outside the United States.
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The loan trustee will invest and reinvest funds, if any, held by it from time
to time under an indenture. The loan trustee will, at our direction, invest and
reinvest funds, in certain investments described in the applicable indenture.
We will not be entitled to direct the loan trustee to invest and reinvest funds
with respect to a leased aircraft, in the case of a default under the
applicable lease or, with respect to an owned aircraft, in the case of a
default under the applicable indenture. We will pay the net amount of any loss
resulting from these investments.
Section 1110 of the U.S. Bankruptcy Code provides in relevant part that,
unless certain events occur after the commencement of a Chapter 11 case, the
right of lessors, conditional vendors and holders of security interests with
respect to equipment (as defined in Section 1110 of the U.S. Bankruptcy Code
and described below) to take possession of such equipment in compliance with
the provisions of a lease, conditional sale contract or security agreement, as
the case may be, is not affected by:
. the automatic stay provision of the U.S. Bankruptcy Code, which
provision prevents repossessions by creditors for the duration of the
reorganization period;
. the provision of the U.S. Bankruptcy Code allowing the trustee in
reorganization to use property of the debtor during the reorganization
period;
. Section 1129 of the U.S. Bankruptcy Code (which governs the confirmation
of plans of reorganization in Chapter 11 cases); or
. any power of the bankruptcy court to prevent a repossession.
Specifically, Section 1110 provides in relevant part that the right of a
lessor, conditional vendor or holder of a security interest to take possession
of an aircraft upon an event of default may not be exercised for 60 days
following the date of commencement of the reorganization proceedings (unless
specifically permitted by the bankruptcy court) and may not be exercised at all
if, within such 60-day period (or such longer period consented to by the
lessor, conditional vendor or holder of a security interest), the trustee in
reorganization agrees to perform the debtor's obligations that become due on or
after such date and cures all existing defaults (other than defaults resulting
solely from the financial condition, bankruptcy, insolvency or reorganization
of the debtor). "Equipment" is defined in Section 1110 of the U.S. Bankruptcy
Code, in part, as an aircraft, aircraft engine, propeller, appliance, or spare
part (as defined in Section 40102 of Title 49 of the U.S. Code) that is subject
to a security interest granted by, leased to, or conditionally sold to a debtor
that is a citizen of the United States (as defined in Section 40102 of Title 49
of the U.S. Code) holding an air carrier operating certificate issued by the
Secretary of Transportation pursuant to chapter 447 of Title 49 of the U.S.
Code for aircraft capable of carrying 10 or more individuals or 6,000 pounds or
more of cargo (subject to certain limitations in the case of equipment first
placed in service on or prior to October 22, 1994).
It will be a condition to the pass through trustee's obligation to purchase
secured promissory notes with respect to each aircraft that our outside counsel
provide its opinion to the pass through trustee that (a) if the aircraft is a
leased aircraft, the owner trustee, as lessor under the lease for that
aircraft, and the loan trustee, as assignee of such owner trustee's rights
under the lease pursuant to the applicable indenture, will be entitled to the
benefits of Section 1110 of the U.S. Bankruptcy Code with respect to the
airframe and engines comprising that aircraft or (b) if that aircraft is an
owned aircraft, the loan trustee will be entitled to the benefits of Section
1110 with respect to the airframe and engines comprising such owned aircraft,
in each case as long as we continue to be a citizen of the United States as
defined in Section 40102 of Title 49 of the U.S. Code holding an air carrier
operating certificate issued by the Secretary of Transportation pursuant to
Chapter 447 of Title 49 of the U.S. Code for aircraft capable of carrying 10 or
more individuals or 6,000 pounds or more of cargo. This Section 1110 opinion
will not address the possible replacement of an aircraft after an "Event of
Loss", as defined in the applicable indenture, in the future.
Ranking of Secured Promissory Notes
Some of the secured promissory notes related to one or more aircraft may be
subordinated and junior in right of payment to other secured promissory notes
related to the same aircraft. The terms of any subordination will be described
in the related prospectus supplement.
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Payments Under Leases and Limitation of Liability
We will lease each leased aircraft from an owner trustee for a term
commencing on the delivery date of the aircraft to the owner trustee and
expiring no earlier than the latest maturity date of the related leased
aircraft notes, unless previously terminated as permitted by the terms of the
related lease. We will make basic rent and other payments under each lease and
the related documents to an owner trustee, as lessor. The owner trustee will
assign all payments of basic rent and certain other payments to the related
loan trustee. The loan trustee will, on behalf of the owner trustee, apply the
funds assigned to it under the related indenture to pay scheduled principal of,
premium, if any, and interest due from such owner trustee on the leased
aircraft notes issued under the related indenture. The balance of any basic
rent or other assigned amount under each lease and related documents, after
payment of amounts due on the leased aircraft notes issued under the related
indenture, will be paid over to the applicable owner trustee. In certain cases,
the basic rent and other payments under a lease may be adjusted, but each lease
will provide that under no circumstances will total payments by us be less than
the scheduled payments on the related leased aircraft notes. In some cases, an
owner participant may be required to make payments to an owner trustee that are
to be used by the owner trustee to pay principal of, and interest on, the
secured promissory notes. If an owner participant is required to make payments
to be used by an owner trustee to pay principal of, and interest on, the
secured promissory notes and the owner participant fails to make the payment,
we will be required to provide the owner trustee with funds sufficient to make
the payment. Our obligations to pay rent and to cause other payments to be made
under each lease and related documents will be general unsecured obligations.
Except in circumstances in which we purchase a leased aircraft and assume the
related leased aircraft notes, the leased aircraft notes will not be
obligations of, or guaranteed by, us or our parent. None of the owner trustees,
the owner participants or the loan trustees will be personally liable to any
holder of leased aircraft notes for amounts payable under the leased aircraft
notes. Except as provided in the indentures relating to the leased aircraft
notes, no owner trustee or loan trustee will be liable or incur any liability
under the indentures. Except when we have assumed any leased aircraft notes and
except when an owner participant provides funds to be used by an owner trustee
to pay principal of, or interest on, the secured promissory notes, all amounts
payable under any leased aircraft notes will be made only from:
. the assets subject to the lien of the applicable indenture with respect
to the aircraft or the income and proceeds received by the related loan
trustee from that aircraft (including assigned rent payable by us under
the related lease);
. if so provided in the related prospectus supplement, the applicable
liquidity facility; or
. payments made in connection with optional redemptions or purchases by
the related owner trustee or the related owner participant.
If an owner participant is required to make payments to be used by an owner
trustee to pay principal of, and interest on, the secured promissory notes and
the owner participant fails to make the payment, we will be required to provide
the owner trustee with funds sufficient to make the payment.
Except as otherwise provided in the applicable indenture, no owner trustee
will be personally liable for any amount payable or for any statements,
representations, warranties, agreements or obligations under any indenture or
under any leased aircraft notes except for its own willful misconduct or gross
negligence. In general, none of the owner participants will have any duty or
responsibility under the leased aircraft indentures or under the leased
aircraft notes.
Our obligations under each owned aircraft indenture and under the owned
aircraft notes will be secured obligations.
Defeasance of the Indentures and the Secured Promissory Notes in Certain
Circumstances
Unless otherwise specified in the applicable prospectus supplement, an
indenture may provide that the obligations of the related loan trustee, the
related owner trustee or us, as the case may be, under that indenture
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will be deemed to have been discharged and paid in full on the 91st day after
the date that money or certain United States government securities, in an
aggregate amount sufficient to pay when due (including as a consequence of
redemption in respect of which notice is given on or prior to the date of such
deposit) principal, premium and interest with respect to all secured promissory
notes issued under that indenture, are irrevocably deposited with the related
loan trustee. The discharge may occur only if, among other things, there has
been published by the IRS a ruling or regulation to the effect that holders of
the secured promissory notes will not recognize income, gain or loss for
federal income tax purposes as a result of the deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and in
the same manner and at the same time as would have been the case if the
deposit, defeasance and discharge had not occurred. Certain obligations,
including the obligations to register the transfer or exchange of secured
promissory notes, to replace stolen, lost, destroyed or mutilated secured
promissory notes and to maintain paying agencies and hold money for payment in
trust may not be defeased.
Upon defeasance of the secured promissory notes, or upon payment in full of
the principal of, premium, if any, and interest on all secured promissory notes
issued under any indenture on the applicable maturity date, or upon deposit
with the applicable loan trustee of sufficient money no earlier than one year
prior to the date of such maturity, the holders of the secured promissory notes
will have no beneficial interest in or other rights with respect to the related
aircraft or other assets subject to this lien of the indenture and the lien
will terminate.
Assumption of Obligations by US Airways
Unless otherwise specified in the applicable prospectus supplement, upon our
purchase of any leased aircraft prior to the end of the applicable term, we may
assume on a full recourse basis all of the obligations of the owner trustee,
other than its obligations in its individual capacity, under the indenture and
the leased aircraft notes relating to that lease. If we assume leased aircraft
notes, provisions relating to maintenance, possession and use of the related
aircraft, liens and insurance will be incorporated into the indenture. If we
assume leased aircraft notes in connection with our purchase of a leased
aircraft, leased aircraft notes issued under the indenture will not be redeemed
and will continue to be secured by the aircraft. We may not assume leased
aircraft notes unless, among other things, we have provided an opinion of
counsel to the effect that:
. the loan trustee will be entitled to the benefits of Section 1110 of the
U.S. Bankruptcy Code, except that the opinion need only be given if,
immediately prior to the assumption, the owner trustee would have been
entitled to the benefits of Section 1110; and
. holders of the secured promissory notes being assumed will not recognize
income, gain or loss for federal income tax purposes as a result of the
assumption and will be subject to federal income tax on the same amount
and in the same manner and at the same time as would have been the case
if the assumption had not occurred.
Parent Guarantee
Our parent may guarantee the full and prompt payment of any or all amounts
payable or provided by us under the leases and other agreements related to a
series of certificates and the full and prompt payment by us of principal of,
premium, if any, and interest on owned aircraft notes related to a series of
certificates. Any guarantee will be described in the prospectus supplement
relating to the series of certificates issued by a pass through trust that owns
the leased aircraft notes or owned aircraft notes and will indirectly or
directly benefit from this guarantee. Unless otherwise stated in the applicable
prospectus supplement, we anticipate that this guarantee:
. will be unconditional;
. will be enforceable without any need first to enforce any lease or owned
aircraft note against us; and
. will be an unsecured obligation of our parent.
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Intercreditor Issues
Secured promissory notes may be issued in different classes, which means that
the secured promissory notes may have different payment priorities even though
they are issued by the same borrower, relate to the same aircraft and are
issued under the same indenture. If multiple classes of secured promissory
notes are issued, the related prospectus supplement will describe the priority
of distributions among the secured promissory notes, the ability of any class
to exercise and/or enforce any or all remedies with respect to the related
aircraft, and, if the secured promissory notes are leased aircraft notes, the
related lease, and other intercreditor terms and provisions.
Owner Participant; Revisions to Agreements
If specified in the applicable prospectus supplement, at the time
certificates are issued, we may still be seeking owner participants to invest
in certain leveraged lease transactions for the aircraft. The prospective owner
participants may request revisions to the forms of participation agreement,
lease, trust agreement and indenture so that the terms of the agreements
applicable to these aircraft may differ from the description of the agreements
contained in the applicable prospectus supplement.
The terms of those agreements, however, will be required to:
. contain certain mandatory document terms; or
. not vary certain mandatory economic terms.
In addition, we will be obligated:
. to certify to the pass through trustee that the modifications will not
materially and adversely affect the certificateholders; and
. if the forms of documents are modified in any material respect that is
adverse to the certificateholders, to obtain written confirmation from
each rating agency that the use of modified versions of such agreements
will not result in a withdrawal, suspension or downgrading of the rating
of any class of certificates.
U.S. INCOME TAX MATTERS
General
The following summary describes the material U.S. federal income tax
consequences to certificateholders of the purchase, ownership and disposition
of the certificates offered by this prospectus and in the opinion of Skadden,
Arps, Slate, Meagher & Flom LLP, tax counsel to US Airways, is accurate in all
material respects with respect to the matters discussed in this prospectus.
Except as otherwise specified, the summary is addressed to the initial
beneficial owners of certificates that are citizens or residents of the United
States, corporations, partnerships or other entities created or organized in or
under the laws of the United States or any state therein, or estates, the
income of which is subject to U.S. federal income taxation regardless of its
source, or trusts if a court within the U.S. is able to exercise primary
jurisdiction over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust that will
hold the certificates as capital assets. This summary does not address the tax
treatment of U.S. certificateholders that may be subject to special tax rules,
for example, banks or insurance companies, nor does it address the tax
treatment of U.S. certificateholders that do not acquire certificates at the
initial offering price as part of the initial offering. This summary is not a
comprehensive description of all of the tax considerations that may be relevant
to a decision to purchase certificates. It does not describe any tax
consequences arising under the laws of any state, locality or taxing
jurisdiction other than the United States.
The summary is based on laws, regulations, rulings and decisions in effect on
the date of this prospectus. Changes to existing law could have a retroactive
effect and could alter the tax consequences discussed below. No rulings have
been sought from the IRS with respect to the federal income tax consequences,
discussed
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below, and no assurances can be given that the IRS will not take contrary
positions. The pass through trusts are not indemnified for any federal income
taxes that may be imposed upon them, and the imposition of those taxes on a
pass through trust could result in a reduction in the amounts available for
distribution to the certificateholders of that pass through trust. Prospective
investors should consult their own tax advisors with respect to the federal,
state, local and foreign tax consequences to them of the purchase, ownership
and disposition of the certificates.
Tax Treatment of the Pass Through Trusts and Certificateholders
Each pass through trust will not itself be subject to U.S. federal income
taxation. Each U.S. certificateholder will be required to report on its federal
income tax return its pro rata share of the entire income from the secured
promissory notes and any other property held in the related pass through trust,
in accordance with the U.S. certificateholder's method of accounting.
Accordingly, each U.S. certificateholder's share of interest paid on the
secured promissory notes will be taxable as ordinary income, as it is paid or
accrued, and a U.S. certificateholder's share of any premium paid on redemption
of a secured promissory note will be treated as capital gain. If the proceeds
from the sale of certificates are invested with a depositary or held pursuant
to an escrow arrangement prior to the purchase of secured promissory notes by a
pass through trust, the resulting deposits may be subject to the original issue
discount rules, with the result that a U.S. certificateholder may be required
to include interest income from that deposit under the accrual method of
accounting regardless of its normal method. If certificates issued by a pass
through trust are supported by a liquidity facility, any amounts received by
the pass through trust under the liquidity facility for unpaid interest will be
treated for U.S. federal income tax purposes as having the same characteristics
as the payments they replace.
Each U.S. certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding pass through trust as provided in Section 162 or 212 of
the Internal Revenue Code of 1986, referred to as the Code. Certain fees and
expenses, including fees paid to the pass through trustee and the provider of
the liquidity facility, if applicable, will be paid by parties other than the
certificateholders. These fees and expenses could be treated as constructively
received by the pass through trust, in which event a U.S. certificateholder
could be required to include in income and entitled to deduct its pro rata
share of the fees and expenses. If a U.S. certificateholder is an individual,
estate or trust, the deduction for the certificateholder's share of fees or
expenses will be allowed only to the extent that all of the certificateholder's
miscellaneous itemized deductions, including the certificateholder's share of
fees and expenses, exceed 2% of the certificateholder's adjusted gross income.
In addition, in the case of U.S. certificateholders who are individuals,
certain otherwise allowable itemized deductions will be subject generally to
additional limitations on itemized deductions under applicable provisions of
the Code.
Effect of Subordination on Certificateholders of Subordinated Trusts
In the event that any pass through trust is subordinated in right of payment
to any other pass through trust and the subordinated trust receives less than
the full amount of the interest, principal or premium paid with respect to the
secured promissory notes held by it because of the subordination of the pass
through trust, the certificateholders of the subordinated trust would probably
be treated for federal income tax purposes as if they had (a) received as
distributions their full share of principal, interest, or premium, (b) paid
over to a preferred class of certificateholders an amount equal to their share
of the amount of the shortfall, and (c) retained the right to reimbursement of
the amount of the shortfall to the extent of future amounts payable to the
certificateholders of the subordinated trust on account of the shortfall.
Under this analysis, (a) subordinated certificateholders incurring a
shortfall would be required to include as current income any interest or other
income of the subordinated trust that was a component of the shortfall, even
though such amount was in fact paid to a preferred class of certificateholders,
(b) a loss would only be allowed to subordinated certificateholders when their
right to receive reimbursement of the shortfall becomes worthless (i.e., when
it becomes clear that funds will not be available from any source to reimburse
the shortfall), and (c) reimbursement of the shortfall prior to a claim of
worthlessness would not be taxable income to certificateholders because the
amount reimbursed would have been included in income. These results should
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not significantly affect the inclusion of income for certificateholders on the
accrual method of accounting, but could accelerate inclusion of income to
certificateholders on the cash method of accounting by, in effect, placing them
on the accrual method.
Original Issue Discount
The secured promissory notes may be issued with original issue discount
("OID"). The prospectus supplement will state whether any secured promissory
notes to be held by the related pass through trust will be issued with OID.
Generally, a holder of a debt instrument issued with OID that is not negligible
must include such OID in income for federal income tax purposes as it accrues,
in advance of the receipt of the cash attributable to this income, under a
method that takes into account the compounding of interest.
Sale or Other Disposition of the Certificates
Upon the sale, exchange or other disposition of a certificate, a U.S.
certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the sale or exchange (other than any
amount attributable to accrued interest which will be taxable as ordinary
income) and the U.S. certificateholder's adjusted tax basis in the secured
promissory notes and other property held by the corresponding pass through
trust. Any gain or loss will be long-term capital gain or loss to the extent
attributable to property held by the pass through trust for more than one year.
In the case of individuals, estates, and trusts, the maximum U.S. federal
income tax rate on long-term capital gains generally is 20%. In the event that
the proceeds from the sale of certificates are invested with a depositary or
held pursuant to an escrow arrangement prior to the purchase of secured
promissory notes by a pass through trust, any gain with respect to an interest
in the resulting deposits likely will be treated as ordinary income.
Foreign Certificateholders
Under present U.S. federal income tax law, assuming certain certification
requirements are satisfied (which include identification of the beneficial
owner of a certificate), and subject to the discussion of backup withholding
below:
. interest paid (including any OID) on a certificate to, or on behalf of,
any beneficial owner of a certificate that is not a U.S. person will not
be subject to U.S. federal income tax or withholding tax provided that
(a) the non-U.S. certificateholder does not actually or constructively
own 10% or more of the total combined voting power of all classes of
stock of an owner participant or us, (b) the non-U.S. certificateholder
is not (A) a bank receiving interest pursuant to a loan agreement
entered into in the ordinary course of its trade or business, or (B) a
controlled foreign corporation for U.S. tax purposes that is related to
an owner participant or us, and (c) the interest payments are not
effectively connected with the non-U.S. certficateholder's conduct of a
U.S. trade or business; and
. a non-U.S. certificateholder will not be subject to U.S. federal income
tax on any capital gain realized on the sale, exchange or other
disposition of a certificate, unless (a) the non-U.S. certificateholder
is an individual who is present in the United States for 183 days or
more during the taxable year of the sale or exchange and certain other
requirements are met or (b) the gain is effectively connected with the
non-U.S. certificateholder's conduct of a U.S. trade or business.
The certification referred to above may be made on an IRS Form W-8 or
substantially similar substitute form.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain payments
within the United States of principal, interest, OID and premium on the
certificates, and to payments of the proceeds of certain sales of
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certificates made to U.S. certificateholders other than certain exempt
recipients (such as corporations). A 31% backup withholding tax may apply to
the payments if the holder fails or has failed to provide an accurate taxpayer
identification number or otherwise establish an exemption or fails to report in
full interest income. With respect to non-U.S. certificateholders, payments
made on a certificate and proceeds from the sale of a certificate owned by a
non-U.S. certificateholder will generally not be subject to information
reporting requirements or the backup withholding tax if the non-U.S.
certificateholder provides the required certification of its non-U.S. status or
otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a refund or credit against the
certificateholder's U.S. federal income tax liability, if any, provided the
required information is furnished to the IRS.
The Treasury Department recently issued final regulations governing backup
withholding and information reporting requirements. The regulations do not
significantly alter the substantive withholding and information reporting
requirements discussed above; they unify current certification procedures and
forms and clarify reliance standards. The regulations will generally become
effective for payments made after December 31, 2000.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, the
certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan subject to Title I of the Employee Retirement
Income Security Act of 1974, referred to as ERISA, or an individual retirement
account or an employee benefit plan subject to section 4975 of the Code. A
fiduciary of an employee benefit plan must determine that the purchase and
holding of a certificate is consistent with its fiduciary duties under ERISA
and does not result in a non-exempt prohibited transaction as defined in
section 406 of ERISA or section 4975 of the Code. Employee benefit plans which
are governmental plans, as defined in section 3(32) of ERISA, and certain
church plans, as defined in section 3(33) of ERISA, are not subject to Title I
of ERISA or section 4975 of the Code. The certificates may, subject to certain
legal restrictions, be purchased and held by such plans.
PLAN OF DISTRIBUTION
Certificates may be sold to one or more underwriters for public offering and
sale by them to investors or other persons directly or through one or more
dealers or agents. Any underwriter, dealer or agent involved in the offer and
sale of the certificates will be named in an applicable prospectus supplement.
The certificates may be sold from time to time in one or more transactions at
a fixed price or prices, which may be changed, at market prices prevailing at
the time of sale, at prices based on the prevailing market prices or at
negotiated prices. Dealer trading may take place in certain of the
certificates, including certificates not listed on any securities exchange. We
do not intend to apply for listing of the certificates on a national securities
exchange. We also may, from time to time, authorize underwriters acting as our
agents to offer and sell the certificates upon the terms and conditions as will
be set forth in any prospectus supplement. In connection with the sale of
certificates, underwriters may be deemed to have received compensation from us
in the form of underwriting discounts or commissions and may also receive
commissions from purchasers of certificates for whom they may act as agent.
Underwriters may sell certificates to or through dealers, and dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions (which may be changed from time to time)
from the purchasers for whom they may act as agent.
If a dealer is used directly by us in the sale of certificates in respect of
which this prospectus is delivered, the certificates will be sold to the
dealer, as principal. The dealer may then resell the certificates to the public
at varying prices to be determined by the dealer at the time of resale. Any
dealer used directly by us and the terms of any sale to that dealer will be set
forth in the related prospectus supplement.
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Certificates may be offered and sold through agents designated by us from
time to time. Any agent involved in the offer or sale of the certificates in
respect of which this prospectus is delivered will be named in, and any
commissions payable by us to that agent will be set forth in, the applicable
prospectus supplement. Unless otherwise indicated in the applicable prospectus
supplement, that agent will be acting on a best efforts basis for the period of
its appointment.
We may directly solicit offers to purchase certificates and sales under those
offerings may be made by us directly to institutional investors or others who
may be deemed to be underwriters within the meaning of the Securities Act of
1933 with respect to any resale of the certificates. We will describe the terms
of these sales will be described in the prospectus supplement. Except as set
forth in the applicable prospectus supplement, none of our directors, officers
or employees will solicit or receive a commission in connection with our direct
sales of the certificates, although those persons may respond to inquiries by
potential purchasers and perform ministerial and clerical work in connection
with any direct sales.
Any underwriting compensation that we pay to underwriters, dealers or agents
in connection with the offering of certificates, and any discounts, concessions
or commissions that underwriters allow to participating dealers, will be set
forth in an applicable prospectus supplement. Underwriters, dealers and agents
participating in the distribution of the certificates may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the certificates may be deemed to be underwriting
discounts and commissions under the Securities Act. We may indemnify
underwriters, dealers and agents against certain civil liabilities, including
liabilities under the Securities Act. We may reimburse underwriters, dealers
and agents for expenses incurred in connection with the offer or sale of
certificates.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, us, our parent and our subsidiaries and affiliates in the
ordinary course of business.
If so indicated in an applicable prospectus supplement and subject to
existing market conditions, we will authorize dealers acting as our agents to
solicit offers by certain institutions to purchase certificates at the public
offering price set forth in the prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on the date or dates
stated in that prospectus supplement. Each contract will be for an amount not
less than, and the aggregate principal amount of certificates sold pursuant to
contracts will be equal to, the respective amounts stated in that prospectus
supplement. Institutions with whom contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and other
institutions, in all cases be subject to our approval. Contracts will not be
subject to any conditions except that the purchase by an institution of the
certificates covered by its contracts will not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which
that institution is subject. A commission indicated in the applicable
prospectus supplement will be granted to underwriters and agents soliciting
purchases of certificates pursuant to contracts accepted by us. Agents and
underwriters will have no responsibility in respect of the delivery or
performance of contracts.
If any underwriter is utilized in the sale of any certificates, the
applicable prospectus supplement will contain a statement as to the intention,
if any, of the underwriter at the date of the prospectus supplement to make a
market in the certificates. No assurances can be given that there will be a
market for the certificates.
The place and time of delivery for the certificates in respect of which this
prospectus is delivered will be set forth in the applicable prospectus
supplement.
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SELLING CERTIFICATEHOLDERS
Certificates issued pursuant to this prospectus may be reoffered pursuant to
this prospectus by the holders of certificates, from time to time, in
transactions on the open market, in negotiated transactions, through the
writing of options on the certificates or through a combination of these
methods of sale, at negotiated prices, fixed prices that may be changed, market
prices prevailing at the time of sale or prices relating to the prevailing
market prices. The selling certificateholders may effect these transactions by
selling the certificates to or through broker-dealers, and the broker-dealers
may receive compensation in the form of discounts, concessions or commissions
from the selling certificateholders, the purchasers of certificates for whom
the broker-dealer may act as agent or to whom they may sell as principal or
both. We will not receive any part of the proceeds from the resale by the
selling certificateholders of any certificates pursuant to this prospectus.
Unless otherwise provided in the applicable prospectus supplement, we will bear
all expenses, other than selling discounts and commissions and fees and
expenses of the selling certificateholders, in connection with the registration
of the certificates being reoffered by the selling certificateholders.
The identity of the selling certificateholders, the number of certificates
sold by the selling certificateholders and the price per certificate will be
determined at the time of the consummation of the particular transaction.
Specific information regarding the transaction, the identity of the selling
certificateholders and the number of certificates to be resold may be provided
at the time of the applicable transaction by means of a supplement or a post-
effective amendment to this prospectus, as applicable.
The selling certificateholders and any broker-dealers who act in connection
with the sale of those certificates may be deemed to be an "underwriter" within
the meaning of Section 2(11) of the Securities Act, and any commissions
received by them and profit on any resale of those certificates as principal
may be deemed to be underwriting discounts and commissions under the Securities
Act. We intend to make available public information concerning ourself in
compliance with the Securities Act and the related regulations and,
accordingly, Rule 144 or Rule 145 under the Securities Act may be available for
use by holders of certificates to effect transfers of those securities, subject
to compliance with the remaining provisions of those rules.
LEGAL OPINIONS
Unless otherwise indicated in the applicable prospectus supplement, Skadden,
Arps, Slate, Meagher & Flom (Illinois) and its affiliates will render an
opinion with respect to the validity of the securities being offered by this
prospectus. Unless otherwise indicated in the applicable prospectus supplement,
Skadden, Arps, Slate, Meagher & Flom (Illinois) and its affiliates will rely on
the opinion of counsel for the pass through trustee as to certain matters
relating to the authorization, execution and delivery of the certificates by,
and the valid and binding effect on, the pass through trustee.
EXPERTS
The consolidated financial statements of US Airways and its subsidiary and US
Airways Group and its subsidiaries as of December 31, 1998 and 1997, and for
each of the years in the three-year period ended December 31, 1998 that are
included in US Airways' and US Airways Group's combined Annual Report on Form
10-K for the year ended December 31, 1998, have been incorporated by reference
in the registration statement in reliance upon the reports of KPMG LLP,
independent certified public accountants, incorporated by reference, and upon
the authority of KPMG LLP as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We and our parent file annual, quarterly and special reports, proxy
statements and other information with the SEC under the Securities Exchange Act
of 1934. You may read and copy this information at the following locations of
the SEC:
Judiciary Plaza, Seven World Trade Center,
Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison Street,
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661
You may also obtain copies of this information by mail from the Public
Reference Room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You may obtain information on the operation of the Public
Reference Room by calling the SEC at (800) SEC-0330.
The SEC also maintains an internet world wide web site that contains reports,
proxy statements and other information about issuers, like us, who file
electronically with the SEC. The address of that site is http://www.sec.gov.
You may also inspect reports, proxy statements and other information about us
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
We and our parent have filed jointly with the SEC a registration statement on
Form S-3 that registers the securities and guarantees we are offering. The
registration statement, including the attached exhibits and schedules, contains
additional relevant information about us, our parent and the securities
offered. The rules and regulations of the SEC allow us to omit certain
information included in the registration statement from this prospectus.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be part of this
prospectus, except for any information that is superseded by information that
is included directly in this document.
This prospectus includes by reference the documents listed below that we and
our parent previously have filed with the SEC and that are not included in or
delivered with this document. They contain important information about our
company and its financial condition.
<TABLE>
<CAPTION>
Filing Period
- ------ ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Current Reports on Form 8-K Filed January 21, 1999
Filed March 5, 1999
Filed March 30, 1999
Filed April 9, 1999
Filed April 21, 1999
Filed May 18, 1999
Filed June 4, 1999
Filed June 8, 1999
Filed July 14, 1999
Filed July 21, 1999
</TABLE>
We incorporate by reference additional documents that we and our parent may
file with the SEC between the date of this prospectus and the date of the
closing of each offering. These documents include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements.
You may obtain any of these documents from us without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference as an exhibit to this prospectus. You may obtain documents
incorporated by reference in this prospectus by requesting them in writing or
by telephone from us at the following address:
Secretary
US Airways, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
(703) 872-7000.
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[LOGO OF US AIRWAYS APPEARS HERE]
