<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-47348
PROSPECTUS SUPPLEMENT
(To Prospectus Dated October 16, 2000)
$491,135,000
[LOGO OF US AIRWAYS]
2000-3G Pass Through Trust
Pass Through Certificates, Series 2000-3
-----------
This prospectus supplement relates to class G pass through certificates to be
issued by a pass through trust that we will form. Each pass through certificate
represents an ownership interest in the property held by the trust. The
proceeds of this financing will be used to partially finance twenty-three (23)
Airbus aircraft. The certificates do not represent interests in or obligations
of US Airways or any of our affiliates.
Interest related to the class G certificates will be paid semiannually, on each
March 1 and September 1, beginning March 1, 2001. Principal payments related to
the class G certificates are expected to be paid on March 1 and September 1 in
scheduled years, beginning on September 1, 2001.
We are offering only the class G certificates by this prospectus supplement.
Simultaneously with this offering, class C certificates in the aggregate face
amount of $157,054,000 will be issued by a second pass through trust in a
separate private sale.
Morgan Stanley Capital Services Inc. 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 the class G 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-21.
<TABLE>
<CAPTION>
Pass Through Interest Final Expected Price to
Certificates Face Amount Rate Distribution Date Public(1)
------------ ----------- -------- ----------------- ---------
<S> <C> <C> <C> <C>
2000-3G....................... $491,135,000 7.89% March 1, 2019 100%
</TABLE>
(1)Plus accrued interest, if any, from the date of issuance.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters will purchase all of the class G certificates if any are
purchased. The aggregate proceeds from the sale of the class G certificates
will be $491,135,000. We will pay the underwriters a commission of $4,174,648.
Morgan Stanley & Co. Incorporated expects to deliver the class G certificates
to purchasers on November 2, 2000. Interest on the class G certificates will
accrue from the date of delivery. Neither class of certificates will be listed
on a national securities exchange.
-----------
MORGAN STANLEY DEAN WITTER
CREDIT LYONNAIS SECURITIES
DEUTSCHE BANC ALEX. BROWN
SG COWEN
This date of this prospectus supplement is October 26, 2000.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
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<S> <C>
Presentation of Information................................................ S-1
Prospectus Supplement Summary.............................................. S-2
The Offering.............................................................. S-2
Certificates.............................................................. S-2
The Pass Through Trust.................................................... 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-19
Risk Factors............................................................... S-21
Risk Factors Relating to US Airways....................................... S-21
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-29
Forward-Looking Statements................................................. S-31
US Airways................................................................. S-32
Merger.................................................................... S-32
US Airways Shuttle........................................................ S-32
Domestic Service.......................................................... S-33
Expanding International Service........................................... S-34
Code Sharing Relationships................................................ S-34
Fleet Rationalization and the Airbus
Aircraft................................................................. S-34
US Airways' Market Position............................................... S-35
Sabre, Inc. Agreement..................................................... S-35
On-Line Reservation System................................................ S-36
Legal Proceedings......................................................... S-36
Description of the Policy Provider......................................... S-38
General................................................................... S-38
MBIA...................................................................... S-38
MBIA Financial Information................................................ S-38
Where You Can Obtain Additional
Information About MBIA................................................... S-39
Financial Strength Ratings of MBIA........................................ S-39
Use of Proceeds............................................................ S-40
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Description of the Certificates............................................ S-40
General................................................................... S-40
Payments and Distributions................................................ S-41
Pool Factors.............................................................. S-44
Reports to Certificateholders............................................. S-46
Indenture Defaults and Certain Rights
upon an Indenture Default................................................ S-47
Purchase Rights of Certificateholders..................................... S-48
PTC Event of Default...................................................... S-49
Merger, Consolidation and Transfer of
Assets................................................................... S-49
Modifications of the Pass Through Trust Agreements and Certain Other
Agreements............................................................... S-50
Obligation to Purchase Secured Promissory Notes........................... S-53
Termination of the Pass Through Trust..................................... S-60
The Pass Through Trustee.................................................. S-60
Book-Entry; Delivery and Form............................................. S-60
Description of the Deposit
Agreements................................................................ S-61
General................................................................... S-61
Unused Deposits........................................................... S-61
Distribution upon Occurrence of a Triggering Event........................ S-62
Distribution upon Occurrence of a
Termination Event........................................................ S-62
Depositary................................................................ S-62
Replacement of Depositary................................................. S-62
Description of the Escrow
Agreements................................................................ S-63
Description of the Liquidity Facilities.................................... S-64
General................................................................... S-64
Drawings.................................................................. S-64
Reimbursement of Drawings................................................. S-66
Liquidity Events of Default............................................... S-67
Liquidity Provider........................................................ S-67
Description of the Policy and the Policy Provider Agreement................ S-68
The Policy................................................................ S-68
General................................................................... S-70
The Policy Provider Agreement and the Policy Fee Letter................... S-71
Description of the Intercreditor
Agreement................................................................. S-72
Intercreditor Rights...................................................... S-72
Priority of Distribution.................................................. S-74
The Subordination Agent................................................... S-76
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Description of the Aircraft and the Appraisals............................. S-76
The Aircraft.............................................................. S-76
The Appraisals............................................................ S-77
Deliveries of Aircraft.................................................... S-78
Substitute Aircraft....................................................... S-78
Description of the Secured Promissory Notes................................ S-79
General................................................................... S-79
Subordination............................................................. S-79
Principal and Interest Payments........................................... S-79
Redemption................................................................ S-80
Security.................................................................. S-81
Loan to Value Ratios of Secured Promissory Notes.......................... S-82
Limitation of Liability for Leased Aircraft Notes......................... S-84
Liability for Owned Aircraft Notes........................................ S-85
Indenture Defaults, Notice and Waiver..................................... S-85
Remedies.................................................................. S-87
Modification of Indentures and Leases..................................... S-89
Indemnification........................................................... S-89
The Leases and the Owned Aircraft Indentures.............................. S-90
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
U.S. Income Tax matters.................................................. S-96
General................................................................. S-96
Tax Treatment of the Pass Through Trust and Certificateholders.......... S-96
Sale or Other Disposition of the Certificates........................... S-97
Foreign Certificateholders.............................................. S-97
Information Reporting and Backup Withholding............................ S-98
Certain Connecticut Taxes................................................ S-98
ERISA Considerations..................................................... S-99
General................................................................. S-99
Plan Assets Issues...................................................... S-99
Prohibited Transaction Exemptions....................................... S-99
Underwriter Exemption May Apply to the Purchase of Class G Certificates
by Plans............................................................... S-100
Special Considerations Applicable to Insurances Company General
Accounts............................................................... S-101
Underwriting............................................................. S-102
Purchase Of Class C Certificates......................................... S-103
Legal Matters............................................................ S-104
Experts.................................................................. S-104
Glossary................................................................. S-105
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
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......................................... 9
Use of Proceeds............................................................ 10
Description of the Certificates............................................ 11
General................................................................... 11
Payments and Distributions................................................ 15
Pool Factors.............................................................. 16
Reports to Certificateholders............................................. 16
Voting of Secured Promissory Notes........................................ 17
Events of Default and Certain Rights upon an Event of Default............. 18
Merger, Consolidation and Transfer of Assets.............................. 20
Modifications of the Basic Agreement...................................... 20
Modification of Indenture and Related Agreements.......................... 21
Cross-Subordination Issues................................................ 22
Termination of the Pass Through Trusts.................................... 22
Delayed Purchase of Secured Promissory Notes.............................. 22
Liquidity Facility and Other Credit Enhancements.......................... 22
The Pass Through Trustee.................................................. 23
Book-Entry Registration................................................... 24
Description of the Secured Promissory Notes................................ 27
General................................................................... 27
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Principal and Interest Payments.......................................... 28
Redemption............................................................... 28
Security................................................................. 28
Ranking of Secured Promissory Notes...................................... 30
Payments Under Leases and Limitation of Liability........................ 30
Defeasance of the Indentures and the Secured Promissory Notes in Certain
Circumstances........................................................... 31
Assumption of Obligations by US Airways.................................. 31
Additional Notes......................................................... 32
Intercreditor Issues..................................................... 32
Owner Participant; Revisions to Agreements............................... 32
U.S. Income Tax Matters................................................... 33
General.................................................................. 33
Tax Treatment of the Pass Through Trusts and Certificateholders.......... 33
Effect of Subordination on Certificateholders of Subordinated Trusts..... 34
Original Issue Discount.................................................. 34
Sale or Other Disposition of the Certificates............................ 34
Foreign Certificateholders............................................... 35
Information Reporting and Backup Withholding............................. 35
ERISA Considerations...................................................... 36
Plan of Distribution...................................................... 36
Selling Certificateholders................................................ 37
Legal Opinions............................................................ 38
Experts................................................................... 38
Where You Can Find More Information....................................... 39
Incorporation of Certain Documents by Reference........................... 40
</TABLE>
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is
legal to sell these securities. The information in this document may only be
accurate on the date of this document.
iii
<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, Inc. and the word parent or other
similar words refer to US Airways Group, Inc. 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 each 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. Class G and class C certificates will be issued, each by
separate pass through trusts. We are offering only the class G certificates in
this prospectus supplement. The class C certificates will be issued in a
separate simultaneous private sale.
As described in this prospectus supplement, each class of certificates is
entitled to the benefits of a separate liquidity facility provided by Morgan
Stanley Capital Services Inc., whose obligations will be guaranteed by Morgan
Stanley Dean Witter & Co. Each 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 facilities 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 issued by MBIA Insurance Corporation to support the
payment of interest on the class G certificates when due under certain
circumstances, and the payment of the outstanding balance on such certificates
on the final maturity date for such certificates and under certain other
circumstances. The class C certificates will not be entitled to the benefits of
any such financial guaranty insurance policy.
The Pass Through Trust
We will form separate pass through trusts to issue each class of
certificates. We will form the pass through trusts with State Street Bank and
Trust Company of Connecticut, National Association, as pass through trustee.
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 agreements. Each pass
S-2
<PAGE>
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 instruments will consist of a basic pass through trust agreement and a
supplement to the basic pass through trust agreement between US Airways and the
pass through trustee.
This prospectus supplement describes, among other things, the property that
will be held by the pass through trusts. 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 the pass through trusts will
be passed through to holders of certificates, according to the terms of each
pass through trust agreement. The pass through trusts also will hold other
property described in this prospectus supplement.
Secured Promissory Notes
The secured promissory notes owned by each 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; or
. promissory notes issued by us and secured by an aircraft that we own.
We refer to promissory notes secured by an aircraft leased to us as leased
aircraft notes and promissory notes secured by aircraft that we own as owned
aircraft notes.
Leased Aircraft Notes. Leased aircraft notes will be issued by a bank, trust
company, financial institution or other entity solely in its capacity as owner
trustee in a leveraged lease transaction. In a leveraged lease transaction, one
or more entities will form an owner trust to acquire an aircraft, and that
owner trust will lease the aircraft to us. In the leasing industry, the entity
that is the beneficiary of the owner trust is referred to as an owner
participant. The owner participant will contribute a portion of the purchase
price of the aircraft to the owner trust. The transaction is called a
"leveraged" lease because the remainder of the owner trust's purchase price of
the aircraft is financed through the issuance of leased aircraft notes. Leased
aircraft notes may also be issued to refinance an aircraft previously financed
in a leveraged lease transaction or otherwise.
The leased aircraft notes are issued under a separate indenture and security
agreement between the owner trustee and a bank, trust company, financial
institution or other entity, as loan trustee. The loan trustee under a leased
aircraft indenture will act as a trustee for the holders of the leased aircraft
notes issued under that leased aircraft indenture.
In a leveraged lease transaction, we will pay or advance rent and other
amounts to the owner trustee in its capacity as lessor under the lease. The
owner trustee will use the rent and other amounts received by it to make
payments of principal and interest on the leased aircraft notes. The owner
trustee also will assign its rights to receive basic rent and certain other
payments to the loan trustee as security for its obligations to pay principal
of, premium, if any, and interest on the leased aircraft notes. Payments or
advances made under a lease and related agreements will at all times be
sufficient to make scheduled payments of principal of, and interest on, the
leased aircraft notes issued to finance the aircraft subject to that lease.
We will not have any obligation to pay principal of, or interest on, the
leased aircraft notes. Holders of leased aircraft notes will not have recourse
against us for the payment of principal of, or interest on, the leased aircraft
notes.
Owned Aircraft Notes. We may finance or refinance aircraft that we own by
issuing owned aircraft notes. Owned aircraft notes relating to an owned
aircraft will be issued under a separate indenture and security agreement
relating to that owned aircraft. Each separate indenture and security agreement
relating to owned aircraft notes will be between us and a bank, trust company,
financial institution or other entity, as loan trustee.
S-3
<PAGE>
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
We expect the certificates to be issued prior to the delivery of 15 of the
aircraft described in this prospectus supplement. Eight of the aircraft
described in this prospectus supplement have been delivered or are expected to
be delivered prior to the date of the issuance of the certificates. At first,
all of the proceeds from the sale of each class 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) July 1,
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......... $491,135,000 $157,054,000
Ratings:
Moody's..................... Aaa Ba2
Standard & Poor's........... AAA BBB-
Initial Loan to Aircraft Value
(cumulative)(1).............. 47.6% 62.8%
Expected Principal
Distribution Window
(in years)................... 0.8-18.3 0.8-21.3
Initial Average Life from
Issuance Date (in years)..... 10.9 12.5
Regular Distribution Dates.... March 1 and September 1 March 1 and September 1
Final Expected Regular
Distribution Date............ March 1, 2019 March 1, 2022
Final Maturity Date........... September 1, 2020 September 1, 2023
Minimum Denomination.......... $1,000 $1,000
Section 1110 Protection....... Yes Yes
Liquidity Facility Coverage... 3 semiannual 3 semiannual
interest payments interest payments
Insurance Policy Coverage(2).. Yes No
</TABLE>
--------
(1) This percentage is calculated as of March 1, 2001, the first regular
distribution date after all aircraft are scheduled to have been delivered
assuming the amount of principal due on that date has been paid. Regular
distribution dates will be March 1 and September 1 of each year. In making
this calculation, 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 March 1, 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 $1,032,213,333 as of March 1, 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 and interest on the deposits related to the escrow receipts
attached to such certificates (in each case, when due and after taking into
account the application of any amount received by the escrow agent as
accrued interest on the deposits and the prior use of any available funds
under the class G liquidity facility or the class G cash collateral
account) and the payment of the outstanding balance of the class G
certificates due on the final maturity date for such certificates and in
certain other circumstances as described in this prospectus supplement. The
insurance policy will not support any payments of principal from the
deposits relating to the escrow receipts attached to the class G
certificates and will not cover any payments on the class C certificates.
S-5
<PAGE>
Secured Promissory Notes and the Aircraft
The following chart provides information about the secured promissory notes
that we expect will be held in the pass through trusts and about the aircraft
that we expect will secure those promissory notes:
<TABLE>
<CAPTION>
Principal Principal
Amount of Amount of
Actual or Series G Series C
Expected Actual or Secured Secured Appraised
Registration Manufacturer's Scheduled Promissory Promissory Base
Aircraft Type Number Serial Number Delivery Month(1) Notes Notes Value(2)
------------- ------------ -------------- ------------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Airbus A319-112......... N755US 1331 October 24, 2000 $18,061,212 $5,437,193 $39,956,667
Airbus A319-112......... N756US 1340 October 17, 2000 18,061,212 5,437,193 $39,956,667
Airbus A319-112......... N757UW 1342 October 19, 2000 18,061,212 5,437,193 $39,956,667
Airbus A319-112......... N758US 1348 October 2000 18,061,212 5,437,193 $39,956,667
Airbus A319-112......... N760US 1354 November 2000 18,088,333 5,409,364 $40,016,667
Airbus A319-112......... N762US 1358 November 2000 18,666,760 6,133,240 $40,016,667
Airbus A319-112......... N763US 1360 November 2000 18,666,760 6,133,240 $40,016,667
Airbus A319-112......... N764US 1369 November 2000 18,666,760 6,133,240 $40,016,667
Airbus A319-112......... N765US 1371 November 2000 18,666,760 6,133,240 $40,016,667
Airbus A319-112......... N766US 1378 December 2000 18,666,760 6,133,240 $40,073,333
Airbus A319-112......... N767UW 1382 December 2000 18,666,760 6,133,240 $40,073,333
Airbus A319-112......... N768US 1389 December 2000 18,666,760 6,133,240 $40,073,333
Airbus A319-112......... N769US 1391 December 2000 18,666,760 6,133,240 $40,073,333
Airbus A319-112......... N770UW 1393 December 2000 18,666,760 6,133,240 $40,073,333
Airbus A320-214......... N122US 1298 September 21, 2000 20,747,997 7,049,853 $45,710,000
Airbus A320-214......... N123UW 1310 October 26, 2000 20,744,704 7,061,651 $45,893,333
Airbus A320-214......... N124US 1314 October 2000 20,744,704 7,061,651 $45,893,333
Airbus A321-211......... N161UW 1403 January 2001 28,427,400 8,920,686 $55,740,000
Airbus A321-211......... N162US 1412 January 2001 28,427,400 8,920,686 $55,740,000
Airbus A321-211......... N163US 1417 January 2001 28,427,400 8,920,686 $55,740,000
Airbus A321-211......... N164UW 1425 February 2001 28,427,400 8,920,686 $55,740,000
Airbus A321-211......... N165US 1431 February 2001 28,427,400 8,920,686 $55,740,000
Airbus A321-211......... N166US 1436 February 2001 28,426,575 8,920,116 $55,740,000
</TABLE>
--------
(1) The actual delivery dates for three A319 aircraft and two A320 aircraft are
set forth in this table. The delivery month for the remaining 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) July 1,
2001. See "Description of the Aircraft and the Appraisals--Substitute
Aircraft." We may take delivery of an aircraft and finance that aircraft
under this offering up to 180 days after such delivery (or such longer
period after such delivery as we may elect with approval from the rating
agencies, but in any event not later than July 1, 2001).
(2) 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 for the aircraft
not yet delivered 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 the certificates as of March 1, 2001 and as of each
subsequent March 1, assuming each pass through trust acquires the maximum
principal amount of secured promissory notes prior to March 1, 2001. 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 the certificates as of dates prior to March 1, 2001
are not relevant because the property of the pass through trust prior to that
date will not include all the secured promissory notes expected to be acquired
by the pass through trust. 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>
Class G Class C Class G Class C
Regular Distribution Assumed Aggregate Certificates Certificates Certificates Certificates
Date Aircraft Value(1) Pool Balance(2) Pool Balance(2) LTV(3) LTV(3)
-------------------- ----------------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
March 1, 2001........... $1,032,213,333 $491,135,000 $157,054,000 47.6% 62.8%
March 1, 2002........... 1,001,246,933 475,457,908 152,911,643 47.5 62.8
March 1, 2003........... 970,280,533 451,986,852 145,368,748 46.6 61.6
March 1, 2004........... 939,314,133 430,128,016 134,378,522 45.8 60.1
March 1, 2005........... 908,347,733 409,821,074 122,915,135 45.1 58.6
March 1, 2006........... 877,381,333 385,127,410 113,543,302 43.9 56.8
March 1, 2007........... 846,414,933 357,758,234 107,396,238 42.3 55.0
March 1, 2008........... 815,448,533 330,066,296 103,253,881 40.5 53.1
March 1, 2009........... 784,482,133 303,283,083 99,111,525 38.7 51.3
March 1, 2010........... 753,515,733 280,980,595 94,969,168 37.3 49.9
March 1, 2011........... 722,549,333 258,618,794 90,826,811 35.8 48.4
March 1, 2012........... 691,582,933 235,664,550 86,684,454 34.1 46.6
March 1, 2013........... 660,616,533 209,516,603 82,542,097 31.7 44.2
March 1, 2014........... 629,650,133 183,793,694 78,399,740 29.2 41.6
March 1, 2015........... 598,683,733 157,502,513 74,257,383 26.3 38.7
March 1, 2016........... 567,717,333 121,514,182 70,115,026 21.4 33.8
March 1, 2017........... 526,428,800 88,364,086 62,061,044 20.8 28.6
March 1, 2018........... 485,140,267 63,124,664 56,537,901 19.3 24.7
March 1, 2019........... 443,851,733 0 42,126,258 NA 9.5
March 1, 2020........... 324,624,300 0 31,084,814 NA 9.6
March 1, 2021........... 291,329,500 0 19,297,288 NA 6.6
March 1, 2022........... 249,711,000 0 0 NA NA
</TABLE>
--------
(1) We have assumed the initial appraised value of each aircraft, determined as
described under "--Secured Promissory Notes and the Aircraft," declines by
3% per year for the first 15 years after the year of delivery of that
aircraft, by 4% per year for the next 5 years and by approximately 5% per
year after the first 20 years. Other depreciation assumptions would result
in important differences in the LTV ratios.
(2) The "pool balance" for each pass through trust or for the certificates
issued by each 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 each pass
through trust will acquire the maximum principal amount of secured
promissory notes for all aircraft and that any principal amounts due on the
Regular Distribution Dates have been paid.
(3) The LTV ratios for each class of certificates for each date 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 in this prospectus
supplement. 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 financial guaranty 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. The pass
through trusts will withdraw funds from the deposits 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, taken together, will be sufficient to
pay accrued interest on the outstanding certificates. The liquidity
facilities will not cover interest on the deposits. If any funds remain as
deposits 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 the relevant 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 are not offered by this
prospectus supplement, but are being sold at
the same time in a separate private sale.
Use of Proceeds............... The proceeds from the sale of the certificates
will ultimately be used to purchase secured
promissory notes issued to finance a portion of
the acquisition of 23 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............ Morgan Stanley Capital Services Inc., whose
obligations will be fully and unconditionally
guaranteed by its parent company, Morgan
Stanley Dean Witter & Co., which is also the
parent company of Morgan Stanley & Co.
Incorporated
Policy Provider............... MBIA Insurance Corporation
Trust Property................ The property of each pass through trust will
include:
. Secured promissory notes.
. All rights under the applicable liquidity
facility.
. Funds from time to time deposited with the
pass through trustee in accounts relating to
that pass through trust.
. In the case of the class G pass through
trust only, 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 an
escrow and paying agent agreement.
. Rights of the pass through trust under the
intercreditor agreement described below
under "--Intercreditor Agreement."
Regular Distribution Dates.... March 1 and September 1, commencing on March 1,
2001.
Record Dates.................. The fifteenth day preceding the related
distribution date.
S-9
<PAGE>
Distributions by the Pass
Through Trustees.............. 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 the 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 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 certificateholders
with at least 15 days' notice prior to any
special distribution. Distributions by the
subordination agent to a pass through trustee
for the benefit of the certificateholders
generally are subject to the intercreditor
agreement 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 the 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 the 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
S-10
<PAGE>
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.
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 the final
distribution of the aggregate outstanding
balance of the class G certificates,
together with accrued and unpaid interest,
is 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, then the class G pass through
trustee, until payment of final
distributions to the holders of the class G
certificates; and after that,
. the class C pass through trustee.
S-11
<PAGE>
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 pays to the liquidity
provider all outstanding drawings under all
liquidity facilities, together with accrued
interest on such drawings, 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 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.
Whether or not such right is exercised by the
class C certificateholders, the policy provider
will thereafter have the right to purchase all
of the class G certificates. See "Description
of the Certificates--Purchase Rights of Class C
Certificateholders and the Policy Provider."
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.
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. 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 for the class G
certificates, 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 (and
interest on the deposits related to the
escrow receipts attached to such
certificates) at the stated interest rate
for the class G certificates;
S-12
<PAGE>
. 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 last regular
distribution date to that special
distribution date on which such amounts are
paid to the class G pass through trustee;
and
. any shortfall on the final maturity date for
the class G certificates 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 the defaulted 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 the
defaulted secured promissory note on the
related payment date until paid in full.
S-13
<PAGE>
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 the defaulted 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 the defaulted secured promissory note and
accrued interest on the defaulted 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 series G
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
account. The insurance policy will cover only
the class G certificates (and interest only on
the deposits related to the escrow receipts
attached to such certificates), and will not
cover the class C certificates. 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 (and interest on
the deposits related to the escrow receipts
attached to such certificates). The
subordination agent will reimburse the policy
provider for any drawings, which reimbursement
obligation ranks junior to further
distributions on the class G certificates.
Escrowed Funds................ Funds paid to the escrow agent by each 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
S-14
<PAGE>
withdrawn by the escrow agent at the direction
of the pass through trustee for that class of
certificates to purchase the corresponding
series of 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 for the
corresponding class of certificates. The paying
agent, on behalf of the escrow agent, will pay
that interest to that class of
certificateholders. The deposits relating to
each pass through trust and interest or premium
paid on or with respect to the related deposits
will not be subject to the subordination
provisions of the intercreditor agreement.
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 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. Any premium paid on unused deposits
will not be subject to the subordination
provisions of the intercreditor agreement. See
"Description of the Deposit Agreements--Unused
Deposits."
Obligation to Purchase
Secured Promissory Notes..... Under the note purchase agreement, the class G
and 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.
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
S-15
<PAGE>
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.
In addition, so long as Airbus Industrie
Financial Services is the registered or
beneficial owner of any class C certificates,
the class C pass through trustee's obligation
to purchase series C secured promissory notes
relating to the financing of the aircraft will
be subject to the satisfaction of certain
additional conditions precedent. See
"Description of the Certificates--Obligation to
Purchase Secured Promissory Notes."
Secured Promissory Notes
(a) Issuer................. Leased Aircraft. Promissory notes secured by
aircraft leased by us will be issued by an
owner trustee. We expect that First Security
Bank, National Association will be the owner
trustee for all aircraft that are leased to us
under this prospectus supplement. These secured
promissory notes will not be recourse to the
owner trustee in its individual capacity. We
have an obligation to provide funds under the
related lease and related documents in amounts
sufficient to pay scheduled payments on those
secured promissory notes.
Owned Aircraft. We will be the issuer of
promissory notes secured by aircraft that we
own.
(b) Interest............... The secured promissory notes held in the class
G pass through trust will accrue interest at
the annual rate shown on the cover page of this
prospectus supplement. The secured promissory
notes held in the class C pass through trust
will accrue interest as described in the
section captioned "Purchase of Class C
Certificates." Interest on the secured
promissory notes will be payable on March 1 and
September 1 of each year, commencing on March
1, 2001. 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 and series C
secured promissory notes are scheduled to be
paid on March 1 and September 1 in scheduled
years beginning on September 1, 2001 for both
the series G and series C secured promissory
notes.
S-16
<PAGE>
(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 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 applicable 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.
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 Our outside counsel will provide its opinion to
Protection................. the pass through trustee 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-17
<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 Class G
Certificates.................. It is a condition to the issuance of the class
G certificates that the certificates have a
rating of Aaa from Moody's Investors Service
and a rating of AAA from Standard & Poor's
Ratings Services.
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
<CAPTION>
Standard &
Moody's Poor's
------- ----------
<S> <C> <C> <C>
Rating of Depositary................ Short Term.................... P-1 A-1+
<CAPTION>
Standard &
Moody's Poor's
------- ----------
<S> <C> <C> <C>
Threshold Rating for the Liquidity
Providers.......................... Short Term
Class G...................... P-1 A-1
Class C...................... P-1 A-1
</TABLE>
Liquidity Provider Rating
(as guaranteed)............
Morgan Stanley Dean Witter & Co., the guarantor
of the obligations of Morgan Stanley Capital
Services Inc. under the liquidity facilities,
meets the threshold rating requirements for
each class of certificates.
S-18
<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, 1999, 1998, 1997, 1996 and 1995 is derived
from our audited consolidated financial statements, which are incorporated by
reference in our prospectus and should be read in conjunction with our audited
consolidated financial statements. Our consolidated financial data for the six
months ended June 30, 2000 and 1999 are derived from our unaudited condensed
consolidated financial statements, which are incorporated by reference in this
prospectus supplement, which include all adjustments, consisting solely of
normal recurring accruals, that we consider necessary for the fair presentation
of the financial position and results of our operations for these periods.
Operating results for the six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. Our selected consolidated financial data should be read in conjunction
with, and is qualified in its entirety by reference to, the consolidated
financial statements, including the notes to the consolidated financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
---------------- -------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- -------
(Unaudited)
(In millions of dollars, except ratios and operating
data)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Data
Operating Revenues...... $ 4,458 $ 4,288 $ 8,460 $ 8,556 $ 8,501 $ 7,704 $ 6,985
Operating Expenses...... 4,432 3,928 8,321 7,566 7,915 7,335 6,750
------- ------- ------- ------- ------- ------- -------
Operating Income........ 26 360 139 990 586 369 235
Other Income (Expense),
Net(1)................. (60) 307 320 (54) 87 (178) (198)
------- ------- ------- ------- ------- ------- -------
Income (Loss) Before
Taxes and Accounting
Change................. (34) 667 459 936 673 191 37
Provision (Credit) for
Income Taxes........... (3) 261 186 377 (379) 8 4
------- ------- ------- ------- ------- ------- -------
Income (Loss) Before
Accounting Change...... (31) 406 273 559 1,052 183 33
Accounting Change, Net
of Taxes of $63
Million(2)............. (103) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net Income (Loss)....... $ (134) $ 406 $ 273 $ 559 $ 1,052 $ 183 $ 33
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges.......... * 3.7 1.9 2.7 2.2 1.3 1.1
Operating Data
(Unaudited)(3)
Revenue passenger miles
(millions)(4).......... 21,798 20,439 41,478 41,253 41,579 38,943 37,618
Available seat miles
(millions)(5).......... 31,284 28,924 59,136 56,723 58,294 56,885 58,163
Passenger load
factor(6).............. 69.7% 70.7% 70.1% 72.7% 71.3% 68.5% 64.7%
Breakeven passenger load
factor(7).............. 71.6% 65.4% 69.6% 65.7% 66.4% 67.9% 64.9%
Passenger revenue per
available seat mile
(cents)(8, 13)......... 11.69 12.10 11.58 12.38 12.20 11.95 10.78
Operating cost per
available seat mile
(cents)(9)............. 12.99 12.55 12.90 12.34 12.33 12.69 11.40
Average yield per
revenue passenger mile
(cents)(10, 13)........ 16.77 17.12 16.51 17.02 17.10 17.46 16.66
Average passenger
journey (miles)(11).... 769 736 743 711 709 688 664
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited)
(In millions of dollars)
<S> <C> <C>
Financial Data--Balance Sheet Assets:
Cash and Cash Equivalents.................... $ 618 $ 228
Short-term Investments....................... 384 624
Other Current Assets......................... 1,315 1,332
Total Property and Equipment................. 4,463 3,626
Other Assets, Net(12)........................ 1,799 1,687
------ ------
Total Assets............................... $8,579 $7,497
====== ======
Liabilities and Stockholder's Equity (Deficit):
Current Liabilities.......................... $2,845 $2,366
Long-term Debt, Net of Current Maturities.... 2,388 2,100
Deferred Credits and Other Noncurrent
Liabilities................................. 3,694 3,217
Stockholder's Equity (Deficit)............... (348) (186)
------ ------
Total Liabilities and Stockholder's Equity
(Deficit)................................. $8,579 $7,497
====== ======
</TABLE>
--------
* For the six months ended June 30, 2000, earnings were not sufficient to
cover fixed charges. Additional earnings of approximately $36 million
would have been required to achieve a ratio of 1.0.
(1) For the six-month period ended June 30, 1999 and the year ended December
31, 1999, Other Income (Expense), Net includes a gain of $274 million
relating to the sale of holdings in Galileo International, Inc.
(2) Effective January 1, 2000, we changed our accounting policy related to
Dividend Miles revenue recognition.
(3) 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.
(4) Revenue passengers multiplied by the number of miles they flew. Includes
scheduled service only (excludes charter service).
(5) Seats available multiplied by the number of miles flown (a measure of
capacity). Includes scheduled service only (excludes charter service).
(6) 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).
(7) Percentage of aircraft seating capacity that must be used in order for the
airline to break-even at the pre-tax income level.
(8) Passenger transportation revenue divided by available seat miles (a
measure of unit revenue). Includes scheduled service only (excludes
charter service).
(9) Total operating expenses divided by available seat miles (a measure of
unit cost).
(10) 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).
(11) Includes scheduled service only (excludes charter service).
(12) As of June 30, 2000 and December 31, 1999, Other Assets, Net included
accounts receivable from our parent of $321 million and $281 million,
respectively. In addition, as of June 30, 2000 and December 31, 1999, our
Stockholder's Equity was reduced by accounts receivable and accrued
interest due from our parent of $2.0 billion.
(13) Effective January 1, 2000, we changed our accounting policy related to
Dividend Miles revenue recognition. The pro forma passenger revenue per
available seat mile and average yield per revenue passenger mile that we
would have reported if the new accounting policy had been in effect for
the six months ended June 30, 1999, would have been 12.33 cents and 17.45
cents, respectively. See "Risk Factors Relating to US Airways--Financial
History."
S-20
<PAGE>
RISK FACTORS
You should carefully read the following risk factors before purchasing any
certificates.
Risk Factors Relating to US Airways
Leverage and Liquidity
We have a higher proportion of debt compared to our equity capital than most
of our principal competitors. A majority of our property and equipment is
subject to liens securing indebtedness. We require substantial cash resources
in order to meet scheduled debt and lease payments and to finance day-to-day
operations. As a result, we may be less able than some of our competitors to
withstand a prolonged recession in the airline industry or respond as flexibly
to changing economic and competitive conditions.
As of June 30, 2000, 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
. $2.7 billion of long-term debt and capital lease obligations.
On December 10, 1999, we entered into a $250 million 364 day revolving
credit facility and a $250 million three-year revolving credit facility to
provide liquidity for our operations. The effective interest rate for borrowing
against the facilities is a floating rate based on the London Interbank Offered
Rate (LIBOR). As of September 30, 2000 no amounts were outstanding under 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, 2000, we had taken
delivery of 72 Airbus A320 family single-aisle aircraft and our parent had 83
Airbus A320 family single-aisle aircraft on firm order, 182 Airbus A320 family
aircraft subject to reconfirmation prior to delivery and options for 63
additional Airbus A320 family aircraft. Of the A320 family aircraft on firm
order, 18 aircraft are scheduled to be delivered during the balance of 2000
with the remaining scheduled for delivery in 2001 to 2006, and 11 of the
aircraft scheduled for delivery between years 2003 to 2004 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 that we
operate. In addition, as of September 30, 2000, we had taken delivery of five
Airbus A330-300 aircraft and our parent had five more on firm order and options
for 20 additional Airbus widebody aircraft. Of the five firm order aircraft,
two are scheduled for delivery in the remainder of 2000, with the remaining
scheduled for delivery in 2001 to 2004. We expect to use the Airbus A330-300
aircraft primarily in the transatlantic markets. As of June 30, 2000, the
minimum determinable
S-21
<PAGE>
payments associated with our parent's purchase agreements for Airbus aircraft,
including progress payments, payments at delivery, buyer-furnished equipment,
spares, capitalized interest, penalty payments, cancellation fees and/or
nonrefundable deposits, were estimated to be $1.28 billion for the six months
ended December 31, 2000, $1.14 billion in 2001, $494 million in 2002, $290
million in 2003 and $501 million thereafter. Our parent expects to assign
substantially all of its rights and obligations with respect to the purchase of
the new Airbus aircraft to us.
Our parent has entered into an agreement with CFM International, Inc. (CFM)
to purchase jet engines to power the A320 family aircraft. As part of the
agreement with CFM, an affiliate of CFM will maintain these engines under a
long-term renewable contract. Our parent has also reached an agreement in
principle with Pratt & Whitney to purchase jet engines to power the A330-300
aircraft and to provide long-term maintenance on those engines.
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 substantially all of such
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 that we believe will provide financing for at least 25% of the
anticipated purchase price of all of our firm-order Airbus A320 family
aircraft. However, we will need additional 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 certain 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 or other resources vital to our operations could have a
material adverse effect on our results of operations, financial condition and
future prospects.
Financial History
We recorded a net loss of $134 million and net income of $406 million for
the six-month periods ended June 30, 2000 and 1999, respectively. We also
recorded net income of $273 million for 1999, $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.
The major factors that influenced our financial performance for the first
six months of 2000 included significantly higher fuel prices, severe weather
along the eastern United States in January and June, reduced passenger traffic
stemming from the then-threatened March 25, 2000 shutdown and passenger
apprehensions of flying on or around December 31, 1999.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101") which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements.
Although SAB 101 does not change existing accounting rules on revenue
recognition, changes in accounting to apply the guidance set forth in SAB 101
may be accounted for as a change in
S-22
<PAGE>
accounting principle. On January 1, 2000, we changed our method of accounting
for the sale of mileage credits in our Dividend Miles program from recognizing
revenue when credits are sold, to deferring a portion of revenue attributable
to future transportation and recognizing it as passenger revenue when the
service is provided. The remaining portion of sales proceeds will continue to
be recognized immediately as a component of other operating revenues. We
believe the new method results in a better matching of revenue with the period
in which travel services are provided. In connection with the change, we
recognized a $103 million, net of applicable income taxes, cumulative effect
charge on January 1, 2000.
Recent Developments
For the third quarter of 2000, we reported a net loss of $23 million and
operating income of $11 million on revenues of $2.4 billion. For the nine
months ended September 30, 2000, we reported a net loss of $157 million and
operating income of $36 million on revenues of $6.8 billion. As noted above,
the results of the nine months ended September 30, 2000 includes a $103 million
charge, net of applicable income taxes, for the cumulative effect of an
accounting change. Our financial performance for the third quarter of 2000 was
adversely affected by significantly higher fuel prices, which have increased by
approximately 55% over the prior third quarter period. In addition, we continue
to be under intense competitive pressure from major carriers expanding into the
east coast region, primarily with regional jets, as well as from low-fare
carriers. For additional information, see our Current Report on Form 8-K filed
with the SEC on October 18, 2000 and incorporated herein by reference in its
entirety.
Transactions with US Airways Group
Historically, we have funded some of the activities and financing
transactions of our parent. As of June 30, 2000, our parent owed us $2.5
billion, of which $2.4 billion was not expected to be collected prior to June
30, 2001 including $2.0 billion classified as a component of stockholder's
equity. The advances primarily relate to our funding of our parent's common
stock purchase programs and for purchase deposit obligations for new flight
equipment. From January 1998, when our parent's first common stock purchase
program was authorized, through early January 2000 our parent had purchased a
total of 36.2 million shares of its common stock at a total cost of $1.9
billion.
High Personnel Costs
Our personnel costs are the largest single component of our operating costs
(approximately 37% for the six months ended June 30, 2000). Our unit operating
costs, including our personnel costs, generally are higher than those of our
competitors. We believe that we must 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." This approach provides wages
and benefits for our labor groups based on those of the same employee groups at
our four largest competitors, American Airlines, United Airlines, Northwest
Airlines and Delta Air Lines. 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 a comparable package of wages, benefits and work rules for our
employees.
We have achieved the following 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. The labor agreement includes various provisions
that we believe will help address our high cost structure, including
work rule changes and linking the compensation of our pilots to the
compensation of pilots at several other major domestic air carriers.
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.
S-23
<PAGE>
. Flight Attendants. On May 1, 2000, our flight attendants, represented by
the Association of Flight Attendants, approved a five-year labor
contract. The contract is amendable on April 30, 2005.
. Fleet Service. Our fleet service employees, represented by the
International Association of Machinists and Aerospace Workers, ratified
an initial labor contract on April 1, 1999. The contract is amendable
October 10, 2004.
. Mechanics. On October 6, 1999, our mechanics and related employees,
represented by the International Association of Machinists and Aerospace
Workers, ratified a five year contract. The contract is amendable
October 10, 2004.
. Passenger Service. Our passenger service 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 on December 12, 2004.
. Other. Our flight dispatchers ratified a collective bargaining agreement
on July 29, 1999 covering approximately 198 flight dispatchers. The
dispatchers' contract will become amendable January 31, 2007. Our flight
crew training instructors ratified a collective bargaining agreement on
May 3, 1999 covering approximately 152 flight crew training instructors.
The contract is amendable May 3, 2004. Our simulator engineers,
approximately 57 employees, ratified a new collective bargaining
agreement on July 28, 2000. The contract is amendable July 31, 2005. A
first agreement with The United Steel Workers covering the 106 Canadian
customer service employees was ratified in January 2000 and became
effective February 6, 2000. This contract will be amendable February 6,
2005.
Geographical Concentration
A substantial portion of our flights are to or from cities in the eastern
United States. As of June 2000, approximately 82% of our departures originated
from, and approximately 51% 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," which are affected by the
general economy, 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 continue to
experience an increase in pricing pressures and competition.
S-24
<PAGE>
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 competitors are 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 northeastern United States to 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 12.99 cents for the first six months of 2000 and 12.55
cents for the same period in 1999. In contrast, Southwest Airlines reported
unit operating costs of 7.73 cents and 7.40 cents for the corresponding periods
in 2000 and 1999, 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 northeastern 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 and 12% of
our operating costs for the six-months ended June 30, 2000. Aviation fuel costs
increased significantly in the first six-months of 2000 due primarily to
average fuel prices increasing 81.5% over their prior year level. Significant
increases in aviation fuel costs could materially and adversely affect our
results of operations. Fuel prices continue to be susceptible to, among other
factors, political events and market factors that we cannot control. If a fuel
supply shortage resulting from a disruption of oil imports or other factors
occurs, higher fuel prices or curtailment of scheduled service could result.
Aviation fuel expenses increased approximately 92% during the six-months ended
June 30, 2000 versus the six-months ended June 30, 1999 and are expected to
continue to remain high for the remainder of 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 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.
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<PAGE>
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. In April 2000, legislation was enacted which eliminates slot
restrictions beginning in 2001 at O'Hare and in 2007 at LaGuardia and Kennedy.
As a result of this legislation, we performed an evaluation in the second
quarter 2000 in accordance with Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." As a result of the evaluation we determined that
the slots are not currently impaired.
Among other things, this legislation encourages the development of air
service to smaller communities from slot-controlled airports. In connection
with this, we and our parent have begun implementing a plan to increase
service to such communities from LaGuardia. In addition, several airlines have
announced increased regional jet service from LaGuardia to cities in the east,
south and midwest which we currently serve. We cannot predict the outcome of
the announced plans. However, in September 2000, the Port Authority of New
York and New Jersey, which operates LaGuardia, advised airlines that it will
freeze new rush-hour flights effective October 1, 2000 due to capacity
constraints.
Regional jet aircraft add a great deal of flexibility to our system because
they can operate effectively in markets too small for our jet service and with
stage lengths too great for turboprop aircraft. The number of regional jet
aircraft that we operate is limited by provisions in our pilot labor contract.
Based on the scope of the limitations imposed by the agreement, we can
currently operate approximately 70 regional jets. We currently have service
agreements with Mesa Airlines, Inc., Chautauqua Airlines, Inc. and, beginning
December 2000, Trans States Airlines, Inc., under which these airlines may
operate regional jets for us. As of September 30, 2000, these airlines flew 27
regional jets under these agreements. By the end of 2001, we expect to be
operating 70 regional jets.
Legislation has been enacted that provides for increased review of certain
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. This
study has been completed. We cannot predict whether or when any proposed rules
will be adopted.
Working with members of Congress, Air Transport Association members
developed a voluntary Airline Customer Service Commitment, which was announced
in June 1999. As a result of this commitment, members of Congress agreed not
to pursue various consumer-oriented legislative proposals at that time. In
return, U.S. air carriers agreed voluntarily to publish and implement plans to
address consumer concerns in a variety of areas. We implemented our customer
service commitment plan 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.
Risk 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."
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<PAGE>
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 scheduled to be made on any date will
not be made until the class G certificates are paid those amounts due to them
on such date. However, the subordination provisions in the intercreditor
agreement may permit distributions to class C certificateholders after a
default on the secured promissory notes even if class G certificateholders have
not been paid 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 controlling party may
direct the loan trustee under that indenture to exercise remedies under that
indenture. The controlling party will be:
. the policy provider, until the final distribution of the aggregate
outstanding balance of the class G certificates, together with accrued
and unpaid interest, is 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 and is continuing with respect to the policy
provider, the class G pass through trustee until payment of final
distributions to the holder of the class G certificates, and after that,
. the class C pass through trustee.
Remedies exercisable under an indenture may include accelerating the
applicable secured promissory notes under the indenture or foreclosing the lien
on the aircraft securing those secured promissory notes. See "Description of
the Certificates--Indenture Defaults and Certain Rights Upon an Indenture
Default."
Under certain circumstances, the liquidity provider with the larger amount
owing to it may elect to act as the controlling party, unless the policy
provider pays to the liquidity provider all outstanding drawings under all
liquidity facilities, together with accrued interest on such drawings 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, certificateholders may 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.
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Ratings of the Certificates
It is a condition to the issuance of the class G certificates that they
receive a rating of Aaa from Moody's and AAA from Standard & Poor's and it is a
condition to the issuance of the class C certificates that they receive a
rating of at least Ba2 from Moody's and BBB- from Standard & Poor's.
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 or any 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
pass through trust, the rating of the policy provider (in the case of the class
G certificates), the rating of the depositary, the availability of a liquidity
facility for the benefit of holders of that class of certificates, the
availability of the insurance policy (in the case of class G certificates) and
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 property of the pass through
trusts and escrow receipts initially representing beneficial interests in
certain rights to $648,189,000 of deposits under the escrow agreements. Amounts
deposited under the escrow agreement 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 each 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 the
certificates (without regard to the insurance policy).
Note Purchase Agreement; Class C Certificates
The note purchase agreement contains conditions to the class C pass through
trustee's obligation to enter into the participation agreement to purchase the
series C secured promissory notes to be issued in any particular financing
transaction that do not apply to the class G pass through trustee's obligations
to purchase series G secured promissory notes. These additional conditions are
part of the Airbus financing commitment and remain in effect only for so long
as Airbus Industrie Financial Services owns any class C certificates. We have
no reason to believe that these additional conditions will not be satisfied at
all times during the delivery period. If, however, at the time of the closing
of a financing with respect to any aircraft, these additional conditions are
not satisfied, we will still be obligated to finance that aircraft but will not
issue any series C secured promissory notes with respect to that aircraft.
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Any series C secured promissory notes that are expected to be issued and are
not purchased by the class C pass through trustee will reduce the aggregate
amount of payments made to the subordination agent under the intercreditor
agreement. As a result, less money will be available to support the payment
obligations on the class G certificates, which rank senior in right of
distributions to the class C certificates.
Unused Escrowed Funds
We may not use all of the deposits held in escrow prior to the delivery
period termination date. See "Description of the Deposit Agreements--Unused
Deposits." If any funds remain as deposits with respect to any pass through
trust after the delivery period termination date, those remaining funds will be
withdrawn by the escrow agent for that pass through trust and distributed, with
accrued and unpaid interest, to the certificateholders of that pass through
trust. In addition, we will pay a premium with respect to those remaining
deposits, except for any deposits that are returned because an aircraft is not
delivered prior to the delivery period termination date for any reason that is
not our fault or caused by our negligence. See "Description of the Deposit
Agreement--Unused Deposits."
Limited Market for Resales of the Certificates
Prior to the offering of the class G certificates and the private sale of
the class C certificates, the certificates were not publicly traded. Neither we
nor the pass through trustees intend to apply for listing of the 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
certificates, as permitted by applicable laws and regulations, after
consummation of the offering of the class G certificates. None of the
underwriters is obligated, however, to make a market in the class G
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 certificates will
develop or that an investment in these class G 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 expected 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 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 such 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 interest on the deposits
related to the escrow receipts attached to such 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 will not provide coverage for the class C certificates.
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The Policy Provider as a Controlling Party
Unless certain events of default have occurred with respect to the 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.
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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;
. financing costs;
. aviation fuel costs;
. the anticipated merger of our parent and a subsidiary of UAL
Corporation;
. competitive pressures on pricing--particularly from low-cost, low-fare
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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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, US Airways Group, Inc., 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 airlines' press
releases. 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 205 destinations worldwide as of June 30, 2000. As of
June 30, 2000, we had approximately 42,650 full-time equivalent employees.
Merger
US Airways Group has entered into an Agreement and Plan of Merger with UAL
Corporation, United Airlines' parent corporation, and Yellow Jacket Acquisition
Corp., a wholly-owned subsidiary of UAL which has been formed for the purpose
of this merger, pursuant to which the merger subsidiary will be merged into US
Airways Group. As a result, US Airways Group would be the surviving corporation
and would become a wholly-owned subsidiary of UAL, and we would continue to be
a wholly-owned subsidiary of US Airways Group. Under this structure, UAL would
not be obligated to assume any of our obligations under the leases,
participation agreements, indentures, pass through trust agreements, or any
other obligations which we have with respect to the certificates or the secured
promissory notes.
Consummation of the merger is subject to various conditions set forth in the
Agreement and Plan of Merger, including, but not limited to, the receipt of
regulatory approvals and approval by the stockholders of US Airways Group. On
October 12, 2000, the stockholders of US Airways Group approved the merger
agreement with UAL Corporation. At this time, we cannot predict the outcome of
the regulatory and other approvals necessary for the consummation of the
merger, nor can we predict what effect, if any, the merger might have on us,
our operations, or our relationships with our major vendors. On August 24,
2000, American Airlines gave us notice of its intent to terminate our joint
marketing relationship agreement, effective as of August 23, 2001.
If the merger between our parent and a subsidiary of UAL Corporation is
consummated, the combined company may be required to divest some of its routes
and slots for competitive reasons. To address the potential competitive issues,
our parent and UAL Corporation have entered into a Memorandum of Understanding
with Robert Johnson, under which Mr. Johnson would buy certain assets from us
and create a new airline to be called "DC Air" to operate out of Reagan
National Airport. We would retain the routes formerly operated by US Airways
Shuttle and the assets necessary to fly to our hubs at Charlotte, Philadelphia
and Pittsburgh. Mr. Johnson is the founder, chairman and chief executive
officer of BET Holdings II, Inc. and a member of our Board of Directors and the
Board of Directors of our parent.
US Airways Shuttle
Effective July 1, 2000, Shuttle, Inc., a wholly owned subsidiary of our
parent which operates under the trade name "US Airways Shuttle," was merged
into us. We now operate Shuttle, Inc.'s former service between LaGuardia and
Logan International Airport and LaGuardia and Reagan National Airport.
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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 June 2000,
as 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 northeastern United States to Florida,
based on information provided by OAG Worldwide. As of June 2000, approximately
82% of our departures originated from, and approximately 51% of our capacity as
measured by available seat miles, was deployed within the United States east of
the Mississippi River.
Four northeastern 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
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.
MetroJet is designed to be competitive with Southwest Airlines in terms of
labor costs, asset utilization and on-board products 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; and
. vast travel agency network.
Due to these factors, we also anticipate carrying more passengers per
departure than our low-cost competitors, as well as a broader yield mix of
passengers.
We believe we are realizing cost savings from MetroJet due to increased
asset utilization and labor costs that are below that of our other operations
principally due to the fact that the MetroJet service is largely a conversion
of our other services. As of September 2000, MetroJet operated 42 aircraft. We
anticipate holding MetroJet's capacity at the current level for the next few
quarters.
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Expanding International Service
We continue to expand international service. A majority of transatlantic
passengers originate their travel from the eastern United States, which is our
primary operating region. We began to bolster international operations to take
advantage of our strategic position in 1996. From March to June 2000, we
received our first five Airbus A330-300 widebody aircraft. The new Airbus A330
aircraft play an important role in our long-term strategy of establishing
ourself as a competitive global airline. We launched our three-class
transatlantic service when the A330-300 was placed into service on May 4, 2000
operating between Philadelphia and Paris. A premium First Class cabin was added
to an expanded Envoy Class service and an Economy Class cabin.
Since the end of 1999, we added service between Charlotte and both Paris and
Frankfurt on April 13th and May 11th, respectively, between Philadelphia and
Manchester, England on May 25th and between Pittsburgh and London's Gatwick
Airport on July 17th. In addition, we will resume daily nonstop service between
Philadelphia and Amsterdam, the Netherlands, effective April 11, 2001.
Recently, we announced new service to the Caribbean. In the fall of 2000, we
will introduce service between Philadelphia and both Aruba and Santo Domingo,
between New York LaGuardia and Nassau, between Pittsburgh and Cancun and
between Charlotte and St. Thomas. Recently, we also announced plans to initiate
service to Brussels, Belgium, beginning in May 2001.
Code Sharing Relationships
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.
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. 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 had received 32 A320 family aircraft and five A330 aircraft into our
fleet during the first nine months of 2000. The Airbus aircraft are more fuel
efficient, are less costly to maintain, have greater range capabilities and
provide certain customer service advantages over the aircraft they replace. For
the year 2000, we are scheduled to take delivery of 50 Airbus A320 family
aircraft and seven A330 aircraft and retire 16 B737-200 aircraft, four B727-200
aircraft and 13 DC-9 aircraft.
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We believe the addition of the Airbus A320 family of aircraft to our fleet
will allow us to enjoy economies of consolidation in terms of training costs,
ground support equipment and spare aircraft parts. We expect the Airbus
aircraft to serve the dual purposes of retiring older fleet types while growing
the fleet overall. We expect the Airbus aircraft to give us the flexibility to
further increase capacity through the exercise of options for additional
aircraft. The addition of the Airbus single-aisle aircraft also provides more
seats with lower direct operating costs per plane mile. As we modernize our
fleet over the next several years, we believe we will realize a reduction in
maintenance and fuel costs associated with retiring aircraft. A newer fleet is
generally expected to have greater dispatch reliability, which is expected to
enhance further our revenues. However, we have experienced and will continue to
experience increases in certain ownership costs such as interest expense,
depreciation and aircraft rent expense in conjunction with the higher ownership
and/or rental costs associated with the new aircraft. We also are experiencing
increases in certain expenses which are 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.
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 of
our information technology requirements. We believe that the agreement with
Sabre, Inc. has provided information system enhancements and efficiencies,
particularly in the areas of reservations, passenger check-in, yield management
and aircraft and crew scheduling. We cannot predict at this time how the merger
between our parent and a subsidiary of UAL Corporation may affect our
relationship with Sabre, Inc.
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On-Line Reservation System
In March 2000, we launched an updated on-line Internet reservations system.
Our "www.usairways.com" web site offers customers a convenient way to search
for low fares and make reservations for flights in our system and for flights
on MetroJet and US Airways Express, as well as reserve cars with over 50
different car rental agencies and rooms in 45,000 different hotels. Visitors to
"usairways.com" can manage their Dividend Miles accounts, check flight status,
obtain flight schedules, view ticket prices and check fare availability.
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 National Transportation
Safety Board 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 three cases currently pending before the respective Federal
District Courts. We are fully insured with respect to this litigation and,
therefore, believe that the litigation will not have a material adverse effect
on our financial condition or results of operations.
In May 1995, we, our parent, and the Retirement Income Plan for Pilots of US
Airways, Inc. were sued in federal district court for the District of Columbia
by 481 active and retired pilots alleging that defendants had incorrectly
interpreted the plan provisions and erroneously calculated benefits under the
plan. The plaintiffs sought damages in excess of $70 million. In May 1996, the
court issued a decision granting our motion to dismiss the majority of the
complaint for lack of jurisdiction, deciding that the dispute must be resolved
through the arbitration process under the Railway Labor Act because the plan
was collectively bargained. The 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 retained jurisdiction over one count of the
complaint alleging violation of a disclosure requirement under ERISA. In August
2000, the U.S. District Court dismissed the remaining count without prejudice,
giving the plaintiff the right to reinstate their claims after completion of
the arbitration period. Certain of 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 Retirement Board
is in the process of selecting an arbitrator to decide certain issues related
to the plaintiffs' claims for benefits. We are unable to predict at this time
the ultimate resolution of these proceedings.
In October 1995, we terminated for cause an agreement with In-Flight Phone
Corporation (IFPC). IFPC was our provider of on-board telephone and interactive
data systems. The IFPC system had been installed in approximately 80 aircraft
prior to the date of termination of the agreement. On December 6, 1995, IFPC
filed suit against us in Illinois state court seeking equitable relief and
damages in excess of $186 million. We believe that our termination of this
agreement was appropriate and that we are owed significant damages by IFPC. We
have filed a counterclaim against IFPC seeking compensatory damages in excess
of $25 million and punitive damages in excess of $25 million. In January 1997,
IFPC filed for protection from its creditors under Chapter 11 of the Bankruptcy
Code. The parties stipulated to lift the automatic stay provided for in the
Bankruptcy Code, which would allow the claims to be fully litigated. At the
present time, we are engaged in written discovery. We are unable to predict at
this time the ultimate resolution or potential financial impact of these
proceedings on our financial condition or results of operations.
We and our parent have been named as defendants in three lawsuits 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
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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.
Commencing on May 24, 2000, we, along with several of our officers and
directors and, in all suits other than one, UAL Corporation, have been named
as defendants in eight putative class actions filed in the Court of Chancery
of the State of Delaware in and for the New Castle County. The plaintiffs
allege that they have been and will be damaged by the agreement reached
between our parent, UAL Corporation, and Robert Johnson with respect to the
acquisition by an entity established by Mr. Johnson of certain assets located
at Reagan National Airport that are to be divested by us in connection with
the consummation of the merger. The plaintiffs allege, among other things,
that the individual defendants have breached their duty of loyalty and their
fiduciary duties in entering into the agreement with Mr. Johnson. Plaintiffs
seek, among other things, declaratory and injunctive relief, unspecified
compensatory damages and attorneys' fees. We believe that these actions are
without merit and intend to conduct a vigorous defense.
We were also named as a nominal defendant in a derivative action filed in
the Court of Chancery based upon the same allegations. The derivative
plaintiff brought causes of action for (i) breach of fiduciary duty; (ii)
gross mismanagement; and (iii) corporate waste of assets. The plaintiff in the
derivative action seeks, among other things, declaratory and equitable relief,
unspecified compensatory damages and attorneys' fees. We believe these actions
are also without merit and intend to conduct a vigorous defense.
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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
Providers. Accordingly, notwithstanding anything to the contrary herein, none
of US Airways, the Underwriters, the pass through trustees, the Depositary or
the Liquidity Providers assume 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, 1999 and December 31, 1998
and for each of the three years in the period ended December 31, 1999, 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, 1999,
and the consolidated financial statements of MBIA and its subsidiaries as of
June 30, 2000 and for the six month periods ended June 30, 2000 and June 30,
1999 included in the Quarterly Report on Form 10-Q of MBIA Inc. for the period
ended June 30, 2000, 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
S-38
<PAGE>
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.
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>
December 31, June 30,
SAP 1999 2000
--- ------------ -----------
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
Admitted Assets........................................ $7,045 $7,349
Liabilities............................................ 4,632 4,880
Capital and Surplus.................................... 2,413 2,469
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
GAAP 1999 2000
---- ------------ -----------
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
Assets................................................. $7,446 $7,858
Liabilities............................................ 3,218 3,384
Shareholder's Equity................................... 4,228 4,474
</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 1999 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-39
<PAGE>
USE OF PROCEEDS
All proceeds from the sale of the certificates will be deposited with the
depositary on behalf of the 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, which has been filed with the SEC
as an exhibit to the Form S-3 Registration Statement, filed with the SEC on
October 5, 2000, and to 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 we will
file 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 with the SEC.
Except as otherwise indicated, the following summary relates to each pass
through trust and the certificates issued by that 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 interest rate,
the principal amount and scheduled principal repayments 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
two US Airways 2000-3 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 trust supplements. We will refer to each supplement as a pass
through trust supplement and we will refer to the Basic Agreement as
supplemented by each pass through trust supplement as the pass through trust
agreements. We will refer to the certificates issued by the class G or class C
pass through trusts as the class G certificates or the class C certificates,
respectively, or, collectively, as the certificates. State Street Bank and
Trust Company of Connecticut, National Association, will be the initial pass
through trustee of the pass through trusts.
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 or (b) on a recourse basis by us 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.
S-40
<PAGE>
. The rights of the pass through trust to acquire secured promissory notes
under the Note Purchase Agreement.
. The rights of the pass through trust under the Escrow Agreement to
request the Escrow Agent to withdraw from the Depositary funds
sufficient to enable the pass through trust to purchase secured
promissory notes on the financing date of each aircraft during the
Delivery Period.
. The rights of the 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 trustee, any of the Loan Trustees or Owner Trustees in their
individual capacities, any Owner Participant or any affiliate of any of them.
Under the Escrow Agreement for each pass through trust, the holder of a
certificate of such pass through trust will also be the holder of an Escrow
Receipt affixed to such 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 applicable Escrow Agreement, except for the right to request
withdrawals for the purchase of secured promissory notes, will not constitute
property of such pass through trust.
Payments and Distributions
The following description of distributions on the certificates should be
read together with the description of the Intercreditor Agreement because the
Intercreditor Agreement may change the effect of the following provisions in a
default situation. See "Description of the Intercreditor Agreement--Priority of
Distributions." Each payment of interest on the Deposits with respect to each
pass through trust will be made by the Depositary to the Paying Agent and will
be distributed by the Paying Agent to the Receiptholders on the date receipt of
such payment is confirmed by the Paying Agent. Each payment of principal,
premium, if any, and interest on the secured promissory notes or payments on or
with respect to other trust property held in each pass through trust will be
distributed by the pass through trustee to certificateholders of such pass
through trust on the date receipt of such payment is confirmed by the pass
through trustee, except in the case of certain types of Special Payments.
The Deposits held with respect to the class G pass through trust and the
secured promissory notes held in such pass through trust, in the aggregate,
will accrue interest at the applicable annual rate for such certificates shown
on the cover page of this prospectus supplement. The Deposits held with respect
to the class C pass
S-41
<PAGE>
through trust and secured promissory notes held in such pass through trust will
accrue interest at the annual rate for such certificates set forth under
"Purchase of Class C Certificates." In either case, such interest will be
payable on March 1 and September 1 of each year, commencing on March 1, 2001
(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 will be supported by a
separate Liquidity Facility for each pass through trust, to be provided by the
Liquidity Provider for the benefit of the holders of the certificates of such
pass through trust in an aggregate amount sufficient to pay interest on the
certificates issued by such pass through trust 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 will not
cover interest payable by the Depositary on the Deposits. These Liquidity
Facilities will not provide for drawings thereunder to pay for principal of or
premium on the certificates of any class or any interest on the certificates of
any such class in excess of the Stated Interest Rate for such class or for 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 class G Liquidity Facility or the
class G Cash Collateral Account, the payment of interest at the Stated Interest
Rate for 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 secured promissory notes are scheduled to be
received by the pass through trustees on March 1 and September 1 in certain
years, depending upon the terms of the secured promissory notes held in the
respective pass through trust. The Final Maturity Date for the class G
certificates is September 1, 2020 and for the class C certificates is September
1, 2023.
Payment of principal of the class G certificates on the Final Maturity Date
for such certificates, and in certain limited circumstances, earlier payments
of principal, 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. 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 Agreements, 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.
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<PAGE>
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 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 Agreements,
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 the applicable pass through trust on the
record date applicable to such Special Payment. (Section 4.02(b); Escrow
Agreements, 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 class G certificateholders 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 class G
certificateholders of record 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 that 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 that pass through trustee. A Special
Payments Account will be non-interest bearing except in certain circumstances
where each pass through trustee may invest amounts in such account in certain
permitted investments. The terms of each pass through trust agreement will
require the applicable pass through trustee to deposit any Scheduled Payments
relating to such 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 applicable 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 each
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<PAGE>
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 of each pass through trust 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 Trust"
below. Distributions in respect of certificates issued in global form will be
made as described in "--Book-Entry; Delivery and Form" below.
If any Distribution Date is on a day that is not a Business Day,
distributions scheduled to be made on such Regular Distribution Date or Special
Distribution Date will be made on the next succeeding Business Day with the
same force and effect as if made on such scheduled date and without additional
interest.
Pool Factors
The following table sets forth the Assumed Amortization Schedule for the
secured promissory notes held in each pass through trust and resulting Pool
Factors with respect to such pass through trust. The actual aggregate principal
amortization schedule applicable to each 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 each pass through trust and the resulting Pool Factors may differ
from those set forth in the following table.
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<PAGE>
<TABLE>
<CAPTION>
Class C Trust
Class G Trust Promissory
Promissory Notes Notes
Scheduled Class G Trust Scheduled Class C Trust
Payments of Expected Pool Payment of Expected Pool
Date Principal Factor Principal Factor
---- ---------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
March 1, 2001....... $ 0.00 1.0000000 $ 0.00 1.0000000
September 1, 2001... 4,384,184.26 0.9910734 1,168,382.24 0.9925606
March 1, 2002....... 11,292,907.79 0.9680799 2,973,974.68 0.9736246
September 1, 2002... 9,014,028.20 0.9497264 1,791,285.54 0.9622191
March 1, 2003....... 14,457,027.99 0.9202905 5,751,609.11 0.9255972
September 1, 2003... 5,849,914.46 0.9083794 1,168,382.24 0.9181579
March 1, 2004....... 16,008,920.99 0.8757837 9,821,844.59 0.8556199
September 1, 2004... 4,298,021.46 0.8670325 1,168,382.24 0.8481805
March 1, 2005....... 16,008,920.99 0.8344367 10,295,004.46 0.7826298
September 1, 2005... 4,298,021.46 0.8256855 1,168,382.24 0.7751904
March 1, 2006....... 20,395,642.20 0.7841579 8,203,450.57 0.7229571
September 1, 2006... 4,298,021.46 0.7754067 1,168,382.24 0.7155177
March 1, 2007....... 23,071,155.22 0.7284316 4,978,681.47 0.6838173
September 1, 2007... 4,298,021.46 0.7196804 1,168,382.24 0.6763779
March 1, 2008....... 23,393,915.79 0.6720480 2,973,974.68 0.6574419
September 1, 2008... 4,298,021.46 0.6632968 1,168,382.24 0.6500025
March 1, 2009....... 22,485,191.46 0.6175147 2,973,974.68 0.6310665
September 1, 2009... 4,298,021.46 0.6087635 1,168,382.24 0.6236272
March 1, 2010....... 18,004,466.85 0.5721046 2,973,974.68 0.6046912
September 1, 2010... 4,298,021.46 0.5633534 1,168,382.24 0.5972518
March 1, 2011....... 18,063,779.26 0.5265737 2,973,974.68 0.5783158
September 1, 2011... 4,298,021.46 0.5178225 1,168,382.24 0.5708764
March 1, 2012....... 18,656,222.92 0.4798366 2,973,974.68 0.5519404
September 1, 2012... 4,298,021.46 0.4710854 1,168,382.24 0.5445011
March 1, 2013....... 21,849,925.26 0.4265968 2,973,974.68 0.5255651
September 1, 2013... 4,298,021.46 0.4178456 1,168,382.24 0.5181257
March 1, 2014....... 21,424,887.60 0.3742224 2,973,974.68 0.4991897
September 1, 2014... 4,298,021.46 0.3654711 1,168,382.24 0.4917503
March 1, 2015....... 21,993,159.43 0.3206909 2,973,974.68 0.4728143
September 1, 2015... 4,298,021.46 0.3119397 1,168,382.24 0.4653750
March 1, 2016....... 31,690,309.32 0.2474150 2,973,974.68 0.4464390
September 1, 2016... 5,730,695.28 0.2357468 1,557,842.99 0.4365198
March 1, 2017....... 27,419,401.06 0.1799181 6,496,139.37 0.3951574
September 1, 2017... 5,730,695.28 0.1682499 1,557,842.99 0.3852382
March 1, 2018....... 19,508,726.98 0.1285281 3,965,299.57 0.3599902
September 1, 2018... 5,730,695.28 0.1168599 1,557,842.99 0.3500710
March 1, 2019....... 57,393,968.57 0.0000000 12,853,799.78 0.2682279
September 1, 2019... 0.00 0.0000000 1,557,842.99 0.2583087
March 1, 2020....... 0.00 0.0000000 9,483,601.28 0.1979244
September 1, 2020... 0.00 0.0000000 1,557,842.99 0.1880052
March 1, 2021....... 0.00 0.0000000 10,229,683.30 0.1228704
September 1, 2021... 0.00 0.0000000 1,947,303.74 0.1104715
March 1, 2022....... 0.00 0.0000000 17,349,984.05 0.0000000
September 1, 2022... 0.00 0.0000000 0.00 0.0000000
</TABLE>
--------
The Pool Factor and Pool Balance of each pass through trust will be
recomputed if there have been delays in deliveries of Aircraft, an early
redemption, purchase, or default in the payment of principal or interest in
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<PAGE>
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 on
interest on the Deposits related to the Escrow Receipts attached to such
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 applicable pass through trust agreement and under the applicable
Escrow Agreement, indicating the amount allocable to each source, including
any portion which is paid by any Liquidity Provider and/or the Policy
Provider.
(2) The amount of such distribution under the applicable pass through
trust agreement allocable to principal and the amount allocable to premium,
if any.
(3) The amount of such distribution under the applicable pass through
trust agreement allocable to interest.
(4) The amount of such distribution under the applicable Escrow
Agreement allocable to interest.
(5) The amount of such distribution under the applicable Escrow
Agreement allocable to unused Deposits, if any.
(6) The Pool Balance and the Pool Factor for the applicable 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 issued by such pass through trust 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 the
related 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 applicable 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 as the name
and period of ownership of such certificateholder appears on the records of
the registrar of the certificates.
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Indenture Defaults and Certain Rights upon an Indenture Default
An event of default under a Leased Aircraft Indenture will include an event
of default under the related lease. We will refer to an event of default under
a lease as a Lease Event of Default. See "Description of the Secured Promissory
Notes--Indenture Defaults, Notice and Waiver." Since the secured promissory
notes issued under an indenture will be held in more than one pass through
trust, a continuing Indenture Default under such indenture would affect the
secured promissory notes held by each such pass through trust. There are no
cross-default provisions in the Indentures or in the leases. This means that
events resulting in an Indenture Default under any particular Indenture may or
may not result in an Indenture Default under any other Indenture, and a Lease
Event of Default under any particular lease may or may not constitute a Lease
Event of Default under any other lease. If an Indenture Default occurs in fewer
than all of the Indentures, notwithstanding the treatment of secured promissory
notes issued under any Indenture under which an Indenture Default has occurred,
payments of principal and interest on all of the secured promissory notes will
continue to be distributed to the holders of the certificates as originally
scheduled, subject to the Intercreditor Agreement. See "Description of the
Intercreditor Agreement--Priority of Distributions."
Under a Leased Aircraft Indenture, the applicable Owner Trustee and Owner
Participant will have the right under certain circumstances to cure Indenture
Defaults that result from the occurrence of a Lease Event of Default under the
related lease. If the Owner Trustee or the Owner Participant exercises any such
cure right, the Indenture Default will be deemed to have been cured.
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
the pass through trustee upon any such sale will be deposited in the applicable
Special Payments Account and will be distributed to the certificateholders 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, certificateholders may
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 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 and will be distributed to the
certificateholders of such pass through trust on a Special Distribution Date.
(Sections 4.01 and 4.02)
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Any funds representing payments received with respect to any defaulted
secured promissory notes, or the proceeds from the sale of any secured
promissory notes, held by the pass through trustee in the Special Payments
Account for such pass through trust will, to the extent practicable, be
invested and reinvested by such pass through trustee in Permitted Investments
at our direction pending the distribution of such funds on a Special
Distribution Date. (Section 4.04)
Each pass through trust agreement will provide that the pass through trustee
of that pass through trust will, within 90 days after the occurrence of any
default known to such 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 the 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, 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 the 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 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 the 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 such pass through trustee with
respect to the applicable 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 the applicable 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 evidencing fractional undivided interests aggregating not
less than a majority in interest of a 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 the pass through trust (i.e., any Indenture Default
under any Indenture pursuant to which secured promissory notes held by the 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 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 each 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, whether or not such right is
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exercised by the class C certificateholders, the Policy Provider, if it is the
Controlling Party and 180 days have elapsed since the occurrence of a
Triggering Event that is continuing, 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
class G 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 class G certificateholders. Such purchase right may be exercised by any
class C certificateholder. If prior to the end of the ten-day period, any other
class C certificateholder notifies the purchasing certificateholder that such
other class C 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 and, upon such expiration, 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 the applicable 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
the 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) and holds an air
carrier operating certificate issued pursuant to Chapter 447 of Title 49
of the United States Code for aircraft capable of carrying 10 or more
individuals or 6,000 pounds or more of cargo, 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. (Section 5.02)
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In addition, each leased aircraft participation agreement and each owned
aircraft participation agreement will prohibit us from merging or consolidating
if a Lease Event of Default, in the case of a leased aircraft, or an Indenture
Default, in the case of an owned aircraft, has occurred and is continuing.
(Special Leased Aircraft Participation Agreement, Section 7(s); Basic 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
The pass through trust agreements will contain provisions permitting, at our
request, the execution of amendments or supplements to such pass through trust
agreements or, if applicable, to the Deposit Agreements, the Escrow Agreements,
the Intercreditor Agreement, the Note Purchase Agreement, the Liquidity
Facilities 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 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, the applicable
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, the applicable 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, the applicable
Liquidity Facility, the Policy or the Policy Provider Agreement which
may be defective or inconsistent with any other provision in the pass
through trust agreement, the Deposit Agreement, the Escrow Agreement,
the Intercreditor Agreement, the Note Purchase Agreement, the applicable
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 the pass through
trust agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement, the applicable
Liquidity Facility, the Policy or the Policy Provider Agreement,
provided that such action will not materially adversely affect the
interests of the holders of the certificates.
. To correct any mistake in such pass through trust agreement, the
Intercreditor Agreement, the Note Purchase Agreement, the applicable
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.
. With respect to the pass through trust agreement for the class G pass
through trust, to add to or change such pass through trust agreement to
facilitate the issuance of any certificates in bearer form or to
facilitate or provide for the issuance of any certificates in global
form in addition to or in place of certificates in certificated form.
. With respect to the pass through trust agreement for the class G pass
through trust, to provide for the delivery of certificates or any
supplement to the Basic Agreement in or by means of any computerized,
electronic or other medium, including computer diskette.
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. 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 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 such pass through trust 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 the pass through trust or distributions in respect of any
certificate (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 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 the certificateholders.
. Reduce the percentage of the aggregate fractional undivided interests of
such pass through trust provided for in the pass through trust
agreement, the consent of the holders of which is required for any
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)
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. 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.
No amendment or 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 unanimous
consent of the certificateholders.
In the event that a pass through trustee, as holder (or beneficial owner
through the Subordination Agent) of any secured promissory note in trust for
the benefit of the certificateholders of the relevant pass through trust or as
Controlling Party under the Intercreditor Agreement, receives (directly or
indirectly through the Subordination Agent) a request for a consent to any
amendment, modification, waiver or supplement under any Indenture, any
Participation Agreement, any lease, any secured promissory note or any other
related document, such pass through trustee will promptly send a notice of such
proposed amendment, modification, waiver or supplement to each
certificateholder registered on the register of such pass through trust as of
the date of such notice and the Policy Provider. See "Description of the
Intercreditor Agreement--Intercreditor Rights--Controlling Party." Such pass
through trustee will request from the 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) each 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.
. 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 pass
through trust.
For purposes of the certificateholder directions described above, a
certificate is deemed "actually voted" if the certificateholder has delivered
to the applicable pass through trustee an instrument evidencing such
certificateholder's consent to such direction prior to one Business Day before
the applicable 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, a 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)
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Obligation to Purchase Secured Promissory Notes
Each pass through trustee will be obligated to purchase the secured
promissory notes issued with respect to the aircraft during the Delivery
Period, subject to the terms and conditions of the Note Purchase Agreement and
the applicable Participation Agreement. Under the Note Purchase Agreement, we
agree to finance each aircraft in the manner provided in the Note Purchase
Agreement. We will have the option of entering into a leveraged lease financing
or a secured debt financing with respect to each aircraft.
. If we choose to enter into a leveraged lease financing with respect to
an aircraft, the Note Purchase Agreement provides for the relevant
parties to enter into a Participation Agreement, a lease and a Leased
Aircraft Indenture relating to the financing of such leased aircraft.
. If we choose to enter into a secured debt financing with respect to an
aircraft that we own, the Note Purchase Agreement provides for the
relevant parties to enter into a Participation Agreement and an Owned
Aircraft Indenture relating to the financing of such owned aircraft.
We currently expect to enter into a separate leveraged lease financing for
eight of the aircraft described in this prospectus supplement and to enter into
a secured debt financing with respect to the remainder of the aircraft
described in this prospectus supplement. We have entered into a commitment
letter, subject to certain terms and conditions, pursuant to which an owner
participant has agreed to provide the equity portion of seven leveraged lease
financings. For such owner participant, the leveraged lease documents will be
substantially in the forms attached to the Note Purchase Agreement designated
as the "Form of Special Leased Aircraft Participation Agreement," "Form of
Special Lease," "Form of Special Leased Aircraft Indenture" and "Form of
Special Trust Agreement."
If we elect to enter into a leveraged lease financing for more than eight
aircraft and the owner participant in such financings is not the same owner
participant as the owner participant committed to finance eight aircraft or one
of its affiliates, then the leveraged lease documents are expected to be
substantially in the forms attached to the Note Purchase Agreement designated
as the "Form of Basic Leased Aircraft Participation Agreement," "Form of Basic
Lease," "Form of Basic Leased Aircraft Indenture" and "Form of Basic Trust
Agreement," with such changes as may be requested by the applicable owner
participant and agreed to by us subject to the Mandatory Document Terms and
Mandatory Economic Terms.
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Transaction Structure for Leased Aircraft
The following diagram illustrates transactions in connection with the
purchase of secured promissory notes by the pass through trustee 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 the 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 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 may occur prior to the financing of an
owned aircraft, the proceeds from the sale of certificates, in that
circumstance, 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 pass
through trust and used to acquire secured promissory notes.
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
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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 trustee 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. If Policy Provider consent and Rating Agency Confirmation has
been received with respect to any financing agreements and such financing
agreements are used without material modification, no additional Policy
Provider consent or Rating Agency Confirmation shall be required.
Under the Note Purchase Agreement, it is a condition precedent to the
obligation of the 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 trustee has no right or obligation to purchase secured
promissory notes after the Delivery Period Termination Date.
In addition, so long as Airbus Industrie Financial Services ("AIFS") is the
registered or beneficial owner of any of the class C certificates, the class C
pass through trustee's obligation to purchase series C secured promissory notes
relating to the financing of an aircraft will be subject to the satisfaction of
certain additional conditions precedent. The additional conditions to the class
C pass through trustee's obligation to purchase series C secured promissory
notes to be issued in any financing include:
. the absence of a material payment default by our parent under its
purchase agreement with an affiliate of Airbus;
. the absence of a material payment default under other financing
arrangements with Airbus or its affiliates;
. we must continue to hold an air carrier operating certificate so long as
it is required for our lessors or lenders secured by the aircraft to be
entitled to the benefits of Section 1110 of the U.S. Bankruptcy Code;
. the absence of certain bankruptcy-related events or other material
events that result, or could result, in the termination of the aircraft
purchase agreement between our parent and an affiliate of Airbus;
. the satisfaction of certain liquidity conditions; and
. compliance with certain parameters relating to the amount of financing
on an aircraft-by-aircraft basis and the aggregate amount of financing
that an affiliate of Airbus is obligated to provide.
We expect that the foregoing conditions will be satisfied at all times.
However, no assurances can be given and if the conditions are not satisfied
with respect to any aircraft, we will still be obligated to finance such
aircraft except that no series C secured promissory notes will be issued with
respect to such aircraft.
The "Mandatory Economic Terms," as defined in the Note Purchase Agreement,
will require, among other things, that:
. The principal amount of the series G secured promissory notes issued
with respect to an aircraft shall equal 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 principal amount of the series C secured promissory notes issued
with respect to an aircraft shall equal the principal amount of series C
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 C Secured
Promissory Notes."
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. The loan to aircraft value ratio for the secured promissory notes for
each aircraft type (computed (a) after aggregating the principal amount
of all secured promissory notes that rank senior to the series of
secured promissary notes for which the 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 the
issuance date of such secured promissory notes and any Regular
Distribution Date after secured promissory notes are issued for that
aircraft type (assuming no default in the payment of the secured
promissory notes), the percentages set forth in the following table:
<TABLE>
<CAPTION>
Series G Secured Series C Secured
Aircraft Type Promissory Notes Promissory Notes
------------- ---------------- ----------------
<S> <C> <C>
Airbus A319-112 46.7% 62.0%
Airbus A320-214 46.6% 62.6%
Airbus A321-211 51.0% 67.1%
</TABLE>
. The initial average life of the series G secured promissory notes on any
aircraft must not be less than 10.0 years, and the average life of the
series G and series C secured promissory notes on any aircraft must not
extend beyond 11.3 years and 13.2 years, respectively, from the Issuance
Date.
. The interest rate applicable to the secured promissory notes must equal
the rate applicable to the certificates issued by the corresponding pass
through trust.
. The past due rate applicable to the 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 the 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 March 1 and September 1.
. The basic lease term for each lease must expire by its terms on or after
the latest maturity date of the secured promissory notes.
. As of the Delivery Period Termination Date, the average life of the
class G certificates and the class C certificates must not be more than
10.9 years and 12.5 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) 50.5% in the case of class G certificates and 63.6%
in the case of class C certificates.
. The final expected distribution date of the certificates is as set forth
in the "Prospectus Supplement Summary--Summary of Terms of
Certificates."
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. Each installment of basic rent, together with any advances or other
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 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.
. The (a) past due rate in the Indentures and the leases, (b) Make-Whole
Premium payable under the Indentures, (c) provisions relating to the
redemption and purchase of secured promissory notes in the Indentures
and (d) minimum liability insurance amount on aircraft in the leases, in
each case must be no less favorable to the Loan Trustees, Subordination
Agent, Liquidity Providers, Policy Provider, pass through trustees and
Note Holders than as set forth in the Aircraft Operative Agreements
designated as the "Form of Basic Leased Aircraft Participation
Agreement," "Form of Basic Lease" and "Form of Basic Leased Aircraft
Indenture" annexed to the Note Purchase Agreement.
. The indemnification of the Loan Trustees, Subordination Agent, Liquidity
Providers, Policy Provider, pass through trustees and Note Holders with
respect to certain taxes and expenses, in each case must not be
materially less favorable to the Loan Trustees, Subordination Agent,
Liquidity Providers, Policy Provider, pass through trustees and Note
Holders than as set forth in the Aircraft Operative Agreements
designated as the "Form of Basic Leased Aircraft Participation
Agreement," "Form of Basic Lease" and "Form of Basic Leased Aircraft
Indenture" 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 Providers, Policy Provider or 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;
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(6) modifications to the provisions regarding amendments to the
Indenture and the related Aircraft Operative Agreements;
(7) modifications to the provisions stating that the Indenture may not
be construed to give any person any legal or equitable claim under
the Indenture except for the Loan Trustee, the Note Holders and
certain other parties specified in the Indenture;
(8) modifications to the provision that New York law will govern the
Indentures; and
(9) modifications to the provision stating that all votes of the Note
Holders will be governed by the vote of a majority in interest of
the Note Holders, except as otherwise expressly provided in the
Indenture.
. In the case of the leases, the following modifications are prohibited:
(1) modifications to certain provisions regarding our unconditional
obligation to pay, prepay or advance basic rent, termination value
and certain other amounts to the Owner Trustee in an aggregate
amount at least equal to scheduled interest and principal;
(2) modification of our obligations to record the Leased Aircraft
Indenture with the FAA and to maintain such Indenture as a first-
priority perfected mortgage on the related aircraft;
(3) modification of our obligations to furnish certain opinions with
respect to a replacement airframe; and
(4) modification of our obligations to consent to the assignment of the
lease by the Owner Trustee as collateral under the Leased Aircraft
Indenture, as well as modifications which would either alter the
provision that New York law will govern the lease or would deprive
the Loan Trustee of rights expressly granted to it under the
leases.
. In the case of the Participation Agreements, the following modifications
are prohibited:
(1) modifications to certain conditions to the obligations of any pass
through trustee 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 a 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 be entitled to the benefits of
Section 1110 of the U.S. Bankruptcy Code with respect to
repossession of the airframes and engines of the financed aircraft
and to enforce any of its rights or remedies under the Indenture 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, Subordination Agent, Liquidity Providers, Policy Provider
or 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,
Subordination Agent, Liquidity Providers, Policy Provider, Loan Trustees or
certificateholders.
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Termination of the Pass Through Trust
Our obligations and those of the pass through trustees with respect to the
applicable pass through trusts will terminate upon the distribution to
certificateholders 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 notice of the termination of the applicable
pass through trust, the amount of the proposed final payment and the proposed
date for the distribution of such final payment. The final payment to any
certificateholder 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 Trustee
The initial 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, the certificates will be represented by one or more fully
registered global certificates. Each global certificate will be deposited with,
or on behalf of, DTC and registered in the name of Cede & Co., the nominee of
DTC. DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between DTC Participants
through electronic book-entry changes in accounts of the DTC Participants,
thereby eliminating the need for physical movement of certificates. DTC
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and certain other organizations. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly. Interests in a global certificate
may also be held through the Euroclear System and Clearstream Banking, 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 this 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 we may file 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 with the SEC. The provisions of the Deposit
Agreements are substantially identical unless otherwise indicated.
General
Under the Escrow Agreements, the Escrow Agent with respect to each pass
through trust will enter into a 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
applicable Escrow Agent. On the Issuance Date, the proceeds relating to the
offering of certificates will be deposited into the applicable Deposit Account
by the Underwriters (or, in the case of the class C certificates, the "initial
purchaser") 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 the applicable pass
through trust during the relevant interest period at a rate per annum equal to
the interest rate of the certificates issued by such pass through trust.
In connection with the financing of each delivered aircraft during the
Delivery Period, the applicable pass through trustee will request that the
respective Escrow Agent for that pass through trust withdraw from the Deposits
funds sufficient to enable such pass through trustee to purchase the secured
promissory notes of the series relating 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 the applicable pass through trustee.
The Deposits 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. In such cases, 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." In
addition, so long as AIFS holds any class C certificates, the conditions to the
obligations of the class C pass through trustee to purchase the series C
secured promissory notes differ from those applicable to the series G secured
promissory notes. See "Description of the Certificates--Obligation to Purchase
Secured Promissory Notes." If for any aircraft the conditions to the class G
pass through trustee's obligation to purchase series G secured promissory notes
are satisfied, but the conditions to the class C pass through trustee's
obligation to purchase series C secured promissory notes are not, we will be
obligated to finance such aircraft, but such financing may not include series C
secured promissory notes.
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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
applicable Escrow Agent and distributed, with accrued and unpaid interest, to
the holders of Escrow Receipts relating to such 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 unless such deposits
are returned because an aircraft is not delivered prior to the Delivery Period
Termination Date for any reason that is not due to 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 applicable Escrow Agent will withdraw any funds then held as Deposits with
respect to the applicable pass through trust and cause such funds, with accrued
and unpaid interest, but without any premium, to be distributed to the holders
of Escrow Receipts with respect to the applicable pass through trust by the
applicable Paying Agent on behalf of such 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 purchase secured promissory
notes issued with respect to aircraft delivered after the occurrence of such
Triggering Event.
Distribution upon Occurrence of a Termination Event
If an event occurs that entitles an affiliate of Airbus to terminate its
financing commitment to us at a time when AIFS holds any of the class C
certificates, the Escrow Agent for the class C pass through trust will withdraw
funds then held as Deposits with respect to the class C pass through trust and
cause such funds, with accrued and unpaid interest, but without any premium, to
be distributed to the holders of Escrow Receipts relating to such pass through
trust by the applicable Paying Agent, on behalf of the Escrow Agent. Any return
of unused Deposits will be made after at least 15 days' prior written notice.
So long as no Triggering Event has occurred, aircraft delivered from and after
the time an Airbus Financing Termination Event has occurred may still be
financed but no series C secured promissory notes will be issued in respect of
such aircraft.
Depositary
ABN AMRO Bank N.V., acting through its Chicago branch, will act as
Depositary.
ABN AMRO Bank N.V. is a direct subsidiary of ABN AMRO Holding N.V., an
international multi-bank holding company. At December 31, 1999, ABN AMRO
Holding N.V. reported consolidated assets amounting to approximately $460
billion (based on the exchange rate at December 31, 1999 of U.S. $1.00 to
0.9951). 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 60 days of such
event, 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 another depositary bank that will not result in a withdrawal or
downgrading of the rating of the certificates (without regard to any
downgrading of the rating of the Depositary being replaced, and without regard
to the Policy). In either case, we must obtain the written confirmation of the
Rating Agencies that the replacement of the Depositary will not cause a
downgrade or a withdrawal of the rating of the certificates (without giving
effect to the Policy).
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DESCRIPTION OF THE ESCROW AGREEMENTS
The following is a description of the particular terms of the Escrow
Agreements. The statements under this caption are summaries only and do not
purport to be complete and are qualified in their entirety by reference to all
of the provisions of the Escrow Agreements that we may file 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 with the SEC.
First Security Bank, National Association, as escrow agent in respect of
each of the pass through trusts, State Street Bank and Trust Company of
Connecticut, National Association, as paying agent on behalf of the Escrow
Agent, the pass through trustee of each of the pass through trusts and the
Underwriters (in the case of the class G pass through trust) or the initial
purchaser (in the case of the class C pass through trust) will enter into a
separate Escrow Agreement for the benefit of the certificateholders of each
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 (in the case of the class G pass through trust)
and the initial purchaser (in the case of the class C pass through trust) on
behalf of the applicable Escrow Agent (for the benefit of Receiptholders) with
the Depositary as Deposits.
Each Escrow Agent will permit the applicable pass through trustee to cause
funds to be withdrawn from such Deposits on or prior to the Delivery Period
Termination Date so that such pass through trustee may purchase the related
secured promissory notes under the Note Purchase Agreement. In addition, each
Escrow Agent will direct the applicable Depositary to pay interest on the
Deposits accrued in accordance with the applicable Deposit Agreement to the
applicable Paying Agent for distribution to the Receiptholders.
Each Escrow Agreement requires that the applicable Paying Agent establish
and maintain, for the benefit of the Receiptholders, one or more non-interest-
bearing Paying Agent Accounts. Each Paying Agent will deposit interest on
Deposits and any unused Deposits withdrawn by the applicable Escrow Agent in
the related Paying Agent Account. Each 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 applicable
Paying Agent Account for any payment or distribution due to such Receiptholder
under the applicable Escrow Agreement and the related Escrow Receipt and that
it will have no recourse against us, the pass through trustee that issued the
related certificate, any Paying Agent or any Escrow Agent, except as provided
in the applicable 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 a Depositary of the cash proceeds from this offering of
certificates, each 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 will evidence a fractional undivided interest
in amounts from time to time deposited into the applicable Paying Agent Account
and will be 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 applicable Escrow Agent in the same name and
manner as the certificate to which it is affixed.
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DESCRIPTION OF THE LIQUIDITY FACILITIES
The following description of the particular terms of the Liquidity
Facilities and certain provisions of the Intercreditor Agreement supplements
(and, to the extent inconsistent therewith, replaces) the description of the
general terms and provisions relating to the Intercreditor Agreement and the
description of credit enhancements set forth in the prospectus.
The statements under this caption are summaries and do not purport to be
complete and are qualified in their entirety by reference to all of the
provisions of the Liquidity Facilities and the Intercreditor Agreement that we
may file 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 with the SEC.
General
The Liquidity Provider will enter into a separate revolving credit
agreement, which we will refer to as a Liquidity Facility, 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 interest on
the 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 Morgan Stanley
Capital Services Inc. is the initial Liquidity Provider for both pass through
trusts, it may be replaced by one or more other entities under certain
circumstances. The obligations of Morgan Stanley Capital Services Inc. to make
advances under the Liquidity Facilities will be fully and unconditionally
guaranteed by Morgan Stanley Dean Witter & Co.
Drawings
The aggregate amount available under the Liquidity Facility for each pass
through trust at March 1, 2001, the first Regular Distribution Date after all
of the aircraft are scheduled to have been delivered, assuming that secured
promissory notes in the maximum principal amount with respect to all aircraft
are acquired by the pass through trust and that all interest and principal due
on or prior to March 1, 2001, is paid, will be as follows:
<TABLE>
<CAPTION>
Available
Pass Through Trust Amount
------------------ -----------
<S> <C>
Class G........................................................ $58,125,827
Class C........................................................ $19,765,246
</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 applicable 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 any Liquidity Facility on any Distribution Date to fund any
shortfall of interest on the certificates of such pass through trust will not
exceed the then Maximum Available Commitment under such Liquidity Facility.
(Liquidity Facilities, Section 2.02(a); Intercreditor Agreement, Section
3.6(a))
The Liquidity Facility for any class of certificates will not provide for
drawings:
. To pay for principal of, or premium on, the certificates of such class.
. To pay for any interest on the certificates of such class in excess of
the Stated Interest Rate for such class or to pay for more than three
consecutive semiannual installments of interest in excess of the Maximum
Available Commitment under such Liquidity Facility.
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. To pay for principal of or interest or premium on the certificates of
any other class.
. 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 any Liquidity Provider will reduce the Maximum Available
Commitment under such Liquidity Facility by an amount equal to the amount of
such payment under such Liquidity Facility, subject to reinstatement as
described below. With respect to any Interest Drawings under a Liquidity
Facility, upon reimbursement of such 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 the 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 (i) the short-term unsecured debt rating of any Liquidity
Provider or, if applicable, of any guarantor of the obligations of a Liquidity
Provider, then issued by either Rating Agency is lower than the Threshold
Rating applicable to such pass through trust or (ii) any guarantee of a
Liquidity Provider's obligations under the relevant Liquidity Facility becomes
invalid or unenforceable, such Liquidity Facility 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 a Liquidity Facility is not replaced with a Replacement Facility within
10 days after notice of the downgrading or such guarantee becoming invalid or
unenforceable 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 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))
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, unless otherwise extended in
accordance with such Liquidity Facility.
. 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 such Liquidity Provider makes available a Downgrade
Drawing, a Non-Extension Drawing or a Final Drawing. (Liquidity
Facilities, Sections 1.01 and 2.04(b))
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Each initial Liquidity Facility will provide that such Liquidity Facility
will be automatically extended for additional 364-day periods unless (i) the
scheduled expiration date of such Liquidity Facility is on or after the 15th
day after the Final Maturity Date for that class of certificates or (ii) the
applicable Liquidity Provider advises the Subordination Agent that it does not
agree to such extension.
The Intercreditor Agreement will provide for the replacement of any
Liquidity Facility if it is scheduled to expire earlier than 15 days after the
Final Maturity Date if such Liquidity Facility is not extended prior to its
then scheduled expiration date. If such Liquidity Facility is not so extended
or replaced 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 for the certificates of such pass through trust. The
Subordination Agent will deposit the proceeds of the Non-Extension Drawing in a
Cash Collateral Account 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 (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 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 its Liquidity Facility (Intercreditor Agreement,
Section 3.6 (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 a Liquidity Facility from a 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 a Cash
Collateral Account as cash collateral to be used for the same purposes and
under the same circumstances, and subject to the same conditions, as cash
payments of Interest Drawings under such Liquidity Facility would be used.
(Liquidity Facilities, Section 2.02(d); Intercreditor Agreement, Section
3.6(i))
Reimbursement of Drawings
The Subordination Agent must reimburse amounts drawn under any Liquidity
Facility by reason of an Interest Drawing, Final Drawing, Downgrade Drawing or
Non-Extension Drawing and interest on such drawings, but only to the extent
that the Subordination Agent has funds available to make such payments.
(Liquidity Facilities, Sections 2.05, 2.06, 2.09)
Interest Drawings and Final Drawings
Amounts drawn by reason of an Interest Drawing or Final Drawing will be
immediately due and payable, together with interest on the amount of such
drawing. (Liquidity Facilities, Section 2.05)
From the date of each such drawing to (but excluding) the third business day
following the applicable Liquidity Provider's receipt of the notice of such
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)
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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 to
pay interest on such certificates will be treated in the same way as
Interest Drawings.
. The balance of such amount will be invested in certain specified
eligible investments.
Any Downgrade Drawing or any Non-Extension Drawing under any of the
Liquidity Facilities, other than any portion of such drawing applied to payment
of interest on the certificates, will bear interest (x) from the date of each
such drawing to (but excluding) the third business day following the 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 Liquidity
Facility in an amount equal to the then Maximum Available Commitment
under such Liquidity Facility.
. Any Drawing remaining unreimbursed as of the date of termination will be
automatically converted into a Final Drawing under such Liquidity
Facility.
. All amounts owing to the applicable Liquidity Provider automatically
will be accelerated. (Liquidity Facilities, Section 6.01)
Notwithstanding the foregoing, the Subordination Agent will be obligated to
pay amounts owing to the applicable Liquidity Provider only to the extent the
Subordination Agent has funds to pay such amounts after giving effect to the
payments in accordance with the provisions set forth under "Description of the
Intercreditor Agreement--Priority of Distributions." (Liquidity Facilities,
Section 2.09)
Upon the circumstances described below under "Description of the
Intercreditor Agreement--Intercreditor Rights--Controlling Party," a Liquidity
Provider may become the Controlling Party with respect to the exercise of
remedies under the Indentures. (Intercreditor Agreement, Section 2.6(c))
Liquidity Provider
The initial liquidity provider for the class G and the class C pass through
trusts will be Morgan Stanley Capital Services Inc. (including any replacement
therefor), which we refer to as MSCS. MSCS, a subsidiary of
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Morgan Stanley Dean Witter & Co., which we refer to as MSDW, commenced
operation in August 1985 and was established to conduct, primarily as
principal, an interest rate, currency and equity derivatives products business.
MSCS also engages in a variety of other related transactions.
MSDW, the guarantor of MSCS's obligations under its Liquidity Facilities, is
a global financial services firm. MSDW has long-term unsecured debt ratings of
Aa3 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. MSDW files
reports, proxy statements and other information with the SEC pursuant to the
information requirements of the Exchange Act. Such information can be inspected
and copied at the public reference facilities of the SEC, or electronically
accessed through the Internet.
The description of MSCS and MSDW above has been provided by the respective
parties. Neither MSCS nor MSDW, however, has been involved in the preparation
of or accepts responsibility for this prospectus supplement or the accompanying
prospectus. Morgan Stanley & Co. Incorporated, a subsidiary of MSDW and an
affiliate of MSCS, will act as an underwriter for the class G certificates.
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, that we
will file 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 with the SEC.
The Policy
The Policy Provider will issue a financial guaranty 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 (and the holders of the Escrow
Receipts attached to such certificates, but only with respect to interest on
the deposits related to such Escrow Receipts). 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 for
the class G certificates), 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 and unpaid interest
on the class G certificates and, without duplication, accrued and unpaid
interest on any Deposit relating to the Escrow Receipts attached to such
certificates, in each case, at the Stated Interest Rate for the class G
certificates on the Pool Balance of such 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 or on such Deposit. (Intercreditor Agreement, Section 3.7(a))
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 the 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
that secured promissory note (determined immediately prior to the receipt of
such proceeds) plus accrued and unpaid interest on the amount of such reduction
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. (Intercreditor Agreement, Section 3.7(c))
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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
and unpaid 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, each 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 the Special Distribution Date established
pursuant to the preceding paragraph 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) on each
Regular Distribution Date that occurs after such Special 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 series G 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 elected by
the Policy Provider upon 20 days' notice, 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 applicable Stated Interest Rate 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 Providers 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.
(Intercreditor Agreement, Section 3.7(a))
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 on
the class G certificates
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(calculated as at such date but excluding any accrued and unpaid premium) the
Subordination Agent is to request a policy drawing under the Policy in an
amount sufficient to enable the Subordination Agent to pay such Final
Distribution (calculated as at such date but excluding any accrued and unpaid
premium). (Intercreditor Agreement, Section 3.7(d))
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, the Liquidity Providers 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. (Intercreditor Agreement, Section 3.7(e))
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.
(Intercreditor Agreement, Section 3.7) 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 (or Escrow Agent, as the case may be)
for distribution to the holders of the class G certificates (or the Escrow
Receipts attached to such certificates, as the case may be) 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 class G
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. (Intercreditor Agreement, Section
3.7(h))
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 (or, in
the case of payments made in respect of Escrow Receipts, the applicable Paying
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, the Subordination Agent
or the class G Paying 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.
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. Any failure of the Escrow Agent, Subordination Agent, class G Paying
Agent or class G pass through trustee to make any payment due to the
holders of the class G certificates (or Escrow Receipts attached to such
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 or the class G Paying Agent for distribution to the class G
pass through trustee and the holders of the class G certificates or Escrow
Receipts attached to such certificates, as applicable, whether or not the funds
are properly distributed by the Subordination Agent, the class G Paying Agent
or the class G pass through trustee.
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 and the Policy Fee Letter
We will enter into an insurance and indemnity agreement with the
Subordination Agent and the Policy Provider 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 (and acknowledged by us), the Subordination Agent agrees to pay
the Policy Provider a premium for the policy based upon the Pool Balance of the
class G certificates.
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DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following description of the particular terms of the Intercreditor
Agreement supplements (and, to the extent inconsistent with the prospectus,
replaces) the description of the general terms and provisions relating to the
Intercreditor Agreement set forth in the prospectus. The statements made under
the caption are summaries and do not purport to be complete and are qualified
in their entirety by reference to all of the provisions of the Intercreditor
Agreement, that we will file 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 with the SEC.
Intercreditor Rights
General
The Intercreditor Agreement will be among each pass through trustee, each
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, 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, 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. 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, except that so long as the final distributions on the 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 pass through trustee and shall vote in
accordance with the directions of the Policy Provider. (Intercreditor
Agreement, Section 2.6(a) and Section 9.1(b))
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 to direct the pass
through trustee.
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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 such 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,"
then the class G pass through trustee until payment of final
distributions to the holders of the related certificates, and after
that,
. the class C pass through trustee.
The Liquidity Provider with the larger outstanding amount of unreimbursed
Liquidity Obligations, if it is 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
the Policy Provider pays to the Liquidity Providers all outstanding Drawings,
together with accrued interest on such Drawings, 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 trustee (other than the pass through trustee which is the
Controlling Party) will irrevocably agree, and the certificateholders (other
than the certificateholders represented by the Controlling Party) will be
deemed to agree by virtue of their purchase of certificates, that the
Subordination Agent, as record holder of the secured promissory notes, will
exercise its voting rights in respect of the secured promissory notes as
directed by the Controlling Party. (Intercreditor Agreement, Section 2.6(b))
For a description of certain limitations on the Controlling Party's rights to
exercise remedies, see "Description of the Secured Promissory Notes--Remedies."
Sale of Secured Promissory Notes or Aircraft
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party will be entitled to accelerate and,
subject to the provisions of the immediately following sentence, sell all (but
not less than all) of the secured promissory notes issued under such Indenture
to any person, provided, however, that the Controlling Party shall first offer
to the class C certificateholders the right to purchase all (but not less than
all) of the secured promissory notes under such Indenture for a purchase price
equal to the amount of the obligations secured by such Indenture. 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, (i) if the net proceeds from such sale would be less than
the Minimum Sale Price for such aircraft or such secured promissory notes, and
(ii) unless the Controlling Party shall first offer to the class C
certificateholders the right to purchase all (but not less than all) of the
secured promissory notes under such Indenture for a purchase price equal to the
amount of the obligations secured by such Indenture. 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
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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 Distribution
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 Providers 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 on the basis of the Liquidity Expenses and
Policy Expenses then due;
. to the Liquidity Providers 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 Obligations), respectively and, if the
Policy Provider has elected to pay to the Liquidity Providers all
outstanding drawings and interest thereon owing to the Liquidity
Providers under the Liquidity Facilities, to reimburse the Policy
Provider for the amount of such payment made to the Liquidity Providers
attributable to interest accrued on such drawings;
. to the Liquidity Providers to the extent required to pay or reimburse
the Liquidity Providers 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
Providers all outstanding drawings and interest thereon owing to the
Liquidity Providers under the Liquidity Facilities, to reimburse the
Policy Provider for the amount of such payment made to the Liquidity
Providers 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);
. 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 the pass through trustees 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, pro rata, 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
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certificateholder, the Policy Provider or any 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 Providers 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 Providers 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 Providers) and on certain Policy Provider
Obligations (as provided in the definition of Policy Provider
Obligations), respectively and, if the Policy Provider has elected to
pay to the Liquidity Providers all outstanding drawings and interest
thereon owing to the Liquidity Providers under the Liquidity Facilities,
to reimburse the Policy Provider for the amount of such payment made to
the Liquidity Providers attributable to interest accrued on such
drawings;
. to the Liquidity Providers to the extent required to pay the outstanding
amount of all Liquidity Obligations (as determined after giving effect
to payments by the Policy Provider to the Liquidity Providers in respect
of principal of drawings under the Liquidity Facilities) 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, then payments are made first to replenish the Cash
Collateral Account up to the Required Amount for that 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 Providers all outstanding drawings and interest thereon owing
to the Liquidity Providers under the Liquidity Facilities, to reimburse
the Policy Provider for the amount of such payment made to the Liquidity
Providers 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 any Policy Provider
Obligations (other than amounts payable pursuant to the first four
clauses above, any Excess Reimbursement Obligations and any amounts
payable under the Policy Fee Letter);
. to the class C pass through trustee to the extent required to pay
Adjusted Expected Distributions on the class C certificates;
. to the Policy Provider to pay any Excess Reimbursement Obligations and
amounts due under the Policy Fee Letter.
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 all of the aircraft securing the secured promissory notes 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 a Liquidity Facility and withdrawals from the
related 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
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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)
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
The Aircraft
The aircraft consist of 14 Airbus Model A319-100 aircraft, three Airbus
Model A320-200 aircraft and six Airbus Model A321-200 aircraft, eight of which
have been delivered, or are expected to be delivered, by the manufacturer to us
prior to the issuance of the certificates and the remaining 15 of which are
scheduled for delivery through February 2001 (the "Delivery Period"). The
aircraft have been designed to be in compliance with Stage 3 noise level
standards, which are the most restrictive regulatory standards currently in
effect in the United States for aircraft noise abatement.
The Airbus Model A319-100, Airbus Model A320-200 and Airbus Model A321-200
aircraft are capable of flying from our major northeast United States hubs to
west coast markets. The seating capacity of the A319-100 aircraft is
approximately 120 passengers. The seating capacity of the Airbus Model A320-200
aircraft is approximately 142 passengers. The seating capacity of the Airbus
Model A321-200 aircraft is approximately 169 passengers. The engine type
utilized on the Airbus Model A319-100, A320-200 and A321-200 aircraft will be
the CFM International, Inc. CFM-56-5.
The aircraft are more fully described in the attached appraisals.
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The Appraisals
The table below sets forth the appraised base values of the aircraft, as
determined by the Appraisers.
<TABLE>
<CAPTION>
Actual or
Expected Actual or Appraiser's Valuations Appraised
Registration Manufacturer's Scheduled Delivery ----------------------------------- Base
Aircraft Type Number Serial Number Month (1) AISI AVSolutions MBA Value (2)
------------- ------------ -------------- ------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Airbus A319-112 N755US 1331 October 24, 2000 $41,410,000 $40,210,000 $38,250,000 $39,956,667
Airbus A319-112 N756US 1340 October 17, 2000 $41,410,000 $40,210,000 $38,250,000 $39,956,667
Airbus A319-112 N757UW 1342 October 19, 2000 $41,410,000 $40,210,000 $38,250,000 $39,956,667
Airbus A319-112 N758US 1348 October 2000 $41,410,000 $40,210,000 $38,250,000 $39,956,667
Airbus A319-112 N760US 1354 November 2000 $41,510,000 $40,210,000 $38,330,000 $40,016,667
Airbus A319-112 N762US 1358 November 2000 $41,510,000 $40,210,000 $38,330,000 $40,016,667
Airbus A319-112 N763US 1360 November 2000 $41,510,000 $40,210,000 $38,330,000 $40,016,667
Airbus A319-112 N764US 1369 November 2000 $41,510,000 $40,210,000 $38,330,000 $40,016,667
Airbus A319-112 N765US 1371 November 2000 $41,510,000 $40,210,000 $38,330,000 $40,016,667
Airbus A319-112 N766US 1378 December 2000 $41,610,000 $40,210,000 $38,400,000 $40,073,333
Airbus A319-112 N767UW 1382 December 2000 $41,610,000 $40,210,000 $38,400,000 $40,073,333
Airbus A319-112 N768US 1389 December 2000 $41,610,000 $40,210,000 $38,400,000 $40,073,333
Airbus A319-112 N769US 1391 December 2000 $41,610,000 $40,210,000 $38,400,000 $40,073,333
Airbus A319-112 N770UW 1393 December 2000 $41,610,000 $40,210,000 $38,400,000 $40,073,333
Airbus A320-214 N122US 1298 September 21, 2000 $41,610,000 $46,540,000 $43,980,000 $45,710,000
Airbus A320-214 N123UW 1310 October 26, 2000 $46,720,000 $46,890,000 $44,070,000 $45,893,333
Airbus A320-214 N124US 1314 October 2000 $46,720,000 $46,890,000 $44,070,000 $45,893,333
Airbus A321-211 N161UW 1403 January 2001 $58,590,000 $55,740,000 $52,930,000 $55,740,000
Airbus A321-211 N162US 1412 January 2001 $58,590,000 $55,740,000 $52,930,000 $55,740,000
Airbus A321-211 N163US 1417 January 2001 $58,590,000 $55,740,000 $52,930,000 $55,740,000
Airbus A321-211 N164UW 1425 February 2001 $58,730,000 $55,740,000 $53,030,000 $55,740,000
Airbus A321-211 N165US 1431 February 2001 $58,730,000 $55,740,000 $53,030,000 $55,740,000
Airbus A321-211 N166US 1436 February 2001 $58,730,000 $55,740,000 $53,030,000 $55,740,000
</TABLE>
--------
(1) The actual delivery dates for three A319 aircraft and two A320 aircraft
are set forth above. The delivery date for the remaining aircraft is the
month 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) July 1,
2001. We may take delivery of an aircraft and finance that aircraft under
this offering up to 180 days after such delivery (or such longer period
after such delivery as we may elect with approval from the Rating
Agencies, but in any event, not later than July 1, 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 for aircraft not
yet delivered 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 Morten Beyer & Agnew, Inc., Aircraft
Information Services, Inc. and AvSolutions, Inc. were asked to provide their
respective opinions as to the appraised base value of each aircraft as of the
date specified on the first page of such appraisal attached as Appendix I 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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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
Eight of the aircraft have been delivered or are expected to be delivered
prior to the issuance of the certificates and the remaining aircraft are
scheduled for delivery through February 2001 under a purchase agreement between
our parent and an affiliate of Airbus. See the table under "--The Appraisals"
for the actual or 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 July 1, 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.
See "Description of the Deposit Agreements--Unused Deposits."
Substitute Aircraft
If the delivery date for any aircraft is delayed (a) more than 30 days after
the month scheduled for delivery, or (b) beyond July 1, 2001, we may identify
for delivery a substitute aircraft for such aircraft meeting the following
conditions:
. a substitute aircraft must be the same model (either A319, A320 or A321,
as the case may be) as the aircraft for which delivery was delayed and
delivered by the manufacturer to US Airways after June 30, 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.
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DESCRIPTION OF THE SECURED PROMISSORY NOTES
The following description of the terms of the secured promissory notes
supplements (and, to the extent inconsistent with the prospectus, replaces) the
description of the general terms and provisions relating to the secured
promissory notes, the Indentures, the leases, the Participation Agreements, the
Leased Aircraft Trust Agreements and the Note Purchase Agreement set forth in
the prospectus. The summaries make use of terms defined in and are qualified in
their entirety by reference to all of the provisions of the secured promissory
notes, the Indentures, the leases, the Participation Agreements, the Leased
Aircraft Trust Agreements and the Note Purchase Agreement, forms of which will
be filed as exhibits to an Annual Report on Form 10-K, a Quarterly Report on
Form 10-Q or a Current Report on Form 8-K that we will file with the SEC.
General
The secured promissory notes are expected to 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 with respect to each owned aircraft will be
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 will not be direct obligations of US Airways and we will not guarantee
payment or performance of the leased aircraft notes. Our obligations under each
lease and the related Aircraft Operative Agreements will be 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.
(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 the same 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 the respective pass through
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trust on the dates and at the rate per annum set forth on the cover page of
this prospectus supplement, with respect to class G certificates, and set forth
under "Purchase of Class C Certificates" with respect to the class C
certificates until the final expected Regular Distribution Date for the
respective 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 respective certificateholders in
scheduled amounts on the dates set forth in this prospectus supplement until
the final expected Regular Distribution Date for the respective 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 March
1 and September 1 of each year, commencing on the first such date to occur
after initial issuance of such secured promissory note. Such interest will be
computed on the 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 interest rate on such series of secured promissory notes.
Scheduled principal payments on the secured promissory notes will be made on
March 1 and September 1 in certain years, commencing on September 1, 2001. 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
Mandatory 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. (Indentures, Section 2.10(a)). Such redemption will be on
a Special Distribution Date.
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 and other amounts payable
to the holders of the secured promissory notes under the applicable Indenture
and Participation Agreement, plus a Make-Whole Premium. (Leased Aircraft
Indentures, Section 2.10(b)) See "--The Leases--Lease Termination."
Voluntary Redemption
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
at a price equal to 100% of the unpaid principal thereof, together with accrued
interest thereon to, but not including, the date of redemption and all other
amounts payable to the
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holders of the secured promissory notes under the applicable Indenture and
Participation Agreement, plus, a Make-Whole Premium. (Leased Aircraft
Indentures, Section 2.11)
All, but not less than all, of the secured promissory notes issued with
respect to an owned aircraft may be redeemed prior to maturity at any time at
our option at a price equal to 100% of the unpaid principal amount of the
secured promissory notes being redeemed, together with accrued and unpaid
interest on those secured promissory notes to, but not including the date of
redemption and all other amounts payable to the holders of the secured
promissory notes under the applicable Indenture and Participation Agreement,
plus a Make Whole Premium. (Owned Aircraft 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 declared due and payable by the
applicable Loan Trustee 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 Leased Aircraft 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 amount of the secured promissory notes being purchased, plus accrued
and unpaid interest on the amount of those secured promissory notes to, but
not including the date of such purchase, but without Make-Whole Premium
(except under the limited circumstances described in the following sentence),
plus all other amounts payable to the holders of the secured promissory notes
under the applicable Leased Aircraft Indenture and Participation Agreement.
The purchase price for the secured promissory notes will include a Make-Whole
Premium if an Owner Trustee or an Owner Participant purchases the secured
promissory notes at a time when (x) a Lease Event of Default under the
applicable Lease has occurred and has been continuing under the Lease for less
than 120 days and (y) the secured promissory notes have not been declared due
and payable by the applicable Loan Trustee, and the applicable Loan Trustee
has not taken, and has not notified the applicable Owner Trustee that it
intends to take, any action to foreclose the lien of the related Leased
Aircraft Indenture or otherwise commence the exercise of any significant
remedy under the Leased Aircraft Indenture or the related lease and certain
events have not occurred in a bankruptcy proceeding involving us. (Leased
Aircraft Indentures, Section 2.14)
We as owner of an owned aircraft, have no comparable right under the Owned
Aircraft Indentures to purchase the secured promissory notes under the
circumstances described in the preceding paragraphs.
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)
In the case of a Leased Aircraft Indenture, 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, unless an Indenture Default with
respect to an aircraft has occurred and is continuing. (Leased Aircraft
Indentures, Section 5.02) 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
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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. (Leased
Aircraft Indentures, 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
will not be our obligations and we will not guarantee payment of or principal
of, or interest on, such secured promissory notes. Payments or advances made
under a lease and the related Aircraft Operative Agreements will always be
sufficient to make scheduled payments of principal of, and interest on, the
secured promissory notes issued to finance the aircraft subject to such lease.
See "Description of the Secured Promissory Notes--General."
Loan to Value Ratios of Secured Promissory Notes
The following tables set forth illustrative loan to aircraft value ratios
for the secured promissory notes issued in respect of aircraft as of March 1,
2001 and each March 1 Regular Distribution Date thereafter, 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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The following tables are based on the Depreciation Assumption. Other rates
or methods of depreciation would result in materially different loan to
aircraft value ratios, and no assurance can be given (a) that the depreciation
rates and method assumed for the purposes of the tables are the ones most
likely to occur or (b) as to the actual future value of any aircraft. The
tables should not be considered a forecast or prediction of expected or likely
loan to aircraft value ratios, but only a mathematical calculation based on one
set of assumptions.
<TABLE>
<CAPTION>
Airbus A319-112
Leased
----------------------------------------------
Secured
Promissory Notes Assumed Loan to
Date Outstanding Balance Aircraft Value Value Ratio
---- ------------------- -------------- -----------
(Millions) (Millions)
<S> <C> <C> <C>
March 1, 2001.................... $23.50 $39.96 58.8%
March 1, 2002.................... 23.50 38.76 60.6
March 1, 2003.................... 21.96 37.56 58.5
March 1, 2004.................... 20.34 36.36 56.0
March 1, 2005.................... 19.00 35.16 54.0
March 1, 2006.................... 17.52 33.96 51.6
March 1, 2007.................... 15.71 32.76 47.9
March 1, 2008.................... 14.39 31.57 45.6
March 1, 2009.................... 12.97 30.37 42.7
March 1, 2010.................... 12.21 29.17 41.8
March 1, 2011.................... 11.56 27.97 41.3
March 1, 2012.................... 10.62 26.77 39.7
March 1, 2013.................... 9.37 25.57 36.6
March 1, 2014.................... 8.19 24.37 33.6
March 1, 2015.................... 6.91 23.17 29.8
March 1, 2016.................... 4.57 21.98 20.8
March 1, 2017.................... 2.62 20.38 12.9
March 1, 2018.................... 2.62 18.78 13.9
March 1, 2019.................... 0.84 17.18 4.9
March 1, 2020.................... 0.00 NA NA
March 1, 2021.................... 0.00 NA NA
March 1, 2022.................... 0.00 NA NA
<CAPTION>
Airbus A319-112
Owned
----------------------------------------------
Secured
Promissory Notes Assumed Loan to
Date Outstanding Balance Aircraft Value Value Ratio
---- ------------------- -------------- -----------
(Millions) (Millions)
<S> <C> <C> <C>
March 1, 2001.................... $24.80 $40.02 62.0%
March 1, 2002.................... 23.71 38.82 61.1
March 1, 2003.................... 22.61 37.62 60.1
March 1, 2004.................... 21.52 36.42 59.1
March 1, 2005.................... 20.43 35.21 58.0
March 1, 2006.................... 19.33 34.01 56.8
March 1, 2007.................... 18.24 32.81 55.6
March 1, 2008.................... 17.15 31.61 54.2
March 1, 2009.................... 16.05 30.41 52.8
March 1, 2010.................... 14.96 29.21 51.2
March 1, 2011.................... 13.87 28.01 49.5
March 1, 2012.................... 12.77 26.81 47.6
March 1, 2013.................... 11.68 25.61 45.6
March 1, 2014.................... 10.59 24.41 43.4
March 1, 2015.................... 9.49 23.21 40.9
March 1, 2016.................... 8.40 22.01 38.2
March 1, 2017.................... 6.94 20.41 34.0
March 1, 2018.................... 5.49 18.81 29.2
March 1, 2019.................... 1.69 17.21 9.8
March 1, 2020.................... 1.38 15.61 8.9
March 1, 2021.................... 1.07 14.01 7.6
March 1, 2022.................... 0.00 NA NA
</TABLE>
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<TABLE>
<CAPTION>
Airbus A320-214
Leased
----------------------------------------------
Secured
Promissory Notes Assumed Loan to
Date Outstanding Balance Aircraft Value Value Ratio
---- ------------------- -------------- -----------
(Millions) (Millions)
<S> <C> <C> <C>
March 1, 2001.................... $27.80 $45.71 60.8%
March 1, 2002.................... 27.71 44.34 62.5
March 1, 2003.................... 26.58 42.97 61.9
March 1, 2004.................... 24.89 41.60 59.8
March 1, 2005.................... 23.12 40.22 57.5
March 1, 2006.................... 20.81 38.85 53.6
March 1, 2007.................... 19.23 37.48 51.3
March 1, 2008.................... 17.39 36.11 48.2
March 1, 2009.................... 16.05 34.74 46.2
March 1, 2010.................... 15.08 33.37 45.2
March 1, 2011.................... 13.90 32.00 43.4
March 1, 2012.................... 13.02 30.63 42.5
March 1, 2013.................... 11.59 29.25 39.6
March 1, 2014.................... 10.18 27.88 36.5
March 1, 2015.................... 8.74 26.51 33.0
March 1, 2016.................... 5.84 25.14 23.2
March 1, 2017.................... 4.14 23.31 17.7
March 1, 2018.................... 2.62 21.48 12.2
March 1, 2019.................... 2.62 19.66 13.3
March 1, 2020.................... 2.20 17.83 12.3
March 1, 2021.................... 0.11 16.00 0.7
March 1, 2022.................... 0.00 NA NA
<CAPTION>
Airbus A321-211
Owned
----------------------------------------------
Secured
Promissory Notes Assumed Loan to
Date Outstanding Balance Aircraft Value Value Ratio
---- ------------------- -------------- -----------
(Millions) (Millions)
<S> <C> <C> <C>
March 1, 2001.................... $37.35 $55.74 67.0%
March 1, 2002.................... 35.70 54.07 66.0
March 1, 2003.................... 34.05 52.40 65.0
March 1, 2004.................... 32.40 50.72 63.9
March 1, 2005.................... 30.75 49.05 62.7
March 1, 2006.................... 29.10 47.38 61.4
March 1, 2007.................... 27.45 45.71 60.1
March 1, 2008.................... 25.81 44.03 58.6
March 1, 2009.................... 24.16 42.36 57.0
March 1, 2010.................... 22.51 40.69 55.3
March 1, 2011.................... 20.86 39.02 53.5
March 1, 2012.................... 19.21 37.35 51.4
March 1, 2013.................... 17.56 35.67 49.2
March 1, 2014.................... 15.91 34.00 46.8
March 1, 2015.................... 14.26 32.33 44.1
March 1, 2016.................... 12.61 30.66 41.1
March 1, 2017.................... 10.42 28.43 36.6
March 1, 2018.................... 8.22 26.20 31.4
March 1, 2019.................... 2.46 23.97 10.3
March 1, 2020.................... 2.01 21.74 9.2
March 1, 2021.................... 1.56 19.51 8.0
March 1, 2022.................... 0.00 NA NA
</TABLE>
Limitation of Liability for Leased Aircraft Notes
The secured promissory notes issued with respect to the leased aircraft will
not be our direct obligations nor will they be 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
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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, except in the case of a voluntary termination of the lease where
the Owner Participant has elected to retain the Aircraft.
Except as otherwise provided in the Leased Aircraft Indentures, no Owner
Trustee or Loan Trustee, in its individual capacity, will be answerable or
accountable under the Leased Aircraft Indentures or under the Leased Aircraft
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
Leased Aircraft Notes to the Loan Trustees or to any holder of any secured
promissory note.
Liability for Owned Aircraft Notes
The secured promissory notes issued with respect to any owned aircraft will
be our direct obligations.
Except as otherwise provided in the Owned Aircraft Indentures, no Loan
Trustee, in its individual capacity, will be answerable or accountable under
the Owned Aircraft Indentures or any secured promissory notes issued with
respect to an owned aircraft under any circumstances except, among other
things, for its own willful misconduct or gross negligence.
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 and 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;
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. 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 in any material respect 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 (not in its individual capacity)
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)
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 or
Owner Participant 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 or Owner Participant 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 Indentures,
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)
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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 with respect to
any agreement contained in such Indenture have been cured. (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 (a
"Continuous Stay Period") in excess of 60 days subsequent to an entry for an
order for relief pursuant to Section 1110(a)(2)(A) of the Bankruptcy Code (the
"Section 1110 Period"); provided, however, that the requirement to exercise one
or more of such remedies under such lease shall nonetheless be applicable
during a Continuous Stay Period subsequent to the expiration of the Section
1110 Period to the extent that the continuation of such Continuous Stay Period
subsequent to the expiration of the Section 1110 Period (A) results from an
agreement by the trustee or the debtor-in-possession in such proceeding during
the Section 1110 Period with the approval of the relevant court to perform such
lease in accordance with Section 1110(a)(2)(A) of the U.S. Bankruptcy Code and
continues to perform as required by Section 1110(a)(2) of the U.S. Bankruptcy
Code and cures any default (other than a default of a kind specified in Section
365(b)(2) of the U.S. Bankruptcy Code) within the applicable time period
specified in Section 1110(a)(2)(B) of the U.S. Bankruptcy Code or (B) is an
extension of the Section 1110 Period with the consent of such Loan Trustee
pursuant to Section 1110(b) of the U.S. Bankruptcy Code or (C) is the
consequence of such Loan Trustee's own failure to give any requisite notice or
demand to any person. 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 Indentures 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 we are the debtor in a bankruptcy proceeding under the U.S. Bankruptcy
Code, 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 agree to perform our obligations under such lease, (b) at any time after
agreeing to perform such obligations, we or such
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trustee cease to perform such obligations, (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 or (d) the secured promissory notes issued
pursuant to such Indenture have been declared due and payable by the related
Loan Trustee. 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. (Leased Aircraft Indentures, Section 9.01(b))
There will not be any cross-default provisions in the Indentures. This means
that 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
might 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 in relevant part that,
unless certain events occur after the commencement of a Chapter 11 case, the
right of a secured party with a security interest in "equipment" (as defined in
Section 1110 of the U.S. Bankruptcy Code), or of a lessor or conditional vendor
of such equipment, to take possession of such equipment in compliance with the
provisions of a security agreement, lease, or conditional sale contract, and to
enforce any of its other rights or remedies under such security agreement,
lease, or conditional sale contract, to sell, lease or otherwise retain or
dispose of such equipment, is not limited or otherwise affected after 60 days
after the order for relief under Chapter 11 of the U.S. Bankruptcy Code by any
other provision of the U.S. Bankruptcy Code or by any power of the bankruptcy
court.
Section 1110 of the U.S. Bankruptcy Code provides that the right to take
possession and to enforce other rights and remedies to sell, lease or otherwise
dispose of an aircraft shall be subject to the automatic stay of Section 362 of
the U.S. Bankruptcy Code if (A) before the date that is 60 days after the date
of the order for relief under Chapter 11 of the U.S. Bankruptcy Code, the
trustee, subject to the approval of the court, agrees to perform all
obligations of the debtor under such security agreement, lease or conditional
sale contract and (B) any default (other than a default that is a breach of a
provision relating to the financial condition, bankruptcy, insolvency or
reorganization of the debtor) under such security agreement, lease or
conditional sale contract (x) is cured before the date that is 60 days from the
date of such order in the case of a default that occurs before the date of the
order of relief, (y) is cured before the later of the date that is 30 days
after the date of such default or the date that is 60 days from the date of the
order for relief in the case of a default that occurs after the date of the
order for relief and before the date that is 60 days from the date of such
order for relief, or (z) is cured in compliance with the terms of the security
agreement, lease or conditional sale agreement in the case of a default that
occurs on or after the expiration of 60 days from the date of the order of
relief. "Equipment" is defined in Section 1110 of the U.S. Bankruptcy Code, in
part, as "an aircraft, aircraft engine, propeller, appliance, or spare part (as
defined in Section 40102 of Title 49) that is subject to a security interest
granted by, leased to, or conditionally sold to a debtor that at the time such
transaction is entered into holds an air carrier operating certificate issued
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, at the time of purchase of the secured promissory notes,
hold an air carrier operating certificate pursuant to chapter 447 of title 49
of the
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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. For a
description of certain limitations on the Loan Trustee's exercise of rights
contained in the Indenture, see "--Indenture Defaults, Notice and Waiver."
If a bankruptcy, insolvency, receivership or like proceeding 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.
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 Indentures, 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 Indentures, Section 9.01(c); Owned Aircraft
Indentures, Section 10.01(c))
Without the consent of the Liquidity Providers, 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 Indentures, 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, each 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.
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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 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 March 1 and September 1 of
each year, commencing on the first such date after issuance thereof. Payments
of principal of the secured promissory notes issued by us under an Owned
Aircraft Indenture are payable on March 1 and September 1 in certain years.
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 or when all
similar Airbus aircraft have been grounded by the FAA). (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
Indentures, Section 7.02(b)(x)).
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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 of 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 aircraft) and Indenture and certain other documents
under the Transportation Code. (Leases, Section 7(a); Owned Aircraft
Indentures, 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 such shorter
period as may be specified in the applicable lease) 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 Indentures, Section 7.01)
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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 Indentures, 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 Indentures, Section 7.04)
In addition, we are obligated to maintain (or cause to be maintained)
comprehensive airline liability insurance at our expense, including, without
limitation, passenger liability, bodily injury and property damage liability,
cargo liability and contractual liability insurance with respect to each
aircraft. Such liability insurance must be underwritten by insurers of
nationally or internationally recognized responsibility. The amount of such
liability insurance coverage per occurrence may not be less than the amount of
comprehensive airline liability insurance from time to time applicable to
aircraft of the same type that we own, lease or operate that operate on similar
routes as such aircraft.
We are also required to maintain war-risk, hijacking or allied perils
insurance if we (or any permitted 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 and it is customary in the airline industry to maintain
such insurance for aircraft operated on the same international routes or areas
on or in which the aircraft is operated. (Leases, Section 11; Owned Aircraft
Indentures, 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, and for owned aircraft
and certain leases, 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 Indentures,
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 Providers 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 Indentures, Section 7.04)
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Lease Termination
We may terminate any lease 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. 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 termination date, which notice may be
withdrawn up to fifteen (15) days prior to such proposed termination 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, 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.
We may have other early termination provisions under the leases which would
allow us to either sell the aircraft as agent for the applicable Owner Trustee
or to purchase the aircraft. If we elect to purchase the aircraft, either (a)
the secured promissory notes related thereto will be prepaid or (b) subject to
receipt of the tax opinion and Section 1110 opinion described under "--Renewal
and Purchase Options," we will assume such secured promissory notes on a full
recourse basis. Upon payment of the termination value (or comparable amount)
or, in the case of a purchase by us, the payment of the applicable purchase
price, and an amount equal to the Make-Whole Premium, if any, payable on such
date of payment, together with certain additional amounts, the lien of the
relevant Indenture will be released, the relevant lease will terminate, and our
obligation after the date of such payments to make scheduled rent payments
under such lease will cease. (Leases, Sections 9 and 20; Leased Aircraft
Indentures, Section 2.10(b))
Except in the case of a termination option that allows us to purchase the
aircraft, 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(b))
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 (or such earlier day as may be
specified in the applicable lease) 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)
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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 Indentures, 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 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 CFM International Model 56-5 (or improved) type engine or (b) another CFM
engine or another manufacturer's engine suitable for use on the relevant
airframe and having a value and utility equal to or greater than a CFM
International Model 56-5 type engine. (Leases, Section 10(b); Owned Aircraft
Indentures, 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 taxation in the
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same amounts, and in the same manner and at the same times as would have been
the case if such assumption had not occurred, (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, at
the time of purchase of the secured promissory notes, we hold an air carrier
operating certificate issued pursuant to Chapter 447 of Title 49 of the United
States Code for aircraft capable of carrying 10 or more individuals or 6,000
pounds or more of cargo and (c) we have received confirmation from each of the
rating agencies that such assumption would not result in the reduction in the
rating of the certificates or the withdrawal or suspension of such rating.
(Leases, Section 19 and Section 20; Participation Agreements, Section 7(r);
Indentures, Section 2.13)
Events of Default under the Leases
The following events (and certain other events as may be specified in the
applicable lease) 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 (or such shorter period as may be
specified in the applicable Lease) 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.
. 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 (or such shorter period as
may be specified in the applicable Lease) 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, and the same
remains uncured 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
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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
termination value (or comparable termination amount) 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 applicable 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. (Basic Leased Aircraft
Participation Agreement, Section 7(k); Special Leased Aircraft Participation
Agreement, Section 7(j))
U.S. INCOME TAX MATTERS
General
The following summary describes the material U.S. federal income tax
consequences to certificateholders of the purchase, ownership and disposition
of the certificates offered by this prospectus supplement and in the opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to US Airways, is
accurate in all material respects with respect to the matters discussed in this
prospectus supplement. This summary restates and supplements the summary of
U.S. federal income tax consequences set forth in the prospectus. Except as
otherwise specified, the summary is addressed to the initial beneficial owners
of certificates that are citizens or residents of the United States,
corporations, partnerships or other entities created or organized in or under
the laws of the United States or any state therein, or estates, the income of
which is subject to U.S. federal income taxation regardless of its source, or
trusts if a court within the United States 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 trust is not indemnified for any
federal income taxes that may be imposed upon it, and the imposition of those
taxes on the pass through trust could result in a reduction in the amounts
available for distribution to the certificateholders. 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 Trust and Certificateholders
The pass through trusts will not themselves 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 relevant pass
through trust, in accordance with the U.S. certificateholder's method of
accounting. Accordingly, each U.S. certificateholder's
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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 the relevant 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
relevant pass through trust under a 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 relevant pass through trust as provided in Section 162 or 212 of the
Code. Certain fees and expenses, including fees paid to the relevant pass
through trustee, the relevant 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 relevant 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.
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 relevant 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 relevant 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
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. 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 BEN (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 such pass
through trust were administered in a different jurisdiction in the United
States or if such pass through trustee were located in a different jurisdiction
in the United States, such pass through trustee will either relocate the
administration of such 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 Assets 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 Assets 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 Assets
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 Assets Regulation, the fiduciary of a Plan that
proposes to purchase and hold any certificates should consider, among other
things, whether such purchase and holding may involve (i) the direct or
indirect extension of credit to a party in interest or a disqualified person,
(ii) the sale or exchange of any property between a Plan and a party in
interest or a disqualified person or (iii) the transfer to, or use by or for
the benefit of, a party in interest or a disqualified person, of any Plan
assets. Such parties in interest or disqualified persons could include, without
limitation, us and our affiliates, the Owner Participants, the Underwriters,
the initial purchaser
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of the class C certificates, the pass through trustees, the Escrow Agents, the
Depositaries, the Owner Trustees, the Policy Provider and the Liquidity
Providers. 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 the 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 Morgan Stanley & Co. Incorporated,
Prohibited Transaction Exemption 90-24 et al. (55 Fed. Reg. 20,458 (1990), 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 class G
certificate will evidence both an interest in the class G pass through trust as
well as an interest in the class G Deposits held in escrow by an Escrow Agent
for the benefit of the class G certificateholder. See "Description of the
Deposit Agreement" and "Description of the Escrow Agreement." Under the terms
of the class G Escrow Agreement, the proceeds from the offering of the class G
certificates 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 class G pass
through trust. Under the terms of the class G Escrow Agreement, the Escrow
Agent will be irrevocably instructed to enter into the class G Deposit
Agreement with the applicable 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 class G Deposit Agreement 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,
we have agreed to cause the class G pass through trust to sell to each of the
Underwriters, the following respective aggregate amounts of the class G
certificates:
<TABLE>
<CAPTION>
Principal Amount
of Class G
Underwriters Certificates
------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated.............................. $122,786,000
Credit Lyonnais Securities (USA) Inc........................... 122,783,000
Deutsche Bank Securities Inc................................... 122,783,000
SG Cowen Securities Corporation................................ 122,783,000
------------
Total........................................................ $491,135,000
============
</TABLE>
The Underwriters will be obligated to purchase all of the class G
certificates if any class G certificates are purchased. If an Underwriter
defaults on its purchase commitment, the purchase commitments of the non-
defaulting Underwriters may be increased or the offering of the certificates
may be terminated. The Underwriters' obligation to purchase the class G
certificates is conditioned on the concurrent issuance and purchase of the
class C certificates. The Underwriters have no obligations with respect to the
class C certificates.
We estimate that our out of pocket expenses will be approximately
$1,200,000.
The Underwriters propose initially to offer the class G certificates at the
public offering price on the cover page of this prospectus supplement, and to
the selling group members at that price less a concession of 0.50% of the
principal amount per certificate. The Underwriters and the selling group
members may allow a discount of 0.25% of the principal amount per certificate
on sales to other broker/dealers. After the initial offering, the public
offering price and concession and discount may be changed.
The class G certificates are new securities for which there currently is no
market. Neither we nor any Trust intends to apply for listing of the class G
certificates on any securities exchange or otherwise. The Underwriters have
advised us that one or more of them currently intend to make a market in the
class G certificates as permitted by applicable law. The Underwriters are not
obligated, however, to make a market in the class G certificates, and any such
market-making may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the development or
liquidity of any market for the class G certificates.
The underwriting agreement provides that we will indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act and
will contribute to payments which the Underwriters may be required to make in
respect thereof.
In the ordinary course of their respective businesses, the Underwriters and
certain of their respective affiliates may in the future engage in investment
and commercial banking or other transactions of a financial nature with the
Company, including the provision of certain advisory services and the making of
loans to us and our affiliates. Morgan Stanley Capital Services Inc., an
affiliate of Morgan Stanley & Co. Incorporated, will act as Liquidity Provider
with respect to each pass through trust. The obligations of Morgan Stanley
Capital Services Inc. under the Liquidity Facilities will be fully and
unconditionally guaranteed by its parent company, Morgan Stanley Dean Witter &
Co., which is also the parent company of Morgan Stanley & Co. Incorporated.
Also, (a) Credit Lyonnais New York Branch, an affiliate of Credit Lyonnais
Securities (USA) Inc.; (b) Morgan Stanley Senior Funding, Inc., an affiliate of
Morgan Stanley & Co. Incorporated; (c) Bankers Trust Company,
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an affiliate of Deutsche Bank Securities Inc.; and (d) Societe Generale, an
affiliate of SG Cowen Securities Corporation are all lenders in a syndicate
group to US Airways under two revolving credit facilities concluded December
10, 1999.
It is expected that delivery of the class G certificates will be made
against payment therefor on or about the date specified in the last paragraph
of the cover page of this prospectus supplement, which will be the fifth
business day following the date of pricing of the class G certificates (such
settlement cycle being referred to herein as "T + 5"). Under Rule 15c6-1 under
the Exchange Act, trades in the secondary market generally are required to
settle in three business days, unless the parties to any such trade expressly
agree otherwise. Accordingly, purchasers who wish to trade class G certificates
on the date of pricing or the next succeeding business day will be required,
by virtue of the fact that the class G certificates initially will settle in T
+ 5, to specify an alternate settlement cycle at the time of any such trade to
prevent a failed settlement. Purchasers of class G certificates who wish to
trade class G certificates on the date of pricing or the next succeeding
business day should consult their own advisor.
To facilitate the offering of the class G certificates, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price
of the class G certificates. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the class G
certificates for their own account. In addition, to cover overallotments or to
stabilize the price of the class G certificates, the Underwriters may bid for,
and purchase, class G certificates in the open market. Finally, the
Underwriters may reclaim selling concessions allowed to an agent or a dealer
for distributing class G certificates in the offering, if the Underwriters
repurchase previously distributed class G certificates in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the class G
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.
PURCHASE OF CLASS C CERTIFICATES
Subject to the terms and conditions set forth in the Purchase Agreement, we
will cause the class C pass through trust to sell to AIFS, a wholly-owned
subsidiary of Airbus Industrie G.I.E. ("Airbus"), the aggregate face amount of
the class C certificates set forth on the cover page of this prospectus
supplement. The initial interest rate on the class C certificates will be not
greater than 9% and not less than 7% per annum. The interest rate on such note
may increase by up to 1.00% per annum if we fail to comply with our obligations
under the registration agreement with respect to the class C certificates. The
final expected Distribution Date for the class C certificates is March 1, 2022.
Interest paid on the secured promissory notes held in the class C pass through
trust will be passed through to the certificateholders of such pass through
trust on each March 1 and September 1, beginning on March 1, 2001 until the
final expected Regular Distribution Date for such pass through trust.
AIFS will purchase the class C certificates, subject to certain conditions,
for 100% of their principal amounts. We will not pay to AIFS any commission or
any other compensation in connection with the sale of the class C certificates
to AIFS, except that we will reimburse AIFS and its affiliates for legal and
certain other expenses incurred by them in connection with the registration of
the class C certificates. The Purchase Agreement permits AIFS to sell the class
C certificates from time to time in one or more transactions at a fixed price
or prices, which may be changed, or at market prices prevailing at the time of
sale (if any), at prices related to such prevailing market prices (if any) or
at negotiated prices, provided that any such sale complies with the securities
laws. Pursuant to a Registration Agreement between us and AIFS (the
"Registration Agreement"), we may be required by AIFS to effect a registered
exchange offer under the Securities Act of 1933, to exchange the class C
certificates for exchange certificates, which will have terms identical in all
material respects to the class C certificates (except that the exchange
certificates will not contain terms with respect to transfer restrictions). If
we determine that registration of the exchange offer is not available or would
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violate applicable law or interpretations of the staff of the SEC, or at the
request of a holder not eligible to participate in the exchange offer or under
certain other limited circumstances described in the Registration Agreement, we
will be required in the alternative to register the class C certificates for
resale under the Securities Act through a shelf registration statement (the
"Shelf Registration Statement").
It is expected that delivery of the class C certificates will be made
against payment on or about November 2, 2000, which will be the fifth business
day following the date of pricing of the class C certificates. AIFS's
obligation to purchase the class C certificates is conditioned on the
concurrent issuance and purchase of the class G certificates.
LEGAL MATTERS
The validity of the certificates is being passed upon for us by Skadden,
Arps, Slate, Meagher & Flom LLP and its affiliates and for the Underwriters by
Milbank, Tweed, Hadley & McCloy LLP, New York, New York. Skadden, Arps, Slate,
Meagher & Flom LLP 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 class G pass through trust agreement and the class G
certificates by State Street Bank & Trust Company of Connecticut, National
Association.
EXPERTS
The consolidated financial statements of US Airways, Inc. and its subsidiary
as of December 31, 1999 and 1998, and for each of the years in the three-year
period ended December 31, 1999 which are included in US Airways' Annual Report
on Form 10-K for the year ended December 31, 1999, have been incorporated by
reference in the prospectus accompanying this prospectus supplement in reliance
upon the report 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, 1999 and December 31, 1998 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, 1999,
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 Morten Beyer & Agnew, Inc., Aircraft Information Services,
Inc. and AvSolutions, Inc., and to their respective appraisal reports 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.
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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 related to such class of certificates) and (2) the
greater of:
(A) the difference between (x) the Pool Balance for 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) and
(y) the Pool Balance for 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 certificates
of such class, (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 of such class of certificates as a result of
any distribution attributable to Deposits, if any, 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 for 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, if any, 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
any class of certificates, any premium paid on the secured promissory notes
held in such pass through trust that has not been distributed to the
applicable certificate holders (other than such premium or a portion thereof
applied to the payment of interest on such certificates or the reduction of
the Pool Balance of such class of certificates) 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 senior to
such class, after giving effect to any distribution of principal on such
Distribution Date with respect to such senior class. (Intercreditor Agreement
Section 1.1)
"AIFS" means Airbus Industrie Financial Services.
"Airbus" means Airbus Industrie, G.I.E.
"Airbus Financing Termination Event" means the occurrence of an event that
entitles the affiliate of Airbus that has provided a financing commitment to
US Airways to terminate such financing commitment.
"Aircraft Operative Agreements" means, collectively, the Participation
Agreements, leases and Indentures.
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"Appraised Current Market Value" means, for any aircraft, the lower of the
average and the median of the three most recent appraisals of such aircraft.
"Appraisers" means the independent aircraft appraisal and consulting firms
of Aircraft Information Services, Inc. ("AISI"), AvSolutions, Inc.
("AvSolutions") and Morton Beyer and Agnew, Inc. (Intercreditor Agreement,
Section 1.1)
"Assumed Amortization Schedule" means the assumed amortization schedule for
the secured promissory notes set forth in the table on page S-45 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 certificates made to a 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 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 certificates (including any disgorgement from the
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 each 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 Facilities, Section 1.01)
"Basic Agreement" means the pass through trust agreement between US Airways
and State Street Bank and Trust Company of Connecticut, National Association,
as trustee, dated as of October 5, 2000. References to the Basic Agreement are
references to the pass through trust agreement without regard to any
supplements to that agreement.
"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)
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"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all of the Loan Trustee's right, title and interest in
the property described in the granting clause of an Owned Aircraft Indenture.
"Controlling Party" means:
. the 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 certificates of that class; and after that,
. the class C pass through trustee.
Under certain circumstances, the Liquidity Provider with the larger
outstanding amount of unreimbursed Liquidity Obligations, if such Liquidity
Provider is 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 pays to the Liquidity Providers all outstanding Drawings under
the Liquidity Facilities, together with accrued interest on such Drawings, 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) July 1,
2001.
"Deposit" means the proceeds of this offering and the proceeds of the sale
of the class C certificates that are deposited with the Depositary and under
the Deposit Agreements.
"Deposit Account" means the accounts established in the name of the Escrow
Agent with respect to each pass through trust under the Deposit Agreements.
"Deposit Agreements" means the class G and C deposit agreements,
collectively, each to be dated the Issuance Date.
"Deposit Make-Whole Premium" means, with respect to the distribution of
unused Deposits to holders of the class G 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") were issued, minus the Non-Premium Amount, on
each remaining Regular Distribution Date 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 220 basis points in the case of
the class G certificates over (b) the amount of such unused Deposits to be
distributed to the holders of such certificates minus the Non-Premium Amount,
plus accrued and unpaid interest on such net amount to but excluding the date
of determination from and including the preceding Regular Distribution Date (or
if such date of determination precedes the first Regular Distribution Date, the
date of issuance of the certificates). (Note Purchase Agreement, Annex A)
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"Depositary" means ABN AMRO Bank N.V., acting through its Chicago branch,
for all classes of certificates.
"Depreciation Assumption" means the assumption that the initial appraised
value of each aircraft declines by 3% per year for the first 15 years after
the delivery of that aircraft, by 4% per year for the next 5 years and by
approximately 5% per year after the first 20 years.
"Disposition" means any sale or other disposition of any 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 (i) the downgrading of the short-term unsecured debt
rating of the Liquidity Provider or, if applicable, of any guarantor of the
obligations of a Liquidity Provider below the applicable Threshold Rating or
(ii) any guarantee of a Liquidity Provider's obligations under the relevant
Liquidity Facility becoming invalid or unenforceable. (Liquidity Facilities,
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 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 escrow and paying agent agreement,
among the Escrow Agent, the Paying Agent, the class G pass through trustee and
the Underwriters, and the class C escrow and paying agent agreement, among the
Escrow Agent, the Paying Agent, the class C pass through trustee and the
initial purchaser of the class C certificates, each to be dated as of the
Issuance Date.
"Escrow Receipt" means one or more receipts issued by the Escrow Agent
under the Escrow Agreements that will be affixed by the applicable 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.
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. Any theft or disappearance of such property for a period of 180
consecutive days or more (or, if earlier, the expiration of the term in
the case of a leased aircraft).
. The requisition for use of such property by any governmental entity
(other than a requisition for use by the U.S. government or any
government of registry of the aircraft) for a period exceeding 180
consecutive days (or, if earlier, the expiration of the term in the case
of a leased aircraft).
. The requisition for use by the U.S. government (or any government of
registry of the aircraft) that continues until the 30th day after the
last day of the term of the relevant lease (unless, in the case of a
leased aircraft, the applicable Owner Trustee has elected not to treat
such event as an Event of Loss).
. The condemnation, confiscation, requisition or taking of title to such
property for more than 30 days (or, if earlier, the expiration of the
term in the case of leased aircraft).
. As a result of any law, rule, regulation, order or other action by the
FAA or any governmental body of the government of registry of the
aircraft 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 notes 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, (b) any interest on the outstanding Drawings under the class
G or class C Liquidity Facility 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" and (c) interest on the amounts paid by the
Policy Provider to the Liquidity Provider if the Policy Provider has elected
to pay all outstanding Drawings, together with interest on such Drawings, and
remain the Controlling Party.
"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 certificates) and (2) the difference
between:
(A) the Pool Balance for 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
such certificates); and
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(B) the Pool Balance for such class of 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
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 holders of such certificates, but without
giving effect to any reduction in the Pool Balance of such class of
certificates 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 such certificates).
For purposes of calculating Expected Distributions with respect to any
certificates, any premium paid on the secured promissory notes held in such
pass through trust that issued such certificates that has not been distributed
to the certificateholders (other than such premium or a portion thereof applied
to the payment of interest on such certificates or the reduction of the Pool
Balance for such class of certificates) 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 for such class of 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,
any premium paid on the secured promissory notes held in such pass through
trust that has not been distributed to the applicable certificateholders (other
than such premium or a portion thereof applied to the payment of interest on
such certificates or the reduction of the Pool Balance for such class of
certificates) 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, September 1, 2020 for the class G certificates,
and September 1, 2023 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, marshaling of assets and
liabilities or similar proceedings by or against US Airways or any Liquidity
Provider or any Owner Trustee and the commencement after the date hereof, of
any proceedings by US Airways or any Liquidity Provider or any Owner Trustee
for the winding up or liquidation of its affairs or
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the consent to the appointment of a trustee, conservator, receiver or
liquidator in any bankruptcy, insolvency, readjustment of debt,
reorganization, marshaling 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, Liquidity Providers,
Policy Provider and Subordination Agent.
"Interest Drawing" means a drawing made by the Subordination Agent under
any Liquidity Facility on any Distribution Date to pay interest then due and
payable on the applicable certificates at the Stated Interest Rate for such
certificates. (Liquidity Facilities, 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 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 any Liquidity Facility and (b) any
interest accrued on any Liquidity Obligations. (Intercreditor Agreement,
Section 1.1)
"Liquidity Facility" means each of the class G and the class C revolving
credit agreements between the Liquidity Provider and Subordination Agent, to
be dated the Issuance Date, pursuant to which the applicable 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 the certificates of the relevant pass through
trust 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, the
indemnification provisions of the Participation Agreement and the Liquidity
Facilities fee letter or certain other agreements. (Intercreditor Agreement,
Section 1.1)
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"Liquidity Provider" means, for each pass through trust, Morgan Stanley
Capital Services Inc. and any successor liquidity provider selected in
accordance with the terms of the Intercreditor Agreement.
"Loan Trustee" means the indenture trustee under any Indenture.
"LTV Appraisal" means a current fair market value appraisal (which may be a
"desk-top" appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts. (Intercreditor Agreement, Sections 1.1 and 4.1(a))
"LTV Collateral Amount" of any aircraft for the certificates of any class
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 a 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 47.6% for the class G certificates and 62.8% 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 such
Liquidity Facility, the Maximum Available Commitment under such Liquidity
Facility will be zero. (Liquidity Facilities, 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
Facilities, Section 2.02(b); Intercreditor Agreement, Section 3.6(d))
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"Non-Performing Secured Promissory Note" means a secured promissory note
that is not a Performing Secured Promissory Note.
"Non-Premium Amount" means the amount equal to unused Deposits to be
distributed due to the failure of an aircraft to be delivered prior to the
Delivery Period Termination Date due to any reason not occasioned by US
Airways' fault or negligence.
"Note Holders" means registered holders of the secured promissory notes.
"Note Purchase Agreement" means the note purchase agreement to be 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 Agreements" 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 an 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 under title 11 of the U.S. Bankruptcy Code under which US Airways is
a debtor, any payment default existing during the 60-day period under Section
1110(a)(2)(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, if during the Section 1110 Period the
trustee in such proceeding or US Airways, subject to court approval, (i) agrees
pursuant to Section 1110 of the Bankruptcy Code to perform its 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), or (ii) cures any such
payment default under Section 1110(a)(2)(B) of the U.S. Bankruptcy Code before
the expiration of the period applicable thereto as specified in Section
1110(a)(2)(B) of the Bankruptcy Code. (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)
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<PAGE>
"Policy" means the financial guaranty insurance policy, dated as of the
Issuance Date, 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 (and, for interest only, the holders of the Escrow Receipts
attached to such certificates).
"Policy Drawing" means any payment of a claim under the Policy.
"Policy Expenses" means all Policy Provider Obligations other than (i)
amounts payable pursuant to the Policy Fee Letter, (ii) the amount of any
Excess Reimbursement Obligations, (iii) the amount of any Policy Drawing, (iv)
any interest accrued on any Policy Provider Obligations, (v) reimbursement of
and interest on the Liquidity Obligations in respect of the Liquidity
Facilities paid by the Policy Provider to the Liquidity Provider, (vi) any
indemnity payments owed to the Policy Provider and (vii) any amounts that the
Policy Provider is entitled to receive by virtue of the subrogation rights of
the Policy Provider under the Escrow Agreement for the class G pass through
trust, including, without limitation, fees and expenses incurred in connection
with the enforcement of such rights.
"Policy Fee Letter" means the fee letter, dated as of the Issuance Date,
from the Policy Provider to the Subordination Agent and acknowledged by US
Airways setting forth the premium with respect to the Policy.
"Policy Provider" means MBIA Insurance Corporation.
"Policy Provider Agreement" means the insurance and indemnity agreement,
dated as of the Issuance Date, among the Subordination Agent, US Airways 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 two
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 Department of Insurance, 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 Fee
Letter, the indemnification provisions of the Participation Agreements,
specified sections of the Note Purchase Agreement or a certain section of the
Intercreditor Agreement but will not include (i) any interest on Policy
Drawings (except, (a) 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
and (b) if the Policy Provider has elected to remain the Controlling Party and
in connection with such election, paid to the class G and class C Liquidity
Provider all outstanding Drawings plus interest on such Drawings, interest
accrued at the rate of the prime rate (as published in the Wall Street Journal)
plus 1% per annum on the unreimbursed amount of such payment), and (ii) any
amounts that the Policy Provider is entitled to receive by virtue of the
subrogation rights of the Policy Provider under the Escrow Agreement for the
class G pass through trust, including without limitation, fees and expenses
incurred in connection with the enforcement of such rights.
S-114
<PAGE>
"Pool Balance" means for each pass through trust, the original aggregate
face amount of the applicable certificates less the aggregate amount of all
payments made in respect of such certificates or in respect of the related
Deposits other than payments made in respect of interest or premium on the
applicable certificates or such Deposits or reimbursement of any costs or
expenses incurred in connection with the applicable certificates or such
Deposits. The Pool Balance for each pass through trust or for the certificates
issued by such 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 (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 for the
certificates of any pass through trust by (b) the original aggregate face
amount of such certificates. The Pool Factor for such pass through trust or for
the certificates issued by the 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 Distribution Date, 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 certificates on such
Distribution Date, 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.
"PTC Event of Default" means, with respect to any pass through trust
agreement, 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 such a class of
certificates within ten Business Days of any Distribution Date (unless the
Subordination Agent has made Interest Drawings, or withdrawals from the
applicable Cash Collateral Account, 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 March 1 and September 1 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, each March 1 and
September 1 of each year during the term of such lease.
S-115
<PAGE>
"Replacement Facility" for any Liquidity Facility means an irrevocable
liquidity facility (or liquidity facilities) in substantially the form of the
replaced Liquidity Facility, including reinstatement provisions, or in such
other form (which may include a letter of credit) as will permit the Rating
Agencies to confirm in writing their respective ratings then in effect for the
certificates (before downgrading of such ratings, if any, as a result of the
downgrading of the Liquidity Provider (or if applicable, any guarantor of such
Liquidity Provider's obligations or any guarantee of such guarantor becoming
invalid or unenforceable), and without regard to the Policy), and in the case
of the class G certificates, 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 (at the Stated Interest Rate, 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. (Intercreditor
Agreement, Section 1.1)
"Required Amount" means, for any day and with respect to any 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 for
that class of certificates, 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 that class of certificates 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 for
the class G certificates and as specified in the pass through trust agreement
for the class C pass through trust for the class C certificates at the Stated
Interest Rate for such class, with funds drawn under the applicable Liquidity
Facility or the Policy (with respect to the class G certificates), 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 a 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 as specified on the cover page of the prospectus supplement for the class
G certificates and as specified in the pass through trust agreement for the
class C pass through trust for the class C certificates. The interest rate on
the class C certificates may increase by up to 1.00% per annum if US Airways
fails to comply with its obligations under the Registration Agreement dated as
of the Issuance Date, between US Airways and AIFS with respect to the class C
certificates.
S-116
<PAGE>
"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 a Liquidity Provider of the
termination of a Liquidity Facility. (Liquidity Facilities, Sections 1.01,
6.01)
"Threshold Rating" means a short-term unsecured debt rating of P-1 by
Moody's and A-1 by Standard & Poor's. (Intercreditor Agreement, Section 1.1)
"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 the class G and class C pass through trust
supplement, each to be dated as of the Issuance Date, between US Airways and
the applicable pass through trustee.
"Underwriters" means Morgan Stanley & Co. Incorporated, Credit Lyonnais
Securities (USA) Inc., Deutsche Bank Securities Inc. and SG Cowen Securities
Corporation.
"Underwriting Agreement" means the agreement among US Airways and the
Underwriters relating to the purchase of the class G certificates.
S-117
<PAGE>
25 September 2000
Mr. Jeffery A. McDougle
Vice President and Treasurer
US Airways, Inc.
2345 Crystal Dr.
Arlington, VA 22227
Subject: AISI Report No.: A0S057BVO
AISI Sight Unseen New Aircraft Base Value Appraisal, Fourteen
A319-112, Three A320-214 and Six A321-211 Aircraft.
Dear Mr. McDougle:
Aircraft Information Services, Inc. (AISI) is pleased to offer US Airways, Inc.,
our opinion of the sight unseen base market value of various new aircraft
delivered or scheduled to be delivered from the manufacturer between September
2000 and February 2001 as listed and defined in Table I.
1. Methodology and Definitions
---------------------------
The standard terms of reference for commercial aircraft value are 'half-life
base market value' and `half-life current market value' of an 'average'
aircraft. Base value is a theoretical value that assumes a balanced market while
current market value is the value in the real market; both assume a hypothetical
average aircraft condition. AISI value definitions are consistent with the
current definitions of the International Society of Transport Aircraft Trading
(ISTAT), those of January 1994. AISI is a member of that organization and
employs an ISTAT Certified and Senior Certified Aircraft Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing and
informed buyer and seller, neither under compulsion to buy or sell, for a single
unit cash transaction with no hidden value or liability, and with supply and
demand of the sale item roughly in balance. Base values are typically given for
aircraft in 'new' condition, 'average half-life' condition, or in a specifically
described condition unique to a single aircraft at a specific time. An 'average'
aircraft is an operable airworthy aircraft in average physical condition and
with average
<PAGE>
25 September 2000
AISI File No. A0S057BVO
Page - 2 -
accumulated flight hours and cycles, with clear title and standard unrestricted
certificate of airworthiness, and registered in an authority which does not
represent a penalty to aircraft value or liquidity, with no damage history and
with inventory configuration and level of modification which is normal for its
intended use and age. AISI assumes average condition unless otherwise specified
in this report. 'Half-life' condition assumes that every component or
maintenance service which has a prescribed interval that determines its service
life, overhaul interval or interval between maintenance services, is at a
condition which is one-half of the total interval. It should be noted that AISI
and ISTAT value definitions apply to a transaction involving a single aircraft,
and that transactions involving more than one aircraft are often executed at
considerable and highly variable discounts to a single aircraft price, for a
variety of reasons relating to an individual buyer or seller.
AISI defines a 'current market value', which is synonymous with the older term
`fair market value' as that value which reflects the real market conditions,
whether at, above or below the base value conditions. Assumption of a single
unit sale and definitions of aircraft condition, buyer/seller qualifications and
type of transaction remain unchanged from that of base value. Current market
value takes into consideration the status of the economy in which the aircraft
is used, the status of supply and demand for the particular aircraft type, the
value of recent transactions and the opinions of informed buyers and sellers.
Current market value assumes that there is no short term time constraint to buy
or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are less volatile than current market values and tend
to diminish regularly with time. Base values are normally inappropriate to
determine near term values. AISI encourages the use of current market values to
consider the probable near term value of an aircraft.
2. Valuation
---------
Following is AISI's opinion of the base market value for the subject aircraft on
their respective scheduled delivery dates in current US Dollars. Valuations are
presented in Table I subject to the assumptions, definitions and disclaimers
herein.
<PAGE>
25 September 2000
AISI File No. A0S057BVO
Page - 3 -
<TABLE>
<CAPTION>
Table I
------------------------------------------------------------------------------------------------------
Scheduled Aircraft
Manufacturer's Aircraft Serial Registration New Delivery Base Value
Delivery Date Number Number Current USDollars
------------------------------------------------------------------------------------------------------
A319-112, CFM56-5B Engines, 154,325lb MTOW
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------------
Oct-00 1331 N755US $41,410,000
------------------------------------------------------------------------------------------------------
Oct-00 1340 N756US $41,410,000
------------------------------------------------------------------------------------------------------
Oct-00 1342 N757UW $41,410,000
------------------------------------------------------------------------------------------------------
Oct-00 1348 N758US $41,410,000
------------------------------------------------------------------------------------------------------
Nov-00 1354 N760US $41,510,000
------------------------------------------------------------------------------------------------------
Nov-00 1358 N762US $41,510,000
------------------------------------------------------------------------------------------------------
Nov-00 1360 N763US $41,510,000
------------------------------------------------------------------------------------------------------
Nov-00 1369 N764US $41,510,000
------------------------------------------------------------------------------------------------------
Nov-00 1371 N765US $41,510,000
------------------------------------------------------------------------------------------------------
Dec-00 1378 N766US $41,610,000
------------------------------------------------------------------------------------------------------
Dec-00 1382 N767UW $41,610,000
------------------------------------------------------------------------------------------------------
Dec-00 1389 N768US $41,610,000
------------------------------------------------------------------------------------------------------
Dec-00 1391 N769US $41,610,000
------------------------------------------------------------------------------------------------------
Dec-00 1393 N770UW $41,610,000
------------------------------------------------------------------------------------------------------
A320-214, CFM56-5B Engines, 169,700lb MTOW
------------------------------------------------------------------------------------------------------
Sep-00 1298 N122US $46,610,000
------------------------------------------------------------------------------------------------------
Oct-00 1310 N123UW $46,720,000
------------------------------------------------------------------------------------------------------
Oct-00 1314 N124US $46,720,000
------------------------------------------------------------------------------------------------------
A321-211, CFM56-5B Engines, 205,900lb MTOW
------------------------------------------------------------------------------------------------------
Jan-01 1403 N161UW $58,590,000
------------------------------------------------------------------------------------------------------
Jan-01 1412 N162US $58,590,000
------------------------------------------------------------------------------------------------------
Jan-01 1417 N163US $58,590,000
------------------------------------------------------------------------------------------------------
Feb-01 1425 N164UW $58,730,000
------------------------------------------------------------------------------------------------------
Feb-01 1431 N165US $58,730,000
------------------------------------------------------------------------------------------------------
Feb-01 1436 N166US $58,730,000
------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
25 September 2000
AISI File No. A0S057BVO
Page - 4 -
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgments that reflect conditions and values which
are current at the time of this report. The values and conditions reported upon
are subject to any subsequent change. AISI shall not be liable to any party for
damages arising out of reliance or alleged reliance on this report, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ John D. McNicol
-------------------
John D. McNicol
Vice President
Appraisals & Forecasts
<PAGE>
AV SOLUTIONS
--------------------------------------------------------------------------------
September 21, 2000
Mr. Jeffery McDougle
Vice President and Treasurer
US Airways, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Dear Mr. McDougle:
AvSOLUTIONS is pleased to provide this opinion on the base value, as of
September 2000, of fourteen Airbus Industrie A319-112 aircraft, three Airbus
Industrie A320-214 aircraft and six Airbus Industrie A321-211 aircraft
(collectively, the "Aircraft"). The A319-112 aircraft, the A320-214 aircraft and
the A321-211 aircraft are each powered by derivatives of the CFM International
CFM56-5B engine family. The total of twenty-three aircraft either have already
been delivered or are anticipated to be delivered to US Airways, Inc. (also
referred to as "Client") before the end of the first quarter of 2001. A listing
of the A319-112, A320-214 and A321-211 aircraft is provided as Attachment 1 of
this document.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
BASE VALUE
----------
Base value is the appraiser's opinion of the underlying economic value of
an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of its
"highest and best use". An aircraft's base value is founded in the historical
trend of values and in the projection of future value trends and presumes an
arm's length, cash transaction between willing, able and knowledge parties,
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's
(ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes,
the quoted FMV is the appraiser's opinion of the most likely trading price that
may be generated for an aircraft under the market circumstances that are
perceived to exist at the time in question. The fair market value assumes that
the aircraft is valued for its highest and best use, that the parties to the
hypothetical sales transaction are willing, able, prudent and knowledgeable, and
under no unusual pressure for a prompt sale, and that the transaction would be
negotiated in an open and unrestricted market on an arm's length basis, for cash
equivalent consideration, and given an adequate amount of time for effective
market exposure to perspective buyers, which AvSOLUTIONS considers to be ten to
twenty months.
<PAGE>
AvSOLUTIONS
--------------------------------------------------------------------------------
Page 2
US Airways, Inc.
APPRAISAL METHODOLOGY
The method employed by AvSOLUTIONS to appraise the current values of
aircraft and the associated equipment addresses the factors that influence the
market value of an aircraft, such as its age, condition, configuration, the
population of similar aircraft, similar aircraft on the market, operating costs,
cost to acquire a new aircraft, and the state of demand for transportation
services.
To achieve this objective, cross-sectional data concerning the values of
aircraft in each of several general categories is collected and analyzed.
Cross-sectional data is then postulated and compared with reported market values
at a specified point in time. Such data reflects the effect of deterioration in
aircraft performance due to usage and exposure to the elements, as well as the
effect of obsolescence due to the evolutionary development and implementation of
new designs and materials.
The product of the analysis identifies the relationship between the value
of each aircraft and its characteristics, such as age, model designation,
service configuration and engine type. Once the relationship is identified, one
can then postulate the effects of the difference between the economic
circumstances at the time when the cross-sectional data were collected and the
current situation. Therefore, if one can determine the current value of an
aircraft in one category, it is possible to estimate the current values of all
aircraft in that category.
The manufacturer and size of the aircraft usually determine the specific
category to which it is assigned. Segregating the world airplane fleet in this
manner accommodates the potential effects of different size and different design
philosophies.
The variability of the data used by AvSOLUTIONS to determine the current
market values implies that the actual value realized will fall within a range of
values. Therefore, if a contemplated value falls within the specified confidence
range, AvSOLUTIONS cannot reject the hypothesis that it is a reasonable
representation of the current market situation.
LIMITING CONDITIONS AND ASSUMPTIONS
In order to conduct this valuation, AvSOLUTIONS is solely relying on
information as supplied by US Airways, Inc. and from data within AvSOLUTIONS'
own database. In determining the base value of the subject Airbus A319-112,
Airbus A320-214 and Airbus A321-211 Aircraft, the following assumptions have
been researched and determined:
<PAGE>
AvSOLUTIONS
--------------------------------------------------------------------------------
Page 3
US Airways, Inc.
1. AvSOLUTIONS has not inspected these Aircraft or their maintenance records;
accordingly, AvSOLUTIONS cannot attest to their specific location or condition.
2. The Aircraft either have already been delivered or are anticipated to be
delivered to US Airways, Inc. before the end of the first quarter of 2001.
3. The Aircraft will be certified, maintained and operated under United States
Federal Aviation Regulation (FAR) part 121.
4. All mandatory inspections and Airworthiness Directives have been complied
with.
5. The Aircraft have no damage history.
6. The Aircraft are in good condition.
7. AvSOLUTIONS considers the economic useful life of these aircraft to be at
least 32 years.
Based upon the above methodology, considerations and assumptions, it is
AvSOLUTIONS' opinion that the base values of each Aircraft are as listed in
attachment 1.
<PAGE>
AV SOLUTIONS
--------------------------------------------------------------------------------
Page 4
US Airways, Inc.
STATEMENT OF INDEPENDENCE
-------------------------
This appraisal report represents the opinion of AvSOLUTIONS, and is
intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no
responsibility or legal liability for actions taken or not taken by the Client
or any other party with regard to the subject Aircraft. By accepting this
report, the Client agrees that AvSOLUTIONS shall bear no responsibility or legal
liability regarding this report. Further, this report is prepared for the
exclusive use of the Client and shall not be provided to other parties without
the Client's express consent.
Aviation Solutions Inc. (AvSOLUTIONS) hereby states that this valuation
report has been independently prepared and fairly represents the subject
aircraft and AvSOLUTIONS' opinion of their values. Aviation Solutions Inc.
(AvSOLUTIONS) further states that it has no present or contemplated future
interest or association with the subject Aircraft.
Signed,
/s/ Tulinda Larsen
Tulinda Larsen
Vice-President
<PAGE>
AvSOLUTIONS
ATTACHMENT 1
EETC COLLATERAL SUMMARY
<TABLE>
<CAPTION>
============= =================== =========== ============ ============== ========== =========== ===============
Scheduled
Mfr.
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Airbus A319-112 N755US Oct-00 CFM56-5B 1331 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
2 Airbus A319-112 N756US Oct-00 CFM56-5B 1340 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
3 Airbus A319-112 N757UW Oct-00 CFM56-5B 1342 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
4 Airbus A319-112 N758US Oct-00 CFM56-5B 1348 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
5 Airbus A319-112 N760US Nov-00 CFM56-5B 1354 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
6 Airbus A319-112 N762US Nov-00 CFM56-5B 1358 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
7 Airbus A319-112 N763US Nov-00 CFM56-5B 1360 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
8 Airbus A319-112 N764US Nov-00 CFM56-5B 1369 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
9 Airbus A319-112 N765US Nov-00 CFM56-5B 1371 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
10 Airbus A319-112 N766US Dec-00 CFM56-5B 1378 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
11 Airbus A319-112 N767UW Dec-00 CFM56-5B 1382 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
12 Airbus A319-112 N768US Dec-00 CFM56-5B 1389 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
13 Airbus A319-112 N769US Dec-00 CFM56-5B 1391 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
14 Airbus A319-112 N770UW Dec-00 CFM56-5B 1393 154,325 $40,210,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
</TABLE>
<TABLE>
<CAPTION>
============= =================== =========== ============ ============== ========== =========== ===============
Scheduled
Mfr.
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
15 Airbus A320-214 N122US Sep-00 CFM56-5B 1298 169,700 $46,540,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
16 Airbus A320-214 N123UW Oct-00 CFM56-5B 1310 169,700 $46,890,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
17 Airbus A320-214 N124US Oct-00 CFM56-5B 1314 169,700 $46,890,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
</TABLE>
<PAGE>
AV SOLUTIONS
--------------------------------------------------------------------------------
ATTACHMENT 1
EETC COLLATERAL SUMMARY
Page 2
<TABLE>
<CAPTION>
============= =================== =========== ============ ============== ========== =========== ===============
Scheduled
Mfr.
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
18 Airbus A321-211 N161UW Jan-01 CFM56-5B 1403 205,900 $55,740,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
19 Airbus A321-211 N162US Jan-01 CFM56-5B 1412 205,900 $55,740,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
20 Airbus A321-211 N163US Jan-01 CFM56-5B 1417 205,900 $55,740,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
21 Airbus A321-211 N164UW Feb-01 CFM56-5B 1425 205,900 $55,740,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
22 Airbus A321-211 N165US Feb-01 CFM56-5B 1431 205,900 $55,740,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
23 Airbus A321-211 N166US Feb-01 CFM56-5B 1436 205,900 $55,740,000
------------- ------------------- ----------- ------------ -------------- ---------- ----------- ---------------
</TABLE>
<PAGE>
MORTEN BEYER & AGNEW
--------------------
AVIATION CONSULTING FIRM
Appraisal of 23 Aircraft
(2000-3 EETC)
PREPARED FOR:
US Airways, Inc.
OCTOBER 3, 2000
Washington, D.C. London Pacific Rim
2107 Wilson Blvd. Lahinch 62, Lashmere 3-16-16 Higashiooi
Suite 750 Copthorne Shinagawa-ku
Arlington, Virginia West Sussex Tokyo 140-0011
22201
United States United Kingdom Japan
Phone +703 276 3200 Phone +44 1342 716248 Phone +81 3 3763 6845
Fax +703 276 3201 Fax +44 1342 718967
<PAGE>
--------------------------------------------------------------------------------
I. INTRODUCTION AND EXECUTIVE SUMMARY
--------------------------------------------------------------------------------
MORTEN BEYER & AGNEW, INC. (MBA), has been retained by US Airways, Inc. (also
referred to as "Client") to determine the Current Base Value of (14) A319-112,
(3) A320-214 and (6) A321-211 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 $986,650,000 as set forth 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.
<PAGE>
II. AIRCRAFT
Scheduled Mfr.
Aircraft Tail # S/N Delivery Date MTOW(lbs.)
--------------------------------------------------------------------------------
A319-112 N755US 1331 Oct-00 154,325
N756US 1340 Oct-00 (141,094 std.)
N757UW 1342 Oct-00 Powerplant: CFM56-5B
N758US 1348 Oct-00
N760US 1354 Nov-00
N762US 1358 Nov-00
N763US 1360 Nov-00
N764US 1369 Nov-00
N765US 1371 Nov-00
N766US 1378 Dec-00
N767UW 1382 Dec-00
N768US 1389 Dec-00
N769US 1391 Dec-00
N770UW 1393 Dec-00
A320-214 N122US 1298 Sep-00 169,700
N123UW 1310 Oct-00 (162,038 std.)
N124US 1314 Oct-00 Powerplant: CFM56-5B
A321-211 N161UW 1403 Jan-01 205,900
N162US 1412 Jan-01 (192,210 std,.)
N163US 1417 Jan-01 Powerplant: CFM56-5B
N164UW 1425 Feb-01
N165US 1431 Feb-01
N166US 1436 Feb-01
2
<PAGE>
--------------------------------------------------------------------------------
III. CURRENT MARKET CONDITIONS
--------------------------------------------------------------------------------
Airbus A319/A320/A321
Family Development
The A320 was Airbus' first all new design since the launch of the original A300
in 1971. The program was initiated in 1983 and logged almost 400 orders prior to
first delivery in 1988. The A320s are now offered with both the CFM-56 and the
IAE V-2500 engine, with the CFM version having a long head start, but the V2500
gaining. At September 2000, 825 A320s have been delivered and 547 more are on
order. The A320 has achieved a wide market base on all continents, with a total
of 87 current operators.
The A321, a stretched version designed to directly challenge the 757-200 and
bridge the gap between the A320 and A330/340, was launched in 1989. The first
deliveries were made to Lufthansa and Alitalia in early 1994. As of September of
this year there were 165 A321s delivered to 28 customers (mainly in Europe), and
170 on order.
The A319 is the opposite of the A321--that is, a truncated version of the
original aircraft. The program was officially launched with a modest
six-aircraft order by leasing giant ILFC in late 1992. Prospects were not
encouraging as more than one year went by before subsequent orders were placed.
However, Air Canada provided a major boost to Airbus with an order of 34 A319s
in April 1994 (all now delivered). Ironically, the carrier had reportedly
decided against ordering new aircraft to replace its aging DC-9 fleet when
Fokker Aircraft convinced the carrier to re-examine the benefits of new
airframes. ACA Chairman Hollis Harris agreed, but Fokker lost the battle to its
European competitor. As of this September, 722 A319s have been ordered, 258
delivered, and there are 384 outstanding orders.
The Northwest and Air Canada situations are significant due to the Airbus family
concept factor, (common type ratings and minimal differences training for pilots
of the A318 through A340 aircraft), which is the core of the manufacturer's goal
to develop entire fleets with major carriers. Air Canada, which operates A320s
already, chose this Airbus concept with both the A319 order
3
<PAGE>
and a 13-plane A340 order as well. Northwest Airlines, which operates 70 A320s
(and has 12 on order) ordered 68 A319s and switched their A340 order for 16
A330s for delivery beyond 2000.
Other carriers, including Air France Groupe and Lufthansa, have each ordered six
types of Airbuses, and currently operate 116 and 114 Airbus aircraft
respectively, and other major European operators are Swissair (54) and Iberia
(46). However, the European influence might tilt decision-makers at airlines
such as these. Airbus believes its concept will give its new designs significant
advantages over Boeing aircraft, and the 1999 order books indicate it is doing
just that. MBA believes the combination of extremely efficient designs and the
inherent savings in training and other costs make the Airbus family an
attractive avenue for an entire fleet refurbishment, as US Airways' commitment
for up to 400 narrowbody aircraft (including options) appears to justify.
The A320 family incorporates an increased amount of composites in its secondary
structure compared to older jets, a complete fly-by-wire control system, and a
computerized flight management system which, when engaged, virtually precludes
putting the aircraft into stalls or other extreme conditions. This system has
been blamed by some for two early incidents in which the crews placed the
aircraft in an untenable position close to the ground with the system
disconnected and from which it was unable to recover. These two aircraft were
totally cleared by the airworthiness authorities, as well as one involved in a
third incident in which the crew made a below-minimum approach in bad weather
and struck high ground. This third aircraft had no ground proximity warning
device installed, a device now required by the French government and long
required by many others. In general, all these components have held up well in
service, and the reliability of the aircraft has been excellent.
United's 1994 order for 50 A320s plus options (subsequently increased to 86) was
announced as a B-727 replacement, of which United operated 59 in mid 2000.
United has 32 A320s and 22 A319s on order. It is obvious that other airlines
will use their large orders to surplus older aircraft as well. Alitalia, with 22
A321s in service and three on order, is replacing its stable of MD-82s. As
mentioned, Air Canada's commitments for the A319 are rapidly replacing its fleet
of DC-9s. Thus the advent of the A320 family is hastening the retirement of
older, far less efficient jets. The A320s currently in service are operating at
seat mile costs as low as half of that for older aircraft. The combination of
all the above factors leads us to believe the A320 family will enjoy a long
production run and in-service useful life, with strong residual values.
The A320 also offers the advantage of being able to carry seven LD-3 cargo
containers--a feat not even the B-767 can perform. The fuselage is approximately
10 inches wider than that of the B-727/B-737/B-757 series, offering wider aisles
and roomier seats--a feature much appreciated
4
<PAGE>
by passengers. There are no cargo or Combi models currently offered by Airbus,
although such a configuration is obviously possible. The exception is the A300
`Beluga' outsized special cargo aircraft, which is already being leased for
commercial applications but is primarily in service for Airbus.
Economics
The A320 vies with the B-757 for top honors as the most efficient aircraft in
service. Great fuel efficiency, new technology design and low operating cost
parameters all combine to give these aircraft among the lowest seat mile costs
of any being built or in service. The MBA Model indicates that both will produce
very satisfactory operating and net ratios well into the next century.
5
<PAGE>
IV. VALUATION
Aircraft Tail # S/N Scheduled Mfr. MTOW(lbs.) Base Value*
Delivery Date ($000,000)
--------------------------------------------------------------------------------
A319-112 N755US 1331 Oct-00 154,325 38.25
N756US 1340 Oct-00 (141,094 std.) 38.25
N757UW 1342 Oct-00 Powerplant: 38.25
N758US 1348 Oct-00 CFM56-5B 38.25
N760US 1354 Nov-00 38.33
N762US 1358 Nov-00 38.33
N763US 1360 Nov-00 38.33
N764US 1369 Nov-00 38.33
N765US 1371 Nov-00 38.33
N766US 1378 Dec-00 38.40
N767UW 1382 Dec-00 38.40
N768US 1389 Dec-00 38.40
N769US 1391 Dec-00 38.40
N770UW 1393 Dec-00 38.40
A320-214 N122US 1298 Sep-00 169,700 43.98
N123UW 1310 Oct-00 (162,038 std.) 44.07
N124US 1314 Oct-00 Powerplant: 44.07
CFM56-5B
A321-211 N161UW 1403 Jan-01 205,900 52.93
N162US 1412 Jan-01 (192,210 std,.) 52.93
N163US 1417 Jan-01 Powerplant: 52.93
N164UW 1425 Feb-01 CFM56-5B 53.03
N165US 1431 Feb-01 53.03
N166US 1436 Feb-01 53.03
Total Base Value $986.65
* 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
<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
October 3, 2000 Bryson P. Monteleone
Ref. #00297 Director of Operations
REVIEWED BY:
/S/ Morten S. Beyer
Morten S. Beyer, Appraiser Fellow
Chairman & CEO
ISTAT Certified Senior Appraiser
7
<PAGE>
PROSPECTUS
$1,200,000,000
US AIRWAYS, INC.
PASS THROUGH CERTIFICATES
------------
This prospectus relates to pass through certificates that will be issued by
one or more trusts. We will form each trust and a national or state bank or
trust company will act 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 October 16, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Forward Looking Statements.................................................. 1
Summary..................................................................... 2
US Airways.................................................................. 8
Ratio of Earnings to Fixed Charges.......................................... 9
Use of Proceeds............................................................. 10
Description of the Certificates............................................. 11
Description of the Secured Promissory Notes................................. 27
U.S. Income Tax Matters..................................................... 33
ERISA Considerations........................................................ 36
Plan of Distribution........................................................ 36
Selling Certificateholders.................................................. 37
Legal Opinions.............................................................. 38
Experts..................................................................... 38
Where You Can Find More Information......................................... 39
Incorporation of Certain Documents by Reference............................. 40
</TABLE>
i
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement delivered with this prospectus
and the information incorporated by reference include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. We prepare forward-looking statements using estimates of future
revenues, expenses, activity levels and economic and market conditions, many of
which are outside of our control. These forward-looking statements involve
risks, uncertainties and other factors that may cause our actual results to
differ materially from the results we discuss in the forward-looking
statements. These risks, uncertainties and other factors include, but are not
limited to:
. economic conditions;
. labor costs;
. financing costs;
. aviation fuel costs;
. the anticipated merger of our parent company, US Airways Group, Inc., and
a subsidiary of UAL Corporation;
. competitive pressures on pricing--particularly from low-cost, low-fare
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; and
. other risks and uncertainties described 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 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 certificates to help finance or refinance aircraft
that we own or lease. For convenience, throughout this prospectus, the words
we, us, ours or similar words refer to US Airways.
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, insurance policy, an instrument to hedge interest rate risk, or other
form of credit enhancement, the prospectus supplement relating to that series
will describe the terms of the liquidity facility, the insurance policy,
interest rate swap or other hedging instrument, or other form of credit
enhancement.
A liquidity facility is a revolving credit agreement, letter of credit, bank
guarantee 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.
An insurance policy may be structured to guarantee both the payment of
interest and principal in whole or in part on the final maturity date or
earlier.
2
<PAGE>
If certificates of any series bear floating rate interest, the prospectus
supplement relating to that series will describe the terms of any applicable
interest rate swap or other hedging instrument that may be used in the
transaction. An interest rate swap or other hedging instrument may be
structured to convert floating rate interest into fixed rate interest or to
provide other protection against interest rate volatility.
We may offer and sell up to $1,200,000,000 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.
Pass Through Trusts
We will form a separate pass through trust to issue each series of
certificates. A national or state bank or trust company will act as trustee for
each pass through trust. 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 and a supplement to
the basic pass through trust agreement between us and the pass through trustee.
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; and
. promissory notes issued by us and secured by an aircraft owned by us.
We refer to promissory notes secured by an aircraft leased to us as "leased
aircraft notes" and to promissory notes secured by aircraft owned by us 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. The owner trust will
then 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.
Leased aircraft notes relating to each leased aircraft will be 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.
3
<PAGE>
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.
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
through the issuance of owned aircraft notes. We will issue owned aircraft
notes relating to each owned aircraft under a separate indenture and security
agreement. Each separate indenture and security agreement relating to owned
aircraft notes will be between us and a bank, trust company, financial
institution or other entity, as loan trustee. We will refer to the indenture
and security agreement entered into in connection with 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 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, 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, any interest rate swap or other
hedging instrument, any prefunding arrangements, or any insurance policy, 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 owner 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 pass this
principal, premium, if any, and interest through to the holders of class A
certificates, the holders of class B certificates and the holders of class
C certificates, respectively.]
--------------
(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 will be made from payments on the secured promissory notes
as supplemented by any liquidity facility, insurance policy or another form
of credit enhancement, if any. Any liquidity facility, insurance policy or
other credit enhancement which is available to certificateholders will be
described in the prospectus supplement.
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 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 series A, series B and series 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.]
---------------
(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) If the pass through trusts do not use all or a portion of the proceeds
from the sale of the certificates on the date the sale of the certificates
closes, the proceeds may be invested temporarily in other property such as
short-term securities or will be invested in a depositary or held in an
escrow arrangement pending the purchase of secured promissory notes. These
arrangements will be described in the prospectus supplement.
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 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 series A, series B
and series 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 class A, class B and class 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.]
-------------
(1) If the pass through trusts do not use all or a portion of the proceeds from
the sale of the certificates on the date the sale of certificates closes, the
proceeds may be invested temporarily in other property such as short-term
securities or will be invested in a depositary or held in an escrow
arrangement pending the purchase of secured promissory notes. These
arrangements will be described in the prospectus supplement.
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 our parent, US Airways Group, Inc., 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 airlines' press
releases. 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 205 destinations worldwide as of June 2000. As of June
30, 2000, we had approximately 42,650 full-time equivalent employees.
Merger
US Airways Group has entered into an Agreement and Plan of Merger with UAL
Corporation, United Airlines' parent corporation, and Yellow Jacket Acquisition
Corp., a wholly-owned subsidiary of UAL which has been formed for the purpose
of this merger, pursuant to which the merger subsidiary will be merged into US
Airways Group. As a result, US Airways Group would be the surviving corporation
and would become a wholly-owned subsidiary of UAL, and we would continue to be
a wholly-owned subsidiary of US Airways Group. Under this structure, UAL would
not be obligated to assume any of our obligations under the leases,
participation agreements, indentures, pass through trust agreements, or any
other obligations which we have with respect to the certificates or the secured
promissory notes.
Consummation of the merger is subject to various conditions set forth in the
Agreement and Plan of Merger, including, but not limited to, the receipt of
regulatory approvals and approval by the stockholders of US Airways Group. US
Airways Group has scheduled a special meeting of its stockholders for October
12, 2000 to vote on the merger agreement with UAL Corporation. At this time, we
cannot predict the outcome of the regulatory and other approvals necessary for
the consummation of the merger, nor can we predict what effect, if any, the
merger might have on us, our operations, or our relationships with our major
vendors. On August 24, 2000, American Airlines gave us notice of its intent to
terminate our joint marketing relationship agreement, effective as of August
23, 2001.
If the merger between our parent and a subsidiary of UAL Corporation is
consummated, the combined company may be required to divest some of its routes
and slots for competitive reasons. To address the potential competitive issues,
US Airways and UAL Corporation have entered into a Memorandum of Understanding
with Robert Johnson, under which Mr. Johnson would buy certain assets from us
and create a new airline to be called "DC Air" to operate out of Reagan
National Airport. We would retain the routes formerly operated by US Airways
Shuttle and the assets necessary to fly to our hubs at Pittsburgh, Charlotte
and Philadelphia. Mr. Johnson is the founder, chairman and chief executive
officer of BET Holdings II, Inc. and a member of the Board of Directors of both
us and our parent.
US Airways is a Delaware corporation, with its executive office located at
2345 Crystal Drive, Arlington, Virginia 22227. Our telephone number is (703)
872-7000.
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<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
US Airways and its subsidiary for the periods indicated:
<TABLE>
<CAPTION>
Six
months
ended
June 30, Year ended December 31,
--------- ------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
US Airways................................ * 3.7 1.9 2.7 2.2 1.3 1.1
</TABLE>
--------
* For the six months ended June 30, 2000, US Airways' earnings were not
sufficient to cover its fixed charges. Additional earnings of $36 million
would have been required to achieve a ratio of earnings to fixed charges of
1.0.
For purposes of calculating the ratio 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.
9
<PAGE>
USE OF PROCEEDS
Except as set forth in the applicable prospectus supplement, each pass
through trustee will use the proceeds from the sale of certificates issued by
its pass through trust to purchase one or more secured promissory notes.
If an owner trustee issues the secured promissory notes, the owner trustee
will use the proceeds of the sale of the secured promissory notes to finance a
portion of the purchase price of an aircraft or to refinance indebtedness or
equity interests previously issued in respect of an aircraft. When the owner
trustee purchases an aircraft, it will lease the aircraft 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 time 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.
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<PAGE>
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
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 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 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.
Except as otherwise provided in a supplement to the Basic Agreement, 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 will not represent
an interest in or obligation of US Airways, the pass through trustee, any of
the owner trustees or loan trustees, in their individual capacities, or any
owner participant. Except as otherwise provided in a supplement to the Basic
Agreement, 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;
11
<PAGE>
. 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, insurance policy, interest
rate swap or other hedging instrument, or other form of credit
enhancement.
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, the
issuer of a insurance policy, the provider of an interest rate swap or other
hedging instrument, and the issuer of any other instrument providing credit
enhancement, 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, insurance
policy, interest rate swap or other hedging instrument, or other instrument of
credit enhancement will be received, shared and distributed among the several
pass through trusts, the liquidity provider, the issuer of the insurance
policy, the entity that provides the interest rate swap or other hedging
instrument, and the issuer of any other instrument of credit enhancement. In
addition, the intercreditor agreement will set forth agreements among the pass
through trusts, the liquidity provider, the issuer of the insurance policy, the
provider of the interest rate swap or other hedging instrument, and the issuer
of any other instrument of credit enhancement 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 may 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.
However, the subordination provisions may permit payments to junior
certificateholders after a default on the secured promissory notes even if the
more senior certificateholders have not been repaid in full.
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
12
<PAGE>
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.
We will issue owned aircraft notes under separate owned aircraft indentures.
We will issue owned aircraft notes 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. 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. We will refer to all secured promissory notes issued
under an indenture that are entitled to the same priority of payment 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 and interest rate (fixed or
floating) 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;
. 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) whether the secured promissory notes will bear interest at a fixed or
floating rate, (c) the payment priority of the secured promissory notes
in relation to any other secured promissory notes issued with respect to
the related aircraft, (d) whether the secured promissory notes are sold
at a discount below the stated principal amount, and (e) 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;
13
<PAGE>
. 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 or secured promissory notes bear floating rate
interest, a description of any interest rate swap or other hedging
instrument that may be extended into;
. 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, any liquidity providers, any issuer of a insurance policy, any
entity that provides an interest rate swap or other hedging instrument
and any other person issuing an instrument of credit enhancement covering
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, insurance policy, interest rate
swap or other hedging instrument, 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;
. 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
14
<PAGE>
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 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, insurance
policy, interest rate swap on other hedging instrument, or other form of credit
enhancement, 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, insurance policy, interest rate swap or other
hedging instrument, or other form of credit enhancement. The prospectus
supplement relating to the certificates will describe the terms of any
liquidity facility, insurance policy, interest rate swap or other hedging
instrument, or other form of credit enhancement.
15
<PAGE>
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, each
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.
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.
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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. If the
holders of certificates are entitled to the benefits of a insurance policy or
other form of credit enhancement, the issuer of such policy or other form of
credit enhancement 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. If the holders of certificates are entitled to the
benefits of an interest rate swap or other hedging instrument, the counterparty
to such swap or other hedging instrument 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 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, insurance
policy, interest rate swap or other hedging instrument, or other instrument of
credit enhancement, a drawing or other payment made under that liquidity
facility, insurance policy, interest rate swap or other hedging instrument, or
other instrument of credit enhancement 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.
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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 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, 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
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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.
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 holds an air carrier
operating certificate issued pursuant to Chapter 447 of Title 49, United
States Code for aircraft capable of carrying 10 or more individuals or
6,000 pounds or more of cargo, if, and so long as, such status is a
condition of entitlement to the benefits of Section 1110 of the
Bankruptcy Code;
. the surviving successor corporation or transferee 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 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 and the
assumption by that corporation or entity of our obligations under the
pass through trust agreement;
. to add to our covenants for the benefit of holders of certificates, or to
surrender any right or power in the pass through trust agreement
conferred upon us;
. 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;
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. to provide certain information to the pass through trustee as required in
the pass through trust agreement;
. to add to or change the pass through trust agreement to facilitate the
issuance of any certificates in bearer form or to facilitate or provide
for the issuance of any certificates in global form in addition to or in
place of certificates in certificated form;
. to provide for the delivery of certificates or any supplement to the
Basic Agreement in or by means of any computerized, electronic or other
medium, including computer diskette; 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 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; or
. 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.
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
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proceeds of the secured promissory notes, under any liquidity facility,
insurance policy, interest rate swap or other hedging instrument, or other
instrument of credit enhancement or under other documents relating to the
secured promissory notes.
Cross-Subordination Issues
The secured promissory notes issued under an indenture may be held in more
than one pass through trust, and one pass through trust may hold secured
promissory notes issued under more than one indenture. Unless otherwise
provided in a prospectus supplement, only secured promissory notes of the same
class may be held in the same pass through trust. In this event, payments made
on account of a junior class of certificates issued under a prospectus
supplement may, under circumstances described in the prospectus supplement, be
subordinated to the prior payment of all amounts owing to certificateholders of
a pass through trust that holds a senior class of secured promissory notes
issued under any indenture. The prospectus supplement related to an 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, Insurance Policy, Swap or Hedging Instrument, 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
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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.
A prospectus supplement may provide for an interest rate swap or other
hedging instrument to be entered into with respect to any certificates or
secured promissory notes that bear floating rate interest. The entity that
provides an interest rate swap or other hedging instrument 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 an entity that provides an interest
rate swap or other hedging instrument will be entitled to direct the exercise
of remedies under any indenture and will describe the relevant U.S. federal
income tax consequences, if any, to the certificateholders.
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 insurance policy issued by an institution identified in the
related prospectus supplement. The provider of a insurance policy 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 an entity that
provides a insurance policy will be entitled to direct the exercise of remedies
under any indenture.
The prospectus supplement will also describe any other credit enhancements,
if any, that may apply to the certificates.
The Pass Through Trustee
Unless otherwise provided in the prospectus supplement for any series of
certificates, the pass through trustee for each series of certificates will be
State Street Bank and Trust Company of Connecticut, National Association. With
certain exceptions as to itself in its individual capacity, the pass through
trustee makes no representations as to the validity or sufficiency of the Basic
Agreement, the pass through trust supplements, the 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
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the possibility that the pass through trusts could have different successor
pass through trustees in the event of a resignation or removal.
The Basic Agreement provides that we will pay the pass through trustee's
fees and expenses and indemnify the pass through trustee against certain
liabilities.
Book-Entry Registration
General
Unless otherwise specified in the applicable prospectus supplement, the
certificates will be subject to the procedures and provisions described below.
Upon issuance, each series of certificates will be represented by one or
more fully registered global certificates. This means that one physical
certificate or a number of physical certificates representing all of the
certificates will be registered with the Depository Trust Company ("DTC"). Each
global certificate will be deposited with, or on behalf of, DTC and registered
in the name of Cede & Co. ("Cede"), the nominee of DTC. Certificateholders will
not be entitled to receive a physical certificate representing an interest in
its certificates, except as set forth below under "--Physical Certificates".
Unless and until physical certificates are issued under the limited
circumstances described below, all references in this prospectus and any
prospectus supplement to actions by certificateholders will refer to actions
taken by DTC upon instructions from DTC participants, and all references to
distributions, notices, reports and statements to certificateholders will
refer, as the case may be, to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the certificates, or to DTC
participants for distribution to certificateholders in accordance with DTC
procedures.
DTC has advised us that DTC is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New 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
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with respect to the certificates. DTC participants and indirect DTC
participants with which certificateholders have accounts similarly are required
to make book-entry transfers and receive and transmit such payments on behalf
of their respective customers. Certificateholders that are not DTC participants
or indirect DTC participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the certificates may do so only through
DTC participants and indirect DTC participants. In addition, certificateholders
will receive all distributions of principal, premium, if any, and interest from
the pass through trustee through DTC participants or indirect DTC participants,
as the case may be. Under a book-entry format, certificateholders may
experience some delay in their receipt of payments because payments with
respect to the certificates will be forwarded by the pass through trustee to
Cede, as nominee for DTC. We expect DTC to forward payments in same-day funds
to each DTC participant who is credited with ownership of the certificates in
an amount proportionate to the principal amount of that DTC participant's
holdings of beneficial interests in the certificates, as shown on the records
of DTC or its nominee. We also expect that DTC participants will forward
payments to indirect DTC participants or certificateholders, as the case may
be, in accordance with standing instructions and customary industry practices.
DTC participants will be responsible for forwarding distributions to
certificateholders. Accordingly, although certificateholders will not possess
physical certificates, DTC's rules provide a mechanism by which
certificateholders will receive payments on the certificates and will be able
to transfer their interests.
Unless and until physical certificates are issued under the limited
circumstances described below, the only physical certificateholder will be
Cede, as nominee of DTC. Certificateholders will not be recognized by the pass
through trustee as registered owners of certificates under the pass through
trust agreement. Certificateholders will be permitted to exercise the rights
under the pass through trust agreement only indirectly through DTC and DTC
participants. DTC has advised us that it will take any action permitted to be
taken by a certificateholder under the pass through trust agreement only at the
direction of one or more DTC participants to whose accounts with DTC the
certificates are credited. Additionally, DTC has advised us that in the event
any action requires approval by certificateholders of a certain percentage of
the beneficial interests in a pass through trust, DTC will take such action
only at the direction of and on behalf of DTC participants whose 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.
Neither we nor 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.
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Same-Day Settlement and Payment
As long as the certificates are registered in the name of DTC or its
nominee, we will make all payments under any lease or any owned aircraft
indenture in immediately available funds. The pass through trustees will pass
through to DTC all payments received from us, including the final distribution
of principal with respect to the certificates of any pass through trust in
immediately available funds.
Any certificates registered in the name of DTC or its nominee will trade in
DTC's Same-Day Funds Settlement System until maturity. DTC will require
secondary market trading activity in the certificates to settle in immediately
available funds. We cannot give any assurance as to the effect, if any, of
settlement in same-day funds on trading activity in the certificates.
Physical Certificates
Physical certificates will be issued in paper form to certificateholders or
their nominees, rather than to DTC or its nominee, only if:
. we advise a pass through trustee in writing that DTC is no longer willing
or able to discharge properly its responsibilities as depository with
respect to the certificates and we or the pass through trustee is unable
to locate a qualified successor;
. we elect to terminate the book-entry system through DTC; or
. after the occurrence of certain events of default or other events
specified in the related prospectus supplement, certificateholders owning
at least a majority in interest in a pass through trust advise the
applicable pass through trustee, us and DTC through DTC participants that
the continuation of a book-entry system through DTC participants is no
longer in the certificateholders' best interest.
If physical certificates are to be issued by a pass through trust, the
applicable pass through trustee will notify all certificateholders through DTC
of the availability of physical certificates. Upon surrender by DTC of
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.
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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 we own will be our full recourse
obligations 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.
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. In addition, if specified in
a prospectus supplement, we may also structure a financing for an aircraft,
using a structure other than a U.S. leveraged lease or mortgage, such as a
"cross- border" lease, a synthetic lease or other special structure, or as a
combination of a lease or mortgage and a synthetic lease, cross-border lease or
other special structure.
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.
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Principal and Interest Payments
The secured promissory notes will bear interest at the rates (which may be
fixed or floating) set forth in the applicable indenture or may be issued at a
discount. 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 scheduled 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.
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 as permitted by 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.
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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 that we own. Under the terms of each owned aircraft
indenture, we will be obligated, among other things and at our expense, to
cause each owned aircraft to be duly registered, to pay all costs of operating
the aircraft and to maintain, service, repair and overhaul, or cause to be
maintained, serviced, repaired or overhaul, the aircraft.
The prospectus supplement will describe the required insurance coverage with
respect to the aircraft financed with the proceeds from the pass through
certificates issued.
Except in certain circumstances, we will keep each aircraft registered under
the Transportation Code. In addition, we will record the indentures, the leases
and other documents necessary for a valid conveyance of an interest in the
aircraft under the Transportation Code. Each indenture will be effective to
create a valid security interest in the aircraft that is subject to that
indenture. When that indenture and other appropriate documents are filed with
the FAA in accordance with the Transportation Code and Uniform Commercial Code
financing statements are filed in all appropriate jurisdictions, the loan
trustee will have a perfected security interest in the related aircraft
whenever it is located in the United States or any of its territories and
possessions.
The Convention on the International Recognition of Rights in Aircraft (the
"Convention") provides that this security interest will also be recognized,
with certain limited exceptions, in those jurisdictions that have ratified or
adhere to the Convention. We will have the right, subject to certain
conditions, at our own expense to register each aircraft in countries other
than the United States. Each aircraft may also be operated by us or under
lease, sublease or interchange arrangements in countries that are not parties
to the Convention. The extent to which the related loan trustee's security
interest would be recognized in an aircraft located in a country that is not a
party to the Convention, and the extent to which such security interest would
be recognized in a jurisdiction adhering to the Convention if the aircraft is
registered in a jurisdiction not a party to the Convention, is uncertain.
Moreover, in the case of a default under an indenture, the ability of the
related loan trustee to realize upon its security interest in an aircraft could
be adversely affected as a legal or practical matter if such aircraft is
registered or located outside of 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 a secured party with a security interest in "equipment" (as defined in
Section 1110 of the U.S. Bankruptcy Code), or of a lessor or conditional vendor
of such equipment, to take possession of such equipment in compliance with the
provisions of a security agreement, lease, or conditional sale contract, and to
enforce any of its other rights or remedies under such security agreement,
lease, or conditional sale contract, to sell, lease or otherwise retain or
dispose of such equipment, is not limited or otherwise affected after 60 days
after the order for relief under Chapter 11 of the U.S. Bankruptcy Code by any
other provision of the U.S. Bankruptcy Code or by any power of the bankruptcy
court.
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Section 1110 of the U.S. Bankruptcy Code provides that the right to take
possession and to enforce other rights and remedies to sell, lease or otherwise
dispose of an aircraft shall be subject to the automatic stay of Section 362 of
the U.S. Bankruptcy Code if (A) before the date that is 60 days after the date
of the order for relief under Chapter 11 of the U.S. Bankruptcy Code, the
trustee, subject to the approval of the court, agrees to perform all
obligations of the debtor under such security agreement, lease or conditional
sale contract and (B) any default (other than a default that is a breach of a
provision relating to the financial condition, bankruptcy, insolvency or
reorganization of the debtor) under such security agreement, lease or
conditional sale contract (x) is cured before the date that is 60 days from the
date of such order in the case of a default that occurs before the date of the
order of relief, (y) is cured before the later of the date that is 30 days
after the date of such default or the date that is 60 days from the date of the
order for relief in the case of a default that occurs after the date of the
order for relief and before the date that is 60 days from the date of such
order for relief, or (z) is cured in compliance with the terms of the security
agreement, lease or conditional sale agreement in the case of a default that
occurs on or after the expiration of 60 days from the date of the order of
relief. "Equipment" is defined in Section 1110 of the U.S. Bankruptcy Code, in
part, as "an aircraft, aircraft engine, propeller, appliance, or spare part (as
defined in Section 40102 of Title 49) that is subject to a security interest
granted by, leased to, or conditionally sold to a debtor that at the time such
transaction is entered into holds an air carrier operating certificate issued
pursuant to Chapter 447 of Title 49 for aircraft capable of carrying 10 or more
individuals or 6,000 pounds or more of cargo."
Unless otherwise specified in the applicable prospectus supplement, 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 the loan trustee will be entitled
to the benefits of Section 1110 with respect to the airframe and engines
comprising such owned aircraft. This Section 1110 opinion will not address the
possible replacement of an aircraft after an "Event of Loss", as defined in the
applicable indenture, in the future.
Ranking of Secured Promissory Notes
Some of the secured promissory notes related to one or more aircraft may be
subordinated and junior in right of payment to other secured promissory notes
related to the same aircraft. The terms of any subordination will be described
in the related prospectus supplement.
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.
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Except in circumstances in which we purchase a leased aircraft and assume
the related leased aircraft notes, the leased aircraft notes will not be our
obligations. 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); or
. payments made in connection with optional redemptions or purchases by the
related owner trustee or the related owner participant.
If an owner participant is required to make payments to be used by an owner
trustee to pay principal of, and interest on, the secured promissory notes and
the owner participant fails to make the payment, we will be required to provide
the owner trustee with funds sufficient to make the payment.
Except as otherwise provided in the applicable indenture, no owner trustee
will be personally liable for any amount payable or for any statements,
representations, warranties, agreements or obligations under any indenture or
under any leased aircraft notes except for its own willful misconduct or gross
negligence. In general, none of the owner participants will have any duty or
responsibility under the leased aircraft indentures or under the leased
aircraft notes.
Our obligations under each owned aircraft indenture and under the owned
aircraft notes will be secured obligations.
Defeasance of the Indentures and the Secured Promissory Notes in Certain
Circumstances
Unless otherwise specified in the applicable prospectus supplement, an
indenture may provide that the obligations of the related loan trustee, the
related owner trustee or us, as the case may be, under that indenture 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
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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.
Additional Notes
We will describe in a prospectus supplement any circumstances and conditions
under which we or the owner trustee may finance modifications, alterations,
additions, improvements to, or replacement parts for, an aircraft through the
issuance and sale of additional secured promissory notes. A supplement to the
applicable indenture will establish the terms, conditions and designations of
any additional secured promissory notes.
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.
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U.S. INCOME TAX MATTERS
General
The following summary describes the material U.S. federal income tax
consequences to certificateholders of the purchase, ownership and disposition
of the certificates offered by this prospectus 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 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. If certificates
issued by a pass through trust are supported by a liquidity facility, insurance
policy, or other instrument of credit enhancement, any amounts received by the
pass through trust under the liquidity facility, insurance policy, or other
instrument of credit enhancement 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, as amended, referred to as the Code. Certain
fees and expenses,
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including fees paid to the pass through trustee and the provider of the
liquidity facility, insurance policy, or other instrument of credit
enhancement, if applicable, will be paid by parties other than the
certificateholders. These fees and expenses could be treated as constructively
received by the pass through trust, in which event a U.S. certificateholder
could be required to include in income and entitled to deduct its pro rata
share of the fees and expenses. If a U.S. certificateholder is an individual,
estate or trust, the deduction for the certificateholder's share of fees or
expenses will be allowed only to the extent that all of the certificateholder's
miscellaneous itemized deductions, including the certificateholder's share of
fees and expenses, exceed 2% of the certificateholder's adjusted gross income.
In addition, in the case of U.S. certificateholders who are individuals,
certain otherwise allowable itemized deductions will be subject generally to
additional limitations on itemized deductions under applicable provisions of
the Code.
Effect of Subordination on Certificateholders of Subordinated Trusts
In the event that any pass through trust is subordinated in right of payment
to any other pass through trust and the subordinated trust receives less than
the full amount of the interest, principal or premium paid with respect to the
secured promissory notes held by it because of the subordination of the pass
through trust, the certificateholders of the subordinated trust would probably
be treated for federal income tax purposes as if they had (a) received as
distributions their full share of principal, interest, or premium, (b) paid
over to a preferred class of certificateholders an amount equal to their share
of the amount of the shortfall, and (c) retained the right to reimbursement of
the amount of the shortfall to the extent of future amounts payable to the
certificateholders of the subordinated trust on account of the shortfall.
Under this analysis, (a) subordinated certificateholders incurring a
shortfall would be required to include as current income any interest or other
income of the subordinated trust that was a component of the shortfall, even
though such amount was in fact paid to a preferred class of certificateholders,
(b) a loss would only be allowed to subordinated certificateholders when their
right to receive reimbursement of the shortfall becomes worthless (i.e., when
it becomes clear that funds will not be available from any source to reimburse
the shortfall), and (c) reimbursement of the shortfall prior to a claim of
worthlessness would not be taxable income to certificateholders because the
amount reimbursed would have been included in income. These results should 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. The
prospectus supplement will state whether any secured promissory notes to be
held by the related pass through trust will be issued with original issue
discount. Generally, a holder of a debt instrument issued with original issue
discount that is not negligible must include such original issue discount 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 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%.
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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 our stock or the stock of an owner participant, (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 BEN (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.
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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.
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
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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.
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.
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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 our self 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 LLP 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 LLP 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, Inc. and its subsidiary
as of December 31, 1999 and 1998, and for each of the years in the three-year
period ended December 31, 1999 that are included in US Airways' Annual Report
on Form 10-K for the year ended December 31, 1999, have been incorporated by
reference in the registration statement in reliance upon the report of KPMG
LLP, independent certified public accountants and upon the authority of KPMG
LLP as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We 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:
<TABLE>
<S> <C> <C>
Judiciary Plaza, Seven World Trade Center, Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison Street, Suite 1400
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661
</TABLE>
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 have filed with the SEC a registration statement on Form S-3 that
registers the securities we are offering. The registration statement, including
the attached exhibits and schedules, contains additional relevant information
about us 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
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, 1999
Quarterly Report on Form 10-Q Quarters ended June 30, 2000 and March 31, 2000
Current Reports on Form 8-K Filed January 13, 2000
Filed January 19, 2000
Filed February 11, 2000
Filed February 24, 2000
Filed February 29, 2000
Filed March 15, 2000
Filed March 24, 2000
Filed April 11, 2000
Filed April 19, 2000
Filed May 2, 2000
Filed May 9, 2000
Filed May 30, 2000
Filed June 20, 2000
Filed July 11, 2000
Filed July 19, 2000
Filed July 26, 2000
Filed August 10, 2000
Filed August 17, 2000
Filed September 12, 2000
Filed October 10, 2000
</TABLE>
We incorporate by reference additional documents that we 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]
