<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-79825
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus supplement is not complete and +
+may be changed. We may not deliver these securities until a final prospectus +
+supplement is delivered in final form. This preliminary prospectus supplement +
+and the accompanying prospectus are not an offer to sell these securities and +
+we are not soliciting offers to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 16, 2000
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus Dated July 30, 1999)
$373,654,000
[LOGO OF US AIRWAYS]
2000-1 Pass Through Trusts
Pass Through Certificates, Series 2000-1
-------
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 five Airbus aircraft. The certificates do not represent interests in or
obligations of US Airways or any of our affiliates.
We are offering class G and class C certificates by this prospectus
supplement.
Interest related to the certificates will be paid semiannually, on each
February 20 and August 20, beginning August 20, 2000. Principal payments
related to the class G certificates are expected to be paid on February 20 and
August 20 in scheduled years, beginning on February 20, 2001. The entire
principal amount of the class C certificates is scheduled to be paid on
February 20, 2005.
In most cases, scheduled payments relating to the certificates will be made
first on the class G certificates and second on the class C certificates.
Bayerische Landesbank Girozentrale 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.
MBIA Insurance Corporation will issue a financial guaranty insurance policy
to support the payment of interest on the class G certificates when due and the
payment of the outstanding balance on the class G certificates due on the final
maturity date for those certificates and under certain other circumstances as
described in this prospectus supplement.
[LOGO of MBIA]
-------
Investing in the certificates involves risks. See "Risk Factors" beginning on
page S-20.
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.
-------
<TABLE>
<CAPTION>
Pass Through Interest Final Expected Price to
Certificates Face Amount* Rate Distribution Date* Public(1)
- ------------ ------------ -------- ------------------ ---------
<S> <C> <C> <C> <C>
2000-1G $281,678,000 % February 20, 2017 100%
2000-1C $ 91,976,000 % February 20, 2005 100%
</TABLE>
* Indicative only and subject to change.
(1) Plus accrued interest, if any, from the date of issuance.
-------
The underwriters will purchase all of the class G and class C certificates,
if any are purchased, subject to the satisfaction of certain conditions. The
aggregate proceeds from the sale of the class G and class C certificates will
be $373,654,000. US Airways will pay the underwriters a commission of $ .
Salomon Smith Barney Inc. expects to deliver the certificates to purchasers on
February , 2000. The certificates will not be listed on any national
securities exchange.
-------
Salomon Smith Barney
Chase Securities Inc.
Credit Lyonnais Securities
Credit Suisse First Boston
February , 2000
<PAGE>
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus supplement or the accompanying prospectus is accurate as of any date
other than the date on the front of this prospectus supplement.
----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
Presentation of Information................................................ S-1
Prospectus Supplement Summary.............................................. S-2
The Offering.............................................................. S-2
Certificates.............................................................. S-2
Pass Through Trusts....................................................... S-2
Secured Promissory Notes.................................................. S-3
Delayed Aircraft Financing and Termination of Delivery Period............. S-4
Summary of Terms of Certificates.......................................... S-5
Secured Promissory Notes and the Aircraft................................. S-6
Loan to Aircraft Value Ratios............................................. S-7
Cash Flow Structure....................................................... S-8
The Offering............................................................... S-9
Summary Financial and Operating Data....................................... S-18
Risk Factors............................................................... S-20
Risk Factors Relating to US Airways....................................... S-20
Risk Factors Relating to the Airline Industry............................. S-24
Risk Factors Relating to the Certificates and the Offering................ S-26
Risk Factors Relating to the Policy Provider.............................. S-28
Forward-Looking Statements................................................. S-30
US Airways................................................................. S-31
Domestic Service.......................................................... S-31
Expanding International Service........................................... S-32
Code Sharing Relationships................................................ S-33
The US Airways and American Airlines Marketing Relationship............... 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-35
Legal Proceedings......................................................... S-35
Description of the Policy Provider......................................... S-37
General................................................................... S-37
MBIA...................................................................... S-37
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
MBIA Financial Information............................................... S-37
Where You Can Obtain Additional Information About MBIA................... S-38
Financial Strength Ratings of MBIA....................................... S-38
Use of Proceeds........................................................... S-39
Description of the Certificates........................................... S-39
General.................................................................. S-39
Payments and Distributions............................................... S-40
Pool Factors............................................................. S-44
Reports to Certificateholders............................................ S-45
Indenture Defaults and Certain Rights upon an Indenture Default.......... S-45
Purchase Rights of Certificateholders.................................... S-47
PTC Event of Default..................................................... S-48
Merger, Consolidation and Transfer of Assets............................. S-48
Modifications of the Pass Through Trust Agreements and Certain Other
Agreements.............................................................. S-49
Obligation to Purchase Secured Promissory Notes.......................... S-51
Termination of the Pass Through Trusts................................... S-57
The Pass Through Trustees................................................ S-57
Book-Entry; Delivery and Form............................................ S-57
Description of the Deposit Agreements..................................... S-59
General.................................................................. S-59
Unused Deposits.......................................................... S-59
Distribution upon Occurrence of a Triggering Event....................... S-60
Depositary............................................................... S-60
Replacement of Depositary................................................ S-60
Description of the Escrow Agreements...................................... S-60
Description of the Liquidity Facilities................................... S-61
General.................................................................. S-61
Drawings................................................................. S-61
Reimbursement of Drawings................................................ S-63
Liquidity Events of Default.............................................. S-64
Liquidity Provider....................................................... S-65
</TABLE>
<PAGE>
PROSPECTUS SUPPLEMENT (Cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Description of the Policy and the Policy Provider Agreement................ S-65
The Policy................................................................ S-65
General................................................................... S-67
The Policy Provider Agreement............................................. S-68
Description of the Intercreditor Agreement................................. S-68
Intercreditor Rights...................................................... S-68
Priority of Distributions................................................. S-70
The Subordination Agent................................................... S-72
Description of the Aircraft and the Appraisals............................. S-73
The Aircraft.............................................................. S-73
The Appraisals............................................................ S-73
Deliveries of Aircraft.................................................... S-74
Substitute Aircraft....................................................... S-74
Description of the Secured Promissory Notes................................ S-74
General................................................................... S-75
Subordination............................................................. S-75
Principal and Interest Payments........................................... S-75
Redemption................................................................ S-76
Security.................................................................. S-77
Loan to Value Ratios of Secured Promissory Notes.......................... S-77
Limitation of Liability................................................... S-78
Indenture Defaults, Notice and Waiver..................................... S-79
Remedies.................................................................. S-80
Modification of Indentures and Leases..................................... S-82
Indemnification........................................................... S-83
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Leases and the Owned Aircraft Indentures........................... S-83
U.S. Income Tax Matters................................................. S-89
General................................................................ S-89
Tax Treatment of the Pass Through Trusts and Certificateholders........ S-90
Effect of Subordination on Certificateholders of Subordinated Trusts... S-91
Sale or Other Disposition of the Certificates.......................... S-91
Foreign Certificateholders............................................. S-91
Information Reporting and Backup Withholding........................... S-92
Certain Connecticut Taxes............................................... S-92
ERISA Considerations.................................................... S-93
General................................................................ S-93
Plan Assets Issues..................................................... S-93
Prohibited Transaction Exemptions...................................... S-93
Underwriter Exemption May Apply to Purchase of Class G Certificates by
Plans................................................................. S-94
Special Considerations Applicable to Insurance Company General
Accounts.............................................................. S-95
Underwriting............................................................ S-96
Legal Matters........................................................... S-97
Experts................................................................. S-97
Glossary................................................................ S-98
Appraisal Letters................................................. Appendix I
</TABLE>
<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................................................ 20
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.................................................. 21
Book-Entry Registration................................................... 21
Description of the Secured Promissory Notes................................ 24
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
General.................................................................. 24
Principal and Interest Payments.......................................... 25
Redemption............................................................... 25
Security................................................................. 25
Ranking of Secured Promissory Notes...................................... 28
Payments Under Leases and Limitation of Liability........................ 28
Defeasance of the Indentures and the Secured Promissory Notes in Certain
Circumstances........................................................... 29
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>
<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 to this prospectus supplement.
S-1
<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.
This supplement first describes the pass through certificates and the pass
through trusts that will issue the pass through certificates. It also describes
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 will 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 G certificates will be issued by the class G pass through trust.
. Class C certificates will be issued by the class C pass through trust.
As described in this prospectus supplement, each class of certificates is
entitled to the benefits of a separate liquidity facility provided by
Bayerische Landesbank Girozentrale. 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.
The class G certificates are entitled to the benefits of a financial
guaranty insurance policy to support the payment of interest on the class G
certificates when due, under certain circumstances, and the payment of the
outstanding balance on the class G certificates on the final maturity date for
such certificates and under certain other circumstances. The class C
certificates are not entitled to the benefits of any financial guaranty
insurance policy.
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.
S-2
<PAGE>
State Street Bank and Trust Company will guarantee 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.
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
S-3
<PAGE>
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
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., 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 (i) the date all
aircraft described in this prospectus supplement are financed, and (ii)
February 7, 2001. If all the promissory notes relating to the aircraft (or
substitute aircraft in lieu thereof) have not been purchased by February 7,
2001 on account of manufacturing delays that occur for reasons beyond our
control and that are not occasioned by our fault or negligence, then the
February 7, 2001 date may be extended to the earlier of (i) the date all
aircraft described in the prospectus supplement are financed, and (ii) June 7,
2001.
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-4
<PAGE>
Summary of Terms of Certificates*
<TABLE>
<CAPTION>
Class G Certificates Class C Certificates
------------------------------ ------------------------------
<S> <C> <C>
Aggregate Face Amount... $281,678,000 $91,976,000
Ratings:
Moody's............... Aaa Ba2
Standard & Poor's..... AAA BBB-
Initial Loan to Aircraft
Value (cumulative)(1).. 48.1% 64.3%
Expected Principal
Distribution
Windows (in years)..... 1.0-17.0 5.0
Initial Average Life (in
years from
issuance date)......... 10.0 5.0
Regular Distribution
Dates.................. February 20 and August 20 February 20 and August 20
Final Expected Regular
Distribution Date...... February 20, 2017 February 20, 2005
Final Maturity Date..... August 20, 2018 August 20, 2006
Minimum Denomination.... $1,000 $1,000
Section 1110
Protection............. Yes Yes
Liquidity Facility
Coverage............... 3 semiannual interest payments 3 semiannual interest payments
Insurance Policy
Coverage(2)............ Yes No
</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 February 20, 2001, the first regular
distribution date after all aircraft are scheduled to have been delivered.
Regular distribution dates will be February 20 and August 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 February 7, 2001. 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 $567,980,000 as of February
20, 2001. 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."
(2) The insurance policy will support the payment of interest on the class G
certificates (when due and after taking into account the application of any
amount received by the escrow agent as accrued interest on the class G
deposits and the prior use of any available funds under the liquidity
facility or the cash collateral account for the class G certificates) and
the payment of the outstanding balance of the class G certificates due on
the final maturity date for the class G certificates and in certain other
circumstances as described in this prospectus supplement.
S-5
<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
Principal Principal
Amount of Amount of
Series G Series C
Expected Manufacturer's Scheduled Secured Secured
Registration Serial Delivery Promissory Promissory Appraised
Aircraft Type Number Number Month(1) Notes* Notes(2)* Base Value(3)
------------- ------------ -------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Airbus A330-300 N672UW 333 April 2000 $56,105,300 $20,609,700 $114,500,000
Airbus A330-300 N673UW 337 May 2000 56,105,300 20,609,700 114,500,000
Airbus A330-300 N674UW 342 June 2000 56,203,300 20,645,700 114,700,000
Airbus A330-300 N675US 370 November 2000 56,595,300 20,789,700 115,500,000
Airbus A330-300 N676UW 375 December 2000 56,668,800 20,816,700 115,650,000
</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. The delivery period termination date is
the earlier of (i) the date all aircraft described in this prospectus
supplement are financed, and (ii) February 7, 2001. If all the promissory
notes relating to the aircraft (or substitute aircraft in lieu thereof)
have not been purchased by February 7, 2001 on account of manufacturing
delays that occur for reasons beyond our control and that are not
occasioned by our fault or negligence, then the February 7, 2001 date may
be extended to the earlier of (i) the date all aircraft described in the
prospectus supplement are financed, and (ii) June 7, 2001. See "Description
of the Aircraft and the Appraisals--Substitute Aircraft."
(2) For optimization purposes, the actual principal amount of 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-6
<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 February 20, 2001 and as of
each subsequent February 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 Ratios of Secured
Promissory Notes." The LTV ratios for any class of certificates as of dates
prior to February 20, 2001 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 G Class C
Regular Aggregate Certificates Certificates Class G Class C
Distribution Aircraft Pool Pool Certificates Certificates
Date Value(1) Balance(2) Balance(2) LTV(3) LTV(3)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
February 20, 2001....... $567,980,000 $272,978,000 $91,976,000 48.1% 64.3%
February 20, 2002....... 550,734,500 260,478,000 91,976,000 47.3 64.0
February 20, 2003....... 533,489,000 247,978,000 91,976,000 46.5 63.7
February 20, 2004....... 516,243,500 235,478,000 91,976,000 45.6 63.4
February 20, 2005....... 498,998,000 222,728,000 0 44.6 NA
February 20, 2006....... 481,752,500 209,098,000 0 43.4 NA
February 20, 2007....... 464,507,000 194,628,000 0 41.9 NA
February 20, 2008....... 447,261,500 179,318,000 0 40.1 NA
February 20, 2009....... 430,016,000 163,168,000 0 37.9 NA
February 20, 2010....... 412,770,500 146,178,000 0 35.4 NA
February 20, 2011....... 395,525,000 128,348,000 0 32.5 NA
February 20, 2012....... 378,279,500 109,678,000 0 29.0 NA
February 20, 2013....... 361,034,000 90,168,000 0 25.0 NA
February 20, 2014....... 343,788,500 69,818,000 0 20.3 NA
February 20, 2015....... 326,543,000 48,628,000 0 14.9 NA
February 20, 2016....... 307,007,500 26,598,000 0 8.7 NA
February 20, 2017....... 284,013,500 0 0 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 and by 4% per year for the next 5 years. Other depreciation
assumptions would result in important differences in the LTV ratios. We
have also assumed that the secured promissory notes relating to certain
aircraft would be fully amortized prior to the final maturity date of the
certificates and consequently the value of such aircraft would no longer be
included in assumed aggregate aircraft value as set forth in the table.
(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-7
<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 G 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 G 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 G 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
subordination agent may also receive policy drawings, if any, and pay
reimbursements, if any, to the policy 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 G certificates
and the holders of class C certificates.]
- --------
(1) The Owner Trust 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 from the liquidity facilities cover up to three interest
payments on the certificates of the pass through trusts.
(4) The policy covers payment of interest on and the outstanding balance of the
class G certificates in the circumstances described herein. The policy does
not cover any amounts payable in respect of the class C certificates.
(5) These payments will be made from payments on the secured promissory notes
as supplemented by the liquidity facilities and, with respect to the class
G certificates only, the insurance policy.
(6) The proceeds of the public offering of the class G and 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 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, and in certain
circumstances, the amount of premium payable with respect to the class C
certificates will be limited.
S-8
<PAGE>
THE OFFERING
Certificates Offered...... . Class G certificates
. Class C certificates
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 five
Airbus aircraft to be operated by us.
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........ Bayerische Landesbank Girozentrale, Munich,
Germany.
Policy Provider........... MBIA Insurance Corporation.
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.
. In the case of the pass through trust for the
class G certificates, all rights under the
insurance policy.
. 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..................... February 20 and August 20, commencing on August 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.
Each pass through trustee will distribute all
scheduled payments of principal and interest paid
on the secured promissory notes on regular
distribution dates.
Each pass through trustee will distribute
principal, premium, if any, and interest received
on the secured promissory notes resulting from
S-9
<PAGE>
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, the subordination agent,
the liquidity provider and the policy provider will
enter into an intercreditor agreement that states
how payments made on the secured promissory notes,
under the liquidity facilities and under the
insurance policy will be shared and distributed
among pass through trustees, the liquidity provider
and the policy provider. The intercreditor
agreement also sets forth agreements among the pass
through trustees, the liquidity provider and the
policy 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 the holders of the class G
certificates; and
. second, to the holders of the class C
certificates.
Certain payments to the liquidity provider and to
the policy provider will be made prior to payments
on all or some of the certificates, as discussed
under "Description of the Intercreditor Agreement
--Distributions." 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 or the
policy provider.
S-10
<PAGE>
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 (and in the case
of the series G secured promissory notes, the
policy provider, under certain circumstances) 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 policy provider, until final distributions
of the aggregate outstanding balance of the
class G certificates, together with accrued and
unpaid interest, are made to the holders of the
class G certificates and no obligations owing to
the policy provider remain outstanding, or if a
policy provider default has occurred and is
continuing, the class G pass through trustee
until payment of final distributions to the
holders of the certificates of that class; and
after that,
. the class C pass through trustee.
Under certain circumstances, the liquidity provider
with the larger amount owed to it may elect to act
as the controlling party, unless the policy
provider provides an endorsement to the insurance
policy to cover all outstanding liquidity facility
obligations and certain other conditions are met or
the policy provider pays to the liquidity provider
all outstanding liquidity facility obligations, in
which case, the policy provider will be the
controlling party (so long as no policy provider
default has occurred and is continuing). See
"Description of the Intercreditor Agreement--
Intercreditor Rights."
Right to Buy Other Class
G Certificates............ If we are in bankruptcy or another triggering event
has occurred, the class C certificateholders will
have the right to purchase all of the class G
certificates, and whether or not such right is
exercised, the policy provider will thereafter have
the right to purchase all of the class G
certificates. See "Description of the
Certificates--Purchase Rights of
Certificateholders."
The purchase price will be the outstanding balance
of the class G certificates plus accrued and unpaid
interest, plus any other amounts then due to the
class G certificateholders.
S-11
<PAGE>
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.
Insurance Policy
Coverage.................. Under the insurance policy, the policy provider
will honor drawings to cover:
. any shortfall on any regular distribution date
(other than the final maturity date) in interest
on the class G certificates at the stated
interest rate for the class G certificates;
. if a series G secured promissory note defaults
in the payment of principal or is accelerated,
any shortfall on any special distribution date
between (a) amounts actually available to the
subordination agent for distribution to the
class G pass through trustee from a disposition
of that series G secured promissory note or of
its underlying collateral and (b) the amount
necessary for the subordination agent to pay to
the class G pass through trustee an amount equal
to the then outstanding principal amount of that
series G secured promissory note plus interest
on that amount at the stated interest rate for
the class G certificates from the last regular
distribution date to that special distribution
date;
. if no payments on the class G certificates
attributable to the proceeds of the disposition
of any series G secured promissory note that has
defaulted in the payment of principal or has
been accelerated (or the disposition of its
underlying collateral) are received by the
subordination agent for a period of 18 months
following the last date on which the
subordination agent received payment in full of
scheduled payments on that series G secured
promissory note, an amount equal to the then
outstanding principal amount of that series G
secured promissory note plus interest at the
stated interest rate for the class G
certificates from the date of the last regular
distribution date to the special distribution
date on which such amounts are paid to the class
G pass through trustee; and
S-12
<PAGE>
. any shortfall on the final maturity date in the
final distribution (other than any unpaid
premium) on the class G certificates.
The policy provider has the right at the end of the
18-month period referred to above, so long as no
policy provider default has occurred and is
continuing, to elect instead:
. to pay on the special distribution date an
amount equal to any shortfall in the scheduled
principal and interest that came due on that
secured promissory note (without regard to the
acceleration of the secured promissory note)
during the 18-month period (after giving effect
to the application of funds received from the
class G liquidity facility or the class G cash
collateral account attributable to that
interest), and
. after the 18-month period, on each regular
distribution date to permit drawings under the
insurance policy for an amount equal to the
scheduled principal (without regard to any
acceleration thereof) and interest at the stated
interest rate for the class G certificates that
were to become due on that secured promissory
note on the related payment date until paid in
full.
After the policy provider has made such election,
on any business day that is a special distribution
date elected by the policy provider upon 20 days'
notice or, following either the occurrence and
continuation of a policy provider default or the
sale or other disposition of that secured
promissory note or its underlying collateral in
connection with the exercise of remedies, on any
business day that is a special distribution date
specified by the subordination agent upon 20 days'
notice, in each case, the subordination agent will
make a policy drawing for an amount equal to the
then outstanding principal balance of that secured
promissory note and accrued interest on that
secured promissory note at the stated interest rate
for the class G certificates from the last regular
distribution date to that special distribution date
(after giving effect to the application of funds,
if any, received on that special distribution date
from the class G liquidity facility or the class G
cash collateral account attributable to such
interest) less any policy drawings previously paid
by the policy provider in respect of principal on
that secured promissory note.
In addition, regardless of whether the policy
provider makes the election, the policy provider
will, at the end of the 18-month period, endorse
(if not already endorsed) the insurance policy to
provide for the payment to the liquidity provider
of interest accruing on the liquidity obligations
for the class G and class C liquidity facilities
from and after the end of the 18-month period as
and when the interest becomes due in accordance
with the liquidity facilities.
Any shortfall in the amounts available to the
subordination agent for distribution to the holders
of the class G certificates will be calculated
after the application of available funds through
the payment priorities of the intercreditor
agreement and of funds received from the escrow
agent, the class G liquidity facility and the class
G cash collateral
S-13
<PAGE>
account. The insurance policy will cover only the
class G certificates, and the proceeds of any
policy drawing, except as noted above, will be
applied only to the outstanding balance of, and
unpaid interest at the stated interest rate, for
the class G certificates.
The subordination agent will reimburse the policy
provider for any policy drawings, which
reimbursement obligation ranks junior to further
distributions on the class G certificates but
(except in certain limited circumstances) senior to
distributions on the class C certificates.
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
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, and in certain circumstances, the
amount of premium payable to the class C
certificates will be limited. 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 G and
class C pass through trustees will be obligated to
purchase the series G and series C secured
promissory notes, respectively, issued for each
aircraft.
We may enter into a leveraged lease financing or a
secured debt financing with respect to each
aircraft pursuant to forms of financing agreements
attached to the note purchase agreement.
S-14
<PAGE>
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 and the policy provider that any
modifications to the forms of the financing
agreements do not materially and adversely affect
the certificateholders or the policy provider and
(b) if such agreements are modified in any material
respect, obtain prior written consent of the policy
provider and 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, without regard
to the insurance policy. 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. 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.
(b) Interest.............. The secured promissory notes held in the class G
pass through trust and the class C 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. Interest on all secured promissory
notes will be payable on February 20 and August 20
of each year, commencing on August 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 G secured
promissory notes are scheduled to be paid on
February 20 and August 20 in scheduled years
beginning on February 20, 2001. The entire
principal amount on the series C secured promissory
notes is scheduled to be paid on February 20, 2005.
(d) Redemption and
Purchase.................. Aircraft Event of Loss. If an aircraft under 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
S-15
<PAGE>
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 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 and the policy provider 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."
S-16
<PAGE>
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 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 Code pursuant to one or more
prohibited transaction statutory or administrative
exemptions. See "ERISA Considerations."
Rating of the
Certificates.............. It is a condition to the issuance of the class G
and class C 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 G Aaa AAA
Class C Ba2 BBB-
</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
Fitch Moody's & Poor's
----- ------- --------
<S> <C> <C> <C> <C>
Policy Provider Rating.... Financial Strength............ AAA Aaa AAA
</TABLE>
<TABLE>
<CAPTION>
Standard
Moody's & Poor's
------- --------
<S> <C> <C> <C>
Rating of the
Depositary................ Short Term......................... P-1 A-1+
Threshold Rating for the
Liquidity Provider....... Short Term
Class G............................ 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-17
<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 nine
months ended September 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 nine months ended September 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>
Nine Months
Ended
September 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...... $ 6,357 $ 6,469 $ 8,556 $ 8,501 $ 7,704 $ 6,985 $ 6,579
Operating Expenses...... 6,104 5,650 7,566 7,915 7,335 6,750 7,096
-------- -------- -------- -------- -------- -------- --------
Operating Income
(Loss)................. 253 819 990 586 369 235 (517)
Other Income (Expense),
Net(1)................. 331 (74) (54) 87 (178) (198) (199)
-------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Taxes.................. 584 745 936 673 191 37 (716)
Provision (Credit) for
Income Taxes........... 233 300 377 (379) 8 4 --
-------- -------- -------- -------- -------- -------- --------
Net Income (Loss)....... $ 351 $ 445 $ 559 $ 1,052 $ 183 $ 33 $ (716)
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges.......... 2.5 2.9 2.7 2.2 1.3 1.1 *
Operating Data(2)
Revenue passenger miles
(millions)(3).......... 31,112 31,263 41,253 41,579 38,943 37,618 37,941
Available seat miles
(millions)(4).......... 43,809 42,260 56,723 58,294 56,885 58,163 61,027
Passenger load
factor(5).............. 71.0% 74.0% 72.7% 71.3% 68.5% 64.7% 62.2%
Breakeven passenger load
factor(6).............. 69.0% 66.3% 65.7% 66.4% 67.9% 64.9% 67.3%
Passenger revenue per
available seat mile
(cents)(7)............. 11.78 12.61 12.38 12.20 11.95 10.78 9.70
Operating cost per
available seat mile
(cents)(8)............. 12.88 12.39 12.34 12.33 12.69 11.40 11.02
Average yield per
revenue passenger mile
(cents)(9)............. 16.59 17.05 17.02 17.10 17.46 16.66 15.61
Average passenger
journey (miles)(10).... 745 714 711 709 688 664 638
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
(in millions of dollars)
<S> <C> <C>
Financial Data--Balance
Sheet
Assets:
Cash and Cash
Equivalents.............. $ 384 $ 604
Short-term Investments.... 632 598
Other Current Assets...... 1,122 1,187
Total Property and
Equipment................ 3,558 3,282
Other Assets, Net(11)..... 1,797 2,027
------ ------
Total Assets............ $7,493 $7,698
====== ======
Liabilities and
Stockholder's Equity:
Current Liabilities....... $2,683 $2,155
Long-term Debt, Net of
Current Maturities....... 1,892 1,954
Deferred Credits and Other
Noncurrent Liabilities... 2,904 2,987
Stockholder's Equity(11).. 14 602
------ ------
Total Liabilities and
Stockholder's Equity... $7,493 $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) For the nine months ended September 30, 1999, Other Income, Net includes a
gain of $274 million relating to the sale of holdings in Galileo
International, Inc.
(2) Represents all of 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.
(3) Revenue passengers multiplied by the number of miles they flew. Includes
scheduled service only (excludes charter service).
(4) Seats available multiplied by the number of miles flown (a measure of
capacity). Includes scheduled service only (excludes charter service).
(5) 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).
(6) Percentage of aircraft seating capacity that must be used in order for the
airline to break-even at the pre-tax income level.
(7) Passenger transportation revenue divided by available seat miles (a measure
of unit revenue). Includes scheduled service only (excludes charter
service).
(8) Total operating expenses divided by available seat miles (a measure of unit
cost).
(9) 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).
(10) Includes scheduled service only (excludes charter service).
(11) As of September 30, 1999 and December 31, 1998, Other Assets, Net included
accounts receivable from our parent of $380 million and $306 million,
respectively. In addition, as of September 30, 1999 and December 31, 1998,
our Stockholder's Equity was reduced by accounts receivable and accrued
interest due from our parent of $1.9 billion and $1.1 billion,
respectively.
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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 September 30, 1999, we had:
. $1.0 billion of cash, cash equivalents and short-term investments;
. a ratio of current assets to current liabilities of 0.8 to 1; and
. $1.96 billion of long-term debt and capital lease obligations.
On December 10, 1999, we entered into a $250 million 364 day credit facility
and a $250 million three year revolving credit facility to provide liquidity
for our operations. We currently do not expect to draw on these facilities.
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 September 30, 1999, our parent had 124
Airbus A320 Family single-aisle aircraft on firm order, 196 Airbus A320 Family
aircraft subject to reconfirmation prior to delivery and options for 50
additional Airbus A320 Family aircraft. Of the remaining A320 Family aircraft
on firm order, 28 aircraft scheduled for delivery between years 2000 and 2003
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 10 Airbus A330-300 aircraft on firm order, four 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 September 30, 1999, 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,
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penalty payments, cancellation fees and/or nonrefundable deposits, were
estimated to be $2.15 billion in 2000, $518 million in 2001, $448 million in
2002 and $409 million in 2003. Our parent expects to assign substantially all
of 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 or secured loan transactions for each 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. 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 further 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 $351 million and $445 million for the nine-month
periods ended September 30, 1999 and September 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 nine months of 1999 were adversely
affected by inclement weather (snow/ice storms/hurricanes) 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 and third quarters of 1999. Our
capacity growth estimates for the full-year 1999 were 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 contributed to an increase in cancellations of
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planned flights in the second and third quarters of 1999, compared to the
second and third quarters of 1998 and 1997, respectively. The passenger
dissatisfaction resulting from these circumstances is also anticipated to have
a continuing negative impact. 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. We also experienced an increase in pricing
pressures and competition during the third quarter of 1999.
Recent Developments
On January 19, 2000, we reported net income of $273 million and operating
income of $139 million for 1999 on revenues of $8.5 billion. For the fourth
quarter of 1999, we reported a net loss of $77 million and an operating loss of
$115 million on revenues of $2.1 billion. As noted above, the year's
performance was affected by a number of factors including poor weather early in
the year, air traffic control issues, increased fuel costs, the implementation
of a new computer system, the integration of new Airbus aircraft, crew
shortages due to training needs and aircraft returning from scheduled
maintenance at a pace slower than anticipated. During 1999, we recorded certain
unusual financial items. Most significantly, we recorded a pretax gain of $274
million in the second quarter relating to the sale of holdings in Galileo
International, Inc. During the fourth quarter, in connection with an evaluation
of our fleet, we recorded a pretax impairment charge of $64 million relating to
the planned retirement of our remaining DC-9 and 17 Boeing 737-200 aircraft.
For additional information, see our Current Report on Form 8-K filed with the
SEC on January 19, 2000 and incorporated herein by reference in its entirety.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." SAB 101 summarizes the SEC's view in
applying generally accepted accounting principles to selected revenue
recognition issues. We are required to apply the guidance in SAB 101 to our
financial statements no later than the first quarter of 2000. We currently are
reviewing the requirements of SAB 101 and assessing its impact on our
consolidated financial statements. We anticipate reporting the impact in the
first quarter of 2000 as a cumulative effect adjustment to our consolidated
financial statements resulting from a change in accounting principles as of
January 1, 2000.
In the near term, we are expecting a loss for the first quarter of 2000.
Unit revenues will be under pressure driven by the capacity imbalances in the
route network, the lingering revenue impacts due to the passenger ill-will
caused by the disappointing operational performance of the 1999 third quarter,
weather-related delays and cancellations and the booking impact due to the
uncertainties associated with the open contract with the flight attendants.
Transactions with US Airways Group
Historically, we have funded some of the activities and financing
transactions of our parent. As of September 30, 1999, our parent owed us $2.4
billion, of which $2.2 billion was not expected to be collected prior to
September 30, 2000 including $1.9 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 September 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% during 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.
In order to achieve those reduced costs, we have negotiated a series of
labor agreements based on a principle of "parity plus one percent." This
approach provides wages and benefits for our labor groups based
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<PAGE>
on those of the same employee groups at our four largest competitors, American
Airlines, United Airlines, Northwest Airlines and Delta Airlines. While
historically we have maintained labor agreements which, as a whole have been
more costly than our competitors, these parity agreements will bring our costs
in line with our competitors while providing comparable wages, benefits and
work rules for our employees.
We have achieved the following "parity plus one percent" agreements with
our principal labor groups:
. 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. This was the first "parity plus one percent"
labor agreement and it includes various provisions that we believe help
address our high cost structure. This 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.
. 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. Their contract is amendable
October 11, 2004.
. Mechanics. On October 6, 1999, our 7,500 mechanics and related
employees, represented by the International Association of Machinists
and Aerospace Workers, ratified a new five year contract. A tentative
agreement that had been reached with this group's negotiating committee
during the second quarter of 1999 was rejected by the group's membership
in that quarter. Their contract is amendable October 11, 2004.
. Passenger Service. Our passenger service employees, approximately 10,400
employees, voted to be represented by the Communications Workers of
America on August 20, 1999 following a court invalidation of the same
union certification in May 1999. On November 30, 1999 the membership
ratified an initial agreement, which will become amendable December 13,
2004.
. Other. Our flight dispatchers ratified a new collective bargaining
agreement on July 29, 1999 covering approximately 195 flight
dispatchers. The dispatchers contract will become amendable January 31,
2007. Our flight crew training instructors ratified a new collective
bargaining agreement on May 3, 1999 covering approximately 160 flight
crew training instructors. Their contract is amendable May 3, 2004. A
tentative agreement with The United Steel Workers covering the 106
Canadian customer service employees was ratified in January 2000 and
became effective February 7, 2000. This contract will be amendable
February 7, 2005.
Ongoing major negotiations:
. Flight Attendants. We have been in negotiations with our 9,800 flight
attendants, who are represented by the Association of Flight Attendants,
since January 1997. Earlier in 1999, the parties requested mediation
from the National Mediation Board and ongoing negotiations are being
assisted by a federal mediator. In late 1999, the Association of Flight
Attendants requested a release from mediation, which, if granted, would
have permitted them to engage in a strike after a thirty-day cooling-off
period. Instead, the government called the parties back to negotiations
and those talks are continuing. The Association of Flight Attendants is
resisting parity plus one percent, which we believe is crucial to any
agreement. If we cannot reach an agreement with the Association of
Flight Attendants 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 revenues. If the
cooling off period ends without the parties reaching an agreement,
either party can resort to self-help remedies including, without
limitation, work stoppages by the flight attendants, and the total
cessation of operations by us. We cannot predict the outcome or the
timing of such negotiations at this time.
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<PAGE>
Geographical Concentration
A substantial portion of our flights are to or from cities in the Eastern
United States. As of January 2000, approximately 85% of our departures were
from, and approximately 57% 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.
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 grow with the general
economy but demand for lower-profit "leisure fares," will remain highly price
sensitive. These conditions will make it difficult for airlines, including US
Airways, 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.
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
12.90 cents for 1999 and 12.34 cents for 1998. In contrast, Southwest Airlines
reported unit operating costs of 7.48 and 7.32 cents for 1999 and 1998,
respectively.
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 8% of our operating costs for 1999. Significant
increases in aviation fuel costs could materially and adversely
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<PAGE>
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. Aviation fuel expenses increased approximately 17% during 1999
and are expected to continue to increase in 2000.
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
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. We hold a substantial
number of slots at both LaGuardia and Reagan National. 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 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. 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
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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 have developed a customer service commitment plan, which took effect on
December 15, 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 affected 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 I. 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.
Effect of Subordination on Subordinated Certificateholders
Payments on the class C certificates will not be made until the class G
certificates are paid those amounts due to them. In addition, in certain
circumstances, if we have defaulted on a series of secured promissory notes,
the subordination agent may be required to distribute payments received with
respect to a more junior series of secured promissory notes to those
certificateholders that were due to receive payments with respect to the
secured promissory notes on which the default occurred. In such a situation,
the series C secured promissory notes may not earn enough interest to fully
fund distributions due to the holders of the corresponding certificates. This
is because the remaining certificates of the junior class accrue interest at a
higher rate than the remaining secured promissory notes, which include the
senior series bearing interest at a lower rate. Accordingly, if we default on
payments in respect of the secured promissory notes, the holders of class C
certificates may not receive the full amount of payments that they are due to
receive, even if we eventually pay the secured promissory notes due in full.
Payment with respect to the deposits under the deposit agreements are not
subject to the subordination provisions of the intercreditor agreement.
Control Over Collateral; Sale of Collateral
If a default under an indenture is continuing, the pass through trustee, the
liquidity provider or the policy 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
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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 policy provider, until final distributions of the aggregate
outstanding balance of the class G certificates, together with accrued
and unpaid interest, are made to the holders of the class G certificates
and no obligations owing to the policy provider remain outstanding, or
if a default has occurred with respect to the policy provider and is
continuing, the class G pass through trustee until payment of final
distributions to the holders of the certificates of that class; and
after that,
. the class C pass through trustee.
Under certain circumstances, the liquidity provider with the larger amount
owed to it may elect to act as the controlling party, unless the policy
provider provides an endorsement to the insurance policy to cover all
outstanding liquidity facility obligations and certain other conditions are met
or the policy provider pays to the liquidity provider all outstanding liquidity
facility obligations, in which case, the policy provider will be the
controlling party (so long as no policy provider default has occurred and is
continuing). 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,
any liquidity provider, the policy provider (except with respect to the holders
of the class G certificates, as provided in the insurance policy) or any pass
through trustee.
Ratings of the Certificates
It is a condition to the issuance of the class G and class C 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 G Certificates............................... Aaa AAA
Class C Certificates............................... Ba2 BBB-
</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, the policy provider (in the case of the class G certificates) or
the liquidity provider, so warrant.
The expected rating of each class of certificates will be based primarily on
the default risk of the secured promissory notes purchased by the applicable
class, the rating of the policy provider (in the case of the class G
certificates), the rating of the applicable depositary for that class, the
availability of the applicable liquidity facility for the benefit of holders of
that class of certificates, the availability of the insurance policy (in the
case of the class G 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 will apply to a unit consisting of certificates representing the
trust property and escrow receipts initially representing beneficial interests
in certain rights to $373,654,000 of deposits under the escrow agreements.
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<PAGE>
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. The reduction, suspension or withdrawal of the ratings of the
certificates will not, by itself, constitute an event of default.
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 to the policy provider and the pass through trustee that
changes to the form agreements do not materially and adversely affect
the certificateholders or the policy provider; 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
the written consent of the policy provider and 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.
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 (i) 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 and (ii) with respect to the class C
certificates only, pay a premium only on unused deposits in excess of $9
million. See "Description of the Deposit Agreements--Unused Deposits."
Limited Market for Resales of the Certificates
Prior to the offering of the class G and class C certificates, these
certificates were not publicly traded. Neither we nor any pass through trust
intends to apply for listing of the class G and class C 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 G and class C certificates,
as permitted by applicable laws and regulations, after 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 G and class C certificates will develop or that an investment in these
certificates will be liquid.
Risk Factors Relating to the Policy Provider
The Impact of any Decline in the Financial Condition of the Policy Provider
The expected AAA rating by Standard & Poor's and the Aaa rating by Moody's
of the class G certificates will be based, primarily, on the existence of the
insurance policy insuring the complete and timely payment of interest accrued
and payable on the class G certificates on each regular scheduled date for the
payment of
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<PAGE>
interest and the payment of principal on or (under certain circumstances)
before the date on which the class G certificates mature. Any decline in the
financial condition of the policy provider or the insolvency of the policy
provider may result in the downgrade of the foregoing ratings of the class G
certificates and may impair the ability of the policy provider to make payments
to the holders of the class G certificates under the terms of the insurance
policy. In addition, in the event of insolvency of the policy provider under
insurance insolvency proceedings, it is possible that the subordination agent
would be unable to recover the full amount due under the class G certificates
on its unsecured claim against the policy provider. For information on the
financial information generally available with respect to the policy provider,
see "Description of the Policy Provider" and "Description of the Policy and the
Policy Provider Agreement--The Policy."
The Limited Nature of the Policy
The insurance policy's support on interest payments and principal payments
will be limited to the class G certificates and, as a result, the insurance
policy will only benefit the holders of the class G certificates. Although
drawings under the insurance policy for interest payments may be made when
interest is due, drawings for principal payments may not, except in certain
circumstances, be made until the final maturity date for the class G
certificates. The insurance policy provides no coverage for the class C
certificates.
The Policy Provider as a Controlling Party
Unless certain events of default have occurred with respect to a policy
provider, the policy provider will be the controlling party unless the
liquidity provider with the larger amount owed to it has elected to become the
controlling party as described in "Description of the Intercreditor Agreement--
Intercreditor Rights--Controlling Party." As the controlling party, the policy
provider has the ability, subject to certain limitations, to direct the
subordination agent to exercise any remedy, including the ability to direct the
subordination agent to sell any or all of the secured promissory notes or to
instruct the loan trustee under an indenture to accelerate the secured
promissory notes issued under such indenture and to foreclose upon the lien
created under the indenture. As the controlling party, the policy provider will
be in a position to take actions that are beneficial to the policy provider and
the holders of the class G certificates but detrimental to the holders of the
class C certificates.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the information incorporated by reference
into this prospectus supplement 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.
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<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 our parent, accounting for approximately 88% of our parent's
consolidated operating revenues for 1999.
We carried approximately 56 million passengers in 1999 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. Shuttle, Inc. and eight air carriers that operate under the trade
name "US Airways Express" code share with us. Under a code share arrangement,
one carrier places its designator code and sells tickets on flights of another
carrier. Our combined system served 201 destinations worldwide as of January
2000. As of December 31, 1999, we had more than 41,600 full-time equivalent
employees.
We have established a foundation on which we are moving forward with
achieving our long-term strategic objective of establishing our self as a
competitive global airline:
. a series of labor agreements based on a principle of "parity plus one
percent";
. 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;
. an expanded and substantially improved line of products including new
international service and international business class, expanded US
Airways Shuttle service, and additional 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 Boston's Logan
International Airport, LaGuardia and Reagan National Airport. As of January
2000, 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, 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 January 2000,
approximately 85% of our departures were from, and approximately 57% of our
capacity as measured 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 January 2000. 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 by US Airways
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" brand on June 1, 1998.
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<PAGE>
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;
. advance seat assignments;
. 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."
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. As of December 1999, MetroJet operations
included 42 aircraft. We will continue to evaluate further opportunities for
MetroJet. Although MetroJet has grown at a dramatic rate since its
introduction, its growth rate has been reduced 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." As of January 2000, Shuttle, Inc.'s routes are
serviced by four Boeing B727 and seven Airbus A320 aircraft. Shuttle, Inc.
currently provides high frequency service between LaGuardia and Logan
International Airport and between LaGuardia and Reagan National Airport.
Shuttle, Inc. retired eight of its Boeing B727-200 aircraft in 1999.
In July 1999, we expanded our US Airways Shuttle brand to encompass certain
routes that we formerly operated as US Airways. The new US Airways Shuttle
service, which we operate, includes hourly service during certain times between
Reagan National Airport and Logan International Airport. In September 1999, the
new US Airways Shuttle service commenced 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
January 2000, we had increased our weekly flights to Europe from 42
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<PAGE>
to 84 over the preceding three 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.
Beginning in April 2000, we expect to begin daily service between Charlotte and
Paris. Also beginning in May 2000, we expect to begin daily service between
Charlotte and Frankfurt and between Philadelphia and Manchester, England. On
June 12, 1999, we temporarily suspended service to Amsterdam, pending the
arrival of new aircraft to augment our international fleet. The open skies
agreement between the United States and Italy took effect on December 6, 1999,
which 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. Formal talks between the United States and the United Kingdom on a new
bilateral agreement resumed on January 4, 2000 and concluded without a new
agreement.
We anticipate our year 2000 transatlantic capacity, as measured in available
seat miles, to increase by 30% over 1999 levels. Our transatlantic available
seat miles in 1999 were 21% greater than for 1998, which in 1998 were
approximately 15% greater than for 1997, and has almost tripled from 1995
levels. We continue to explore additional international opportunities.
Our first widebody Airbus A330-300 aircraft is currently scheduled to be
delivered in the first quarter of 2000. Seven Airbus widebody aircraft are
scheduled for delivery in 2000 and three are scheduled for delivery in 2001. We
plan to use these aircraft in our long-haul markets, primarily in transatlantic
service. The new Airbus A330s play an important part in our long-term strategy
of establishing ourselves as a competitive global airline.
Code Sharing Relationships
Shuttle, Inc. and eight 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, have code sharing arrangements
with us. 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 January 1, 2000, US Airways Express served 174 airports in the
continental United States, Canada and the Bahamas, including 74 airports that
we also serve. In 1999, US Airways Express air carriers carried approximately
11 million passengers, approximately 58% of whom connected to our flights. We
also have code-share arrangements with Deutsche BA for certain intra-Germany
flights.
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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. In addition, travelers on the US Airways Shuttle can earn US Airways
Dividend Miles plus American Airlines AAdvantage Miles for each flight through
August 30, 2000.
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 December 31, 1999, we operated 303 aircraft, excluding
Airbus A320 Family aircraft, in the 95-150 seat category, including 34 DC-9s,
59 737-200s, 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).
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 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
primarily 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.
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<PAGE>
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 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. As of the date of
this prospectus supplement, we are not aware of any material year 2000 related
problems experienced by our information technology and non-information
technology systems. In addition, we have not been informed by any other
companies, governmental agencies or other entities on which we rely that any
such parties experienced any year 2000 related problems. We cannot guarantee,
however, that we or the other companies, governmental agencies or other
entities on which we rely will not experience year 2000 related problems in the
future. If such problems occur, we cannot give assurance that such problems
will not result in our experiencing a material adverse effect on our business,
financial condition or results of operations.
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.
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 malfunction of the aircraft's rudder
system. All wrongful death cases have been resolved except for five cases
currently pending in the U.S. District Court for the Western District of
Pennsylvania. 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.
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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 plaintiffs appealed the district court's
dismissal and in February 1999, the U.S. Court of Appeals upheld the district
court's decision originally granted in May 1996 in our favor. In May 1999, the
plaintiffs filed a petition for certiorari with the U.S. Supreme Court. In
October 1999, the U.S. Supreme Court denied the plaintiffs' petition for
certiorari. The U.S. District Court has retained jurisdiction over one count of
the complaint alleging violation of a disclosure requirement under ERISA. We
believe there are no significant penalties likely to result from this
disclosure claim pending before the court. Recently, the plaintiffs have filed
a claim before the US Airways Pilot Retirement Board requesting arbitration of
their claim for benefits which they believe were erroneously calculated.
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 and the court entered an order in August 1999 granting a good faith
settlement approval for us and several other settling defendants in the
lawsuit.
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.
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<PAGE>
DESCRIPTION OF THE POLICY PROVIDER
General
The information set forth in this section, including any financial
statements incorporated by reference herein, has been provided by MBIA
Insurance Corporation for inclusion in this prospectus supplement. This
information has not been independently verified by US Airways, the
Underwriters, the pass through trustees, the Depositary or the Liquidity
Provider. Accordingly, notwithstanding anything to the contrary herein, none of
US Airways, the Underwriters, the pass through trustees, the Depositary or the
Liquidity Provider assumes any responsibility for the accuracy, completeness or
applicability of such information.
MBIA
MBIA, the insurer, is the principal operating subsidiary of MBIA Inc., a New
York Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts
of or claims against MBIA. MBIA is domiciled in the State of New York and
licensed to do business in and subject to regulation under the laws of all 50
states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. MBIA has two European branches, one in the
Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations
of investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by MBIA, changes in control and transactions
among affiliates. Additionally, MBIA is required to maintain contingency
reserves on its liabilities in certain amounts and for certain periods of time.
MBIA does not accept any responsibility for the accuracy or completeness of
this prospectus supplement or any information or disclosure contained in, or
omitted from, this prospectus supplement, other than with respect to the
accuracy of the information regarding the policy and MBIA set forth under the
heading "Description of the Policy Provider", excluding the second and third
sentence under "Description of the Policy Provider--General." Additionally,
MBIA makes no representation regarding the offered certificates or the
advisability of investing in the offered certificates.
The policy issued by MBIA as insurer is not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance Law.
MBIA Financial Information
The consolidated financial statements of MBIA, a wholly owned subsidiary of
MBIA Inc., and its subsidiaries as of December 31, 1998 and December 31, 1997
and for each of the three years in the period ended December 31, 1998, prepared
in accordance with generally accepted accounting principles, included in the
Annual Report on Form 10-K of MBIA Inc. for the year ended December 31, 1998,
and the consolidated financial statements of MBIA and its subsidiaries as of
September 30, 1999 and for the nine month periods ended September 30, 1999 and
September 30, 1998 included in the Quarterly Report on Form 10-Q of MBIA Inc.
for the period ended September 30, 1999, are hereby incorporated by reference
into this prospectus supplement and shall be deemed to be a part of this
prospectus supplement. Any statement contained in a document incorporated by
reference in this prospectus supplement shall be modified or superseded for
purposes of this prospectus supplement to the extent that a statement contained
in this prospectus supplement or in any other subsequently filed document which
also is incorporated by reference in this prospectus supplement modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus supplement.
All financial statements of MBIA and its subsidiaries included in documents
filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
prospectus supplement and prior to the termination of the offering of the
offered certificates shall be deemed to be incorporated by reference into this
prospectus supplement and to be a part of this prospectus supplement from the
respective dates of filing such documents.
S-37
<PAGE>
The tables below present selected financial information of MBIA determined
in accordance with statutory accounting practices prescribed or permitted by
insurance regulatory authorities, referred to below as SAP, and generally
accepted accounting principles, referred to below as GAAP:
<TABLE>
<CAPTION>
SAP
--------------------------
December 31, September 30,
1998 1999
------------ -------------
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
Admitted Assets...................................... $6,521 $6,930
Liabilities.......................................... 4,231 4,571
Capital and Surplus.................................. 2,290 2,359
<CAPTION>
GAAP
--------------------------
December 31, September 30,
1998 1999
------------ -------------
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
Assets............................................... $7,488 $7,422
Liabilities.......................................... 3,211 3,234
Shareholder's Equity................................. 4,277 4,188
</TABLE>
Where You Can Obtain Additional Information About MBIA
Copies of the financial statements of MBIA incorporated by reference in this
prospectus supplement and copies of MBIA's 1998 year-end audited financial
statements prepared in accordance with statutory accounting practices are
available, without charge, from MBIA. The address of MBIA is 113 King Street,
Armonk, New York 10504. The telephone number of MBIA is (914) 273-4545.
Financial Strength Ratings of MBIA
Moody's rates the financial strength of MBIA "Aaa."
Standard & Poor's rates the financial strength of MBIA "AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates the
financial strength of MBIA "AAA."
Each rating of MBIA should be evaluated independently. The ratings reflect
the respective rating agency's current assessment of the creditworthiness of
MBIA and its ability to pay claims on its policies of insurance. Any further
explanation as to the significance of the above ratings may be obtained only
from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the offered
certificates, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the offered
certificates. MBIA does not guaranty the market price of the certificates nor
does it guaranty that the ratings on the offered certificates will not be
revised or withdrawn.
S-38
<PAGE>
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.
If we issue 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.
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, filed with the SEC as an exhibit
to the Form 8-K, filed with the SEC on September 7, 1999, and to all the
provisions of the certificates, the pass through trust supplements, the Deposit
Agreements, the Escrow Agreements, the Liquidity Facilities, the Policy 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 two US Airways 2000-1 pass through trusts: the class G 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 two 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 G pass through trust and the class C
pass through trust as the class G 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
S-39
<PAGE>
in connection with each separate secured loan transaction for each owned
aircraft to finance or refinance 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.
. With respect to the class G pass through trust, all monies
receivable under the Policy.
. Funds from time to time deposited with the pass through trustee in
accounts relating to such pass through trust.
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
S-40
<PAGE>
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 G and class C 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 February 20 and
August 20 of each year, commencing on August 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
non-default 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.
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)
After use of any available funds under the Liquidity Facility or the Cash
Collateral Account for the class G certificates, the payment of interest at the
Stated Interest Rate on the class G certificates will be supported by the
Policy provided by the Policy Provider. See "Description of the Policy and the
Policy Provider Agreement."
Payments of principal of the series G secured promissory notes are scheduled
to be received by the pass through trustee on February 20 and August 20 in
certain years, depending upon the terms of the series G secured promissory
notes held in the class G pass through trust. The entire principal amount of
the series C secured promissory notes is scheduled to be paid on February 20,
2005. The Final Maturity Date for the class G certificates is August 20, 2018,
and for the class C certificates is August 20, 2006.
Payment of principal of the class G certificates on the Final Maturity Date,
and in certain limited circumstances, earlier, will be supported by the Policy.
See "Description of the Policy and the Policy Provider Agreement."
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.
S-41
<PAGE>
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 Trust Indenture Estate
under a Leased Aircraft Indenture, any secured promissory note 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.
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."
If any distribution of proceeds from any "No Proceeds Drawing" or "Avoidance
Drawing" as described in "Description of the Policy and the Policy Provider
Agreement--The Policy" is made, the class G pass through trustee will mail a
notice to the certificateholders of the class G pass through trust stating the
scheduled Special Distribution Date, the related record date, the amount of
such distribution and the reason for such distribution. The notice will be
mailed not less than 20 days prior to the date such proceeds are scheduled to
be distributed. Each such distribution will be made by the class G pass through
trustee to the certificateholders of record of the class G pass through trust
on the record date applicable to such distribution.
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
S-42
<PAGE>
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.
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<PAGE>
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 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 has 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 G Class C
Trust Trust
Promissory Promissory Class C
Notes Class G Notes Trust
Scheduled Trust Scheduled Expected
Payments of Expected Payments of Pool
Date Principal* Pool Factor Principal* Factor
---- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
February 20, 2001................. $8,700,000 0.9691137 $ 0 1.0000000
August 20, 2001................... 6,250,000 0.9469252 0 1.0000000
February 20, 2002................. 6,250,000 0.9247368 0 1.0000000
August 20, 2002................... 6,250,000 0.9025483 0 1.0000000
February 20, 2003................. 6,250,000 0.8803598 0 1.0000000
August 20, 2003................... 6,250,000 0.8581714 0 1.0000000
February 20, 2004................. 6,250,000 0.8359829 0 1.0000000
August 20, 2004................... 6,250,000 0.8137945 0 1.0000000
February 20, 2005................. 6,500,000 0.7907185 91,976,000 0.0000000
August 20, 2005................... 6,710,000 0.7668970
February 20, 2006................. 6,920,000 0.7423299
August 20, 2006................... 7,130,000 0.7170173
February 20, 2007................. 7,340,000 0.6909592
August 20, 2007................... 7,550,000 0.6641555
February 20, 2008................. 7,760,000 0.6366063
August 20, 2008................... 7,970,000 0.6083116
February 20, 2009................. 8,180,000 0.5792714
August 20, 2009................... 8,390,000 0.5494856
February 20, 2010................. 8,600,000 0.5189543
August 20, 2010................... 8,810,000 0.4876774
February 20, 2011................. 9,020,000 0.4556550
August 20, 2011................... 9,230,000 0.4228871
February 20, 2012................. 9,440,000 0.3893737
August 20, 2012................... 9,650,000 0.3551147
February 20, 2013................. 9,860,000 0.3201102
August 20, 2013................... 10,070,000 0.2843602
February 20, 2014................. 10,280,000 0.2478646
August 20, 2014................... 10,490,000 0.2106235
February 20, 2015................. 10,700,000 0.1726368
August 20, 2015................... 10,910,000 0.1339047
February 20, 2016................. 11,120,000 0.0944270
August 20, 2016................... 11,330,000 0.0542037
February 20, 2017................. 15,268,000 0.0000000
</TABLE>
- --------
* Estimates only and subject to change.
S-44
<PAGE>
The Pool Factor and Pool Balance of each pass through trust will be
recomputed if there has been delays in deliveries of Aircraft, 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," a special distribution attributable to unused Deposits after the
Delivery Period Termination Date or the occurrence of a Triggering Event or any
drawing under the Policy (other than in respect of interest on the certificates
or any payments to the liquidity providers).
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, including any portion
which is paid by the Liquidity Provider and/or the Policy Provider.
(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.
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
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<PAGE>
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, the Policy Provider (in the case of the series C secured promissory
notes) 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)
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
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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, but subject to the qualifications noted above, 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.
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 C certificateholders will have the right to purchase all, but
not less than all, of the class G certificates; and
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. whether or not such right is exercised by the class C
certificateholders, the Policy Provider will have the right to purchase
all, but not less than all, of the class G 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. The
purchase rights of the certificateholders arising by reason of the occurrence
of a Triggering Event will expire 180 days after the Triggering Event after
which the Policy Provider's purchase rights in respect of the certificates will
become effective. (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
(unless, in the case of the class G certificates, the Subordination
Agent has made a drawing under the Policy in an aggregate amount
sufficient to pay the outstanding Pool Balance and has distributed such
amount to the class G pass through trustee).
. Interest due on a 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, or, in the case of the class G certificates, a drawing
under the Policy, 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
(or issued by the administrator of the FAA acting under the authority of
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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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, any Liquidity
Facility or, with respect to the pass through trust agreement for the class G
pass through trust, the Policy and the Policy Provider Agreement, 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, any Liquidity
Facility or the Policy Provider Agreement.
. 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, any Liquidity Facility, the Policy or the Policy Provider
Agreement.
. 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, any Liquidity
Facility, the Policy or the Policy Provider Agreement 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, any Liquidity
Facility, the Policy or the Policy Provider Agreement, 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, any Liquidity Facility, the
Policy or the Policy Provider Agreement, 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, the Policy or the Policy Provider Agreement.
. 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, any Liquidity
Facility, the Policy or the Policy Provider Agreement 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
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Agreement, any Liquidity Facility, the Policy or the Policy Provider
Agreement such other provisions as may be expressly permitted by the
Trust Indenture Act.
. 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,
any Liquidity Facility, the Policy or the Policy Provider Agreement 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, any Liquidity Facility, the Policy or the Policy Provider
Agreement 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, the Policy (with respect to the class G certificateholders
only) or any Liquidity Facility to the extent applicable to such
certificateholders or may modify 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, any Liquidity Facility or, with respect to the pass
through trust agreement for the class G pass through trust, the Policy. 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)
. Terminate or modify the Policy, other than endorsements already
contemplated or required by Section 2.6(c) or 3.7(c) of the
Intercreditor Agreement.
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
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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 through trust as of the date of such notice and the Policy
Provider. 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.
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. 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.
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 U.S. leveraged
lease transaction 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 G and
class C secured promissory notes to the class G and class C pass through trusts,
respectively. The class G and class C pass through trusts will sell
certificates to series G 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 G 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.
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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 G and class C secured promissory notes to the class G and
class C pass through trusts, respectively. The class G and class C pass through
trusts will sell certificates to series G 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 G 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.
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Mandatory Terms
The description of the Participation Agreements, the leases, the Leased
Aircraft Indentures and the Owned Aircraft Indentures in this prospectus
supplement is based on the forms of such agreements to be utilized pursuant to
the Note Purchase Agreement. 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.
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 (1) certify to the pass through trustees and the Policy Provider that
any permitted modifications do not materially and adversely affect the
certificateholders or the Policy Provider, and (2) if such agreements are
modified in any material respect, we must obtain the written consent of the
Policy Provider and 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.
The "Mandatory Economic Terms," as defined in the Note Purchase Agreement,
will require, among other things, that:
. The principal amount of the series G secured promissory notes issued
with respect to an aircraft equals the principal amount of series G
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 G Secured
Promissory Notes."
. The maximum principal amount of the series C secured promissory notes
issued with respect to an aircraft must not exceed the principal amount
of series C secured promissory notes indicated for each aircraft as set
forth in "Prospectus Supplement Summary--Secured Promissory Notes and
the Aircraft" under the column "Maximum Principal Amount of Series C
Secured Promissory Notes."
. 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 G Series C
Secured Secured
Promissory Promissory
Aircraft Type Notes Notes
------------- ---------- ----------
<S> <C> <C>
Airbus A330........................................ 51% 67%
</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 G Series C
Secured Secured
Promissory Promissory
Aircraft Type Notes Notes
------------- ---------- ----------
<S> <C> <C>
Airbus A330........................................ 51% 67%
</TABLE>
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. The initial average life of the series G secured promissory notes and
the series C secured promissory notes on any aircraft must not be less
than 8.5 years and 4.8 years, respectively, and not extend beyond 11.5
years and 5.2 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.
. At the Delivery Period Termination Date, the aggregate principal amount
of each series of secured promissory notes will equal the original
aggregate face amount of the related class of certificates, without
giving effect to any scheduled principal payments on such secured
promissory notes but after giving effect to any reductions to the Pool
Balance for such class of certificates from deposits not used to
purchase secured promissory notes on or before such date.
. The payment dates for the secured promissory notes and basic rent under
the leases must be February 20 and August 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 G and the class C certificates must not be more than 10.2 years
and 5.2 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 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 and after giving effect to
Scheduled Payments) 49.0% in the case of the class G certificates and
65.0% 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
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case must be no less favorable to the Loan Trustees, Subordination
Agent, the Liquidity Provider, the Policy 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, the Policy Provider, pass through trustees 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 Policy 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 "Mandatory Document Terms" prohibit modifications in any material
adverse respect as regards the interests of the Loan Trustees, Subordination
Agent, Liquidity Provider, the Policy 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;
(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
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(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, the Policy
Provider or the Loan Trustee in the definition of "Make-Whole Premium."
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, the Policy 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
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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.
According to DTC, the foregoing information with respect to DTC has been
provided to the financial community for informational purposes only and is not
intended to serve as a representation, warranty or contract modification of any
kind.
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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.
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 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.
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 a premium payable by us equal to the Deposit Make-
Whole Premium with respect to the remaining Deposits applicable to each such
pass through trust, provided that, with respect to the class C certificates,
the Deposit Make-Whole Premium will be payable only to the extent unused
Deposits exceed $9 million. No Deposit Make-Whole
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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 our
negligence. The Policy does not cover the Deposit Make-Whole Premium.
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.
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.
The Depositary has not been involved in the preparation of, and does not
accept responsibility for, this prospectus supplement.
Replacement of Depositary
If the Depositary's short-term unsecured debt rating falls below A-1+ from
Standard & Poor's or P-1 from Moody's then we must, within a specified period,
replace the Depositary with a new depositary bank that has short-term unsecured
debt ratings of at least A-1+ from Standard & Poor's and P-1 from Moody's, or
such new depositary bank that will not result in a withdrawal or downgrading of
the rating of any class of certificates (without giving effect to the Policy),
as confirmed by the rating agencies, in writing.
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 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 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
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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.
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 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 (including, in the case of the class G pass through trust,
funds from the Policy). Although Bayerische Landesbank Girozentrale is the
initial Liquidity Provider for each pass through trust, Bayerische Landesbank
Girozentrale 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 February 20, 2001, 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
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through trusts and that all interest and principal due on or prior to February
20, 2001, is paid, will be as follows:
<TABLE>
<CAPTION>
Available
Pass Through Trust Amount
------------------ ---------
<S> <C>
Class G............................................................ $
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;
. 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 or in
part 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. (Liquidity
Facilities, Section 2.02(a)) 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. (Intercreditor Agreement, Sections 3.6(c) and 3.6(e)) 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, Sections 3.6(c) and 3.6(e))
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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 available 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.
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
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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 2% per annum. Thereafter, interest will
accrue at LIBOR for the applicable interest period plus 2% 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 2% 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
2% 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:
. 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 will bear interest (x) from the date of each such drawing
to (but excluding) the third business day following the applicable liquidity
provider's receipt of notice of such drawing, at the Base Rate plus a specified
margin on the outstanding amount from time to time of such Downgrade or Non-
Extension Drawing, (y) thereafter until the date it is converted into a Final
Drawing at a rate equal to LIBOR for the applicable interest period plus a
specified margin on the outstanding amount from time to time of such Downgrade
or Non-Extension Drawing and (z) 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 2% per annum. (Liquidity Facilities, Section
2.06(a) and 3.07(b))
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)
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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
Bayerische Landesbank Girozentrale, a public law banking institution organized
under the laws of the Free State of Bavaria, Germany. Bayerische Landesbank
Girozentrale has short-term debt ratings of P-1 from Moody's and A-1+ from
Standard & Poor's. Other than the "Description of the Liquidity Facilities--
Liquidity Provider" section of this prospectus supplement, the Liquidity
Provider has not been involved in the preparation of, and does not accept
responsibility for, this prospectus supplement.
DESCRIPTION OF THE POLICY AND
THE POLICY PROVIDER AGREEMENT
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy, 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 Policy
The Policy Provider will issue its financial guarantee insurance policy in
favor of the Subordination Agent for the benefit of the class G pass through
trustee and holders of the class G certificates. The Intercreditor Agreement
directs the Subordination Agent to make a drawing under the Policy under the
following five circumstances:
Interest Drawings
If on any Regular Distribution Date (other than the Final Maturity Date),
after giving effect to the subordination provisions of the Intercreditor
Agreement and to the application of any Prior Funds, the Subordination Agent
does not then have sufficient funds available for the payment of all amounts
due and owing in respect of accrued interest on the class G certificates at the
Stated Interest Rate for the class G certificates, the Subordination Agent is
to request a policy drawing under the Policy in an amount sufficient to enable
the Subordination Agent to pay such accrued interest on the class G
certificates.
Proceeds Deficiency Drawing
If, except as provided under "--No Proceeds Drawing" below, on any Special
Distribution Date established by the Subordination Agent by reason of its
receipt of a Special Payment constituting proceeds from the Disposition of or
in respect of any series G secured promissory note after giving effect to the
subordination provisions of the Intercreditor Agreement and to the application
of any Prior Funds, the Subordination Agent does not then have sufficient funds
available for a reduction in the outstanding Pool Balance of the class G
certificates by an amount equal to all of the outstanding principal amount of
such secured promissory note (determined immediately prior to the receipt of
such proceeds) plus interest on the amount of such reduction accrued at the
applicable Stated Interest Rate for the period from the immediately preceding
Regular Distribution Date to such Special Distribution Date, the Subordination
Agent is to request a policy drawing under the Policy in an amount sufficient
to enable the Subordination Agent to pay the amount of such reduction plus such
accrued interest.
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No Proceeds Drawing
On the first Business Day (which will be a Special Distribution Date) that
is 18 months after the last date on which full payment was made on a series G
secured promissory note as to which there has been a failure to pay principal
or that has been accelerated subsequent to such last date, if the Subordination
Agent has not received a Special Payment constituting proceeds from the
Disposition of or in respect of that secured promissory note, the Subordination
Agent is to request a policy drawing under the Policy in an amount equal to the
then outstanding principal amount of such secured promissory note plus accrued
interest thereon at the applicable Stated Interest Rate from the immediately
preceding Regular Distribution Date to that Special Distribution Date. The
Subordination Agent is to give prompt notice to each pass through trustee, the
Liquidity Provider and the Policy Provider setting forth the non-receipt of any
such Special Payment and establishing a Special Distribution Date (which date
shall be a Business Day), which notice is to be given not less than 25 days
prior to such Special Distribution Date. After the payment by the Policy
Provider in full of such amount of principal and accrued interest for such
policy drawing, the Subordination Agent will have no right to make any further
policy drawing in respect of any subsequent sale or other disposition of such
secured promissory note except for an "Avoidance Drawing" as described below.
Notwithstanding the foregoing, the Policy Provider has the right at the end
of any such 18-month period, so long as no Policy Provider Default has occurred
and is continuing and so long as the Policy Provider has not defaulted in its
obligation, if any, to endorse the Policy as described in the next paragraph,
to elect instead, (a) to pay on such Special Distribution Date an amount equal
to any shortfall in the scheduled principal and interest that came due on such
series G secured promissory note during such 18-month period (after giving
effect to the application of funds, if any, received from the class G Liquidity
Facility and the class G Cash Collateral Account attributable to such
interest), (b) thereafter, on each Regular Distribution Date to permit drawings
under the Policy for an amount equal to the scheduled principal and interest
that were to become due on any such secured promissory note on the related
payment date (without regard to any acceleration thereof) until the
establishment of an Election Distribution Date or a Special Distribution Date
elected by the Policy Provider upon 20 days' notice, and (c) on any Election
Distribution Date or such Special Distribution Date, the Subordination Agent
will be required, in each case, to make a policy drawing for an amount equal to
the then outstanding principal balance of such secured promissory note and
accrued interest thereon at the Stated Interest Rate for the class G
certificates from the immediately preceding Regular Distribution Date to such
Election Distribution Date or such Special Distribution Date (after giving
effect to the application of funds, if any, received on such Election
Distribution Date or such Special Distribution Date from the class G Liquidity
Facility or the class G Cash Collateral Account attributable to such interest)
less any policy drawings previously paid by the Policy Provider in respect of
principal on such secured promissory note. The Intercreditor Agreement
instructs the Subordination Agent to make each such drawing under the Policy.
Any such drawing shall not relieve the Policy Provider from any and all
obligations with respect to previous Policy Drawings.
In addition, regardless of whether or not the Policy Provider makes a Policy
Provider Election, the Policy Provider will, at the end of such 18-month
period, endorse (if not already endorsed to so provide) the Policy to provide
for the payment to the Liquidity Provider of interest accruing on the Liquidity
Obligations in respect of the class G and class C Liquidity Facilities from and
after the end of such 18-month period as and when such interest becomes due in
accordance with such Liquidity Facilities.
Final Policy Drawing
If on the Final Maturity Date of the class G certificates after giving
effect to the subordination provisions of the Intercreditor Agreement and to
the application of Prior Funds, the Subordination Agent does not then have
sufficient funds available for the payment in full of the Final Distribution
(calculated as at such date but excluding any accrued and unpaid premium) on
such class of certificates, the Subordination Agent is to request a policy
drawing under the Policy in an amount sufficient to enable the Subordination
Agent to pay the Final
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Distribution (calculated as at such date but excluding any accrued and unpaid
premium) on such class of certificates.
Avoidance Drawing
If at any time prior to the expiration of the Policy the Subordination Agent
has actual knowledge of the issuance of any Order, the Subordination Agent is
to give prompt notice to each pass through trustee, each Liquidity Provider and
the Policy Provider of such Order and prior to the expiration of the Policy,
request a policy drawing for an amount equal to the relevant Avoided Payment
and to deliver to the Policy Provider a copy of the documentation required by
the Policy with respect to such Order. To the extent that any portion of such
amount is to be paid to the Subordination Agent (and not to any receiver,
conservator, debtor-in-possession or trustee in bankruptcy as provided in the
Policy), the Subordination Agent shall establish as a Special Distribution Date
the date that is the earlier of three Business Days after the date of the
expiration of the Policy and the Business Day that immediately follows the 25th
day after that notice.
General
All requests by the Subordination Agent for a policy drawing are to be made
by it no later than 1:00 p.m. (New York City time) on (or in the case of any
policy drawing in respect of an Avoided Payment, at least three Business Days
prior to) the applicable Distribution Date and in the form required by the
Policy and delivered to the Policy Provider in accordance with the Policy. All
proceeds of any policy drawing are to be deposited by the Subordination Agent
in the Policy Account and from there paid to the class G pass through trustee
for distribution to the holders of the class G certificates without regard to
the subordination provisions of the Intercreditor Agreement. In the case of any
Avoided Payment, however, all or part of the policy drawing will be paid
directly to the bankruptcy receiver, conservator, debtor-in-possession or
trustee to the extent such amounts have not been paid by the
certificateholders. If any request for a policy drawing is rejected as not
meeting the requirements of the Policy, the Subordination Agent is to resubmit
such request so as to meet such requirements.
The Policy provides that if such a request for a policy drawing is properly
submitted or resubmitted it will pay to the Subordination Agent for deposit in
the Policy Account, the applicable payment under the Policy no later than 3:00
p.m. on the later of the relevant Distribution Date and the date the request is
received by the Policy Provider (if the request is received by 1:00 p.m. on
such date) or the next Business Day (if the request is received after that
time).
Once any payment under the Policy is paid to the Subordination Agent, the
Policy Provider will have no further obligation in respect of those payments.
The Policy Provider will not be required or entitled to make any payment under
the Policy except at the times and in the amounts and under the circumstances
expressly set forth in the Policy.
The Policy does not cover:
. shortfalls, if any, attributable to the liability of the class G pass
through trust, the class G pass through trustee or the Subordination
Agent for withholding taxes, if any (including interest and penalties in
respect of that liability);
. any premium, prepayment penalty or accelerated payment which at any time
may become due on or with respect to any class G certificate; nor
. any failure of the Escrow Agent, the Subordination Agent or the class G
pass through trustee to make any payment due to the holders of the class
G certificates.
The Policy Provider's obligation under the Policy will be discharged to the
extent that funds to be applied in respect of the class G certificates under
and in accordance with the Intercreditor Agreement are received by the
Subordination Agent for distribution to the class G pass through trustee and
the holders of class G certificates whether or not the funds are properly
distributed by the Subordination Agent or the class G pass through trustee.
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The Policy is noncancellable. The Policy expires and terminates without any
action on the part of the Policy Provider or any other person on the date that
is one year and one day following the date on which the class G certificates
have been paid in full, unless an Insolvency Proceeding exists, in which case
on the later of (i) the date of the conclusion or dismissal of such Insolvency
Proceeding without continuing jurisdiction by the court in such Insolvency
Proceeding and (ii) the date on which the Policy Provider has made all payments
required to be made under the terms of the Policy in respect of an Avoided
Payment. No portion of the premium under the Policy is refundable for any
reason including payment, or provision being made for payment.
The Policy will be construed under the laws of the State of New York.
The Policy Provider Agreement
The Subordination Agent, US Airways and the Policy Provider will enter into
an insurance and indemnity agreement, to be dated as of the date of the
issuance of the class G certificates containing, among other things,
representations and warranties by us and conditions precedent to the issuance
of the Policy. Pursuant to a fee letter between the Subordination Agent and the
Policy Provider, the Subordination Agent agrees to pay the Policy Provider a
premium for the policy based upon the Pool Balance of the class G certificates
and to reimburse the Policy Provider for certain expenses.
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, the Policy 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, except that so
long as the final distributions on the class G certificates have not been paid
or any Policy Provider Obligations remain outstanding (and no Policy Provider
Default exists and so long as the Policy Provider has endorsed the Policy (if
so required) in the manner described in the final paragraph in "Description of
the Policy and the Policy Provider Agreement--The Policy--No Proceeds
Drawing"), the Subordination Agent will request directions from the Policy
Provider rather than the class G pass through trustee. (Intercreditor
Agreement, Section 2.6(a))
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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 and the Policy
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 controlling party will be:
. the policy provider, until final distributions of the aggregate
outstanding balance of the class G certificates, together with accrued
and unpaid interest, are made to the holders of the class G certificates
and no obligations owing to the policy provider remain outstanding or,
if a Policy Provider Default has occurred and is continuing or the
Policy Provider is required to but has failed to endorse the Policy in
the manner described in the final paragraph in "Description of the
Policy and the Policy Provider Agreement--The Policy--No Proceeds
Drawing," the class G pass through trustee until payment of final
distributions to the holders of the certificates of that class; and
after that,
. the class C pass through trustee.
Under certain circumstances, the liquidity provider with the higher
outstanding amount of unreimbursed Liquidity Obligations and not then in
default in its obligations to make any advance under any Liquidity Facility may
elect to act as the controlling party, unless the policy provider endorses the
policy to cover all outstanding liquidity facility obligations and certain
other conditions are met or the policy provider pays to all the liquidity
providers all outstanding liquidity facility obligations, in which case, the
policy provider will be the controlling party (so long as no Policy Provider
Default has occurred and is continuing).
The Liquidity Provider with the higher outstanding amount of unreimbursed
Liquidity Obligations and not then in default in its obligations to make any
advance under any Liquidity Facility 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 $250 million) provided that if
(a) the Policy Provider endorses the Policy to cover payments of principal of
and interest on the Liquidity Obligations in respect of the class G and class C
Liquidity Facilities and certain other conditions are met, including the Rating
Agencies confirming that they will not withdraw, suspend or downgrade their
ratings on any class of certificates, or (b) the Policy Provider pays to the
Liquidity Provider all outstanding Liquidity Obligations in respect of the
class G and class C Liquidity Facilities including all interest accrued thereon
to such date, the Policy Provider will remain the Controlling Party so long as
no Policy Provider Default has occurred and is continuing (in which case such
Liquidity Provider, if it so elects and if Liquidity Obligations owing to it
remain outstanding (or, if it does not so elect or if no such Liquidity
Obligations remain outstanding, the class G pass through trustee), will become
the Controlling Party). (Intercreditor Agreement, Section 2.6(c))
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
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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 and (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 and to the Policy Provider to the extent required to pay the
Policy Expenses, pro rata;
. to the Liquidity Provider and to the Policy Provider, pro rata, to the
extent required to pay interest accrued on the Liquidity Obligations (as
determined after giving effect to payments made by the Policy Provider
to the Liquidity Provider in respect of drawings under the Liquidity
Facilities) and on certain Policy Provider Obligations (as provided in
the definition of Policy Provider Obligation), respectively and, if the
Policy Provider has elected to pay to the Liquidity Provider all
outstanding drawings and interest thereon owing to the Liquidity
Provider under the Liquidity Facilities, to reimburse the Policy
Provider for the amount of such payment made to the Liquidity Provider
attributable to interest accrued on such drawings;
. 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 and, if
the Policy Provider has elected to pay to the Liquidity Provider all
outstanding drawings and interest thereon owing to the Liquidity
Provider under the Liquidity Facilities, to reimburse the Policy
Provider for the amount of such payment made to the Liquidity Provider
in respect of principal of drawings under the Liquidity Facilities, pro
rata;
. to the class G pass through trustee to the extent required to pay
Expected Distributions on the class G certificates;
. to the Policy Provider to the extent required to pay or reimburse any
Policy Provider Obligations (other than amounts payable pursuant to the
first three clauses above and any Excess Reimbursement Obligations);
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. to the class C pass through trustee to the extent required to pay
Expected Distributions on the class C certificates;
. to the Policy Provider to the extent required to pay any Excess
Reimbursement Obligations; 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 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 or the Policy Provider to the extent required to pay
certain out-of-pocket costs and expenses actually incurred by the
Subordination Agent, any pass through trustee or the Policy Provider or
to reimburse any certificateholder, the Policy Provider 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 and to the Policy Provider to the extent required to pay the
Policy Expenses, pro rata;
. to the Liquidity Provider and the Policy Provider, pro rata, to the
extent required to pay interest accrued on the Liquidity Obligations (as
determined after giving effect to certain payments by the Policy
Provider to the Liquidity Provider) and on certain Policy Provider
Obligations (as provided in the definition of Policy Provider
Obligation), respectively and, if the Policy Provider has elected to pay
to the Liquidity Provider all outstanding drawings and interest thereon
owing to the Liquidity Provider under the Liquidity Facilities, to
reimburse the Policy Provider for the amount of such payment made to the
Liquidity Provider attributable to interest accrued on such drawings;
. to the Liquidity Provider to the extent required to pay the outstanding
amount of all Liquidity Obligations (as determined after giving effect
to certain payments by the Policy Provider to the Liquidity Provider)
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) and, if the Policy Provider has
elected to pay to the Liquidity Provider all outstanding drawings and
interest thereon owing to the Liquidity Provider under the Liquidity
Facilities, to reimburse the Policy Provider for the amount of such
payment made to the Liquidity Provider in respect of principal of
drawings under the Liquidity Facilities, pro rata;
. 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 G pass through trustee to the extent required to pay
Adjusted Expected Distributions on the class G certificates;
. to the Policy Provider to the extent required to pay the Policy Provider
Obligations (other than amounts payable pursuant to the first four
clauses above and any Excess Reimbursement Obligations);
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. to the class C pass through trustee to the extent required to pay
Adjusted Expected Distributions on the class C certificates; and
. to the Policy Provider to pay any Excess Reimbursement Obligations.
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. 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, and drawings under the Policy will be distributed by
the class G pass through trustee, notwithstanding the priority of distributions
set forth in the Intercreditor Agreement and otherwise described in this
prospectus supplement. (Intercreditor Agreement, Sections 3.6 and 3.7)
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 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)
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<PAGE>
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
The Aircraft
The aircraft consist of five Airbus Model A330-300 aircraft, all of which
are scheduled for delivery from April 2000 to December 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 A330-300 aircraft is a twin-engine long range wide-body
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 266 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.
The aircraft are more fully described in the attached appraisals.
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) BK SH&E MBA Base Value(2)
------------- ------------ -------------- ------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Airbus A330-300 N672UW 333 April 2000 $114,500,000 $112,600,000 $119,040,000 114,500,000
Airbus A330-300 N673UW 337 May 2000 114,500,000 $113,000,000 119,280,000 114,500,000
Airbus A330-300 N674UW 342 June 2000 114,700,000 $113,500,000 119,520,000 114,700,000
Airbus A330-300 N675US 370 November 2000 115,500,000 $114,800,000 120,730,000 115,500,000
Airbus A330-300 N676UW 375 December 2000 115,650,000 $115,100,000 120,970,000 115,650,000
</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. The delivery period termination date is
the earlier of (i) the date all aircraft described in this prospectus
supplement are financed, and (ii) February 7, 2001. If all the promissory
notes relating to the aircraft (or substitute aircraft in lieu thereof)
have not been purchased by February 7, 2001 on account of manufacturing
delays that occur for reasons beyond our control and that are not
occasioned by our fault or negligence, then the February 7, 2001 date may
be extended to the earlier of (i) the date all aircraft described in the
prospectus supplement are financed, and (ii) June 7, 2001. See "--
Substitute Aircraft."
(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, BK, SH&E and MBA were asked to provide
their respective opinions as to the appraised base value of each aircraft as of
January 18, 2000 for each of BK, SH&E and MBA 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
I. 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.
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<PAGE>
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 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 April 2000 through
December 2000 under a purchase agreement 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 agreement, 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 February 7, 2001, 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 G and the class C 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 February 7, 2001, we may
identify for delivery a substitute aircraft for such aircraft meeting the
following conditions:
. a substitute aircraft must be the same model, an A330 Family aircraft,
as the aircraft for which delivery was delayed and delivered by the
manufacturer to US Airways after January 31, 2000.
. 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
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<PAGE>
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 two series:
the series G secured promissory notes and the series C secured promissory
notes, collectively referred to as the secured promissory notes.
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.
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.
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 G secured promissory notes issued in respect of an aircraft will rank
senior to series C secured promissory notes issued in respect of such aircraft.
Series C secured promissory notes issued in respect of an aircraft will be
subordinated in right of payment to series G secured promissory notes issued in
respect of such aircraft. (Leased Aircraft Indentures, Section 2.15 and Article
III; Owned Aircraft Indentures, Section 2.15 and Article III) On each scheduled
payment date, payments of interest and principal due on series G 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 until the final expected Regular Distribution Date for each 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
February 20 and August 20 of each year, commencing on the
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<PAGE>
first such date to occur after initial issuance of such secured promissory
note. Such interest will be computed on the 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% per annum over the applicable rate on such series of secured
promissory notes.
Scheduled principal payments on the series G secured promissory notes will
be made on February 20 and August 20 in certain years, commencing on February
20, 2001. The entire principal amount of the series C secured promissory notes
is scheduled to be paid on February 20, 2005. 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 an aircraft, such notice may be revoked at any
time not later than three days prior to the proposed redemption date.
(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 and unpaid interest thereon to,
but not including, the date of purchase, but without any premium (provided that
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<PAGE>
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 table sets forth illustrative loan to aircraft value ratios
for the secured promissory notes issued in respect of aircraft as of the
February 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. We used this example 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 schedule
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 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.
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<PAGE>
The following table is 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 table are the ones most likely to occur
or (b) as to the actual future value of any aircraft. The table 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>
Secured Promissory Assumed
Note Outstanding Aircraft Loan to
Balance Value Value
Date (millions) (millions) Ratio
- ---- ------------------ ---------- -------
<S> <C> <C> <C>
February 20, 2001......................... $71.66 $114.70 62.5%
February 20, 2002......................... 69.16 111.26 62.2%
February 20, 2003......................... 66.66 107.82 61.8%
February 20, 2004......................... 64.16 104.38 61.5%
February 20, 2005......................... 43.25 100.94 42.9%
February 20, 2006......................... 40.53 97.50 41.6%
February 20, 2007......................... 37.63 94.05 40.0%
February 20, 2008......................... 34.57 90.61 38.2%
February 20, 2009......................... 31.34 87.17 36.0%
February 20, 2010......................... 27.94 83.73 33.4%
February 20, 2011......................... 24.38 80.29 30.4%
February 20, 2012......................... 20.64 76.85 26.9%
February 20, 2013......................... 16.74 73.41 22.8%
February 20, 2014......................... 12.67 69.97 18.1%
February 20, 2015......................... 8.43 66.53 12.7%
February 20, 2016......................... 4.03 63.09 6.4%
February 20, 2017......................... 0.00 NA 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, 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.
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<PAGE>
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 we (or, in the case of the Leased Aircraft
Indenture, the relevant Owner Trustee or Owner Participant) receive
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);
. 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); or
. 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. (Indentures, Section 4.02)
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<PAGE>
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 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
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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 will
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 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
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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.
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.
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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, the Policy 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(b))
Indemnification
We are required to indemnify each Loan Trustee, each Owner Participant,
each Owner Trustee, each Liquidity Provider, the Policy 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 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
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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 on February 20 and August 20 of
each year, commencing on the first such date after issuance thereof. Payments
of principal of the series G secured promissory notes issued by us under an
Owned Aircraft Indenture are payable on February 20 and August 20 in certain
years. The entire principal amount of the series C secured promissory notes is
scheduled to be paid on February 20, 2005.
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 (or, in the case of owned aircraft, leases) with United
States entities and foreign entities that have their principal executive office
in specified countries. (Leases, Section 7(b)(x), Owned Aircraft Indenture,
Section 7.02(b)(x)). We also may sublease (or, in the case of owned aircraft,
lease) 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 (or by the Administrator of the FAA acting under authority
delegated by of 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. All leases of
owned aircraft will be subject and subordinate to the lien of the related Owned
Aircraft Indenture. 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 the
applicable citizenship requirements. We are also required to record each lease
(in the case of a leased
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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 (or, in the case of an owned aircraft, any permitted lessee) 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
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)
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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 lessee or sublessee) operate any aircraft,
airframe or engine in any area of recognized hostilities or if we (or any
permitted lessee or 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 will 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 and the Policy 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 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
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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)
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
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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). 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 (or by the Administrator of the FAA acting under authority
delegated 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.
. 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 will 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.
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. 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))
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
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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
in accordance with the holder's method of accounting for U.S. federal income
tax purposes. In addition, the deposits may be subject to the original issue
discount rules, with the result that a U.S. certificateholder may be required
to include any original issue discount in income from a deposit using the
accrual method of accounting regardless of its normal method. Any amounts
received by the pass through trust under the liquidity facility or the
insurance policy 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 Code. Certain fees and expenses, including fees paid to the pass through
trustee, the provider of the liquidity facility and the provider of the
insurance policy, 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.
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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 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.
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The certification referred to above may be made on an IRS Form W-8 (or any
successor form prescribed by the IRS) 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 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.
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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.
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.
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
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include, without limitation, us and our affiliates, the Owner Participants, the
Underwriters, the pass through trustees, the Escrow Agent, the Depositary, the
Owner Trustees, the Policy Provider 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 or any transaction involving the assets of a pass
through trust.
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 G 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
G 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 Salomon Smith Barney, Inc., Prohibited
Transaction Exemption 89-89 et al. (54 Fed. Reg. 42, 589 (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 three highest generic rating categories by Moody's,
Standard & Poor's, Duff & Phelps Inc. or Fitch; 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).
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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 G and class C
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 G 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 G
certificates, no assurance can be given that the Underwriter Exemption would
apply with respect to all transactions involving the class G certificates or
the assets of the class G pass through trust. In particular, the Underwriter
Exemption may not apply to the purchase by the class C certificateholders of
class G 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 G certificate should
also consider the availability of exemptive relief under any of the Class
Exemptions discussed above under "--Prohibited Transaction Exemptions."
The Underwriter Exemption will not in any event apply to the 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 regulations issued
thereunder by the Department of Labor on January 5, 2000.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
among us and the underwriters, we have agreed to cause the class G pass through
trust and the class C 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 G and class C certificates set forth after their
names below.
<TABLE>
<CAPTION>
Principal Amount Principal Amount
of Class G of Class C
Underwriters Certificates Certificates
------------ ---------------- ----------------
<S> <C> <C>
Salomon Smith Barney Inc.................. $ $
Chase Securities Inc......................
Credit Lyonnais Securities (USA) Inc. ....
Credit Suisse First Boston Corporation ...
----- -----
Total................................... $ $
===== =====
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will be
obligated to purchase all of the certificates if any certificates are purchased
thereunder. The underwriters have advised us that the underwriters propose
initially to offer the certificates of each class to the public at the public
offering price for such class set forth on the cover page of this prospectus
supplement, and to certain dealers at such price less a concession not in
excess of the amounts for each respective class set forth below. The
underwriters may allow, and the dealers may reallow, a concession to certain
other 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>
Pass Through Concession Reallowance
Certificate Designation to Dealers Concession
----------------------- ---------- -----------
<S> <C> <C>
2000-1G..............................................
2000-1C..............................................
</TABLE>
We do not intend to apply for the listing of the certificates on a national
securities exchange, but have been advised by the underwriters that they
presently intend to make a market in the certificates, as permitted by
applicable laws and regulations. No underwriter is obligated, however, to make
a market in the certificates, and any market-making may be discontinued at any
time, at the sole discretion of the underwriter. Accordingly, no assurance can
be given as to the liquidity of, or trading markets for, the certificates.
We have agreed to reimburse the underwriters for certain expenses and have
agreed to indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
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. In particular, (a) Citicorp North
America, Inc., an affiliate of Salomon Smith Barney Inc.; (b) The Chase
Manhattan Bank, an affiliate of Chase Securities Inc.; (c) Credit Lyonnais New
York, an affiliate of Credit Lyonnais Securities (USA) Inc.; and (d) Credit
Suisse First Boston, an affiliate of Credit Suisse First Boston Corporation,
are all lenders to US Airways under two revolving credit facilities concluded
on December 10, 1999. In addition, an affiliate of Chase Securities Inc. has
provided equity financing in connection with various leveraged lease
transactions that we are engaged in.
In order to facilitate the offering of the certificates, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the certificates. Specifically, the underwriters may overallot in
connection with the offering, creating a short position in the certificates for
their own account. In addition, to cover over-allotments or to stabilize the
price of the certificates, the underwriters may bid for, and purchase,
certificates in the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an underwriter or a dealer for
distributing certificates in the offering, if the syndicate repurchases
previously distributed certificates in transactions to cover syndicate short
positions, in stabilization transactions or
S-96
<PAGE>
otherwise. Any of these activities may stabilize or maintain the market price
of the certificates above independent market levels. The underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
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 consolidated balance sheets of MBIA Insurance Corporation and
subsidiaries as of December 31, 1998 and December 31, 1997 and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1998,
incorporated by reference in this prospectus supplement, have been incorporated
into this prospectus supplement in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The references to BK, SH&E and MBA, and to their respective appraisal
reports, each dated as of January 18, 2000 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-97
<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 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)
"Airbus" means Airbus Industrie, G.I.E.
"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 BK Associates, Inc. ("BK"), Simat, Helliesen & Eichner, Inc. ("SH&E"), and
Morten Beyer and Agnew, Inc. ("MBA"). (Intercreditor Agreement, Section 1.1)
S-98
<PAGE>
"Assumed Amortization Schedule" means the assumed amortization schedule for
the secured promissory notes set forth in the table on page S-44 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.
"Avoided Payment" means any amount paid or required to be paid in respect of
the class G certificates made to a class G certificateholder that is voided
under any applicable bankruptcy, insolvency, receivership or similar law in an
Insolvency Proceeding and as a result, the pass through trustee, the
Subordination Agent or any holder of the class G certificates (as the case may
be) is required to return such voided payment, or any portion of such voided
payment, made or to be made in respect of the class G certificates (including
any disgorgement from the class G certificateholder resulting from an
Insolvency Proceeding, whether such disgorgement is determined on a theory of
preferential conveyance or otherwise) in accordance with a final, nonappealable
order of a court exercising jurisdiction in such Insolvency Proceeding.
"Base Rate" when used with respect to the Liquidity Facility, 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 insurance companies or commercial banks in New York, New York or
commercial banking institutions in Pittsburgh, Pennsylvania and in the cities
in which the corporate trust office of the Subordination Agent or any Loan
Trustee or the fiscal agent of the Policy Provider or the office of the Policy
Provider are located are authorized or obligated by law or executive order to
close.
"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.
S-99
<PAGE>
"Controlling Party" means:
. the policy provider, until final distributions of the aggregate
outstanding balance of the class G certificates, together with accrued
and unpaid interest, are made to the holders of the class G certificates
and no obligations owing to the policy provider remain outstanding or,
if a Policy Provider Default has occurred and is continuing, the class G
pass through trustee until payment of final distributions to the holders
of the certificates of that class; and after that,
. the class C pass through trustee.
Under certain circumstances, the liquidity provider with the higher
outstanding amount of unreimbursed Liquidity Obligations and not then in
default in its obligations to make any advance under any liquidity facility may
elect to act as the controlling party, unless the policy provider amends its
policy to cover all outstanding liquidity facility obligations and certain
other conditions are met or the policy provider pays to the liquidity providers
all outstanding liquidity facility obligations, in which case, the policy
provider will be the controlling party (so long as no Policy Provider Default
has occurred and is continuing). See "Description of the Intercreditor
Agreement--Intercreditor Rights."
"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 (i) the date all
aircraft described in this prospectus supplement are financed, and (ii)
February 7, 2001. If all the promissory notes relating to the aircraft (or
substitute aircraft in lieu thereof) have not been purchased by February 7,
2001 on account of manufacturing delays that occur for reasons beyond our
control and that are not occasioned by our fault or negligence, then the
February 7, 2001 date may be extended to the earlier of (i) the date all
aircraft described in the prospectus supplement are financed, and (ii) June 7,
2001.
"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 G 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 G certificates and class C
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, and in the case of the class C certificates only, $9 million
(without duplication), 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 G certificates and basis
points in the case of the class C certificates over (b) the amount of such
unused Deposits to be distributed to the holders of such certificates minus the
Non-Premium Amount, and in the case of the class C certificates only, $9
million (without duplication), 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)
S-100
<PAGE>
"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 and by 4% per year for the next 5 years.
"Disposition" means any sale or other disposition of any series G secured
promissory note, or the related Trust Indenture Estate or Collateral, in
connection with the exercise of remedies, as to which there has been a failure
to pay principal or that has been accelerated.
"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 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.
"Election Distribution Date" means any Special Distribution Date specified
by the Subordination Agent upon 20 days' notice, by reason of (i) the
occurrence and continuation of a Policy Provider Default occurring after a
Policy Provider Election or (ii) the receipt of a Special Payment constituting
the proceeds of a Disposition of or in respect of any series G secured
promissory note as to which a Policy Provider Election has been given.
"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 G 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.
"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).
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<PAGE>
. 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 having jurisdiction, 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 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)
"Excess Reimbursement Obligations" means, (a) in the event of any Policy
Provider Election, the portion of the Policy Provider Obligations that
represents, when added to that portion of any Liquidity Obligations that
represents, interest on the series G secured promissory note in respect of
which the Policy Provider Election has been made in excess of 18 months of
interest at the contract rate of interest applicable to such secured promissory
note and (b) any interest on the Liquidity Obligations in respect of the class
G and class C Liquidity Facilities paid by the Policy Provider to the Liquidity
Provider from and after the end of the 18-month period referred to under the
caption "Description of the Policy and the Policy Provider Agreement--The
Policy--No Proceeds Drawing".
"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
S-102
<PAGE>
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) will 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 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, August 20, 2018, for the class G certificates
and August 20, 2006, for the class C certificates. (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.
"Insolvency Proceeding" means the commencement of any bankruptcy,
insolvency, readjustment of debt, reorganization, marshalling of assets and
liabilities or similar proceedings by or against US Airways or any Liquidity
Provider or any Owner Trustee for the winding up or liquidation of its affairs
or the consent to the appointment of a trustee, conservator, receiver or
liquidator in any bankruptcy, insolvency, readjustment of debt, reorganization,
marshalling of assets and liabilities or similar proceedings of or relating to
US Airways, any Liquidity Provider or any Owner Trustee.
"Intercreditor Agreement" means the intercreditor agreement to be dated as
of the Issuance Date among the pass through trustees, the Liquidity Provider,
the Policy Provider and the Subordination Agent.
S-103
<PAGE>
"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 $250 million) or (b) certain bankruptcy or similar events
involving US Airways. (Liquidity Facilities, Section 1.01)
"Liquidity Expenses" means all Liquidity Obligations other than (a) the
principal amount of any Drawings under the Liquidity Facilities 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 Bayerische Landesbank Girozentrale 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
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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 G certificates and % 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 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.
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"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.
"Order" means the order referred to in the definition of the term "Avoided
Payment."
"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 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)
"Policy" means the financial guaranty insurance policy issued by the Policy
Provider in favor of the Subordination Agent for the benefit of the class G
pass through trustee and the class G certificateholders.
"Policy Drawing" means any payment of a claim under the Policy.
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"Policy Expenses" means all amounts (including amounts in respect of
expenses) owing to the Policy Provider under the Policy Provider Agreement or
certain other agreements other than (i) the amount of any Excess Reimbursement
Obligations, (ii) any Policy Drawing, (iii) any interest accrued on any Policy
Provider Obligations, (iv) reimbursement of and interest on the Liquidity
Obligations in respect of the Liquidity Facilities paid by the Policy Provider
to the Liquidity Provider and (v) any indemnity payments owed to the Policy
Provider.
"Policy Fee Letter" means the fee letter from the Policy Provider to the
Subordination Agent setting forth the premium and other fees payable with
respect to the Policy.
"Policy Provider Agreement" means the insurance and indemnity agreement, to
be dated as of Issuance Date, between the Subordination Agent and the Policy
Provider.
"Policy Provider Default" will mean the occurrence of any of the following
events (a) the Policy Provider fails to make a payment required under the
Policy in accordance with its terms and such failure remains unremedied for 2
business days following the delivery of written notice of such failure to the
Policy Provider; (b) the Policy Provider (i) files any petition or commences
any case or proceeding under any provisions of any federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (ii) makes a general assignment for the benefit of its
creditors or (iii) has an order for relief entered against it under any federal
or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization that is final and nonappealable, or (c) a court of competent
jurisdiction, New York Insurance Department, or another competent regulatory
authority enters a final and nonappealable order, judgment or decree (i)
appointing a custodian, trustee, agent or receiver for the Policy Provider or
for all or any material portion of its property or (ii) authorizing the taking
of possession by a custodian, trustee, agent or receiver of the Policy Provider
(or taking of possession of all or any material portion of the Policy
Provider's property).
"Policy Provider Election" means the right of the Policy Provider to make
the election as described in the second paragraph of "Description of the Policy
and The Policy Provider Agreement--The Policy--No Proceeds Drawing".
"Policy Provider Obligations" means all reimbursement and other amounts,
including fees and indemnities, due to the Policy Provider under the Policy
Provider Agreement or Policy Fee Letter but will not include any interest on
Policy Drawings except, if the class G Liquidity Provider has failed to honor
its obligation to make any Interest Drawing, interest on the portion of any
Policy Drawing made to cover the shortfall attributable to such failure by the
class G Liquidity Provider in an amount equal to the amount of interest that
would have accrued on such Interest Drawing if such Interest Drawing had been
made at the interest rate applicable to such Interest Drawing until such Policy
Drawing has been repaid in full, up to a maximum of three such Policy Drawings.
For the avoidance of doubt, and subject to the effect of payment priorities in
the Intercreditor Agreement with respect to Excess Reimbursement Obligations,
Policy Provider Obligations include reimbursement of and interest on the
Liquidity Obligations in respect of the class G and class C Liquidity
Facilities paid by the Policy Provider to the Liquidity Provider.
"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, payments under the Policy
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(other than in respect of interest on the certificates), 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.
"Prior Funds" means, with respect to any shortfall on any Distribution Date
in interest on the class G certificates or any shortfall on the Final Maturity
Date for the class G certificates in the Final Distribution on the class G
certificates, all available funds, including any amounts received by the Escrow
Agent in the class G Paying Agent Account in respect of accrued interest on the
class G Deposits, any drawing paid under the class G Liquidity Facility in
respect of interest due on the class G certificates on such Distribution Date
or the Final Maturity Date, as the case may be, and any withdrawal of funds
from the class G Cash Collateral Account in respect of interest due on the
class G certificates on such Distribution Date or the Final Maturity Date, as
the case may be.
"PTC Event of Default" means, with respect to the pass through trust
agreement for each class of certificates, the failure to pay (a) the
outstanding Pool Balance of the applicable class of certificates within ten
Business Days of the Final Maturity Date for such class (unless, in the case of
the class G certificates, the Subordination Agent has made a drawing under the
Policy in an aggregate amount sufficient to pay the outstanding Pool Balance
and has distributed such amount to the class G pass through trustee); or (b)
interest due on a 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,
or, in the case of the class G certificates, a drawing under the Policy, in an
aggregate amount sufficient to pay such interest and has distributed such
amount to the relevant pass through trustee). (Intercreditor Agreement, Section
1.01)
"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 February 20 and August 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 (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, February 20 and
August 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
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of the downgrading of the applicable Liquidity Provider, without regard to the
Policy Provider), and in the case of the class G Liquidity Facility only, to be
consented to by the Policy Provider, which consent will not be unreasonably
withheld or delayed, 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 each liquidity
facility, or the cash collateral account, for any class of certificates 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) The Pool Balance
for purposes of the definition of Required Amount with respect to the class G
Liquidity Facility will, in the event of any Policy Provider Election, be
deemed to be reduced by an amount (if positive) by which (a) the then
outstanding principal balance of each series G secured promissory note in
respect of which such Policy Provider Election has been made shall exceed (b)
the amount of any policy drawings previously paid by the Policy Provider in
respect of principal on such series G secured promissory note.
"Scheduled Payment" means, with respect to any secured promissory note (i)
any payment of interest or principal on such secured promissory note (other
than a scheduled payment that is overdue for five days or more) due from the
obligor thereon, or (ii) 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 or the Policy, which payment represents the
installment of principal at the stated maturity of such installment of
principal on such secured promissory note, the payment of regularly scheduled
interest accrued on the unpaid principal amount of such secured promissory
note, or both; provided, however, that any payment of principal, premium, if
any, or interest resulting from the redemption or 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.
"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. (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 $250 million) 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 two pass through trust supplements
dated as of the Issuance Date between US Airways and the pass through trustee.
"Underwriters" means Salomon Smith Barney Inc., Chase Securities Inc.,
Credit Lyonnais Securities (USA) Inc. and Credit Suisse First Boston
Corporation.
"Underwriting Agreement" means the agreement among US Airways and the
Underwriters relating to the purchase of the class G and class C certificates.
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Morten Beyer & Agnew
--------------------
Aviation Consulting Firm
Appraisal of Five (5)
Airbus A330-300 Aircraft
PREPARED FOR:
US Airways
&
Salomon Smith Barney
JANUARY 18, 2000
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
[MBA Logo]
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Introduction and Executive Summary
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Morten Beyer & Agnew, Inc. (MBA), has been retained by US Airways to determine
the Current Base Value of (5) 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 $599,540,000 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.
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II. Aircraft
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Aircraft Tail # S/N Scheduled Mfr. MTOW(lbs.)
Delivery Date
- ------------------------------------------------------------------
A330-300 N672UW 333 4-00 507,000
(467,375 std.)
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N673UW 337 5-00
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N674UW 342 6-00
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N675US 370 11-00
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N676UW 375 12-00
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Powerplant: PW4168A
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[Aircraft Graphic Appears Here]
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III. Current Market Conditions
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[Airbus A330 Series Graphic Appears Here]
Family Development
The manufacturing interchangeability of the A330/A340 family allows Airbus
customers to maintain options for both until a later phase in the production
process. Both the A330 and A340 share the same wing and fuselage and vary by the
number of engines and middle landing gear on the A340. The fuselage is
contracted or expanded depending on the family iteration, the A330/340-200 being
the smallest and expanding up to the ultra-long range A340-500/-600 iterations.
Because this family covers a wide variation of passenger capacity and stage
lengths, it covers a broad spectrum of competition. Airbus hoping to accommodate
every type of customer has created a simple family nomenclature that, unlike the
Boeing 737 family, has only a few number of iterations. On the lower end, the
two-engined A330-200 competes with the DC10-30 and 767-300/400 series, whereas
the four-engined A340 competes with both the 747 and 777 families. Although the
A330 and A340 share common systems, and in some cases could compete against one
another, Airbus has marketed the A340 in direct competition with the Boeing 777,
with the biggest attribute, being that the A340 has four engines as opposed to
two and is not restricted to ETOPS/EROPS certification, especially when it comes
to newly opened polar routes.
However, some could also conclude that the A330 is in a segment unto itself. The
fuselage of both the A330/A430 is 23 inches narrower than the Boeing 777 and 22
inches wider than the 767 semi-widebody. Those aspects aside, the A330 carries
more people at similar stage-lengths than the Boeing 767-300 (max certified
350).
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.
Efficiency
All three leading engine manufacturers have contributed to the A330 project. As
of current, the engines of choice are the Pratt and Whitney PW4168 (also offered
is the PW4173), and the Rolls-Royce TRENT 772 both with 18 and 14 orders, the GE
CF6-80 is lagging behind with only 4 orders.
The activation of the center fuel tank, allows the A330-200 to attain a greater
range than the A330-300. The fuel tank in the horizontal stabilizer of both the
A330-200/-300 improves the fuel burn of the aircraft by reducing drop since
center of gravity is better maintained and controlled.
3
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On the ground, the A330 maintains commonality with the A340 when it comes to
ground equipment, cargo containerization, wingspan and ramp area.
Market Outlook
With its first order placed in March of 1996, and currently with 116 aircraft on
order, the A330-200 has seen a steady growth in orders. Although not as popular
as the A330-300, the -200 fills a certain market that is currently being
operated by Boeing 767 operators. As we have recently seen by orders from El Al,
Air France, and US Airways, all of which are 767 operators, the A330 is
gradually making itself known in the medium-long range, passenger market. The
A330 might as well benefit from the popularity of the A340, with cross-crew
qualification and training, current A340 operators may easily opt for the A330
when considering their medium-to-long range widebody needs.
US Airways will be the only A330 operator next year in the United States. Their
recent EETC transaction might make the road a little easier for other US
carriers, like Northwest who have confirmed orders, and perhaps TWA, to commit
to deliveries within the next few years.
Current Operating Airlines (A330)
Aer Lingus, Air Canada, Air Transat, Cathay Pacific, Dragonair, Garuda
Indonesia, Korean, LTU, Malaysia, Philippine Airlines, Sabena, Skyservice,Thai
International
Current Confirmed Orders (A330)
Aer Lingus, Air Canada, Air Inter Europe, Air Tours, Asiana, Cathay Pacific,
CIT Group, Dragonair, Euralair, Garuda Indonesia, GPA Group, Gulf Air, ILFC,
Korean, Lufttrafik AB, LTU, Malaysia, Northwest Airlines, Philippine, Thai
International, TWA, US Airways
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Geographical Distribution
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----------------------
Aircraft Ordered: 204
Delivered: 78
Backlog: 74
----------------------
[World Map Graphic Appears Here]
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IV. Valuation
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Aircraft Tail # S/N Scheduled Mfr. MTOW(lbs.) * Base Value
Delivery Date ($000,000)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A330-300 N672UW 333 4-00 507,000 119.04
(467,375 std.)
- --------------------------------------------------------------------------------------------
N673UW 337 5-00 119.28
- --------------------------------------------------------------------------------------------
N674UW 342 6-00 119.52
- --------------------------------------------------------------------------------------------
N675US 370 11-00 120.73
- --------------------------------------------------------------------------------------------
N676UW 375 12-00 120.97
- --------------------------------------------------------------------------------------------
Total 599.54
- --------------------------------------------------------------------------------------------
</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.
6
[MBA Logo]
<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:
/s/ Bryson P. Monteleone
------------------------
Bryson P. Monteleone
Director of Operations
REVIEWED BY:
/s/ Morten S. Beyer
-------------------
Morten S. Beyer
January 18, 2000 Chairman and CEO
Ref# 00100 ISTAT Certified Appraiser Fellow
7
[MBA Logo]
<PAGE>
[SH&E Letterhead]
January 18, 2000
Ms. Wendy Vertal
Manager of Corporate Finance
US Airways, Inc.
2345 Crystal Drive
Arlington, VA 22227
Re: Value Opinion of Five Airbus A330-300 Aircraft
Dear Ms. Vertal:
Simat, Helliesen & Eichner, Inc. ("SH&E") was asked by US Airways (the "Client")
to determine the Base Value ("BV") of five Airbus A330-300 aircraft (the
"Subject Aircraft") that will be delivered to it in the near future. The
specifications for the Subject Aircraft are referenced herein.
SH&E has determined the aggregate Base Value of the Subject Aircraft to be US$
569.0 million.
Subject Aircraft Base Values ($Mil)
<TABLE>
<CAPTION>
Scheduled
Aircraft Type Engine Type Serial # Reg. # Delivery Date Base Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 A330-300 PW 4168A 333 N672UW April 2000 $112.6
2 A330-300 PW 4168A 337 N673UW May 2000 $113.0
3 A330-300 PW 4168A 342 N674UW June 2000 $113.5
4 A330-300 PW 4168A 370 N675US November 2000 $114.8
5 A330-300 PW 4168A 375 N676UW December 2000 $115.1
- -------------------------------------------------------------------------------------------------------------
TOTAL $569.0 mil
</TABLE>
Aircraft Description
The A330-300 is a wide-body, medium/long range twin-engined airliner offered by
Airbus Industries. The A330 was developed simultaneously with the four-engined
A340 and was launched on 5 June 1987. Its first flight was on 2nd November 1992,
and received simultaneous certification from the European Joint Aviation
Authority (JAA) and FAA on 21st October 1993 using General Electric CF6-80E1
engines. The first A330-300 was delivered to Air Inter in December 1993.
The A330-300 shares the same control system, wing, tail and cockpit with the
Airbus A340. As with the A330 and A340, the use of an Electronic Flight Control
System (EFCS) and fly-by-wire
<PAGE>
[SH&E Logo]
Ms. Wendy Vertal
January 18, 2000
Page 2
controls allow for computerized control of the flight surfaces. The cockpit
display incorporates an Electronic Flight Instrumentation System (EFIS) and
instead of the traditional yoke, the pilot uses a side stick controller to
control the aircraft. In addition, the high degree of cockpit commonality of the
A340, A330 and A320 series of aircraft allows for cross crew qualification,
enabling crew members to be rotated onto any of the aircraft types with minimum
training requirements.
The A330-300 was the baseline version that was initially offered. The A330-300
has a maximum passenger capacity of 440, although US Airways will operate with
266 seats in a three-class configuration. The aircraft has a maximum take-off
weight of 507,000 lbs, a maximum structural payload of 101,180 lbs and a maximum
range of 5,100 nm.
The A330-300 is available with three engine options. The General Electric CF6-
80E1A4 rated at 70,000lbs thrust, the Pratt & Whitney PW 4168A rated at 68,000
lbs thrust, and the Rolls Royce Trent 772 rated at 71,100lbs thrust.
All three-engine types have received JAA and FAA Extended Range Twin-Engine
Operations (ETOPS) approval for 180 min on 6 February 1995 (General Electric
engines), 4 August 1995 (Pratt & Whitney engines) and 17 June 1996 (Rolls Royce
engines).
Subject Aircraft Summary Specifications
-------------------------------------------------------
Aircraft Type A330-300
-------------------------------------------------------
Engines 2 PW4168A
-------------------------------------------------------
Maximum Takeoff Weight 507,000 lbs
-------------------------------------------------------
Maximum Payload 101,180 lbs
-------------------------------------------------------
Maximum Range 5,100 nm
-------------------------------------------------------
SH&E Valuation Methodology
SH&E's appraisal's are performed according to the International Society of
Transport Aircraft Trading ("ISTAT") principles of appraisal practice and code
of ethics.
The SH&E valuation approach starts by determining a half-life value. The term
`half-life' represents an aircraft whose major components, the airframe,
engines, landing gear and APU have used 50 percent of the time between scheduled
or expected overhauls. If appropriate, this initial appraisal can then be
adjusted, positively or negatively for each individual unit to reflect the
aircraft's maintenance status relative to the next overhaul. In most cases, the
Base Value of an aircraft assumes its physical condition is average for an
aircraft of its type and age, and its maintenance time status is at half-life,
or benefiting from an above-average maintenance status if
<PAGE>
[SH&E Logo]
Ms. Wendy Vertal
January 18, 2000
Page 3
it is new or nearly new, as the case may be. SH&E half-life values are
determined on an annual basis by reviewing recent past sales, aircraft
availability trends, technological aspects, environmental constraints and
maintenance requirements.
In the case of new aircraft, the above half-life values are automatically
adjusted upwards to reflect the fact that the aircraft has the full span of
maintenance overhaul intervals available. Consequently, SH&E's initial
depreciation of new aircraft is considerably greater than for a used aircraft,
thereby accounting for both the change in its maintenance status and its
intrinsic depreciation.
Base Value Definition
The Base Value ("BV") is the appraiser's opinion of the underlying economic
value of an asset in an open, unrestricted and stable market environment with a
reasonable balance of supply and demand, and also assumes full considerations of
its "highest and best use". An asset's BV is founded in the historical trend
of values and in the projection of value trends and presumes an arm's-length,
cash transaction between willing, able and knowledgeable parties, acting
prudently, with an absence of duress and with a reasonable period of time
available for marketing.
Since BV pertains to a somewhat idealized asset and market combination it may
not necessarily reflect the actual value of the asset in question, but is a
nominal starting value to which adjustments may be applied to determine an
actual value. Since BV is related to long-term market trends, the BV definition
is normally applied to analyses of historical values and projections of residual
values and lease rates.
Assumptions
SH&E used information supplied by the Client together with in-house data
accumulated through other recent studies of aircraft transactions. SH&E assumed
that the Subject Aircraft will meet all of the specifications and performance
standards for standard A330-300 series aircraft.
SH&E's opinions are based upon historical relationships and expectations that it
believes are reasonable. Some of the underlying assumptions, including those
described above are detailed explicitly or implicitly elsewhere in this report,
and may not materialize because of unanticipated events and circumstances.
SH&E's opinions could, and would, vary materially, should any of the above
assumptions prove to be inaccurate.
Limitations
The opinions expressed herein are not given as an inducement or endorsement for
any financial transaction. Although they are prepared for the exclusive use of
the addressee, the addressee may provide this report to third parties without
SH&E's written consent.
<PAGE>
[SH&E Logo]
Ms. Wendy Vertal
January 18, 2000
Page 4
SH&E accepts no responsibility for damages, if any, that may result from
decisions made or actions taken by third parties that may be based upon this
report.
This report reflects SH&E's expert opinion and best judgment based upon the
information available to it at the time of its preparation. SH&E does not have,
and does not expect to have, any financial interest in the appraised property.
Yours sincerely
/s/ Clive G. Medland
- --------------------
Clive G. Medland, FRAeS
Vice President
Senior Appraiser
International Society of Transport Aircraft Trading
<PAGE>
[BK Associates, Inc. Letterhead]
January 18, 2000
Ms. Wendy Vertal
US Airways, Inc.
2345 Crystal Drive
Arlington, VA 22227
Dear Wendy:
In response to your request, BK Associates, Inc. is pleased to provide this
opinion on the Base Value as of today on each of five Airbus A330-300 series
aircraft, each powered by Pratt & Whitney PW4168A engines (Aircraft). The
Aircraft are further identified in the conclusions of this letter by
registration number and scheduled delivery date during the year 2000.
Set forth below is a summary of the methodology, considerations and assumptions
utilized in this appraisal.
According to the International Society of Transport Aircraft Trading's (ISTAT)
definition of Base Value, to which BK Associates subscribes, the 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 knowledgeable parties, acting prudently, with an
absence of duress and with a reasonable period of time available for marketing.
VALUE METHODOLOGY
As the definition suggests, Base Value is determined from historic and future
value trends and is not influenced by current market conditions. It is often
determined as a function of the original cost of the aircraft, technical
characteristics of competing aircraft, and development of new models. For a
new, or nearly new, aircraft the base value is largely determined from the
manufacturer's list price and from recent purchase prices for the aircraft and
similar competing models.
<PAGE>
BK Associates, Inc.
Ms. Wendy Vertal
January 18, 2000
Page 2
LIMITING CONDITIONS AND ASSUMPTIONS
BK has neither inspected the Aircraft nor their maintenance records but relied
upon information supplied by you and from BK's own database. In determining the
base value of an aircraft, the following assumptions apply to the aircraft:
1. Unless it is new, or nearly new, the aircraft has half-time remaining to its
next major overhauls or scheduled shop visit on its airframe, engines,
landing gear and auxiliary power unit.
2. The aircraft is in compliance under a Federal Aviation Administration
approved airline maintenance program, with all airworthiness directives,
mandatory modifications and applicable service bulletins currently up to
industry standard.
3. The interior of the aircraft is in a standard configuration for its specific
type, with the buyer furnished equipment and options of the types and models
generally accepted and utilized in the industry.
4. The aircraft is in current flight operations.
5. The aircraft is sold for cash without seller financing.
6. The Aircraft is in average or better condition.
7. There is no accident damage.
CONCLUSIONS
Based on the above methodology, considerations and assumptions, it is our
opinion that the current base value of each aircraft as of today is as follows:
<PAGE>
BK Associates, Inc.
Ms. Wendy Vertal
January 18, 2000
Page 3
Scheduled
Aircraft Registration Serial Delivery Base Value
Type Number Number Date $ Mils.
-------- ------------ ------ --------- ----------
A330-300 N672UW 333 04/2000 114.50
A330-300 N673UW 337 05/2000 114.50
A330-300 N674UW 342 06/2000 114.70
A330-300 N675US 370 11/2000 115.50
A330-300 N676UW 375 12/2000 115.65
BK Associates, Inc. has no present or contemplated future interest in the
Aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation and the time and budget constraints imposed by the client. It is
not given as a recommendation, or as an inducement, for any financial
transaction and further, BK Associates, Inc. assumes no responsibility or legal
liability for any action taken or not taken by the addressee, or any other
party, with regard to the appraised equipment. By accepting this appraisal, the
addressee agrees that BK Associates, Inc. shall bear no such responsibility or
legal liability. This appraisal is prepared for the use of the addressee and
shall not be provided to other parties without the express consent of the
addressee.
Sincerely yours,
BK ASSOCIATES, INC.
/s/ R. L. Britton
-----------------
R. L. Britton
Vice President
ISTAT Certified Appraiser
RLB/kf
<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>
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.
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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
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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.
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<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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<PAGE>
. 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;
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. 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.
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.
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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 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.
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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 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.
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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 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
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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 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.
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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
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
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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.
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.
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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.
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.
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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 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
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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.
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. 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, 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]
