##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)

|x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



or



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



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LOGO



US Airways, Inc.

(Debtor-in-Possession)

(Exact name of registrant as specified in its charter)



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State of Incorporation: Delaware



2345 Crystal Drive, Arlington, Virginia 22227

(Address of principal executive offices)



(703) 872-7000

(Registrants
telephone number, including area code)



(Commission file
number: 1-8442)



(I.R.S. Employer Identification No:
53-0218143)



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Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of the Act: None



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Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by

Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for

such shorter period that the registrant was required to file such reports), and (2) has been subject to

such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K

is not contained herein, and will not be contained, to the best of registrants knowledge, in

definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or

any amendment to this
Form 10-K.  x



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2

of the
Act).    Yes ̈No  x



There is currently no public market for the registrants Common Stock.



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Indicate by check mark whether the registrant has filed all documents and reports required to be

filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the

distribution of securities under a plan confirmed by a court.    Yes  x    No ̈



On February 18, 2005 there were outstanding 1,000 shares of Common Stock.



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##### Table of Contents

US Airways, Inc.

Form 10-K

Year Ended December 31, 2004



Table of Contents



|        |  |                                                                                                             |  |     
|------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                             |  | Page
|Part I  |  |                                                                                                             |  |     
|        |  |                                                                                                            
|Item 1. |  | Business                                                                                                    |  |     
|        |  | Overview                                                                                                    |  | 1   
|        |  | Airline Industry and the Companys Position in the Marketplace                                              |  | 5   
|        |  | Marketing Agreements with Other Airlines                                                                    |  | 6   
|        |  | Industry Regulation and Airport Access                                                                      |  | 6   
|        |  | Employees                                                                                                   |  | 9   
|        |  | Aviation Fuel                                                                                               |  | 9   
|        |  | Airline Ticket Distribution                                                                                 |  | 10  
|        |  | Frequent Traveler Program                                                                                   |  | 10  
|        |  | Insurance                                                                                                   |  | 11  
|        |  |                                                                                                            
|Item 2. |  | Properties                                                                                                  |  |     
|        |  | Flight Equipment                                                                                            |  | 12  
|        |  | Ground Facilities                                                                                           |  | 13  
|        |  | Terminal Construction Projects                                                                              |  | 13  
|        |  |                                                                                                            
|Item 3. |  | Legal Proceedings                                                                                           |  | 14  
|        |  |                                                                                                            
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                         |  | 17  
|        |  |                                                                                                            
|Part II |  |                                                                                                             |  |     
|        |  |                                                                                                            
|Item 5. |  | Market for US Airways Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 17  
|        |  |                                                                                                            
|Item 6. |  | Selected Financial Data                                                                                     |  |     
|        |  | Statements of Operations                                                                                    |  | 18  
|        |  | Balance Sheets                                                                                              |  | 18  



(table of contents
continued on following page)



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##### Table of Contents

US Airways, Inc.

Form 10-K

Year Ended December 31, 2004



Table of Contents

(continued)



|           |  |                                                                                       |  |     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                       |  | Page
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |     
|           |  | Introduction                                                                          |  | 19  
|           |  | Chapter 11 Proceedings                                                                |  | 19  
|           |  | Results of Operations                                                                 |  | 24  
|           |  | Selected Operating and Financial Statistics                                           |  | 30  
|           |  | Liquidity and Capital Resources                                                       |  | 31  
|           |  | Off-Balance Sheet Arrangements                                                        |  | 41  
|           |  | Critical Accounting Policies                                                          |  | 42  
|           |  | Recent Accounting and Reporting Developments                                          |  | 45  
|           |  |                                                                                      
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 46  
|           |  |                                                                                      
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 48  
|           |  |                                                                                      
|Item 9.    |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 98  
|           |  |                                                                                      
|Item 9A.   |  | Controls and Procedures                                                               |  | 98  
|           |  |                                                                                      
|Item 9B.   |  | Other Information                                                                     |  | 98  
|           |  |                                                                                      
|Part III   |  |                                                                                       |  |     
|           |  |                                                                                      
|Item 10.   |  | Directors and Executive Officers of US Airways                                        |  | 99  
|           |  |                                                                                      
|Item 11.   |  | Executive Compensation                                                                |  | 104 
|           |  |                                                                                      
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 122 
|           |  |                                                                                      
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 122 
|           |  |                                                                                      
|Item 14.   |  | Principal Accountant Fees and Services                                                |  | 123 
|           |  |                                                                                      
|Part IV    |  |                                                                                       |  |     
|           |  |                                                                                      
|Item 15.   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  |     
|           |  | Financial Statements                                                                  |  | 124 
|           |  | Financial Statement Schedules                                                         |  | 124 
|           |  | Exhibits                                                                              |  | 125 
|           |  |                                                                                      
|Signatures |  |                                                                                       |  | 129 



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##### Table of Contents

Part I



Item 1. Business



Overview



US Airways, Inc. (US
Airways or the Company) is a corporation organized under the laws of the

State of Delaware and is a wholly owned subsidiary of US Airways Group, Inc. (US
Airways Group).

US Airways is a certificated air carrier engaged primarily in the business of transporting passengers,

property and mail. US Airways enplaned approximately 42 million passengers in 2004 and was the

seventh largest U.S. air carrier (as ranked by revenue passenger miles (RPMs)). As of December 31,

2004, US Airways
operated 281 jet aircraft and 22 regional jet aircraft (see Item 2 Properties for

additional information related to aircraft operated by US
Airways) and provided regularly scheduled

service at 89 airports in the continental United States, Canada, Mexico, France, Germany, Italy, Spain,

Ireland, the Netherlands, the United Kingdom and the Caribbean. US Airways executive offices are

located at 2345 Crystal Drive, Arlington, Virginia 22227 (telephone number (703) 872-7000). The

Companys internet address is usairways.com.



As discussed in more detail below, on September 12, 2004, US Airways filed a voluntary petition for

relief under Chapter 11
of the United States Bankruptcy Code (Bankruptcy Code) in the United States

Bankruptcy Court for the Eastern District of Virginia, Alexandria Division
(Bankruptcy Court) (Case

Nos. 04-13819-SSM through 04-13823-SSM). On the same day, US Airways Group and four of its

other subsidiaries (collectively with US Airways, the Debtors) also filed voluntary petitions for relief

under Chapter 11 of the Bankruptcy Code. The Debtors continue to operate their businesses as Debtors-

in-Possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable

provisions of the Bankruptcy Code and
orders of the Bankruptcy Court. Each of the Debtors in these

cases had previously filed a voluntary petition for relief under Chapter 11 on August 11, 2002
(the Prior

Bankruptcy). The Debtors emerged from the Prior Bankruptcy under the First Amended Joint Plan of

Reorganization of US Airways Group, Inc. and Affiliated Debtors and Debtors-in-Possession, As

Modified (the 2003 Plan), which was confirmed pursuant to an order of the Bankruptcy Court on March

18, 2003 and became
effective on March 31, 2003. In accordance with AICPA Statement of Position

90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code, and in

connection with the Prior Bankruptcy, the Company adopted fresh-start reporting on March 31, 2003.

References in the Financial Statements and the Notes to the Financial Statements to Predecessor

Company refer to the Company prior to March 31, 2003. References to Successor Company refer to

the
Company on and after March 31, 2003, after giving effect to the cancellation of then-existing

common stock and the issuance of new securities in accordance
with the 2003 Plan, and the application

of fresh-start reporting. As a result of the application of fresh-start reporting, the Successor Companys

financial statements are not comparable with the Predecessor Companys financial statements, because

they are, in effect, those of a new entity.



Certain air carriers have code share arrangements with US Airways to operate under the trade name

US Airways Express. Typically, under a code share arrangement, one air carrier places its designator

code and sells tickets on the flights of another air carrier (its code share partner). US Airways Express

carriers are an integral component of the Companys operating network. Due to the relatively small

local traffic base
at its hubs, US Airways relies heavily on feed traffic from its US Airways Express

affiliates, who carry passengers from low-density markets that are
uneconomical for US Airways to

serve with large jets to US Airways hubs. As of December 2004, the US Airways Express network

served 127 airports in the continental United States, Canada and the Bahamas, including 42 airports also

served by US Airways. During 2004, US Airways Express air carriers enplaned approximately 15.2

million passengers,
approximately 48% of whom connected to the Companys flights. Of these 15.2

million passengers, approximately 6.2 million were enplaned by US Airways
Groups wholly owned

regional airlines, approximately 7.4 million were enplaned by third-party carriers operating under

capacity purchase agreements and approximately 1.6 million were enplaned by carriers operating under

prorate agreements, as described below. In addition, US Airways Express operators offer



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complementary service in existing US Airways markets by operating flights during off-peak periods

between US Airways flights.



The US Airways Express code share arrangements are either in the form of capacity purchase or

prorate agreements. US Airways Groups two wholly owned regional airlines and the regional jet

affiliate operators are capacity purchase relationships. The regional jet affiliates with capacity purchase

agreements are
Chautauqua Airlines (Chautauqua), Mesa Airlines, Inc. (Mesa), Trans States Airlines,

Inc. (Trans States) and Midway Airlines Corporation (Midway) prior to
Midway ceasing service in

October 2003. The capacity purchase agreements provide that all revenues (passenger, mail and freight)

go to US Airways. In return, US Airways agrees to pay predetermined fees to such airlines for operating

an agreed number of aircraft, without regard to the number of passengers onboard. In addition, these

agreements provide
that certain variable costs, such as fuel and airport landing fees, will be reimbursed

100% by US Airways. US Airways controls marketing, scheduling,
ticketing, pricing and seat

inventories. The regional jet capacity purchase agreements have expirations from 2008 to 2013 and

provide for optional extensions at the Companys discretion. The carriers with prorate agreements are

non-owned turboprop operators and include all or a portion of the turboprop operations of Colgan

Airlines, Inc., Trans
States, Shuttle Acquisition LLC (through October 2004) and Air Midwest, Inc. The

prorate agreements provide for affiliate carriers to pay certain service
fees to US Airways as well as to

receive a prorated share of revenue for connecting customers. US Airways is responsible for pricing and

marketing of connecting services to and from the prorate carrier. The prorate carrier is responsible for

pricing and marketing the local, point to point markets. All US Airways Express carriers use

US Airways reservation
systems, and have logos, service marks, aircraft paint schemes and uniforms

similar to those of US Airways.



In April 2004, MidAtlantic Airways (MidAtlantic), US Airways new
regional jet division, began

operating as part of the US Airways Express network. As of December 31, 2004, MidAtlantic operates

22 Embraer ERJ-170 regional jets with 72 seats. These larger regional jets help fill the gap between 50-

seat and 120-seat fleet-types, allow for a better match with demand in certain existing markets and have

enabled US Airways
to add flights to markets it did not previously serve. MidAtlantic served

approximately one million passengers in 2004.



US Airways major connecting hubs are at airports in Charlotte and
Philadelphia. The Company also

has substantial operations at Bostons Logan International Airport (Logan), New Yorks LaGuardia

Airport (LaGuardia), Pittsburgh International Airport (Pittsburgh) and Washingtons Ronald Reagan

Washington National Airport (Reagan National). Measured by departures, US Airways is among the

largest at each of the
foregoing airports. US Airways is also a leading airline from the Northeast United

States to Florida. US Airways East coast-based hubs, combined with
its strong presence at many East

coast airports, have made it among the largest intra-East coast carriers, comprising approximately 30%

of the industrys intra-East coast revenues based on the most recent industry revenue data available.



For the year ended December 31, 2004, passenger revenues accounted for approximately 90% of the

Companys operating revenues. Cargo revenues and other sources accounted for 10% of the Companys

operating revenues in 2004. The Companys results are seasonal with operating results typically highest

in the second
and third quarters due to US Airways combination of business traffic and North-South

leisure traffic in the eastern United States during those
periods.



Available Information



A copy of this annual report on Form 10-K, as well as other annual reports
on Form 10-K, quarterly

reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are accessible free

of charge at investor.usairways.com/edgar.cfmas soon as reasonably possible after such report is filed

with or furnished to the Securities and Exchange Commission (SEC).



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Chapter 11 Proceedings



Before emerging from the Prior Bankruptcy in 2003, the Company examined virtually every phase of

its contracts and operations and had significantly reduced costs. The Company reduced its mainline

capacity, realigned its network to maximize yield, initiated a business plan to use more regional jets and

procured
financing for these aircraft, and expanded its alliances with other carriers. However, after

emerging from the Prior Bankruptcy, the Company continued to
incur substantial losses from operations.

The primary factors contributing to these losses include the reduction in domestic industry unit revenue

and significant increases in fuel prices. The downward pressure on domestic industry revenue is a result

of the rapid growth of low-fare, low-cost airlines, the increasing transparency of fares through Internet

sources and other changes in fare structures that have resulted in substantially lower fares for many

business and leisure
travelers. The competitive environment continued to intensify throughout 2004,

particularly in key markets such as Philadelphia, Washington, D.C., Boston
and New York.



Throughout the spring and summer of 2004, the
Company communicated with key stakeholders and

the public its plan to transform US Airways into a fully competitive and profitable airline (the

Transformation Plan). A key element of the Transformation Plan is significant reductions in labor costs

through changes to the Companys collective bargaining agreements. The Company aggressively sought

the necessary
agreements to allow full implementation of the Transformation Plan without the need for

filing new Chapter 11 cases but was unable to do so in a timely
manner. As a result of the recurring

losses, declining available cash, and risk of defaults or cross defaults under certain key financing and

operating agreements, it was necessary for the Debtors to file voluntary petitions for reorganization

under Chapter 11 of the Bankruptcy Code on September 12, 2004.



At hearings held on September 13, 2004, the Bankruptcy Court granted the Companys first day

motions for relief
designed to stabilize its operations and business relationships with customers, vendors,

employees and others, and entered orders granting permission to
the Debtors to, among other things: (a)

pay employee wages and continue benefits, such as medical and dental insurance; (b) honor prepetition

obligations to customers and continue customer programs, including US Airways Dividend Miles

program; (c) pay for fuel under existing supply contracts, and honor existing fuel supply, distribution and

storage
agreements; (d) assume certain contracts related to interline agreements with other airlines; (e)

pay prepetition obligations to certain foreign vendors,
foreign service providers and foreign

governments; and (f) continue maintenance of existing bank accounts and existing cash management

systems. The Bankruptcy Court also approved the interim agreement reached between the Company, the

Air Transportation Stabilization Board (ATSB) and the lenders under the $1 billion loan, obtained upon

emergence from the
Prior Bankruptcy and substantially guaranteed by the ATSB, to allow the Company

continued use of the cash collateral securing the loan (see further
discussion below).



Since filing for bankruptcy on September
12, 2004, the Company has achieved cost-savings

agreements with all of its collective bargaining groups. Through a motion filed under Section 1113(e) of

the Bankruptcy Code on September 24, 2004, the Company sought interim relief from collective

bargaining agreements (CBAs) with the Air Line Pilots Association (ALPA), Association of Flight

Attendants-Communications
Workers of America (AFA), Transport Workers Union (TWU),

Communications Workers of America (CWA) and International Association of Machinists and

Aerospace Workers (IAM). On October 15, 2004, the Bankruptcy Court approved base rates of pay

reductions of 21% through February 15, 2005 or entry of an order approving a new CBA or granting

final relief under Section
1113(c) of the Bankruptcy Code. Reductions to pension contributions and

certain work rule changes were also approved. The interim relief order did not
apply to ALPA or TWU,

whose members reached and ratified CBAs prior to the interim relief going into effect. CBAs with the

CWA and AFA were reached in December 2004 and were subsequently ratified. On January 6, 2005,

the Bankruptcy Court approved the Companys request to reject the IAM CBAs and approved the

termination of US
Airways three defined benefit plans. The IAM subsequently ratified Company cost-

savings proposals on January 21, 2005. As part of these negotiations
and subsequent ratifications, all

collective bargaining groups had their pension plans reduced or eliminated. In addition, the Bankruptcy

Court has also approved various settlement agreements between the Company and the court-appointed



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Section 1114 Committee representing retirees other than those represented by the IAM to begin the

significant curtailment of postretirement benefits.



In addition to the cost savings achieved with labor groups, the Company also implemented pay and

benefit reductions for its current management and other non-union employees, including reductions to

base pay, workforce reductions and modifications to vacation and sick time accruals. The Company also

implemented
modifications to its defined contribution pension plans and will implement modifications

to retiree benefits in 2005. The pay rate and defined contribution
plan reductions went into effect

October 11, 2004 and the reductions to retiree medical benefits will become effective March 1, 2005.



The Company has reached agreements with certain of its lessors and lenders
restructuring existing

aircraft lease and debt financings. On November 19, 2004, the Bankruptcy Court approved the

Companys agreements for the continued use and operation of substantially all of its mainline and

Express fleet. As discussed in detail below, the Company reached a comprehensive agreement with GE

Capital Aviation
Services (GECAS) and GE Engine Service (GEES) on aircraft leasing and financing

and engine services, which will provide the Company with short-term
liquidity, reduced debt, lower

aircraft ownership costs, enhanced engine maintenance services, and operating leases for new regional

jets. The Company also reached agreements with EMBRAER-Empresa Brasileria de Aeronautica SA

(Embraer) and Bombardier, Inc. (Bombardier) providing for continued use and operation of its aircraft,

short term liquidity
and new financing for regional jets, which were approved by the Bankruptcy Court

in January 2005.



The Company has notified all known or potential creditors of the Chapter 11
filing for the purposes

of identifying and quantifying all prepetition claims. The Chapter 11 filing triggered defaults on

substantially all debt and lease obligations. Subject to certain exceptions under the Bankruptcy Code,

the Chapter 11 filing automatically stayed the continuation of any judicial or administrative proceedings

or other actions
against the Debtors or their property to recover on, collect or secure a claim arising prior

to September 12, 2004. The deadline for filing proofs of claim
with the Bankruptcy Court was February

3, 2005, with a limited exception for governmental entities, which have until March 11, 2005.



The potential adverse publicity associated with the Chapter 11 filings and
the resulting uncertainty

regarding the Companys future prospects may hinder the Companys ongoing business activities and its

ability to operate, fund and execute its business plan by impairing relations with existing and potential

customers; negatively impacting the ability of the Company to attract and retain key employees; limiting

the Companys
ability to obtain trade credit; limiting the Companys ability to effectively hedge rising

aviation fuel costs; and impairing present and future
relationships with vendors and service providers.



As a result
of the Chapter 11 filings, realization of assets and liquidation of liabilities are subject to

significant uncertainty. While operating as
debtors-in-possession under the protection of Chapter 11,

and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of
business,

US Airways may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other

than those reflected in the financial statements. Further, a plan of reorganization could materially change

the amounts and classifications reported in the historical financial statements, which do not give effect to

any
adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a

consequence of confirmation of a plan of reorganization.



To exit Chapter 11 successfully, the Company must obtain
confirmation by the Bankruptcy Court of a

plan of reorganization. The Company currently has the exclusive right to file a plan of reorganization

until March 31, 2005 and solicit acceptance of the plan through June 30, 2005. Under the terms of the

agreement reached with General Electric, the Company has until March 15, 2005 to file a plan of

reorganization. These deadlines could potentially be extended. A plan of reorganization would, among

other things, resolve
all prepetition obligations, set forth a revised capital structure and establish the

corporate governance subsequent to exiting from bankruptcy.The
Company is currently working

towards emerging from Chapter 11 mid-year 2005, but that timing is dependent upon, among other

things, the timely and successful confirmation and implementation of a plan of reorganization. The



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ultimate recovery to creditors, if any, will not be determined until confirmation of a plan of

reorganization. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11

cases to these constituencies or what type or amount of distributions, if any, they would receive.



Financing during the Chapter 11 Proceedings



As part of its reorganization under the Prior Bankruptcy, US Airways received a $900 million loan

guarantee (ATSB Guarantee) under the Air Transportation Safety and System Stabilization Act from the

ATSB in connection with a $1 billion term loan financing (ATSB Loan). In connection with the

September 12, 2004 Chapter 11
filing, the ATSB and the lenders under the ATSB Loan agreed to

authorize the Company to continue to use cash collateral securing the ATSB Loan on an
interim basis.

Therefore, in lieu of debtor-in-possession financing, the Company has access to the cash collateralizing

the ATSB Loan as working capital, subject to certain on-going conditions and limitations. This interim

agreement was approved by the Bankruptcy Court on September 13, 2004 as part of the first day

motions, and was scheduled to
expire on October 15, 2004. The Bankruptcy Court approved two

subsequent agreements extending the Companys ability to use the cash collateral,
including an

agreement approved on January 13, 2005 extending the Companys use of cash collateral through June

30, 2005, subject to certain conditions and limitations. Under the current agreement, the Company may

continue to access such cash collateral to support daily operations so long as it maintains an agreed

minimum amount of
cash on hand each week. The amount declines from approximately $500 million at

the end of January to $341 million on June 30, 2005, with weekly cash levels
permitted as low as $325

million in March 2005. See Liquidity and Capital Resources in Item 7. Managements Discussion and

Analysis of Financial Condition and Results of Operation, for a complete discussion on the Companys

financing while in Chapter 11.



Airline Industry and the Companys Position in the Marketplace



Most of the markets in which US Airways operates are highly competitive. US Airways competes to

varying degrees with other air carriers and with other forms of transportation. US Airways competes

with at least one major airline on most of its routes between major cities. Airlines, including

US Airways, typically use
discount fares and other promotions to stimulate traffic during normally slack

travel periods to generate cash flow and to maximize revenue per available
seat mile. Discount and

promotional fares are often non-refundable and may be subject to various restrictions such as minimum

stay requirements, advance ticketing, limited seating and change fees. US Airways has often elected to

match discount or promotional fares initiated by other air carriers in certain markets in order to compete

in those
markets. Competition between air carriers also involves certain route structure characteristics,

such as flight frequencies, availability of nonstop
flights, markets served and the time certain flights are

operated. To a lesser extent, competition can involve other products, such as frequent flier
programs and

airport clubs.



US Airways considers the growth of low-fare low-cost competition to be its foremost competitive

threat. Recent years have seen the entrance and growth of low-fare low-cost competitors in many of the

markets in which the Company operates. These competitors, based on low costs of operations and low-

fare structures,
include Southwest Airlines Co. (Southwest), AirTran Airways, Inc., and JetBlue

Airways. Southwest has steadily increased operations within the eastern
United States since first offering

service in this region in late 1993. In May 2004, Southwest began service at the Philadelphia

International Airport, a hub airport for US Airways. Southwest has also announced that it will begin

service from Pittsburgh International Airport, a former hub, in May 2005. In January 2005, Delta

Airlines, Inc. (Delta)
announced a broad low-fare pricing scheme. The Company anticipates continued

low-fare competition in the industry in the future.



A substantial portion of US Airways flights are to or from cities in
the eastern United States.

Accordingly, severe weather, air traffic control problems and downturns in the economy in the eastern

United States adversely affect US Airways results of operations and financial condition. With its

concentration in the eastern United States, US Airways average stage length (i.e., trip distance) is



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shorter than those of other major airlines. This makes US Airways more susceptible than other major

airlines to competition from surface transportation (e.g., automobiles, trains, etc.). The increased airport

security charges and procedures have also had a disproportionate impact on short-haul travel, which

constitutes a
significant portion of the Companys flying. Additional terrorist attacks or fear of such

attacks, even if not made directly on the airline industry,
including elevated national threat warnings,

negatively affect the Company and the airline industry.



In recent years, the Companys profitability was significantly eroded by
competitive pressures

(including the incursion of regional jets, the expansion of low-fare low-cost carriers and the entry of

additional carriers into its operating territories, including key focus cities and hubs), unfavorable

economic trends, and rising fuel and labor costs. The May 2000 proposed merger of United Airlines

(United) and US Airways
Group was designed to address this profitability erosion by adding

US Airways Group into a global network. During the period in which the merger was
pending, which

ended in the termination of the merger agreement in late July 2001 after failing to receive approval from

the United States Department of Justice, the Company was effectively precluded from restructuring its

operations as a stand-alone carrier. Following the merger termination, the Company embarked on a

phased, stand-alone
restructuring plan to address the problems facing its airline subsidiaries; however,

this plan was preempted by the September 11thterrorist attacks, which was then followed by the filing

for Chapter 11 in the Prior Bankruptcy in August 2002.



Marketing Agreements with Other Airlines



The Company has entered into a number of bilateral and multilateral alliances with other airlines to

provide customers with more choices and to
access markets worldwide that the Company does not serve

directly. In May 2004, US Airways joined the Star Alliance, the worlds largest airline
alliance, with 15

member airlines servicing 772 destinations in 133 countries. Membership in the Star Alliance will

further enhance the value of US Airways domestic and international route network by allowing

customers access to the global marketplace. Expanded benefits for customers include network expansion

through code share
service, Dividend Miles benefits, airport lounge access, convenient single-ticket

pricing, and one-stop check-in and coordinated baggage handling.



US Airways also has comprehensive marketing agreements with
United, a member of the Star

Alliance, which began in July 2002. United, as well as its parent company, UAL Corporation (UAL),

and certain of its affiliates, filed for protection under Chapter 11 of the Bankruptcy Code on December

9, 2002. United immediately requested bankruptcy court authority to assume these agreements and the

court granted
Uniteds request. US Airways also has marketing agreements with Lufthansa, Spanair,

bmi and other Star Alliance carriers, as well as several smaller
regional carriers in the Caribbean,

operating collectively as the GoCaribbean network.



Industry Regulation and Airport Access



US Airways operates under a certificate of public convenience and necessity issued by the

Department of Transportation (DOT). This certificate may
be altered, amended, modified or suspended

by the DOT if the public convenience and necessity so require, or may be revoked for failure to comply

with the terms and conditions of the certificates. Airlines are also regulated by the U.S. Federal Aviation

Administration (FAA), a division of the DOT, primarily in the areas of flight operations, maintenance,

ground facilities and other technical matters. Pursuant to these regulations, the Company has FAA-

approved maintenance
programs for each type of aircraft it operates that provide for the ongoing

maintenance of such aircraft, ranging from periodic routine inspections to
major overhauls. From time to

time, the FAA issues airworthiness directives and other regulations affecting the Company or one or

more of the aircraft types it operates. In recent years, for example, the FAA has issued or proposed such

mandates relating to, among other things, enhanced ground proximity warning systems; fuselage

pressure bulkhead
reinforcement; fuselage lap joint inspection rework; increased inspections and

maintenance procedures to be conducted on certain aircraft; increased
cockpit security; fuel tank

flammability reductions and domestic reduced vertical separation.



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##### Table of Contents

The DOT allows local airport authorities to implement procedures designed to abate special noise

problems, provided such procedures do not unreasonably interfere with interstate or foreign commerce

or the national transportation system. Certain locales, including Boston, Washington, D.C., Chicago, San

Diego and San Francisco, among others, have established airport restrictions to limit noise, including

restrictions on
aircraft types to be used and limits on the number of hourly or daily operations or the time

of such operations. In some instances these restrictions have
caused curtailments in services or increases

in operating costs and such restrictions could limit the ability of US Airways to expand its operations at

the affected airports. Authorities at other airports may consider adopting similar noise regulations.



The airline industry is also subject to increasingly stringent federal, state
and local laws protecting the

environment. Future regulatory developments and actions could affect operations and increase operating

costs for the airline industry, including the Company.



US Airways is obligated to collect a federal excise tax on domestic and international air transportation

(commonly referred to as the ticket tax). US Airways collects these taxes, along with certain other U.S.

and foreign taxes and user fees on air transportation, and passes through the collected amounts to the

appropriate governmental agencies. Although such taxes are not operating expenses of the Company,

they represent an
additional cost to the Companys customers.



The Aviation
and Transportation Security Act (Security Act) was enacted in November 2001. Under

the Security Act, substantially all aspects of civil aviation passenger
security screening were federalized

and a new Transportation Security Administration (TSA) under the DOT was created. TSA was then

transferred to the Department of Homeland Security pursuant to the Homeland Security Act of 2002.

The Security Act, among other matters, mandates improved flight deck security; carriage at no charge of

federal air
marshals; enhanced security screening of passengers, baggage, cargo, mail, employees and

vendors; enhanced security training; fingerprint-based background
checks of all employees and vendor

employees with access to secure areas of airports pursuant to regulations issued in connection with the

Security Act; and the provision of passenger data to U.S. Customs. Funding for TSA is provided, in

part, by a fee collected by air carriers from their passengers of $2.50 per flight segment (which is

proposed to increase
to up to $5.50 per flight segment in 2005, but not more than $8.00 per one-way

trip), and a fee on air carriers that is limited to the amount that the
carrier spent on passenger security

screening in 2000. Implementation of the requirements of the Security Act have resulted and will

continue to result in increased costs for US Airways, Piedmont and PSA and their passengers and has

and will likely continue to result in service disruptions and delays.



Most major U.S. airports impose passenger facility charges. The ability of airlines to contest increases

in these charges is restricted by federal legislation, DOT regulations and judicial decisions. Legislation

enacted in 2000 permitted airports to increase passenger facility charges effective April 1, 2001. With

certain exceptions,
air carriers pass these charges on to passengers. However, the ability of the Company

to pass-through security fees and passenger facility charges to its
customers is subject to various factors,

including market conditions and competitive factors.



The FAA has designated John F. Kennedy International Airport (Kennedy), LaGuardia and Reagan

National 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

in 2007 at LaGuardia and Kennedy. Among other things, the legislation encouraged the development of

air service to smaller
communities from slot-controlled airports. During the interim period while slot

restrictions remained in effect at LaGuardia, airlines could apply for slot
exemptions to serve smaller

communities using aircraft with a maximum seating capacity of less than 71. In connection with this

legislation, the Company and several other airlines increased service from LaGuardia, which led to

excessive flight delays. In response to such delays, the FAA implemented a slot lottery system in

December 2000 limiting
the number of new flights at LaGuardia. As a result, several airlines, including

US Airways, were required to reduce the number of flights added at
LaGuardia in connection with this

legislation. The resulting allocation of slots from the slot lottery system was initially scheduled to expire



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on September 15, 2001, but on August 3, 2001, the FAA announced an extension until October 26,

2002. On July 8, 2002, the FAA announced another extension until October 30, 2004, and subsequently

announced a further extension through October 30, 2005. As a result of the 2007 slot elimination, the

FAA has indicated an
intent to rethink its approach to regulating operations at LaGuardia. Several

proposals, including auctions, congestion pricing and other market-based
solutions, are being considered

along with more traditional regulatory approaches.



At Reagan National an additional eleven roundtrips were awarded by the DOT, pursuant to the Vision

100Century of Aviation Reauthorization Act, which created additional slots for distribution by the

DOT. Although US Airways participated in the proceeding and was awarded slots, most of the slots

were awarded to new
entrant carriers.



Where the FAA has seen congestion and delay
increases, it has stepped in and worked with

the carriers to freeze operations at current or somewhat reduced levels. Specifically, incumbent

carriers, including US Airways, are not permitted to increase operations at Chicago OHare as a

result of an agreement reached between the FAA and these airlines in August 2004. US Airways

expects that the current
operations freeze will continue at least through the summer 2005 travel

season. FAA rulemaking to address congestion issues at crowded airports is expected
sometime

in 2005. It is not yet clear how many airports or issues will be encompassed by the rulemaking,

the exact timing and outcome of which cannot be ascertained at this time.



As a result of widely-reported operational difficulties experienced by US Airways during the

Christmas 2004 time period, the DOTs Inspector General (IG) commenced an inquiry into the

causes of the operational
problems. The IG plans to issue a report summarizing its findings,

including recommendations for avoiding similar incidents in the future. The Company is

cooperating with the IG in its inquiry.



The availability of international routes to domestic air carriers is regulated by agreements

between the U.S. and foreign governments. Changes in U.S. or foreign government aviation

policy could result in the
alteration or termination of these agreements and affect US Airways

international operations.



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##### Table of Contents

Employees



As of December 31,
2004, on a full-time equivalent basis, US Airways employed

approximately 24,600 active employees including approximately 6,600 station personnel, 5,600

flight attendants, 4,600 mechanics and related employees, 3,100 pilots, 1,600 reservations

personnel and 3,100 personnel in administrative and miscellaneous job categories.



As of December 31, 2004, approximately 89% of the Companys active employees were

covered by collective bargaining agreements with various labor unions. The status of

US Airways labor agreements with
its major employee groups as of December 31, 2004 is as

follows:



|          |  |                                 |  |               |  |                       
|--------- |  | ------------------------------- |  | ------------- |  | ----------------------
|Union (1) |  | Class or Craft                  |  | Employees (2) |  | Date ContractAmendable
|ALPA      |  | Pilots                          |  | 3,100         |  | 12/31/09              
|IAMAW     |  | Mechanics and related employees |  | 4,600         |  | 12/31/09              
|IAMAW     |  | Fleet service employees         |  | 4,200         |  | 12/31/09              
|CWA       |  | Passenger service employees     |  | 5,400         |  | 12/31/11              
|AFA       |  | Flight attendants               |  | 5,600         |  | 12/21/11              
|TWU       |  | Dispatchers and other           |  | 200           |  | 12/31/09 & 12/31/11   

---

|    |  |                                                                 |  |                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | ALPAIAMAWCWAAFATWU                                              |  | Air Line Pilots Association International Association
of Machinists and Aerospace Workers Communications Workers of America Association of Flight Attendants-Communications Workers of America Transport Workers Union
|(2) |  | Approximate number of active employees covered by the contract.



Aviation Fuel



Aviation fuel is
typically the Companys second largest expense. Because the operations of

the airline are dependent upon aviation fuel, increases in aviation fuel
costs could materially and

adversely affect liquidity, results of operations and financial condition. The following table

shows aircraft fuel consumption and costs for 2002-2004:



|     |  |                      |  |                             |       |                                       |   |                                      |  |      |  
|---- |  | -------------------- |  | --------------------------- | ----- | ------------------------------------- | - | ------------------------------------ |  | ---- | -
|Year |  | Gallons(in millions) |  | Average priceper gallon (1) |       | Aviation fuelexpense (1)(in millions) |   | Percentage of TotalOperatingExpenses | 
|2004 |  | 902                  |  | $                           | 1.122 |                                       | $ | 1,012                                |  | 13.6 | %
|2003 |  | 873                  |  |                             | 0.883 |                                       |   | 771                                  |  | 11.0 | %
|2002 |  | 972                  |  |                             | 0.744 |                                       |   | 723                                  |  | 8.8  | %

---

|(1) | Includes fuel taxes and the impact of fuel hedges.
|--- | --------------------------------------------------



Prices and availability of all petroleum products are subject to political, economic and market

factors that are generally outside of the Companys control. Accordingly, the price and

availability of aviation fuel, as well as other petroleum products, can be unpredictable. Prices

may be affected by many
factors, including: the impact of political instability on crude

production, especially in Russia and OPEC countries; unexpected changes to the
availability of

petroleum products due to disruptions in distribution systems or refineries; unpredicted increases

to oil demand due to weather or the pace of economic growth; inventory levels of crude, refined

products and natural gas; and other factors, such as the relative fluctuation between the U.S.

dollar and other major
currencies and influence of speculative positions on the futures exchanges.

To reduce the exposure to changes in fuel prices, the Company periodically
enters into certain

fixed price swaps, collar structures and other similar derivative contracts. The Companys

current financial position and credit rating negatively affect its ability to hedge fuel in the future.

See Selected Operating and Financial Statistics in Item 7. Managements Discussion and



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##### Table of Contents

Analysis of Financial Condition and Results of Operation, for additional information related to

aviation fuel.



Airline Ticket Distribution



The
now common usage of electronic tickets within North America, and the rapid expansion

in Europe and the rest of the world, has allowed for the streamlining
of processes and the

increased efficiency of customer servicing and support. The Company began to support the

issuance of electronic tickets in 1996. During 2004, electronic tickets represented 96% of all

tickets issued to customers flying US Airways. The addition of a $50 surcharge to most

customers requiring paper tickets
has allowed the Company to continue to support the

exceptional requests, while offsetting any cost variance associated with the issuance and postal

fulfillment of paper tickets. Airlines based in North America have recently proposed a requested

mandate that airlines move to 100% electronic ticketing over the next couple of years, which will

only serve to enhance customer service and control costs for ticketing services supported by the

airline and distribution
partners.



The shift of consumer bookings from traditional
travel agents, airline ticket offices and

reservation centers to online travel agent sites (e.g., Orbitz, Travelocity, Expedia and others) as

well as airline direct websites (e.g., usairways.com) continues to grow within the industry.

Historically, traditional and online travel agencies used Global Distribution Systems (GDS), such

as Sabre, to obtain their
fare and inventory data from airlines. Bookings made through these

agencies result in a fee, the GDS fee, that is charged to the airline.
Bookings made directly

with the airline, through its reservation call centers or website, do not incur a GDS fee. The

growth of the airline direct websites and travel agent sites (e.g., Orbitz) that connect directly to

airline host systems, effectively by-passing the traditional connection via GDSs, helps the

Company reduce distribution
costs from the channels of distribution on the internet. In the fourth

quarter of 2004, the Company received over 31% of its sales from internet sites. The
Companys

direct website, usairways.com, comprised over 12% of Company sales, while the rest of the

internet sites accounted for the remaining 19% of Company sales.



Due to the continued pressure on legacy airlines to lower distribution fees more aggressively

than anytime in the past in order to compete with low-cost airlines, many new-comers have

entered the distribution industry. New low-cost GDSs, such as ITA Software, G2 Switchworks,

Navitaire and others, are
providing airlines with alternative economic models to do business with

traditional travel agents. These new low-cost GDSs substantially reduce the fees
charged to

airlines by this distribution channel.



In an effort to further reduce distribution costs through internal channels, US Airways and

other airlines have instituted service fees for interaction in channels requiring specialized service

such as reservation
call centers ($5.00 per ticket), Airline Ticket Offices ($10.00 per ticket) and

City Ticket Offices ($10.00), while continuing to offer free service via
the airlines websites.

The goals of these service fees are to reduce the cost to provide customer service as required by

the traveler and promote the continued goal of shifting customers to the Companys lowest cost

distribution channel, usairways.com. Internal channels of distribution account for 25% of all

Company sales.



In July 2004, the DOT eliminated most regulations governing
GDSs. Airlines and GDSs

continue to have open dialogue regarding possible cost savings.



Frequent Traveler Program



US
Airways operates a frequent traveler program known as Dividend Miles under which

participants earn mileage credits for each paid flight segment
on US Airways, US Airways

Shuttle, US Airways Express, Star Alliance carriers, and certain other airlines that participate in



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##### Table of Contents

the program. Participants flying on first class or Envoy class tickets receive additional mileage

credits. Participants can also receive mileage credits through special promotions periodically

offered by US Airways and may also earn mileage credits by utilizing certain credit cards and

purchasing services from
various non-airline partners. Mileage credits can be redeemed for

various free, discounted, or upgraded travel awards on US Airways, Star Alliance carriers
or

other participating airlines.



US Airways and the other participating airline partners limit the number of seats allocated per

flight for award recipients by using various inventory management techniques. Award travel for

all but the highest-level Dividend Miles participants is generally not permitted on blackout dates,

which correspond to
certain holiday periods or peak travel dates. US Airways reserves the right

to terminate Dividend Miles or portions of the program at any time. Program
rules, partners,

special offers, blackout dates, awards and requisite mileage levels for awards are subject to

change.



Insurance



The Company maintains
insurance of the types and in amounts deemed adequate to protect

themselves and their property. Principal coverage includes: liability for injury to
members of the

public, including passengers; damage to property of the Company, and others; loss of or damage

to flight equipment, whether on the ground or in flight; fire and extended coverage; directors and

officers; fiduciary; and workers compensation and employers liability. In addition to customary

deductibles,
the Company self-insures for all or a portion of its losses from claims related to

environmental liabilities and medical insurance for employees.



Since September 11, 2001, the Company and other airlines have
been unable to obtain

coverage for liability to persons other than employees and passengers for claims resulting from

acts of terrorism, war or similar events (war risk coverage) at reasonable rates from the

commercial insurance market. US Airways has, as have most other U.S. airlines, therefore

purchased its war risk coverage
through a special program administered by the FAA. The

Emergency Wartime Supplemental Appropriations Act extended this insurance protection until

August 2005. The Secretary of Transportation may extend this policy until December 31, 2005.

If the federal insurance program terminates, the Company would likely face a material increase in

the cost of war risk
coverage, and because of competitive pressures in the industry, the

Companys ability to pass this additional cost to passengers would be limited.



There can be no assurances that the Company can maintain
insurance coverages and costs at

its current levels.



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##### Table of Contents

Item 2. Properties



Flight Equipment



As of December
31, 2004, US Airways operated the following jet and regional jet aircraft:



|                 |  |                       |  |                     |  |           |  |            |  |      
|---------------- |  | --------------------- |  | ------------------- |  | --------- |  | ---------- |  | -----
|Type             |  | Average Seat Capacity |  | Average Age (years) |  | Owned (1) |  | Leased (2) |  | Total
|Airbus A330      |  | 266                   |  | 4.4                 |  | 9         |  |           |  | 9    
|Boeing 767-200ER |  | 203                   |  | 15.5                |  | 4         |  | 6          |  | 10   
|Boeing 757-200   |  | 193                   |  | 14.2                |  |          |  | 31         |  | 31   
|Airbus A321      |  | 169                   |  | 3.6                 |  | 20        |  | 8          |  | 28   
|Boeing 737-400   |  | 144                   |  | 14.8                |  | 3         |  | 42         |  | 45   
|Airbus A320      |  | 142                   |  | 5.2                 |  | 11        |  | 13         |  | 24   
|Boeing 737-300   |  | 126                   |  | 17.7                |  | 7         |  | 61         |  | 68   
|Airbus A319      |  | 120                   |  | 4.9                 |  | 15        |  | 51         |  | 66   
|                 |  |                       |  |                     |  |           |  |            |  |      
|                 |  |                       |  | 10.9                |  | 69        |  | 212        |  | 281  
|                 |  |                       |  |                     |  |           |  |            |  |      
|EMB-170          |  | 72                    |  | 0.5                 |  | 7         |  | 15         |  | 22   

---

|(1) | All owned aircraft are pledged as collateral for various secured financing agreements.
|--- | --------------------------------------------------------------------------------------

|(2) | The terms of the leases expire between 2005 and 2023.
|--- | -----------------------------------------------------



As of December 31, 2004, US Airways Group had 19 A320-family aircraft on firm order

scheduled for delivery in the years 2007 through 2009. US Airways Group also had ten A330-

200 aircraft on firm order
scheduled for delivery in the years 2007 through 2009. On February 3,

2005, the Bankruptcy Court approved the Companys agreement with Airbus
providing for,

among other things, delivery of the 19 A320-family aircraft in years 2008 through 2010 and

delivery of the ten A330-200 aircraft in years 2008 through 2009.



Pursuant to the Regional Jet Leasing Term Sheet of the Master Memorandum of

Understanding approved by the Bankruptcy Court in December 2004, General Electric Credit

Corporation (GECC) or its
affiliates will provide lease financing for up to 31 regional jet aircraft.

The aircraft to be financed will consist of 70- to 100-seat regional jet
aircraft manufactured by

Bombardier and/or Embraer in a mix and subject to other terms to be agreed mutually by GECC

and US Airways. In the first quarter of 2005, GECC will lease six Bombardier CRJ-700s to

US Airways with terms expiring on the earlier of the Companys emergence from Chapter 11 and

June 30, 2005; these
leases may be extended upon the Companys emergence from bankruptcy.



The Company acquired three new Embraer ERJ-170 aircraft in January 2005 and has firm

orders for three additional ERJ-170
aircraft scheduled to be delivered by March 31, 2005. The

Company also acquired three new CRJ-700 aircraft in January 2005.



The Company maintains inventories of spare engines, spare parts, accessories
and other

maintenance supplies sufficient to meet its operating requirements.



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##### Table of Contents

As of December 31, 2004, the Company owned or leased the following aircraft that were

not considered part of its operating fleet presented in the tables above. These aircraft were either

parked at storage facilities or, as shown in the far right column, leased or subleased to third

parties or related parties.



|                            |  |                     |  |       |  |        |  |       |  |                 
|--------------------------- |  | ------------------- |  | ----- |  | ------ |  | ----- |  | ----------------
|Type                        |  | Average Age (years) |  | Owned |  | Leased |  | Total |  | Leased/Subleased
|CRJ-200                     |  | 0.8                 |  | 21    |  | 14     |  | 35    |  | 35              
|CRJ-700                     |  | 0.6                 |  | 5     |  |       |  | 5     |  | 5               
|De Havilland Dash 8 100/200 |  | 8.3                 |  | 4     |  | 9      |  | 13    |  | 10              
|Douglas DC-9-30             |  | 24.0                |  | 6     |  |       |  | 6     |  | 6               
|                            |  |                     |  |       |  |        |  |       |  |                 
|                            |  |                     |  | 36    |  | 23     |  | 59    |  | 56              
|                            |  |                     |  |       |  |        |  |       |  |                 



As discussed in Item
1, Overview above, the Company has code share agreements in the

form of capacity purchase agreements with certain US Airways Express regional
jet affiliate

operators. Collectively, these regional jet affiliate operators flew 107 50-seat regional jet aircraft

as part of US Airways Express as of December 31, 2004.



US Airways is a participant in the Civil Reserve Air Fleet (CRAF), a voluntary program

administered by the Air Mobility Command (AMC). The General Services Administration of the

U.S. Government requires that
airlines participate in CRAF in order to receive U.S. Government

business. US Airways commitment under CRAF is to provide up to its entire widebody
fleet of

ten 767-200ER aircraft and nine A330-300 aircraft in support of military missions. US Airways

is reimbursed at compensatory rates when aircraft are activated under CRAF. US Airways is

reimbursed during peacetime proportionally to its commitment.



The Companys 767-200ER aircraft are committed to the Aeromed Program of CRAF. Under

this program, the aircraft are
converted to flying hospitals for transportation of injured troops.

US Airways, Delta and United are participants in the Aeromed Program. Participation in
this

program provides increased U.S. government revenues for the Company. Since the CRAF

activation of 2003, US Airways has not provided voluntary lift to AMC, due to operational

limitations.



Ground Facilities



The Company
leases the majority of its ground facilities, including executive and

administrative offices in Arlington, Virginia adjacent to Reagan National Airport;
its principal

operating, overhaul and maintenance bases at the Pittsburgh International Airport and

Charlotte/Douglas International Airports; training facilities in Pittsburgh and Charlotte; central

reservations offices in Pittsburgh and Winston-Salem (North Carolina); and line maintenance

bases and local ticket, cargo
and administrative offices throughout its system. US Airways owns

a training facility in Winston-Salem and a reservation facility in Orlando. The Orlando
facility

was closed on January 10, 2003 and is currently available for sale. The Pittsburgh reservations

call and service center will be closed in 2005 and consolidated into one location in Winston-

Salem.



Terminal Construction Projects



The Company utilizes public airports for its flight operations under lease arrangements with

the government entities that own or control these
airports. Airport authorities frequently require

airlines to execute long-term leases to assist in obtaining financing for terminal and facility

construction. Any future requirements for new or improved airport facilities and passenger

terminals at airports at which the Company operates could result in additional expenditures and

long-term commitments.



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In 1998, US Airways reached an agreement with the Philadelphia Authority for Industrial

Development (PAID) and the City of Philadelphia to construct a new international terminal and a

new US Airways Express terminal at the Philadelphia International Airport, one of US Airways

connecting hubs and US
Airways principal international gateway. The international terminal

includes 12 gates for widebody aircraft and new federal customs and immigration
facilities. The

international terminal gates were put into operation in May 2003 and the ticket lobby opened in

September 2003. The US Airways Express facility, completed in June 2001, can accommodate

38 regional aircraft.



Item 3. Legal Proceedings



On
September 12, 2004, US Airways filed a voluntary petition for relief under Chapter 11 of

the United States Bankruptcy Code in the United States Bankruptcy
Court for the Eastern District

of Virginia, Alexandria Division (Case Nos. 04-13819-SSM through 03-13823-SSM). The

Company continues to operate its business and manage its property as a debtor-in-possession

pursuant to Sections 1107 and 1108 of the Bankruptcy Code. As a result of the current Chapter

11 filing, attempts to
collect, secure or enforce remedies with respect to prepetition claims

against the Company are subject to the automatic stay provisions of Section 362(a)
of the

Bankruptcy Code.



On February 26, 2004, a company called I.A.P. Intermodal, LLC filed suit against

US Airways Group and its wholly owned airline subsidiaries in the United States District Court

for the Eastern District of
Texas alleging that the defendants infringed upon three patents held by

plaintiffs, all of which patents are entitled, Method to Schedule a Vehicle
in Real-Time to

Transport Freight and Passengers. Plaintiff seeks various injunctive relief as well as costs, fees

and treble damages. US Airways Group and its subsidiaries were formally served with the

complaint on June 21, 2004. US Airways Group is unable to ascertain at this time the likelihood

or potential scale of
liability. On the same date, the same plaintiff filed what the Company

believes to be substantially similar cases against nine other major airlines,
including British

Airways, Northwest Airlines Corporation (Northwest), Korean Airlines Co., Ltd., Deutsche

Lufthansa AG, Air France, Air Canada, Singapore Airlines Ltd., Delta, and Continental Airlines,

Inc., and had filed a suit against the parent company of American Airlines in December 2003.

This action was stayed as to
US Airways Group and its wholly owned subsidiaries as a result of

the bankruptcy filing on September 12, 2004.



The Port Authority of New York and New Jersey filed a proof of claim against
US Airways in

the Prior Bankruptcy. The claim was in the amount of $8.5 million and it alleged environmental

contamination and building deficiencies at LaGuardia. US Airways liability and defenses to

such liability were unaffected by the Prior Bankruptcy. US Airways has received no notice,

inquiry or other communication
from the Port Authority other than in connection with the proof

of claim, and therefore is unable to evaluate at this time the validity of the underlying
claim, the

degree to which US Airways might share responsibility with other parties, or the cost of cleanup

or correction of the alleged building deficiencies.



On January 7, 2003, the Internal Revenue Service (IRS) issued a notice of proposed

adjustment to US Airways Group proposing to disallow $573 million of capital losses that

US Airways Group sustained in the
tax year 1999 on the sale of stock of USLM Corporation

(USLM). On February 5, 2003, the IRS filed a proof of claim with the Bankruptcy Court in

connection with the Prior Bankruptcy asserting the following claims with respect to USLM: (1)

secured claims for U.S. federal income tax and interest of $0.7 million; (2) unsecured priority

claims for U.S. federal
income tax of $68 million and interest of $14 million; and (3) an

unsecured general claim for penalties of $25 million. On May 8, 2003, US Airways Group

reached a tentative agreement with the IRS on the amount of U.S. federal income taxes, interest

and penalties due subject to final approval from the Joint Committee on Taxation. By letter

dated September 11, 2003, US Airways Group was notified that the Joint Committee on Taxation



14



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##### Table of Contents

had accepted the tentative agreement with the IRS, including a settlement of all federal income

taxes through the end of 2002. Due to the bankruptcy filing on September 11, 2004, which

suspended payment of prepetition liabilities, final payment terms under the agreement have not

been submitted to the
Bankruptcy Court for approval.



US Airways is named as a
defendant along with most of the major domestic airlines, several

national carriers and a number of international carriers, in a class action lawsuit on
behalf of all

United States-based travel agents filed in federal court in North Carolina. The complaint alleges

violation of the federal antitrust laws with respect to commission rate reductions and/or

commission cap reductions implemented by various airlines in 1997, 1998, 1999, 2001 and 2002.

Plaintiffs seek unspecified
damages for lost commissions, as well as injunctive relief. On

October 30, 2003, the federal court granted a motion for summary judgment dismissing all

claims against airline defendants other than the carriers then in bankruptcy, including

US Airways, because proceedings had been stayed against those bankrupt defendants. That grant

of summary judgment was
affirmed by the Fourth Circuit Court of Appeals. On January 28,

2004, the federal court in North Carolina dismissed all claims against US Airways. The
plaintiffs

in this proceeding had also filed a claim in Bankruptcy Court for prepetition and continuing

postpetition damages. The Bankruptcy Court determined that the entire claim was prepetition

and unsecured, and the plaintiffs appealed this decision to the District Court. The parties agreed

to stay this appeal
pending the outcome of the plaintiffs appeal of the grant of summary

judgment in the North Carolina action. Following the Fourth Circuits
decision to affirm the

summary judgment ruling, the plaintiffs dismissed their appeal of the Bankruptcy Court decision.



Williard, Inc. (Williard), together with the joint venture of Williard and
Len Parker Associates

(Williard/Parker), was awarded construction contracts with US Airways for work to be

performed at the Philadelphia International Airport. On May 29, 2002, US Airways terminated

the largest contract between the parties. Williard and Williard/Parker sued US Airways in

Pennsylvania state court for over
$14 million in damages representing termination costs and lost

profits, along with other alleged contractual damage claims. Subsequently, Limbach Company,

LLC (Limbach) alleged that it purchased the claims of Williard. After a trial, the Bankruptcy

Court, on June 7, 2004, determined the value of the Limbach and Limbach/Parker claims to be

$2,542,843. Limbach and
Limbach/Parker are challenging on appeal various rulings of the

Bankruptcy Court, including the amount of the claim and its status as an unsecured claim.

US Airways has also filed an appeal. Limbach and Limbach/Parker have filed an action in state

court against the City of Philadelphia (the City) and the Philadelphia Authority for Industrial

Development (PAID) and
received permission to include US Airways as a co-defendant,

provided that Limbach and Limbach/Parker did not make any claims against US Airways in that

action. In the lawsuit against the City and PAID, Limbach and Limbach/Parker are seeking the

same sums as in their earlier lawsuit and proofs of claim against US Airways, but this time under

the equitable theories of
third-party beneficiary, quantum meruit and constructive trust. The

court in the Philadelphia action dismissed US Airways from the lawsuit and dismissed
the third-

party beneficiary claims against the City and PAID. These rulings are subject to appeal at a later

date. On May 21, 2004, the City and PAID filed a Motion for Summary Judgment seeking

dismissal of the lawsuit. Should Limbach and/or Limbach/Parker recover in the Philadelphia

action against the City and PAID, that award would be
paid at 100 cents on the dollar.

US Airways may have an obligation to indemnify the City and PAID under its agreements related

to the airport development, which US Airways assumed as part of the Prior Bankruptcy.

Therefore, any recovery by Limbach and/or Limbach/Parker against the City and PAID could

result in an indemnification claim that US Airways may
have to pay at full value. Proceedings in

the Bankruptcy Court were stayed by the bankruptcy filing on September 12, 2004.



On October 4, 2004, the System Board of Adjustment (the System Board) issued
a ruling in

which the Companys outsourcing of heavy maintenance visits was deemed to be in violation of

the collective bargaining agreement between US Airways and the IAM as the representative of

Mechanic and Related Employees. The System Board ordered the Company to cease and desist



15



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from outsourcing the work, and ordered that affected employees be made whole. The System

Board did not specify any particular monetary remedy and none has since been decided or agreed

upon by the parties. However, the Bankruptcy Courts order granting in part the Companys

motion for relief under
Section 1113(e) of the Bankruptcy Code included relief from any

restrictions on the Companys right to outsource the work covered by this award
through

February 15, 2005. Neither the Companys Section 1113(e) motion nor the Bankruptcy Courts

order addressed the make-whole portion of this award. On November 12, 2004, the Company

filed a motion asking the Bankruptcy Court for permission to reject the IAM collective

bargaining agreement under which the
grievance had been filed. On January 6, 2005, the

Bankruptcy Court granted the Companys motion. On January 21, 2005, the IAM ratified a new

collective bargaining agreement to replace the one that had been rejected, and as part of the new

agreement, the IAM agreed not to pursue any claims for damages associated with the rejection of

the previous agreement.



US Airways Group and US Airways have been named as defendants in two lawsuits filed in

federal district court for the Eastern District of
Michigan. Delta is also named as a defendant in

both actions, while Northwest and the Airlines Reporting Corporation were sued separately in a

third action. The complaints were filed on behalf of a class of airline passengers who originated

or terminated their trips at the defendant carriers respective hubs. These passengers allege that

they paid excessive
fares due to the respective airlines enforcement of ticketing rules that

prohibit the use of a connecting segment coupon that 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

treble damages from all named defendants in the amount of $390 million and an injunction

prohibiting future enforcement of
the rules at issue. On May 16, 2002, the court denied the

defendant airlines Motion for Summary Judgment and granted the plaintiffs Motion for
Class

Certification in each of the cases. On May 31, 2002, US Airways Group and US Airways filed a

petition with the United States Court of Appeals for the Sixth Circuit seeking a discretionary

review of the certification order. On November 21, 2002, the petition for permission to appeal

the class certification
decision was denied. On December 4, 2002, Delta and Northwest filed a

rehearing petition seeking en banc review of the initial Sixth Circuit denial. On
February 24,

2003, Northwest and Deltas petition for rehearing en banc was denied. Notwithstanding the

district courts denial of summary judgment and the petition, US Airways Group and US Airways

believe the claims are without merit and intend to pursue a vigorous defense. The automatic stay

under Section 362(a) of
the Bankruptcy Code was lifted when the Company emerged from

bankruptcy on March 31, 2003, but the action was subsequently stayed once more as a result of

the Companys bankruptcy filing on September 12, 2004.



In May 1995, US Airways Group, US Airways and the Retirement Plan for Pilots of

US Airways, Inc. (Pilot Retirement Plan) 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 Pilot Retirement
Plan. The

plaintiffs sought damages in excess of $70 million. In May 1996, the court issued a decision

granting US Airways 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 Pilot
Retirement 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 the defendants 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 plaintiffs the right to reinstate their claims after completion of the arbitration.

Certain of the plaintiffs filed a claim before the US Airways Pilot Retirement Board, requesting

arbitration of their claim for benefits that they believe were erroneously calculated, and the



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Retirement Board selected an arbitrator to decide certain issues related to the plaintiffs claims

for benefits. However, the Pilot Retirement Plan was terminated on March 31, 2003, and on

April 1, 2003 the Pension Benefit Guaranty Corporation (PBGC) became trustee of the plan.

Also, claims related to this
matter were expunged in the Prior Bankruptcy. Accordingly, the

Company does not believe there is any continuing risk of material liability associated with
this

matter.



On September 29, 2000, US Airways intervened in a proceeding that was originally brought

on January 26, 1998, by the Pennsylvania Department of Environment Protection (DEP) against

Allegheny County, Pennsylvania
and the Allegheny County Aviation Administration (ACAA),

alleging that a variety of airfield and aircraft de-icing activities at Pittsburgh International
Airport

(Airport) violate the requirements of (a) a 1994 Consent Order and Adjudication issued to

Allegheny County and air carrier tenants at the Airport, (b) the Airports National Pollutant

Discharge Elimination System Permit, and (c) the Pennsylvania Clean Streams Law. The action

was brought before the
Pennsylvania Environment Hearing Board. During March 2001, the

Environmental Hearing Board approved Allegheny Countys Motion to Withdraw the Appeal

without Prejudice, thereby terminating the appeal. However, during the course of settlement

discussions leading to the termination of the appeal, the DEP advised Allegheny County and

US Airways that DEP (i) will
require additional measures to be taken to control de-icing

materials at the Airport, and (ii) will assess a civil penalty against Allegheny County and

US Airways for the alleged violations described above. The ACAA, US Airways and the DEP

have continued to work together with the goal of fashioning an ultimate resolution to the de-icing

issues. The Company does
not believe that the settlement of this matter will have a material

adverse effect on its financial condition, results of operations or liquidity.



Item 4. Submission of Matters to a Vote of Security Holders



Not applicable as US Airways is a wholly owned subsidiary of US Airways Group.



Part II



Item 5. Market for US Airways Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities



US Airways Group owns all of US Airways outstanding common stock, par value $1 per

share. US Airways board of
directors has not authorized the payment of dividends on the

common stock since 1988.



US Airways, organized under the laws of the State of Delaware, is subject to Sections 160 and

170 of the Delaware General Corporation Law with respect to the payment of dividends on or the

repurchase or redemption of its capital stock. US Airways is restricted from engaging in any of

these activities unless it
maintains a capital surplus. In addition, under the provisions of certain

debt agreements, including the ATSB Loan, US Airways ability to pay
dividends is restricted.

See Liquidity and Capital Resources in Item 7. Managements Discussion and Analysis of

Financial Condition and Results of Operation below for more information, including information

related to dividend restrictions associated with the ATSB Loan.



17



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##### Table of Contents

Item 6. Selected Financial Data



Statements of Operations (in millions) (1)



|                                                                      |  |                             |       |   |                                   |   |       |                                 |  |   |                         |   |  |   |        |   |  |   |        |   |  |   |       |  
|--------------------------------------------------------------------- |  | --------------------------- | ----- | - | --------------------------------- | - | ----- | ------------------------------- |  | - | ----------------------- | - |  | - | ------ | - |  | - | ------ | - |  | - | ----- | -
|                                                                      |  | Successor Company           |       |   | Predecessor Company               |  
|                                                                      |  | Year EndedDecember 31, 2004 |       |   | Nine MonthsEndedDecember 31, 2003 |   |       | ThreeMonthsEnded March 31, 2003 |  |   | Year Ended December 31, |  
|                                                                      |  |                             |       |   | 2002                              |   |       | 2001                            |  |   | 2000                    |  
|Operating Revenues                                                    |  | $                           | 7,073 |   |                                   | $ | 5,250 |                                 |  | $ | 1,512                   |   |  | $ | 6,915  |   |  | $ | 8,253  |   |  | $ | 9,181 |  
|Operating Expenses                                                    |  |                             | 7,421 |   |                                   |   | 5,292 |                                 |  |   | 1,714                   |   |  |   | 8,236  |   |  |   | 9,874  |   |  |   | 9,225 |  
|                                                                      |  |                             |       |   |                                   |   |       |                                 |  |   |                         |   |  |   |        |   |  |   |        |   |  |   |       |  
|Operating Loss                                                        |  | $                           | (348  | ) |                                   | $ | (42   | )                               |  | $ | (202                    | ) |  | $ | (1,321 | ) |  | $ | (1,621 | ) |  | $ | (44   | )
|                                                                      |  |                             |       |   |                                   |  
|Income (Loss) Before Cumulative Effectof Accounting Change            |  | $                           | (578  | ) |                                   | $ | (160  | )                               |  | $ | 1,613                   |   |  | $ | (1,659 | ) |  | $ | (1,996 | ) |  | $ | (152  | )
|Cumulative Effect of Accounting Change,Net of Applicable Income Taxes |  |                             |      |   |                                   |   |      |                                 |  |   |                        |   |  |   |       |   |  |   | 7      |   |  |   | (103  | )
|                                                                      |  |                             |       |   |                                   |   |       |                                 |  |   |                         |   |  |   |        |   |  |   |        |   |  |   |       |  
|Net Income (Loss)                                                     |  | $                           | (578  | ) |                                   | $ | (160  | )                               |  | $ | 1,613                   |   |  | $ | (1,659 | ) |  | $ | (1,989 | ) |  | $ | (255  | )
|                                                                      |  |                             |       |   |                                   |   |       |                                 |  |   |                         |   |  |   |        |   |  |   |        |   |  |   |       |  

---

|(1) | Includes unusual items. See Note 16 to the Companys Notes to the Financial Statements for related information.
|--- | ---------------------------------------------------------------------------------------------------------------



Balance Sheets (in millions)



|                                     |  |                               |       |                                 |      |   |       |  |   |        |   |  |      |        |   |  |   |       |  
|------------------------------------ |  | ----------------------------- | ----- | ------------------------------- | ---- | - | ----- |  | - | ------ | - |  | ---- | ------ | - |  | - | ----- | -
|                                     |  | Successor CompanyDecember 31, |       | Predecessor CompanyDecember 31, |     
|                                     |  | 2004                          |       |                                 | 2003 |   | 2002  |  |   | 2001   |   |  | 2000 |       
|Total Assets                         |  | $                             | 8,250 |                                 |      | $ | 8,349 |  | $ | 6,464  |   |  | $    | 7,941  |   |  | $ | 8,986 |  
|Long-Term Obligations (2)            |  | $                             | 4,815 |                                 |      | $ | 4,591 |  | $ | 5,009  |   |  | $    | 5,147  |   |  | $ | 4,379 |  
|Total Stockholders Equity (Deficit) |  | $                             | (501  | )                               |      | $ | 89    |  | $ | (4,956 | ) |  | $    | (2,630 | ) |  | $ | (489  | )

---

|(2) | Includes debt, capital leases and postretirement benefits other than pensions (noncurrent). Also includes liabilities
|--- | ---------------------------------------------------------------------------------------------------------------------

| | subject to compromise at December 31, 2004 and December 31, 2002.
| | -----------------------------------------------------------------



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##### Table of Contents

Item 7. Managements Discussion and Analysis of Financial Condition and Results of

Operations



General Information



Certain of the
statements contained herein should be considered forward-looking statements

within the meaning of the Private Securities Litigation Reform Act
of 1995, which reflect the

current views of US Airways with respect to current events and financial performance. You can

identify these statements by forward-looking words such as may, will, expect, intend,

anticipate, believe, estimate, plan, could, should, and continue or similar words.

These forward-looking statements may also use different phrases. Such forward-looking

statements are and will be, as the case may be, subject to many risks, uncertainties and factors

relating to the
Companys operations and business environment which may cause the actual

results of the Company to be materially different from any future results,
express or implied, by

such forward-looking statements. Factors that could cause actual results to differ materially from

these forward-looking statements include, but are not limited to, the following: the ability of the

Company to continue as a going concern; the ability of the Company to obtain and maintain any

necessary financing for
operations and other purposes, whether debtor-in-possession financing or

other financing; the ability of the Company to maintain adequate liquidity; the
ability of the

Company to absorb escalating fuel costs; the Companys ability to obtain court approval with

respect to motions in the Chapter 11 proceedings prosecuted by it from time to time; the ability

of the Company to develop, prosecute, confirm and consummate one or more plans of

reorganization with respect to the
Chapter 11 proceedings; risks associated with third parties

seeking and obtaining court approval to terminate or shorten the exclusivity period for the

Company to propose and confirm one or more plans of reorganization, to appoint a Chapter 11

trustee or to convert the cases to Chapter 7 cases; the ability of the Company to obtain and

maintain normal terms with
vendors and service providers; the Companys ability to maintain

contracts that are critical to its operations; the potential adverse impact of the
Chapter 11

proceedings on the Companys liquidity or results of operations; the ability of the Company to

operate pursuant to the terms of its financing facilities (particularly the financial covenants); the

ability of the Company to fund and execute its Transformation Plan during the Chapter 11

proceedings and in the context of
a plan of reorganization and thereafter; the ability of the

Company to attract, motivate and/or retain key executives and associates; the ability of the

Company to attract and retain customers; the ability of the Company to maintain satisfactory

labor relations; demand for transportation in the markets in which the Company operates;

economic conditions; labor costs;
financing availability and costs; security-related and insurance

costs; competitive pressures on pricing (particularly from lower-cost competitors) and on
demand

(particularly from low-cost carriers and multi-carrier alliances); weather conditions; government

legislation and regulation; impact of continued military activities in Iraq; other acts of war or

terrorism; and other risks and uncertainties listed from time to time in the Companys reports to

the SEC. There may
be other factors not identified above of which the Company is not currently

aware that may affect matters discussed in the forward-looking statements, and
may also cause

actual results to differ materially from those discussed. The Company assumes no obligation to

update such estimates to reflect actual results, changes in assumptions or changes in other factors

affecting such estimates other than as required by law. Similarly, these and other factors,

including the terms of any
reorganization plan ultimately confirmed, can affect the value of the

Companys various prepetition liabilities. Accordingly, the Company urges that
the appropriate

caution be exercised with respect to existing and future investments in any of these liabilities.



Chapter 11 Proceedings



On
September 12, 2004, US Airways filed a voluntary petition for relief under Chapter 11 of

the Bankruptcy Code in the United States Bankruptcy Court for the
Eastern District of Virginia,

Alexandria Division (Case Nos. 04-13819-SSM through 04-13823-SSM). On the same day,

US Airways Group, US Airways parent company and four of its other subsidiaries (collectively



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##### Table of Contents

the Debtors) also filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.

Each of the Debtors in these cases had previously filed a voluntary petition for relief under

Chapter 11 on August 11, 2002 (the Prior Bankruptcy). The Debtors emerged from the Prior

Bankruptcy under the First Amended
Joint Plan of Reorganization of US Airways Group, Inc.

and Affiliated Debtors and Debtors-in-Possession, As Modified (the 2003 Plan), which was

confirmed pursuant to an order of the Bankruptcy Court on March 18, 2003 and became effective

on March 31, 2003. In accordance with AICPA Statement of Position 90-7, Financial Reporting

by Entities in
Reorganization Under the Bankruptcy Code (SOP 90-7), the Company adopted

fresh-start reporting on March 31, 2003. References to Predecessor
Company refer to the

Company prior to March 31, 2003. References to Successor Company refer to the Company

on and after March 31, 2003, after giving effect to the cancellation of the then-existing common

stock and the issuance of new securities in accordance with the 2003 Plan and application of

fresh-start reporting. As a
result of the application of fresh-start reporting, the Successor

Companys financial statements are not comparable with the Predecessor
Companys financial

statements.



Before emerging from the Prior Bankruptcy in 2003, the Company examined virtually every

phase of its contracts and operations and had significantly reduced costs. The Company reduced

its mainline capacity,
realigned its network to maximize yield, initiated a business plan to use

more regional jets and procured financing for these aircraft, and expanded its
alliances with other

carriers. However, after emerging from the Prior Bankruptcy, the Company continued to incur

substantial losses from operations. The primary factors contributing to these losses include the

reduction in domestic industry unit revenue and significant increases in fuel prices. The

downward pressure on domestic
industry revenue is a result of the rapid growth of low-fare, low-

cost airlines, the increasing transparency of fares through Internet sources and other
changes in

fare structures that have resulted in substantially lower fares for many business and leisure

travelers. The competitive environment continued to intensify throughout 2004, particularly in

key markets such as Philadelphia, Washington, D.C., Boston and New York.



Throughout the spring and summer of 2004, the Company communicated with key

stakeholders and the public its plan to transform US Airways into a fully competitive and

profitable airline (the
Transformation Plan). A key element of the Transformation Plan is

significant reductions in labor costs through changes to the Companys collective
bargaining

agreements. The Company aggressively sought the necessary agreements to allow full

implementation of the Transformation Plan without the need for filing new Chapter 11 cases but

was unable to do so in a
timely manner. As a result of the recurring losses, declining available

cash, and risk of defaults or cross defaults under certain key financing and
operating agreements,

it was necessary for the Debtors to file voluntary petitions for reorganization under Chapter 11 of

the Bankruptcy Code on September 12, 2004.



At hearings held on September 13, 2004, the Bankruptcy Court granted the Companys first

day motions for relief designed to stabilize its operations and business relationships with

customers, vendors, employees and others and entered orders granting permission to the Debtors

to, among other things: (a)
pay employee wages and continue benefits, such as medical and

dental insurance; (b) honor prepetition obligations to customers and continue customer
programs,

including US Airways Dividend Miles program; (c) pay for fuel under existing supply contracts,

and honor existing fuel supply, distribution and storage agreements; (d) assume certain contracts

related to interline agreements with other airlines; (e) pay prepetition obligations to certain

foreign vendors, foreign
service providers and foreign governments; and (f) continue

maintenance of existing bank accounts and existing cash management systems. The Bankruptcy

Court also approved the interim agreement reached between the Company, the ATSB and the

lenders under the $1 billion loan, obtained upon emergence from the Prior Bankruptcy and

substantially guaranteed by the
ATSB, to allow the Company continued use of the cash collateral

securing the loan (see further discussion below).



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##### Table of Contents

Since filing for bankruptcy on September 12, 2004, the Company has achieved cost-savings

agreements with all of its collective bargaining groups. Through a motion filed under Section

1113(e) of the Bankruptcy Code on September 24, 2004, the Company sought interim relief from

their collective bargaining
agreements (CBAs) with ALPA, AFA, TWU, CWA and IAM. On

October 15, 2004, the Bankruptcy Court approved base rates of pay reductions of 21% through

February 15, 2005 or entry of an order approving a new CBA or granting final relief under

Section 1113(c) of the Bankruptcy Code. Reductions to pension contributions and certain work

rule changes were also
approved. The interim relief order did not apply to ALPA or TWU,

whose members reached and ratified CBAs prior to the interim relief going into effect.
CBAs

with the CWA and AFA were reached in December 2004 and were subsequently ratified. On

January 6, 2005, the Bankruptcy Court approved the Companys request to reject the IAM CBAs

and approved the
termination of the three mainline defined benefit plans. The IAM subsequently

ratified Company cost-savings proposals on January 21, 2005. In addition, the
Bankruptcy Court

has also approved various settlement agreements between the Company and the court-appointed

Section 1114 Committee representing retirees other than those represented by the IAM to begin

the significant curtailment of postretirement benefits.



On November 12, 2004, US Airways filed a motion requesting a determination from the

Bankruptcy Court that US Airways
satisfied the financial requirements for a distress

termination of the Retirement Plan for Flight Attendants in the Service of US Airways, Inc.

(AFA Plan), the Pension Plan for Employees of US Airways, Inc. Who Are Represented by the

International Association of Machinists and Aerospace Workers (IAM Plan), and the Retirement

Plan for Certain Employees of
US Airways, Inc. (CE Plan) under section 4041(c)(2)(B)(ii)(IV) of

the Employee Retirement Income Security Act of 1974, as amended (ERISA), and approval of

each such plans termination. These plans were projected to have benefit obligations and plan

assets aggregating $2.7 billion and $1.7 billion, respectively, as of September 30, 2004, the most

recent valuation date. On January 6, 2005, the Bankruptcy Court entered an order (i) finding that

the financial
requirements under section 4041(c)(2)(B)(ii)(IV) of ERISA for a distress

termination of the plans had been met and (ii) approving termination of the plans.
The AFA Plan

and the IAM Plan were terminated effective January 10, 2005, by agreement between the PBGC

and the Company. The CE Plan was terminated effective January 17, 2005, by agreement

between the PBGC and US Airways. Effective February 1, 2005, the PBGC was appointed

trustee for each of the three plans.



In addition to the cost savings achieved with labor groups, the Company also
implemented

pay and benefit reductions for its current management and other non-union employees, including

reductions to base pay, workforce reductions and modifications to vacation and sick time

accruals. The Company also implemented modifications to its defined contribution pension

plans and will implement
modifications to retiree benefits in 2005. The pay rate and defined

contribution plan reductions went into effect October 11, 2004 and the reductions to
retiree

medical benefits will become effective March 1, 2005.



The Company has reached agreements with certain of its lessors and lenders restructuring

existing aircraft lease and debt financings. On November 19, 2004, the Bankruptcy Court

approved the Companys
agreements for the continued use and operation of substantially all of

its mainline and Express fleet. As discussed in detail below, the Company reached a

comprehensive agreement with GE Capital Aviation Services (GECAS) and GE Engine Service

(GEES) on aircraft leasing and financing and engine services, which will provide the Company

with short-term liquidity,
reduced debt, lower aircraft ownership costs, enhanced engine

maintenance services, and operating leases for new regional jets. The Company also reached

agreements with EMBRAER-Empresa Brasileria de Aeronautica SA (Embraer) and Bombardier,

Inc. (Bombardier) providing for continued use and operation of its aircraft, short term liquidity

and new financing for
regional jets, which were approved by the Bankruptcy Court in January

2005. These agreements are discussed in more detail in Liquidity and Capital
Resources.



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The Company has notified all known or potential creditors of the Chapter 11 filing for the

purposes of identifying and quantifying all prepetition claims. The Chapter 11 filing triggered

defaults on substantially all debt and lease obligations. Subject to certain exceptions under the

Bankruptcy Code, the
Chapter 11 filing automatically stayed the continuation of any judicial or

administrative proceedings or other actions against the Debtors or their
property to recover on,

collect or secure a claim arising prior to September 12, 2004. The deadline for filing proofs of

claim with the Bankruptcy Court was February 3, 2005, with a limited exception for

governmental entities, which have until March 11, 2005.



The potential adverse publicity associated with the Chapter 11 filings and the resulting

uncertainty regarding the Companys future prospects
may hinder the Companys ongoing

business activities and its ability to operate, fund and execute its business plan by impairing

relations with existing and potential customers; negatively impacting the ability of the Company

to attract and retain key employees; limiting the Companys ability to obtain trade credit; limiting

the
Companys ability to effectively hedge rising aviation fuel costs; and impairing present and

future relationships with vendors and service providers.



As a result of the Chapter 11 filings, realization of assets
and liquidation of liabilities are

subject to significant uncertainty. While operating as a debtor-in-possession under the protection

of Chapter 11, and subject to Bankruptcy Court approval or otherwise as permitted in the normal

course of business, US Airways may sell or otherwise dispose of assets and liquidate or settle

liabilities for amounts
other than those reflected in the financial statements. Further, a plan of

reorganization could materially change the amounts and classifications reported
in the historical

financial statements, which do not give effect to any adjustments to the carrying value of assets

or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of

reorganization.



To exit
Chapter 11 successfully, the Company must obtain confirmation by the Bankruptcy

Court of a plan of reorganization. The Company currently has the exclusive
right to file a plan of

reorganization until March 31, 2005 and solicit acceptance of the plan through June 30, 2005.

Under the terms of the agreement reached with General Electric, the Company has until March

15, 2005 to file a plan of reorganization. These deadlines could potentially be extended. A plan

of reorganization would,
among other things, resolve all prepetition obligations, set forth a

revised capital structure and establish the corporate governance subsequent to exiting
from

bankruptcy.The Company is currently working towards emerging from Chapter 11 mid-year

2005, but that timing is dependent upon, among other things, the timely and successful

confirmation and implementation of a plan of reorganization. The ultimate recovery to creditors,

if any, will not be
determined until confirmation of a plan of reorganization. No assurance can

be given as to what values, if any, will be ascribed in the Chapter 11 cases to
each of these

constituencies or what type or amount of distributions, if any, they would receive.



Transformation Plan



The Company continues to implement its Transformation Plan, which is built
on several

aspects of proven success in the airline industry, beyond the necessary lower labor costs that have

been achieved. Those include lower overall costs, a simplified fare structure and expanded

services in the eastern United States, the Caribbean and Latin America. Specifically, the

Company has taken or is currently
undertaking the following initiatives:



| | Lower, simplified pricing and lower distribution costs. US Airways has already taken steps
|- | ------------------------------------------------------------------------------------------

to simplify its fares by introducing its GoFares pricing plan in many markets served from

Philadelphia, Washington, D.C., and Fort Lauderdale, and has stated its intent to expand that

pricing plan across its system in conjunction with achieving lower costs. A redesigned



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##### Table of Contents

website and more airport technology will also lower distribution costs, enhance customer

service and improve airport processing.



| | Enhanced low-cost product offering. US Airways customers will continue to benefit from a
|- | ----------------------------------------------------------------------------------------

combination of product offerings that is unique among low-cost carriers, including two-class

service,
international flights to Europe, the Caribbean, Latin America and Canada, service to

airports that business travelers prefer, access to a
global network via the Star Alliance, a

premium frequent flyer program and competitive onboard service.



| | Network enhancements. Leveraging its strong positions in major Northeast markets,
|- | ---------------------------------------------------------------------------------

US Airways intends to use its airport slot and facilities assets to offer nonstop service to more

major
business and leisure destinations. Pittsburgh is no longer a hub and service has been

reduced in accordance with previously announced
operational changes. Fort Lauderdale is

being expanded to handle additional Latin America service. Operations at Charlotte are being

expanded and new routes from Reagan National are being introduced. In addition, changes

are being made to the scheduling practices at Philadelphia to improve reliability, adding new

destinations in the Caribbean and Latin America and introducing service to Barcelona and

Venice in May.



| | Lower unit operating costs. In conjunction with more point-to-point flying, US Airways
|- | --------------------------------------------------------------------------------------

intends to fly its fleet more hours per day as it decreases the time aircraft sit on the ground at

hubs,
waiting for connecting passengers. Productivity increases will be gained through this

more efficient scheduling in conjunction with the
contractual labor changes.



Prior
Bankruptcy Information



As discussed above, the Company
emerged from the Prior Bankruptcy under the 2003 Plan.

The 2003 Plan constituted a separate plan of reorganization for US Airways and each of

US Airways Groups other domestic subsidiaries (collectively, the Filing Entities). In

accordance with the Bankruptcy Code, the 2003 Plan divided claims against, and interests in,

each of the Filing Entities
into classes according to their relative seniority and other criteria and

provided the same treatment for each claim or interest of a particular class
unless the holder of a

particular claim or interest agreed to a less favorable treatment of its claim or interest. Among

other things, the 2003 Plan generally provided for full payment of all allowed administrative and

priority claims, and the distribution of shares (or warrants to purchase shares) of new equity in

the reorganized US
Airways Group, Inc. (Reorganized US Airways Group) to the ATSB, the

Retirement Systems of Alabama Holdings LLC (RSA), the Companys management and
labor

unions, General Electric Capital Corporation and Bank of America, N.A., and to unsecured

creditors of the Filing Entities, including the PBGC, in satisfaction of their allowed claims. For a

complete discussion of the distributions provided for under the 2003 Plan, see the 2003 Plan

confirmed by the Bankruptcy
Court on March 18, 2003 and filed with US Airways Groups

Current Report on Form 8-K dated March 18, 2003 and filed with the SEC on April 2, 2003.



On March 31, 2003, RSA invested $240 million in cash in
Reorganized US Airways Group

pursuant to an investment agreement (the RSA Investment Agreement) in exchange for

approximately 36.2%, on a fully diluted basis, of the equity in Reorganized US Airways Group.

As of March 31, 2003, in connection with its investment, RSA was granted a voting interest of

approximately 71.6% in
Reorganized US Airways Group and became entitled to designate and

vote to elect eight of 15 directors to Reorganized US Airways Groups Board of
Directors. See

Note 12(d) in the Notes to the Financial Statements for a summary of the related party

transactions with RSA.



23



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##### Table of Contents

Results of Operations



As
discussed above, the Company emerged from the Prior Bankruptcy and adopted fresh-start

reporting on March 31, 2003. As a result of the application of
fresh-start reporting, the Successor

Companys financial statements are not comparable with the Predecessor Companys financial

statements. However, for purposes of discussion of the results of operations, 2004 has been

compared to the full year 2003 as included, in part, in the Companys Statements of Operations

(which are contained in
Part II, Item 8 of this report) and in Selected Operating and Financial

Statistics below. Except where noted, operating statistics referred to
below are for scheduled

service only.



2004 Compared With 2003



Operating RevenuesOperating revenues increased $311 million, or 4.6%. Passenger

transportation revenues increased $212 million or 3.5%. Revenue passenger miles (RPMs) were

up 8.7%, which increased
revenues by $536 million, partially offset by a 4.9% decrease in yield,

which decreased revenues by $324 million. Passenger transportation revenues were
negatively

impacted by the Companys bankruptcy proceedings. Passenger transportation revenue in 2003

included a favorable $34 million adjustment to the traffic balances payable account for unused

and now expired tickets. Cargo and freight revenue was flat. Other operating revenue increased

as a result of
an increase in service fee revenue from the wholly owned subsidiaries of

US Airways Group and affiliates and revenue associated with certain marketing
arrangements.



Operating ExpensesOperating expenses increased by
$415 million, or 5.9%. Operating

expenses excluding Government compensation and Asset impairments and other special items

increased 3.3% on a capacity increase (as measured by available seat miles or ASMs) of 5.8%.

Personnel costs decreased 9.2% due to lower employee pension, medical and dental, and

postretirement medical benefit
expense, an $89 million decrease in stock-based compensation

expense related to the issuance of US Airways Group Class A Common Stock to employees

covered by collective bargaining agreements following emergence from the Prior Bankruptcy in

2003, reduced headcount in 2004 and lower wage rates in the fourth quarter of 2004 as the result

of interim or permanent
relief from labor contracts. These decreases were partially offset by an

increase in expense associated with long-term disability. Aviation fuel
increased 31.3% primarily

due to higher average fuel prices and, to a lesser extent, schedule-driven increases in

consumption. US Airways Express capacity purchases increased 13.9% reflecting in purchased

ASMs from third-party regional jet operators and other airline subsidiaries of US Airways Group.

Aircraft
rent increased 3.8% as a result of new leases due to the conversion of mortgaged aircraft

to leased aircraft and the addition of new regional jet
leases. Other rent and landing fees were

flat as a result of decreases in landing fees offsetting increased airport rental expenses. Selling

expenses decreased 3.2% due to a decrease in commissions partially offset by increases to

advertising expense and sales volume driven increases in credit card fees. Depreciation and

amortization decreased 1.8% due to lower book values on the existing fleet as a result of fresh-

start reporting
effective March 31, 2003 and due to reduced amortization associated with

capitalized software, partially offset by depreciation associated with new
regional jets and the

write-off of certain ground equipment and an indefinite lived foreign slot.Other operating

expenses increased 7.1% due to increases in the cost associated with the redemption of Dividend

Miles for travel on partner airlines and future travel on US Airways as well as increases to costs

associated with
passenger and baggage screening and navigation fees, partially offset by

decreases in insurance expenses and schedule-related expenses including passenger
food

expenses. 2003 included $28 million in reductions to an accrual upon the resolution of

previously outstanding contingencies. Refer to Description of Unusual Items below for

information on Special
items and Government compensation.



Other Income
(Expense)Other Income (Expense), net decreased $1.9 billion primarily as a

result of the reorganization items directly associated with the
emergence from the Prior



24



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##### Table of Contents

Bankruptcy. See Description of Unusual Items below for additional information on the

components of Reorganization items, net in 2003. In 2004, reorganization items consisted of $27

million of professional fees, $7 million in aircraft order cancellation penalties, and $2 million in

damage and deficiency
claims associated with the rejection of certain aircraft, offset by $4

million in interest income on accumulated cash as a result of the current Chapter 11
proceedings.

Interest incomedecreased as the result of the reclassification of interest income on cash, cash

equivalents and short term investments to Reorganization items, net subsequent to the Chapter 11

filing on September 12, 2004. Interest expense was flat as a result of the conversion of

mortgaged aircraft to
leased aircraft and the abandonment of certain aircraft in the Prior

Bankruptcy, offset by interest related to the ATSB Loan and penalty interest incurred
as a result

of the current Chapter 11 proceedings. Other, net income in 2004 includes $13 million related to

a business interruption insurance recovery and a $2 million gain on the sale of four aircraft, while

the 2003 results reflect a $30 million gain recognized in connection with the Companys sale of

its investment in
Hotwire, Inc.



Provision (Credit) for Income TaxesThe Company
recorded an income tax benefit of $7 million

for the year ended December 31, 2004, as compared to $6 million of income tax expense in 2003.

The benefit recognized in 2004 related to revisions to prior estimates upon completion of the

Companys 2003 tax return. The Company continues to record a full valuation allowance against

its net deferred tax
assets due to the uncertainty regarding their ultimate realization.



Selected Operating and Financial StatisticsSystem capacity (as measured by ASMs) increased

5.8% and passenger volume (as measured by
RPMs) increased 8.7% in 2004. These increases

resulted in a 73.5% system passenger load factor, representing a 2.0 percentage point increase

over 2003. However, system yield declined by 4.9% reflecting the continued downward pressure

on fares. Weather conditions related primarily to hurricanes adversely impacted the Companys

operating and financial
performance in 2004 and 2003. US Airways full-time equivalent

employees at December 31, 2004 declined 8.1% reflecting the headcount reduction measures put

in place in connection with the Companys Transformation Plan.



2003 Compared With 2002



Operating RevenuesOperating revenues decreased $153 million, or 2.2%. Passenger

transportation revenues decreased $149 million or 2.4%. RPMs declined 4.4%, which decreased

revenues by $277 million, partially offset by a 2.1% improvement in yield, which increased

revenues by $127 million.
Passenger transportation revenue for 2003 includes a favorable $34

million adjustment to the traffic balances payable account for unused and now expired
tickets.

Other operating revenue was flat as increased mileage credit sales were offset by lower ticket

change and cancellation fees.



Operating ExpensesOperating expenses declined by $1.23 billion, or 14.9%. Operating

expenses excluding
Government compensation and Asset impairments and other special items

were lower by 9.2% on a capacity decrease (as measured by ASMs)
of 6.9%. Personnel costs

decreased 19.4% due to lower headcount levels, wage rates and employee pension and benefit

expenses partially offset by $125 million of stock-based compensation expenses resulting from

the issuance of common stock to employees covered by collective bargaining agreements

following emergence from Chapter 11.
Aviation fuel increased 6.6% due to higher average fuel

prices partially offset by schedule-driven decreases in consumption. US Airways
Express

capacity purchases increased 4.7% reflecting a 9.3% increase in purchased ASMs from third-

party regional jet operators and other airline subsidiaries of US Airways Group. Aircraft rent

decreased 14.7% due to favorably restructured leases and lease rejections made in connection

with the Companys Prior
Bankruptcy, which was partially offset by new leases as a result of the

conversion of mortgaged aircraft to leased aircraft. Other rent and landing
fees were flat as a

result of schedule-driven decreases in landing fees offsetting increased airport rental expenses

associated with the new terminal in Philadelphia. Selling expenses decreased 6.2% due to sales



25



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##### Table of Contents

volume driven decreases in credit card fees and sales- and rate-driven decreases in computer

reservation system fees. Travel agent commission rates decreased due to the elimination of the

base domestic commissions in March 2002 and increases in internet bookings which are less

costly to the Company.
Depreciation and amortization decreased 20.9% due to fewer owned

aircraft in the operating fleet and lower book values on the existing fleet as a
result of fresh-start

reporting.Other operating expenses decreased 9.7% due to decreases in insurance expenses and

schedule-related expenses including passenger food expenses and crew travel expenses and a $17

million and $12 million reduction to an accrual upon the resolution of previously outstanding

contingencies. Refer to
Description of Unusual Items below for information on Special items

and Government compensation.



Other Income (Expense)Other Income (Expense), net increased $2.3 billion from an
expense of

$593 million in 2002 to income of $1.7 billion in 2003. The increase is primarily due to $1.9

billion of income as a result of Reorganization items, net. Interest incomedecreased due to

lower return rates partially offset by higher average investment balances. Interest expense

decreased as a result of
the conversion of mortgaged aircraft to leased aircraft and the

abandonment of certain aircraft partially offset by interest related to the ATSB Loan.
Other, net

income increased as a result of a $30 million gain recognized in connection with the Companys

sale of its investment in Hotwire, Inc. and mark-to-market adjustments on certain stock options

held by the Company. Refer to Description of Unusual Items below for information on

Reorganization
items, net.



Provision (Credit) for Income TaxesThe
Companys federal and state income tax expense was

$6 million in 2003 representing an effective tax rate of 0.4%. This differed from statutory rates

primarily due to utilization of net operating loss carryforwards. During 2001, the Company

recognized a valuation allowance against its net deferred tax asset. The Company continues to

record a full valuation
allowance against its net deferred tax assets due to the uncertainty

regarding their ultimate realization. As a result of the March 2002 enactment of the
Job Creation

and Worker Assistance Act of 2002 (Job Act), the Company recognized an income tax credit

equal to the Companys carryback potential. The Job Act provides, among other things, an

extension of the net operating loss carryback period to five years from two years for net operating

losses arising from tax
years that end in 2001 or 2002 and the elimination of the 90% limitation

for alternative minimum tax purposes on those loss carrybacks. The tax credit
recorded in 2002

includes $53 million related to 2001 losses realizable due to the enactment of the Job Act and

recorded in the period of enactment. The Company continued to record a valuation allowance

against its net deferred tax asset which resulted in a 2002 effective tax rate of 13%.



Selected Operating and Financial StatisticsSystem capacity (as measured by ASMs) decreased

6.9% and passenger volume (as measured by RPMs) decreased 4.4% in 2003. These decreases

resulted in a 71.5% system
passenger load factor, representing a 1.9 percentage point increase

over 2002. System yield improved 2.1% reflecting a modest improvement in economic

conditions. Both RPMs and ASMs were significantly affected by the schedule reductions

initiated following the Companys Prior Bankruptcy. In addition, hurricanes Isabel, Fabian and

Henri adversely
impacted the Companys operating and financial performance in 2003.

US Airways full-time equivalent employees at December 31, 2003 declined 12.4%
reflecting the

headcount reduction measures put in place in connection with the Companys 2002 restructuring.



26



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##### Table of Contents

Description of Unusual Items



Special ItemsSpecial items included within operating expenses on the Companys Statements of

Operations include the following components (dollars in millions):



|                                                |  |                                     |     |     |                              |   |      |    
|----------------------------------------------- |  | ----------------------------------- | --- | --- | ---------------------------- | - | ---- | ---
|                                                |  | Successor Company                   |     |     | Predecessor Company          |  
|                                                |  | Nine Months Ended December 31, 2003 |     |     | Year Ended December 31, 2002 |  
|Aircraft order cancellation penalty             |  | $                                   | 35  | (a) |                              | $ |     |    
|Aircraft impairments and related charges        |  |                                     |    |     |                              |   | 392  | (b)
|Pension and postretirement benefit curtailments |  |                                     |    |     |                              |   | (90) | (c)
|Employee severance including benefits           |  |                                     | (1) | (d) |                              |   | (3)  | (d)
|Other                                           |  |                                     |    |     |                              |   | 21   | (e)
|                                                |  |                                     |     |     |                              |   |      |    
|                                                |  | $                                   | 34  |     |                              | $ | 320  |    
|                                                |  |                                     |     |     |                              |   |      |    

---

|(a) | During the quarter ended June 30, 2003, the Company recorded a $35 million charge in connection with its
|--- | --------------------------------------------------------------------------------------------------------

intention not to take delivery of certain aircraft scheduled for future delivery.

|(b) | During the fourth quarter of 2002, US Airways conducted an impairment analysis in accordance with Statement
|--- | -----------------------------------------------------------------------------------------------------------

of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets

(SFAS 144) on its B737-300, B737-400, B757-200 and B767-200 aircraft fleets as a result of changes to the

aircrafts recoverability periods (the planned conversion of owned aircraft to leased aircraft) as well as

indications of possible material changes to the market values of these aircraft. The analysis revealed that

estimated undiscounted future cash flows generated by these aircraft were less than their carrying values for four

B737-300s, 15 B737-400s, 21 B757-200s and three B767-200s. In accordance with SFAS 144, the carrying

values were reduced to fair market value. This analysis resulted in a pretax charge of $392 million.

Management estimated fair market value using third-party appraisals and recent leasing transactions.

|(c) | During the fourth quarter of 2002, US Airways recorded a curtailment credit of $120 million related to certain
|--- | --------------------------------------------------------------------------------------------------------------

postretirement benefit plans and a $30 million curtailment charge related to certain defined benefit pension

plans.

|(d) | In September 2001, US Airways announced that in connection with its reduced flight schedule it would
|--- | ----------------------------------------------------------------------------------------------------

terminate or furlough approximately 11,000 employees across all employee groups. Approximately 10,200 of

the affected employees were terminated or furloughed on or prior to January 1, 2002. Substantially all the

remaining affected employees were terminated or furloughed by May 2002. US Airways headcount reduction

was largely accomplished through involuntary terminations/furloughs. In connection with this headcount

reduction, US Airways offered a voluntary leave program to certain employee groups. Voluntary leave program

participants generally received extended benefits (e.g. medical, dental, life insurance) but did not receive any

furlough pay benefit. In accordance with Emerging Issues Task Force Issue No. 94-3, US Airways recorded a

pretax charge of $75 million representing the involuntary severance pay and the benefits for affected employees

during the third quarter of 2001. In the fourth quarter of 2001, US Airways recognized a $10 million charge

representing the estimated costs of extended benefits for those employees who elected to take voluntary leave

and a $2 million reduction in accruals related to the involuntary severance as a result of employees electing to

accept voluntary furlough. During the quarters ended June 30, 2003 and 2002, the Company recognized $1

million and $3 million, respectively, in reductions to severance pay and benefit accruals related to the

involuntary termination or furlough of certain employees.

|(e) | During the fourth quarter of 2002, US Airways recognized an impairment charge of $21 million related to
|--- | -------------------------------------------------------------------------------------------------------

capitalized gates at certain airports in accordance with Statement of Financial Accounting Standards No. 142,

Goodwill and Other Intangible Assets. The carrying values of the affected gates were reduced to fair value

based on a third party appraisal.



27



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##### Table of Contents

Reorganization Items, NetReorganization items, net represent amounts incurred as a direct

result of the Companys Chapter 11 filing and are presented separately in the Companys

Statements of Operations. Such items consist of the following (dollars in millions):



|                                          |  |                              |     |   |                                   |   |        |                              |  |   |      |  
|----------------------------------------- |  | ---------------------------- | --- | - | --------------------------------- | - | ------ | ---------------------------- |  | - | ---- | -
|                                          |  | Successor Company            |     |   | Predecessor Company               |  
|                                          |  | Year Ended December 31, 2004 |     |   | Three Months Ended March 31, 2003 |   |        | Year Ended December 31, 2002 | 
|Discharge of liabilities (a)              |  | $                            |    |   |                                   | $ | 3,655  |                              |  | $ |     |  
|Restructured aircraft financings (b)      |  |                              |    |   |                                   |   | 946    |                              |  |   |     |  
|Termination of pension plans (c)          |  |                              |    |   |                                   |   | 386    |                              |  |   |     |  
|Interest income on accumulated cash       |  |                              | 4   |   |                                   |   | 2      |                              |  |   | 2    |  
|Damage and deficiency claims (d)          |  |                              | (2  | ) |                                   |   | (1,892 | )                            |  |   |     |  
|Revaluation of assets and liabilities (a) |  |                              |    |   |                                   |   | (1,106 | )                            |  |   |     |  
|Professional fees                         |  |                              | (27 | ) |                                   |   | (51    | )                            |  |   | (61  | )
|Aircraft order cancellation penalties     |  |                              | (7  | ) |                                   |   |       |                              |  |   |     |  
|Loss on aircraft abandonment (e)          |  |                              |    |   |                                   |   | (9     | )                            |  |   | (68  | )
|Severance including benefits (f)          |  |                              |    |   |                                   |   |       |                              |  |   | (89  | )
|Write-off of ESOP deferred compensation   |  |                              |    |   |                                   |   |       |                              |  |   | (50  | )
|Other                                     |  |                              |    |   |                                   |   | (43    | )                            |  |   | (28  | )
|                                          |  |                              |     |   |                                   |   |        |                              |  |   |      |  
|                                          |  | $                            | (32 | ) |                                   | $ | 1,888  |                              |  | $ | (294 | )
|                                          |  |                              |     |   |                                   |   |        |                              |  |   |      |  

---

|(a) | Reflects the discharge or reclassification of liabilities subject to compromise in the Prior Bankruptcy. Most of
|--- | ----------------------------------------------------------------------------------------------------------------

these obligations were only entitled to receive such distributions of cash and common stock as provided under

the 2003 Plan. A portion of the liabilities subject to compromise in the Prior Bankruptcy were restructured

and continued, as restructured, to be liabilities of the Company.

|(b) | As of March 31, 2003, the Company restructured aircraft debt and lease agreements related to 119 aircraft in
|--- | ------------------------------------------------------------------------------------------------------------

connection with its Prior Bankruptcy including the conversion of 52 mortgages to operating leases. The

restructured terms generally provide for shorter lease periods and lower lease rates.

|(c) | Effective March 31, 2003, US Airways terminated its qualified and nonqualified pilot defined benefit pension
|--- | ------------------------------------------------------------------------------------------------------------

plans. The PBGC was appointed trustee of the qualified plan effective with the termination. The Company

recognized a gain in connection with the termination which is partially offset by the PBGC claim.

|(d) | Damage and deficiency claims largely arose as a result of the Company electing to either restructure, abandon
|--- | -------------------------------------------------------------------------------------------------------------

or reject aircraft debt and leases during the bankruptcy proceedings.

|(e) | Includes aircraft (seven A319s for 2003 and 34 F-100s, two B757-200s and one B737-400 for 2002) that
|--- | ----------------------------------------------------------------------------------------------------

were legally abandoned as part of the Prior Bankruptcy. Related aircraft liabilities were adjusted for each

aircrafts expected allowed collateral value.

|(f) | As a result of schedule reductions made in connection with the Prior Bankruptcy, US Airways terminated or
|--- | ---------------------------------------------------------------------------------------------------------

furloughed approximately 6,600 employees across all employee groups. Substantially all affected employees

were terminated or furloughed prior to March 31, 2003. US Airways headcount reduction was largely

accomplished through involuntary terminations/furloughs. In connection with this headcount reduction,

US Airways offered a voluntary leave program to certain employee groups. Voluntary leave program

participants generally received extended benefits (e.g. medical, dental, life insurance) but did not receive any

furlough pay benefit.



Government Compensation In April 2003, President George W. Bush signed into law the

Emergency Wartime Supplemental Appropriations Act (Emergency Wartime Act), which

included $2.4 billion for reimbursement to
the airlines for certain aviation-related security

expenses. Certain airlines that received the aviation-related assistance were required to agree to

limit the total cash compensation for certain executive officers during the 12-month period

beginning April 1, 2003 to an amount equal to the annual salary paid to that officer during the air

carriers fiscal
year 2002. Any violation of this agreement would require the carrier to repay to



28



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##### Table of Contents

the government the amount reimbursed for airline security fees. The Company complied with

this limitation on executive compensation. The Companys security fee reimbursement was $212

million, net of amounts due to certain affiliates, and was recorded as a reduction to operating

expenses during the second
quarter of 2003. In September 2003, the Company received

approximately $6 million of compensation associated with flight deck door expenditures which

was recorded as an offset to capital costs.



29



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##### Table of Contents

Selected Operating and Financial Statistics (1)



|                                                                 |  |                         |   |  |        |   |  |        |  
|---------------------------------------------------------------- |  | ----------------------- | - |  | ------ | - |  | ------ | -
|                                                                 |  | Year Ended December 31, |  
|                                                                 |  | 2004                    |   |  | 2003   |   |  | 2002   |  
|Revenue passengers miles (millions):*                            |  |                         |   |  |        |   |  |        |  
|System                                                           |  | 45,087                  |   |  | 41,464 |   |  | 43,374 |  
|Mainline                                                         |  | 39,964                  |   |  | 37,741 |   |  | 40,038 |  
|Available seat miles (millions):*                                |  |                         |   |  |        |   |  |        |  
|System                                                           |  | 61,353                  |   |  | 58,017 |   |  | 62,329 |  
|Mainline                                                         |  | 53,220                  |   |  | 51,494 |   |  | 56,360 |  
|Passenger load factor (2):*                                      |  |                         |   |  |        |   |  |        |  
|System                                                           |  | 73.5                    | % |  | 71.5   | % |  | 69.6   | %
|Mainline                                                         |  | 75.1                    | % |  | 73.3   | % |  | 71.0   | %
|Yield (3):*                                                      |  |                         |   |  |        |   |  |        |  
|System                                                           |  | 14.07                   | ¢ |  | 14.79  | ¢ |  | 14.48  | ¢
|Mainline (4)                                                     |  | 12.43                   | ¢ |  | 13.05  | ¢ |  | 13.05  | ¢
|Passenger revenue per available seat mile (5):*                  |  |                         |   |  |        |   |  |        |  
|System                                                           |  | 10.34                   | ¢ |  | 10.57  | ¢ |  | 10.08  | ¢
|Mainline (4)                                                     |  | 9.33                    | ¢ |  | 9.56   | ¢ |  | 9.27   | ¢
|Revenue passengers (thousands):*                                 |  |                         |   |  |        |   |  |        |  
|System                                                           |  | 55,954                  |   |  | 52,797 |   |  | 58,389 |  
|Mainline                                                         |  | 41,510                  |   |  | 41,251 |   |  | 47,155 |  
|                                                                 |  |                         |  
|Mainline revenue per available seat mile (6)                     |  | 10.69                   | ¢ |  | 10.75  | ¢ |  | 10.38  | ¢
|Mainline cost per available seat mile (Mainline CASM) (7) (8)    |  | 11.34                   | ¢ |  | 11.36  | ¢ |  | 12.67  | ¢
|Mainline average stage length (miles)*                           |  | 782                     |   |  | 761    |   |  | 685    |  
|Mainline cost of aviation fuel per gallon (9)                    |  | 112.08                  | ¢ |  | 88.29  | ¢ |  | 74.36  | ¢
|Mainline cost of aviation fuel per gallon (excluding fuel taxes) |  | 106.35                  | ¢ |  | 83.02  | ¢ |  | 68.90  | ¢
|Mainline gallons of aviation fuel consumed (millions)            |  | 884                     |   |  | 873    |   |  | 972    |  
|Mainline number of aircraft in operating fleet at period-end     |  | 281                     |   |  | 282    |   |  | 280    |  
|Mainline full-time equivalent employees at period end            |  | 24,628                  |   |  | 26,797 |   |  | 30,585 |  

---

|* | Denotes scheduled service only (excludes charter service).
|- | ----------------------------------------------------------

|(1) | Operating statistics include free frequent flyer travelers and the related miles they flew. System statistics encompass all wholly owned airline subsidiaries of US Airways Group,
including US Airways, Allegheny (through June 2004), Piedmont, PSA, as well as operating and financial results from capacity purchase agreements with Mesa, Chautauqua, Trans States and Midway (through October 2003). Where noted, revenues and
expenses associated with US Airways capacity purchase arrangements with certain affiliated airlines and US Airways regional jet division, MidAtlantic, have been excluded from US Airways financial results for purposes of mainline
financial statistical calculation and to provide better comparability between periods (see details below).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Percentage of aircraft seating capacity that is actually utilized (RPMs/ASMs).
|--- | ------------------------------------------------------------------------------

|(3) | Passenger transportation revenue divided by RPMs.
|--- | -------------------------------------------------

|(4) | Mainline passenger revenue excludes US Airways Express and MidAtlantic passenger revenue of $1,379 million, $1,208 million, and $1,058 million for the years ended December 31, 2004,
2003 and 2002, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Passenger transportation revenue divided by ASMs (a measure of unit revenue).
|--- | -----------------------------------------------------------------------------

|(6) | Mainline operating revenues divided by ASMs (a measure of unit revenue). Mainline operating revenues exclude US Airways Express and MidAtlantic operating revenues of $1,385 million,
$1,214 million and $1,063 million for the years ended December 31, 2004, 2003 and 2002, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Total Operating Expenses divided by ASMs (a measure of unit cost).
|--- | ------------------------------------------------------------------

|(8) | Mainline operating expenses exclude US Airways capacity purchases of $1,304 million, $1,145 million, and $1,094 million for the years ended December 31, 2004, 2003 and 2002,
respectively, and MidAtlantic operating expenses of $79 million for the year ended December 31, 2004. Operating expenses for each period include unusual items as follows:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For the year ended December 31, 2003, operating expenses include an aircraft order penalty of $35 million (0.07¢) and government compensation of $212 million (0.41¢).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For the year ended December 31, 2002, operating expenses include aircraft impairment and related charges of $392 million (0.70¢), a benefit on the pension and postretirement
curtailment of $90 million (0.16¢), an impairment charge related to capitalized gates at certain airports of $21 million (0.04¢) and a reduction to the involuntary severance accrual of $3 million (0.01¢).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes fuel taxes and transportation charges and excludes service fees.
|--- | -------------------------------------------------------------------------



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##### Table of Contents

Liquidity and Capital Resources



As of December 31, 2004, the Companys Cash, Cash equivalents and Short-term investments

totaled $734 million compared to $1.28 billion as of
December 31, 2003. All of the Companys

unrestricted cash constitutes cash collateral under the ATSB Loan.



The Company requires substantial liquidity in order to meet scheduled debt
and lease

payments and to finance day-to-day operations. As a result of the recurring losses, decline in

available cash, and risk of defaults or cross defaults under certain key financing and operating

agreements, the Company filed a voluntary petition for reorganization under Chapter 11 of the

Bankruptcy Code on September
12, 2004. The Company has been operating with the use of the

ATSB cash collateral since its Chapter 11 filing on September 12, 2004.



The Company currently estimates its cash balance will continue to decline
through the first

quarter of 2005. The projected decline in cash is a result of continued net losses during winter

months, front-loaded transition costs to achieve a competitive cost structure and approximately

$302 million in aircraft debt and lease payments due in the first quarter of 2005. Failure to make

debt and lease payments
would result in the loss of those aircraft which are essential to the

Transformation Plan. The Company projects modest accumulation of cash for several
months

beginning in the second quarter of 2005. Failure to have continued use of the ATSB cash

collateral could necessitate asset sales and layoffs, and result in an inability to continue operating.



On February 18, 2005, the Company announced that it reached agreement with Eastshore

Aviation, LLC, an investment entity owned by Air Wisconsin Airlines Corporation and its

shareholders (Air Wisconsin), on a $125 million financing commitment to provide a substantial

portion of the equity funding
for a plan of reorganization. The $125 million facility will be in the

form of a debtor-in-possession term loan, to be drawn in the amount of $75 million,
upon

approval by Bankruptcy Court, and as early as February 28, 2005, and two subsequent $25

million increments. This loan would be second only to the ATSB Loan with regard to the

Companys assets that are
pledged as collateral. Upon emergence from Chapter 11, the $125

million financing package would then convert to equity in the reorganized US Airways Group.

As part of this agreement, US Airways and Air Wisconsin will enter into an air services

agreement under which Air Wisconsin may, but is not required to, provide regional jet service

under a US Airways Express
code share arrangement.



ATSB Loan and Cash Collateral Agreement



As part of its reorganization under the Prior Bankruptcy, US
Airways received a $900 million

ATSB Guarantee under the Air Transportation Safety and System Stabilization Act from the

ATSB in connection with a $1 billion term loan financing (ATSB Loan) that was funded on

March 31, 2003. The Company required this loan and related guarantee in order to provide the

additional liquidity necessary
to carry out its 2003 Plan. US Airways is the primary obligor

under the ATSB Loan, which is guaranteed by US Airways Group and each of its other domestic

subsidiaries. The ATSB Loan is secured by substantially all of the present and future assets of

the Debtors not otherwise encumbered (including certain cash and investment accounts,

previously unencumbered aircraft, aircraft engines, spare parts, flight simulators, real property,

takeoff and landing slots, ground equipment and
accounts receivable), other than certain

specified assets, including assets which are subject to other financing agreements. As of

December 31, 2004, $718 million was outstanding under the ATSB Loan. The ATSB Loan is

reflected as a current liability on the accompanying balance sheet at a book value of $701

million, which is net of $17 million of unamortized
discount, and is not subject to compromise.

As of December 31, 2004, the Companys $734 million in unrestricted cash and short-term

investments was available to support daily operations, subject to certain conditions and

limitations, under the Cash Collateral Agreement described below.



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In connection with the September 12, 2004 Chapter 11 filing, the ATSB and the lenders under

the ATSB Loan agreed to authorize the Company to continue to use cash collateral securing the

ATSB Loan on an interim basis. Therefore, in lieu of debtor-in-possession financing, the

Company has access to the cash
collateralizing the ATSB Loan as working capital, subject to

certain on-going conditions and limitations. This interim agreement was approved by the

Bankruptcy Court on September 13, 2004 as part of the first day motions, and was scheduled to

expire on October 15, 2004. The Bankruptcy Court approved two subsequent agreements

extending the Companys ability to
use the cash collateral, including an agreement approved on

January 13, 2005 extending the Companys use of cash collateral through June 30, 2005,
subject

to certain conditions and limitations (Cash Collateral Agreement). Under the current agreement,

the Company may continue to access such cash collateral to support daily operations so long as it

maintains an agreed upon minimum amount of cash on hand each week. The amount declines

from approximately $500 million at
the end of January to $341 million on June 30, 2005, with

weekly cash levels permitted as low as $325 million in March 2005. The Company must also

maintain and achieve certain cumulative earnings levels during the period, as defined in the

agreement. Further, the Company must comply with restrictions on its ability to make capital

expenditures. In light of
rising fuel prices and continued downward pressure on fares across the

industry, there can be no assurance that the Company can comply with the Cash
Collateral

Agreement.



The ATSB Loan also contains covenants that limit, among other things, the Companys ability

to pay dividends, make additional corporate investments and acquisitions, enter into mergers and

consolidations and modify certain concessions obtained as part of the Prior Bankruptcy. The

ATSB Loan contains certain
mandatory prepayment events including, among other things, (i) the

occurrence of certain asset sales and the issuance of certain debt or equity securities
and (ii) the

decrease in value of the collateral pledged in respect of the ATSB Loan below specified coverage

levels. The amendments discussed below and the Cash Collateral Agreement have not

eliminated any of these covenants.



The ATSB Loan
bears interest as follows: (i) 90% of the ATSB Loan (Tranche A) was funded

through a participating lenders commercial paper conduit program and bears
interest at a rate

equal to the conduit providers weighted average cost related to the issuance of certain

commercial paper notes and other short-term borrowings plus 0.30%, and (ii) 10% of the ATSB

Loan (Tranche B) bears interest at LIBOR plus 4.0%. In addition, US Airways is charged an

annual guarantee fee in respect
of the ATSB Guarantee currently equal to 4.1% of the ATSBs

guaranteed amount (initially $900 million) under the ATSB Guarantee, with such guarantee
fee

increasing by ten basis points annually. Due to the Companys September 2004 bankruptcy

filing and subsequent loss of certain regional jet financing, the guarantee fee increased by 2% per

annum and the interest rate on Tranche A and Tranche B each increased by an additional 2% and

4% per annum, respectively,
for an effective increase in the interest rate on the loan balance of 4

percentage points.



Prior Amendments to the ATSB Loan during 2004



In March 2004, US Airways and the ATSB amended the financial covenants of the ATSB

Loan to provide covenant relief for the measurement periods beginning June 30, 2004 through

December 31, 2005. The ratios used in the financial covenants were adjusted and reset to align

with the Companys
forecast for 2004 and 2005 as of the date of the amendment, which assumed

a return to profitability by 2005. In exchange for this covenant relief and other
changes described

below, US Airways made a voluntary prepayment of $250 million on March 12, 2004, which

reduced, pro rata, all future scheduled principal payments of the ATSB Loan (rather than

shortening the remaining life of the loan).



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The March 2004 amendment permitted US Airways to retain, at its election, up to 25% of the

net cash proceeds from any asset sale for which definitive documentation would be completed by

February 28, 2005, up to a total of $125 million for all asset sales. In addition, the amendment

permitted US Airways to accept a third-party secured note as consideration for certain asset sales

(including the US
Airways Shuttle and wholly owned regional airline assets) as long as specified

conditions are met. These conditions include: the notes amortization
schedule will be no more

favorable than the ATSB Loan; proceeds from the note will be used to prepay the ATSB Loan;

the credit strength of the ATSB Loan will not be adversely affected as measured by specified

ratings tests; and the note will be pledged as collateral for the ATSB Loan. Finally, in

consideration for the lenders
agreeing to amend the provision related to the going concern

paragraph in the independent auditors report for the Companys audited financial
statements for

the year ended December 31, 2003, US Airways agreed to revised covenants relating to

minimum required unrestricted cash balances.



Effective May 21, 2004, US Airways again amended the ATSB Loan to permit use of its

regional jets financed by General Electric (GE) as cross collateral for other obligations of

US Airways to GE. In
consideration for this amendment, US Airways agreed to revised

covenants relating to minimum required unrestricted cash balances. In addition, US Airways

agreed to give up the right to retain up to 25% of the net cash proceeds from any asset sale, as

had been permitted by the March 2004 amendment. US Airways made a prepayment of $5

million in connection with this amendment.



The
ATSB Loan contains financial covenants that must be satisfied by US Airways at the end

of each fiscal quarter. US Airways was uncertain as to its ability
to satisfy these covenants as of

June 30, 2004. Effective June 30, 2004, US Airways and the ATSB amended the ATSB Loan to

remove the uncertainty relating to the Companys ability to satisfy its financial covenant tests for

the second quarter of 2004. In consideration for this amendment, the Company agreed to change

the loan amortization
schedule, by increasing each of the first six principal repayment

installments commencing on October 1, 2006 by approximately $16 million, and reducing the

last principal repayment installment on October 1, 2009 by $94 million.



All of the foregoing rights and obligations of the parties relating to the ATSB Loan are subject

to the terms of the cash collateral orders entered by the Bankruptcy Court and the terms of the

Bankruptcy Code.



General Electric



GE is the Companys largest creditor. Together with GEES
and other affiliates, GE directly

financed or leased a substantial portion of the Companys aircraft prior to the current Chapter 11

filing. In November 2001, US Airways obtained a $404 million credit facility from GE (2001

GE Credit Facility). The 2001 GE Credit Facility is secured by collateral including 11 A320-

family aircraft and 28 spare
engines. As discussed below, borrowings under the 2001 GE Credit

Facility bear interest rates of LIBOR plus 3.5% and the term of the facility is
2012.



In addition to the 2001 GE Credit Facility, GE has
provided financing or guarantees on 145 of

the Companys current operating aircraft. It also maintains the engines on the Companys B737-

family aircraft, A320-family aircraft, B767 aircraft, EMB-170 aircraft and CRJ-200 aircraft. In

connection with its Prior Bankruptcy, the Company reached a settlement with GE that resolved

substantially all aircraft, aircraft engine and loan-related issues and the Company obtained

additional financing from GE
in the form of a liquidity facility of up to $360 million (2003 GE

Liquidity Facility). Borrowings under the liquidity facility bear interest at LIBOR plus
4.25%.

Every obligation of the Company to GE is generally cross-defaulted to the 2001 GE Credit

Facility, the 2003 GE Liquidity Facility, the GE regional jet leases and the GE regional jet

mortgage financings. All of the Companys obligations to GE are generally cross-collateralized



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and cross-defaulted with all other obligations owned by any Debtor to GECC or any of its

affiliates (collectively, the GE Obligations).



In November 2004, the Company reached a comprehensive agreement with GE and its

affiliates as described in the Master Memorandum of Understanding (Master MOU) that was

approved by the Bankruptcy Court on
December 16, 2004. The Master MOU and the

transactions contemplated by the term sheets will provide the Company with short-term liquidity,

reduced debt, lower aircraft ownership costs, enhanced engine maintenance services and

operating leases for new regional jets, while preserving the vast majority of US Airways

mainline fleet owned by
GECAS. The key aspects of the Master MOU are as follows: (i)

agreements providing for continued use by the Company of certain Airbus, Boeing and regional

jet aircraft, and the return to GECC of certain other leased Airbus and Boeing aircraft (the

Aircraft Lease Term Sheet); (ii) GECC will provide a bridge facility of up to approximately $56

million for use by the
Debtors during the pendency of the Chapter 11 proceedings (the Bridge

Facility Term Sheet); (iii) GECC will purchase and immediately leaseback to US
Airways (a) the

assets securing the 2001 GE Credit Facility and the 2003 GE Liquidity Facility (collectively, the

2001 Credit Facility Assets), and other GE obligations, consisting of 11 Airbus aircraft and 28

spare engines and engine stands, and (b) ten regional jet aircraft currently debt financed by

GECC; (iv) the balance of the
2001 GE Credit Facility will be restructured to provide additional

liquidity of approximately $10 million, subject to the pledge of certain collateral to
secure the

2001 GE Credit Facility; (v) subject to the Companys satisfaction of certain financial tests and

other conditions, GECC will provide lease financing for up to 31 additional regional jet aircraft

(the Regional Jet Leasing Term Sheet); (vi) certain of US Airways engine maintenance

agreements with GEES will be
modified and assumed; and (viii) upon emergence from

bankruptcy, convertible notes of the reorganized US Airways will be issued to GECC in the

aggregate principal amount of $125 million (the Convertible Note Term Sheet).



The Bridge Facility Term Sheet provides for a loan facility of up to $56 million made

available by GECC to the Debtors in a series of drawdowns commencing on December 20, 2004,

and ending on or before June 30,
2005 (the Bridge Facility). The Company and GECC entered

into the Bridge Facility on December 20, 2004, at which time $20 million was drawn down under

the facility.Interest on the Bridge Facility accrues at the rate of LIBOR plus 4.25% and will be

payable in cash or in kind at the option of the Debtors. The Bridge Facility matures on the date

the Company emerges from Chapter 11 and will be satisfied by the issuance of Convertible Notes

described below. The Bridge
Facility is cross-collateralized and cross-defaulted with all other

GE obligations owed by any Debtor to GECC or any of its affiliates and will be granted
status as

an administrative expense claim with priority over all other administrative claims other than for

aircraft financing deferrals, which are pari passu, and subordinate only to (i) the super-priority

administrative expense claim of the ATSB and the ATSB Lenders as defined and provided for in

the Cash Collateral Agreement
(ii) postpetition wages and benefits, and (iii) any other new

money debtor-in-possession financing.



The 2001 GE Credit Facility will be amended to, among other things: (i)
provide the Debtors

with an additional $10 million of liquidity upon consummation of the sale-leaseback of the 2001

GE Credit Facility Assets and CRJ Mortgaged Assets (defined below), (ii) after the prepayment

of the loan balance outstanding under the 2001 GE Credit Facility made in connection with the

sale-leaseback of the 2001 GE
Credit Facility Assets and CRJ Mortgaged Assets, as described

below, revise the amortization schedule so that the remaining principal of the loan begins

amortizing over a period of eight quarters following the Debtors emergence from bankruptcy

(the Remaining Term), (iii) provide that the interest rate will be LIBOR plus 4.25% for the

Remaining Term, and (iv) provide that the loan will be secured with a third lien position on three

CRJ-700 aircraft
(subject to first and second lien positions and conditioned upon consent of such

senior lien holders pursuant to an inter-creditor agreement reasonably
acceptable to GECC), a

second lien position on one CRJ-700 aircraft (subject to first lien position and conditioned upon



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consent of such senior lien holders pursuant to an inter-creditor agreement reasonably acceptable

to GECC) and a first lien position on one CF34 spare engine owned by US Airways, with the

aggregate of any senior liens on such collateral not to exceed $62 million. The amendments to

the 2001 GE Credit Facility
do not constitute an assumption thereof, but it is anticipated that in

connection with a plan of reorganization, the 2001 GE Credit Facility, as amended,
will be

reinstated.



The Aircraft Lease Term Sheet sets forth a comprehensive agreement regarding the treatment

of GECC-owned and mortgaged aircraft pursuant to Section 1110 of the Bankruptcy Code. The

Debtors and GECC have agreed to
subject certain of such aircraft to consensual Section 1110(a)

agreements providing for continued use of such aircraft so long as the Company complies with

the terms of such agreements. In certain cases, the Debtors and GECC have agreed to amend

prepetition agreements. Except as set forth in the Master MOU or the Term Sheets attached to

the Master MOU, the Section
1110(a) agreements and any related amendments will not

constitute an assumption of any related underlying agreements, and no such agreement will

constitute a postpetition contract for purposes of, among other things, Sections 365, 503 and 507

of the Bankruptcy Code, but will be subject to the Debtors obligations under Section 1110 of the

Bankruptcy Code. After emergence from bankruptcy, US Airways will have an option to

restructure the monthly rental
obligations of certain additional B737-400 leases following the

issuance of the Convertible Notes described below, for cash or additional convertible notes
of

equal market value.



Subject to the swap of three aircraft contemplated by the Aircraft Lease Term Sheet, GECC

will purchase the two A319 aircraft, the four A320 aircraft, the five A321 aircraft, the 14

CFM56-5B spare engines, the 14
CFM56-3B spare engines, and certain engine stands that

currently secure the 2001 GE Credit Facility and the 2003 GE Liquidity Facility, together with

the nine CRJ-200s and one CRJ-700 aircraft currently mortgage debt financed by GECC

(collectively, the CRJ Mortgaged Assets) for a total purchase price of approximately $640

million, subject to adjustment,
at which time the 2001 Credit Facility Assets and the CRJ

Mortgaged Assets will be leased back to US Airways under operating leases having an initial

lease term expiring on the earlier of the Debtors emergence from Chapter 11 or June 30, 2005.

The sale proceeds will be applied to repay (in order) the 2003 GE Liquidity Facility in full, the

GECC mortgage-debt financed CRJ aircraft in full, and a portion of the 2001 GE Credit Facility,

leaving a balance thereon
of approximately $15 million, subject to adjustment, before the $10

million additional drawdown on the 2001 GE Credit Facility contemplated above. The
operating

leases may be extended upon the Debtors emergence from bankruptcy, will be cross-defaulted

with all other GE Obligations (other than certain excepted obligations), and will be subject to

return conditions to be agreed upon by the parties.



The Debtors and the GE entities have reached an agreement with respect to five engine repair

and maintenance agreements,
and certain other matters. This agreement includes, among other

things, the agreement of US Airways to assume three of such agreements of GEES and certain
of

its affiliates to: (i) forgive and release US Airways from certain prepetition obligations, (ii) defer

certain payment obligations arising under such agreements, (iii) extend one maintenance

agreement, (iv) continue certain existing deferrals, and (v) determine the treatment of certain

removal charges.



Pursuant to the Convertible Note Term Sheet, the Debtors have
agreed that upon emergence

from Chapter 11, as partial consideration for entering into the Master MOU, an affiliate of GECC

will receive convertible notes of the reorganized US Airways in the aggregate principal amount

of $125 million (Convertible Notes). The Convertible Notes will be convertible at any time, at



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the holders election, into shares of common stock of the reorganized US Airways Group (New

Common Stock) at a conversion price equal to the product of (x) 140%-150% (at US Airways

option) and (y) the average closing price of the New Common Stock for the sixty consecutive

trading days following US
Airways emergence from bankruptcy and the listing of the New

Common Stock on NASDAQ or a national stock exchange. The Convertible Notes will bear

interest at a rate to be determined no later than thirty days prior to the Debtors scheduled date of

emergence from bankruptcy and interest will be payable semi-annually, in arrears, and will

mature in 2020. US Airways will be permitted to redeem some or all of the Convertible Notes at

any time on or after the
fifth anniversary of the issuance of such notes, at a redemption price

payable in cash or, subject to certain conditions, New Common Stock. Holders of the

Convertible Notes may require US Airways to repurchase all or a portion of their Convertible

Notes on the fifth and tenth anniversary of the issuance of such notes at 100% of the principal

amount of the Convertible
Notes, plus accrued and unpaid interest to the date of repurchase,

payable, at US Airways election, in cash or New Common Stock. The Convertible Notes will
be

senior unsecured obligations and will rank equally in right of payment with all existing and

future unsecured senior obligations of the reorganized US Airways. The Convertible Notes will

be guaranteed by the parent holding company of the reorganized US Airways.



Regional Jet Financing



The 2003 Plan sought to boost revenue and enhance competitiveness through the increased

use of regional jets. Regional jets are faster, quieter
and more comfortable than turboprops and

are generally preferred by customers over turboprops. In May 2003, the Company entered into

agreements to purchase a total of 170 regional jets from Bombardier and Embraer. The

Company had previously secured financing commitments from GE and from the respective

airframe manufacturers for approximately 85% to 90% of these
jets. These commitments were

subject to certain credit or financial tests, as well as customary conditions precedent.



Despite the Companys failure to meet one of the applicable credit
standards as of May 5,

2004, the Company reached agreements with GE, Embraer and Bombardier for continued

financing of regional jet deliveries through September 30, 2004. As part of the agreement

reached with Bombardier, the Company converted 23 CRJ-200 deliveries (50-seat regional jets)

to CRJ-700 deliveries (70-seat
regional jets) and retained the right to convert some or all of the

CRJ-700 deliveries to CRJ-900 deliveries (90-seat regional jets). US Airways agreed to
refinance

with third parties four aircraft originally financed by Bombardier. DVB Bank AG provided

US Airways with 18 month bridge financing for two aircraft, with the objective of arranging

long-term market financing for these aircraft upon successful implementation of the Companys

Transformation Plan.



GEs financing commitment with respect to regional jets
through September 30, 2004 was

also conditioned on US Airways gaining permission under its ATSB Loan to use its regional jets

mortgage financed by GE as cross-collateral for other obligations of US Airways to GE. On May

21, 2004, the Company amended the ATSB Loan to allow this cross-collateralization. At the

same time GE waived the
application of the credit rating condition precedent for regional jet

financing through September 30, 2004, thus securing the continued financing support
from GE

through September 2004.



As a result of the September 12, 2004 Chapter 11 filing, the Company failed to meet the

conditions precedent for continued financing of regional jets and temporarily ceased taking

delivery of new regional jet
aircraft. As a result, the Company incurred aircraft order

cancellation penalties of $7 million in the fourth quarter of 2004. These penalties were offset

against purchase deposits held by the aircraft manufacturers.



Pursuant to the Regional Jet Leasing Term Sheet, GECC or its affiliates will provide leases



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for up to 31 regional jet aircraft. The aircraft to be leased will consist of 70- to 100-seat regional

jet aircraft manufactured by Bombardier and/or Embraer in a mix and subject to such other terms

to be agreed mutually by GECC and US Airways. During the first quarter of 2005, GECC will

lease six CRJ-700s to US Airways
with terms expiring on the earlier of the Debtors emergence

from Chapter 11 and June 30, 2005. These leases may be extended upon the Debtors
emergence

from Chapter 11. To effectuate the contemplated regional jet leasing, US Airways and GECC agreed to

reinstate that portion of the RJ Lease Transaction and Debt Financing Agreement, dated as of

December 18, 2003 (RJ Lease Agreement), pursuant to which GECC has agreed to provide

single investor lease transactions
(provided that the obligations under the reinstated RJ Lease

Agreement will not be afforded administrative expense status), subject to additional terms and

conditions.



In December 2004, the Company reached aircraft leasing and financing agreements with

Embraer and Bombardier, which were approved by the Bankruptcy Court in January 2005.

Pursuant to the agreement reached with
Embraer, the Company purchased and took delivery of

three ERJ-170 aircraft in January 2005 and committed to purchase and take delivery of three

additional ERJ-170 aircraft by March 31, 2005. The purchase of the three ERJ-170s delivered in

January 2005 was financed by Embraer through a mortgage loan facility and the application of

$17 million of existing
purchase deposits held by Embraer. Additionally, $12 million of

purchase deposits held by Embraer will be used to fund an Embraer loan reserve. Embraer
shall

apply the reserve funds in the amounts and on the dates as and when payments are due under the

Embraer loans during the period from October 1, 2004 through July 31, 2005 in full satisfaction

of the Companys payment obligations with respect to such Embraer loans during such period.

Upon delivery of the first
three ERJ-170s, which occurred in January 2005, unless the Company

assumes the Embraer aircraft purchase agreement pursuant to Section 365 of the
Bankruptcy

Code, no further obligations arise on the part of the Company or Embraer with respect to the

purchase and delivery of any aircraft, other than those obligations that arise from or are related to

the purchase and delivery of the final three ERJ-170s in March 2005. Embraer and the Company

have agreed to negotiate a new
delivery schedule upon the Companys assumption of the

Embraer aircraft purchase agreement or upon the occurrence of certain other events.



In the event that the Company fails to take delivery by March 31, 2005 of
the remaining three

ERJ-170 aircraft, damages will accrue on account of the Companys failure to take delivery of

such aircraft from and after April 1, 2005 at the rate of $162,795 per month per aircraft until the

later of (i) 30 days after the Company emerges from the current Chapter 11 proceedings and (ii)

July 31, 2005, at which
time Embraers obligation to deliver such aircraft will terminate and its

damages with respect to such undelivered aircraft may be as much as $10
million (rather than at

the rate of $162,795 per month), with Embraer having the right to apply any remaining purchase

deposits against Embraers aggregate damages.



Under the agreement reached with Bombardier, the Company acquired three new CRJ-700

aircraft in January 2005. The purchase was financed through the application of $28 million of

existing purchase deposits
held by Bombardier, $2 million in cash and a finance lease facility

with DVB Bank. Additionally, $4 million of existing purchase deposits held by
Bombardier were

used to satisfy existing defaults and cure payments. So long as the Company continues to operate

under the protection of Chapter 11 in compliance with the Bankruptcy Code, no obligations will

arise on the part of the Company or Bombardier with respect to the purchase and delivery of any

aircraft.



As of December 31, 2004, the aircraft manufacturers held purchase deposits of
$138 million

related to the acquisition of aircraft.



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Other



US Airways relies heavily on credit card processing for its sales, and utilizes credit card

issuers and third-party service providers to process credit card transactions under agreements

which require the Company to provide cash collateral and to comply with certain other financial

and nonfinancial
requirements. If US Airways fails to meet any such conditions, these issuers

and providers can require additional cash collateral and, under certain
circumstances, terminate

such credit card processing agreements. The termination of credit card agreements would have a

material adverse affect on US Airways financial condition and results of operations.



During the second quarter of 2004, US Airways amended its agreement with American

Express Travel Related Services Company, Inc. (American Express). The new agreement has

been extended to December 31, 2006 and provides for additional cash collateral to reduce the

exposure borne by American
Express against potential customer liabilities relating to unflown

tickets purchased by customers using the American Express card. The agreement required

additional cash collateral in the event that US Airways regional jet financing programs were

terminated or if the Company failed to demonstrate by September 30, 2004 its ability to

successfully implement its Transformation Plan. This amendment effectively aligned the

American Express agreement with the
arrangements in place for certain other credit card

processors. As the result of the Companys financial position and various triggers in the

American Express agreement, the Company deposited an additional $64 million in cash collateral

during the third quarter of 2004.



Statements of Cash Flow Discussion



As discussed in Results of Operations above, the Successor Companys financial statements

are not comparable with the Predecessor Companys financial statements. However, for

purposes of discussion of liquidity and capital resources, 2004 has been compared to the full year

2003 as included, in
part, in the Companys Statements of Cash Flows.



For
2004, the Companys operating activities before reorganization items used net cash of $95

million, compared to 2003, which used net cash of $81
million. Included in 2003 cash flows

from operating activities is $218 million received from TSA in connection with the Emergency

Wartime Act. Cash flows from operating activities for 2004 were favorably impacted by an

increase in accounts payable and other accrued expenses as a result of the Chapter 11 filing in

September 2004, as the
Company received liquidity protection under the automatic stay

provisions of the Bankruptcy Code related to prepetition liabilities. Cash flows from
operating

activities were also favorably impacted for this reason during the Prior Bankruptcy for the period

from August 2002 to March 2003. Cash flows for all periods have been adversely affected by the

same factors that adversely affected financial results, as discussed in Results of Operations,

including
reductions in unit revenue and significant increases in fuel prices.



For 2004, net cash provided by investing activities was $102 million. Investing activities

include a $358 million decrease in short term
investments, reflecting a shift to cash and cash

equivalents, and an increase in restricted cash of $76 million. The increase in restricted cash in

2004 and 2003 reflects the additional cash collateral deposits required by the Companys credit

card processors, letters of credit and trust accounts described below, partially offset by the

decline in cash collateral required for fuel hedging. Capital expenditures and net equipment

purchase deposit activity in
2004 of $198 million reflect the early return of aircraft purchase

deposits by an aircraft manufacturer of $31 million in the first quarter of 2004.



For 2003, net cash used for investing activities was $268
million. Investing activities

included cash outflows of $208 million related to capital expenditures, including $174 million



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for purchase deposits on future regional jet aircraft deliveries and payments made in connection

with the delivery of two regional jets with the balance related to rotables, ground equipment and

miscellaneous assets. The increase in short-term investments in 2003 reflects activity intended to

increase the returns on
the Companys higher cash balances. The Company also received

proceeds of $237 million from US Airways Group (upon its receipt of proceeds from the
RSA

Investment Agreement) which were used to pay down two intercompany loans then outstanding

from US Airways Group. Other investing in 2003 also reflects $24 million in proceeds received

related to the sale of the
Companys investment in Hotwire, Inc.



For 2002, net cash
provided by investing activities was $86 million. Investing activities

included cash outflows of $135 million related to capital expenditures. Capital
expenditures

included $106 million for three A321 aircraft (two other A321s were purchased in noncash

transactions) with the balance related to rotables, ground equipment and miscellaneous assets.

Proceeds from disposition of property includes, among other things, proceeds related to surplus

aircraft and related parts.
During the first quarter of 2002, US Airways entered into agreements

to sell 97 surplus DC-9, B737-200 and MD-80 aircraft. The increase in short-term
investments

reflects proceeds from the sale of short-term investments.



The Company, in the ordinary course of business, withholds from employees and collects

from passengers funds that are required to be paid to applicable governmental authorities, which

funds include withholding for payroll taxes, transportation excise taxes, passenger facility

charges, transportation
security charges and other related fees. During the second quarter of

2002, the Company established trusts to fund these obligations. The initial funding
(which

totaled approximately $201 million) and the net cash flows of the trusts are reflected in Decrease

(increase) in restricted cash on the Companys Statements of Cash Flows. The funds in the trust

accounts, which totaled $138 million and $164 million as of December 31, 2004 and 2003,

respectively, are classified as
Restricted cash on the Companys Balance Sheets, including $99

million and $124 million in current Restricted cash and $39 million and $39 million in

noncurrent Restricted cash, respectively.



The Company used $185 million in cash for financing activities in 2004. Principal payments

on debt and capital lease obligations of $425 million include $255 million of prepayments made

in connection with
amendments to the ATSB Loan in March and May 2004. The financing

activities in 2003 were significantly impacted by the Companys emergence from the
Prior

Bankruptcy in March 2003.



Net cash provided by financing activities during 2003 was $782 million. US Airways

received proceeds of $1 billion from the ATSB Loan. Additionally, prior to emergence from

Chapter 11 the Company borrowed
$69 million under a debtor-in-possession facility provided by

RSA (RSA DIP Facility) and $62 million under a debtor-in-possession liquidity facility
provided

by General Electric (GE DIP Facility). The Company borrowed $114 million under an exit

liquidity facility provided by GE and $20 million under a credit facility provided by GE. The

Company also received proceeds of $34 million related to a private placement offering by

US Airways Group described below.
The Company used a portion of the proceeds it received in

connection with its emergence from Chapter 11 to repay $369 million that was then outstanding

under the RSA DIP Facility (including the $69 million discussed above) on March 31, 2003. The

Company also used a portion of the proceeds to repay the $62 million then outstanding under the

GE DIP Facility. The
Company also made principal payments of debt of $85 million, including a

$24 million required prepayment on the ATSB Loan, related to the sale of its
investment in

Hotwire, Inc.



Net cash provided by financing activities during 2002 was $334 million. US Airways

received proceeds of $116 million from the mortgage financing of three A321 aircraft (two other

A321s were financed in
noncash transactions). Additionally, US Airways received proceeds of



39



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$33 million with the private placement of pass through certificates that partially financed five

previously delivered A330 aircraft and $18 million from an engine manufacturer credit facility.

The Company also borrowed $300 million under the RSA DIP Facility and $75 million under a

senior secured
debtor-in-possession financing facility provided by Credit Suisse First Boston,

Cayman Islands Branch, and Bank of America, N.A., with participation from
the Texas Pacific

Group (Original DIP facility). The Company used a portion of the RSA DIP Facility funds to

repay the full $75 million that was then outstanding under the Original DIP Facility. Prior to the

2002 bankruptcy filing, the Company made scheduled principal repayments of debt in the

amount of $77 million. Subsequent to
the 2002 bankruptcy filing, the Company made principal

repayments of debt of $56 million, including $38 million to the engine manufacturer credit facility.



US Airways Group sold 4,679,000 shares of its Class A Common
Stock at a price of $7.34

per share before transaction fees during August 2003 in a private placement transaction with

Aviation Acquisition L.L.C., Goldman, Sachs and Co. and OCM Principal Opportunities Fund II,

L.P. These shares related to Class A Common Stock retained by US Airways Group from those

shares allocated to employees
pursuant to the 2003 Plan and vested at July 31, 2003. The

retained shares represented the employee tax withholding obligation with respect to the vested

portion of the restricted stock grants. The amount of withholding was determined on the basis of

a price of $7.34 per Class A common share and applicable federal, state, and local taxes. The net

proceeds related to this transaction of $34 million were advanced by US Airways Group to

US Airways and offset the
Companys remittance to taxing authorities.



Contractual Obligations



The following table
provides detail of the Companys future cash contractual obligations as of

December 31, 2004, including classification of the ATSB Loan as current and
without regard to

liabilities subject to compromise (dollars in millions).



|                                          |  |                        |       |      |   |       |  |      |       |      |   |            |  |       |       |  |   |       |  |   |       
|----------------------------------------- |  | ---------------------- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ---------- |  | ----- | ----- |  | - | ----- |  | - | ------
|                                          |  | Payments Due by Period |       |     
|                                          |  | 2005                   |       | 2006 |   | 2007  |  | 2008 |       | 2009 |   | Thereafter |  | Total
|Debt and capital lease obligations (1)    |  | $                      | 863   |      | $ | 159   |  | $    | 145   |      | $ | 143        |  | $     | 147   |  | $ | 1,790 |  | $ | 3,247 
|Operating lease commitments (2)           |  |                        | 824   |      |   | 727   |  |      | 664   |      |   | 587        |  |       | 512   |  |   | 3,753 |  |   | 7,067 
|Aircraft purchase commitments (3) (4)     |  |                        | 221   |      |   | 15    |  |      | 57    |      |   | 622        |  |       | 792   |  |   | 232   |  |   | 1,939 
|Regional jet capacity purchase agreements |  |                        | 257   |      |   | 262   |  |      | 268   |      |   | 266        |  |       | 202   |  |   | 266   |  |   | 1,521 
|                                          |  |                        |       |      |   |       |  |      |       |      |   |            |  |       |       |  |   |       |  |   |       
|Total                                     |  | $                      | 2,165 |      | $ | 1,163 |  | $    | 1,134 |      | $ | 1,618      |  | $     | 1,653 |  | $ | 6,041 |  | $ | 13,774
|                                          |  |                        |       |      |   |       |  |      |       |      |   |            |  |       |       |  |   |       |  |   |       

---

|(1) | Excludes related interest amounts.
|--- | ----------------------------------

|(2) | Includes aircraft obligations financed under enhanced equipment trust certificates.
|--- | -----------------------------------------------------------------------------------

|(3) | As long as the Company operates under the protection of Chapter 11 in compliance with the Bankruptcy
|--- | ----------------------------------------------------------------------------------------------------

Code and unless the Company assumes the aircraft purchase agreements pursuant to Section 365 of the

Bankruptcy Code, neither the Company nor the aircraft manufacturers have any obligation in respect to

the purchase or delivery of regional jet aircraft beyond the commitments for deliveries in the first quarter

of 2005 discussed below.

|(4) | The minimum determinable payments associated with these acquisition agreements for all firm-order
|--- | -------------------------------------------------------------------------------------------------

aircraft include progress payments, payments at delivery, spares, capitalized interest and nonrefundable

deposits.



As of December 31, 2004, US Airways Group had 19 A320-family aircraft on firm order

scheduled for delivery in the years 2007 through 2009. US Airways Group also had ten A330-

200 aircraft on firm order
scheduled for delivery in the years 2007 through 2009. On February 3,

2005, the Bankruptcy Court approved the Companys agreement with Airbus
providing for,

among other things, delivery of the 19 A320-family aircraft in years 2008 through 2010, and

delivery of the ten A330-200 aircraft in years 2008 through 2009.



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The Company acquired three new Embraer ERJ-170 aircraft in January 2005 and has firm

orders for three additional ERJ-170 aircraft scheduled to be delivered by March 31, 2005. The

Company also acquired three new CRJ-700 aircraft in January 2005.



As a result of regional jet aircraft acquisitions, the Company believes it is probable that it will

not take delivery of certain previously ordered narrow-body aircraft and recorded an accrual of

$35 million for related penalties during the three months ended June 30, 2003. In the event that

the Company fails to take
delivery by March 31, 2005 of the remaining three ERJ-170 aircraft,

damages will accrue on account of the Companys failure to take delivery of such
aircraft from

and after April 1, 2005 at the rate of $162,795 per month per aircraft until the later of (i) 30 days

after the Company emerges from the current Chapter 11 proceedings and (ii) July 31, 2005, at

which time Embraers obligation to deliver such aircraft will terminate and its damages with

respect to such
undelivered aircraft may be as much as $10 million (rather than at the rate of

$162,795 per month), with Embraer having the right to apply any remaining
purchase deposits

against Embraers aggregate damages.



Off-Balance Sheet Arrangements



An off-balance sheet arrangement is any transaction, agreement or other contractual

arrangement involving an unconsolidated entity under which a
company has (1) made guarantees,

(2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative

instruments classified as equity or (4) any obligation arising out of a material variable interest in

an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to

the company, or that
engages in leasing, hedging or research and development arrangements

with the company.



The Company has no off-balance sheet arrangements of the types described in the first three

categories that it believes may have a material current or future effect on its financial condition,

liquidity or results of operations. Certain guarantees that the Company does not expect to have a

material current or
future effect on its financial condition, liquidity or results of operations are

disclosed in Note 7(e) to the Financial Statements included in Item 8 of
this report.



The Company does have obligations arising out of
variable interests in unconsolidated

entities. In 2003, the Company adopted Financial Accounting Standards Board Interpretation No.

46, Consolidation of Variable Interest Entities (FIN 46), which addresses the accounting for

these variable interests. An entity is subject to FIN 46 and is called a variable interest entity

(VIE) if it has (1)
equity that is insufficient to permit the entity to finance its activities without

additional subordinated financial support from other parties, or (2)
equity investors that cannot

make significant decisions about the entitys operations, or that do not absorb the expected losses

or receive the expected returns of the entity. A VIE is consolidated by its primary beneficiary,

which is the party involved with the VIE that has a majority of the expected losses or a majority

of the expected residual
returns or both, as a result of ownership, contractual or other financial

interests in the VIE. The adoption of FIN 46 did not materially affect the
Companys financial

statements. In reaching this conclusion, the Company identified certain lease arrangements that

were within the scope of FIN 46. This included a review of 62 aircraft operating leases for which

the Company was the lessee and a pass through trust established specifically to purchase, finance

and lease the aircraft to
the Company served as lessor. These trusts, which issue certificates (also

known as Enhanced Equipment Trust Certificates or EETC), allow the Company to
raise the

financing for several aircraft at one time and place such funds in escrow pending the purchase or

delivery of the relevant aircraft. The trusts are also structured to provide for certain credit

enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks

to the purchasers of
the trust certificates and, as a result, reduce the cost of aircraft financing to

the Company. Each of these leases contains a fixed-price purchase option
that allows the

Company to purchase the aircraft at predetermined prices on specified dates during the latter part



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of the lease term. However, the Company does not guarantee the residual value of the aircraft,

and the Company does not believe it is the primary beneficiary under these lease arrangements

based upon its cash flow analysis.



The Company also reviewed long-term operating leases at a number of airports, including

leases where the Company is also the guarantor of the
underlying debt. Such leases are typically

with municipalities or other governmental entities. FIN 46, as revised in December 2003,

provided a scope exception that generally precludes the consolidation of governmental

organizations or financing entities established by a governmental organization. The Company

believes that its arrangements meet the scope
exception.



Critical Accounting Policies



The Companys discussion and analysis of its financial condition and results of operations are

based upon the Companys Financial
Statements, which have been prepared in conformity with

accounting principles generally accepted in the United States of America. The preparation of these

financial statements requires management to make estimates and assumptions that affect the

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the

date of the financial
statements and the reported amounts of revenues and expenses during the

reporting period. Actual results could differ from those estimates.



Critical accounting policies are defined as those that are reflective of
significant judgments and

uncertainties and potentially result in materially different results under different assumptions and

conditions. The Company has identified the following critical accounting policies that impact the

preparation of its financial statements. See also Note 2, Summary of Significant Accounting

Policies, for additional
discussion of the application of these estimates and other accounting

policies.



Impairment of Goodwill



Effective January 1, 2002 the Company adopted the provisions of Statement of Financial

Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142

requires management to make judgments about the fair value of the reporting unit to determine

whether goodwill is impaired.
The reporting unit is US Airways Group. The Company believes

that this accounting estimate is a critical accounting estimate because: (1)
goodwill is a

significant asset and (2) the impact that recognizing an impairment would have on the assets

reported on the Balance Sheet, as well as the Statement of Operations, could be material. Goodwill

is tested annually for impairment or more frequently if events or changes in circumstances indicate

that it might be
impaired. The Company assesses the fair value of the reporting unit considering

both the income approach and market approach. Under the market approach,
the fair value of the

reporting unit is based on quoted market prices and the number of shares outstanding for

US Airways Group common stock. Under the income approach, the fair value of the reporting unit

is based on the present value of estimated future cash flows. The income approach is dependent on

a number of factors
including estimates of future market growth trends, forecasted revenues and

expenses, expected periods the assets will be utilized, appropriate discount
rates and other

variables. The Company bases its estimates on assumptions that it believes to be reasonable, but

which are unpredictable and inherently uncertain. Actual future results may differ from those

estimates. The Company concluded that the fair value of the reporting unit was in excess of the

carrying value and
therefore not impaired during 2004. Cash flow projections for the Companys

2004 test were prepared on a going-concern basis. Additionally, in the
third and fourth quarters of

2004, the carrying value of the Companys net assets was less than zero. See Note 2(g) to the

Financial Statements for details regarding past goodwill impairment tests.



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Impairment of Long-Lived Assets and Intangible Assets



The Company assesses the impairment of long-lived assets and intangible
assets whenever

events or changes in circumstances indicate that the carrying value may not be recoverable. Factors

which could trigger an impairment review include the following: significant changes in the manner

of use of the assets; significant underperformance relative to historical or projected future operating

results; or
significant negative industry or economic trends. The Company determines that an

impairment has occurred when the future undiscounted cash flows estimated
to be generated by

those assets are less than the carrying amount of those items. Cash flow estimates are based on

historical results adjusted to reflect the Companys best estimate of future market and operating

conditions. The net carrying value of assets not recoverable is reduced to fair value. Estimates of

fair value represent
the Companys best estimate based on appraisals, industry trends and reference

to market rates and transactions. Changes in industry capacity and
demand for air transportation

can significantly impact the fair value of aircraft and related assets. The Company recorded an

aircraft impairment charge of $392 million in 2002. See Description of Unusual Items above for

details regarding this impairment charge.



Passenger Revenue Recognition



The Company recognizes passenger transportation revenue and related commission expense

when transportation is rendered. Passenger ticket sales
collected prior to the transportation

taking place are reflected in Traffic balances payable and unused tickets on the Balance Sheet.

Due to various factors including refunds, exchanges, unused tickets and transactions involving

other carriers, certain amounts are recorded based on estimates. These estimates are based upon

historical experience and
have been consistently applied to record revenue. The Company

routinely performs evaluations of the liability that may result in adjustments which are

recognized as a component of Passenger transportation revenue. Actual refund, exchange and

expiration activity may vary from estimated amounts. The Company has experienced changes in

customer travel patterns
resulting from various factors, including new airport security measures,

concerns about further terrorist attacks and an uncertain economy, resulting in
more forfeited

tickets and fewer refunds. Therefore, during the fourth quarter of 2003, a $34 million favorable

adjustment was made to Passenger transportation revenue to reflect an increase in expired tickets.



Frequent Traveler Program



US Airways Dividend Miles frequent traveler program awards miles to passengers who fly

on US Airways, US Airways Express, Star Alliance carriers and certain other airlines that

participate in the program. US Airways also sells mileage credits to participating airline partners

and non-airline
business partners. The Company has an obligation to provide this future travel

and has therefore recognized an expense and recorded a liability for mileage
awards to

passengers redeeming on US Airways or an airline partner. Outstanding miles may be redeemed

for travel on any airline that participates in the program, in which case US Airways pays a

designated amount to the transporting carrier.



Members may not reach the threshold necessary for a free ticket and outstanding miles may

not be redeemed for free travel.
Therefore, the Company estimates how many miles will never

be used for an award and excludes those miles from the estimate of the liability. A portion of
the

mileage credits of Dividend Miles participants who have excessive balances are also excluded

from the liability. Estimates are also made for the number of miles that will be used per award

and the number of awards that will be redeemed on partner airlines. These estimates are based

upon past customer behavior.
Estimated future travel awards for travel on US Airways are

valued at the estimated average incremental cost of carrying one additional passenger.

Incremental costs include unit costs for passenger food, beverages and supplies, credit card fees,

fuel, communications, insurance and denied boarding compensation. No profit or overhead



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margin is included in the accrual for incremental costs. For travel awards on partner airlines, the

liability is based upon the gross payment to be paid to the other airline for redemption on the

other airline. A change to these costs estimates, actual redemption activity or award redemption

level could have a
significant impact on the liability in the year of change as well as future years.

Incremental changes in the liability resulting from participants earning
or redeeming mileage

credits or changes in assumptions used for the related calculations are recorded as part of the

regular review process.



As of December 31, 2004 and 2003, Dividend Miles participants had accumulated mileage

credits for approximately 4.0 million and 6.3 million awards, respectively. The reduction in

estimated awards from 2003 to
2004 is a result of changes in the program and related

assumptions, including the increase in redemptions on partner airlines. Because US Airways

expects that some potential awards will never be redeemed, the calculation of the frequent

traveler liability is based on approximately 80% of potential awards. The liability for the future

travel awards was $73
million and $85 million as of December 31, 2004 and 2003, respectively.



The number of awards redeemed for free travel during the years ending December 31, 2004,

2003 and 2002 was approximately 1.5 million, 1.2 million
and 1.3 million, respectively,

representing approximately 8% of US Airways RPMs in each of those years. These low

percentages as well as the use of certain inventory management techniques minimize the

displacement of revenue passengers by passengers traveling on Dividend Miles award tickets. In

addition to the awards
issued for travel on US Airways, approximately 20% of the total awards

redeemed in 2004 were for travel on partner airlines.



US Airways defers a portion of the revenue from the sale of mileage credits
to participating

airline and non-airline partners. The deferred revenue is recognized over the period in which the

credits are expected to be redeemed for travel. A change to either the period over which the

credits are used or the estimated fair value of credits sold could have a significant impact on

revenue in the year of
change as well as future years.



Pensions
and Other Postretirement Benefits



The Company accounts
for its defined benefit pension plans using Statement of Financial

Accounting Standards No. 87, Employers Accounting for Pensions (SFAS
87) and its other

postretirement benefit plans using Statement of Financial Accounting Standards No. 106,

Employers Accounting for Postretirement Benefits Other than Pensions (SFAS 106). Under

both SFAS 87 and SFAS 106, expense is recognized on an accrual basis over employees

approximate service periods.
Expenses calculated under SFAS 87 and SFAS 106 are generally

independent of funding decisions or requirements. Exclusive of fresh-start charges,
curtailment

and settlement items, the Company recognized defined benefit pension plan expense of $67

million, $51 million, $49 million, and $323 million for the year ended December 31, 2004, the

nine months ended December 31, 2003, the three months ended March 31, 2003 and the year

ended December 31, 2002,
respectively, and other postretirement benefit expense of $105

million, $96 million, $36 million, and $145 million for the year ended December 31, 2004,
the

nine months ended December 31, 2003, the three months ended March 31, 2003 and the year

ended December 31, 2002, respectively.



On November 12, 2004, US Airways filed a motion requesting a determination from the

Bankruptcy Court that US Airways satisfied the financial
requirements for a distress

termination of the three mainline defined benefit plans under section 4041(c)(2)(B)(ii)(IV) of

ERISA, and approval of each such plans termination. These plans were projected to have

benefit obligations and plan assets aggregating $2.7 billion and $1.7 billion, respectively, as of

September 30, 2004, the
most recent valuation date. On January 6, 2005, the Bankruptcy Court

entered an order (i) finding that the financial requirements under section
4041(c)(2)(B)(ii)(IV) of



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ERISA for a distress termination of the plans had been met and (ii) approving termination of the

plans. The AFA Plan and the IAM Plan were terminated effective January 10, 2005, by

agreement between PBGC and US Airways. The CE Plan was terminated effective January 17,

2005, by agreement between the PBGC and US Airways.
Effective February 1, 2005, the PBGC

was appointed trustee for each of the three plans.



During hearings in late 2004 and January 2005, the Bankruptcy Court approved various

settlement agreements between US Airways and its unions, and between the Company and the

court-appointed Section 1114 Committee (representing retirees other than those represented by

the IAM) to begin the
significant curtailments of the Companys other postretirement benefits.

The Companys unfunded obligations for these benefits aggregated $1.4
billion as of September

30, 2004, the most recent valuation date.



Fresh-start Reporting



In accordance with SOP 90-7, the Company adopted fresh-start reporting upon emergence

from the Prior Bankruptcy. Accordingly, the Company valued its assets, liabilities and equity at

fair value. The excess of
the reorganization value over tangible assets and identifiable intangible

assets has been reflected as Goodwill on the Balance Sheet. Estimates of fair
value represent the

Companys best estimate based on independent appraisals and valuations and, where the

foregoing are not available, industry trends and by reference to market rates and transactions.

US Airways Groups fresh-start equity value of $438 million at March 31, 2003 was determined

with the assistance of
financial advisors. The estimates and assumptions are inherently subject to

significant uncertainties and contingencies beyond the control of the Company.
Accordingly,

there can be no assurance that the estimates, assumptions, and values reflected in the valuations

will be realized, and actual results could vary materially. See Note 13 to the Financial Statements

for further detail related to the fresh-start fair value adjustments.



Recent Accounting and Reporting Developments



In September 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff

Position (FSP) Emerging Issues Task
Force (EITF) Issue 03-1-1, Effective Date of Paragraphs

1020 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its

Application to Certain Investments, which delays the effective date for the recognition and

measurement guidance in EITF Issue No. 03-1. In addition, the FASB has issued a proposed FSP

to consider whether further application guidance is necessary for securities analyzed for

impairment under EITF Issue No.
03-1. The Company continues to assess the potential impact

that the adoption of the proposed FSP could have on its financial statements.



In November 2004, the FASB issued Statement of Financial Accounting Standards
(SFAS)

No. 151, Inventory Costs (SFAS 151), which clarifies the accounting for abnormal amounts of

idle facility expense, freight, handling costs, and wasted material. SFAS 151 will be effective for

inventory costs incurred beginning January 1, 2006. The Company does not believe the adoption

of SFAS 151 will have a
material impact on its financial statements.



In December 2004,
the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets

(SFAS 153), which eliminates the exception for nonmonetary exchanges of similar
productive

assets and replaces it with a general exception for exchanges of nonmonetary assets that do not

have commercial substance. SFAS 153 will be effective for nonmonetary asset exchanges

occurring after July 1, 2005. The Company is currently evaluating the impact of SFAS 153 on its

financial statements.



In December 2004, the FASB issued SFAS No. 123(R), Share-Based
Payment (SFAS

123(R)), which establishes standards for transactions in which an entity exchanges its equity

instruments for goods or services. This standard requires a public entity to measure the cost of



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##### Table of Contents

employee services received in exchange for an award of equity instruments based on the grant-

date fair value of the award. This eliminates the exception to account for such awards using the

intrinsic method previously allowable under Accounting Principle Board Opinion No. 25. SFAS

123(R) will be effective for
the Companys interim reporting period beginning July 1, 2005. The

Company previously adopted the fair value recognition provisions of SFAS 123,
Accounting for

Stock-Based Compensation, upon emergence from the Prior Bankruptcy on March 31, 2003.

Accordingly, the Company believes SFAS 123(R) will not have a material impact on its financial

statements.



Item 7A. Quantitative and Qualitative Disclosures About Market Risk



The Companys primary market risk exposures include commodity price risk (i.e., the price

paid to obtain aviation fuel), interest rate risk and equity price risk. The potential impact of

adverse increases in the aforementioned risks and general strategies employed by the Company to

manage such risks are
discussed below. The risks identified below are consistent from year to

year.



The following sensitivity analyses do not consider the effects that an adverse change may

have on the overall economy nor do they consider additional actions the Company may take to

mitigate its exposure to such changes. Actual results of changes in prices or rates may differ

materially from the
following hypothetical results.



Commodity
Price Risk



Aviation fuel is typically the Companys
second largest expense. Prices and availability of all

petroleum products are subject to political, economic and market factors that are generally

outside of the Companys control. Accordingly, the price and availability of aviation fuel, as

well as other petroleum products, can be unpredictable. Prices may be affected by many factors,

including: the impact of political instability on crude production, especially in Russia and OPEC

countries; unexpected
changes to the availability of petroleum products due to disruptions in

distribution systems or refineries; unpredicted increases to oil demand due to
weather or the pace

of economic growth; inventory levels of crude, refined products and natural gas; and other

factors, such as the relative fluctuation between the U.S. dollar and other major currencies and

influence of speculative positions on the futures exchanges. Because the operations of the

Company are dependent upon
aviation fuel, increases in aviation fuel costs could materially and

adversely affect the Companys liquidity, results of operations and financial
condition.



The Company utilizes financial derivatives,
including fixed price swap agreements, collar

structures and other similar instruments, to manage some of the risk associated with changes in

aviation fuel prices. As of December 31, 2004, the Company had no open fuel hedge positions in

place, but will recognize approximately $2 million per month for previously liquidated hedges

representing approximately 4%
of its 2005 anticipated jet fuel requirements. The Company had

$22 million of unrealized gains related to fuel hedge positions recorded in Accumulated
other

comprehensive loss, net of income tax effect on its Balance Sheet as of December 31, 2004.



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Interest Rate Risk



Exposure to interest rate risk relates primarily to the Companys cash equivalents and short-

term investments portfolios and debt obligations. As of December 31, 2004 and 2003, the

Company had $1.63 billion and $1.53 billion of variable-rate debt outstanding, respectively.

Assuming a hypothetical 10%
increase in average interest rates during 2005 as compared to

2004, interest expense would increase by $8 million. Additional information regarding the

Companys debt obligations as of December 31, 2004 is as follows (dollars in millions):



|                            |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |     |   |            |   |     |       |  |   |       |   |  |   |      
|--------------------------- |  | ---------------------- | --- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | - | ---------- | - | --- | ----- |  | - | ----- | - |  | - | -----
|                            |  | Expected Maturity Date
|                            |  | 2005                   |     |   | 2006 |   |     | 2007 |  |   | 2008 |   |  | 2009 |     |   | Thereafter |   |     | Total
|Fixed-rate debt             |  | $                      | 66  |   |      | $ | 80  |      |  | $ | 86   |   |  | $    | 83  |   |            | $ | 87  |       |  | $ | 1,218 |   |  | $ | 1,620
|Weighted avg. interest rate |  |                        | 7.0 | % |      |   | 7.2 | %    |  |   | 7.2  | % |  |      | 7.3 | % |            |   | 7.3 | %     |  |   | 7.0   | % |  |   |      
|Variable-rate debt          |  | $                      | 797 |   |      | $ | 79  |      |  | $ | 59   |   |  | $    | 60  |   |            | $ | 60  |       |  | $ | 572   |   |  | $ | 1,627
|Weighted avg. interest rate |  |                        | 9.8 | % |      |   | 5.4 | %    |  |   | 5.2  | % |  |      | 5.2 | % |            |   | 5.2 | %     |  |   | 4.5   | % |  |   |      



As a result of the
Companys Chapter 11 filing, the fair value of the debt outstanding could not

be reasonably determined as of December 31, 2004.



As noted in Contractual Obligations above, US Airways Group has
future aircraft purchase

commitments of $1.93 billion. It expects to lease or mortgage a majority of those commitments.

Changes in interest rates will impact the cost of such financings.



Equity Price Risk



US Airways holds Sabre Holdings Corporation (Sabre) stock options that have a fair value

and carrying value of $10 million as of December 31, 2004. Fair value is computed using the

Black-Scholes stock option
pricing model. A hypothetical ten percent decrease in the

December 31, 2004 value of the Sabre stock price would decrease the fair value of the stock

options by $2 million. See Note 3(b) to the Companys Notes to the Financial Statements for

information related to the fair value of these options.



47



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##### Table of Contents

Item 8. Financial Statements and Supplementary Data



Managements Annual Report on Internal Control over Financial Reporting



Management of US Airways, Inc. (the Company) is responsible for establishing
and

maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and

15d-15(f) under the Securities Exchange Act of 1934, as amended. The Companys internal

control over financial reporting is designed to provide reasonable assurance regarding the

reliability of financial
reporting and the preparation of financial statements for external purposes

in accordance with generally accepted accounting principles. The Companys
internal control

over financial reporting includes those policies and procedures that:



| |  | pertain to the maintenance of records that, in reasonable detail, accurately and
| | - | --------------------------------------------------------------------------------

| |  | fairly reflect the transactions and dispositions of the assets of the Company;
| |  | ------------------------------------------------------------------------------



| |  | provide reasonable assurance that transactions are recorded as necessary to permit
| | - | ----------------------------------------------------------------------------------

| |  | preparation of financial statements in accordance with generally accepted
| |  | -------------------------------------------------------------------------

| |  | accounting principles, and that receipts and expenditures of the Company are
| |  | ----------------------------------------------------------------------------

| |  | being made only in accordance with authorizations of management and directors
| |  | -----------------------------------------------------------------------------

| |  | of the Company; and
| |  | -------------------



| |  | provide reasonable assurance regarding prevention or timely detection of
| | - | ------------------------------------------------------------------------

| |  | unauthorized acquisition, use or disposition of the Companys assets that could
| |  | -------------------------------------------------------------------------------

| |  | have a material effect on the financial statements.
| |  | ---------------------------------------------------



Because of its inherent limitations, internal control over financial reporting may not prevent or

detect misstatements. Also, projections of any evaluation of effectiveness to future periods are

subject to the risk that controls may become inadequate because of changes in conditions, or that

the degree of compliance
with the policies or procedures may deteriorate.



Management
assessed the effectiveness of the Companys internal control over financial

reporting as of December 31, 2004. In making this assessment, management
used the criteria set

forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in

Internal Control-Integrated Framework.



Based on our assessment and those criteria, management believes that the Company maintained

effective internal control over financial reporting as of December 31, 2004.



The Companys independent registered public accounting firm has issued an attestation report

on managements assessment of the Companys internal control over financial reporting. That

report has been included herein.



48



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##### Table of Contents

Report of Independent Registered Public Accounting Firm



The Board of Directors and Stockholder

US Airways, Inc.:



We have audited managements assessment, included in the accompanying Managements

Annual Report on Internal
Control over Financial Reporting that US Airways, Inc. (the

Company) maintained effective internal control over financial reporting as of December 31,

2004, based on criteria established in Internal ControlIntegrated Frameworkissued by the

Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys

management is responsible for maintaining effective internal control over financial reporting and

for its assessment of the
effectiveness of internal control over financial reporting. Our

responsibility is to express an opinion on managements assessment and an opinion on
the

effectiveness of the Companys internal control over financial reporting based on our audit.



We conducted our audit in accordance with the standards of the Public Company Accounting

Oversight Board (United States). Those standards require that we plan and perform the audit to

obtain reasonable assurance about whether effective internal control over financial reporting was

maintained in all material respects. Our audit included obtaining an understanding of internal

control over financial
reporting, evaluating managements assessment, testing and evaluating the

design and operating effectiveness of internal control, and performing such
other procedures as

we considered necessary in the circumstances. We believe that our audit provides a reasonable

basis for our opinion.



A companys internal control over financial reporting is a process designed to provide reasonable

assurance regarding
the reliability of financial reporting and the preparation of financial

statements for external purposes in accordance with generally accepted accounting
principles. A

companys internal control over financial reporting includes those policies and procedures that

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect

the transactions and dispositions of the assets of the company; (2) provide reasonable assurance

that transactions are
recorded as necessary to permit preparation of financial statements in

accordance with generally accepted accounting principles, and that receipts and
expenditures of

the company are being made only in accordance with authorizations of management and directors

of the company; and (3) provide reasonable assurance regarding prevention or timely detection of

unauthorized acquisition, use, or disposition of the companys assets that could have a material

effect on the
financial statements.



Because of its inherent limitations, internal control
over financial reporting may not prevent or

detect misstatements. Also, projections of any evaluation of effectiveness to future periods are

subject to the risk that controls may become inadequate because of changes in conditions, or that

the degree of compliance with the policies or procedures may deteriorate.



In our opinion, managements assessment that the Company maintained effective internal control

over financial
reporting as of December 31, 2004, is fairly stated, in all material respects, based

on criteria established inInternal ControlIntegrated
Frameworkissued by COSO.Also, in our

opinion, the Company maintained, in all material respects, effective internal control over

financial reporting as of December 31, 2004, based on criteria established inInternal Control

Integrated Frameworkissued by COSO.



We also have audited, in accordance with the standards of the Public Company Accounting

Oversight Board (United States), the balance sheets of US
Airways, Inc. as of December 31,

2004 and 2003, and the related statements of operations, stockholders equity (deficit) and cash

flows for the year ended December 31, 2004 and the nine months ended December 31, 2003 for



49



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##### Table of Contents

the Successor Company and the three months ended March 31, 2003 and the year ended

December 31, 2002 for the Predecessor Company and our report dated February 25, 2005

expressed an unqualified opinion on those financial statements. Our report included an

explanatory paragraph that states that the Companys
significant recurring losses, accumulated

deficit and voluntary petition seeking to reorganize under Chapter 11 of the federal bankruptcy

laws raise substantial doubt about its ability to continue as a going concern. The financial

statements do not include any adjustments that might result from the outcome of this uncertainty.



KPMG LLP



McLean, Virginia

February 25, 2005



Report of Independent Registered Public Accounting Firm



The Board of Directors and Stockholder

US
Airways, Inc.:



We have audited the accompanying balance sheets of US Airways,
Inc. as of December 31, 2004

and 2003, and the related statements of operations, stockholders equity (deficit) and cash flows

for the year ended December 31, 2004 and the nine months ended December 31, 2003 for the

Successor Company and the three months ended March 31, 2003 and the year ended December

31, 2002 for the Predecessor
Company. These financial statements are the responsibility of the

Companys management. Our responsibility is to express an opinion on these financial

statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting

Oversight Board (United States). Those standards require that we plan and perform the audit to

obtain reasonable assurance
about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statements. An audit also includes assessing the accounting principles

used and significant estimates made by management, as well as evaluating the overall financial

statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects,

the financial position of US Airways, Inc. as of December 31, 2004 and 2003, and the results of

its operations and its cash
flows for the year ended December 31, 2004 and the nine months

ended December 31, 2003 for the Successor Company and the three months ended March 31,

2003 and the year ended December 31, 2002 for the Predecessor Company, in conformity with

U.S. generally accepted accounting principles.



The accompanying financial statements have been prepared assuming that the Company will

continue as a going concern. The Company has incurred
significant recurring losses from

operations, has an accumulated deficit and as discussed in Note 1 to the financial statements,

filed a voluntary petition seeking to reorganize under Chapter 11 of the federal bankruptcy laws

which raise substantial doubt about its ability to continue as a going concern. Although the

Company is currently operating
as a debtor-in-possession under the jurisdiction of the

Bankruptcy Court, the continuation of the business as a going concern is contingent upon, among

other things: (1) the ability to maintain compliance with all terms of its ATSB Loan; (2) the

ability of the Company to successfully achieve required cost savings to complete its

restructuring; (3) the ability of the
Company to generate cash from operations and to maintain



50



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##### Table of Contents

adequate cash on hand; (4) the resolution of the uncertainty as to the amount of claims that will

be allowed and as to a number of disputed claims which are materially in excess of amounts

reflected in the accompanying financial statements; (5) the ability of the Company to confirm a

plan of reorganization
under the Bankruptcy Code and obtain the required debt and equity

financing to emerge from bankruptcy protection; and (6) the Companys ability to
achieve

profitability. Managements plans in regard to these matters are also described in Note 1. The

accompanying financial statements do not include any adjustments that might result from the

outcome of this uncertainty.



As discussed in
Note 1 to the financial statements, on March 18, 2003, the Bankruptcy Court

confirmed the Companys Plan of Reorganization (the 2003 Plan) related to
its prior Chapter 11

proceeding. The 2003 Plan became effective on March 31, 2003 and the Company emerged from

the prior Chapter 11 proceeding. In connection with its emergence from the prior Chapter 11

proceeding, the Company adopted fresh-start reporting pursuant to Statement of Position 90-7,

Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code as of March 31,

2003. As a result, the financial statements of the Successor Company are
presented on a different

basis than those of the Predecessor Company and, therefore, are not comparable in all respects.

As discussed in Notes 2(m) and 9 to the financial statements, effective April 1, 2003, the

Company changed its method of accounting for stock-based compensation as described by

Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based

Compensation - Transition and Disclosure.



We also have audited, in accordance with the standards of the Public Company Accounting

Oversight Board (United States), the effectiveness of the Companys internal control over

financial reporting as of December 31, 2004, based on criteria established inInternal Control-

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission (COSO), and our
report dated February 25, 2005 expressed an unqualified opinion

on managements assessment of, and the effective operation of, internal control over
financial

reporting.



KPMG LLP



McLean, Virginia

February 25, 2005



51



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##### Table of Contents

US Airways, Inc.

(Debtor-in-Possession)

Statements of Operations

(dollars in millions)



|                                      |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  
|------------------------------------- |  | ---------------------------- | ----- | - | --------------------------------- | - | ----- | -------------------------------- |  | - | --------------------------- | - |  | - | ------ | -
|                                      |  | Successor Company            |       |   | Predecessor Company               |  
|                                      |  | Year Ended December 31, 2004 |       |   | Nine MonthsEndedDecember 31, 2003 |   |       | Three MonthsEnded March 31, 2003 |  |   | Year EndedDecember 31, 2002 |  
|Operating Revenues                    |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  
|Passenger transportation              |  | $                            | 6,345 |   |                                   | $ | 4,775 |                                  |  | $ | 1,358                       |   |  | $ | 6,282  |  
|Cargo and freight                     |  |                              | 132   |   |                                   |   | 97    |                                  |  |   | 35                          |   |  |   | 141    |  
|Other                                 |  |                              | 596   |   |                                   |   | 378   |                                  |  |   | 119                         |   |  |   | 492    |  
|                                      |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  
|Total Operating Revenues              |  |                              | 7,073 |   |                                   |   | 5,250 |                                  |  |   | 1,512                       |   |  |   | 6,915  |  
|                                      |  |                              |       |  
|Operating Expenses                    |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  
|Personnel costs                       |  |                              | 2,188 |   |                                   |   | 1,848 |                                  |  |   | 562                         |   |  |   | 2,989  |  
|Aviation fuel                         |  |                              | 1,012 |   |                                   |   | 574   |                                  |  |   | 197                         |   |  |   | 723    |  
|US Airways Express capacity purchases |  |                              | 1,304 |   |                                   |   | 894   |                                  |  |   | 251                         |   |  |   | 1,094  |  
|Aircraft rent                         |  |                              | 414   |   |                                   |   | 298   |                                  |  |   | 101                         |   |  |   | 468    |  
|Other rent and landing fees           |  |                              | 398   |   |                                   |   | 301   |                                  |  |   | 99                          |   |  |   | 397    |  
|Selling expenses                      |  |                              | 364   |   |                                   |   | 293   |                                  |  |   | 83                          |   |  |   | 401    |  
|Aircraft maintenance                  |  |                              | 301   |   |                                   |   | 250   |                                  |  |   | 70                          |   |  |   | 296    |  
|Depreciation and amortization         |  |                              | 223   |   |                                   |   | 161   |                                  |  |   | 66                          |   |  |   | 287    |  
|Special items                         |  |                              |      |   |                                   |   | 34    |                                  |  |   |                            |   |  |   | 320    |  
|Government compensation               |  |                              |      |   |                                   |   | (212  | )                                |  |   |                            |   |  |   | 3      |  
|Other                                 |  |                              | 1,217 |   |                                   |   | 851   |                                  |  |   | 285                         |   |  |   | 1,258  |  
|                                      |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  
|Total Operating Expenses              |  |                              | 7,421 |   |                                   |   | 5,292 |                                  |  |   | 1,714                       |   |  |   | 8,236  |  
|                                      |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  
|Operating Loss                        |  |                              | (348  | ) |                                   |   | (42   | )                                |  |   | (202                        | ) |  |   | (1,321 | )
|                                      |  |                              |       |  
|Other Income (Expense)                |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  
|Interest income                       |  |                              | 12    |   |                                   |   | 15    |                                  |  |   | 2                           |   |  |   | 30     |  
|Interest expense, net                 |  |                              | (236  | ) |                                   |   | (164  | )                                |  |   | (73                         | ) |  |   | (319   | )
|Reorganization items, net             |  |                              | (32   | ) |                                   |   |      |                                  |  |   | 1,888                       |   |  |   | (294   | )
|Other, net                            |  |                              | 19    |   |                                   |   | 37    |                                  |  |   | (2                          | ) |  |   | (10    | )
|                                      |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  
|Other Income (Expense), Net           |  |                              | (237  | ) |                                   |   | (112  | )                                |  |   | 1,815                       |   |  |   | (593   | )
|                                      |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  
|Income (Loss) Before Income Taxes     |  |                              | (585  | ) |                                   |   | (154  | )                                |  |   | 1,613                       |   |  |   | (1,914 | )
|Income Tax Provision (Benefit)        |  |                              | (7    | ) |                                   |   | 6     |                                  |  |   |                            |   |  |   | (255   | )
|                                      |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  
|Net Income (Loss)                     |  | $                            | (578  | ) |                                   | $ | (160  | )                                |  | $ | 1,613                       |   |  | $ | (1,659 | )
|                                      |  |                              |       |   |                                   |   |       |                                  |  |   |                             |   |  |   |        |  



See accompanying Notes
to the Financial Statements.



52



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US Airways, Inc

(Debtor-in-Possession)

Balance Sheets

(dollars in
millions)



|                                                     |  |              |       |   |      |   |       |  
|---------------------------------------------------- |  | ------------ | ----- | - | ---- | - | ----- | -
|                                                     |  | December 31, |      
|                                                     |  | 2004         |       |   | 2003 |  
|ASSETS                                               |  |              |       |   |      |   |       |  
|Current Assets                                       |  |              |       |   |      |   |       |  
|Cash and cash equivalents                            |  | $            | 734   |   |      | $ | 923   |  
|Short-term investments                               |  |              |      |   |      |   | 358   |  
|Restricted cash                                      |  |              | 99    |   |      |   | 151   |  
|Receivables, net                                     |  |              | 247   |   |      |   | 240   |  
|Materials and supplies, net                          |  |              | 147   |   |      |   | 167   |  
|Prepaid expenses and other                           |  |              | 136   |   |      |   | 138   |  
|                                                     |  |              |       |   |      |   |       |  
|Total Current Assets                                 |  |              | 1,363 |   |      |   | 1,977 |  
|Property and Equipment                               |  |              |       |   |      |   |       |  
|Flight equipment                                     |  |              | 3,084 |   |      |   | 2,497 |  
|Ground property and equipment                        |  |              | 348   |   |      |   | 349   |  
|Less accumulated depreciation and amortization       |  |              | (283  | ) |      |   | (118  | )
|                                                     |  |              |       |   |      |   |       |  
|                                                     |  |              | 3,149 |   |      |   | 2,728 |  
|Purchase deposits for flight equipment               |  |              | 138   |   |      |   | 213   |  
|                                                     |  |              |       |   |      |   |       |  
|Total Property and Equipment                         |  |              | 3,287 |   |      |   | 2,941 |  
|Other Assets                                         |  |              |       |   |      |   |       |  
|Goodwill                                             |  |              | 2,490 |   |      |   | 2,475 |  
|Other intangibles, net                               |  |              | 494   |   |      |   | 532   |  
|Restricted cash                                      |  |              | 527   |   |      |   | 399   |  
|Other assets, net                                    |  |              | 89    |   |      |   | 25    |  
|                                                     |  |              |       |   |      |   |       |  
|Total Other Assets                                   |  |              | 3,600 |   |      |   | 3,431 |  
|                                                     |  |              |       |   |      |   |       |  
|Total Assets                                         |  | $            | 8,250 |   |      | $ | 8,349 |  
|                                                     |  |              |       |   |      |   |       |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)       |  |              |       |   |      |   |       |  
|Current Liabilities                                  |  |              |       |   |      |   |       |  
|Current maturities of debt                           |  | $            | 721   |   |      | $ | 360   |  
|Accounts payable                                     |  |              | 338   |   |      |   | 355   |  
|Payables to related parties, net                     |  |              | 68    |   |      |   | 35    |  
|Traffic balances payable and unused tickets          |  |              | 820   |   |      |   | 835   |  
|Accrued aircraft rent                                |  |              | 51    |   |      |   | 76    |  
|Accrued salaries, wages and vacation                 |  |              | 154   |   |      |   | 190   |  
|Other accrued expenses                               |  |              | 247   |   |      |   | 657   |  
|                                                     |  |              |       |   |      |   |       |  
|Total Current Liabilities                            |  |              | 2,399 |   |      |   | 2,508 |  
|                                                     |  |             
|Noncurrent Liabilities and Deferred Credits          |  |              |       |   |      |   |       |  
|Long-term debt, net of current maturities            |  |              |      |   |      |   | 2,581 |  
|Deferred gains and credits, net                      |  |              | 44    |   |      |   | 434   |  
|Postretirement benefits other than pensions          |  |              |      |   |      |   | 1,650 |  
|Employee benefit liabilities and other               |  |              | 230   |   |      |   | 1,087 |  
|                                                     |  |              |       |   |      |   |       |  
|Total Noncurrent Liabilities and Deferred Credits    |  |              | 274   |   |      |   | 5,752 |  
|                                                     |  |             
|Liabilities Subject to Compromise                    |  |              | 6,078 |   |      |   |      |  
|                                                     |  |             
|Commitments and Contingencies                        |  |              |       |   |      |   |       |  
|                                                     |  |             
|Stockholders Equity (Deficit)                       |  |              |       |   |      |   |       |  
|Common stock                                         |  |              |      |   |      |   |      |  
|Paid-in capital                                      |  |              | 349   |   |      |   | 349   |  
|Accumulated deficit                                  |  |              | (738  | ) |      |   | (160  | )
|Deferred compensation                                |  |              | (14   | ) |      |   | (45   | )
|Accumulated other comprehensive loss                 |  |              | (98   | ) |      |   | (55   | )
|                                                     |  |              |       |   |      |   |       |  
|Total Stockholders Equity (Deficit)                 |  |              | (501  | ) |      |   | 89    |  
|                                                     |  |              |       |   |      |   |       |  
|Total Liabilities and Stockholders Equity (Deficit) |  | $            | 8,250 |   |      | $ | 8,349 |  
|                                                     |  |              |       |   |      |   |       |  



See accompanying Notes
to the Financial Statements.



53



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US Airways, Inc.

(Debtor-in-Possession)

Statements of Cash Flows

(in
millions)



|                                                                                                  |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | --------------------------- | ---- | - | --------------------------------- | - | ----- | ------------------------------- |  | - | --------------------------- | - |  | - | ------ | -
|                                                                                                  |  | Successor Company           |      |   | Predecessor Company               |  
|                                                                                                  |  | Year EndedDecember 31, 2004 |      |   | Nine MonthsEndedDecember 31, 2003 |   |       | Three MonthsEndedMarch 31, 2003 |  |   | Year EndedDecember 31, 2002 |  
|Cash flows from operating activities                                                              |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Net income (loss)                                                                                 |  | $                           | (578 | ) |                                   | $ | (160  | )                               |  | $ | 1,613                       |   |  | $ | (1,659 | )
|Adjustments to reconcile net income (loss) to net cashProvided by (used for) operating activities |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Gain on debt discharge                                                                            |  |                             |     |   |                                   |   |      |                                 |  |   | (3,655                      | ) |  |   |       |  
|Fresh start adjustments                                                                           |  |                             | (15  | ) |                                   |   |      |                                 |  |   | 1,106                       |   |  |   |       |  
|Non-cash impairments and other special items                                                      |  |                             |     |   |                                   |   |      |                                 |  |   | 555                         |   |  |   | 442    |  
|Other reorganization items                                                                        |  |                             | 32   |   |                                   |   |      |                                 |  |   |                            |   |  |   |       |  
|Depreciation and amortization                                                                     |  |                             | 223  |   |                                   |   | 161   |                                 |  |   | 66                          |   |  |   | 287    |  
|Gains on dispositions of property                                                                 |  |                             |     |   |                                   |   |      |                                 |  |   | (4                          | ) |  |   | (2     | )
|Amortization of deferred gains and credits                                                        |  |                             | (79  | ) |                                   |   | (66   | )                               |  |   | (10                         | ) |  |   | (45    | )
|Stock-based compensation                                                                          |  |                             | 50   |   |                                   |   | 124   |                                 |  |   |                            |   |  |   |       |  
|Other                                                                                             |  |                             | 3    |   |                                   |   | 4     |                                 |  |   | 88                          |   |  |   | 170    |  
|Changes in certain assets and liabilities                                                         |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Decrease (increase) in receivables                                                                |  |                             | (5   | ) |                                   |   | 40    |                                 |  |   | (10                         | ) |  |   | 66     |  
|Decrease (increase) in materials and supplies, prepaidexpenses and other assets                   |  |                             | (42  | ) |                                   |   | 28    |                                 |  |   | (7                          | ) |  |   | 420    |  
|Increase (decrease) in traffic balances payable andunused tickets                                 |  |                             | (15  | ) |                                   |   | (89   | )                               |  |   | 140                         |   |  |   | (34    | )
|Increase (decrease) in accounts payable and accrued expenses                                      |  |                             | 287  |   |                                   |   | 6     |                                 |  |   | (100                        | ) |  |   | (50    | )
|Increase in postretirement benefits other thanpensions, noncurrent                                |  |                             | 44   |   |                                   |   | 60    |                                 |  |   | 29                          |   |  |   | 90     |  
|                                                                                                  |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Net cash provided by (used for) operating activitiesbefore reorganization items                   |  |                             | (95  | ) |                                   |   | 108   |                                 |  |   | (189                        | ) |  |   | (315   | )
|Reorganization items, net                                                                         |  |                             | (11  | ) |                                   |   |      |                                 |  |   | (90                         | ) |  |   | (62    | )
|                                                                                                  |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Net cash provided by (used for) operating activities                                              |  |                             | (106 | ) |                                   |   | 108   |                                 |  |   | (279                        | ) |  |   | (377   | )
|                                                                                                  |  |                             |      |  
|Cash flows from investing activities                                                              |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Capital expenditures                                                                              |  |                             | (198 | ) |                                   |   | (201  | )                               |  |   | (7                          | ) |  |   | (135   | )
|Proceeds from dispositions of property                                                            |  |                             | 18   |   |                                   |   | 19    |                                 |  |   | 2                           |   |  |   | 99     |  
|Decrease (increase) in short-term investments                                                     |  |                             | 358  |   |                                   |   | (290  | )                               |  |   | (19                         | ) |  |   | 430    |  
|Decrease (increase) in restricted cash and investments                                            |  |                             | (76  | ) |                                   |   | 24    |                                 |  |   | (57                         | ) |  |   | (370   | )
|Proceeds from repayment of parent company loans                                                   |  |                             |     |   |                                   |   |      |                                 |  |   | 237                         |   |  |   |       |  
|Merger of USLM Corporation                                                                        |  |                             |     |   |                                   |   |      |                                 |  |   |                            |   |  |   | 54     |  
|Other                                                                                             |  |                             |     |   |                                   |   | 32    |                                 |  |   | (8                          | ) |  |   | 8      |  
|                                                                                                  |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Net cash provided by (used for) investing activities                                              |  |                             | 102  |   |                                   |   | (416  | )                               |  |   | 148                         |   |  |   | 86     |  
|                                                                                                  |  |                             |      |  
|Cash flows from financing activities                                                              |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Proceeds from issuance of debt                                                                    |  |                             | 240  |   |                                   |   | 52    |                                 |  |   | 1,081                       |   |  |   | 167    |  
|Proceeds from issuance of Debtor-in-Possession financings                                         |  |                             |     |   |                                   |   |      |                                 |  |   | 131                         |   |  |   | 375    |  
|Advance from parent company                                                                       |  |                             |     |   |                                   |   | 34    |                                 |  |   |                            |   |  |   |       |  
|Principal payments on debt and capital lease obligations                                          |  |                             | (425 | ) |                                   |   | (50   | )                               |  |   | (35                         | ) |  |   | (133   | )
|Principal payments on Debtor-in-Possession financings                                             |  |                             |     |   |                                   |   |      |                                 |  |   | (431                        | ) |  |   | (75    | )
|                                                                                                  |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Net cash provided by (used for) financing activities                                              |  |                             | (185 | ) |                                   |   | 36    |                                 |  |   | 746                         |   |  |   | 334    |  
|                                                                                                  |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Net increase (decrease) in Cash and cash equivalents                                              |  |                             | (189 | ) |                                   |   | (272  | )                               |  |   | 615                         |   |  |   | 43     |  
|                                                                                                  |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Cash and Cash equivalents at beginning of period                                                  |  |                             | 923  |   |                                   |   | 1,195 |                                 |  |   | 580                         |   |  |   | 537    |  
|                                                                                                  |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Cash and Cash equivalents at end of period                                                        |  | $                           | 734  |   |                                   | $ | 923   |                                 |  | $ | 1,195                       |   |  | $ | 580    |  
|                                                                                                  |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Noncash investing and financing activities                                                        |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Flight equipment acquired through issuance of debt                                                |  | $                           | 345  |   |                                   | $ | 30    |                                 |  | $ |                            |   |  | $ | 77     |  
|Supplemental Information                                                                          |  |                             |      |   |                                   |   |       |                                 |  |   |                             |   |  |   |        |  
|Interest paid during the period                                                                   |  | $                           | 160  |   |                                   | $ | 126   |                                 |  | $ | 72                          |   |  | $ | 248    |  
|Income taxes refunded (paid) during the period                                                    |  | $                           | 12   |   |                                   | $ | (18   | )                               |  | $ | 2                           |   |  | $ | 175    |  



See accompanying Notes
to the Financial Statements



54



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US Airways, Inc.

(Debtor-in-Possession)

Statements of Stockholders Equity (Deficit)

Three Years Ended December 31, 2004

(in millions)



|                                                                                              |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   |                                                                         |   |      |                                         |  |   |                                         |   |  |       |     |   |                             |   |      |   |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------- |  | ----------- | - | -------------- | - | ------ | ------------------ |  | - | ---------------------------- | - |  | -------------------- | ------ | - | ----------------------------------------------------------------------- | - | ---- | --------------------------------------- |  | - | --------------------------------------- | - |  | ----- | --- | - | --------------------------- | - | ---- | - |  | - | ------ | - |  | - | ------ | -
|                                                                                              |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   | Accumulated other comprehensive income (loss), net of income tax effect |   |      |                                         |  |   |                                         |  
|                                                                                              |  | CommonStock |   | Paid-incapital |   |        | Accumulateddeficit |  |   | Receivablefrom parentcompany |   |  | Deferredcompensation |        |   | Unrealized gain (loss) onavailable-for-sale securities                  |   |      | Unrealizedgain (loss)on cash flowhedges |  |   | Adjustment for minimumpension liability |   |  | Total |     |   | Comprehensive income (loss) |  
|Predecessor Company:                                                                          |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   |                                                                         |   |      |                                         |  |   |                                         |   |  |       |     |   |                             |   |      |   |  |   |        |   |  |   |        |  
|Balance as of December 31, 2001                                                               |  | $           |  |                | $ | 2,611  |                    |  | $ | (2,826                       | ) |  | $                    | (2,262 | ) |                                                                         | $ |     |                                         |  | $ | 2                                       |   |  | $     | (17 | ) |                             | $ | (138 | ) |  | $ | (2,630 | ) |  |   |        |  
|Merger of USLM, Inc.                                                                          |  |             |  |                |   | 47     |                    |  |   |                             |   |  |                      |       |   |                                                                         |   |     |                                         |  |   |                                        |   |  |       |    |   |                             |   |     |   |  |   | 47     |   |  |   |        |  
|Interest related to $232 million financing topurchase Shuttle, Inc., net of income tax effect |  |             |  |                |   | 3      |                    |  |   |                             |   |  |                      |       |   |                                                                         |   |     |                                         |  |   |                                        |   |  |       |    |   |                             |   |     |   |  |   | 3      |   |  |   |        |  
|Unrealized loss on available-for-sale securities, net of reclassification adjustment          |  |             |  |                |   |       |                    |  |   |                             |   |  |                      |       |   |                                                                         |   |     |                                         |  |   | (2                                      | ) |  |       |    |   |                             |   |     |   |  |   | (2     | ) |  | $ | (2     | )
|Unrealized loss on fuel cash flow hedges, net of reclassification adjustment                  |  |             |  |                |   |       |                    |  |   |                             |   |  |                      |       |   |                                                                         |   |     |                                         |  |   |                                        |   |  |       | 27  |   |                             |   |     |   |  |   | 27     |   |  |   | 27     |  
|Minimum pension liability change                                                              |  |             |  |                |   |       |                    |  |   |                             |   |  |                      |       |   |                                                                         |   |     |                                         |  |   |                                        |   |  |       |    |   |                             |   | (742 | ) |  |   | (742   | ) |  |   | (742   | )
|Net loss                                                                                      |  |             |  |                |   |       |                    |  |   | (1,659                       | ) |  |                      |       |   |                                                                         |   |     |                                         |  |   |                                        |   |  |       |    |   |                             |   |     |   |  |   | (1,659 | ) |  |   | (1,659 | )
|                                                                                              |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   |                                                                         |   |      |                                         |  |   |                                         |   |  |       |     |   |                             |   |      |   |  |   |        |   |  |   |        |  
|Total comprehensive loss                                                                      |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   |                                                                         |   |      |                                         |  |   |                                         |   |  |       |     |   |                             |   |      |   |  |   |        |   |  | $ | (2,376 | )
|                                                                                              |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   |                                                                         |   |      |                                         |  |   |                                         |   |  |       |     |   |                             |   |      |   |  |   |        |   |  |   |        |  
|Balance as of December 31, 2002                                                               |  |             |  |                |   | 2,661  |                    |  |   | (4,485                       | ) |  |                      | (2,262 | ) |                                                                         |   |     |                                         |  |   |                                        |   |  |       | 10  |   |                             |   | (880 | ) |  |   | (4,956 | ) |  |   |        |  
|Unrealized loss on fuel cash flow hedges,net of reclassification adjustment                   |  |             |  |                |   |       |                    |  |   |                             |   |  |                      |       |   |                                                                         |   |     |                                         |  |   |                                        |   |  |       | (11 | ) |                             |   |     |   |  |   | (11    | ) |  | $ | (11    | )
|Termination of pilot pension plan                                                             |  |             |  |                |   |       |                    |  |   |                             |   |  |                      |       |   |                                                                         |   |     |                                         |  |   |                                        |   |  |       |    |   |                             |   | 85   |   |  |   | 85     |   |  |   | 85     |  
|Net income                                                                                    |  |             |  |                |   |       |                    |  |   | 1,613                        |   |  |                      |       |   |                                                                         |   |     |                                         |  |   |                                        |   |  |       |    |   |                             |   |     |   |  |   | 1,613  |   |  |   | 1,613  |  
|Reorganization adjustments:                                                                   |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   |                                                                         |   |      |                                         |  |   |                                         |   |  |       |     |   |                             |   |      |   |  |   |        |   |  |   |        |  
|Adjustments to Stockholders Deficit inconnection with reorganization                         |  |             |  |                |   | (2,481 | )                  |  |   | 2,872                        |   |  |                      | 2,025  |   |                                                                         |   |     |                                         |  |   |                                        |   |  |       | 1   |   |                             |   | 795  |   |  |   | 3,212  |   |  |   | 796    |  
|Repayment of parent companys loan                                                            |  |             |  |                |   |       |                    |  |   |                             |   |  |                      | 237    |   |                                                                         |   |     |                                         |  |   |                                        |   |  |       |    |   |                             |   |     |   |  |   | 237    |   |  |   |        |  
|Deferred compensation related to labor groups                                                 |  |             |  |                |   | 169    |                    |  |   |                             |   |  |                      |       |   |                                                                         |   | (169 | )                                       |  |   |                                        |   |  |       |    |   |                             |   |     |   |  |   |       |   |  |   |       |  
|                                                                                              |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   |                                                                         |   |      |                                         |  |   |                                         |   |  |       |     |   |                             |   |      |   |  |   |        |   |  |   |        |  
|Total comprehensive income                                                                    |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   |                                                                         |   |      |                                         |  |   |                                         |   |  |       |     |   |                             |   |      |   |  |   |        |   |  | $ | 2,483  |  
|                                                                                              |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   |                                                                         |   |      |                                         |  |   |                                         |   |  |       |     |   |                             |   |      |   |  |   |        |   |  |   |        |  
|Successor Company:                                                                            |  |             |   |                |   |        |                    |  |   |                              |   |  |                      |        |   |                                                                         |   |      |                                         |  |   |                                         |   |  |       |     |   |                             |   |      |   |  |   |        |   |  |   |        |  
|Balance as of March 31, 2003                                                                  |  | $           |  |                | $ | 349    |                    |  | $ |                             |   |  | $                    |       |   |                                                                         | $ | (169 | )                                       |  | $ |                                        |   |  | $     |    |   |                             | $ |     |   |  | $ | 180    |   |  |   |        |  



(continued on following
page)



55



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US Airways, Inc.

(Debtor-in-Possession)

Statements of Stockholders Equity (Deficit)

Three Years Ended December 31, 2004

(in millions)



|                                                                             |  |             |   |                |   |                    |  |   |                              |   |                      |   |   |                                                                         |   |                                          |   |  |                                       |   |  |       |    |   |                            |   |      |   |  |   |      |   |  |   |      |  
|---------------------------------------------------------------------------- |  | ----------- | - | -------------- | - | ------------------ |  | - | ---------------------------- | - | -------------------- | - | - | ----------------------------------------------------------------------- | - | ---------------------------------------- | - |  | ------------------------------------- | - |  | ----- | -- | - | -------------------------- | - | ---- | - |  | - | ---- | - |  | - | ---- | -
|                                                                             |  |             |   |                |   |                    |  |   |                              |   |                      |   |   | Accumulated other comprehensive income (loss), net of income tax effect |   |                                          |   |  |                                       |   | 
|                                                                             |  | CommonStock |   | Paid-incapital |   | Accumulateddeficit |  |   | Receivablefrom parentcompany |   | Deferredcompensation |   |   | Unrealized gain (loss) onavailable-for-sale securities                  |   | Unrealizedgain (loss) on cash flowhedges |   |  | Adjustmentfor minimumpensionliability |   |  | Total |    |   | Comprehensiveincome (loss) |  
|Successor Company:                                                           |  |             |   |                |   |                    |  |   |                              |   |                      |   |   |                                                                         |   |                                          |   |  |                                       |   |  |       |    |   |                            |   |      |   |  |   |      |   |  |   |      |  
|Balance as of March 31, 2003                                                 |  | $           |  |                | $ | 349                |  | $ |                             |   |                      | $ |  |                                                                         | $ | (169                                     | ) |  | $                                     |  |  | $     |   |   |                            | $ |     |   |  | $ | 180  |   |  |   |      |  
|Amortization of deferred compensation                                        |  |             |  |                |   |                   |  |   |                             |   |                      |   |  |                                                                         |   | 124                                      |   |  |                                       |  |  |       |   |   |                            |   |     |   |  |   | 124  |   |  |   |      |  
|Unrealized gain on fuel cash flow hedges, net of reclassification adjustment |  |             |  |                |   |                   |  |   |                             |   |                      |   |  |                                                                         |   |                                         |   |  |                                       |  |  |       | 31 |   |                            |   |     |   |  |   | 31   |   |  | $ | 31   |  
|Minimum pension liability change                                             |  |             |  |                |   |                   |  |   |                             |   |                      |   |  |                                                                         |   |                                         |   |  |                                       |  |  |       |   |   |                            |   | (86  | ) |  |   | (86  | ) |  |   | (86  | )
|Net loss                                                                     |  |             |  |                |   |                   |  |   | (160                         | ) |                      |   |  |                                                                         |   |                                         |   |  |                                       |  |  |       |   |   |                            |   |     |   |  |   | (160 | ) |  |   | (160 | )
|                                                                             |  |             |   |                |   |                    |  |   |                              |   |                      |   |   |                                                                         |   |                                          |   |  |                                       |   |  |       |    |   |                            |   |      |   |  |   |      |   |  |   |      |  
|Total comprehensive loss                                                     |  |             |   |                |   |                    |  |   |                              |   |                      |   |   |                                                                         |   |                                          |   |  |                                       |   |  |       |    |   |                            |   |      |   |  |   |      |   |  | $ | (215 | )
|                                                                             |  |             |   |                |   |                    |  |   |                              |   |                      |   |   |                                                                         |   |                                          |   |  |                                       |   |  |       |    |   |                            |   |      |   |  |   |      |   |  |   |      |  
|Balance as of December 31, 2003                                              |  |             |  |                |   | 349                |  |   | (160                         | ) |                      |   |  |                                                                         |   | (45                                      | ) |  |                                       |  |  |       | 31 |   |                            |   | (86  | ) |  |   | 89   |   |  |   |      |  
|Amortization of deferred compensation                                        |  |             |  |                |   |                   |  |   |                             |   |                      |   |  |                                                                         |   | 31                                       |   |  |                                       |  |  |       |   |   |                            |   |     |   |  |   | 31   |   |  |   |      |  
|Unrealized loss on fuel cash flow hedges, net                                |  |             |  |                |   |                   |  |   |                             |   |                      |   |  |                                                                         |   |                                         |   |  |                                       |  |  |       | (9 | ) |                            |   |     |   |  |   | (9   | ) |  | $ | (9   | )
|Minimum pension liability change                                             |  |             |  |                |   |                   |  |   |                             |   |                      |   |  |                                                                         |   |                                         |   |  |                                       |  |  |       |   |   |                            |   | (34  | ) |  |   | (34  | ) |  |   | (34  | )
|Net loss                                                                     |  |             |  |                |   |                   |  |   | (578                         | ) |                      |   |  |                                                                         |   |                                         |   |  |                                       |  |  |       |   |   |                            |   |     |   |  |   | (578 | ) |  |   | (578 | )
|                                                                             |  |             |   |                |   |                    |  |   |                              |   |                      |   |   |                                                                         |   |                                          |   |  |                                       |   |  |       |    |   |                            |   |      |   |  |   |      |   |  |   |      |  
|Total comprehensive loss                                                     |  |             |   |                |   |                    |  |   |                              |   |                      |   |   |                                                                         |   |                                          |   |  |                                       |   |  |       |    |   |                            |   |      |   |  |   |      |   |  | $ | (621 | )
|                                                                             |  |             |   |                |   |                    |  |   |                              |   |                      |   |   |                                                                         |   |                                          |   |  |                                       |   |  |       |    |   |                            |   |      |   |  |   |      |   |  |   |      |  
|Balance as of December 31, 2004                                              |  | $           |  |                | $ | 349                |  | $ | (738                         | ) |                      | $ |  |                                                                         | $ | (14                                      | ) |  | $                                     |  |  | $     | 22 |   |                            | $ | (120 | ) |  | $ | (501 | ) |  |   |      |  
|                                                                             |  |             |   |                |   |                    |  |   |                              |   |                      |   |   |                                                                         |   |                                          |   |  |                                       |   |  |       |    |   |                            |   |      |   |  |   |      |   |  |   |      |  



See accompanying Notes
to the Financial Statements.



56



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US Airways, Inc.

Notes to the Financial Statements



1. Chapter 11
Reorganization



Chapter 11 Proceedings



On September 12, 2004, US Airways, Inc. (US Airways or the Company), filed a
voluntary

petition for relief under Chapter 11 of the United States Bankruptcy Code (Bankruptcy Code) in the

United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division

(Bankruptcy Court) (Case Nos. 04-13819-SSM through 04-13823-SSM). On the same day,

US Airways Group, Inc. (US Airways
Group), US Airways parent company, and four of its other

subsidiaries (collectively with US Airways, the Debtors) also filed voluntary petitions for
relief

under Chapter 11 of the Bankruptcy Code. Each of the Debtors in these cases had previously filed a

voluntary petition for relief under Chapter 11 on August 11, 2002 (the Prior Bankruptcy). The

Debtors emerged from the Prior Bankruptcy under the First Amended Joint Plan of Reorganization

of US Airways Group, Inc.
and Affiliated Debtors and Debtors-in-Possession, As Modified (the

2003 Plan), which was confirmed pursuant to an order of the Bankruptcy Court on March
18, 2003

and became effective on March 31, 2003.



Before emerging from the Prior Bankruptcy in 2003, the Company examined virtually every

phase of its contracts and operations and had significantly reduced costs. The Company reduced its

mainline capacity,
realigned its network to maximize yield, initiated a business plan to use more

regional jets and procured financing for these aircraft, and expanded its
alliances with other carriers.

However, after emerging from the Prior Bankruptcy, the Company continued to incur substantial

losses from operations. The primary factors contributing to these losses include the reduction in

domestic industry unit revenue and significant increases in fuel prices. The downward pressure on

domestic industry revenue
is a result of the rapid growth of low-fare, low-cost airlines, the

increasing transparency of fares through Internet sources and other changes in fare
structures that

have resulted in substantially lower fares for many business and leisure travelers. The competitive

environment continued to intensify throughout 2004, particularly in key markets such as

Philadelphia, Washington, D.C., Boston and New York.



Throughout the spring and summer of 2004, the Company communicated with key stakeholders

and the public its plan to
transform US Airways into a fully competitive and profitable airline (the

Transformation Plan). A key element of the Transformation Plan is significant
reductions in labor

costs through changes to the Companys collective bargaining agreements. The Company

aggressively sought the necessary agreements to allow full implementation of the Transformation

Plan without the need for filing new Chapter 11 cases but was unable to do so in a timely manner.

As a result of the
recurring losses, declining available cash, and risk of defaults or cross defaults

under certain key financing and operating agreements, it was necessary
for the Debtors to file

voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code on September 12,

2004.



At hearings held on September 13, 2004, the Bankruptcy Court granted the Companys first day

motions for relief
designed to stabilize its operations and business relationships with customers,

vendors, employees and others and entered orders granting permission to the
Debtors to, among

other things: (a) pay employee wages and continue benefits, such as medical and dental insurance;

(b) honor prepetition obligations to customers and continue customer programs, including

US Airways Dividend Miles program; (c) pay for fuel under existing supply contracts, and honor

existing fuel supply,
distribution and storage agreements; (d) assume certain contracts related to

interline agreements with other airlines; (e) pay prepetition obligations to
certain foreign vendors,

foreign service providers and foreign governments; and (f) continue maintenance of existing bank

accounts and existing cash management systems. The Bankruptcy Court also approved the interim

agreement reached between the Company, the Air Transportation Stabilization Board (ATSB) and



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the lenders under the $1 billion loan, obtained upon emergence from the Prior Bankruptcy and

substantially guaranteed by the ATSB, to allow the Company continued use of the cash collateral

securing the loan (see Note 4 for further discussion of the ATSB Loan and subsequent

amendments).



Since filing for bankruptcy on September 12, 2004, the Company has achieved
cost-savings

agreements with all of its collective bargaining groups. Through a motion filed under Section

1113(e) of the Bankruptcy Code on September 24, 2004, the Company sought interim relief from

their collective bargaining agreements (CBAs) with the Air Line Pilots Association (ALPA),

Association of Flight
Attendants-Communications Workers of America (AFA), Transport Workers

Union (TWU), Communications Workers of America (CWA) and International Association of

Machinists and Aerospace Workers (IAM). On October 15, 2004, the Bankruptcy Court approved

base rates of pay reductions of 21% through February 15, 2005 or entry of an order approving a new

CBA or granting final
relief under Section 1113(c) of the Bankruptcy Code. Reductions to pension

contributions and certain work rule changes were also approved. The interim
relief order did not

apply to ALPA or TWU, whose members reached and ratified CBAs prior to the interim relief

going into effect. CBAs with the CWA and AFA were reached in December 2004 and were

subsequently ratified. On January 6, 2005, the Bankruptcy Court approved the Companys request

to reject the IAM CBAs and approved the
termination of the three mainline defined benefit plans.

The IAM subsequently ratified Company cost-savings proposals on January 21, 2005. As part of

these negotiations and subsequent ratifications, all collective bargaining groups had their pension

plans reduced or eliminated. See Note 5(a) for further detail on the termination of US Airways

three defined benefit plans. In addition, the Bankruptcy Court has also approved various settlement

agreements between the
Company and the court-appointed Section 1114 Committee representing

retirees other than those represented by the IAM to begin the significant curtailment
of

postretirement benefits.



In addition to the cost savings achieved with labor groups, the Company also implemented pay

and benefit reductions for its current management and other non-union employees, including

reductions to base pay,
workforce reductions and modifications to vacation and sick time accruals.

The Company also implemented modifications to its defined contribution pension
plans and will

implement modifications to retiree benefits in 2005. The pay rate and defined contribution plan

reductions went into effect October 11, 2004 and the reductions to retiree medical benefits will

become effective March 1, 2005.



The Company has reached agreements with certain of its lessors and lenders restructuring

existing aircraft lease and debt financings. On November
19, 2004, the Bankruptcy Court approved

the Companys agreements for the continued use and operation of substantially all of its mainline

and Express fleet. As discussed in detail below, the Company reached a comprehensive agreement

with GE Capital Aviation Services (GECAS) and GE Engine Service (GEES) on aircraft leasing

and financing and engine
services, which will provide the Company with short-term liquidity,

reduced debt, lower aircraft ownership costs, enhanced engine maintenance services, and
operating

leases for new regional jets. The Company also reached agreements with EMBRAER-Empresa

Brasileria de Aeronautica SA (Embraer) and Bombardier, Inc. (Bombardier) providing for

continued use and operation of its aircraft, short term liquidity and new financing for regional jets,

which were approved
by the Bankruptcy Court in January 2005. These agreements are discussed in

more detail in Note 4.



The Company has notified all known or potential creditors of the Chapter 11
filing for the

purposes of identifying and quantifying all prepetition claims. The Chapter 11 filing triggered

defaults on substantially all debt and lease obligations. Subject to certain exceptions under the

Bankruptcy Code, the Chapter 11 filing automatically stayed the continuation of any judicial or

administrative proceedings
or other actions against the Debtors or their property to recover on,

collect or secure a claim arising prior to September 12, 2004. The deadline for
filing proofs of claim

with the Bankruptcy Court was February 3, 2005, with a limited exception for governmental



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entities, which have until March 11, 2005.



The potential adverse publicity associated with the Chapter 11 filings and the resulting

uncertainty regarding the Companys future prospects may hinder the Companys ongoing business

activities and its ability to operate, fund and execute its business plan by impairing relations with

existing and
potential customers; negatively impacting the ability of the Company to attract and

retain key employees; limiting the Companys ability to obtain
trade credit; limiting the Companys

ability to effectively hedge rising aviation fuel costs; and impairing present and future relationships

with vendors and service providers.



As a result of the Chapter 11 filings, realization of assets and liquidation of liabilities are subject

to significant uncertainty. While operating as a debtor-in-possession under the protection of

Chapter 11, and subject to Bankruptcy Court approval or otherwise as permitted in the normal

course of business, US Airways
may sell or otherwise dispose of assets and liquidate or settle

liabilities for amounts other than those reflected in the financial statements. Further, a
plan of

reorganization could materially change the amounts and classifications reported in the historical

financial statements, which do not give effect to any adjustments to the carrying value of assets or

amounts of liabilities that might be necessary as a consequence of confirmation of a plan of

reorganization.



To exit Chapter 11 successfully, the Company must obtain confirmation by the
Bankruptcy

Court of a plan of reorganization. The Company currently has the exclusive right to file a plan of

reorganization until March 31, 2005 and solicit acceptance of the plan through June 30, 2005.

Under the terms of the agreement reached with General Electric, the Company has until March 15,

2005 to file a plan of
reorganization. These deadlines could potentially be extended. A plan of

reorganization would, among other things, resolve all prepetition obligations, set
forth a revised

capital structure and establish the corporate governance subsequent to exiting from bankruptcy.The

Company is currently working towards emerging from Chapter 11 mid-year 2005, but that timing is

dependent upon, among other things, the timely and successful confirmation and implementation of

a plan of reorganization.
The ultimate recovery to creditors, if any, will not be determined until

confirmation of a plan of reorganization. No assurance can be given as to what
values, if any, will

be ascribed in the Chapter 11 cases to these constituencies or what type or amount of distributions,

if any, they would receive.



On February 18, 2005, the Company announced that it reached agreement with Eastshore

Aviation, LLC, an investment entity owned by Air Wisconsin Airlines Corporation and its

shareholders (Air Wisconsin), on a
$125 million financing commitment to provide a substantial

portion of the equity funding for a plan of reorganization. The $125 million facility will be in
the

form of a debtor-in-possession term loan, to be drawn in the amount of $75 million, upon approval

by Bankruptcy Court, and as early as February 28, 2005, and two subsequent $25 million

increments. This loan would be second only to the ATSB Loan with regard to the Companys

assets that are pledged as
collateral. Upon emergence from Chapter 11, the $125 million financing

package would then convert to equity in the reorganized US Airways Group. As part of
this

agreement, US Airways and Air Wisconsin will enter into an air services agreement under which

Air Wisconsin may, but is not required to, provide regional jet service under a US Airways Express

code share arrangement.



Financial Statement
Presentation



The accompanying financial statements have
been prepared in accordance with AICPA

Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the

Bankruptcy Code (SOP 90-7), and on a going-concern basis. SOP 90-7 requires that the financial

statements for periods following the Chapter 11 filing through emergence distinguish transactions

and events that are
directly associated with the reorganization from the ongoing operations of the

business. Accordingly, revenues, expenses, realized gains and losses and
provisions for losses



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directly associated with the reorganization and restructuring of the business are reported separately

as Reorganization items, net in the Statements of Operations. Reorganization items, net as shown

on the Statement of Operations related to the current Chapter 11 proceedings as well as the Prior

Bankruptcy consist of the
following (in millions):



|                                          |  |                             |     |   |                                  |   |        |                             |  |   |      |  
|----------------------------------------- |  | --------------------------- | --- | - | -------------------------------- | - | ------ | --------------------------- |  | - | ---- | -
|                                          |  | Successor Company           |     |   | Predecessor Company              |  
|                                          |  | Year EndedDecember 31, 2004 |     |   | Three MonthsEnded March 31, 2003 |   |        | Year EndedDecember 31, 2002 | 
|Discharge of liabilities (a)              |  | $                           |    |   |                                  | $ | 3,655  |                             |  | $ |     |  
|Restructured aircraft financings (b)      |  |                             |    |   |                                  |   | 946    |                             |  |   |     |  
|Termination of pension plans (c)          |  |                             |    |   |                                  |   | 386    |                             |  |   |     |  
|Interest income on accumulated cash       |  |                             | 4   |   |                                  |   | 2      |                             |  |   | 2    |  
|Damage and deficiency claims (d)          |  |                             | (2  | ) |                                  |   | (1,892 | )                           |  |   |     |  
|Revaluation of assets and liabilities (a) |  |                             |    |   |                                  |   | (1,106 | )                           |  |   |     |  
|Professional fees                         |  |                             | (27 | ) |                                  |   | (51    | )                           |  |   | (61  | )
|Aircraft order cancellation penalties (e) |  |                             | (7  | ) |                                  |   |       |                             |  |   |     |  
|Loss on aircraft abandonment (f)          |  |                             |    |   |                                  |   | (9     | )                           |  |   | (68  | )
|Severance including benefits (g)          |  |                             |    |   |                                  |   |       |                             |  |   | (89  | )
|Write-off of ESOP deferred compensation   |  |                             |    |   |                                  |   |       |                             |  |   | (50  | )
|Other                                     |  |                             |    |   |                                  |   | (43    | )                           |  |   | (28  | )
|                                          |  |                             |     |   |                                  |   |        |                             |  |   |      |  
|                                          |  | $                           | (32 | ) |                                  | $ | 1,888  |                             |  | $ | (294 | )
|                                          |  |                             |     |   |                                  |   |        |                             |  |   |      |  

---

|(a) | Reflects the discharge or reclassification of liabilities subject to compromise in the Prior Bankruptcy.
|--- | --------------------------------------------------------------------------------------------------------

| | Most of these obligations were only entitled to receive such distributions of cash and common stock
| | ---------------------------------------------------------------------------------------------------

| | as provided under the 2003 Plan. A portion of the liabilities subject to compromise in the Prior
| | ------------------------------------------------------------------------------------------------

| | Bankruptcy were restructured and continued, as restructured, to be liabilities of the Company.
| | ----------------------------------------------------------------------------------------------

|(b) | As of March 31, 2003, the Company restructured aircraft debt and lease agreements related to 119
|--- | ------------------------------------------------------------------------------------------------

| | aircraft in connection with its Chapter 11 reorganization including the conversion of 52 mortgages to
| | -----------------------------------------------------------------------------------------------------

| | operating leases. The restructured terms generally provide for shorter lease periods and lower lease
| | ----------------------------------------------------------------------------------------------------

| | rates.
| | ------

|(c) | Effective March 31, 2003, US Airways terminated its qualified and nonqualified pilot defined benefit
|--- | ----------------------------------------------------------------------------------------------------

| | pension plans. The Pension Benefit Guaranty Corporation (PBGC) was appointed trustee of the
| | -------------------------------------------------------------------------------------------

| | qualified plan effective with the termination. The Company recognized a gain in connection with the
| | ---------------------------------------------------------------------------------------------------

| | termination which is partially offset by the Companys estimate of the PBGC claim.
| | ----------------------------------------------------------------------------------

|(d) | Damage and deficiency claims largely are a result of the Companys election to either restructure,
|--- | --------------------------------------------------------------------------------------------------

| | abandon or reject aircraft debt and leases during the bankruptcy proceedings.
| | -----------------------------------------------------------------------------

|(e) | As the result of the Companys bankruptcy filing in September 2004, the Company failed to meet the
|--- | --------------------------------------------------------------------------------------------------

| | conditions precedent for continued financing of regional jets and was not able to take delivery of
| | --------------------------------------------------------------------------------------------------

| | scheduled aircraft and therefore incurred penalties of $7 million in the fourth quarter of 2004.
| | ------------------------------------------------------------------------------------------------

|(f) | Includes aircraft (seven A319s for 2003 and 34 F-100s, two B757-200s and one B737-400 for 2002)
|--- | -----------------------------------------------------------------------------------------------

| | that were legally abandoned as part of the Prior Bankruptcy. Related aircraft liabilities were adjusted
| | -------------------------------------------------------------------------------------------------------

| | for each aircrafts expected allowed collateral value.
| | ------------------------------------------------------

|(g) | As a result of schedule reductions made in connection with Prior Bankruptcy, US Airways terminated
|--- | --------------------------------------------------------------------------------------------------

| | or furloughed approximately 6,600 employees across all employee groups. Substantially all affected
| | --------------------------------------------------------------------------------------------------

| | employees were terminated or furloughed prior to March 31, 2003. US Airways headcount
| | --------------------------------------------------------------------------------------

| | reduction was largely accomplished through involuntary terminations/furloughs. In connection with
| | -------------------------------------------------------------------------------------------------

| | this headcount reduction, US Airways offered a voluntary leave program to certain employee groups.
| | --------------------------------------------------------------------------------------------------

| | Voluntary leave program participants generally received extended benefits (e.g. medical, dental, life
| | -----------------------------------------------------------------------------------------------------

| | insurance) but did not receive any furlough pay benefit.
| | --------------------------------------------------------



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SOP 90-7 also requires that prepetition liabilities subject to compromise should be distinguished

from both prepetition liabilities that are not subject to compromise and postpetition liabilities.

Liabilities subject to compromise are reported at the amounts expected to be allowed by the

Bankruptcy Court, even if they
may be settled for lesser amounts. The following table summarizes

the components of Liabilities Subject to Compromise included in the Companys
Balance Sheets as

of December 31, 2004 (in millions):



|                                                   |  |   |      
|-------------------------------------------------- |  | - | -----
|Debt and capital leases                            |  | $ | 2,400
|Postretirement and other employee related expenses |  |   | 2,858
|Other accrued expenses                             |  |   | 565  
|Accounts payable                                   |  |   | 162  
|Aircraft-related accruals and deferrals            |  |   | 93   
|                                                   |  |   |      
|Total Liabilities Subject to Compromise            |  | $ | 6,078
|                                                   |  |   |      



2. Summary of Significant
Accounting Policies



(a) Nature of operations



US Airways, a Delaware corporation, is a certificated air
carrier engaged primarily in the business

of transporting passengers, property and mail. US Airways enplaned approximately 42 million

passengers in 2004 and was the seventh largest U.S. air carrier (as ranked by revenue passenger miles

(RPMs)). As of December 31, 2004, US Airways operated 281 jet aircraft and 22 regional jet aircraft

and provided regularly
scheduled service at 89 airports in the continental United States, Canada,

Mexico, France, Germany, Italy, Spain, Ireland, the Netherlands, the United
Kingdom and the

Caribbean.



Most of the operations of the Company are in competitive markets. Competitors include other air

carriers along with other modes of transportation. Although a competitive strength in some regards,

the concentration of significant operations in the eastern U.S. results in US Airways being susceptible

to changes in
certain regional conditions that may have an adverse effect on the Companys financial

condition and results of operations.



Personnel costs represent the Companys largest expense category. As of
December 31, 2004, the

Company employed approximately 24,600 active full-time equivalent employees. Approximately 89%

of the Companys active employees are covered by collective bargaining agreements with various

labor unions.



(b) Basis of
presentation and use of estimates



The accompanying
Financial Statements include the accounts of US Airways and US Airways

Investment Management Company, Inc. (USIM), a wholly owned subsidiary of US Airways
through

June 30, 2002. Effective July 1, 2002, USIM and USLM Corporation, a wholly owned subsidiary

of US Airways Group, were merged into US Airways. US Airways is a wholly owned subsidiary of

US Airways Group. All significant intercompany accounts and transactions have been eliminated.

However, as discussed
further in Note 12, US Airways financial results are significantly influenced

by related party transactions. Certain prior year amounts have been
reclassified to conform with the

2004 presentation.



The preparation of financial statements in conformity with accounting principles generally

accepted in the United States of America requires management to make estimates and assumptions

that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and

liabilities at the date of the financial statements and the reported amounts of
revenues and expenses

during the reporting period. Actual results could differ from those estimates. The principal areas of

judgment relate to impairment of goodwill, impairment of long-lived assets and intangible assets,

passenger revenue recognition, frequent traveler program, pensions and other postretirement

benefits and fresh-start
reporting.



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As discussed above, SOP 90-7 requires that the financial statements for periods following the

Chapter 11 filing through emergence distinguish transactions and events that are directly associated

with the reorganization from the ongoing operations of the business. The Balance Sheet as of

December 31, 2004 also
distinguishes prepetition liabilities subject to compromise from both those

prepetition liabilities that are not subject to compromise and from
postpetition liabilities. Liabilities

subject to compromise are reported at the amounts expected to be allowed, even if they may be

settled for lesser amounts. In addition, cash used for reorganization items is disclosed separately in

the Statements of Cash Flows.



In accordance with SOP 90-7 and in connection with the Prior Bankruptcy, the Company

adopted fresh-start reporting on March 31, 2003. References
in the Financial Statements and the

Notes to the Financial Statements to Predecessor Company refer to the Company prior to March

31, 2003. References to Successor Company refer to the Company on and after March 31, 2003,

after giving effect to the application of fresh-start reporting. Fresh-start reporting requires assets

and liabilities be
adjusted to fair value on the emergence date. The term cost as used in the

Successor Companys Notes to the Financial Statements is after
giving effect to such adjustments.

See Note 13 for information related to fresh-start reporting.



The 2003 Plan constituted a separate plan of reorganization for US Airways
and each of

US Airways Groups other domestic subsidiaries (collectively with US Airways, the Filing

Entities). In accordance with the Bankruptcy Code, the 2003 Plan divided claims against, and

interests in, each of the Filing Entities into classes according to their relative seniority and other

criteria and
provided the same treatment for each claim or interest of a particular class unless the

holder of a particular claim or interest agreed to a less favorable
treatment of its claim or interest.

Among other things, the 2003 Plan generally provided for full payment of all allowed administrative

and priority claims, and the distribution of shares (or warrants to purchase shares) of new equity in

the reorganized US Airways Group, Inc. (Reorganized US Airways Group) to the ATSB, the

Retirement Systems of Alabama
Holdings LLC (RSA), the Companys management and labor

unions, General Electric Capital Corporation and Bank of America, N.A., and to unsecured
creditors

of the Filing Entities, including the PBGC, in satisfaction of their allowed claims. For a complete

discussion of the distributions provided for under the 2003 Plan, see the 2003 Plan confirmed by the

Bankruptcy Court on March 18, 2003 and filed with US Airways Groups Current Report on Form

8-K, dated March 18, 2003
and filed with the SEC on April 2, 2003.



Pursuant to a
definitive agreement and in connection with emergence from the Prior Bankruptcy,

RSA invested $240 million in cash in Reorganized US Airways Group (the RSA
Investment

Agreement) in exchange for approximately 36.2%, on a fully-diluted basis, of the equity in

Reorganized US Airways Group. As of March 31, 2003, in connection with its investment, RSA

was granted a voting interest of approximately 71.6% in Reorganized US Airways Group and

entitled to designate and vote to
elect eight of 15 directors to Reorganized US Airways Groups

Board of Directors.



(c) Cash equivalents and Short-term investments



Cash equivalents and Short-term investments consist primarily of cash in money market

securities of various banks, commercial paper and asset-backed securities of various financial

institutions, other companies with high credit ratings and securities backed by the U.S. Government.

All highly liquid
investments purchased within three months of maturity are classified as Cash

equivalents. All other highly liquid investments are classified as Short-term
investments.



US Airways classifies securities underlying its
Cash equivalents and Short-term investments as

available-for-sale in accordance with Statement of Financial Accounting Standards No. 115,

Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). Cash equivalents

are stated at cost, which approximates fair value due to the highly liquid nature and short maturities



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of the underlying securities. Short-term investments are stated at fair value with the offsetting

unrecognized gain or loss reflected as a separate component of Stockholders Equity (Deficit)

within Accumulated other comprehensive income (loss).



(d) Restricted cash



Restricted cash includes deposits in trust accounts primarily to fund certain taxes and fees and

collateralize letters of credit and workers
compensation claims, credit card processing collateral and

fuel hedge collateral. Restricted cash is stated at cost which approximates fair value. See Note
3(b)

for further information.



(e) Materials and supplies, net



Inventories of materials and supplies are valued at the lower of cost or fair value. Costs are

determined using average costing methods and are charged to operations as consumed. An allowance

for obsolescence is provided for flight equipment expendable and repairable parts.



(f) Property and Equipment



Property and equipment is stated at cost or, if acquired under capital lease, at the lower of the

present value of minimum lease payments or fair value of the asset at the inception of the lease.

Interest expenses related to the acquisition of certain property and equipment are capitalized as an

additional cost of the
asset or as a leasehold improvement if the asset is leased. Costs of major

improvements that enhance the usefulness of the asset are capitalized and
depreciated over the

estimated useful life of the asset or the modifications, whichever is less.



Depreciation and amortization expense for principal asset classifications is
calculated on a straight-

line basis to an estimated residual value. Depreciable lives are 25-30 years for operating flight

equipment, 30 years for facilities and 5-10 years for other ground property and equipment. Rotable

parts and assemblies are depreciated over the estimated fleet life of the associated aircraft, on a group

basis. The cost
of property acquired under capital lease and improvements to leased assets are

depreciated over the term of the lease on a straight-line basis. When
property and equipment is sold,

any gain or loss is recognized in the Other, net category of Other Income (Expense).



US Airways monitors the recoverability of the carrying value of its
long-lived assets. Under the

provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment

or Disposal of Long-Lived Assets (SFAS 144), US Airways recognizes an impairment charge

when the expected net undiscounted future cash flows from an assets use (including any proceeds

from disposition) are
less than the assets carrying value and the assets carrying value exceeds its fair

value.



(g) Goodwill and Other intangibles, net



Goodwill is the cost in excess of fair value of the tangible and
identifiable intangible assets of

businesses acquired. Excess reorganization value resulting from the application of SOP 90-7 upon

emergence from bankruptcy is also reported and accounted for as goodwill. The provisions of

Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS

142) require
that a two-step impairment test be performed on goodwill. In the first step, the Company

compares the fair value of the reporting unit to its carrying
value. If the fair value of the reporting unit

exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired and the

Company is not required to perform further testing. If the carrying value of the net assets of the

reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second

step in order to determine the implied fair value of the goodwill and compare it to the carrying value of

the goodwill. If
the carrying value of goodwill exceeds its implied fair value, then the Company must

record an impairment loss equal to the difference. The Company tested
its goodwill for impairment



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during the fourth quarter of 2004, the third quarter of 2004 (as a result of its Chapter 11 filing), the

fourth quarter of 2003, the third quarter of 2002 (as a result of its prior Chapter 11 filing) and the

second quarter of 2002 (in connection with its transition to SFAS 142). The Company concluded in

each test that fair value
of the reporting unit was in excess of the carrying value. In the third and

fourth quarters of 2004, the Companys cash flows were prepared on a
going-concern basis.

Additionally, the carrying value of the Companys net assets was less than zero. The Company

assessed the fair value of the reporting unit considering both the income approach and market

approach for 2003. Under the market approach, the fair value of the reporting unit is based on quoted

market prices for US
Airways Group common stock and the number of shares outstanding of

US Airways Group common stock. Under the income approach, the fair value of the
reporting unit is

based on the present value of estimated future cash flows.



In connection with fresh-start reporting upon emergence from the Prior Bankruptcy, the Company

recognized route authorities and trademarks on its Consolidated Balance Sheets. As of December 31,

2004 and 2003, the Company had $32 million and $36 million of route authorities on the Balance

Sheets, respectively. The
carrying value of trademarks was $33 million as of December 31, 2004 and

2003. Route authorities and trademarks are classified as indefinite lived assets
under SFAS 142.

Indefinite-lived assets are not amortized but instead are reviewed for impairment annually and more

frequently if events or circumstances indicate that the asset may be impaired. In the second quarter of

2004, the Company wrote off an indefinite lived foreign slot.



SFAS 142 requires that intangible assets with estimable useful lives be amortized over their

respective estimated useful
lives to their estimated residual values, and reviewed for impairments in

accordance with SFAS 144. The following table provides information relating to
the Companys

intangible assets subject to amortization as of December 31, 2004 and 2003 (in millions):



|                                   |  |                   |     |                   |   |      |  |     |     |  |   |   
|---------------------------------- |  | ----------------- | --- | ----------------- | - | ---- |  | --- | --- |  | - | --
|                                   |  | December 31, 2004 |     | December 31, 2003
|                                   |  | Cost              |     | A/A               |   | Cost |  | A/A
|Airport take-off and landing slots |  | $                 | 425 |                   | $ | 30   |  | $   | 424 |  | $ | 13
|Airport gate leasehold rights      |  |                   | 32  |                   |   | 10   |  |     | 32  |  |   | 4 
|Capitalized software costs         |  |                   | 50  |                   |   | 38   |  |     | 50  |  |   | 26
|                                   |  |                   |     |                   |   |      |  |     |     |  |   |   
|Total                              |  | $                 | 507 |                   | $ | 78   |  | $   | 506 |  | $ | 43
|                                   |  |                   |     |                   |   |      |  |     |     |  |   |   
|A/A=Accumulated Amortization       |  |                   |     |                   |   |      |  |     |     |  |   |   



The intangible assets
subject to amortization generally are amortized over 25 years for airport

take-off and landing slots, over the term of the lease for airport gate leasehold
rights and over five

years for capitalized software costs on a straight-line basis and are included in Depreciation and

amortization on the Statements of Operations. As a result of the depressed revenue environment in

the airline industry, during the fourth quarter of 2002, the Company conducted an impairment

analysis of its airport
take-off and landing slots and airport gate leasehold rights and determined that

certain airport gate leasehold rights were impaired. The Company estimated
fair market value using

third-party appraisals. This culminated in an impairment charge of $21 million reflected in Special

items on the Statement of Operations. For the year ended December 31, 2004, the nine months

ended December 31, 2003, the three months ended March 31, 2003, and the year ended

December 31, 2002, the Company recorded
amortization expense of $35 million, $43 million, $11

million, and $51 million (exclusive of the impairment charge discussed above), respectively, related

to its intangible assets. The Company expects to record annual amortization expense of $26 million

in 2005; $24 million in 2006; $22 million in 2007; $21 million in 2008 and $19 million in 2009

related to these intangible assets.



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(h) Other assets, net



Other assets, net consist primarily of deposits held by vendors, unamortized debt issuance cost,

and long-term investments.



(i) Frequent traveler program



US Airways accrues the estimated incremental cost of travel awards earned by participants in its

Dividend Miles frequent traveler program when the requisite mileage award levels are achieved.

For travel awards on partner airlines, the liability is based on the average contractual amount to be

paid to the other
airline per redemption. US Airways also sells mileage credits to certain

participating airlines and marketing partners. US Airways defers the portion of
revenue attributable

to future transportation and recognizes it as passenger transportation revenue when the service is

provided. The remaining portion of sales proceeds is recognized immediately as a component of

Other operating revenues.



(j) Derivative financial instruments



Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and

Hedging Activities (SFAS 133) requires
the Company to recognize all derivatives on the balance

sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income.
If

the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives

are either offset against the change in fair value of assets, liabilities or firm commitments through

earnings or recognized in other comprehensive income until the hedged item is recognized in earnings.

The ineffective
portion of a hedging derivatives change in fair value is immediately recognized in

earnings.



The Companys results of operations can be significantly impacted
by changes in the price of

aircraft fuel. To manage this risk, the Company periodically enters into fixed price swap agreements,

collar structures and other similar instruments. These agreements substantially fix the Companys

cash flows related to fuel expense. Because jet fuel derivatives are significantly less liquid and

relatively more
expensive, the Company primarily uses heating oil and crude oil contracts to manage

its exposure to the movement of aircraft fuel prices. The changes in
the market value of the heating oil

and crude oil contracts have a high correlation to changes in aircraft fuel prices. The agreements

generally qualify as cash flow hedges under SFAS 133. The Company does not purchase or hold any

derivative financial instruments for trading purposes.



The Company records the fair market value of its fuel hedge contracts on its Balance Sheets. On an

ongoing basis, the
Company adjusts its balance sheet to reflect the current fair market value of its fuel

hedge contracts. The related gains or losses on these contracts are
deferred in accumulated other

comprehensive income until the hedged fuel is recognized into earnings. However, to the extent that

the absolute change in the value of the fuel hedge contract exceeds the absolute change in the value of

the aircraft fuel purchase being hedged, the difference is considered ineffective and is immediately

recognized
in earnings as either gain or loss. The amount recognized in earnings may reverse in

following periods if the relationship reverses. The fuel hedge
contracts gains and losses including

those classified as ineffective are recognized to Aviation fuel on the Companys Statements of

Operations, except for those related to hedging purchases of aviation fuel under its capacity purchase

agreements, which are recorded to US Airways Express capacity purchases.



The Company holds stock options in Sabre Holding Corporation (Sabre) and warrants in a number

of e-commerce companies as a result of service agreements with them. On an ongoing basis, the

Company adjusts its balance sheet to reflect changes in the current fair market value of the stock

options and warrants to
Other, net on its Statements of Operations. See Note 3 for more information

on the Companys derivative financial instruments.



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(k) Deferred gains and credits, net



In connection with fresh-start reporting upon emergence from the Prior Bankruptcy, aircraft

operating leases were adjusted to fair value. The present value of the difference between the

contractual lease rates and the fair market value rates was recorded as a deferred credit in the

accompanying Balance
Sheet. The deferred credit is decreased on a straight-line basis as a

reduction in aircraft rent expense over the applicable lease periods, generally three
to 21 years. In

periods prior to the adoption of fresh-start reporting, gains on aircraft sale and leaseback

transactions were deferred and amortized over the terms of the leases as a reduction of the related

aircraft rent expense.



The
gain related to the exercise of Sabre options is deferred and amortized over the contract

period as a reduction to Other operating expenses. See Note 3 for
more information concerning the

Sabre options.



(l) Passenger transportation revenues



Revenue is recognized when the transportation service is rendered. Passenger ticket sales are

recorded as a liability (Traffic balances payable and unused tickets) and subsequently relieved either

through carriage of the passenger, refund to the passenger, expiration of the passenger ticket or

billing from another air
carrier which provided the service. Due to various factors including

refunds, exchanges, unused tickets and transactions involving other carriers, certain
amounts are

recorded based on estimates. These estimates are based upon historical experience and have been

consistently applied to record revenue. The Company routinely performs evaluations of the liability,

which may result in adjustments that are recognized as a component of Passenger transportation

revenue. Actual refund,
exchange and expiration activity may vary from estimated amounts. Except

when noted, such differences have historically not been material. During the
fourth quarter of 2003,

a $34 million favorable adjustment was made to Passenger transportation revenue to reflect an

increase in expired tickets. This adjustment was attributable to the Company experiencing changes

in customer travel patterns resulting from various factors, including new airport security measures,

concerns about further
terrorist attacks and an uncertain economy, which resulted in more forfeited

tickets and fewer refunds.



US Airways purchases capacity (available seat miles) generated by US Airways
Groups wholly

owned regional air carriers and the capacity of Mesa Airlines, Inc. (Mesa), Chautauqua Airlines,

Inc. (Chautauqua) and Trans States Airlines, Inc. (Trans States) in certain markets. US Airways also

purchased the capacity of Midway Airlines Corporation (Midway) prior to Midways liquidation

during the fourth quarter
of 2003. Mesa, Chautauqua and Trans States operate regional jet aircraft in

these markets as part of US Airways Express. US Airways recognizes revenues
related to these

arrangements as Passenger transportation revenue when transportation service is rendered by these

affiliates or the related tickets otherwise expire. Liabilities related to tickets sold for travel on these

air carriers are also included in US Airways Traffic balances payable and unused tickets and are

subsequently
relieved in the same manner as described above.



See Note 2(i)
above for information on the sale of Dividend Miles that are recognized as a

component of Passenger transportation revenue.



(m) Stock-based compensation



The Predecessor Company applied the provisions of Accounting Principles
Board Opinion No. 25,

Accounting for Stock Issued to Employees (APB 25) and related interpretations to account for

awards of stock-based compensation granted to employees. Upon emergence, the Successor Company

adopted the fair value method of recording stock-based employee compensation contained in

Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation



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(SFAS 123) and accounted for this change in accounting principle using the prospective method as

described by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based

Compensation  Transition and Disclosure, an amendment of FASB Statement No. 123 (SFAS 148).

Accordingly, the
fair value of all Successor Company stock option and warrant grants, as determined

on the date of grant, will be amortized as compensation expense in the
Statements of Operations over

the vesting period.



The following table illustrates the effect on net income (loss) as if the fair value based recognition

provisions of SFAS 123 had been applied to all outstanding and unvested stock option awards in each

period presented for the Predecessor Company (in millions).



|                                                                             |  |                                  |       |   |                              |   |        |  
|---------------------------------------------------------------------------- |  | -------------------------------- | ----- | - | ---------------------------- | - | ------ | -
|                                                                             |  | Predecessor Company              |      
|                                                                             |  | Three Months EndedMarch 31, 2003 |       |   | Year Ended December 31, 2002 |  
|Net income (loss), as reported                                               |  | $                                | 1,613 |   |                              | $ | (1,659 | )
|Recorded stock-based compensation expense                                    |  |                                  |      |   |                              |   |       |  
|Stock-based compensation expense determinedunder the fair value based method |  |                                  | (1    | ) |                              |   | (13    | )
|                                                                             |  |                                  |       |   |                              |   |        |  
|Net income (loss), pro forma                                                 |  | $                                | 1,612 |   |                              | $ | (1,672 | )
|                                                                             |  |                                  |       |   |                              |   |        |  



In order to calculate
the pro forma stock-based compensation shown above, US Airways used the

Black-Scholes stock option pricing model with the following weighted-average
assumptions for the

years ended December 31, 2002: stock volatility of 80.1%; risk-free interest rates of 4.2%; expected

stock option lives of four years; and no dividend yield. There were no stock options awarded in the

three months ended March 31, 2003. See Note 9 for more information on stock-based

compensation.



(n) Maintenance and repair costs



Maintenance and repair costs for owned and leased flight equipment
are charged to operating

expense as incurred.



(o) Selling expenses



Selling expenses include commissions, credit card fees, computerized reservations systems fees

and advertising and promotional expenses. Advertising and promotional expenses are expensed

when incurred. Advertising and promotional expenses for the year ended December 31, 2004, the

nine months ended December
31, 2003, three months ended March 31, 2003, and the year ended

December 31, 2002 were $27 million, $15 million, $5 million and $30 million, respectively.



(p) Recent Accounting Pronouncements



In September 2004, the Financial Accounting Standards Board (FASB) issued
FASB Staff

Position (FSP) Emerging Issues Task Force (EITF) Issue 03-1-1, Effective Date of Paragraphs 10

20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its

Application to Certain Investments, which delays the effective date for the recognition and

measurement guidance in
EITF Issue No. 03-1. In addition, the FASB has issued a proposed FSP to

consider whether further application guidance is necessary for securities analyzed
for impairment

under EITF Issue No. 03-1. The Company continues to assess the potential impact that the adoption

of the proposed FSP could have on its financial statements.



In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No.

151, Inventory Costs (SFAS 151), which clarifies the accounting for abnormal amounts of idle

facility expense,
freight, handling costs, and wasted material. SFAS 151 will be effective for



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inventory costs incurred beginning January 1, 2006. The Company does not believe the adoption of

SFAS 151 will have a material impact on its financial statements.



In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets

(SFAS 153), which eliminates the exception for nonmonetary exchanges of similar productive

assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have

commercial substance. SFAS 153 will be effective for nonmonetary asset exchanges
occurring after

July 1, 2005. The Company is currently evaluating the impact of SFAS 153 on its financial

statements.



In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment (SFAS 123(R)),

which establishes
standards for transactions in which an entity exchanges its equity instruments for

goods or services. This standard requires a public entity to measure the
cost of employee services

received in exchange for an award of equity instruments based on the grant-date fair value of the

award. This eliminates the exception to account for such awards using the intrinsic method

previously allowable under Accounting Principle Board Opinion No. 25. SFAS 123(R) will be

effective for the Companys
interim reporting period beginning July 1, 2005. The Company

previously adopted the fair value recognition provisions of SFAS 123, Accounting for
Stock-Based

Compensation, upon emergence from the Prior Bankruptcy on March 31, 2003. Accordingly, the

Company believes SFAS 123(R) will not have a material impact on its financial statements.



3. Financial Instruments



(a) General



On January 1, 1998, as part of a comprehensive information technology services agreement with

Sabre, US Airways was granted two tranches of stock options (SHC Stock Options) to acquire up to

6,000,000 shares of Class A Common Stock, $.01 par value, of Sabre Holdings Corporation (SHC

Common Stock), Sabres
parent company. Each tranche included 3,000,000 stock options. In

December 1999, US Airways exercised the first tranche of stock options at an exercise
price of $27

per option and received proceeds of $81 million in January 2000 in lieu of receiving SHC Common

Stock. Realized gains resulting from the exercise of Sabre options are subject to a clawback

provision. Under the clawback provision, if US Airways elects to terminate its information

technology service agreement
with Sabre it will be required to pay Sabre an amount equal to the

gain multiplied by the ratio of the remaining months in the contract period over 180
months. The

deferred gain from the 1999 exercise is amortized on a straight-line basis over a contractually

determined period ending December 2012. In February 2000, SHC declared a cash dividend

resulting in a dilution adjustment to the terms of the second tranche. The adjusted terms of the

second tranche include
stock options to acquire 3,406,914 shares of SHC Common Stock at an

exercise price of $23.78 subject to an $111.83 per share cap on the fair market value
of the

underlying common stock. These options are exercisable during a ten-year period beginning January

2, 2003.



The Company utilizes fixed price swap agreements and other similar instruments to manage its

exposure related to jet fuel
price changes. For the year ended December 31, 2004, the nine months

ended 2003, and the three months ended March 31, 2003, the Company recognized gains of

approximately $130 million, $14 million, and $27 million, respectively, related to its fuel hedging

activities. During the three months ended March 31, 2003, the gain included $4 million related to

hedge ineffectiveness. During 2002, the Company recognized gains of approximately $18 million

including a gain of $1
million related to hedge ineffectiveness. These recognized gains were primarily

included in Aviation fuel on the Companys Statements of Operations.
As of December 31, 2004, the

Company had no open fuel hedge positions in place, but will recognize approximately $2 million per

month for previously liquidated hedges representing approximately 4% of its 2005 anticipated jet fuel

requirements. The Company had $22 million of unrealized gains related to fuel hedge positions

recorded in Accumulated other
comprehensive loss, net of income tax effect on its Balance Sheet as of



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December 31, 2004. These gains will be realized in the 2005 results.



(b) Fair value of financial instruments



In accordance with the provisions of SFAS 115, the fair values for US
Airways short-term

investments are determined based upon quoted market prices. Cash equivalents and restricted cash are

carried at cost which approximates fair value. US Airways estimated the fair values of its note

receivable and long-term debt by discounting expected future cash flows using current rates offered to

US Airways for notes
receivable and debt with similar maturities. The estimated fair value of the

remaining SHC Stock Options (including the clawback provision) was calculated
using the Black-

Scholes stock option pricing model. The fair values of the fuel contracts are obtained from dealer

quotes. These values represent the estimated amount US Airways would receive or pay to terminate

such agreements as of the valuation date.



US Airways holds warrants in a number of e-commerce companies as a result of entering into

service agreements with them.
The carrying amount of the warrants is equal to the estimated fair

value, which is calculated using the Black-Scholes stock option pricing model. The
carrying

amount of these warrants was not material as of December 31, 2004 and 2003.



The estimated fair values of US Airways financial instruments, none of which are held for trading

purposes, are summarized as follows (in millions; brackets denote a liability):



|                                                        |  |                   |        |   |                     |   |     |                |  |   |                     |   |  |   |        |  
|------------------------------------------------------- |  | ----------------- | ------ | - | ------------------- | - | --- | -------------- |  | - | ------------------- | - |  | - | ------ | -
|                                                        |  | December 31, 2004 |        |   | December 31, 2003   |  
|                                                        |  | Carrying Amount   |        |   | EstimatedFair Value |   |     | CarryingAmount |  |   | EstimatedFair Value |  
|Cash equivalents                                        |  | $                 | 700    |   |                     | $ | 700 |                |  | $ | 893                 |   |  | $ | 893    |  
|Short-term investments (a)                              |  |                   |       |   |                     |   |    |                |  |   | 358                 |   |  |   | 358    |  
|Restricted cash                                         |  |                   | 626    |   |                     |   | 626 |                |  |   | 553                 |   |  |   | 553    |  
|Notes receivable (b)                                    |  |                   | 3      |   |                     |   | 3   |                |  |   | 7                   |   |  |   | 7      |  
|SHC Stock Options (c)                                   |  |                   | 10     |   |                     |   | 10  |                |  |   | 7                   |   |  |   | 7      |  
|Long-term debt (excludes capital lease obligations) (d) |  |                   | (3,198 | ) |                     |   | (f  | )              |  |   | (3,029              | ) |  |   | (2,793 | )
|Fuel contracts (e)                                      |  |                   |       |   |                     |   |    |                |  |   | 38                  |   |  |   | 38     |  

---

|(a) | Classified as available for sale in accordance with SFAS 115. See also Note 2(c).
|--- | -----------------------------------------------------------------------------------

|(b) | Carrying amount included in Receivables, net on the Companys Balance Sheets, except for the noncurrent portion
|--- | ---------------------------------------------------------------------------------------------------------------

($3 million at December 31, 2003) which is included in Other assets, net.

|(c) | Carrying amount included in Other assets, net on the Companys Balance Sheets.
|--- | ------------------------------------------------------------------------------

|(d) | Includes Long-term debt classified as subject to compromise as of December 31, 2004. See also Notes 1 and 4.
|--- | ------------------------------------------------------------------------------------------------------------

|(e) | Carrying amount included in Prepaid expenses and other on the Companys Balance Sheets.
|--- | ---------------------------------------------------------------------------------------

|(f) | As a result of the Companys Chapter 11 filing, the fair value of the debt outstanding could not be reasonably
|--- | --------------------------------------------------------------------------------------------------------------

determined as of December 31, 2004.



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4. Debt, Including Capital Lease Obligations



Details of the Companys debt are as follows (in millions):



|                                                                        |  |                  |        |   |                  |   |       |  
|----------------------------------------------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ----- | -
|                                                                        |  | December 31,2004 |        |   | December 31,2003 |  
|Senior Debt:                                                            |  |                  |        |   |                  |   |       |  
|Equipment financing agreements, installments due 2005 to 2022 (1)       |  | $                | 1,948  |   |                  | $ | 1,546 |  
|ATSB Loan                                                               |  |                  | 718    |   |                  |   | 976   |  
|GE Credit Facility, installments due 2005 to 2012 (1)                   |  |                  | 354    |   |                  |   | 389   |  
|GE Liquidity Facility, installments due 2010 to 2012 (1)                |  |                  | 158    |   |                  |   | 118   |  
|GE Bridge Facility due 2005                                             |  |                  | 20     |   |                  |   |      |  
|                                                                        |  |                  |        |   |                  |   |       |  
|                                                                        |  |                  | 3,198  |   |                  |   | 3,029 |  
|Capital lease obligations (1)                                           |  |                  | 49     |   |                  |   | 50    |  
|                                                                        |  |                  |        |   |                  |   |       |  
|Total                                                                   |  |                  | 3,247  |   |                  |   | 3,079 |  
|Less: Unamortized discount (2)                                          |  |                  | (126   | ) |                  |   | (138  | )
|Obligations classified as subject to compromise                         |  |                  | (2,400 | ) |                  |   |      |  
|Current maturities of debt and capital lease obligations                |  |                  | (721   | ) |                  |   | (360  | )
|                                                                        |  |                  |        |   |                  |   |       |  
|Long-term debt and capital lease obligations, net of current maturities |  | $                |       |   |                  | $ | 2,581 |  
|                                                                        |  |                  |        |   |                  |   |       |  

---

|(1) | December 31, 2004 obligations were classified as subject to compromise. See Note 1 for further discussion.
|--- | ----------------------------------------------------------------------------------------------------------

|(2) | For the year ended December 31, 2004 and the nine months ended December 31, 2003, $12 million and $9 million of debt discount was amortized and included in interest expense on the
Statement of Operations.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Maturities of debt and
debt under capital leases for the next five years, including the classification

of the ATSB Loan as current and without regard to liabilities subject to
compromise, are as follows (in

millions):



|           |  |   |      
|---------- |  | - | -----
|2005       |  | $ | 863  
|2006       |  |   | 159  
|2007       |  |   | 145  
|2008       |  |   | 143  
|2009       |  |   | 147  
|Thereafter |  |   | 1,790
|           |  |   |      
|           |  | $ | 3,247
|           |  |   |      



ATSB Loan



As part of its reorganization under
the Prior Bankruptcy, US Airways received a $900 million

loan guarantee (ATSB Guarantee) under the Air Transportation Safety and System Stabilization Act

from the ATSB in connection with a $1 billion term loan financing (ATSB Loan) that was funded

on March 31, 2003. The Company required this loan and related guarantee in order to provide the

additional liquidity
necessary to carry out its 2003 Plan. US Airways is the primary obligor under

the ATSB Loan, which is guaranteed by US Airways Group and each of its other
domestic

subsidiaries. The ATSB Loan is secured by substantially all of the present and future assets of the

Debtors not otherwise encumbered (including certain cash and investment accounts, previously

unencumbered aircraft, aircraft engines, spare parts, flight simulators, real property, takeoff and

landing slots, ground
equipment and accounts receivable), other than certain specified assets,

including assets which are subject to other financing agreements. As of December
31, 2004, $718

million was outstanding under the ATSB Loan. The ATSB Loan is reflected as a current liability

on the accompanying balance sheet at a book value of $701 million, which is net of $17 million of

unamortized discount, and is not subject to compromise.



The maturity date of the ATSB Loan is October 1, 2009. The ATSB Loan is subject to

acceleration upon the occurrence of an
event of default, after expiration of applicable notice and/or

cure periods. The ATSB Loan contains certain mandatory prepayment events including, among



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other things, (i) the occurrence of certain asset sales and the issuance of certain debt or equity

securities and (ii) the value of the collateral pledged in respect of the ATSB Loan decreasing

below specified coverage levels.



The Companys Chapter 11 filing in September 2004, was an event of default under the terms of

the ATSB Loan. The Company has entered into an
agreement, which has been subsequently

extended, with the approval of the Bankruptcy Court, for the continued use of the cash securing the

ATSB Loan (Cash Collateral Agreement). The initial agreement was extended until January 15,

2005 and the current agreement, subject to certain conditions and limitations, will expire on June

30, 2005. Under the Cash
Collateral Agreement, the Company is required to maintain a certain

amount of unrestricted cash each week. The amount declines from approximately $500
million at

the end of January to $341 million on June 30, 2005, with weekly cash levels permitted as low as

$325 million in March 2005. The Company must also maintain and achieve certain cumulative

earnings levels during the period, as defined in the agreement. Further, the Company must comply

with restrictions on its
ability to make capital expenditures. As of December 31, 2004, the Company

was in compliance with the Cash Collateral Agreement; therefore, the
Companys $734 million in

unrestricted cash and short-term investments was available to support daily operations, subject to

certain conditions and limitations, under the Cash Collateral Agreement. In light of rising fuel prices

and continued downward pressure on fares across the industry, there can be no assurance that the

Company will be able to
comply with the Cash Collateral Agreement. If the Company is unable to

meet the aforementioned financial covenants, as amended, it would be in default
under the ATSB

Loan and the ATSB would have the right to accelerate the ATSB Loan and exercise other remedies

against US Airways. Such acceleration would have a material adverse effect on the Companys

future liquidity, results of operation and financial condition.



The ATSB Loan bears interest as follows: (i) 90% of the ATSB Loan (Tranche A) was funded

through a participating lenders commercial paper conduit program and bears interest at a rate equal

to the conduit
providers weighted average cost related to the issuance of certain commercial paper

notes and other short-term borrowings plus 0.30%, and (ii) 10% of
the ATSB Loan (Tranche B)

bears interest at LIBOR plus 4.0%. In addition, US Airways is charged an annual guarantee fee in

respect of the ATSB Guarantee currently equal to 4.1% of the ATSBs guaranteed amount (initially

$900 million) under the ATSB Guarantee, with such guarantee fee increasing by ten basis points

annually. Due to the
Companys September 2004 bankruptcy filing and subsequent loss of certain

regional jet financing, the guarantee fee increased by 2% per annum and the
interest rate on Tranche

A and Tranche B each increased by an additional 2% and 4% per annum, respectively, for an

effective increase in the interest rate on the loan balance of 4 percentage points. The effective

interest rate of the ATSB Loan was 10.91% for the year ended December 31, 2004 and 6.0% for the

nine months ended December
31, 2003.



Prior Amendments to the ATSB
Loan during 2004



In March 2004, US Airways and the ATSB
amended the financial covenants of the ATSB Loan

to provide covenant relief for the measurement periods beginning June 30, 2004 through December

31, 2005. The ratios used in the financial covenants were adjusted and reset to align with the

Companys forecast for 2004 and 2005 as of the date of the amendment, which assumed a return to

profitability by 2005. In exchange for this covenant relief and other changes described below,

US Airways made a voluntary
prepayment of $250 million on March 12, 2004, which reduced, pro

rata, all future scheduled principal payments of the ATSB Loan (rather than shortening the

remaining life of the loan).



The March 2004 amendment permitted US Airways to retain, at its election, up to 25% of the net

cash proceeds from any asset sale for which definitive documentation would be completed by

February 28, 2005, up to a total of $125 million for all asset sales. In addition, the amendment

permitted US Airways to
accept a third-party secured note as consideration for certain asset sales

(including the US Airways Shuttle and wholly owned regional airline assets) as
long as specified



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conditions are met. These conditions include: the notes amortization schedule will be no more

favorable than the ATSB Loan; proceeds from the note will be used to prepay the ATSB Loan; the

credit strength of the ATSB Loan will not be adversely affected as measured by specified ratings

tests; and the note will
be pledged as collateral for the ATSB Loan. Finally, in consideration for the

lenders agreeing to amend the provision related to the going concern
paragraph in the independent

auditors report for the Companys audited financial statements for the year ended December 31,

2003, US Airways agreed to revised covenants relating to minimum required unrestricted cash

balances.



Effective May 21,
2004, US Airways again amended the ATSB Loan to permit use of its

regional jets financed by General Electric (GE) as cross collateral for other obligations
of

US Airways to GE. In consideration for this amendment, US Airways agreed to revised covenants

relating to minimum required unrestricted cash balances. In addition, US Airways agreed to give up

the right to retain up to 25% of the net cash proceeds from any asset sale, as had been permitted by

the March 2004
amendment. US Airways made a prepayment of $5 million in connection with this

amendment.



The ATSB Loan contains financial covenants that must be satisfied by US Airways at the end of

each fiscal quarter. US Airways was uncertain as to its ability to satisfy these covenants as of June

30, 2004. Effective June 30, 2004, US Airways and the ATSB amended the ATSB Loan to remove

the uncertainty relating to the
Companys ability to satisfy its financial covenant tests for the second

quarter of 2004. In consideration for this amendment, the Company agreed to
change the loan

amortization schedule, by increasing each of the first six principal repayment installments

commencing on October 1, 2006 by approximately $16 million, and reducing the last principal

repayment installment on October 1, 2009 by $94 million.



In connection with the ATSB Guarantee, the ATSB received 7,635,000 warrants that enable

it to purchase shares of
Reorganized US Airways Groups Class A Common Stock at $7.42 per share.

The value attributed to the warrants at issuance is being amortized over the
term of the warrants.



General Electric



GE is the Companys largest creditor. Together with
GEES and other affiliates, GE directly

financed or leased a substantial portion of the Companys aircraft prior to the current Chapter 11

filing. In November 2001, US Airways obtained a $404 million credit facility from GE (2001 GE

Credit Facility). The 2001 GE Credit Facility is secured by collateral including 11 A320-family

aircraft and 28 spare
engines. As discussed below, borrowings under the 2001 GE Credit Facility

bear interest rates of LIBOR plus 3.5% and the term of the facility is
2012.



In addition to the 2001 GE Credit Facility, GE has
provided financing or guarantees on 145 of

the Companys current operating aircraft. It also maintains the engines on the Companys B737-

family aircraft, A320-family aircraft, B767 aircraft, EMB-170 aircraft and CRJ200 aircraft. In

connection with its Prior Bankruptcy, the Company reached a settlement with GE that resolved

substantially all aircraft, aircraft engine and loan-related issues and the Company obtained

additional financing from GE
in the form of a liquidity facility of up to $360 million (2003 GE

Liquidity Facility). Borrowings under the liquidity facility bear interest of LIBOR plus
4.25%.

Every obligation of the Company to GE is generally cross-defaulted to the 2001 GE Credit Facility,

the 2003 GE Liquidity Facility, the GE regional jet leases and the GE regional jet mortgage

financings. All of the Companys obligations to GE are generally cross-collateralized and cross-

defaulted with all
other obligations owned by any Debtor to General Electric Credit Corporation

(GECC) or any of its affiliates (collectively, the GE Obligations).



In November 2004, the Company reached a comprehensive
agreement with GE and its affiliates

as described in the Master Memorandum of Understanding (Master MOU) that was approved by the

Bankruptcy Court on December 16, 2004. The Master MOU and the transactions contemplated by



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the term sheets will provide the Company with short-term liquidity, reduced debt, lower aircraft

ownership costs, enhanced engine maintenance services and operating leases for new regional jets,

while preserving the vast majority of US Airways mainline fleet owned by GECAS. The key

aspects of the Master MOU are
as follows: (i) agreements providing for continued use by the

Company of certain Airbus, Boeing and regional jet aircraft, and the return to GECC of
certain

other leased Airbus and Boeing aircraft (the Aircraft Lease Term Sheet); (ii) GECC will provide a

bridge facility of up to approximately $56 million for use by the Debtors during the pendency of the

Chapter 11 proceedings (the Bridge Facility Term Sheet); (iii) GECC will purchase and

immediately leaseback to US Airways
(a) the assets securing the 2001 GE Credit Facility and the

2003 GE Liquidity Facility (collectively, the 2001 Credit Facility Assets), and other GE
obligations,

consisting of 11 Airbus aircraft and 28 spare engines and engine stands, and (b) ten regional jet

aircraft currently debt financed by GECC; (iv) the balance of the 2001 GE Credit Facility will be

restructured to provide additional liquidity of approximately $10 million, subject to the pledge of

certain collateral to
secure the 2001 GE Credit Facility; (v) subject to the Companys satisfaction of

certain financial tests and other conditions, GECC will provide lease
financing for up to 31

additional regional jet aircraft (the Regional Jet Leasing Term Sheet); (vi) certain of US Airways

engine maintenance agreements with GEES will be modified and assumed; and (viii) upon

emergence from bankruptcy, convertible notes of the reorganized US Airways will be issued to

GECC in the aggregate principal amount of $125
million (the Convertible Note Term Sheet).



The Bridge Facility
Term Sheet provides for a loan facility of up to $56 million made available

by GECC to the Debtors in a series of drawdowns commencing on December 20,
2004, and ending

on or before June 30, 2005 (the Bridge Facility). The Company and GECC entered into the Bridge

Facility on December 20, 2004, at which time $20 million was drawn down under the facility.

Interest on the Bridge Facility accrues at the rate of LIBOR plus 4.25% and will be payable in cash

or in kind at the
option of the Debtors. The Bridge Facility matures on the date the Company

emerges from Chapter 11 and will be satisfied by the issuance of Convertible
Notes described

below. The Bridge Facility is cross-collateralized and cross-defaulted with all other GE obligations

owed by any Debtor to GECC or any of its affiliates and will be granted status as an administrative

expense claim with priority over all other administrative claims other than for aircraft financing

deferrals, which are
pari passu, and subordinate only to (i) the super-priority administrative expense

claim of the ATSB and the ATSB Lenders as defined and provided for in the
Cash Collateral

Agreement (ii) postpetition wages and benefits, and (iii) any other new money debtor-in-possession

financing.



The 2001 GE Credit Facility will be amended to, among other things: (i) provide the Debtors

with an additional $10 million
of liquidity upon consummation of the sale-leaseback of the 2001

GE Credit Facility Assets and CRJ Mortgaged Assets (defined below), (ii) after the
prepayment of

the loan balance outstanding under the 2001 GE Credit Facility made in connection with the sale-

leaseback of the 2001 GE Credit Facility Assets and CRJ Mortgaged Assets, as described below,

revise the amortization schedule so that the remaining principal of the loan begins amortizing over a

period of eight
quarters following the Debtors emergence from bankruptcy (the Remaining Term),

(iii) provide that the interest rate will be LIBOR plus 4.25% for the
Remaining Term, and (iv)

provide that the loan will be secured with a third lien position on three CRJ-700 aircraft (subject to

first and second lien positions and conditioned upon consent of such senior lien holders pursuant to

an inter-creditor agreement reasonably acceptable to GECC), a second lien position on one CRJ-700

aircraft (subject to
first lien position and conditioned upon consent of such senior lien holders

pursuant to an inter-creditor agreement reasonably acceptable to GECC) and a
first lien position on

one CF34 spare engine owned by US Airways, with the aggregate of any senior liens on such

collateral not to exceed $62 million. The amendments to the 2001 GE Credit Facility do not

constitute an assumption thereof, but it is anticipated that in connection with a plan of

reorganization, the 2001 GE
Credit Facility, as amended, will be reinstated.



The Aircraft
Lease Term Sheet sets forth a comprehensive agreement regarding the treatment of

GECC-owned and mortgaged aircraft pursuant to Section 1110 of the
Bankruptcy Code. The



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Debtors and GECC have agreed to subject certain of such aircraft to consensual Section 1110(a)

agreements providing for continued use of such aircraft so long as the Company complies with the

terms of such agreements. In certain cases, the Debtors and GECC have agreed to amend

prepetition agreements. Except as set
forth in the Master MOU or the Term Sheets attached to the

Master MOU, the Section 1110(a) agreements and any related amendments will not constitute an

assumption of any related underlying agreements, and no such agreement will constitute a

postpetition contract for purposes of, among other things, Sections 365, 503 and 507 of the

Bankruptcy Code, but will be
subject to the Debtors obligations under Section 1110 of the

Bankruptcy Code. After emergence from bankruptcy, US Airways will have an option to

restructure the monthly rental obligations of certain additional B737-400 leases following the

issuance of the Convertible Notes described below, for cash or additional convertible notes of equal

market value.



Subject to the
swap of three aircraft contemplated by the Aircraft Lease Term Sheet, GECC will

purchase the two A319 aircraft, the four A320 aircraft, the five A321
aircraft, the 14 CFM56-5B

spare engines, the 14 CFM56-3B spare engines, and certain engine stands that currently secure the

2001 GE Credit Facility and the 2003 GE Liquidity Facility, together with the nine CRJ-200s and

one CRJ-700 aircraft currently mortgage-debt financed by GECC (collectively, the CRJ Mortgaged

Assets) for a total purchase
price of approximately $640 million, subject to adjustment, at which

time the 2001 Credit Facility Assets and the CRJ Mortgaged Assets will be leased back
to

US Airways under operating leases having an initial lease term expiring on the earlier of the

Debtors emergence from Chapter 11 or June 30, 2005. The sale proceeds will be applied to repay

(in order) the 2003 GE Liquidity Facility in full, the GECC mortgage-debt financed CRJ aircraft in

full, and a portion of
the 2001 GE Credit Facility, leaving a balance thereon of approximately $15

million, subject to adjustment, before the $10 million additional drawdown on
the 2001 GE Credit

Facility contemplated above. The operating leases may be extended upon the Debtors emergence

from bankruptcy, will be cross-defaulted with all other GE Obligations (other than certain excepted

obligations), and will be subject to return conditions to be agreed upon by the parties.



The Debtors and the GE entities have reached an agreement with respect to five engine repair

and maintenance agreements, and certain other matters. This agreement includes, among other

things, the agreement of US
Airways to assume three of such agreements of GEES and certain of its

affiliates to: (i) forgive and release US Airways from certain prepetition
obligations, (ii) defer

certain payment obligations arising under such agreements, (iii) extend one maintenance agreement,

(iv) continue certain existing deferrals, and (v) determine the treatment of certain removal charges.



Pursuant to the Convertible Note Term Sheet, the Debtors have agreed that
upon emergence

from Chapter 11, as partial consideration for entering into the Master MOU, an affiliate of GECC

will receive convertible notes of the reorganized US Airways in the aggregate principal amount of

$125 million (Convertible Notes). The Convertible Notes will be convertible at any time, at the

holders election,
into shares of common stock of the reorganized Company (New Common Stock)

at a conversion price equal to the product of (x) 140%-150% (at US Airways
option) and (y) the

average closing price of the New Common Stock for the sixty consecutive trading days following

US Airways emergence from bankruptcy and the listing of the New Common Stock on the

NASDAQ Stock Market or a national stock exchange. The Convertible Notes will bear interest at a

rate to be determined no
later than thirty days prior to the Debtors scheduled date of emergence

from bankruptcy and interest will be payable semi-annually, in arrears, and
will mature in 2020.

US Airways will be permitted to redeem some or all of the Convertible Notes at any time on or after

the fifth anniversary of the issuance of such notes, at a redemption price payable in cash or, subject

to certain conditions, New Common Stock. Holders of the Convertible Notes may require

US Airways to repurchase all or a
portion of their Convertible Notes on the fifth and tenth



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anniversary of the issuance of such notes at 100% of the principal amount of the Convertible Notes,

plus accrued and unpaid interest to the date of repurchase, payable, at US Airways election, in cash

or New Common Stock. The Convertible Notes will be senior unsecured obligations and will rank

equally in right of payment with all existing and future unsecured senior obligations of the

reorganized US Airways. The
Convertible Notes will be guaranteed by the parent holding company

of the reorganized US Airways.



Interest rates on $1.63 billion and $1.53 billion principal amount of
long-term debt as of

December 31, 2004 and 2003, respectively, are subject to adjustment to reflect changes in floating

interest rates. As of December 31, 2004, the weighted average effective interest rate was 7.9% for

the Equipment financing agreements.



5.
Employee Pension and Benefit Plans



Substantially all of
US Airways employees meeting certain service and other requirements are

eligible to participate in various pension, medical, dental, life insurance,
disability and survivorship

plans.



(a) Defined benefit and other postretirement benefit plans



US Airways sponsors several qualified defined benefit plans and other postretirement benefit

plans for certain employees. Effective March 31, 2003, US Airways terminated its qualified and

nonqualified pilot defined benefit pension plans. The PBGC was appointed trustee of the qualified

plan effective with the
termination. Liabilities related to pension plans covering foreign employees

are calculated in accordance with generally accepted accounting principles and
funded in

accordance with the laws of the individual country.



On November 12, 2004, US Airways filed a motion requesting a determination from the

Bankruptcy Court that US Airways satisfied the financial requirements for a distress termination

of the
Retirement Plan for Flight Attendants in the Service of US Airways, Inc. (AFA Plan), the

Pension Plan for Employees of US Airways, Inc. Who Are Represented
by the International

Association of Machinists and Aerospace Workers (IAM Plan), and the Retirement Plan for Certain

Employees of US Airways, Inc. (CE Plan) under section 4041(c)(2)(B)(ii)(IV) of the Employee

Retirement Income Security Act of 1974, as amended (ERISA), and approval of each such plans

termination. These plans
were projected to have benefit obligations and plan assets aggregating

$2.7 billion and $1.7 billion, respectively, as of September 30, 2004, the most
recent valuation date.

On January 6, 2005, the Bankruptcy Court entered an order (i) finding that the financial

requirements under section 4041(c)(2)(B)(ii)(IV) of ERISA for a distress termination of the plans

had been met and (ii) approving termination of the plans. The AFA Plan and the IAM Plan were

terminated effective January
10, 2005, by agreement between the Pension Benefit Guaranty

Corporation (PBGC) and US Airways. The CE Plan was terminated effective January 17, 2005, by

agreement between the PBGC and US Airways. Effective February 1, 2005, the PBGC was

appointed trustee for each of the three plans.



During hearings in late 2004 and January 2005, the Bankruptcy Court approved various

settlement agreements between US
Airways and its unions, and between US Airways and the court-

appointed Section 1114 Committee (representing retirees not represented by the unions) to
begin the

significant curtailments of postretirement benefits.



In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of

2003 (the Medicare Prescription Drug Act) became law in the United States. The Medicare

Prescription Drug Act introduces a
prescription drug benefit under Medicare as well as a federal

subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at
least

actuarially equivalent to the Medicare benefit. The Company elected to recognize the effects of the

Medicare Prescription Drug Act in the quarter ended June 30, 2004, as permitted by FASB Staff



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Position FAS 106-2, Accounting and Disclosure Requirements Related to the Medicare

Prescription Drug, Improvement and Modernization Act of 2003.



The recognition of this subsidy resulted in a reduction in expense of $20 million for the year

ended December 31, 2004 and a $198 million actuarial gain that will be amortized over the

remaining period to expected retirement. Significant assumptions included in the re-measurement

of the accumulated
postretirement benefit obligation are a 6.25% discount rate and a reduction in

retiree participation in the Company-sponsored plan as certain defined drug
benefit caps make the

plan more costly to retirees than Medicare.



The following table sets forth changes in the fair value of plan assets, benefit obligations and the

funded status of the plans as of the measurement date of September 30, 2004 and 2003, in addition

to the amounts recognized in US Airways Balance Sheets as of December 31, 2004, December 31,

2003 and March 31, 2003
(in millions):



|                                                        |  |                                   |       |   |                               |   |       |                              |  |   |                       |   |  |                             |        |   |                              |   |        |   |  |   |        |  
|------------------------------------------------------- |  | --------------------------------- | ----- | - | ----------------------------- | - | ----- | ---------------------------- |  | - | --------------------- | - |  | --------------------------- | ------ | - | ---------------------------- | - | ------ | - |  | - | ------ | -
|                                                        |  | Defined Benefit Pension Plans (1) |       |   | Other Postretirement Benefits |  
|                                                        |  | Successor Company                 |       |   | PredecessorCompany            |   |       | Successor Company            |  |   | PredecessorCompany    |  
|                                                        |  | YearEndedDec. 31,2004             |       |   | NineMonthsEndedDec. 31,2003   |   |       | ThreeMonthsEndedMar. 31,2003 |  |   | YearEndedDec. 31,2004 |   |  | NineMonthsEndedDec. 31,2003 |        |   | ThreeMonthsEndedMar. 31,2003 |  
|Fair value of plan assets at the beginningof the period |  | $                                 | 1,634 |   |                               | $ | 1,540 |                              |  | $ | 2,815                 |   |  | $                           |       |   |                              | $ |       |   |  | $ |       |  
|Actual return on plan assets                            |  |                                   | 175   |   |                               |   | 152   |                              |  |   | 77                    |   |  |                             |       |   |                              |   |       |   |  |   |       |  
|Employer contributions                                  |  |                                   | 29    |   |                               |   |      |                              |  |   | 6                     |   |  |                             | 51     |   |                              |   | 27     |   |  |   | 21     |  
|Plan participants contributions                        |  |                                   |      |   |                               |   |      |                              |  |   |                      |   |  |                             | 16     |   |                              |   | 7      |   |  |   | 3      |  
|Gross benefits paid                                     |  |                                   | (124  | ) |                               |   | (58   | )                            |  |   | (135                  | ) |  |                             | (67    | ) |                              |   | (34    | ) |  |   | (24    | )
|Settlement                                              |  |                                   |      |   |                               |   |      |                              |  |   | (1,223                | ) |  |                             |       |   |                              |   |       |   |  |   |       |  
|                                                        |  |                                   |       |   |                               |   |       |                              |  |   |                       |   |  |                             |        |   |                              |   |        |   |  |   |        |  
|Fair value of plan assets at the endof the period       |  |                                   | 1,714 |   |                               |   | 1,634 |                              |  |   | 1,540                 |   |  |                             |       |   |                              |   |       |   |  |   |       |  
|                                                        |  |                                   |       |   |                               |   |       |                              |  |   |                       |   |  |                             |        |   |                              |   |        |   |  |   |        |  
|Benefit obligation at the beginningof the period        |  |                                   | 2,550 |   |                               |   | 2,335 |                              |  |   | 5,244                 |   |  |                             | 1,651  |   |                              |   | 1,643  |   |  |   | 1,690  |  
|Service cost                                            |  |                                   | 40    |   |                               |   | 27    |                              |  |   | 27                    |   |  |                             | 39     |   |                              |   | 30     |   |  |   | 11     |  
|Interest cost                                           |  |                                   | 156   |   |                               |   | 113   |                              |  |   | 89                    |   |  |                             | 88     |   |                              |   | 76     |   |  |   | 29     |  
|Plan participants contributions                        |  |                                   |      |   |                               |   |      |                              |  |   |                      |   |  |                             | 16     |   |                              |   | 7      |   |  |   | 3      |  
|Plan amendments                                         |  |                                   |      |   |                               |   |      |                              |  |   |                      |   |  |                             |       |   |                              |   | (93    | ) |  |   | (166   | )
|Actuarial (gain) loss                                   |  |                                   | 78    |   |                               |   | 133   |                              |  |   | 380                   |   |  |                             | (360   | ) |                              |   | 22     |   |  |   | 100    |  
|Curtailment/settlement (2)                              |  |                                   |      |   |                               |   |      |                              |  |   | (3,270                | ) |  |                             |       |   |                              |   |       |   |  |   |       |  
|Gross benefits paid                                     |  |                                   | (124  | ) |                               |   | (58   | )                            |  |   | (135                  | ) |  |                             | (67    | ) |                              |   | (34    | ) |  |   | (24    | )
|                                                        |  |                                   |       |   |                               |   |       |                              |  |   |                       |   |  |                             |        |   |                              |   |        |   |  |   |        |  
|Benefit obligation at the end of the period             |  |                                   | 2,700 |   |                               |   | 2,550 |                              |  |   | 2,335                 |   |  |                             | 1,367  |   |                              |   | 1,651  |   |  |   | 1,643  |  
|                                                        |  |                                   |       |   |                               |   |       |                              |  |   |                       |   |  |                             |        |   |                              |   |        |   |  |   |        |  
|Funded status of the plan                               |  |                                   | (986  | ) |                               |   | (916  | )                            |  |   | (795                  | ) |  |                             | (1,367 | ) |                              |   | (1,651 | ) |  |   | (1,643 | )
|Unrecognized actuarial (gain) / loss                    |  |                                   | 105   |   |                               |   | 71    |                              |  |   |                      |   |  |                             | (329   | ) |                              |   | 23     |   |  |   |       |  
|Unrecognized prior service cost (benefit)               |  |                                   |      |   |                               |   |      |                              |  |   |                      |   |  |                             | (71    | ) |                              |   | (84    | ) |  |   |       |  
|Contributions for October to December                   |  |                                   | 1     |   |                               |   |      |                              |  |   |                      |   |  |                             | 15     |   |                              |   | 13     |   |  |   |       |  
|                                                        |  |                                   |       |   |                               |   |       |                              |  |   |                       |   |  |                             |        |   |                              |   |        |   |  |   |        |  
|Net liability recognized                                |  | $                                 | (880  | ) |                               | $ | (845  | )                            |  | $ | (795                  | ) |  | $                           | (1,752 | ) |                              | $ | (1,699 | ) |  | $ | (1,643 | )
|                                                        |  |                                   |       |   |                               |   |       |                              |  |   |                       |   |  |                             |        |   |                              |   |        |   |  |   |        |  



Components of the
amounts recognized in US Airways Balance Sheets (in millions):



|                                         |  |                                   |      |   |                               |   |      |                   |  |   |                    |   |  |              |        |   |              |   |        |   |  |   |        |  
|---------------------------------------- |  | --------------------------------- | ---- | - | ----------------------------- | - | ---- | ----------------- |  | - | ------------------ | - |  | ------------ | ------ | - | ------------ | - | ------ | - |  | - | ------ | -
|                                         |  | Defined Benefit Pension Plans (1) |      |   | Other Postretirement Benefits |  
|                                         |  | Successor Company                 |      |   | PredecessorCompany            |   |      | Successor Company |  |   | PredecessorCompany |  
|                                         |  | Dec. 31,2004                      |      |   | Dec. 31,2003                  |   |      | Mar. 31,2003      |  |   | Dec. 31,2004       |   |  | Dec. 31,2003 |        |   | Mar. 31,2003 |  
|Accrued benefit cost                     |  | $                                 | (880 | ) |                               | $ | (845 | )                 |  | $ | (795               | ) |  | $            | (1,752 | ) |              | $ | (1,699 | ) |  | $ | (1,643 | )
|Adjustment for minimum pension liability |  |                                   | (120 | ) |                               |   | (86  | )                 |  |   |                   |   |  |              |       |   |              |   |       |   |  |   |       |  
|Accumulated other comprehensive loss     |  |                                   | 120  |   |                               |   | 86   |                   |  |   |                   |   |  |              |       |   |              |   |       |   |  |   |       |  
|                                         |  |                                   |      |   |                               |   |      |                   |  |   |                    |   |  |              |        |   |              |   |        |   |  |   |        |  
|Net amount recognized                    |  | $                                 | (880 | ) |                               | $ | (845 | )                 |  | $ | (795               | ) |  | $            | (1,752 | ) |              | $ | (1,699 | ) |  | $ | (1,643 | )
|                                         |  |                                   |      |   |                               |   |      |                   |  |   |                    |   |  |              |        |   |              |   |        |   |  |   |        |  

---

|(1) | For plans with accumulated benefit obligations in excess of plan assets, the aggregate projected benefit obligations,
|--- | ---------------------------------------------------------------------------------------------------------------------



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accumulated benefit obligations and plan assets were $2.70 billion, $2.68 billion and $1.72 billion,
respectively, as

of September 30, 2004 and $2.55 billion, $2.53 billion and $1.63 billion, respectively, as of September 30, 2003.



|(2) | In 2003, US Airways recognized curtailments and settlements related to the termination of certain defined
|--- | ---------------------------------------------------------------------------------------------------------

benefit pension plans. These curtailments and settlements were recognized in accordance with Statement of

Financial Accounting Standards No. 88, Employers Accounting for Settlements and Curtailments of Defined

Benefit Pension Plans and for Termination Benefits.



The accumulated benefit obligation for defined benefit pension plans was $2.68 billion and $2.53

billion as of September 30, 2004 and 2003.



The following table presents the weighted average assumptions used to determine benefit

obligations:



|                              |  |                               |   |  |                               |   |  |                                |   |  |                         |   |  |                               |   |  |                                |  
|----------------------------- |  | ----------------------------- | - |  | ----------------------------- | - |  | ------------------------------ | - |  | ----------------------- | - |  | ----------------------------- | - |  | ------------------------------ | -
|                              |  | Defined Benefit Pension Plans |   |  | Other Postretirement Benefits |  
|                              |  | Successor Company             |   |  | PredecessorCompany            |   |  | Successor Company              |   |  | PredecessorCompany      |  
|                              |  | Year EndedDec. 31, 2004       |   |  | Nine Months EndedDec. 31,2003 |   |  | Three Months EndedMar. 31,2003 |   |  | Year EndedDec. 31, 2004 |   |  | Nine Months EndedDec. 31,2003 |   |  | Three Months EndedMar. 31,2003 |  
|Discount rate                 |  | 6.00                          | % |  | 6.00                          | % |  | 6.50                           | % |  | 6.00                    | % |  | 6.00                          | % |  | 6.50                           | %
|Rate of compensation increase |  | 3.73                          | % |  | 3.73                          | % |  | 3.73                           | % |  |                        |   |  |                              |   |  |                               |  



US Airways discounted
both its future pension obligations and its other postretirement benefit

obligations using a rate of 6.00% at September 30, 2004 and 2003. The assumed
discount rate is

based on the current rates earned on long-term bonds that receive one of the two highest ratings

given by a recognized rating agency.



The assumed health care cost trend rates are 9% in 2005 and 2006, decreasing to 5% in 2010,

and thereafter. This compares to a health care cost trend rate of 9% in 2004 decreasing to 5% in

2009 and thereafter. The
assumed health care cost trend rates have a significant effect on amounts

reported for retiree health care plans. A one-percentage point change in the
health care cost trend

rates would have the following effects on Other Postretirement Benefits as of September 30, 2004

(in millions):



|                                            |  |             |     |             |   |      |  
|------------------------------------------- |  | ----------- | --- | ----------- | - | ---- | -
|                                            |  | 1% Increase |     | 1% Decrease |  
|Effect on total service and interest costs  |  | $           | 25  |             | $ | (19  | )
|Effect on postretirement benefit obligation |  | $           | 223 |             | $ | (176 | )



Weighted average
assumptions used to determine net periodic benefit cost were as follows:



|                               |  |                               |   |  |                               |   |  |                                |   |  |                         |   |  |                               |   |  |                                |  
|------------------------------ |  | ----------------------------- | - |  | ----------------------------- | - |  | ------------------------------ | - |  | ----------------------- | - |  | ----------------------------- | - |  | ------------------------------ | -
|                               |  | Defined Benefit Pension Plans |   |  | Other Postretirement Benefits |  
|                               |  | Successor Company             |   |  | PredecessorCompany            |   |  | Successor Company              |   |  | PredecessorCompany      |  
|                               |  | Year EndedDec. 31, 2004       |   |  | Nine Months EndedDec. 31,2003 |   |  | Three Months EndedMar. 31,2003 |   |  | Year EndedDec. 31, 2004 |   |  | Nine Months EndedDec. 31,2003 |   |  | Three Months EndedMar. 31,2003 |  
|Discount rate                  |  | 6.00                          | % |  | 6.50                          | % |  | 6.75                           | % |  | 6.19                    | % |  | 6.50                          | % |  | 6.75                           | %
|Expected return on plan assets |  | 8.00                          | % |  | 8.00                          | % |  | 8.75                           | % |  |                        |   |  |                              |   |  |                               |  
|Rate of compensation increase  |  | 3.73                          | % |  | 3.73                          | % |  | 5.41                           | % |  |                        |   |  |                              |   |  |                               |  



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Components of the net and total periodic cost for Pension Benefits (in millions):



|                               |  |                         |      |   |                                |   |     |                                 |  |   |                         |   |  |   |      |  
|------------------------------ |  | ----------------------- | ---- | - | ------------------------------ | - | --- | ------------------------------- |  | - | ----------------------- | - |  | - | ---- | -
|                               |  | Successor Company       |      |   | Predecessor Company            |  
|                               |  | Year EndedDec. 31, 2004 |      |   | Nine Months EndedDec. 31, 2003 |   |     | Three Months EndedMar. 31, 2003 |  |   | Year EndedDec. 31, 2002 |  
|Service cost                   |  | $                       | 40   |   |                                | $ | 27  |                                 |  | $ | 27                      |   |  | $ | 191  |  
|Interest cost                  |  |                         | 156  |   |                                |   | 113 |                                 |  |   | 89                      |   |  |   | 417  |  
|Expected return on plan assets |  |                         | (129 | ) |                                |   | (89 | )                               |  |   | (69                     | ) |  |   | (330 | )
|Amortization of:               |  |                         |      |   |                                |   |     |                                 |  |   |                         |   |  |   |      |  
|Transition asset               |  |                         |     |   |                                |   |    |                                 |  |   |                        |   |  |   | (4   | )
|Prior service cost             |  |                         |     |   |                                |   |    |                                 |  |   | 1                       |   |  |   | 10   |  
|Actuarial loss                 |  |                         |     |   |                                |   |    |                                 |  |   | 1                       |   |  |   | 39   |  
|                               |  |                         |      |   |                                |   |     |                                 |  |   |                         |   |  |   |      |  
|Net periodic cost              |  |                         | 67   |   |                                |   | 51  |                                 |  |   | 49                      |   |  |   | 323  |  
|Fresh start charge             |  |                         |     |   |                                |   |    |                                 |  |   | 1,004                   |   |  |   |     |  
|Curtailment/settlement         |  |                         |     |   |                                |   |    |                                 |  |   | (1,391                  | ) |  |   | 42   |  
|                               |  |                         |      |   |                                |   |     |                                 |  |   |                         |   |  |   |      |  
|Total periodic cost            |  | $                       | 67   |   |                                | $ | 51  |                                 |  | $ | (338                    | ) |  | $ | 365  |  
|                               |  |                         |      |   |                                |   |     |                                 |  |   |                         |   |  |   |      |  



Components of the net
and total periodic cost for Other Postretirement Benefits (in millions):



|                      |  |                         |     |   |                                |   |     |                                 |  |   |                         |   |  |   |      |  
|--------------------- |  | ----------------------- | --- | - | ------------------------------ | - | --- | ------------------------------- |  | - | ----------------------- | - |  | - | ---- | -
|                      |  | Successor Company       |     |   | Predecessor Company            |  
|                      |  | Year EndedDec. 31, 2004 |     |   | Nine Months EndedDec. 31, 2003 |   |     | Three Months EndedMar. 31, 2003 |  |   | Year EndedDec. 31, 2002 |  
|Service cost          |  | $                       | 39  |   |                                | $ | 30  |                                 |  | $ | 11                      |   |  | $ | 47   |  
|Interest cost         |  |                         | 88  |   |                                |   | 76  |                                 |  |   | 29                      |   |  |   | 110  |  
|Amortization of:      |  |                         |     |   |                                |   |     |                                 |  |   |                         |   |  |   |      |  
|Prior service cost    |  |                         | (13 | ) |                                |   | (10 | )                               |  |   | (10                     | ) |  |   | (12  | )
|Actuarial (gain)/loss |  |                         | (9  | ) |                                |   |    |                                 |  |   | 6                       |   |  |   |     |  
|                      |  |                         |     |   |                                |   |     |                                 |  |   |                         |   |  |   |      |  
|Net periodic cost     |  |                         | 105 |   |                                |   | 96  |                                 |  |   | 36                      |   |  |   | 145  |  
|Fresh start charge    |  |                         |    |   |                                |   |    |                                 |  |   | 118                     |   |  |   |     |  
|Curtailment           |  |                         |    |   |                                |   |    |                                 |  |   |                        |   |  |   | (120 | )
|                      |  |                         |     |   |                                |   |     |                                 |  |   |                         |   |  |   |      |  
|Total periodic cost   |  | $                       | 105 |   |                                | $ | 96  |                                 |  | $ | 154                     |   |  | $ | 25   |  
|                      |  |                         |     |   |                                |   |     |                                 |  |   |                         |   |  |   |      |  



The change in the
additional minimum pension liability included in Other comprehensive

income (loss) was $(34) million, $(86) million, and $880 million for the year ended
December 31,

2004, nine months ended December 31, 2003, and the three months ended March 31, 2003,

respectively. See Note 8 for a reconciliation of the components of Other comprehensive income.



Because US Airways does not expect to make further contributions to the three mainline defined

benefit pension plans, future contributions to the remaining plans are expected to be immaterial.

US Airways expects to contribute $63 million to its other postretirement plans in 2005. Prior to the

termination of the US
Airways defined benefit plans in January 2005, the following benefits, which

reflect expected future service, as appropriate, were expected to be paid from
the plans (in millions):



|             |  |                              |     |                                                     |   |                  |  |   |   
|------------ |  | ---------------------------- | --- | --------------------------------------------------- | - | ---------------- |  | - | --
|             |  | Defined BenefitPension Plans |     | Other PostretirementBenefits beforeMedicare Subsidy |   | Medicare Subsidy
|2005         |  | $                            | 124 |                                                     | $ | 63               |  | $ |  
|2006         |  |                              | 125 |                                                     |   | 66               |  |   | 4 
|2007         |  |                              | 126 |                                                     |   | 71               |  |   | 5 
|2008         |  |                              | 129 |                                                     |   | 75               |  |   | 6 
|2009         |  |                              | 133 |                                                     |   | 74               |  |   | 7 
|2010 to 2014 |  |                              | 771 |                                                     |   | 420              |  |   | 43





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US Airways assumed that its pension plans assets would generate a long-term rate of return of

7.33% at September 30, 2004. This rate is equivalent to the assumed rate of 8.00% used at

September 30, 2003. The expected long-term rate of return assumption is developed by evaluating

input from the plans
investment consultants, including their review of asset class return

expectations and long-term inflation assumptions.



The weighted average asset allocations at September 30, 2004 and 2003, by
asset category are as

follows:



|                  |  |      |   |  |      |  
|----------------- |  | ---- | - |  | ---- | -
|                  |  | 2004 |   |  | 2003 |  
|Equity securities |  | 49   | % |  | 47   | %
|Debt securities   |  | 42   |   |  | 46   |  
|Real estate       |  | 8    |   |  | 4    |  
|Other             |  | 1    |   |  | 3    |  
|                  |  |      |   |  |      |  
|Total             |  | 100  | % |  | 100  | %
|                  |  |      |   |  |      |  



US Airways targeted
asset allocation is approximately 46% equity securities, 45% debt

securities, and 9% real estate. US Airways believes that its long-term asset allocation
on average

will approximate the targeted allocation. US Airways regularly reviews its actual asset allocation

and periodically rebalances its investments to its targeted allocation when considered appropriate.



(b) Defined contribution pension plans



US Airways sponsors several defined contribution pension plans for certain employees.

US Airways makes cash contributions to certain plans based on the employees age, compensation and

elected contributions. US Airways also participates in a multi-employer plan for certain employees.

Cash contributions are
a function of hours worked times a negotiated contribution rate. Prior to the

reductions implemented in connection with its restructured labor agreements
and non-union wage and

benefits reductions in late 2004, the Companys contributions ranged up to 12% of the employees

compensation. Expenses related to these plans, excluding expenses related to the US Airways

Employee Stock Ownership Plan (ESOP) and the US Airways pilot defined contribution plans (see

below), were approximately $
49 million, $38 million, $12 million, and $64 million for the year ended

December 31, 2004, the nine months ended December 31, 2003, three months ended
March 31, 2003

and the year ended December 31, 2002, respectively. See Note 5(d) for information related to

US Airways ESOP.



In connection with its previous reorganization under Chapter 11 of the Bankruptcy Code,

US Airways terminated the Retirement Income Plan for Pilots of US Airways, Inc. and the related

nonqualified pilot plan
effective March 31, 2003. US Airways implemented a qualified and

nonqualified defined contribution plan for pilots effective April 1, 2003. The defined
contribution

amount was individually determined based on a target normal retirement date balance of

approximately $1 million for a career US Airways pilot. The target balance included the estimated

value of other retirement benefits including, but not limited to, the estimated benefit pilots are

expected to receive from
the PBGC, the trustee for the terminated pilot defined benefit plan. Effective

October 15, 2004, each pilots contribution rate became the lessor of
the original rate or 10% of

eligible compensation. Expenses for this plan were $134 million for each of the year ended December

31, 2004 and the nine months ended December 31, 2003.



(c) Postemployment benefits



US Airways provides certain postemployment benefits to its employees. Such benefits include

disability-related and workers compensation benefits for certain employees. US Airways accrues

for the cost of such
benefit expenses once an appropriate triggering event has occurred.



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(d) Employee stock ownership plan (ESOP)



In August 1989, US Airways established an ESOP. US Airways Group sold 2,200,000 shares of

its common stock to an Employee Stock Ownership Trust (the Trust) to hold on behalf of

US Airways employees, exclusive of officers, in accordance with the terms of the Trust and the

ESOP. The trustee
placed those shares in a suspense account pending their release and allocation to

employees. US Airways provided financing to the Trust in the form of a
93/4% loan for $111

million for its purchase of shares and US Airways contributed an additional $2 million to the Trust.

US Airways made a yearly contribution to the
Trust sufficient to cover the Trusts debt service

requirement. The contributions were made in amounts equal to the periodic loan payments as they

came due, less dividends available for loan payment. Since US Airways Group did not pay

dividends on any shares held by the Trust for the three months ended March 31, 2003 or the year

ended December 31, 2002,
the Trust did not utilize dividends to service its debt during those

periods. The initial maturity of the loan was 30 years. As the loan was repaid over
time, the trustee

systematically released shares of the common stock from the suspense account and allocated them

to participating employees. Each participants allocation was based on the participants

compensation, the total compensation of all ESOP participants and the total number of shares being

released. For each year
after 1989, a minimum of 71,933 shares were released from the suspense

account and allocated to participant accounts. Annual contributions made by US
Airways, and

therefore loan repayments made by the Trust, were $9 million in each of 2003 and 2002. The

interest portion of these contributions was $7 million in each of 2003 and 2002. US Airways

recognized compensation expense related to the ESOP of $4 million in 2002 based on shares

allocated to employees (the
shares allocated method). In June 2002, US Airways Group engaged

Aon Fiduciary Counselors (Aon) as an independent fiduciary of the ESOP, with
the authority to

make all decisions related to sale of the stock held in the ESOP. In September 2002, Aon sold all

shares that were allocated to participant accounts. All unallocated shares in the ESOP were

cancelled in accordance with the Companys 2003 Plan. As a result, the Company recognized a

charge of $50 million in
2002 representing the remaining unamortized deferred compensation to

Reorganization items, net on the Companys Statement of Operations. Effective
March 31, 2003,

the ESOP was terminated as provided in the 2003 Plan. The note payable to US Airways was

cancelled under the provisions of the 2003 Plan. Participant accounts were distributed by

December 31, 2003.



(e)
Profit sharing plans



Under the Defined Contribution
Retirement Program, US Airways makes additional

contributions to participant accounts for certain employees when US Airways Group achieves

certain prescribed pre-tax margin levels. US Airways did not make any profit sharing contributions

relating to 2004, 2003 or 2002.



6. Income
Taxes



US Airways accounts for income taxes
according to the provisions in Statement of Financial

Accounting Standards No. 109, Accounting for Income Taxes. US Airways files a
consolidated

federal income tax return with its parent company, US Airways Group. US Airways Group and its

wholly owned subsidiaries allocate tax and tax items, such as net operating losses (NOL) and net

tax credits, between members of the group based on their proportion of taxable income and other

items. Accordingly, US
Airways tax expense is based on its taxable income, taking into

consideration its allocated tax loss carryforwards/carrybacks and tax credit
carryforwards.



In assessing the realizability of the deferred
tax assets, management considers whether it is more

likely than not that some portion or all of the deferred tax assets will be realized. The Company

recorded a valuation allowance against its net deferred tax asset. The ultimate realization of

deferred tax assets is dependent upon the generation of future taxable income (including reversals of

deferred tax liabilities) during the periods in which those temporary differences will become



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deductible.



The components of the provision (credit) for income taxes are as follows (in millions):



|                                    |  |                             |    |                     |                                   |   |                                 |  |                              |   |  |   |      |  
|----------------------------------- |  | --------------------------- | -- | ------------------- | --------------------------------- | - | ------------------------------- |  | ---------------------------- | - |  | - | ---- | -
|                                    |  | Successor Company           |    | Predecessor Company |                                  
|                                    |  | Year EndedDecember 31, 2004 |    |                     | NineMonths EndedDecember 31, 2003 |   | ThreeMonths EndedMarch 31, 2003 |  | Year Ended December 31, 2002 |  
|Current provision:                  |  |                             |    |                     |                                   |   |                                 |  |                              |   |  |   |      |  
|Federal                             |  | $                           | (3 | )                   |                                   | $ | 3                               |  | $                            |  |  | $ | (248 | )
|State                               |  |                             | (3 | )                   |                                   |   | 3                               |  |                              |  |  |   | (7   | )
|                                    |  |                             |    |                     |                                   |   |                                 |  |                              |   |  |   |      |  
|Total current                       |  |                             | (6 | )                   |                                   |   | 6                               |  |                              |  |  |   | (255 | )
|                                    |  |                             |    |                     |                                   |   |                                 |  |                              |   |  |   |      |  
|Deferred provision:                 |  |                             |    |                     |                                   |   |                                 |  |                              |   |  |   |      |  
|Federal                             |  |                             | (1 | )                   |                                   |   |                                |  |                              |  |  |   |     |  
|State                               |  |                             |   |                     |                                   |   |                                |  |                              |  |  |   |     |  
|                                    |  |                             |    |                     |                                   |   |                                 |  |                              |   |  |   |      |  
|Total deferred                      |  |                             | (1 | )                   |                                   |   |                                |  |                              |  |  |   |     |  
|                                    |  |                             |    |                     |                                   |   |                                 |  |                              |   |  |   |      |  
|Provision (credit) for income taxes |  | $                           | (7 | )                   |                                   | $ | 6                               |  | $                            |  |  | $ | (255 | )
|                                    |  |                             |    |                     |                                   |   |                                 |  |                              |   |  |   |      |  



The significant
components of the deferred income tax provision (credit) for the year ended

December 31, 2004, the nine months ended December 31, 2003, the three months
ended March 31,

2003 and the year ended December 31, 2002 are as follows (in millions):



|                                                                       |  |                             |      |   |                                   |   |      |                                 |  |   |                             |   |  |   |      |  
|---------------------------------------------------------------------- |  | --------------------------- | ---- | - | --------------------------------- | - | ---- | ------------------------------- |  | - | --------------------------- | - |  | - | ---- | -
|                                                                       |  | Successor Company           |      |   | Predecessor Company               |  
|                                                                       |  | Year EndedDecember 31, 2004 |      |   | NineMonths EndedDecember 31, 2003 |   |      | ThreeMonths EndedMarch 31, 2003 |  |   | Year EndedDecember 31, 2002 |  
|Deferred tax provision (exclusive of theother components listed below) |  | $                           | (206 | ) |                                   | $ | 399  |                                 |  | $ | 200                         |   |  | $ | (359 | )
|Increase (decrease) in the valuationallowance for deferred tax assets  |  |                             | 205  |   |                                   |   | (399 | )                               |  |   | (200                        | ) |  |   | 359  |  
|                                                                       |  |                             |      |   |                                   |   |      |                                 |  |   |                             |   |  |   |      |  
|Total                                                                  |  | $                           | (1   | ) |                                   | $ |     |                                 |  | $ |                            |   |  | $ |     |  
|                                                                       |  |                             |      |   |                                   |   |      |                                 |  |   |                             |   |  |   |      |  



A reconciliation of
taxes computed at the statutory federal tax rate on income (loss) before

income taxes to the provision (credit) for income taxes is provided below (in
millions):



|                                                                |  |                             |      |   |                                   |   |      |                                 |  |   |                             |   |  |   |      |  
|--------------------------------------------------------------- |  | --------------------------- | ---- | - | --------------------------------- | - | ---- | ------------------------------- |  | - | --------------------------- | - |  | - | ---- | -
|                                                                |  | Successor Company           |      |   | Predecessor Company               |  
|                                                                |  | Year EndedDecember 31, 2004 |      |   | NineMonths EndedDecember 31, 2003 |   |      | ThreeMonths EndedMarch 31, 2003 |  |   | Year EndedDecember 31, 2002 |  
|Tax provision (credit) computed atfederal statutory rate        |  | $                           | (205 | ) |                                   | $ | (54  | )                               |  | $ | 564                         |   |  | $ | (670 | )
|Book expenses not deductible for taxpurposes                    |  |                             | 1    |   |                                   |   | 11   |                                 |  |   | (200                        | ) |  |   | 14   |  
|State income tax provision, net offederal benefit               |  |                             | (2   | ) |                                   |   | 3    |                                 |  |   |                            |   |  |   | (5   | )
|Increase (decrease) in the federalvaluation allowance           |  |                             | 181  |   |                                   |   | (140 | )                               |  |   | (371                        | ) |  |   | 317  |  
|Limitation of recognizing tax benefits ofNOLs/credits           |  |                             |     |   |                                   |   |     |                                 |  |   |                            |   |  |   | 80   |  
|Reduction in net operating losses fromdischarge of indebtedness |  |                             |     |   |                                   |   | 180  |                                 |  |   |                            |   |  |   |     |  
|Expiration of investment and foreigntax credits                 |  |                             | 5    |   |                                   |   | 19   |                                 |  |   |                            |   |  |   | 9    |  
|Other                                                           |  |                             | 13   |   |                                   |   | (13  | )                               |  |   | 7                           |   |  |   |     |  
|                                                                |  |                             |      |   |                                   |   |      |                                 |  |   |                             |   |  |   |      |  
|Provision (credit) for income taxes                             |  | $                           | (7   | ) |                                   | $ | 6    |                                 |  | $ |                            |   |  | $ | (255 | )
|                                                                |  |                             |      |   |                                   |   |      |                                 |  |   |                             |   |  |   |      |  
|Effective tax rate                                              |  |                             | 1    | % |                                   |   | 4    | %                               |  |   |                            | % |  |   | 13   | %
|                                                                |  |                             |      |   |                                   |   |      |                                 |  |   |                             |   |  |   |      |  



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The tax effects of temporary differences that give rise to significant portions of the deferred tax

assets and liabilities as of December 31, 2004 and 2003 are as follows (in millions):



|                                                             |  |      |       |   |      |   |       |  
|------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|                                                             |  | 2004 |       |   | 2003 |  
|Deferred tax assets:                                         |  |      |       |   |      |   |       |  
|Employee benefits                                            |  | $    | 1,154 |   |      | $ | 1,131 |  
|Net operating loss carryforwards                             |  |      | 299   |   |      |   | 40    |  
|Other deferred tax assets                                    |  |      | 179   |   |      |   | 179   |  
|AMT credit carryforward                                      |  |      | 25    |   |      |   | 28    |  
|Leasing transactions                                         |  |      | 9     |   |      |   | 10    |  
|Federal general business and foreign tax creditcarryforwards |  |      |      |   |      |   | 5     |  
|Valuation allowance                                          |  |      | (822  | ) |      |   | (617  | )
|                                                             |  |      |       |   |      |   |       |  
|Net deferred tax assets                                      |  |      | 844   |   |      |   | 776   |  
|                                                             |  |      |       |   |      |   |       |  
|Deferred tax liabilities:                                    |  |      |       |   |      |   |       |  
|Depreciation and amortization                                |  |      | 641   |   |      |   | 622   |  
|Sale and leaseback transactions                              |  |      | 112   |   |      |   | 82    |  
|Other deferred tax liabilities                               |  |      | 105   |   |      |   | 72    |  
|                                                             |  |      |       |   |      |   |       |  
|Total deferred tax liabilities                               |  |      | 858   |   |      |   | 776   |  
|                                                             |  |      |       |   |      |   |       |  
|Net deferred tax liabilities                                 |  |      | 14    |   |      |   |      |  
|                                                             |  |      |       |   |      |   |       |  
|Less: current deferred tax liabilities                       |  |      |      |   |      |   |      |  
|                                                             |  |      |       |   |      |   |       |  
|Noncurrent deferred tax liabilities                          |  | $    | 14    |   |      | $ |      |  
|                                                             |  |      |       |   |      |   |       |  



Included in the
employee benefit deferred tax assets at December 31, 2004 and 2003, among other

items, are $661 million and $630 million, respectively, related to
obligations of postretirement medical

benefits.



As of December 31, 2004, US Airways had a $745 million federal net operating loss carryforward

expiring 2024, $25 million of alternative minimum tax credits which do not expire, and $1.8 billion of

state net operating loss carryforwards primarily expiring from 2006 to 2024. US Airways filed for

bankruptcy protection on
September 12, 2004. As a result, the tax attributes are expected to be

substantially reduced or totally eliminated by cancellation of debt income that will
result from the

bankruptcy proceedings. Additionally, US Airways Group may have a change of ownership upon

emergence from bankruptcy, in which case Internal Revenue Code Section 382 would substantially

limit the annual usage of any remaining tax attributes that were generated prior to the change in

ownership.



At December 31, 2003, the federal and state net operating loss carryforwards
were reduced by

discharge of indebtedness income of $1.2 billion that resulted from the August 2002 bankruptcy

proceedings. In addition, an Internal Revenue Code Section 382 change of ownership occurred for

US Airways Group upon emergence from the Prior Bankruptcy and issuance of new common stock to

creditors. Section 382
substantially limited the annual usage of tax attributes that were generated prior

to the change in ownership.



The federal income tax returns of the Company through 2002 have been examined
and settled with

the Internal Revenue Service. The Company is not currently under examination.



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The following table is a summary of pretax book income and taxable income prior to net operating

loss carryforwards for the year ended December 31, 2004, the nine months ended December 31, 2003,

the three months ended March 31, 2003 and the year ended December 31, 2002 (in millions):



|                          |  |                              |      |   |                                     |   |      |                                   |  |                              |       |  |   |        |  
|------------------------- |  | ---------------------------- | ---- | - | ----------------------------------- | - | ---- | --------------------------------- |  | ---------------------------- | ----- |  | - | ------ | -
|                          |  | Successor Company            |      |   | Predecessor Company                 |  
|                          |  | Year Ended December 31, 2004 |      |   | Nine Months Ended December 31, 2003 |   |      | Three Months Ended March 31, 2003 |  | Year Ended December 31, 2002 |      
|Pretax book income (loss) |  | $                            | (585 | ) |                                     | $ | (154 | )                                 |  | $                            | 1,613 |  | $ | (1,914 | )
|Taxable income (loss)     |  |                              | (558 | ) |                                     |   | 149  |                                   |  |                              | 262   |  |   | (1,102 | )



The reason for
significant differences between taxable and pretax book income primarily relates

to discharge of indebtedness income, bankruptcy-related charges, employee
pension and

postretirement benefit costs, employee-related accruals and leasing transactions.



7. Commitments and Contingencies



(a) Commitments to purchase flight equipment



As of December 31, 2004, US Airways Group had 19 A320-family aircraft on firm order

scheduled for delivery in the years 2007 through 2009. US Airways Group also had ten A330-200

aircraft on firm order
scheduled for delivery in the years 2007 through 2009. On February 3, 2005,

the Bankruptcy Court approved the Companys agreement with Airbus
providing for, among other

things, delivery of the 19 A320-family aircraft in years 2008 through 2010 and delivery of the ten

A330-200 aircraft in years 2008 through 2009.



In December 2004, the Company reached aircraft leasing and financing agreements with

Embraer and Bombardier, which were approved by the Bankruptcy Court in January 2005.

Pursuant to the agreement reached with
Embraer, the Company purchased and took delivery of three

ERJ-170 aircraft in January 2005 and committed to purchase and take delivery of three additional

ERJ-170 aircraft by March 31, 2005. The purchase of the three ERJ-170s delivered in January 2005

was financed by Embraer through a mortgage loan facility and the application of $17 million of

existing purchase deposits held by Embraer. Additionally, $12 million of purchase deposits held by

Embraer will be used to
fund an Embraer loan reserve. Embraer will apply the reserve funds in the

amounts and on the dates as and when payments are due under the Embraer loans
during the period

from October 1, 2004 through July 31, 2005 in full satisfaction of the Companys payment

obligation with respect to such Embraer loans during such period. Upon delivery of the first three

ERJ-170s, which occurred in January 2005, unless the Company assumes the Embraer aircraft

purchase agreement pursuant to
Section 365 of the Bankruptcy Code, no further obligations arise

on the part of the Company or Embraer with respect to the purchase and delivery of any
aircraft,

other than those obligations that arise from or are related to the purchase and delivery of the final

three ERJ-170s in March 2005. Embraer and the Company have agreed to negotiate a new delivery

schedule upon the Companys assumption of the Embraer aircraft purchase agreement or upon the

occurrence of certain
other events.



In the event that the Company fails to take
delivery by March 31, 2005 of the remaining three

ERJ-170 aircraft, damages will accrue on account of the Companys failure to take delivery of such

aircraft from and after April 1, 2005 at the rate of $162,795 per month per aircraft until the later of

(i) 30 days after the Company emerges from Chapter 11 and (ii) July 31, 2005, whereupon

Embraers obligation to deliver such aircraft will terminate and its damages with respect to such

undelivered aircraft
may be as much as $10 million (rather than at the rate of $162,795 per month),

with Embraer having the right to apply any remaining purchase deposits
against Embraers

aggregate damages.



Under the agreement reached with Bombardier, the Company acquired three new CRJ-700

aircraft in January 2005. The purchase was financed through the application of $28 million of



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existing pre-delivery purchase deposits held by Bombardier, $2 million in cash and a financed lease

facility with DVB Bank. Additionally $4 million of existing purchase deposits held by Bombardier

were used to satisfy existing defaults and cure payments. So long as the Company continues to

operate under the protection of Chapter 11 in compliance with the Bankruptcy Code, no obligations

shall arise on the part
of the Company or Bombardier with respect to the purchase and delivery of

any aircraft.



(b) Leases



US Airways leases certain aircraft engines and ground equipment, in addition to the majority of its

ground facilities. Ground facilities include executive offices, maintenance facilities and ticket and

administrative offices. Public airports are utilized for flight operations under lease arrangements with

the municipalities
or agencies owning or controlling such airports. Substantially all leases provide that

the lessee must pay taxes, maintenance, insurance and certain other
operating expenses applicable to

the leased property. Some leases also include renewal and purchase options. US Airways subleases

certain leased aircraft and ground facilities under noncancelable operating leases expiring in various

years through the year 2023.



The following amounts related to capital leases are included in Property and equipment as of

December 31, 2004 and 2003 (in millions):



|                                       |  |      |    |   |      |   |    |  
|-------------------------------------- |  | ---- | -- | - | ---- | - | -- | -
|                                       |  | 2004 |    |   | 2003 |  
|Ground property                        |  | $    | 34 |   |      | $ | 34 |  
|Less accumulated amortization          |  |      | (3 | ) |      |   | (2 | )
|                                       |  |      |    |   |      |   |    |  
|Total Net Book Value of Capital Leases |  | $    | 31 |   |      | $ | 32 |  
|                                       |  |      |    |   |      |   |    |  



As of December 31,
2004, obligations under capital and noncancelable operating leases for future

minimum lease payments were as follows (in millions):



|                                                       |  |                |     |   |                  |   |       |  
|------------------------------------------------------ |  | -------------- | --- | - | ---------------- | - | ----- | -
|                                                       |  | Capital Leases |     |   | Operating Leases |  
|2005                                                   |  | $              | 5   |   |                  | $ | 824   |  
|2006                                                   |  |                | 5   |   |                  |   | 727   |  
|2007                                                   |  |                | 5   |   |                  |   | 664   |  
|2008                                                   |  |                | 5   |   |                  |   | 587   |  
|2009                                                   |  |                | 5   |   |                  |   | 512   |  
|Thereafter                                             |  |                | 104 |   |                  |   | 3,753 |  
|                                                       |  |                |     |   |                  |   |       |  
|Total minimum lease payments                           |  |                | 129 |   |                  |   | 7,067 |  
|Less sublease rental receipts                          |  |                |    |   |                  |   | (332  | )
|                                                       |  |                |     |   |                  |   |       |  
|Total minimum operating lease payments                 |  |                | 129 |   |                  | $ | 6,735 |  
|                                                       |  |                |     |   |                  |   |       |  
|Less amount representing interest                      |  |                | (80 | ) |                  |   |       |  
|                                                       |  |                |     |   |                  |   |       |  
|Present value of future minimum capital lease payments |  |                | 49  |   |                  |   |       |  
|Less current obligations under capital leases          |  |                | (1  | ) |                  |   |       |  
|                                                       |  |                |     |   |                  |   |       |  
|Long-term obligations under capital leases             |  | $              | 48  |   |                  |   |       |  
|                                                       |  |                |     |   |                  |   |       |  



For the year ended
December 31, 2004, the nine months ended December 31, 2003, the three

months ended March 31, 2003 and the year ended December 31, 2002, rental expense
under

operating leases was $758 million, $565 million, $185 million, and $792 million, respectively.



US Airways also leases certain owned flight equipment to both third and
related parties (see

Note 12(b)) under noncancelable operating leases that expire in the years 2005 through 2023. The

future minimum rental receipts associated with these leases are: $45 million in 2005, $43 million in

2006, $42 million in each of 2007 through 2009 and $414 million thereafter.



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The following amounts relate to aircraft leased under such agreements as reflected in flight

equipment as of December 31, 2004 and 2003 (in millions):



|                              |  |      |     |   |      |   |    |  
|----------------------------- |  | ---- | --- | - | ---- | - | -- | -
|                              |  | 2004 |     |   | 2003 |  
|Flight equipment              |  | $    | 491 |   |      | $ | 60 |  
|Less accumulated amortization |  |      | (14 | ) |      |   | (6 | )
|                              |  |      |     |   |      |   |    |  
|                              |  | $    | 477 |   |      | $ | 54 |  
|                              |  |      |     |   |      |   |    |  



(c) Regional jet
capacity purchase agreements



US Airways has
entered into capacity purchase agreements with certain regional jet operators.

The capacity purchase agreements provide that all revenues (passenger, mail
and freight) go to

US Airways. In return, US Airways agrees to pay predetermined fees to the regional airlines for

operating an agreed number of aircraft, without regard to the number of passengers onboard. In

addition, these agreements provide that certain variable costs, such as fuel and airport landing fees,

will be reimbursed
100% by US Airways. US Airways controls marketing, scheduling, ticketing,

pricing and seat inventories. The regional jet capacity purchase agreements have
expirations from

2008 to 2013 and provide for optional extensions at the Companys discretion. The future

minimum noncancelable commitments under the regional jet capacity purchase agreements are $257

million in 2005, $262 million in 2006, $268 million in 2007 and $266 million in 2008, $202 million

in 2009 and $266 million
thereafter.



(d) Legal Proceedings



On September 12, 2004, US Airways filed a voluntary petition for relief
under Chapter 11 of the

United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of

Virginia, Alexandria Division (Case Nos. 04-13819-SSM through 03-13823-SSM). The Company

continues to operate its business and manage its property as a debtor-in-possession pursuant to

Sections 1107 and 1108 of
the Bankruptcy Code. As a result of the current Chapter 11 filing,

attempts to collect, secure or enforce remedies with respect to prepetition claims
against the

Company are subject to the automatic stay provisions of Section 362(a) of the Bankruptcy Code.



On February 26, 2004, a company called I.A.P. Intermodal, LLC filed suit
against US Airways

Group and its wholly owned airline subsidiaries in the United States District Court for the Eastern

District of Texas alleging that the defendants infringed upon three patents held by plaintiffs, all of

which patents are entitled, Method to Schedule a Vehicle in Real-Time to Transport Freight and

Passengers.
Plaintiff seeks various injunctive relief as well as costs, fees and treble damages.

US Airways Group and the subsidiaries were formally served with the
complaint on June 21, 2004.

US Airways Group is unable to ascertain at this time the likelihood or potential scale of liability.

On the same date, the same plaintiff filed what the Company believes to be substantially similar

cases against nine other major airlines, including British Airways, Northwest Airlines Corporation

(Northwest), Korean
Airlines Co., Ltd., Deutsche Lufthansa AG, Air France, Air Canada, Singapore

Airlines Ltd., Delta Airlines, Inc. (Delta), and Continental Airlines, Inc.,
and had filed a suit against

the parent company of American Airlines in December 2003. This action was stayed as to

US Airways Group and its wholly owned subsidiaries as a result of the bankruptcy filing on

September 12, 2004.



The Port
Authority of New York and New Jersey filed a proof of claim against US Airways in

the Prior Bankruptcy. The claim was in the amount of $8.5 million and it
alleged environmental

contamination and building deficiencies at LaGuardia. US Airways liability and defenses to such

liability were unaffected by the Prior Bankruptcy. US Airways has received no notice, inquiry or

other communication from the Port Authority other than in connection with the proof of claim, and

therefore is unable to
evaluate at this time the validity of the underlying claim, the degree to which

US Airways might share responsibility with other parties, or the cost of
cleanup or correction of the

alleged building deficiencies.



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On January 7, 2003, the Internal Revenue Service (IRS) issued a notice of proposed adjustment

to US Airways Group proposing to disallow $573 million of capital losses that US Airways Group

sustained in the tax year 1999 on the sale of stock of USLM Corporation (USLM). On February 5,

2003, the IRS filed a proof
of claim with the Bankruptcy Court in connection with the Prior

Bankruptcy asserting the following claims with respect to USLM: (1) secured claims for U.S.

federal income tax and interest of $0.7 million; (2) unsecured priority claims for U.S. federal

income tax of $68 million and interest of $14 million; and (3) an unsecured general claim for

penalties of $25 million. On May 8, 2003, US Airways Group reached a tentative agreement with

the IRS on the amount of U.S.
federal income taxes, interest and penalties due subject to final

approval from the Joint Committee on Taxation. By letter dated September 11, 2003, US
Airways

Group was notified that the Joint Committee on Taxation had accepted the tentative agreement with

the IRS, including a settlement of all federal income taxes through the end of 2002. Due to the

bankruptcy filing on September 11, 2004, which suspended payment of prepetition liabilities, final

payment terms under the
agreement have not been submitted to the Bankruptcy Court for approval.



US Airways is named as a defendant along with most of the major domestic airlines, several

national carriers and a number of international
carriers, in a class action lawsuit on behalf of all

United States-based travel agents filed in federal court in North Carolina. The complaint alleges

violation of the federal antitrust laws with respect to commission rate reductions and/or commission

cap reductions implemented by various airlines in 1997, 1998, 1999, 2001 and 2002. Plaintiffs seek

unspecified damages for lost commissions, as well as injunctive relief. On October 30, 2003, the

federal court granted a
motion for summary judgment dismissing all claims against airline

defendants other than the carriers then in bankruptcy, including US Airways, because
proceedings

had been stayed against those bankrupt defendants. That grant of summary judgment was affirmed

by the Fourth Circuit Court of Appeals. On January 28, 2004, the federal court in North Carolina

dismissed all claims against US Airways. The plaintiffs in this proceeding had also filed a claim in

Bankruptcy Court for
prepetition and continuing postpetition damages. The Bankruptcy Court

determined that the entire claim was prepetition and unsecured, and the plaintiffs
appealed this

decision to the District Court. The parties agreed to stay this appeal pending the outcome of the

plaintiffs appeal of the grant of summary judgment in the North Carolina action. Following the

Fourth Circuits decision to affirm the summary judgment ruling, the plaintiffs dismissed their

appeal of the
Bankruptcy Court decision.



Williard, Inc. (Williard), together
with the joint venture of Williard and Len Parker Associates

(Williard/Parker), was awarded construction contracts with US Airways for work to be performed
at

the Philadelphia International Airport. On May 29, 2002, US Airways terminated the largest

contract between the parties. Williard and Williard/Parker sued US Airways in Pennsylvania state

court for over $14 million
in damages representing termination costs and lost profits, along with

other alleged contractual damage claims. Subsequently, Limbach Company, LLC
(Limbach)

alleged that it purchased the claims of Williard. After a trial, the Bankruptcy Court, on June 7,

2004, determined the value of the Limbach and Limbach/Parker claims to be $2,542,843. Limbach

and Limbach/Parker are challenging on appeal various rulings of the Bankruptcy Court, including

the amount of the claim and
its status as an unsecured claim. US Airways has also filed an appeal.

Limbach and Limbach/Parker have filed an action in state court against the City of
Philadelphia (the

City) and the Philadelphia Authority for Industrial Development (PAID) and received permission to

include US Airways as a co-defendant, provided that Limbach and Limbach/Parker did not make

any claims against US Airways in that action. In the lawsuit against the City and PAID, Limbach

and Limbach/Parker are
seeking the same sums as in their earlier lawsuit and proofs of claim

against US Airways, but this time under the equitable theories of third-party
beneficiary, quantum

meruit and constructive trust. The court in the Philadelphia action dismissed US Airways from the

lawsuit and dismissed the third-party beneficiary claims against the City and PAID. These rulings

are subject to appeal at a later date. On May 21, 2004, the City and PAID filed a Motion for

Summary Judgment seeking
dismissal of the lawsuit. Should Limbach and/or Limbach/Parker

recover in the Philadelphia action against the City and PAID, that award would be paid at
100 cents

on the dollar. US Airways may have an obligation to indemnify the City and PAID under its



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agreements related to the airport development, which US Airways assumed as part of the Prior

Bankruptcy. Therefore, any recovery by Limbach and/or Limbach/Parker against the City and PAID

could result in an
indemnification claim that US Airways may have to pay at full value.

Proceedings in the Bankruptcy Court were stayed by the bankruptcy filing on September
12, 2004.



On October 4, 2004, the System Board of Adjustment
(the System Board) issued a ruling in

which the Companys outsourcing of heavy maintenance visits was deemed to be in violation of the

collective bargaining agreement between US Airways and the IAM as the representative of

Mechanic and Related Employees. The System Board ordered the Company to cease and desist

from outsourcing the work, and
ordered that affected employees be made whole. The System Board

did not specify any particular monetary remedy and none has since been decided or agreed
upon by

the parties. However, the Bankruptcy Courts order granting in part the Companys motion for

relief under Section 1113(e) of the Bankruptcy Code included relief from any restrictions on the

Companys right to outsource the work covered by this award through February 15, 2005. Neither

the Companys
Section 1113(e) motion nor the Bankruptcy Courts order addressed the make-whole

portion of this award. On November 12, 2004, the Company filed a
motion asking the Bankruptcy

Court for permission to reject the IAM collective bargaining agreement under which the grievance

had been filed. On January 6, 2005, the Bankruptcy Court granted the Companys motion. On

January 21, 2005, the IAM ratified a new collective bargaining agreement to replace the one that

had been rejected, and as
part of the new agreement, the IAM agreed not to pursue any claims for

damages associated with the rejection of the previous agreement.



US Airways Group and US Airways have been named as defendants in two lawsuits
filed in

federal district court for the Eastern District of Michigan. Delta is also named as a defendant in both

actions, while Northwest and the Airlines Reporting Corporation were sued separately in a third

action. The complaints were filed on behalf of a class of airline passengers who originated or

terminated their trips at
the defendant carriers respective hubs. These passengers allege that they

paid excessive fares due to the respective airlines enforcement of
ticketing rules that prohibit the

use of a connecting segment coupon that 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 treble damages from all named

defendants in the amount
of $390 million and an injunction prohibiting future enforcement of the

rules at issue. On May 16, 2002, the court denied the defendant airlines
Motion for Summary

Judgment and granted the plaintiffs Motion for Class Certification in each of the cases. On May

31, 2002, US Airways Group and US Airways filed a petition with the United States Court of

Appeals for the Sixth Circuit seeking a discretionary review of the certification order. On

November 21, 2002, the petition
for permission to appeal the class certification decision was

denied. On December 4, 2002, Delta and Northwest filed a rehearing petition seeking en banc

review of the initial Sixth Circuit denial. On February 24, 2003, Northwest and Deltas petition for

rehearing en banc was denied. Notwithstanding the district courts denial of summary judgment and

the petition, US Airways Group and US Airways believe the claims are without merit and intend to

pursue a vigorous defense.
The automatic stay under Section 362(a) of the Bankruptcy Code was

lifted when the Company emerged from bankruptcy on March 31, 2003, but the action was

subsequently stayed once more as a result of the Companys bankruptcy filing on September 12,

2004.



In May 1995, US Airways Group, US Airways and the Retirement Plan for Pilots of

US Airways, Inc. (Pilot Retirement Plan)
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 Pilot Retirement Plan. The plaintiffs

sought damages in excess of $70 million. In May 1996, the court issued a decision granting

US Airways 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 Pilot Retirement 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



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originally granted in May 1996, in the defendants 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 plaintiffs the right to

reinstate their claims after
completion of the arbitration. Certain of the plaintiffs filed a claim

before the US Airways Pilot Retirement Board, requesting arbitration of their claim
for benefits that

they believe were erroneously calculated, and the Retirement Board selected an arbitrator to decide

certain issues related to the plaintiffs claims for benefits. However, the Pilot Retirement Plan was

terminated on March 31, 2003, and on April 1, 2003 the PBGC became trustee of the plan. Also,

claims related to this matter
were expunged in the Prior Bankruptcy. Accordingly, the Company

does not believe there is any continuing risk of material liability associated with this
matter.



On September 29, 2000, US Airways intervened in a
proceeding that was originally brought on

January 26, 1998, by the Pennsylvania Department of Environment Protection (DEP) against

Allegheny County, Pennsylvania and the Allegheny County Aviation Administration (ACAA),

alleging that a variety of airfield and aircraft de-icing activities at Pittsburgh International Airport

(Airport) violate
the requirements of (a) a 1994 Consent Order and Adjudication issued to

Allegheny County and air carrier tenants at the Airport, (b) the Airports
National Pollutant

Discharge Elimination System Permit, and (c) the Pennsylvania Clean Streams Law. The action

was brought before the Pennsylvania Environment Hearing Board. During March 2001, the

Environmental Hearing Board approved Allegheny Countys Motion to Withdraw the Appeal

without Prejudice, thereby terminating the appeal.
However, during the course of settlement

discussions leading to the termination of the appeal, the DEP advised Allegheny County and

US Airways that DEP (i) will require additional measures to be taken to control de-icing materials

at the Airport, and (ii) will assess a civil penalty against Allegheny County and US Airways for the

alleged violations
described above. The ACAA, US Airways and the DEP have continued to work

together with the goal of fashioning an ultimate resolution to the de-icing
issues. The Company

does not believe that the settlement of this matter will have a material adverse effect on its financial

condition, results of operations or liquidity.



(e) Guarantees



US Airways guarantees the payment of principal and interest on certain special facility revenue

bonds issued by municipalities to build or improve certain airport and maintenance facilities which

are leased to US Airways. Under such leases, US Airways is required to make rental payments

through 2023, sufficient to pay
maturing principal and interest payments on the related bonds. As of

December 31, 2004, the principal amount outstanding of these bonds was $79 million.



The Company enters into real estate leases in substantially
all cities that it serves. It is common

in such commercial lease transactions for the Company as the lessee to agree to indemnify the lessor

and other related third parties for tort liabilities that arise out of or relate to the Companys use or

occupancy of the leased premises. In some cases, this indemnity extends to related liabilities arising

from the negligence of the indemnified parties, but usually excludes any liabilities caused by their

gross negligence or
willful misconduct. Additionally, the Company typically indemnifies such

parties for any environmental liability that arises out of or relates to its use
of the leased premises.



In aircraft financing agreements, the
Company typically indemnifies the financing parties,

trustees acting on their behalf and other related parties against liabilities that arise from the

manufacture, design, ownership, financing, use, operation and maintenance of the aircraft and for

tort liability, whether or not these liabilities arise out of or relate to the negligence of these

indemnified parties, except for their gross negligence or willful misconduct. In aircraft financing

transactions structured
as leveraged leases, the Company typically indemnifies the lessor with

respect to adverse changes in U.S. tax laws.



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The Company expects that it would be covered by insurance (subject to deductibles) for most

tort liabilities and related indemnities described above with respect to real estate leases and aircraft

it operates. The Company cannot estimate the potential amount of future payments under the

foregoing indemnities and
guarantees.



(f) Concentration of credit risk



US Airways invests available cash in money market
securities of various banks, commercial

paper and asset-backed securities of various financial institutions, other companies with high credit

ratings and securities backed by the U.S. Government.



As of December 31, 2004, most of US Airways receivables related to tickets sold to individual

passengers through the use of major credit cards or to tickets sold by other airlines and used by

passengers on US Airways or its regional airline affiliates. These receivables are short-term, mostly

being settled within
seven days after sale. Bad debt losses, which have been minimal in the past, have

been considered in establishing allowances for doubtful accounts. US
Airways does not believe it is

subject to any significant concentration of credit risk.



8. Accumulated other comprehensive income (loss), net of income tax effect



Comprehensive income encompasses net income and other
comprehensive income, which

includes all other non-owner transactions and events that change stockholders equity. US Airways

other comprehensive income includes unrealized gains (losses) on available-for-sale securities,

certain changes in the fair value of certain derivative instruments and an adjustment for minimum

pension liability, each
shown net of income tax effects.



As presented in the
accompanying Statements of Stockholders Equity (Deficit), US Airways

recognized comprehensive loss of $621 million, including a net loss of $578
million and other

comprehensive loss of $43 million, for the year ended December 31, 2004. For the nine months

ended December 31, 2003 US Airways recognized a comprehensive loss of $215 million including

a net loss of $160 million and other comprehensive loss of $55 million. US Airways recognized

comprehensive income of $2.48
billion, including net income of $1.61 billion and other

comprehensive income of $870 million, for the three months ended March 31, 2003. For the year

ended December 31, 2002, US Airways recognized a comprehensive loss of $2.38 billion, including a

net loss of $1.66 billion and other comprehensive loss of $717 million.



The activity within Other comprehensive income (loss) and the related income tax effects are as

follows (in millions):



|                                                                                     |  |                            |     |   |                                  |   |     |                                 |  |   |                            |   |  |   |      |  
|------------------------------------------------------------------------------------ |  | -------------------------- | --- | - | -------------------------------- | - | --- | ------------------------------- |  | - | -------------------------- | - |  | - | ---- | -
|                                                                                     |  | Successor Company          |     |   | Predecessor Company              |  
|                                                                                     |  | Year EndedDecember 31,2004 |     |   | Nine MonthsEndedDecember 31,2003 |   |     | Three MonthsEnded March 31,2003 |  |   | Year EndedDecember 31,2002 |  
|Unrealized gain (loss) onavailable-for-sale securities                               |  | $                          |    |   |                                  | $ |    |                                 |  | $ |                           |   |  | $ | (2   | )
|Fuel cash flow hedges:                                                               |  |                            |     |   |                                  |   |     |                                 |  |   |                            |   |  |   |      |  
|Reclassification adjustment for gains includedin net income (loss) during the period |  |                            | (75 | ) |                                  |   | (14 | )                               |  |   | (16                        | ) |  |   | (13  | )
|Change in fair value of hedges                                                       |  |                            | 66  |   |                                  |   | 45  |                                 |  |   | 5                          |   |  |   | 40   |  
|                                                                                     |  |                            |     |   |                                  |   |     |                                 |  |   |                            |   |  |   |      |  
|Unrealized gain (loss), net ofreclassification adjustment                            |  |                            | (9  | ) |                                  |   | 31  |                                 |  |   | (11                        | ) |  |   | 25   |  
|Minimum pension liability adjustment                                                 |  |                            | (34 | ) |                                  |   | (86 | )                               |  |   | 85                         |   |  |   | (742 | )
|Adjustments in connection with reorganization                                        |  |                            |     |   |                                  |   |     |                                 |  |   | 796                        |   |  |   |      |  
|                                                                                     |  |                            |     |   |                                  |   |     |                                 |  |   |                            |   |  |   |      |  
|Other comprehensive income (loss)                                                    |  | $                          | (43 | ) |                                  | $ | (55 | )                               |  | $ | 870                        |   |  | $ | (717 | )
|                                                                                     |  |                            |     |   |                                  |   |     |                                 |  |   |                            |   |  |   |      |  



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There was no tax effect on any element of Other comprehensive income (loss) during the year

ended December 31, 2004, the nine months ended December 31, 2003, the three months ended

March 31, 2003 and the year ended December 31, 2002.



9. Stock-Based Compensation



(a) Successor
Company



Upon emergence from the Prior Bankruptcy, the
Successor Company adopted the fair value

method of recording stock-based employee compensation contained in SFAS 123 and accounted for

this change in accounting principle using the prospective method as described by SFAS 148.

Accordingly, the fair value of all Successor Company stock option and warrant grants, as

determined on the date of grant,
will be amortized as compensation expense (an element of

Personnel costs) in the Statement of Operations over the vesting period. The Company has

disclosed in Note 2(m) the effect on net income (loss) and net earnings (loss) per common share as

if the fair value based recognition provisions of SFAS 123 had been applied to all outstanding and

unvested stock option awards in each Predecessor Company period presented.



23,028,687 shares of Class A Common Stock of US Airways Group allocated to employees

pursuant to collective bargaining agreements were valued at $169 million in the aggregate and were

included as deferred
compensation as a reduction to Stockholders Equity (Deficit) upon emergence

from the Prior Bankruptcy. US Airways records the deferred compensation
as compensation

expense as the related shares vest.



As of December 31, 2004, there were 4,750,000 shares of US Airways Group Class A Common

Stock and 2,220,570 each of Class A-1 Warrants and shares of Class A Preferred Stock authorized

to be granted to US
Airways management. Through December 31, 2004, 3,962,593 shares of

US Airways Group Class A Common Stock, 2,118,490 each of Class A-1 warrants and
Class A

Preferred Stock, and 466,640 options to purchase Class A Common Stock were granted to

US Airways management. Grants of Class A Common Stock, stock options and warrants generally

vest over four years. The
Company records compensation expense over the vesting period. The

following table summarizes the activity of US Airways stock options and warrants
granted since

emergence from the Prior Bankruptcy:



|                    |  |               |   |  |                              |      |          |           |   |                              |   |     
|------------------- |  | ------------- | - |  | ---------------------------- | ---- | -------- | --------- | - | ---------------------------- | - | ----
|                    |  | Stock Options |   |  | Weighted Avg. Exercise Price |      | Warrants |           |   | Weighted Avg. Exercise Price
|Granted             |  |              |   |  | $                            |     |          | 2,227,576 |   |                              | $ | 7.42
|Canceled            |  |              |   |  |                              |     |          | (11,050   | ) |                              |   | 7.42
|                    |  |               |   |  |                              |      |          |           |   |                              |   |     
|Balance at 12/31/03 |  |              |   |  |                              |     |          | 2,216,526 |   |                              |   | 7.42
|                    |  |               |   | 
|Granted             |  | 466,640       |   |  |                              | 1.53 |          | 49,200    |   |                              |   | 7.42
|Canceled            |  | (109,250      | ) |  |                              | 1.51 |          | (147,236  | ) |                              |   | 7.42
|                    |  |               |   |  |                              |      |          |           |   |                              |   |     
|Balance at 12/31/04 |  | 357,390       |   |  | $                            | 1.54 |          | 2,118,490 |   |                              | $ | 7.42
|                    |  |               |   |  |                              |      |          |           |   |                              |   |     



The weighted average
fair value of stock option and warrants granted during the year ended

December 31, 2004 was $0.80 and $2.70, respectively. The weighted average fair value
for warrants

granted during the nine month period ended December 31, 2003 was $3.38.



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The following table summarizes additional information regarding the warrants and options

outstanding as of December 31, 2004:



|                         |  |                            |  |                                               |  |            
|------------------------ |  | -------------------------- |  | --------------------------------------------- |  | -----------
|Range of Exercise Prices |  | Number ofOptions &Warrants |  | Weighted Avg.RemainingContractual Life(years) |  | Exercisable
|$1.02 to $7.34           |  | 357,390                    |  | 9.5                                           |  |           
|$7.42                    |  | 2,168,490                  |  | 5.3                                           |  | 1,927,000  



The Company granted
835,160 and 3,627,923 shares of restricted Class A Common Stock during

the year ended December 31, 2004 and the nine months ended December 31, 2003. There
were

1,997,108 non-vested shares of restricted stock outstanding as of December 31, 2004.



The weighted average fair value per share of US Airways Group Class A Common Stock grants

was $1.87 and $7.42 in the year ended December 31, 2004 and the nine months ended December

31, 2003, respectively. In order to calculate the stock-based compensation for stock options and

warrants using the fair
value method provisions in SFAS 123, US Airways used the Black-Scholes

stock option pricing model with the following weighted-average assumptions:



|                        |  |                             |   |  |                                  |  
|----------------------- |  | --------------------------- | - |  | -------------------------------- | -
|                        |  | Successor Company           |  
|                        |  | Year EndedDecember 31, 2004 |   |  | Nine MonthsEndedDecember 31,2003 |  
|Stock volatility        |  | 65                          | % |  | 65                               | %
|Risk free interest rate |  | 2.9                         | % |  | 2.2                              | %
|Expected life           |  | 4 years                     |   |  | 3 years                          |  
|Dividend yield          |  |                            |   |  |                                 |  



US Airways recognized
compensation expense related to US Airways Group Class A Common

Stock, stock option and stock warrant grants to US Airways employees of $50 million and
$135

million for the year ended December 31, 2004 and the nine months ended December 31, 2003,

respectively.



The ultimate recovery, if any, to holders of US Airways Groups common stock will not be

determined until confirmation
of a plan of reorganization. The plan of reorganization could result

in holders of US Airways Groups common stock and related equity securities
receiving no

distribution on account of their interest and cancellation of the equity.



(b) Predecessor Company



The Predecessor Company accounted for deferred compensation and the related amortization by

applying the provisions of APB 25 and related interpretations. In accordance with APB 25, deferred

compensation related to grants of US Airways Group common stock to employees (Stock Grants)

was recognized based on the
fair market value of the stock on the date of grant. Except on limited

occasions, no deferred compensation was recognized when options to purchase US
Airways Group

common stock were granted to employees (Option Grants) because the exercise price of the stock

options was set equal to the fair market value of the underlying stock on the date of grant. Any

deferred compensation was amortized as Personnel costs over the applicable vesting period.



US Airways recognized expenses related to Stock Grants of $1 million, $3 million for the three

months ended March 31, 2003 and the year ended December 31, 2002. Deferred compensation

related to Stock Grants was $5 million as of December 31, 2002.



The weighted average fair value per stock option for stock options which had an exercise price



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equal to the fair market value of a share of US Airways Group common stock at the date of grant

was $3 for 2002. There were no such grants in the three months ended March 31, 2003. The

weighted average fair value per stock option for stock options that had an exercise price greater than

the fair market
value of a share of US Airways Group common stock was $3 for 2002. There were

no such grants in the three months ended March 31, 2003. There were no grants
of stock options

that had an exercise price lower than the fair market value of US Airways Group common stock

during the three months ended March 31, 2003 or the year ended December 31, 2002.



10. Stockholders Equity and Dividend Restrictions



(a) Common stock and dividend restrictions



US Airways Group owns all of US Airways outstanding common stock, par value $1 per share.

US Airways board of directors has not authorized the payment of dividends on the common stock

since 1988.



US Airways,
organized under the laws of the State of Delaware, is subject to Sections 160 and

170 of the Delaware General Corporation Law with respect to the payment
of dividends on or the

repurchase or redemption of its capital stock. US Airways is restricted from engaging in any of

these activities unless it maintains a capital surplus. In addition, US Airways may not pay dividends

in accordance with provisions contained in the ATSB Loan.



(b) Receivable from parent company



See Note 12(a).



(c)
Distributions to affiliate, net



In May 1999, US Airways
Group created USLM Corporation (USLM) to more efficiently

manage its postretirement medical, dental and life insurance benefits for employees who had
retired

or were eligible for retirement as of January 1, 1998 from US Airways. Effective July 1, 2002,

USLM Corporation merged into US Airways.



Prior to the merger, USLM paid a portion of the postretirement benefit liabilities on behalf of

US Airways. However, US Airways continued to record all postretirement benefit liabilities and

related expenses in its financial statements. In connection with this arrangement, US Airways had

notes payable of $558
million and $16 million, each bearing interest at 8.25%, to fund USLM

operations. During 2002, US Airways paid interest of $24 million to USLM of which $24
million

was used to reduce US Airways liabilities for this population of retirees.



11. Operating Segments and Related Disclosures



US Airways Group is managed as a single business unit that provides air transportation for

passengers and cargo. This allows it to benefit from an integrated revenue pricing and route

network that includes US Airways, Piedmont, PSA and third-party carriers that fly under capacity

purchase agreements as
part of US Airways Express. The flight equipment of all these carriers is

combined to form one fleet which is deployed through a single route scheduling
system. When

making resource allocation decisions, the chief operating decision maker evaluates flight

profitability data, which considers aircraft type and route economics, but gives no weight to the

financial impact of the resource allocation decision on an individual carrier basis. The objective in

making resource
allocation decisions is to maximize consolidated financial results, not the

individual results of US Airways, Piedmont and PSA.



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Information concerning operating revenues in principal geographic areas is as follows (in

millions):



|              |  |                              |       |                                     |   |                                   |  |                              |       |  |   |      
|------------- |  | ---------------------------- | ----- | ----------------------------------- | - | --------------------------------- |  | ---------------------------- | ----- |  | - | -----
|              |  | Successor Company            |       | Predecessor Company                
|              |  | Year Ended December 31, 2004 |       | Nine Months Ended December 31, 2003 |   | Three Months Ended March 31, 2003 |  | Year Ended December 31, 2002
|United States |  | $                            | 5,225 |                                     | $ | 4,456                             |  | $                            | 1,314 |  | $ | 6,003
|Foreign       |  |                              | 1,848 |                                     |   | 794                               |  |                              | 198   |  |   | 912  
|              |  |                              |       |                                     |   |                                   |  |                              |       |  |   |      
|Total         |  | $                            | 7,073 |                                     | $ | 5,250                             |  | $                            | 1,512 |  | $ | 6,915
|              |  |                              |       |                                     |   |                                   |  |                              |       |  |   |      



12. Related Party Transactions



(a) Parent company



US Airways provides funds to and receives dunds from US Airways Group
which arise in the

normal course of business and bear interest at market rates, which are reset quarterly. US Airways

had a net payable to US Airways Group of $52 million for the year ended December 31, 2004 and a

net receivable from US Airways Group for these loans of $1 million as of December 31, 2003.



US Airways recorded interest expense of $2 million for the year ended December 31, 2004,

interest income of $1 million for the three months ended March 31, 2003 and $9 million for the year

ended December 31, 2002
related to the above transactions. No interest income was recorded

for the nine months ended December 31, 2003.



(b) Airline subsidiaries of US Airways Group



US Airways purchases all of the capacity (available seat miles or
ASMs) generated by

US Airways Groups wholly owned regional airline subsidiaries at a rate per ASM that is

periodically determined by US Airways and, concurrently, recognizes revenues that result primarily

from passengers being carried by these affiliated companies. The rate per ASM that US Airways

pays is based on estimates of
the costs incurred to supply the capacity. US Airways recognized

US Airways Express capacity purchase expense of $472 million for the year ended December
31,

2004, $349 million for the nine months ended December 31, 2003, $112 million for the three

months ended March 31, 2003, and $559 million for the year ended December 31, 2002, related to

this program.



US Airways
provides various services to these regional airlines including passenger handling,

maintenance and catering. US Airways recognized other operating revenues
of $71 million for the

year ended December 31, 2004, $40 million for the nine months ended December 31, 2003, $12

million for the three months ended March 31, 2003, and $63 million related to these services for the

year ended December 31, 2002. These regional airlines also perform passenger and ground

handling for US Airways at certain
airports for which US Airways recognized other operating

expenses of $126 million for the year ended December 31, 2004, $55 million for the nine months

ended December 31, 2003, $15 million for the three months ended March 31, 2003, and $71 million

for the year ended December 31, 2002, related to these expenses. US Airways also leases or

subleases certain aircraft to these regional airline subsidiaries. US Airways recognized other

operating revenues related
to these arrangements of $55 million for the year ended December 31,

2004, $12 million for the nine months ended December 31, 2003, $2 million for the
three months

ended March 31, 2003, and $7 million for the year ended December 31, 2002.



US Airways receivables from and payables to these regional airlines were $16 million and $39

million, respectively, as of December 31, 2004 and $10 million and $48 million, respectively, as of

December 31, 2003.



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(c) Other US Airways Group subsidiaries



US Airways purchases a portion of its aviation fuel from US Airways
Groups wholly owned

subsidiary, Material Services Company, Inc. (MSC), which acts as a fuel wholesaler to US Airways

in certain circumstances. US Airways aviation fuel purchases from MSC were $34 million for the

year ended December 31, 2004, $9 million for the nine months ended December 31, 2003, $11

million for the three months
ended March 31, 2003, and $13 million for the year ended

December 31, 2002. US Airways payable to MSC was $4 million and $8 million as of

December 31, 2004 and 2003, respectively.



Effective July 1, 2000, the activities of a certain division of MSC were transferred into

US Airways and MSC began receiving a portion of its fuel inventory from US Airways. As a result,

US Airways
receivable from MSC was $12 million and $10 million as of December 31, 2004 and

2003, respectively.



(d) RSA



As of March 31, 2003, RSA held approximately 36.2%, on a fully-diluted basis, of US Airways

Groups equity, had a voting interest of approximately 71.6% and was entitled to designate and vote

to elect eight of 15 directors to Reorganized US Airways Groups Board of Directors. Total

amounts due to RSA at
December 31, 2004 and 2003 included $54 million and $73 million,

respectively, of the initial $100 million at-risk amounts under the ATSB Loan. Interest
expense on

RSAs portion of the ATSB Loan was $5 million with interest payments of $5 million for the year

ended December 31, 2004. Interest expense on RSAs portion of the ATSB Loan was $3 million

with interest payments of $2 million for the nine months ended December 31, 2003. See also Notes

2(b) and 4 for additional
information with regard to the terms of RSAs investment in US Airways

Group and the ATSB Loan.



13. Fresh-start Reporting



In connection with its emergence from the Prior Bankruptcy on March 31,
2003, US Airways

adopted fresh-start reporting in accordance with SOP 90-7. Accordingly, the Company valued its

assets, liabilities and equity at fair value. The excess of the reorganization value over tangible

assets and identifiable intangible assets has been reflected as Goodwill on the Balance Sheet.

Estimates of fair value
represent the Companys best estimate based on independent appraisals and

valuations and, where the foregoing are not available, industry trends and
by reference to market

rates and transactions. US Airways Groups equity value of $438 million at March 31, 2003 was

determined with the assistance of financial advisors. In determining the equity value, the financial

advisors and US Airways Group considered several matters, including the following: (i) certain

recent financial information
of US Airways Group; (ii) certain financial projections prepared by

US Airways Group in connection with the ATSB Loan and RSA Investment Agreement
including

the underlying assumptions; (iii) the equity transactions encompassed by the RSA Investment

Agreement; (iv) a discounted cash flow analysis prepared on a going concern basis; (v) current and

historical market values of publicly traded companies that are in businesses reasonably comparable

to US Airways Group and
(vi) certain additional economic and industry conditions. The

Companys equity value of $349 million was determined based on a review of each of US
Airways

Groups subsidiaries fair value of assets and liabilities. The Company received third party

appraisals for certain assets and liabilities subsequent to March 31, 2003. Changes in the fair value

of these assets and liabilities from the previously estimated values had an impact on the reported

value of Goodwill.
During the three months ended March 31, 2004, the Company increased

goodwill and other accrued expenses by $15 million related to the valuation of the
Companys

deferred tax liabilities.



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14. Valuation and Qualifying Accounts and Reserves (in millions)



|                                                       |  |                            |     |                           |   |    |          |  |   |                              |   |  |                                  |     |   |       |   |     |                      |  |   |      |      |  |   |    
|------------------------------------------------------ |  | -------------------------- | --- | ------------------------- | - | -- | -------- |  | - | ---------------------------- | - |  | -------------------------------- | --- | - | ----- | - | --- | -------------------- |  | - | ---- | ---- |  | - | ---
|                                                       |  | Balance atbeginningof year |     | Additionschargedtoexpense |   |    | Payments |  |   | Write-offs(net ofrecoveries) |   |  | Sales, retire- mentsandtransfers |     |   | Other |   |     | Balanceat endof year
|Year ended December 31, 2004                           |  |                            |     |                           |   |    |          |  |   |                              |   |  |                                  |     |   |       |   |     |                      |  |   |      |      |  |   |    
|Allowance for obsolescenceof inventories               |  | $                          | 5   |                           | $ | 8  |          |  | $ |                             |   |  | $                                |    |   |       | $ |    |                      |  | $ |     |      |  | $ | 13 
|Allowance for uncollectibleaccounts                    |  |                            | 17  |                           |   | 7  |          |  |   |                             |   |  |                                  | (2  | ) |       |   |    |                      |  |   |     |      |  |   | 22 
|Reserves for workforcereduction (a)                    |  |                            | 10  |                           |   | 5  |          |  |   | (6                           | ) |  |                                  |    |   |       |   |    |                      |  |   |     |      |  |   | 9  
|Nine months endedDecember 31, 2003                     |  |                            |     |                           |   |    |          |  |   |                              |   |  |                                  |     |   |       |   |     |                      |  |   |      |      |  |   |    
|Allowance for obsolescenceof inventories               |  |                            |    |                           |   | 5  |          |  |   |                             |   |  |                                  |    |   |       |   |    |                      |  |   |     |      |  |   | 5  
|Allowance for uncollectibleaccounts                    |  |                            | 18  |                           |   | 6  |          |  |   |                             |   |  |                                  | (7  | ) |       |   |    |                      |  |   |     |      |  |   | 17 
|Reserves for workforcereduction (a)                    |  |                            | 46  |                           |   | 3  |          |  |   | (39                          | ) |  |                                  |    |   |       |   |    |                      |  |   |     |      |  |   | 10 
|                                                       |  |                            |     |                           |   |    |         
|Three months endedMarch 31, 2003                       |  |                            |     |                           |   |    |          |  |   |                              |   |  |                                  |     |   |       |   |     |                      |  |   |      |      |  |   |    
|Allowance for obsolescenceof inventories               |  |                            | 104 |                           |   | 2  |          |  |   |                             |   |  |                                  |    |   |       |   |    |                      |  |   | (106 | )(b) |  |   |   
|Allowance for uncollectibleaccounts                    |  |                            | 17  |                           |   | 2  |          |  |   |                             |   |  |                                  | (1  | ) |       |   |    |                      |  |   |     |      |  |   | 18 
|Reserves for workforcereduction (a)                    |  |                            | 78  |                           |   |   |          |  |   | (32                          | ) |  |                                  |    |   |       |   |    |                      |  |   |     |      |  |   | 46 
|Reserves for future rentpayments - parked aircraft (a) |  |                            | 68  |                           |   |   |          |  |   |                             |   |  |                                  |    |   |       |   |    |                      |  |   | (68  | )    |  |   |   
|                                                       |  |                            |     |                           |   |    |         
|Year ended December 31, 2002                           |  |                            |     |                           |   |    |          |  |   |                              |   |  |                                  |     |   |       |   |     |                      |  |   |      |      |  |   |    
|Allowance for obsolescenceof inventories               |  |                            | 201 |                           |   | (1 | )        |  |   |                             |   |  |                                  | (6  | ) |       |   | (90 | )                    |  |   |     |      |  |   | 104
|Allowance for uncollectibleaccounts                    |  |                            | 21  |                           |   | 8  |          |  |   |                             |   |  |                                  | (12 | ) |       |   |    |                      |  |   |     |      |  |   | 17 
|Reserves for workforcereduction (a)                    |  |                            | 52  |                           |   | 89 |          |  |   | (59                          | ) |  |                                  |    |   |       |   |    |                      |  |   | (4   | )    |  |   | 78 
|Reserves for future rentpayments - parked aircraft (a) |  |                            | 70  |                           |   |   |          |  |   | (6                           | ) |  |                                  |    |   |       |   |    |                      |  |   | 4    |      |  |   | 68 

---

|(a) | See also Note 16.
|--- | -----------------

|(b) | Allowance for obsolescence of inventories eliminated upon adoption of fresh-start reporting. See also Note 13.
|--- | --------------------------------------------------------------------------------------------------------------



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15. Selected Quarterly Financial Information (in millions) (Unaudited)



|                        |  |                    |       |   |                   |   |               |  |   |                |   |  |   |       |  
|----------------------- |  | ------------------ | ----- | - | ----------------- | - | ------------- |  | - | -------------- | - |  | - | ----- | -
|                        |  | Successor Company  |      
|                        |  | First Quarter      |       |   | Second Quarter    |   | Third Quarter |  |   | Fourth Quarter |  
|2004                    |  |                    |       |   |                   |   |               |  |   |                |   |  |   |       |  
|Operating Revenues      |  | $                  | 1,684 |   |                   | $ | 1,947         |  | $ | 1,788          |   |  | $ | 1,654 |  
|Operating Income (Loss) |  | $                  | (146  | ) |                   | $ | 85            |  | $ | (158           | ) |  | $ | (128  | )
|Net Income (Loss)       |  | $                  | (181  | ) |                   | $ | 35            |  | $ | (214           | ) |  | $ | (218  | )
|                        |  |                   
|                        |  | PredecessorCompany |       |   | Successor Company |  
|2003                    |  |                    |       |   |                   |   |               |  |   |                |   |  |   |       |  
|Operating Revenues      |  | $                  | 1,512 |   |                   | $ | 1,760         |  | $ | 1,749          |   |  | $ | 1,741 |  
|Operating Income (Loss) |  | $                  | (202  | ) |                   | $ | 68            |  | $ | (37            | ) |  | $ | (73   | )
|Net Income (Loss)       |  | $                  | 1,613 |   |                   | $ | 16            |  | $ | (88            | ) |  | $ | (89   | )



The comparability of
quarterly results in 2003 was impacted by the emergence from the Prior

Bankruptcy in March 2003 and certain other unusual events. See also Note 16. The sum
of the four

quarters may not equal the totals for the year due to rounding.



16. Unusual Items



(a) Special Items



Special items included within the Companys Statements of Operations include the following

components (dollars in millions):



|                                                |  |                                     |    |      |                             |   |     |     
|----------------------------------------------- |  | ----------------------------------- | -- | ---- | --------------------------- | - | --- | ----
|                                                |  | Successor Company                   |    |      | Predecessor Company         |  
|                                                |  | Nine Months Ended December 31, 2003 |    |      | Year EndedDecember 31, 2002 |  
|Aircraft order cancellation penalty             |  | $                                   | 35 | (a)  |                             | $ |    |     
|Aircraft impairments and related charges        |  |                                     |   |      |                             |   | 392 | (b) 
|Pension and postretirement benefit curtailments |  |                                     |   |      |                             |   | (90 | )(c)
|Employee severance including benefits           |  |                                     | (1 | )(d) |                             |   | (3  | )(d)
|Other                                           |  |                                     |   |      |                             |   | 21  | (e) 
|                                                |  |                                     |    |      |                             |   |     |     
|                                                |  | $                                   | 34 |      |                             | $ | 320 |     
|                                                |  |                                     |    |      |                             |   |     |     

---

|(a) | During the quarter ended June 30, 2003, the Company recorded a $35 million charge in connection with its
|--- | --------------------------------------------------------------------------------------------------------

intention not to take delivery of certain aircraft scheduled for future delivery.

|(b) | During the fourth quarter of 2002, US Airways conducted an impairment analysis in accordance with Statement
|--- | -----------------------------------------------------------------------------------------------------------

of SFAS 144 on its B737-300, B737-400, B757-200 and B767-200 aircraft fleets as a result of changes to the

aircrafts recoverability periods (the planned conversion of owned aircraft to leased aircraft) as well as

indications of possible material changes to the market values of these aircraft. The analysis revealed that

estimated undiscounted future cash flows generated by these aircraft were less than their carrying values for four

B737-300s, 15 B737-400s, 21 B757-200s and three B767-200s. In accordance with SFAS 144, the carrying

values were reduced to fair market value. This analysis resulted in a pretax charge of $392 million.

Management estimated fair market value using third-party appraisals and recent leasing transactions.

|(c) | During the fourth quarter of 2002, US Airways recorded a curtailment credit of $120 million related to certain
|--- | --------------------------------------------------------------------------------------------------------------

postretirement benefit plans and a $30 million curtailment charge related to certain defined benefit pension

plans.

|(d) | In September 2001, US Airways announced that in connection with its reduced flight schedule it would
|--- | ----------------------------------------------------------------------------------------------------

terminate or furlough approximately 11,000 employees across all employee groups. Approximately 10,200 of

the affected employees were terminated or furloughed on or prior to January 1, 2002. Substantially all the



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remaining affected employees were terminated or furloughed by May 2002. US Airways headcount
reduction

was largely accomplished through involuntary terminations/furloughs. In connection with this headcount

reduction, US Airways offered a voluntary leave program to certain employee groups. Voluntary leave program

participants generally received extended benefits (e.g. medical, dental, life insurance) but did not receive any

furlough pay benefit. In accordance with Emerging Issues Task Force Issue No. 94-3, US Airways recorded a

pretax charge of $75 million representing the involuntary severance pay and the benefits for affected employees

during the third quarter of 2001. In the fourth quarter of 2001, US Airways recognized a $10 million charge

representing the estimated costs of extended benefits for those employees who elected to take voluntary leave

and a $2 million reduction in accruals related to the involuntary severance as a result of employees electing to

accept voluntary furlough. During the quarters ended June 30, 2003 and 2002, the Company recognized $1

million and $3 million, respectively, in reductions to severance pay and benefit accruals related to the

involuntary termination or furlough of certain employees.

|(e) | During the fourth quarter of 2002, US Airways recognized an impairment charge of $21 million related to
|--- | -------------------------------------------------------------------------------------------------------

capitalized gates at certain airports in accordance with SFAS 142. The carrying values of the affected gates were

reduced to fair value based on a third party appraisal.



(b) Government Compensation



In April 2003, President George W. Bush signed into law the Emergency Wartime Supplemental

Appropriations Act (Emergency Wartime Act), which included $2.4 billion for reimbursement to

the airlines for certain
aviation-related security expenses. Certain airlines that received the aviation-

related assistance were required to agree to limit the total cash
compensation for certain executive

officers during the 12-month period beginning April 1, 2003 to an amount equal to the annual salary

paid to that officer during the air carriers fiscal year 2002. Any violation of this agreement would

require the carrier to repay to the government the amount reimbursed for airline security fees. The

Company complied with
this limitation on executive compensation. The Companys security fee

reimbursement was $212 million, net of amounts due to certain affiliates, and
was recorded as a

reduction to operating expenses during the second quarter of 2003. In September 2003, the

Company received approximately $6 million of compensation associated with flight deck door

expenditures which was recorded as an offset to capital costs.



(c) Gain on Sale of Hotwire, Inc.



During the fourth quarter of 2003, US Airways recorded a $30 million gain on the sale of its

investment in Hotwire, Inc.
The gain is reflected in Other, net on the Companys Statement of

Operations.



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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial

Disclosure



None.



Item 9A. Controls and Procedures



Section 404 of the Sarbanes-Oxley Act of 2002 requires management to include in this Annual

Report on Form 10-K a report on managements
assessment of the effectiveness of the Companys

internal control over financial reporting, as well as an attestation report from the Companys

independent registered public accounting firm on managements assessment of the effectiveness of

the Companys internal control over financial reporting. Managements annual report on internal

control over financial reporting and the related attestation report from the Companys independent

registered public
accounting firm are located in Item 8. Financial Statements of US Airways and are

incorporated herein by reference.



Disclosure Controls and Procedures



The Company maintains a set of disclosure controls and procedures designed
to ensure that

information required to be disclosed by the Company in reports it files or submits under the

Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized

and reported within the time periods specified in the Securities and Exchange Commissions rules

and forms. An
evaluation was performed under the supervision and with the participation of the

Companys management, including the Chief Executive Officer (CEO) and
Chief Financial Officer

(CFO), of the effectiveness of the design and operation of the Companys disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2004.

Based on that evaluation, the Companys CEO and CFO have concluded that the Companys

disclosure controls and
procedures were effective as of such date.



Changes in
Internal Control over Financial Reporting



There have been
no changes in the Companys internal control over financial reporting during

the quarter ended December 31, 2004 that have materially affected or are
reasonably likely to

materially affect the Companys internal control over financial reporting.



Item 9B. Other Information



None.



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##### Table of Contents

Part III



Item 10. Directors and Executive Officers of US Airways



Introduction



On August 11, 2002, US Airways
Group and seven of its domestic subsidiaries, which accounted

for substantially all of US Airways Groups operations, including US Airways
Groups principal

operating subsidiary US Airways, filed voluntary petitions for relief under Chapter 11 of the United

States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia,

Alexandria Division. US Airways Group emerged from bankruptcy protection under the First

Amended Joint Plan of
Reorganization of US Airways Group, Inc. and Affiliated Debtors and

Debtors-in-Possession, as modified (the 2003 Plan) on March 31, 2003, which was
confirmed

pursuant to the Bankruptcy Courts confirmation order on March 18, 2003 and, after each of the

conditions precedent to consummation was satisfied or waived, became effective on March 31, 2003.



In connection with the consummation of the 2003 Plan on March 31, 2003, Retirement Systems of

Alabama Holdings LLC (RSA) made an equity investment in US Airways Group in the amount of

$240 million. In exchange for its $240 million investment, RSA received 20,652,593 shares of Class

A Common Stock,
5,000,000 shares of Class B Common Stock, 75,000 shares of Class B Preferred

Stock, 1,380,570 Class A-1 Warrants and 1,380,570 shares of Class A Preferred
Stock, representing

approximately 36.2%, on a fully-diluted basis, of US Airways Groups equity and approximately

71.6% of US Airways Groups outstanding voting interests. RSA is the sole holder of US Airways

Groups Class B Common Stock and Class B Preferred Stock.



At the time the 2003 Plan became effective, RSA was entitled, pursuant to the terms of its

investment agreement, to
designate eight of the 15 members of US Airways Groups Board of

Directors. RSA is also entitled, until September 26, 2007 and as long as it retains
at least 50% of the

shares of Class A Common Stock acquired pursuant to its investment, to nominate eight directors for

election to the Board. The investment agreement further provides that the remaining nominees for

director must consist of US Airways Groups chief executive officer and two individuals who are not

employees or
affiliates of US Airways Group or RSA, as well as the four directors elected by the Class

C Preferred Stock, as described below. Until September 26, 2007,
RSA has agreed to vote all of its

shares of voting capital stock received in connection with the consummation of the 2003 Plan in favor

of all of the directors nominated in accordance with the investment agreement at each annual meeting

of US Airways Groups stockholders or at any meeting of US Airways Groups stockholders at which

members of its
Board of Directors are to be elected. Of the 15 directors of US Airways Group, ten

serve as directors of US Airways.



On September 12, 2004, US Airways, along with US Airways Group and its other
domestic

subsidiaries, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code

in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division.

US Airways does not know what the Board structure will be upon consummation of a new plan of

reorganization. As a result of
the Chapter 11 filings, the current Board structure may change.



Board of
Directors



The Board of Directors of US Airways
currently consists of ten members, each of whom is also a

director of US Airways Group. The directors are elected by US Airways Group, the sole stockholder

of US Airways. Directors are elected to hold office for one year or until the election and qualification

of their successors. There are no family relationships among the directors or the executive officers.



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Information Regarding Directors



Set forth below is certain information as of February 1, 2005, regarding the Companys directors,

including their ages and principal occupations (which have continued for at least the past five years

unless otherwise noted).



|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                       
|------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Served asdirectorsince
|David G. Bronner, 60     |  | Dr. Bronner has been the Chief Executive Officer of Retirement Systems of Alabama since 1973. He serves as Executive Director of the Public Education Employees Health Insurance, and is a
member of the State Employees Insurance Board. He is a member of the Editorial Board, Southern Business & Economics Journal, Auburn University at Montgomery, a member of the Board of Visitors, University of
Alabama School of Business, New Water Corporation and Children First. Dr. Bronner has been Chairman of US Airways Groups and US Airways Board of Directors since April 2003 and is a member of the Strategy
and Finance Committee of the Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                |  | 2003                  
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Robert L. Johnson, 58    |  | Mr. Johnson has served the Chief Executive Officer of BET Holdings, Inc., a subsidiary of Viacom Inc. (media-entertainment holding company) from 1980 to the present. Mr. Johnson also serves as a
Director of the Hilton Hotels Corporation, the American Film Institute, Johns Hopkins University, Strayer Education, Jazz @ Lincoln Center and Lowes Companies. He is a member of the Audit and Strategy and Finance Committees of the Board of Directors. He is also a director of US Airways Group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | 1998                  
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Cheryl G. Krongard, 49   |  | Ms. Krongard retired in 2004 as a Senior Partner of Apollo Management, L.P. Ms. Krongard was the Chief Executive Officer of Rothschild Asset Management from 1994 to April 15, 2000. She served as
Senior Managing Director for Rothschild North America from 1994 until 2000. She serves on the board of directors of the Iowa State University Foundation and is a lifetime governor elected in 1997. She is also
chairperson of the Investment Committee for the Iowa State University Foundation. Ms. Krongard is also a member of the Deans Advisory Council, Iowa State University College of Business, and a Trustee of the Mount Sinai Medical Center. Ms. Krongard also serves as a Director of the City Meals on Wheels and Educate, Inc.,
a publicly traded company engaged in tutoring and learning (formerly Sylvan Learning). Ms. Krongard is Chairman of the Corporate Governance and Nominating and Strategy and Finance Committees and a
member of the Human Resources Committee of the Board of Directors. She is also a director of US Airways Group. |  | 2003                  
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Bruce R. Lakefield, 61   |  | Mr. Lakefield is the President and Chief Executive Officer and a director of US Airways Group and US Airways. Mr. Lakefield served as Chairman and Chief Executive Officer of Lehman Brothers
International from 1995 until 1999. He has served as a Senior Advisor to the Investment Policy Committee of HGK Asset Management since 2000. Mr. Lakefield serves as a Non-Executive Director of Constellation Corporation
PLC and a member of the Board of Directors of Magic Media, Inc. He is a member of the Strategy and Finance Committee of the Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | 2003                  
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|John A. McKenna, Jr., 37 |  | Mr. McKenna has served as Director and Managing Director of Houlihan Lokey Howard & Zukin, Inc. since 1999. He served as Vice President of Wasserstein Perella & Co. during 1998 and
1999. Prior to 1998, he served in various capacities at Houlihan Lokey Howard & Zukin, Inc. Mr. McKenna has been a Panelist on restructuring and investment banking topics                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | 2003                  



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|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                       
|---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | Served asdirectorsince
|                       |  | before the World Bank and the American Bankruptcy Institute. He is a member of the Audit and Strategy and Finance Committees of the Board of Directors. He is also a director of US Airways
Group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                       
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Hans Mirka, 68         |  | Mr. Mirka served as Senior Vice President, International Division for American Airlines, Inc. from 1992 until his retirement in 1998. He also served as Executive Vice President and General
Manager for Pan American World Airways, Inc. from 1984 until 1989 and Vice President, Field Sales and Services for Continental Airlines until 1984. He is Chairman of the Human
Resources Committee and a member of the Strategy and Finance Committee of the Board of Directors. He is also a director of US Airways Group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | 2003                  
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|George M. Philip, 57   |  | Mr. Philip has served as the Executive Director of the New York State Teachers Retirement System since 1995. He has also served as Chief Investment Officer of the New York State
Teachers Retirement System since 1992. Mr. Philip served as the Assistant Executive Director of the New York State Teachers Retirement System from 1992-1995 and as Chief Real Estate Investment Officer from 1988-1992. Mr. Philip has served in various positions with the New York State Teachers Retirement System from
1971. Mr. Philip is the past President of the Executive Committee of the National Council on Teacher Retirement. Mr. Philip also serves as Chair of the University of Albany Council, the St. Peters
Hospital Board of Directors, the Catholic Health East Investment Committee, and the St. Peters Hospital Investment Committee. Mr. Philip is a member of the Board of Directors of the
Saratoga Performing Arts, the NYSE Pension Managers Advisory Committee and the State Academy of Public Administration. Mr. Philip is Chairman of the Audit Committee and a member of the Human Resources Committee
of the Board of Directors. He is also a director of US Airways Group. |  | 2004                  
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|William D. Pollock, 48 |  | Capt. Pollock is Chairman of the US Airways Air Line Pilots Association (ALPA) Master Executive Council. An 19-year veteran of US Airways, he holds a captain position on the A320. His previous
ALPA experience includes serving as MEC Vice Chairman for three years and MEC Legislative Affairs Committee Chairman for more than 12 years. As a veteran pilot for US Airways, Pollock has flown the
F-100 and B-737. In the Navy, he served 21 years of combined active and reserve service and flew the P-3 Orion. He is also a director of US Airways Group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | 2002                  
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Ronald E. Stanley, 57  |  | Mr. Stanley is the current Executive Vice President and Chief Financial Officer of US Airways Group and US Airways, which position he has served since October 2004. Mr. Stanley has served as a
Director of Scholefield, Turnbull & Partners, a business travel consulting firm based in London, England since 2000. Mr. Stanley served as Chief Operating Officer and a member of the Executive Committee and Board of Directors of HSBC Equator from 2000 until 2002. Mr. Stanley also serves as a director of
Decatour Foundry, Inc., a private company. He served as Senior Vice President & General Manager of Royal Bank of Canada (RBC) Group, Chairman and CEO of Royal Bank of Canada Europe Limited and a
member of the Executive Committee of RBC Dominion Securities from 1995 to 1999. He is also a director of US Airways Group.                                                                                                                                                                                                                                                                                                                                                         |  | 2004                  



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|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                       
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Served asdirectorsince
|William T. Stephens, 61 |  | Mr. Stephens has served as General Counsel of the Retirement Systems of Alabama since 2000, and previously from 1980 to 1998. From 1998 to 2000, Mr. Stephens served as Deputy Director resident in
the Montgomery, Alabama headquarters of Retirement Systems of Alabama. Mr. Stephens is a Director of New Water Street Corporation, a director of the American Village Citizenship Trust, and a member of the Alumni
Advisory Council, Auburn University School of Engineering. He is a member of the Strategy and Finance Committee of the Board of Directors. He is also a director of US Airways Group. |  | 2003                  



Audit Committee and Audit Committee
Financial Expert



The Audit Committee of the Board
of Directors, in consultation with the Companys financial

officers and the Companys independent auditors, assists in establishing the scope of
the annual

audit. The Audit Committee (1) reviews annual and quarterly financial statements and periodic

reports filed with the Securities and Exchange Commission (SEC), (2) appoints, ensures the

independence of, and oversees the performance of the Companys independent auditors, (3) reviews

the annual programs
of the internal audit staff and (4) reviews programs designed to protect and

maintain the Companys assets, including insurance, internal controls and
internal security

programs. The Audit Committee has been established in accordance with Section 3(a)(58)(A) of

the Securities Exchange Act of 1934, as amended (the Exchange Act). The Audit Committee

operates under a charter approved by the Board of Directors. The charter is posted on the

Companys website at
www.usairways.com. The Audit Committee is composed of Messrs. Philip,

Johnson and McKenna, and Mr. Philip is the Chairman of the Committee. The
Board has

determined that Mr. Philip is the audit committee financial expert currently serving on the Audit

Committee and that Mr. Philip is independent as defined in NASDAQ listing standards.



Information Regarding Executive Officers



The following individuals are the executive officers of US Airways and US Airways Group

(where noted) as of February 1, 2005:



|                       |  |     |  |                                                                                                             
|---------------------- |  | --- |  | ------------------------------------------------------------------------------------------------------------
|Name                   |  | Age |  | Position                                                                                                    
|Bruce R. Lakefield     |  | 61  |  | President and Chief Executive Officer, US Airways Group and US Airways                                      
|Ronald E. Stanley      |  | 57  |  | Executive Vice President and Chief Financial Officer, US Airways Group and US Airways                       
|N. Bruce Ashby         |  | 44  |  | Executive Vice President  Marketing and Planning of US Airways and President  US Airways Express          
|Alan W. Crellin        |  | 58  |  | Executive Vice President  Operations, US Airways                                                           
|Elizabeth K. Lanier    |  | 53  |  | Executive Vice President  Corporate Affairs, General Counsel and Secretary, US Airways Group and US Airways
|Anita P. Beier         |  | 49  |  | Senior Vice President  Finance and Controller, US Airways Group and US Airways                             
|Christopher L. Chiames |  | 45  |  | Senior Vice President  Corporate Affairs of US Airways                                                     
|Jerrold A. Glass       |  | 50  |  | Senior Vice President  Employee Relations of US Airways                                                    
|Andrew P. Nocella      |  | 35  |  | Senior Vice President  Planning of US Airways                                                              
|John Prestifilippo     |  | 47  |  | Senior Vice President  Maintenance of US Airways                                                           



Mr. Ashby joined US
Airways as Vice President  Financial Planning and Analysis from April

1996 until his election as Senior Vice President  Planning of US Airways
in January 1998. In June

1999, Mr. Ashby was elected Senior Vice President  Corporate Development of US Airways



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##### Table of Contents

Group and US Airways. Mr. Ashby served as Senior Vice President  Alliances of US Airways

Group and US Airways and President  US Airways Express from March 2003 to January 2005. In

January 2005, Mr. Ashby was elected Executive Vice President  Marketing and Planning and will

continue as President
 US Airways Express. He previously served as Vice President  Marketing

Development at Delta Air Lines from June 1995 to April 1996, and in
several management

positions at United from January 1989 to June 1995, including Vice President  Financial Planning

and Analysis and Vice President and Treasurer.



Mr. Crellin joined US Airways in 1988 as a result of the acquisition of Pacific Southwest

Airlines. He was promoted to serve as Vice President  Ground Services of US Airways in 1995.

Mr. Crellin served as
Senior Vice President  Customer Service of US Airways from 2000 until his

election as Executive Vice President  Operations in January 2002.
Prior to joining US Airways,

Mr. Crellin held a variety of management positions with Pacific Southwest Airlines from 1971 to

1988, including Vice President  Customer Service.



Ms. Lanier joined US Airways Group and US Airways in March 2003 as Executive Vice

President  Corporate Affairs and General Counsel, and was appointed as Secretary of US Airways

Group and US Airways
in January 2004. Previously, Ms. Lanier was Senior Vice President 

General Counsel for Trizec Properties, Inc. from April to December 2002, and prior
to that, Vice

President  General Counsel for General Electric Power Systems from 1998 to 2002, and Vice

President and Chief of Staff for Cinergy Corporation from 1996 to 1998. Ms. Lanier has been a

member of the board of directors of Patina Oil & Gas Corporation since 1998. She serves as a

member of the audit
committee and chair of the corporate governance and nominating committee of

Patina. Ms. Lanier was associated with Davis Polk & Wardwell and was an
associate and partner of

Frost & Jacobs, now Frost Brown Todd, LLC.



Ms. Beier joined US Airways in June 1999 from CSX Corporation as Vice President  Finance

and Controller. In May 2004, Ms. Beier was promoted to Senior Vice President  Finance and

Controller, and she is responsible for the management of all accounting functions for US Airways

Group and its subsidiaries
and for monitoring the Companys restructuring. At CSX Corporation,

Ms. Beier held a number of positions in financial management, including Vice
President  Financial

Planning. Prior to being named Vice PresidentFinancial Planning at CSX Corporation in

September 1998, Ms. Beier was Chief Financial Officer of American Commercial Lines in 1997-

1998. Ms. Beier served in a variety of financial positions in economic and financial analysis,

budgeting and accounting at
CSX Corporation from 1981 to 1997.



Mr. Chiames joined US
Airways in May 2002 as Senior Vice President  Corporate Affairs. Mr.

Chiames is responsible for US Airways government relations and corporate
communications

functions. Mr. Chiames has almost 15 years of airline industry experience, including leadership of

Burson-Marstellers transportation and tourism public affairs practice from 2001 to 2002 and

Managing Director of Public Relations at American Airlines, Inc. from 1996 to 2001.



Mr. Glass joined US Airways in April 2002 as Senior Vice President  Employee Relations and

is a recognized expert in airline and railroad labor and employee relations issues. Mr. Glass joined

US Airways from J. Glass and Associates, of which he was the founder and where he served as

President from 1989 until April
2002. At US Airways, he is responsible for labor relations, human

resources policy and development, compensation, corporate learning and development,
recruiting

and benefits.



Mr. Nocella joined US Airways in April 2002 as Vice President  Planning and Scheduling. He

served as Vice President  Revenue Management and Pricing of US Airways from December 2002

to June 2003. Mr. Nocella served as Vice President  Network and Revenue Management from

June 2003 until his election
as Senior Vice President  Planning in January 2005. At US Airways,

he is responsible for route planning, scheduling, pricing and yield management
functions. Prior to

joining US Airways, Mr. Nocella served as Vice President, Planning and Scheduling of America



103



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##### Table of Contents

West Airlines from April 1997 to April 2002, and in several management positions at Continental

Airlines from December 1993 to March 1997.



Mr. Prestifilippo joined US Airways in August 2002 as Senior Vice President  Maintenance.

With nearly 20 years of airline maintenance management experience, Mr. Prestifilippo previously

held the position of Vice President  Technical Services and Operations for Continental Express

Airlines from 1986 to
2001 and other senior-level management positions for Continental Express

and Continental Airlines.



Section 16(a) Beneficial Ownership Reporting Compliance



Because US Airways does not have a class of equity securities registered
pursuant to Section 12 of

the Exchange Act, no reports are required to be filed under Section 16(a) of the Exchange Act.



Code of Ethics



The Company has a code of ethics that applies to all employees, officers, directors and agents of

US Airways Group and its wholly owned subsidiaries, including its principal executive officer,

principal financial officer and principal accounting officer. A copy of this code, the Business Conduct

and Ethics
Policy, is available on the Companys website at usairways.com (under the About

US Airways - Investor Relations caption). The
Company intends to disclose any changes in or

waivers from its code of ethics by posting such information on its website or by filing a Report on

Form 8-K.



Item 11. Executive Compensation



Compensation
of Directors



Because all US Airways directors are also
members of the Board of Directors of US Airways

Group, the directors do not receive any additional compensation for serving on the Board of Directors

of US Airways.



Compensation of Executive Officers



The following Summary Compensation Table sets forth the total compensation paid for the fiscal

years ended December 31,
2004, 2003 and 2002 to the individuals who served as Chief Executive

Officer of US Airways Group and US Airways during the 2004 fiscal year, each of the
four other most

highly compensated executive officers who were serving as executive officers as of December 31,

2004 of US Airways Group, US Airways or any other subsidiary of US Airways Group and one

additional individual for whom disclosures would have been provided but who was not serving as an

executive officer as of
December 31, 2004 of US Airways Group, US Airways or any other subsidiary

of US Airways Group (collectively referred to as the named executive
officers).



The amounts shown in the table below for
Restricted Stock Awards reflect amounts granted by

US Airways Group since US Airways Group and its subsidiaries emerged from the prior Chapter 11

reorganization on March 31, 2003. The ultimate recovery, if any, to holders of US Airways Groups

common stock will not be determined until confirmation of a plan of reorganization. The plan of

reorganization could result in holders of US Airways Groups common stock and related equity

securities receiving no
distribution on account of their interest and cancellation of the equity. The

named executive officers also had previous restricted stock awards granted by
US Airways Groups

predecessor company, but these shares were cancelled as a part of the 2003 Plan and the named

executive officers received no consideration for this cancellation. The prior awards are described in

the footnotes to the table.



104



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##### Table of Contents

Summary Compensation Table



|                                                                                           |  |              |  |                     |                       |           |                        |                          |  |     |                           |              |  |                                          |                |          |                            |                  |          |  |     |                       
|------------------------------------------------------------------------------------------ |  | ------------ |  | ------------------- | --------------------- | --------- | ---------------------- | ------------------------ |  | --- | ------------------------- | ------------ |  | ---------------------------------------- | -------------- | -------- | -------------------------- | ---------------- | -------- |  | --- | ----------------------
|                                                                                           |  |              |  | Annual Compensation |                       |           | Long-Term Compensation |                          |  |    
|Name and Principal Position
(1)                                                            |  | Year         |  | Salary              |                       | Bonus (2) |                        | Other AnnualCompensation |  |     | RestrictedStockAwards (3) |              |  | SecuritiesUnderlyingOptions/Warrants (#) |                |          | All OtherCompensation (19)
|Bruce R. LakefieldPresident andChief Executive Officer                                     |  | 200420032002 |  | $                   | 286,058             |           |                        |                       |  | $$  | 81,36977,399             | (4)(4)       |  | $$                                       | 687,95210,000 | (11)(11) |                            | 288,8005,000    | (18)(18) |  | $   | 46,882              
|                                                                                           |  |              |  |                     |                       |           |                       
|Alan W. CrellinExecutive VicePresidentOperations                                          |  | 200420032002 |  | $$$                 | 346,928352,750392,962 |           | $$                     | 72,915 102,081          |  | $$$ | 219,940227,36819,116      | (5)(5)(5)    |  | $                                        | 1,469,530    | (12)(12) |                            |   111,60025,000 | (18)(18) |  | $$$ | 354,550376,25675,375  
|                                                                                           |  |              |  |                     |                       |           |                       
|Elizabeth K. LanierExecutive Vice PresidentCorporate Affairs,General Counsel andSecretary |  | 200420032002 |  | $$                  | 345,966284,914       |           | $                      | 250,000                |  | $$  | 183,178184,492           | (6)(6)       |  | $                                        | 1,382,856    | (13)     |                            |   111,600      | (18)     |  | $$  | 249,732267,266       
|                                                                                           |  |              |  |                     |                       |           |                       
|Jerrold A. GlassSenior Vice PresidentEmployee Relations                                   |  | 200420032002 |  | $$$                 | 313,405319,550248,769 |           | $                      | 192,500                |  | $$$ | 169,581181,1744,887       | (7)(7)(7)    |  | $                                        | 1,382,856    | (14)(14) |                            | 111,600100,000  | (18)(18) |  | $$$ | 239,379270,02332,673  
|                                                                                           |  |              |  |                     |                       |           |                       
|B. Ben BaldanzaFormer Senior VicePresidentMarketing andPlanning                           |  | 200420032002 |  | $$$                 | 347,246352,750397,212 |           |                        |                       |  | $$$ | 196,946201,88017,041      | (8)(8)(8)    |  | $                                        | 1,382,856    | (15)     |                            | 111,600        | (18)     |  | $$$ | 270,027285,19154,454  
|                                                                                           |  |              |  |                     |                       |           |                       
|David N. SiegelFormer President andChief Executive Officer                                 |  | 200420032002 |  | $$$                 | 198,462600,000533,654 |           | $                      | 750,000                |  | $$$ | 538,83549,93547,637       | (9)(9)(9)    |  | $                                        | 8,297,136    | (16)(16) |                            | 669,600750,000  | (18)(18) |  | $$$ | 5,654,00048,955115,465
|                                                                                           |  |              |  |                     |                       |           |                       
|Neal S. CohenFormer Executive VicePresidentFinance andChief Financial Officer             |  | 200420032002 |  | $$$                 | 128,889394,250306,923 |           | $                      | 435,000                |  | $$$ | 59,161256,68440,523       | (10)(10)(10) |  | $                                        | 2,765,712     | (17)(17) |                            | 223,200300,000  | (18)(18) |  | $$$ | 1,607,670364,08146,099

---

|(1) | Mr. Lakefield was appointed as President and Chief Executive Officer of US Airways Group and US Airways on
|--- | ----------------------------------------------------------------------------------------------------------

| | April 19, 2004 following the departure of Mr. Siegel on that date. Mr. Cohen terminated his employment effective
| | ----------------------------------------------------------------------------------------------------------------

| | April 30, 2004. Mr. Baldanza served as Senior Vice PresidentMarketing and Planning through December 31,
| | --------------------------------------------------------------------------------------------------------

| | 2004, but terminated his employment effective January 15, 2005.
| | ---------------------------------------------------------------

|(2) | Amounts reflected for Mr. Crellin were earned in 2001 and paid in 12 monthly installments beginning in June 2002.
|--- | -----------------------------------------------------------------------------------------------------------------

| | Amounts reflected for Ms. Lanier and Messrs. Siegel and Cohen were paid in connection with their commencement
| | -------------------------------------------------------------------------------------------------------------

| | of employment by US Airways and in lieu of foregone compensation from prior employers due to the change of
| | ----------------------------------------------------------------------------------------------------------

| | employment. Awards for Mr. Glass were paid in connection with his commencement of employment by
| | -----------------------------------------------------------------------------------------------

| | US Airways.
| | -----------

|(3) | The figures in this column for 2004 and 2003 reflect the value of shares of US Airways Groups Class A Common
|--- | -------------------------------------------------------------------------------------------------------------

| | Stock subject to certain restrictions (Restricted Stock) on the date of grant using the per share value of the stock on
| | -----------------------------------------------------------------------------------------------------------------------

| | the date of grant, as further described in footnotes 11 through 17 below. Additionally, in connection with
| | ----------------------------------------------------------------------------------------------------------

| | US Airways Groups and its subsidiaries Prior Bankruptcy, under the 2003 Plan all outstanding shares of common
| | ---------------------------------------------------------------------------------------------------------------

| | stock of US Airways Groups predecessor corporation were cancelled on March 31, 2003, the effective date of the
| | ---------------------------------------------------------------------------------------------------------------

| | 2003 Plan. Consequently, all shares of predecessor corporation restricted stock granted to the named executive
| | --------------------------------------------------------------------------------------------------------------

| | officers in 2002 have been cancelled, as further described below. The aggregate number of shares of Restricted
| | --------------------------------------------------------------------------------------------------------------

| | Stock held by each of Ms. Lanier and Messrs. Lakefield, Crellin, Glass, Baldanza, Siegel and Cohen on
| | -----------------------------------------------------------------------------------------------------

| | December 31, 2004, and the respective fair market value of the stock on such date were, respectively: Mr. Lakefield
| | -------------------------------------------------------------------------------------------------------------------

| |  471,200 shares, $537,168; Mr. Crellin  188,400 shares, $214,776; Ms. Lanier  188,400 shares, $214,776; Mr.
| | --------------------------------------------------------------------------------------------------------------

| | Glass  188,400 shares, $214,776; Mr. Baldanza  188,400 shares, $214,776; Mr. Siegel  0 shares, $0; and Mr.
| | -------------------------------------------------------------------------------------------------------------



105



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##### Table of Contents

| | Cohen  1,594 shares, $1,817. The Restricted Stock is entitled to the same dividends, if any, payable on
| | --------------------------------------------------------------------------------------------------------

| | outstanding shares of Class A Common Stock. The ultimate recovery, if any, to holders of US Airways Groups
| | -----------------------------------------------------------------------------------------------------------

| | common stock will not be determined until confirmation of a plan of reorganization. The plan of reorganization
| | --------------------------------------------------------------------------------------------------------------

| | could result in holders of US Airways Groups common stock and related equity securities receiving no distribution
| | ------------------------------------------------------------------------------------------------------------------

| | on account of their interest and cancellation of the equity.
| | ------------------------------------------------------------

|(4) | Amount disclosed for 2004 includes $29,371 for tax liability related to temporary living expenses, $9,835 in income
|--- | -------------------------------------------------------------------------------------------------------------------

| | and tax liability payments related to personal travel provided by US Airways, $2,663 for tax liability payments
| | ---------------------------------------------------------------------------------------------------------------

| | related to premiums paid by US Airways on a life insurance policy (as described in footnote 19) and $39,500 for
| | ---------------------------------------------------------------------------------------------------------------

| | director fees paid for service as a member of the Board of Directors of US Airways Group through April 19, 2004,
| | ----------------------------------------------------------------------------------------------------------------

| | which consists of fees paid for board and committee meeting attendance. Amount disclosed for 2003 includes
| | ----------------------------------------------------------------------------------------------------------

| | $73,250 for director fees paid for service as a member of the Board of Directors of US Airways Group, which
| | -----------------------------------------------------------------------------------------------------------

| | amount includes an annual retainer, fees paid for board and committee meeting attendance, and service as Chairman
| | -----------------------------------------------------------------------------------------------------------------

| | of the Human Resources and Strategy and Finance Committees, and $4,149 in income and tax liability payments
| | -----------------------------------------------------------------------------------------------------------

| | related to personal travel provided by US Airways.
| | --------------------------------------------------

|(5) | Amount disclosed for 2004 includes $9,000 paid for automobile expenses, $7,668 in income and tax liability
|--- | ----------------------------------------------------------------------------------------------------------

| | payments related to personal travel provided by US Airways, $4,386 for tax liability payments related to premiums
| | -----------------------------------------------------------------------------------------------------------------

| | paid by US Airways on a life insurance policy (as described in footnote 19) and $198,886 for tax liability payments
| | -------------------------------------------------------------------------------------------------------------------

| | related to company contributions under the US Airways Funded Executive Defined Contribution Plan (as described
| | --------------------------------------------------------------------------------------------------------------

| | in footnote 19). Amount disclosed for 2003 includes $9,000 paid for automobile expenses, $1,081 in income and
| | -------------------------------------------------------------------------------------------------------------

| | tax liability payments related to personal travel provided by US Airways, $2,730 for tax liability payments related
| | -------------------------------------------------------------------------------------------------------------------

| | to premiums paid by US Airways on a life insurance policy and $214,557 for tax liability payments related to
| | ------------------------------------------------------------------------------------------------------------

| | company contributions under the US Airways Funded Executive Defined Contribution Plan. Amount disclosed for
| | -----------------------------------------------------------------------------------------------------------

| | 2002 includes $10,229 in income and tax liabilities incurred in connection with certain compensation related
| | ------------------------------------------------------------------------------------------------------------

| | expenses, $8,250 paid for automobile expenses and $637 for income and tax liability payment related to personal
| | ---------------------------------------------------------------------------------------------------------------

| | travel provided by US Airways.
| | ------------------------------

|(6) | Amount disclosed for 2004 includes $33,908 for tax liability related to temporary living expenses, $9,000 paid for
|--- | ------------------------------------------------------------------------------------------------------------------

| | automobile expenses, $16,904 in income and tax liability payments related to personal travel provided by
| | --------------------------------------------------------------------------------------------------------

| | US Airways, $2,346 for tax liability payments related to premiums paid by US Airways on a life insurance policy
| | ---------------------------------------------------------------------------------------------------------------

| | (as described in footnote 19) and $121,020 for tax liability payments related to company contributions under the
| | ----------------------------------------------------------------------------------------------------------------

| | US Airways Funded Executive Defined Contribution Plan (as described in footnote 19). Amount disclosed for
| | ---------------------------------------------------------------------------------------------------------

| | 2003 includes $30,345 for tax liability related to temporary living expenses, $6,750 paid for automobile expenses,
| | ------------------------------------------------------------------------------------------------------------------

| | $20,650 in income and tax liability payments related to personal travel provided by US Airways, $2,275 for tax
| | --------------------------------------------------------------------------------------------------------------

| | liability payments related to premiums paid by US Airways on a life insurance policy and $124,472 for tax liability
| | -------------------------------------------------------------------------------------------------------------------

| | payments related to company contributions under the US Airways Funded Executive Defined Contribution Plan.
| | ----------------------------------------------------------------------------------------------------------

|(7) | Amount disclosed for 2004 includes $710 for tax and financial planning services, $9,000 paid for automobile
|--- | -----------------------------------------------------------------------------------------------------------

| | expenses, $11,686 in income and tax liability payments related to personal travel provided by US Airways, $2,116
| | ----------------------------------------------------------------------------------------------------------------

| | for tax liability payments related to premiums paid by US Airways on a life insurance policy (as described in
| | -------------------------------------------------------------------------------------------------------------

| | footnote 19) and $146,069 for tax liability payments related to company contributions under the US Airways
| | ----------------------------------------------------------------------------------------------------------

| | Funded Executive Defined Contribution Plan (as described in footnote 19). Amount disclosed for 2003 includes
| | ------------------------------------------------------------------------------------------------------------

| | $1,055 for tax and financial planning services, $5,250 paid for automobile expenses, $13,272 in income and tax
| | --------------------------------------------------------------------------------------------------------------

| | liability payments related to personal travel provided by US Airways, $1,606 for tax liability payments related to
| | ------------------------------------------------------------------------------------------------------------------

| | premiums paid by US Airways on a life insurance policy and $159,991 for tax liability payments related to
| | ---------------------------------------------------------------------------------------------------------

| | company contributions under the US Airways Funded Executive Defined Contribution Plan. Amount disclosed for
| | -----------------------------------------------------------------------------------------------------------

| | 2002 includes $4,887 for income and tax liability payments related to personal travel provided by US Airways.
| | -------------------------------------------------------------------------------------------------------------

|(8) | Amount disclosed for 2004 includes $10,000 for tax and financial planning services, $9,000 paid for automobile
|--- | --------------------------------------------------------------------------------------------------------------

| | expenses, $7,788 in income and tax liability payments related to personal travel provided by US Airways, $1,020
| | ---------------------------------------------------------------------------------------------------------------

| | for tax liability payments related to premiums paid by US Airways on a life insurance policy (as described in
| | -------------------------------------------------------------------------------------------------------------

| | footnote 19) and $169,138 for tax liability payments related to company contributions under the US Airways
| | ----------------------------------------------------------------------------------------------------------

| | Funded Executive Defined Contribution Plan (as described in footnote 19). Amount disclosed for 2003 includes
| | ------------------------------------------------------------------------------------------------------------

| | $10,000 for tax and financial planning services, $5,250 paid for automobile expenses, $3,229 in income and tax
| | --------------------------------------------------------------------------------------------------------------

| | liability payments related to personal travel provided by US Airways, $1,187 for tax liability payments related to
| | ------------------------------------------------------------------------------------------------------------------

| | premiums paid by US Airways on a life insurance policy and $182,214 for tax liability payments related to
| | ---------------------------------------------------------------------------------------------------------

| | company contributions under the US Airways Funded Executive Defined Contribution Plan. Amount disclosed for
| | -----------------------------------------------------------------------------------------------------------

| | 2002 includes $13,884 in income and tax liabilities incurred in connection with certain compensation related
| | ------------------------------------------------------------------------------------------------------------

| | expenses and $3,157 for income and tax liability payment related to personal travel provided by US Airways.
| | -----------------------------------------------------------------------------------------------------------

|(9) | Amount disclosed for 2004 includes $12,000 for tax and financial planning services, $6,000 paid for automobile
|--- | --------------------------------------------------------------------------------------------------------------



106



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##### Table of Contents

| | expenses, $26,815 in income and tax liability payments related to personal travel provided by US Airways, $579 for
| | ------------------------------------------------------------------------------------------------------------------

| | tax liability payments related to premiums paid by US Airways on a life insurance policy (as described in footnote
| | ------------------------------------------------------------------------------------------------------------------

| | 19) and $493,441 for tax liability payments related to company contributions under the US Airways Funded
| | --------------------------------------------------------------------------------------------------------

| | Executive Defined Contribution Plan (as described in footnote 19). Amount disclosed for 2003 includes $8,570 for
| | ----------------------------------------------------------------------------------------------------------------

| | tax and financial planning services, $18,000 paid for automobile expenses, $1,996 for tax liability payments related
| | --------------------------------------------------------------------------------------------------------------------

| | to premiums paid by US Airways on a life insurance policy and $21,369 in income and tax liability payments
| | ----------------------------------------------------------------------------------------------------------

| | related to personal travel provided by US Airways. Amount disclosed for 2002 includes $31,663 for tax liability
| | ---------------------------------------------------------------------------------------------------------------

| | related to relocation and moving expenses, $13,500 paid for automobile expenses and $2,474 in income and tax
| | ------------------------------------------------------------------------------------------------------------

| | liability payments related to personal travel provided by US Airways.
| | ---------------------------------------------------------------------

|(10) | Amount disclosed for 2004 includes $2,517 for tax liability related to temporary living expenses, $3,000 paid for
|---- | -----------------------------------------------------------------------------------------------------------------

| | automobile expenses, $8,710 in income and tax liability payments related to personal travel provided by
| | -------------------------------------------------------------------------------------------------------

| | US Airways, $350 for tax liability payments related to premiums paid by US Airways on a life insurance policy (as
| | -----------------------------------------------------------------------------------------------------------------

| | described in footnote 19) and $44,584 for tax liability payments related to company contributions under the
| | -----------------------------------------------------------------------------------------------------------

| | US Airways Funded Executive Defined Contribution Plan (as described in footnote 19). Amount disclosed for
| | ---------------------------------------------------------------------------------------------------------

| | 2003 includes $1,500 for tax and financial planning services, $31,465 for tax liability related to temporary living
| | -------------------------------------------------------------------------------------------------------------------

| | expenses, $9,000 paid for automobile expenses, $13,701 in income and tax liability payments related to personal
| | ---------------------------------------------------------------------------------------------------------------

| | travel provided by US Airways, $1,211 for tax liability payments related to premiums paid by US Airways on a life
| | -----------------------------------------------------------------------------------------------------------------

| | insurance policy and $199,807 for tax liability payments related to company contributions under the US Airways
| | --------------------------------------------------------------------------------------------------------------

| | Funded Executive Defined Contribution Plan. Amount disclosed for 2002 includes $31,392 for tax liability related
| | ----------------------------------------------------------------------------------------------------------------

| | to temporary living expenses, $6,000 paid for automobile expenses and $3,131 for income and tax liability
| | ---------------------------------------------------------------------------------------------------------

| | payments related to personal travel provided by US Airways.
| | -----------------------------------------------------------

|(11) | Amount disclosed for 2004 reflects an award of 471,200 shares of Restricted Stock to Mr. Lakefield effective May
|---- | ----------------------------------------------------------------------------------------------------------------

| | 19, 2004 based on a per share value of $1.46 on the grant date, vesting 25% on each of April 19, 2005, 2006, 2007
| | -----------------------------------------------------------------------------------------------------------------

| | and 2008. Amount disclosed for 2003 reflects an award of 1,362.4 deferred stock units granted to Mr. Lakefield
| | --------------------------------------------------------------------------------------------------------------

| | effective July 31, 2003, under the US Airways Group, Inc. 2003 Nonemployee Director Deferred Stock Unit Plan,
| | -------------------------------------------------------------------------------------------------------------

| | based on a per share value of $7.34 on the grant date. The deferred stock units are payable solely in cash upon
| | ---------------------------------------------------------------------------------------------------------------

| | termination of service as a member of the Board of US Airways Group. The deferred stock units are entitled to
| | -------------------------------------------------------------------------------------------------------------

| | dividend equivalents if any dividends are paid on US Airways Groups Class A Common Stock.
| | ------------------------------------------------------------------------------------------

|(12) | The amount disclosed for 2003 reflects an award of (a) 102,584 shares of Restricted Stock effective July 31, 2003,
|---- | ------------------------------------------------------------------------------------------------------------------

| | vesting 50% on June 30, 2005 and 50% on January 1, 2006, based on a per share value of $7.34 on the grant date,
| | ---------------------------------------------------------------------------------------------------------------

| | and (b) 85,816 shares of Restricted Stock effective October 16, 2003, vesting 100% on January 1, 2006, based on a
| | -----------------------------------------------------------------------------------------------------------------

| | per share value of $8.35 on the grant date. Because US Airways Groups Class A Common Stock was not listed on
| | -------------------------------------------------------------------------------------------------------------

| | the grant dates, the $7.34 per share value is based on the per share value determined pursuant to the 2003 Plan and
| | -------------------------------------------------------------------------------------------------------------------

| | also subsequently paid in a private placement of US Airways Groups Class A Common Stock in August 2003, and
| | ------------------------------------------------------------------------------------------------------------

| | the $8.35 per share value is based on the weighted average trading price on the over-the-counter bulletin board for
| | -------------------------------------------------------------------------------------------------------------------

| | the five preceding days, due to the low trading volume on October 16, 2003. Mr. Crellin had shares of restricted
| | ----------------------------------------------------------------------------------------------------------------

| | stock of US Airways Groups predecessor corporation which were canceled on March 31, 2003, the effective date
| | -------------------------------------------------------------------------------------------------------------

| | of the 2003 Plan, and Mr. Crellin received no payment with respect to such cancellation. These cancelled shares
| | ---------------------------------------------------------------------------------------------------------------

| | were received pursuant to (a) an award effective January 16, 2002 of 10,000 shares of restricted common stock of
| | ----------------------------------------------------------------------------------------------------------------

| | US Airways Groups predecessor corporation, vesting 25% on each of January 16, 2003 and the three succeeding
| | ------------------------------------------------------------------------------------------------------------

| | anniversaries thereafter, with a value of $56,100 based on the closing price ($5.61) on the grant date; and (b) an
| | ------------------------------------------------------------------------------------------------------------------

| | award effective October 16, 2001 of 15,000 shares of restricted common stock of US Airways Groups predecessor
| | --------------------------------------------------------------------------------------------------------------

| | corporation, vesting 25% on November 15, 2001, 25% on December 1, 2002 and 25% on each of October 16, 2003
| | ----------------------------------------------------------------------------------------------------------

| | and October 16, 2004, with a value of $80,400 based on the closing price ($5.36) on the grant date.
| | ---------------------------------------------------------------------------------------------------

|(13) | Amount disclosed for 2003 reflects an award of 188,400 shares of Restricted Stock effective July 31, 2003, vesting
|---- | ------------------------------------------------------------------------------------------------------------------

| | 50% on June 30, 2005 and 50% on January 1, 2006, based on a per share value of $7.34 on the grant date. Because
| | ---------------------------------------------------------------------------------------------------------------

| | US Airways Groups Class A Common Stock was not listed on the grant date, the $7.34 per share value is based on
| | ---------------------------------------------------------------------------------------------------------------

| | the per share value determined pursuant to the 2003 Plan and also subsequently paid in a private placement of
| | -------------------------------------------------------------------------------------------------------------

| | US Airways Groups Class A Common Stock in August 2003.
| | -------------------------------------------------------

|(14) | The amount disclosed for 2003 reflects an award of 188,400 shares of Restricted Stock effective July 31, 2003,
|---- | --------------------------------------------------------------------------------------------------------------

| | vesting 50% on June 30, 2005 and 50% on January 1, 2006, based on a per share value of $7.34 on the grant date.
| | ---------------------------------------------------------------------------------------------------------------

| | Because US Airways Groups Class A Common Stock was not listed on the grant date, the $7.34 per share value is
| | --------------------------------------------------------------------------------------------------------------

| | based on the per share value determined pursuant to the 2003 Plan and also subsequently paid in a private
| | ---------------------------------------------------------------------------------------------------------

| | placement of US Airways Groups Class A Common Stock in August 2003. Mr. Glass also had shares of restricted
| | ------------------------------------------------------------------------------------------------------------

| | stock of US Airways Groups predecessor corporation which were canceled on March 31, 2003, the effective date
| | -------------------------------------------------------------------------------------------------------------

| | of the 2003 Plan, and Mr. Glass received no payment with respect to such cancellation. These cancelled shares
| | -------------------------------------------------------------------------------------------------------------



107



---

##### Table of Contents

| | were received pursuant to an award effective April 8, 2002 of 25,000 shares of restricted common stock of
| | ---------------------------------------------------------------------------------------------------------

| | US Airways Groups predecessor corporation, vesting 34% on April 8, 2003 and 33% on each of April 8, 2004 and
| | -------------------------------------------------------------------------------------------------------------

| | April 8, 2005, with a value of $151,000 based on the closing price ($6.04) on the grant date.
| | ---------------------------------------------------------------------------------------------

|(15) | The amount disclosed for 2003 reflects an award of 188,400 shares of Restricted Stock effective July 31, 2003,
|---- | --------------------------------------------------------------------------------------------------------------

| | vesting 50% on June 30, 2005 and 50% on January 1, 2006, based on a per share value of $7.34 on the grant date.
| | ---------------------------------------------------------------------------------------------------------------

| | Because US Airways Groups Class A Common Stock was not listed on the grant date, the $7.34 per share value is
| | --------------------------------------------------------------------------------------------------------------

| | based on the per share value determined pursuant to the 2003 Plan and also subsequently paid in a private
| | ---------------------------------------------------------------------------------------------------------

| | placement of US Airways Groups Class A Common Stock in August 2003. All of Mr. Baldanzas shares of
| | ----------------------------------------------------------------------------------------------------

| | Restricted Stock were forfeited upon his termination of employment on January 15, 2005. Mr. Baldanza had shares
| | ---------------------------------------------------------------------------------------------------------------

| | of restricted stock of US Airways Groups predecessor corporation which were canceled on March 31, 2003, the
| | ------------------------------------------------------------------------------------------------------------

| | effective date of the 2003 Plan, and Mr. Baldanza received no payment with respect to such cancellation. These
| | --------------------------------------------------------------------------------------------------------------

| | cancelled shares were received pursuant to an award effective October 16, 2001 of 15,000 shares of restricted
| | -------------------------------------------------------------------------------------------------------------

| | common stock of US Airways Groups predecessor corporation, vesting 25% on November 15, 2001, 25% on
| | ----------------------------------------------------------------------------------------------------

| | December 1, 2002 and 25% on each of October 16, 2003 and October 16, 2004, with a value of $80,400 based on
| | -----------------------------------------------------------------------------------------------------------

| | the closing price ($5.36) on the grant date.
| | --------------------------------------------

|(16) | The amount disclosed for 2003 reflects an award of 1,130,400 shares of Restricted Stock to Mr. Siegel, based on a
|---- | -----------------------------------------------------------------------------------------------------------------

| | per share value of $7.34 on the grant date, vesting no later than January 1, 2006. Upon his termination of
| | ----------------------------------------------------------------------------------------------------------

| | employment on April 19, 2004, the shares became fully vested. Because US Airways Groups Class A Common
| | -------------------------------------------------------------------------------------------------------

| | Stock was not listed on the grant date, the $7.34 per share value is based on the per share value determined pursuant
| | ---------------------------------------------------------------------------------------------------------------------

| | to the 2003 Plan and also subsequently paid in a private placement of US Airways Groups Class A Common Stock
| | -------------------------------------------------------------------------------------------------------------

| | in August 2003. Mr. Siegel also had shares of restricted stock of US Airways Groups predecessor corporation
| | ------------------------------------------------------------------------------------------------------------

| | which were canceled on March 31, 2003, the effective date of US Airways Groups 2003 Plan, and Mr. Siegel
| | ---------------------------------------------------------------------------------------------------------

| | received no payment with respect to such cancellation. These cancelled shares were received pursuant to an award
| | ----------------------------------------------------------------------------------------------------------------

| | effective March 11, 2002 of 350,000 shares of restricted common stock of US Airways Groups predecessor
| | -------------------------------------------------------------------------------------------------------

| | corporation, vesting 100% on March 11, 2005, with a value of $2,359,000 based on the closing price ($6.74) on the
| | -----------------------------------------------------------------------------------------------------------------

| | grant date.
| | -----------

|(17) | The amount disclosed for 2003 reflects an award of 376,800 shares of Restricted Stock effective July 31, 2003,
|---- | --------------------------------------------------------------------------------------------------------------

| | vesting 50% on January 1, 2005 and 50% on January 1, 2006, based on a per share value of $7.34 on the grant date.
| | -----------------------------------------------------------------------------------------------------------------

| | Upon his termination of employment on April 30, 2004, the shares became fully vested. Because US Airways
| | --------------------------------------------------------------------------------------------------------

| | Groups Class A Common Stock was not listed on the grant date, the $7.34 per share value is based on the per share
| | ------------------------------------------------------------------------------------------------------------------

| | value determined pursuant to the 2003 Plan and also subsequently paid in a private placement of US Airways
| | ----------------------------------------------------------------------------------------------------------

| | Groups Class A Common Stock in August 2003. Mr. Cohen had shares of restricted stock of US Airways Groups
| | -----------------------------------------------------------------------------------------------------------

| | predecessor corporation which were canceled on March 31, 2003, the effective date of the 2003 Plan, and Mr.
| | -----------------------------------------------------------------------------------------------------------

| | Cohen received no payment with respect to such cancellation. These cancelled shares were received pursuant to an
| | ----------------------------------------------------------------------------------------------------------------

| | award effective April 8, 2002 of 100,000 shares of restricted common stock of US Airways Groups predecessor
| | ------------------------------------------------------------------------------------------------------------

| | corporation, vesting 34% on April 8, 2003, and 33% on each of April 8, 2004 and April 8, 2005, with a value of
| | --------------------------------------------------------------------------------------------------------------

| | $604,000 based on the closing price ($6.04) on the grant date.
| | --------------------------------------------------------------

|(18) | Amounts shown for 2004 reflect options granted in 2004 by US Airways Group, as described under Option
|---- | ------------------------------------------------------------------------------------------------------

| | Grants below. Amounts shown for 2003 for all named executive officers other than Mr. Lakefield reflect Class A-
| | ----------------------------------------------------------------------------------------------------------------

| | 1 Warrants of US Airways Group (Warrants) granted in 2003 with an exercise price of $7.42 per share. Amounts
| | ------------------------------------------------------------------------------------------------------------

| | shown for 2003 for Mr. Lakefield include options exercisable for 5,000 shares of Class A Common Stock of
| | --------------------------------------------------------------------------------------------------------

| | US Airways Group granted pursuant to its 2003 Nonemployee Director Stock Incentive Plan. Amounts shown for
| | ----------------------------------------------------------------------------------------------------------

| | 2002 reflect options exercisable for shares of common stock of US Airways Groups predecessor corporation, all of
| | -----------------------------------------------------------------------------------------------------------------

| | which were cancelled on March 31, 2003, the effective date of the 2003 Plan. The respective officer did not
| | -----------------------------------------------------------------------------------------------------------

| | receive any payment in connection with the cancellation of the options.
| | -----------------------------------------------------------------------

|(19) | As further described herein, amounts disclosed include the value of life insurance benefits for the named executive
|---- | -------------------------------------------------------------------------------------------------------------------

| | officers and contributions to various defined contribution pension plans. Under the US Airways life insurance plan,
| | -------------------------------------------------------------------------------------------------------------------

| | individual life insurance coverage is available to executive officers, with US Airways paying the premium
| | ---------------------------------------------------------------------------------------------------------

| | associated with this coverage. The following amounts reflect the dollar value of premiums paid by US Airways on
| | ---------------------------------------------------------------------------------------------------------------

| | life insurance policies in 2004 for its named executives: Mr. Lakefield  $3,805; Mr. Crellin  $6,321; Ms. Lanier
| | ------------------------------------------------------------------------------------------------------------------

| |  $3,381; Mr. Glass  $3,050; Mr. Baldanza  $1,470; Mr. Siegel  $780; and Mr. Cohen  $500. Amounts
| | -----------------------------------------------------------------------------------------------------

| | disclosed for 2004 include US Airways contributions to the US Airways Funded Executive Defined Contribution
| | -----------------------------------------------------------------------------------------------------------

| | Plan and accruals under the US Airways Unfunded Executive Defined Contribution Plan, which were adopted
| | -------------------------------------------------------------------------------------------------------

| | during 2003 to replace supplemental retirement arrangements in effect before US Airways Group and US Airways
| | -------------------------------------------------------------------------------------------------------------

| | prior bankruptcy reorganization, and which provide supplemental retirement benefits to the executives. The
| | ----------------------------------------------------------------------------------------------------------

| | US Airways Funded Executive Defined Contribution Plan also provides for full funding of the benefits in a secular
| | -----------------------------------------------------------------------------------------------------------------



108



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##### Table of Contents

| | trust. The following amounts reflect the value of the benefits accrued under the US Airways Unfunded Executive
| | --------------------------------------------------------------------------------------------------------------

| | Defined Contribution Plan during 2004 to the named executives: Mr. Lakefield  $0; Mr. Crellin  $73,580; Ms.
| | -------------------------------------------------------------------------------------------------------------

| | Lanier  $32,786; Mr. Glass  $34,614; Mr. Baldanza  $34,991; Mr. Siegel  $91,714; and Mr. Cohen  $8,988.
| | ------------------------------------------------------------------------------------------------------------

| | The following amounts reflect the value of the benefits contributed to the US Airways Funded Executive Defined
| | --------------------------------------------------------------------------------------------------------------

| | Contribution Plan during 2004 to the named executives: Mr. Lakefield  $0; Mr. Crellin  $274,649; Ms. Lanier 
| | ---------------------------------------------------------------------------------------------------------------

| | $167,122; Mr. Glass  $201,715; Mr. Baldanza  $233,566; Mr. Siegel  $681,419; and Mr. Cohen  $61,568.
| | --------------------------------------------------------------------------------------------------------

| | During 2004, US Airways also made contributions to Mr. Siegels accounts in US Airways tax-qualified defined
| | -------------------------------------------------------------------------------------------------------------

| | contribution plans, in the amount of $14,677. The other named executives did not receive company contributions
| | --------------------------------------------------------------------------------------------------------------

| | under US Airways tax-qualified defined contribution plans during 2004. The amount reflected for 2004 also
| | ----------------------------------------------------------------------------------------------------------

| | includes $43,077 in temporary living expenses for Mr. Lakefield, $46,443 in temporary living expenses for Ms.
| | -------------------------------------------------------------------------------------------------------------

| | Lanier and $3,581 in temporary living expenses for Mr. Cohen. As a result of his termination of employment with
| | ---------------------------------------------------------------------------------------------------------------

| | US Airways Group and US Airways, Mr. Siegel was paid a cash severance payment in the amount of $4,725,410
| | ---------------------------------------------------------------------------------------------------------

| | and $75,000 for accrued but unused vacation time, each of which is included in the 2004 amount. In addition, Mr.
| | ----------------------------------------------------------------------------------------------------------------

| | Siegel was paid $681,419 in settlement of his benefits under the US Airways Funded Executive Defined
| | ----------------------------------------------------------------------------------------------------

| | Contribution Plan. This amount has been previously included, as described above, and is not separately shown in
| | ---------------------------------------------------------------------------------------------------------------

| | the total in the column. Also included in the 2004 amount is $65,000 paid to Mr. Siegel as reimbursement for legal
| | ------------------------------------------------------------------------------------------------------------------

| | fees incurred in connection with his separation agreements. As a result of his termination of employment with
| | -------------------------------------------------------------------------------------------------------------

| | US Airways Group and US Airways, Mr. Cohen was paid a cash severance payment in the amount of $1,520,000
| | --------------------------------------------------------------------------------------------------------

| | and $3,033 for accrued but unused vacation time, each of which is included in the 2004 amount. In addition, Mr.
| | ---------------------------------------------------------------------------------------------------------------

| | Cohen was paid $338,458 in settlement of his benefits under the US Airways Funded Executive Defined
| | ---------------------------------------------------------------------------------------------------

| | Contribution Plan. This amount has been previously included in the Summary Compensation Table and is not
| | --------------------------------------------------------------------------------------------------------

| | separately shown in the total included in the column. Also included in the 2004 amount is $10,000 paid to Mr.
| | -------------------------------------------------------------------------------------------------------------

| | Cohen as reimbursement for legal fees incurred in connection with his separation agreement.
| | -------------------------------------------------------------------------------------------



Option Grants



The following table sets forth information regarding the number and terms of options granted

by US Airways Group to the named executive officers pursuant to US Airways Groups 2003

Stock Incentive Plan, as
amended and restated, during the fiscal year ended December 31, 2004.



Options Grants in Last Fiscal Year



|                    |  |                                                |  |                                                        |        |  |                       |      |                |          |                                                                                                 |   |         |  |   |        
|------------------- |  | ---------------------------------------------- |  | ------------------------------------------------------ | ------ |  | --------------------- | ---- | -------------- | -------- | ----------------------------------------------------------------------------------------------- | - | ------- |  | - | -------
|Name                |  | Number of SharesUnderlying Options Granted (1) |  | Percent ofTotal OptionsGranted toEmployees in 2004 (2) |        |  | Exercise orBase Price |      | ExpirationDate |          | Potential Realizable Value atAssumed Annual Rates ofStock Price Appreciationfor Option Term
(3)
|                    |  |                                                |  |                                                        | 5% ($) |  | 10% ($)              
|Bruce R. Lakefield  |  | 288,800                                        |  | 61.1                                                   | %      |  | $                     | 1.59 |                | 06/19/14 |                                                                                                 | $ | 288,783 |  | $ | 731,834
|Alan W. Crellin     |  |                                               |  |                                                       |        |  |                       |     |                |         |                                                                                                 |   |        |  |   |       
|Elizabeth K. Lanier |  |                                               |  |                                                       |        |  |                       |     |                |         |                                                                                                 |   |        |  |   |       
|Jerrold A. Glass    |  |                                               |  |                                                       |        |  |                       |     |                |         |                                                                                                 |   |        |  |   |       
|B. Ben Baldanza     |  |                                               |  |                                                       |        |  |                       |     |                |         |                                                                                                 |   |        |  |   |       
|David N. Siegel     |  |                                               |  |                                                       |        |  |                       |     |                |         |                                                                                                 |   |        |  |   |       
|Neal S. Cohen       |  |                                               |  |                                                       |        |  |                       |     |                |         |                                                                                                 |   |        |  |   |       

---

|(1) | The options vests 25% on each anniversary of April 19, 2004.
|--- | ------------------------------------------------------------

|(2) | The total number of stock options granted to employees in 2004 was 472,340.
|--- | ---------------------------------------------------------------------------

|(3) | Amounts represent hypothetical gains assuming exercise at the end of the option term and assuming rates of stock
|--- | ----------------------------------------------------------------------------------------------------------------

| | price appreciation of 5% and 10% compounded annually from the date the options were granted to their expiration
| | ---------------------------------------------------------------------------------------------------------------

| | date. The 5% and 10% assumed rates of appreciation are mandated by the rules of the SEC. These assumptions are
| | --------------------------------------------------------------------------------------------------------------

| | not intended to forecast future appreciation of US Airways Groups stock price. The potential realizable value
| | --------------------------------------------------------------------------------------------------------------

| | computation does not take into account federal or state income tax consequences of option exercises or sales of
| | ---------------------------------------------------------------------------------------------------------------

| | appreciated stock. The actual gains, if any, on the option exercises will depend on the future performance of
| | -------------------------------------------------------------------------------------------------------------

| | US Airways Groups Class A Common Stock, the option holders continued employment through applicable
| | ----------------------------------------------------------------------------------------------------

| | vesting periods and the date on which the options are exercised and the underlying shares are sold. The closing
| | ---------------------------------------------------------------------------------------------------------------



109



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##### Table of Contents

| | price of US Airways Groups Class A Common Stock on February 18, 2005 was $1.16 per share. The ultimate
| | -------------------------------------------------------------------------------------------------------

| | recovery, if any, to holders of US Airways Groups common stock will not be determined until confirmation of a
| | --------------------------------------------------------------------------------------------------------------

| | plan of reorganization. The plan of reorganization could result in holders of US Airways Groups common stock
| | -------------------------------------------------------------------------------------------------------------

| | and related equity securities receiving no distribution on account of their interest and cancellation of the equity.
| | --------------------------------------------------------------------------------------------------------------------



Option and Warrant Exercises



There were no option or Warrant exercises by the named executive officers
during the fiscal year

ended December 31, 2004. The following table sets forth (i) the number of shares covered by

options and Warrants (both exercisable and unexercisable) as of December 31, 2004 and (ii) the

respective value for in-the-money options and Warrants, which represents the positive spread

between the
exercise price of existing options and Warrants and the fair market value of

US Airways Groups Class A Common Stock at December 31, 2004.



Aggregate Option/Warrant Exercises in Last Fiscal Year and

Fiscal Year-End Option/Warrant Values



|                    |  |                                 |             |                   |               |                                                                          |             |                                                                    |               |  |   |   |  |   |  
|------------------- |  | ------------------------------- | ----------- | ----------------- | ------------- | ------------------------------------------------------------------------ | ----------- | ------------------------------------------------------------------ | ------------- |  | - | - |  | - | -
|Name                |  | Shares Acquired on Exercise (#) |             | ValueRealized ($) |               | Number of Shares Underlying Unexercised Options/Warrants at Year-End (#) |             | Value of Unexercised In-The-Money Options/Warrants at Year-End (#)
|                    |  |                                 | Exercisable |                   | Unexercisable |                                                                          | Exercisable |                                                                    | Unexercisable
|Bruce R. Lakefield  |  |                                |             | $                 |              |                                                                          |            |                                                                    | 288,800       |  | $ |  |  | $ | 
|Elizabeth K. Lanier |  |                                |             | $                 |              |                                                                          | 111,600     |                                                                    |              |  | $ |  |  | $ | 
|Alan W. Crellin     |  |                                |             | $                 |              |                                                                          | 111,600     |                                                                    |              |  | $ |  |  | $ | 
|Jerrold A. Glass    |  |                                |             | $                 |              |                                                                          | 111,600     |                                                                    |              |  | $ |  |  | $ | 
|B. Ben Baldanza     |  |                                |             | $                 |              |                                                                          | 111,600     |                                                                    |              |  | $ |  |  | $ | 
|David N. Siegel     |  |                                |             | $                 |              |                                                                          | 669,600     |                                                                    |              |  | $ |  |  | $ | 
|Neal S. Cohen       |  |                                |             | $                 |              |                                                                          | 223,200     |                                                                    |              |  | $ |  |  | $ | 



Retirement Benefits



Qualified Retirement Plan.US Airways previously maintained a
defined benefit retirement plan

(the Retirement Plan) for its salaried employees which provided noncontributory benefits based upon

years of service and the employees highest three-year average annual compensation during the last ten

calendar years of service. The Retirement Plan was frozen in 1991, but benefits accrued as of the date

the plan was frozen
remain outstanding until they are paid to participants. Under the Retirement Plan,

benefits were generally payable commencing at age 65. However, the
Retirement Plan provided

reduced early retirement benefits commencing as early as age 55. Benefits under the Retirement Plan

were integrated with the Social Security program. Compensation under the Retirement Plan included

the employees total compensation as reported on Form W-2, plus exclusions from income due to

employee elections under
Sections 401(k), 125 and 132(f)(4) of the Internal Revenue Code of 1986, as

amended (the Internal Revenue Code), minus any imputed income due to the
exercise of stock options,

income resulting from group term insurance, income imputed due to air pass privileges, expense

reimbursements and deferred compensation received in the form of a lump sum distribution. This

definition of compensation excludes the following items reported as compensation under the Summary

Compensation Table: (i)
imputed income from stock options, (ii) income resulting from group term

insurance, (iii) income imputed due to air pass privileges, and (iv) certain
expense reimbursements.

On November 12, 2004, US Airways filed a motion requesting a determination from the Bankruptcy

Court that US Airways satisfied the financial requirements for a distress termination of the

Retirement Plan, which the Bankruptcy Court approved on January 6, 2005. The Retirement Plan was

terminated effective
January 17, 2005, by agreement between the PBGC and US Airways. Effective

February 1, 2005, the PBGC was appointed trustee for the plan. Other than Mr.
Crellin, none of the

named executive officers participated in the Retirement Plan. Mr. Crellin has two years of Credited

Service under the Retirement Plan. Assuming retirement effective January 1, 2005 and payment in the



110



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##### Table of Contents

form of a single life annuity under the Retirement Plan, Mr. Crellin would receive payments of

$1,896.85 per month through January 31, 2009, reduced to $1,799.48 per month from February 1,

2009 through November 30, 2013, and further reduced to $1,755.22 per month on and after December

1, 2013. If the payment
were made in the form of a joint and 50% survivor annuity with Mr. Crellins

spouse as beneficiary under the Retirement Plan, Mr. Crellin would
receive payments of $1,701.47 per

month through January 31, 2009, reduced to $1,614.13 per month from February 1, 2009 through

November 30, 2013, and further reduced to $1,574.43 per month on and after December 1, 2013, and

upon Mr. Crellins death his surviving spouse would receive 50% of the monthly payment amounts for

her life. As a
result of the termination of the Retirement Plan, Mr. Crellins benefits may be reduced.



Executive Defined Contribution Plans. Messrs. Crellin, Glass and Baldanza and Ms. Lanier will

receive a defined
contribution benefit under the US Airways Funded Executive Defined Contribution

Plan and the US Airways Unfunded Executive Defined Contribution Plan (the
Executive Plans), and

Mr. Siegel and Mr. Cohen received benefits under the Executive Plans in connection with the

termination of their employment during 2004. Under the Executive Plans, a contribution is credited to

each participant each year, the amount of which is individually determined based upon age, service

and projected earnings
(including target annual bonus) such that the annual contribution to the

Executive Plans and an assumed 8% investment return will achieve a target annual
benefit of 50% of

final average earnings (based on total cash compensation) at normal retirement age (age 62) when

combined with the executives benefits under the tax-qualified retirement plans maintained by

US Airways. The annual contribution to the Funded Executive Defined Contribution Plan may not

exceed 64% of the
executives earnings for the year, and the annual allocation to the Unfunded

Executive Defined Contribution Plan may not exceed 16% of the
executives earnings for the year.

Under the Executive Plans, contributions for disabled executives will continue during the period of

disability benefits, and contributions continue for the first twelve months following an executive

starting an absence from work due to the birth, adoption or caring for a child after birth or adoption, or

due to
pregnancy. Furthermore, upon termination of an executive on or after the occurrence of a

change in control (as defined in the Executive Plans), US Airways
will make an additional

contribution or allocation to the Executive Plans for the year in which the termination of employment

occurs, in the amount equal to the allocations that US Airways would have had to make during the

years for which US Airways would be required to continue to provide such benefits under the

executives employment
agreement or severance agreement. Participants in the Executive Plans do

not receive employer contributions under the tax-qualified retirement plans
sponsored by US Airways

(including the 401(k) and money purchase pension plans) or under any other nonqualified defined

contribution plans associated with the tax-qualified retirement plans.



Messrs. Crellin, Glass and Baldanza and Ms. Lanier receive a benefit based upon three years of

credited service for each of the first five years of service (beginning on date of hire), and thereafter two

years of credited service for each actual year of service up to a maximum of 30 years of credited

service. Contributions
and allocations are fully vested. In connection with his termination of

employment on January 15, 2005, Mr. Baldanza received his benefits under the
Executive Plans in

accordance with the terms of the respective plans, as described below.



Eighty percent (80%) of the target benefit amount is calculated under the Funded Executive

Defined Contribution Plan and reduced to present value based on actuarial assumption under that plan,

which amount, less the maximum amount of 401(k) contributions permitted for the year, is contributed

to a secular trust on
a monthly basis, subject to certain limitations on the total amount that can be

contributed on an annual basis. Participants also receive a payment to
cover any income tax liabilities

incurred in connection with the contributions to the secular trust. The remainder of the target benefit

amount is unfunded and is credited to an account with an assumed annual 8% rate of return. Under

letter agreements entered into with Ms. Lanier, Mr. Baldanza, Mr. Crellin and Mr. Glass on October

20, 2004, contributions
under the Executive Plans after October 11, 2004 are subject to a 25%

reduction. Distributions from the Funded Executive Defined Contribution Plan will be
made to

participants upon termination of employment in a single lump sum payment in cash. Distributions

from the Unfunded Executive Defined Contribution Plan will be made to participants in a single lump



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sum payment in cash after the later of termination of employment or attainment of age 62.



Employment and Severance Agreements



US Airways has entered into employment agreements with Bruce R. Lakefield
and Elizabeth K.

Lanier. In addition, US Airways is a party to severance agreements, which in substance are

employment agreements as well, with Alan W. Crellin, Jerrold A. Glass and B. Ben Baldanza. The

Company has entered into a Separation Agreement and Supplemental Separation Agreement with

David N. Siegel and a Separation
and Consulting Agreement with Neal S. Cohen. All employment-

related agreements with Mr. Lakefield, Mr. Crellin, Ms. Lanier and Mr. Glass have not yet been

assumed and are subject to modification prior to the Companys emergence from bankruptcy.



Employment Agreement with Bruce R. Lakefield



US Airways Group and US Airways entered into an Employment Agreement with
Mr. Lakefield

April 19, 2004, which is filed as Exhibit 10.6 to US Airways Quarterly Report on Form 10-Q for

the quarter ended September 30, 2004.



Term of Employment. The agreement provides for Mr. Lakefield to serve as US Airways Chief

Executive Officer and President on an at-will basis. Upon a change of control, the agreement will

become effective for a two-year term and terminate at the end of the two-year period.



Salary and Benefits. Under the agreement, Mr. Lakefield is entitled to an annual base salary of

not less than $425,000, subject to annual increases consistent with those provided to other key

employees. Under the agreement, Mr. Lakefield received 471,200 shares of restricted stock and a

nonqualified option to
purchase 288,800 shares of Class A Common Stock at a price of $1.59 per

share, each under the 2003 Stock Incentive Plan, which awards vest in 25%
increments on each

April 19, beginning in 2005. In addition to base salary, the agreement provides that Mr. Lakefield

will be awarded an annual bonus in accordance with US Airways Groups Incentive Compensation

Plan (ICP) (or successor plan) and will be eligible to participate in the Long-Term Incentive Plan

(LTIP), each as
determined by the Board or the Human Resources Committee. Mr. Lakefield

waived his participation in the ICP and the LTIP until US Airways returns to
profitability. Mr.

Lakefield also waived participation in the Executive Plans and in all tax-qualified retirement plans

and nonqualified retirement or deferred compensation plans sponsored by US Airways Group or

US Airways. Mr. Lakefield is entitled to participate in all welfare benefit and fringe benefit plans

provided to other
officers. At the time the agreement was executed, those benefits included on-line

first class, positive space travel privileges for business and pleasure
for Mr. Lakefield and his

eligible family members, as well as a limited number of non-eligible family members and unrelated

persons, a gross-up payment (up to a maximum of $10,000) to cover his tax liability resulting from

such travel, free access to US Airways Club facilities for him and his eligible family members, and

certain temporary
living expenses.



Termination of Employment. Mr.
Lakefields employment may be terminated at any time by

mutual agreement, and terminates automatically upon his death. US Airways or US Airways Group

may also terminate the agreement upon ten days written notice upon Mr. Lakefields disability, or

immediately at any time for cause (as defined in the agreement). Mr. Lakefield may voluntarily

terminate his employment, which may constitute termination for good reason upon certain events

defined in the
agreement. In the event of any termination by US Airways or US Airways Group for

cause or by Mr. Lakefield for good reason, the terminating party must give
written notice that

indicates the specific termination provision in the agreement that is relied upon and sets forth in

reasonable detail the facts and circumstances that are the basis for the termination, as well as the

termination date, which may not be more than 15 days after the notice date.



Obligations Upon Termination. After two years of service with US Airways Group, including

as a member of the Board, Mr. Lakefield will become vested in lifetime on-line, first class, positive



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space travel privileges for business and pleasure for him and his eligible family members. If Mr.

Lakefields employment is terminated for cause, due to death or disability, or is voluntarily

terminated by Mr. Lakefield without good reason, Mr. Lakefield is entitled to receive all salary

and vacation
accrued through the date of termination, within 30 days of the date of termination. If

Mr. Lakefields employment is terminated due to death or
disability, US Airways must also pay a

prorated annual bonus if annual bonuses are paid to executives for the year in which termination

occurs. If, prior to a change of control, US Airways or US Airways Group terminates Mr.

Lakefields employment other than for cause or if Mr. Lakefield terminates his employment for

good reason, (i) Mr.
Lakefield is entitled to receive all salary and vacation accrued through the date

of termination, within 30 days of the date of termination, and US Airways
must pay a prorated

annual bonus if annual bonuses are paid to executives for the year in which termination occurs, and

(ii) Mr. Lakefield may negotiate a separate severance agreement providing severance pay and/or

additional benefits, subject to his execution of a general release and covenant not to sue the

company. If, within two
years after a change of control, US Airways or US Airways Group

terminates Mr. Lakefields employment other than for cause or if Mr. Lakefield
terminates his

employment for good reason, Mr. Lakefield is entitled to: (i) accrued but unpaid base salary and

vacation; (ii) three times base salary (unreduced for any reductions then in effect) plus target annual

bonus for the year in which termination occurs; (iii) three times the greater of 125% of unreduced

base salary or the
target LTIP award that would have been paid for the period ending in the year of

termination; (iv) continuation of medical, dental, vision and prescription
drug coverages for Mr.

Lakefield and his dependents for 24 months on the same premium and coverage basis as active

officers (or an equivalent payment); (v) continuation of life insurance coverage for 24 months (or an

equivalent payment); and (vi) on-line travel privileges to Mr. Lakefield and his eligible family

members for life.



Other Obligations. In the event that any of Mr.
Lakefields compensation (whether required

under the agreement or otherwise) would be subject to an excise tax under Internal Revenue Code

Section 4999, US Airways is required to pay Mr. Lakefield an additional gross-up payment, such

that after payment of all taxes, including interest or penalties, on the gross-up payment, Mr.

Lakefield will retain an
amount of the gross-up payment equal to the excise tax (and any penalties

and interest on the excise tax). Mr. Lakefield agreed to hold US Airways
Groups and US Airways

secret or confidential information, knowledge or data as confidential, including after termination of

employment, and agreed to nonsolicitation of customers and employees for one year after termination.



Employment Agreement with Elizabeth K. Lanier



US Airways Employment Agreement with Ms. Lanier is dated as of March 1, 2003 and is filed as

Exhibit 10.5 to US Airways Annual Report on Form 10-K for the year ended December 31, 2003.

The Employment Agreement was amended by a letter agreement dated October 20, 2004, which is

filed as Exhibit 10.38 to this
Annual Report.



Term of Employment. The agreement
provides for Ms. Lanier to serve as US Airways Executive

Vice President-Corporate Affairs and General Counsel. Ms. Lanier will serve for an initial
term of

three years, to be extended each year by one additional year unless either US Airways or Ms. Lanier

provides notice that the term will not be extended, or, if a shorter period, until the first day of the

month following Ms. Laniers 65thbirthday (which is defined in the agreement
as Ms. Laniers

normal retirement date). Upon a change of control (as defined in the agreement), the term of the

agreement is automatically extended through the third anniversary of the date of the change of control

or through Ms. Laniers normal retirement date, whichever is earlier.



Salary and Benefits. Under the agreement, Ms. Lanier is entitled to an annual base salary of not

less than $425,000 for the initial 12 months of the term, subject to a 17% salary reduction. Ms. Lanier

is entitled to salary increases in accordance with increases awarded to other key employees and her

salary generally may
not be decreased, except that pursuant to the letter agreement that amended the



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employment agreement, Ms. Lanier is currently subject to an additional 10% salary reduction. In

addition to base salary, the agreement provides that Ms. Lanier will be awarded an annual bonus

determined by the Board or the Human Resources Committee in accordance with US Airways

Groups ICP (or successor
plan). Ms. Laniers target percentage under the annual ICP each year will

be no less than 60% of her base salary, and her maximum bonus opportunity
each year will be no less

than 120% of base salary. Ms. Lanier is eligible to participate in the LTIP with a target percentage no

less than 80% of her base salary, and a maximum percentage no less than 160% of base salary. The

agreement provides that Ms. Lanier will receive supplemental executive retirement benefits (which she

now receives through
participation in the Companys Executive Plans, subject to a 25% reduction

provided in the letter agreement that amended the employment agreement),
and is entitled to equity

awards consistent with those provided to other Executive Vice Presidents. Ms. Lanier is also entitled

to participate in all incentive, savings, retirement and welfare benefit plans provided to other key

employees. Under the agreement, Ms. Lanier is entitled to fringe benefits, office and support staff, and

paid vacation, all
in accordance with the most favorable practices with respect to other key employees.

During 2004, those benefits included on-line first class, positive
space travel privileges for business

and pleasure for Ms. Lanier and her eligible family members, as well as a limited number of non-

eligible family members and unrelated persons, a gross-up payment (up to a maximum of $10,000) to

cover her tax liability resulting from such travel, free access to US Airways Club facilities for her and

her eligible
family members, an annual car allowance, and certain relocation benefits including up to

24 months of reasonable temporary living expenses.



Termination of Employment. Ms. Laniers employment may be
terminated at any time by mutual

agreement, and terminates automatically upon her death. US Airways may also terminate the

agreement upon written notice after six months of Ms. Laniers continuous total and permanent

disability, if Ms. Lanier does not return to work within 90 days after the written notice. US Airways

may also terminate
the agreement at any time for cause (as defined in the agreement). Ms. Lanier

may voluntarily terminate her employment, which may constitute
termination for good reason upon

certain events defined in the agreement. In the event of any termination by US Airways for cause or

by Ms. Lanier for good reason, the terminating party must give written notice that indicates the

specific termination provision in the agreement that is relied upon and sets forth in reasonable detail

the facts and circumstances that are the basis for the termination, as well as the termination date, which

may not be more
than 15 days after the notice date. In the event of a dispute regarding termination, the

agreement and compensation continue in effect until the earlier of
the resolution of the dispute or the

end of the term of the agreement.



Obligations Upon Termination. If Ms. Laniers employment is terminated for cause, due to death

or disability, or is voluntarily terminated by Ms. Lanier without good reason, US Airways must pay

all salary (disregarding any impermissible salary decrease), deferred compensation and vacation

accrued through the date of termination within 30 days of the date of termination. If Ms. Laniers

employment is
terminated due to death or disability, or is voluntarily terminated by Ms. Lanier without

good reason, US Airways must also pay a prorated
annual bonus based on the amount of Ms.

Laniers annual bonus for the previous fiscal year. If, prior to a change of control and not in

connection with a change of control, US Airways terminates Ms. Laniers employment other than for

cause, disability or death or if Ms. Lanier terminates her employment for good reason: (i) US Airways

will pay to Ms.
Lanier a lump sum in cash within five days after the date of termination equal to the

aggregate of Ms. Laniers accrued but unpaid base salary
(disregarding any impermissible reductions),

a prorated annual bonus (based on the higher of the target bonus applicable under the agreement, the

bonus paid during, or the bonus paid with respect to, the most recent fiscal year), two times the sum of

such annual base salary and Ms. Laniers target annual bonus for the year in which the termination

occurs, any previously deferred compensation, and any accrued vacation pay; and (ii) for two years

after the date of
termination, US Airways will continue benefits to Ms. Lanier and/or her family as if

the agreement had continued. If, after a change of control or prior to
a change in control and in

connection with a change of control, US Airways terminates Ms. Laniers employment other than for

cause, disability or death or if Ms. Lanier terminates her employment for good reason: (i) US Airways

will pay to Ms. Lanier a lump sum in cash within five days after the date of termination equal to the



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aggregate of Ms. Laniers accrued but unpaid base salary (disregarding any impermissible reductions),

a prorated annual bonus (based on the higher of the target bonus applicable under the agreement, the

bonus paid during, or the bonus paid with respect to, the most recent fiscal year), three times the sum

of such annual base
salary and such annual bonus, any previously deferred compensation, any accrued

vacation pay, and an amount equal to the amount of additional benefits Ms.
Lanier would receive

under all US Airways retirement plans if Ms. Lanier continued employment through the term of the

agreement; (ii) for purposes of eligibility for retiree benefits, Ms. Lanier shall be considered to have

remained employed and retired on the last day of the term of the agreement; (iii) for three years after

the date of
termination, US Airways will continue benefits to Ms. Lanier and/or her family as if the

agreement had continued; and (iv) at the end of the three-year
period, US Airways will continue health

insurance and on-line travel privileges to Ms. Lanier for life. In addition, as a participant in the LTIP,

upon a change of control, she would be eligible for a payment for each three-year performance period

under the LTIP that has not yet been completed in an amount that would have been payable to her if

target performance had been met for each performance period. Further, upon termination of Ms.

Laniers employment for
any reason following the completion of at least 5 years of service,

US Airways will continue to provide Ms. Lanier with on-line travel privileges for life.



Other Obligations. US Airways agreed to pay Ms.
Laniers reasonable legal fees and expenses

incurred as a result of any contest by US Airways or others of the validity or enforceability of, or

liability under the agreement, plus interest. In addition, in the event that any of Ms. Laniers

compensation (whether required under the agreement or otherwise) would be subject to an excise tax

under Internal Revenue Code Section 4999, US Airways is required to pay Ms. Lanier an additional

gross-up payment, such
that after payment of all taxes, including interest or penalties, on the gross-up

payment, Ms. Lanier will retain an amount of the gross-up payment equal
to the excise tax (and any

penalties and interest on the excise tax). Ms. Lanier agreed to hold US Airways Groups and

US Airways secret or confidential information, knowledge or data as confidential, including after

termination of employment.



Severance Agreement with Alan W. Crellin



US
Airways Severance Agreement with Mr. Crellin is dated as of June 26, 2002 and is filed as

Exhibit 10.9 to US Airways Annual Report on Form 10-K
for the year ended December 31, 2002.

The Severance Agreement was amended by letter agreements dated July 25, 2002 and October 20,

2004, which are filed as Exhibits 10.17 to US Airways Annual Report on Form 10-K for the year

ended December 31, 2002 and Exhibit 10.37 to this Annual Report, respectively.



Term of Employment. The agreement provides for Mr. Crellin to serve as Executive Vice President

of US Airways for an initial term of three years, to be extended each year by one additional year unless

either US Airways or Mr. Crellin provides notice that the term will not be extended, or, if a shorter

period, until the
first day of the month following Mr. Crellins 65thbirthday (which is defined in the

agreement as Mr. Crellins normal retirement date). Upon a change of control (as defined in the

agreement), the term of the agreement is automatically extended to the third anniversary of the date of

the change of control or through Mr. Crellins normal retirement date, whichever is earlier.



Salary and Benefits. The agreement does not specify Mr. Crellins salary and benefits prior to the

date of a change of control. However, pursuant to the letter agreement that amended the severance

agreement, Mr. Crellin became subject to a 17% and an additional 10% salary reduction and a 25%

reduction in retirement
plan contributions effective October 11, 2004. Beginning on the date of a

change of control and continuing for a period of three years thereafter, or until
Mr. Crellins normal

retirement date, if earlier, the agreement provides for minimum salary and benefits that must be

provided to Mr. Crellin. US Airways will pay Mr. Crellin a base salary for the first 12 months of such

period at a rate not less than his base salary in effect on the date of the change of control. Mr. Crellins

salary
may not be decreased thereafter and must be increased in accordance with pay increases

provided to other executive vice president level employees. In
addition, Mr. Crellin will be awarded

an annual bonus determined by the Board or the Human Resources Committee in accordance with



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US Airways Groups ICP or successor plan. In addition to base salary and annual bonus, Mr. Crellin

will be entitled to participate in all incentive, savings, retirement and welfare benefit plans applicable

to executive vice president level employees, under terms at least as favorable as the most favorable

plans provided during
the 90-day period prior to the change of control. Mr. Crellin will also be

entitled to fringe benefits, including but not limited to space positive and
space available travel

privileges in all classes of service and cabins on all air carriers owned by US Airways and any of its

affiliates, including all carriers owned by any individual, entity or group that has entered into an

agreement that constitutes a change of control, and to paid vacation under terms at least as favorable as

the most
favorable travel privileges and vacation program provided during the 90-day period prior to

the change of control. Mr. Crellin will continue to be entitled
to all of the foregoing compensation and

benefits, if applicable, during the first six months of Mr. Crellins total and permanent disability.



Termination of Employment. Mr. Crellins
employment may be terminated at any time by mutual

agreement, and terminates automatically upon his death. US Airways may also terminate the

agreement upon written notice after six months of Mr. Crellins continuous total and permanent

disability, if Mr. Crellin does not return to work within 90 days after the written notice. US Airways

may also terminate
the agreement at any time for cause (as defined in the agreement). Mr. Crellin

may voluntarily terminate his employment, which may constitute
termination for good reason upon

certain events defined in the agreement. In the event of any termination by US Airways for cause or

by Mr. Crellin for good reason within three years after a change of control and before Mr. Crellins

normal retirement date, the terminating party must give written notice that indicates the specific

termination provision in the agreement that is relied upon and sets forth in reasonable detail the facts

and circumstances
that are the basis for the termination, as well as the termination date, which may not

be more than 15 days after the notice date. For post-change of
control terminations, in the event of a

dispute regarding termination, the agreement and compensation continue in effect until the earlier of

the resolution of the dispute, Mr. Crellins normal retirement date, or the third anniversary of the date

of the change of control.



Obligations Upon Termination. If Mr. Crellins employment is terminated for cause, due to death

or disability, or is voluntarily terminated by Mr. Crellin without good reason, US Airways must pay

all salary, deferred compensation and vacation accrued through the date of termination within 30 days

of the date of termination. If termination is due to death or disability and occurs within three years

after a change of
control and before Mr. Crellins normal retirement date, US Airways must also pay a

prorated annual bonus based on the amount of Mr. Crellins
annual bonus for the previous fiscal year.

If, prior to a change of control and not in connection with a change of control, US Airways terminates

Mr. Crellins employment other than for cause, disability or death or if Mr. Crellin terminates his

employment for good reason, US Airways will pay to Mr. Crellin in a lump sum in cash within 30

days after the date of termination the aggregate of Mr. Crellins accrued but unpaid base salary,

deferred
compensation and benefits, plus an amount equal to two times the sum of his annual rate of

base salary and his target annual bonus. If, after a change of
control, or prior to a change of control but

in connection with a change of control, US Airways terminates Mr. Crellins employment other than

for cause, disability or death or if Mr. Crellin terminates his employment for good reason: (i)

US Airways will pay to Mr. Crellin a lump sum in cash within 30 days after the date of termination

equal to the aggregate of Mr. Crellins accrued but unpaid base salary (disregarding any impermissible

reductions in
Mr. Crellins salary), a prorated annual bonus (based on the higher of the target bonus

immediately in effect prior to the change of control, the
bonus paid during, or the bonus paid with

respect to, the most recent fiscal year ending after the change of control), three times the sum of such

annual base salary and such annual bonus, any previously deferred compensation, and any accrued

vacation pay; (ii) for three years after the date of termination, US Airways will continue benefits to Mr.

Crellin and/or his family as if the agreement had continued; (iii) for purposes of eligibility for

retirement, Mr. Crellin
shall be considered to have remained employed until the third anniversary of

the date of termination; and (iv) US Airways will provide continuation of
travel privileges for life. In

addition, as a participant in the LTIP, upon a change of control, he would be eligible for a payment for

each three-year performance period under the LTIP that has not yet been completed in an amount that

would have been payable to him if target performance had been met for each performance period.



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Upon termination of Mr. Crellins employment for any reason following the fifth anniversary of his

date of employment, he will be entitled to lifetime travel privileges.



Other Obligations. US Airways agreed to pay Mr. Crellins reasonable legal fees and expenses

incurred as a result of any contest by US Airways or others of the validity or enforceability of, or

liability under the agreement, plus interest. In the case of a contest regarding (i) payments upon

termination of Mr.
Crellins employment prior to a change of control and not in connection with a

change of control other than for cause, disability or death or
termination by Mr. Crellin for good

reason, or (ii) lifetime travel privileges following Mr. Crellins fifth anniversary of employment,

US Airways is only required to make such payments if Mr. Crellin prevails on at least one material

issue in such contest. In addition, in the event that any of Mr. Crellins compensation (whether

required under the
agreement or otherwise) would be subject to an excise tax under Section 4999 of

the Internal Revenue Code, US Airways is required to pay Mr. Crellin an
additional gross-up payment,

such that after payment of all taxes, including interest or penalties, on the gross-up payment, Mr.

Crellin will retain an amount of the gross-up payment equal to the excise tax (and any penalties and

interest on the excise tax). Mr. Crellin agreed to hold US Airways Groups and US Airways

confidential and
proprietary information as confidential, including after termination of employment. If

Mr. Crellin violates this confidentiality agreement, any payments
due under the agreement are

forfeited.



First Amendment to Severance Agreement. US Airways entered into a First Amendment to Mr.

Crellins Severance Agreement on March 31, 2003 that is filed as Exhibit 10.3 to US Airways

Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003. The Amendment

provides that (1) no change of
control will be deemed to have occurred in connection with transactions

under the RSA investment agreement or in connection with US Airways emergence
from the Prior

Bankruptcy and (2) any relocation of US Airways headquarters outside of the Washington, D.C.

metropolitan area will constitute good reason for Mr. Crellin to terminate his employment.



Severance Agreement with Jerrold A. Glass



US Airways Severance Agreement with Mr. Glass is dated as of April 8, 2002 and is filed as

Exhibit 10.10 to US Airways Annual Report on Form 10-K for the year ended December 31, 2002.

The Severance Agreement was amended by letter agreements dated July 25, 2002 and October 20,

2004, which are filed as
Exhibit 10.18 to US Airways Annual Report on Form 10-K for the year

ended December 31, 2002 and Exhibit 10.40 to this Annual Report, respectively.



Term of Employment. The agreement provides for Mr.
Glass to serve as Senior Vice President of

US Airways for an initial term of three years, to be extended each year by one additional year unless

either US Airways or Mr. Glass provides notice that the term will not be extended, or, if a shorter

period, until the first day of the month following Mr. Glasss 65thbirthday (which is defined in the

agreement as Mr. Glasss normal retirement date). Upon
a change of control (as defined in the

agreement), the term of the agreement is automatically extended to the third anniversary of the date of

the change of control or through Mr. Glasss normal retirement date, whichever is earlier.



Salary and Benefits. The agreement does not specify Mr. Glasss
salary and benefits prior to the

date of a change of control. However, pursuant to the letter agreements that amended the severance

agreement, Mr. Glass became subject to a 17% and an additional 10% salary reduction and a 25%

reduction in retirement plan contributions effective October 11, 2004. Beginning on the date of a

change of control and
continuing for a period of three years thereafter, or until Mr. Glasss normal

retirement date, if earlier, the agreement provides for minimum salary
and benefits that must be

provided to Mr. Glass. US Airways will pay Mr. Glass a base salary for the first 12 months of such

period at a rate not less than his base salary in effect on the date of the change of control. Mr. Glasss

salary may not be decreased thereafter and must be increased in accordance with pay increases

provided to other senior vice president level employees. In addition, Mr. Glass will be awarded an

annual bonus determined
by the Board or the Human Resources Committee in accordance with



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US Airways Groups ICP or successor plan. In addition to base salary and annual bonus, Mr. Glass

will be entitled to participate in all incentive, savings, retirement and welfare benefit plans applicable

to senior vice president level employees, under terms at least as favorable as the most favorable plans

provided during the
90-day period prior to the change of control. Mr. Glass will also be entitled to

fringe benefits, including but not limited to space positive and space
available travel privileges in all

classes of service and cabins on all air carriers owned by US Airways and any of its affiliates,

including all carriers owned by any individual, entity or group that has entered into an agreement that

constitutes a change of control, and to paid vacation under terms at least as favorable as the most

favorable travel
privileges and vacation program provided during the 90-day period prior to the change

of control. Mr. Glass will continue to be entitled to all of the
foregoing compensation and benefits, if

applicable, during the first six months of Mr. Glasss total and permanent disability



Termination of Employment. Mr. Glasss employment may be
terminated at any time by mutual

agreement, and terminates automatically upon his death. US Airways may also terminate the

agreement upon written notice after six months of Mr. Glasss continuous total and permanent

disability, if Mr. Glass does not return to work within 90 days after the written notice. US Airways

may also terminate the
agreement at any time for cause (as defined in the agreement). Mr. Glass

may voluntarily terminate his employment, which may constitute
termination for good reason upon

certain events defined in the agreement. In the event of any termination by US Airways for cause or

by Mr. Glass for good reason within three years after a change of control and before Mr. Glasss

normal retirement date, the terminating party must give written notice that indicates the specific

termination provision in the agreement that is relied upon and sets forth in reasonable detail the facts

and circumstances
that are the basis for the termination, as well as the termination date, which may not

be more than 15 days after the notice date. For post-change of
control terminations, in the event of a

dispute regarding termination, the agreement and compensation continue in effect until the earlier of

the resolution of the dispute, Mr. Glasss normal retirement date, or the third anniversary of the date of

the change of control.



Obligations Upon Termination. If Mr. Glasss employment is terminated for cause, due to death or

disability, or is voluntarily terminated by Mr. Glass without good reason, US Airways must pay all

salary, deferred compensation and vacation accrued through the date of termination within 30 days of

the date of termination. If termination is due to death or disability and occurs within three years after a

change of
control and before Mr. Glasss normal retirement date, US Airways must also pay a prorated

annual bonus based on the amount of Mr. Glasss annual
bonus for the previous fiscal year. If, prior to

a change of control and not in connection with a change of control, US Airways terminates Mr.

Glasss employment other than for cause, disability or death or if Mr. Glass terminates his

employment for good reason, US Airways will pay to Mr. Glass in a lump sum in cash within 30 days

after the date of
termination the aggregate of Mr. Glasss accrued but unpaid base salary, deferred

compensation and benefits, plus an amount equal to two times the sum
of his annual rate of base salary

and his target annual bonus. If, after a change of control, or prior to a change of control but in

connection with a change of control, US Airways terminates Mr. Glasss employment other than for

cause, disability or death or if Mr. Glass terminates his employment for good reason: (i) US Airways

will pay to Mr. Glass
a lump sum in cash within 30 days after the date of termination equal to the

aggregate of Mr. Glasss accrued but unpaid base salary (disregarding any
impermissible reductions in

Mr. Glasss salary), a prorated annual bonus (based on the higher of the target bonus immediately in

effect prior to the change of control, the bonus paid during, or the bonus paid with respect to, the most

recent fiscal year ending after the change of control), three times the sum of such annual base salary

and such annual
bonus, any previously deferred compensation, and any accrued vacation pay; (ii) for

three years after the date of termination, US Airways will continue
benefits to Mr. Glass and/or his

family as if the agreement had continued; (iii) for purposes of eligibility for retirement, Mr. Glass shall

be considered to have remained employed until the third anniversary of the date of termination; and

(iv) US Airways will provide continuation of travel privileges for life. In addition, as a participant in

the LTIP, upon a
change of control, he would be eligible for a payment for each three-year

performance period under the LTIP that has not yet been completed in an amount
that would have

been payable to him if target performance had been met for each performance period. Upon



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termination of Mr. Glasss employment for any reason following the fifth anniversary of his date of

employment, he will be entitled to lifetime travel privileges.



Other Obligations. US Airways agreed to pay Mr. Glasss reasonable legal fees and expenses

incurred as a result of any contest by US Airways or others of the validity or enforceability of, or

liability under the agreement, plus interest. In the case of a contest regarding (i) payments upon

termination of Mr.
Glasss employment prior to a change of control and not in connection with a

change of control other than for cause, disability or death or
termination by Mr. Glass for good reason,

or (ii) lifetime travel privileges following Mr. Glasss fifth anniversary of employment, US Airways is

only required to make such payments if Mr. Glass prevails on at least one material issue in such

contest. In addition, in the event that any of Mr. Glasss compensation (whether required under the

agreement or otherwise) would be subject to an excise tax under Section 4999 of the Internal Revenue

Code, US Airways is
required to pay Mr. Glass an additional gross-up payment, such that after

payment of all taxes, including interest or penalties, on the gross-up payment,
Mr. Glass will retain an

amount of the gross-up payment equal to the excise tax (and any penalties and interest on the excise

tax). Mr. Glass agreed to hold US Airways Groups and US Airways confidential and proprietary

information as confidential, including after termination of employment. If Mr. Glass violates this

confidentiality
agreement, any payments due under the agreement are forfeited.



First Amendment to Severance Agreement. US Airways entered into a First Amendment to Mr.

Glasss Severance Agreement on March 31, 2003
that is filed as Exhibit 10.33 to this Annual Report.

The Amendment provides that (1) no change of control will be deemed to have occurred in connection

with transactions under the RSA investment agreement or in connection with US Airways emergence

from the Prior Bankruptcy and (2) any relocation of US Airways headquarters outside of the

Washington, D.C. metropolitan area will constitute good reason for Mr. Glass to terminate his

employment.



Severance Agreement with B. Ben Baldanza



US Airways Severance Agreement with Mr. Baldanza is dated as of June
26, 2002 and is filed as

Exhibit 10.14 to US Airways Annual Report on Form 10-K for the year ended December 31, 2003.

The Severance Agreement was amended by letter agreements dated July 25, 2002 and October 20,

2004, which are filed as Exhibits 10.18 to Amendment No. 1 to US Airways Annual report on Form

10-K for the year
ended December 31, 2002) and Exhibit 10.35 to this Annual Report, respectively.

The Severance Agreement was also amended by a First Amendment on March 31,
2003, which is filed

as Exhibit 10.15 to US Airways Annual Report on Form 10-K for the year ended December 31, 2003.

The Amendment provided that (1) no change of control was deemed to have occurred in connection

with transactions under the RSA investment agreement or in connection with US Airways emergence

from the Prior
Bankruptcy and (2) any relocation of US Airways headquarters outside of the

Washington, D.C. metropolitan area will constitute good reason for Mr.
Baldanza to terminate his

employment. Mr. Baldanza terminated his employment with the Company effective January 15, 2005,

and the Company does not intend to assume the Severance Agreement, as amended, in connection

with the Chapter 11 proceedings.



Term of Employment, Salary and Benefits. The agreement provided for Mr. Baldanza to serve as

Senior Vice President of US Airways for an
initial term of three years, to be extended each year by one

additional year unless either US Airways or Mr. Baldanza provided notice that the term will
not be

extended. The agreement also provided that Mr. Baldanzas employment could be terminated at any

time by mutual agreement, and terminated automatically upon his death. US Airways had the right

terminate the agreement in the event of Mr. Baldanzas continuous total and permanent disability or

for
cause (as defined in the agreement), and Mr. Baldanza had the right to terminate his employment

for good reason upon certain events
defined in the agreement. Mr. Baldanzas voluntary termination

of his agreement effective January 15, 2005 was not for good reason.



The agreement did not specify Mr. Baldanzas salary and
benefits prior to the date of a change of



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control. However, pursuant to the letter agreements that amended the severance agreement, Mr.

Baldanza had been subject to a 17% and became subject to an additional 10% salary reduction and a

25% reduction in retirement plan contributions effective October 11, 2004. Beginning on the date of a

change of control and
continuing for a period of three years thereafter, or until Mr. Baldanzas normal

retirement date, if earlier, the agreement provided for minimum
salary and benefits that must be

provided to Mr. Baldanza.



Obligations Upon Termination. The agreement provided for various payments to Mr. Baldanza

upon termination for cause, for good reason, upon death or disability or due to a change of control,

which are described in detail in US Airways Groups proxy statement for its 2004 annual meeting of

shareholders. Due
to his voluntary termination without good reason, these provisions no longer apply.

As provided in the agreement, upon voluntary termination of the
agreement by Mr. Baldanza without

good reason, US Airways paid all salary, deferred compensation and vacation accrued by Mr.

Baldanza through the date of termination.



Other Obligations. Upon termination of Mr. Baldanzas employment for any reason following the

fifth anniversary of his date of employment, he was entitled to lifetime travel privileges. US Airways

also agreed to pay Mr. Baldanzas reasonable legal fees and expenses incurred as a result of any

contest by US Airways
or others of the validity or enforceability of, or liability under the agreement,

plus interest. In the case of a contest regarding (i) payments upon
termination of Mr. Baldanzas

employment prior to a change of control and not in connection with a change of control other than for

cause, disability or death or termination by Mr. Baldanza for good reason, or (ii) lifetime travel

privileges following Mr. Baldanzas fifth anniversary of employment, US Airways is only required to

make such payments
if Mr. Baldanza prevails on at least one material issue in such contest. In

addition, in the event that any of Mr. Baldanzas compensation (whether
required under the agreement

or otherwise) would be subject to an excise tax under Section 4999 of the Internal Revenue Code,

US Airways is required to pay Mr. Baldanza an additional gross-up payment, such that after payment

of all taxes, including interest or penalties, on the gross-up payment, Mr. Baldanza will retain an

amount of the gross-up
payment equal to the excise tax (and any penalties and interest on the excise

tax). Mr. Baldanza agreed to hold US Airways Groups and US
Airways confidential and proprietary

information as confidential, including after termination of employment. If Mr. Baldanza violates this

confidentiality agreement, any payments due under the agreement are forfeited. The obligations set

forth in this paragraph will no longer apply if the Company does not assume the Severance

Agreement, as amended, in connection with the Chapter 11 proceedings.



Separation Agreement with David N. Siegel



US Airways Group and US Airways entered into a Separation Agreement with Mr. Siegel dated

April 23, 2004, which is filed as Exhibit 10.10 to US Airways Quarterly Report on Form 10-Q for

the quarter ended
June 30, 2004.



The agreement provided that Mr. Siegels
service as President and Chief Executive Officer of

Airways was terminated by Mr. Siegel for good reason on April 19, 2004. The agreement

provided for a cash severance payment of $4,725,410, which was paid in a single lump sum. In

addition, 669,600 outstanding Warrants held by Mr. Siegel became fully vested and remain

exercisable until April 1, 2010.
1,130,400 shares of restricted stock held by Mr. Siegel became fully

vested under the agreement. Mr. Siegel is also entitled to continue participating in
certain employee

benefits for three years. The agreement required US Airways to reimburse Mr. Siegel up to $15,000

for his legal fees incurred in connection with the separation agreement. The agreement requires Mr.

Siegel to protect US Airways and US Airways Groups confidential information for three years,

and not to solicit
customers, clients or employees for six months. The agreement provided for

mutual general releases of claims.



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Supplemental Separation Agreement with David N. Siegel



US Airways Group and US Airways entered into a Supplemental Separation
Agreement with

Mr. Siegel dated May 19, 2004, which is filed as Exhibit 10.11 to US Airways Quarterly Report on

Form 10-Q for the quarter ended June 30, 2004. The Supplemental Separation Agreement

supplemented the initial Separation Agreement described above, and in particular, resolved the

supplemental executive retirement benefits for Mr.
Siegel.



Under the agreement, Mr. Siegel became entitled to
benefits under the Executive Plans. The

total contribution under the Funded Executive Defined Contribution Plan for Mr. Siegel was

$681,419, which was paid to Mr. Siegel as provided in the plan. In addition, Mr. Siegel received a

tax gross-up payment of $493,441. The allocation under the Unfunded Executive Defined

Contribution Plan for Mr. Siegel was
$91,714, which is distributable to Mr. Siegel in accordance

with the terms of that plan. The agreement required Mr. Siegel to cooperate with US Airways and

US Airways Group for six months after the date of his termination of employment and to reasonably

assist on all matters related to his employment and the conduct of business, including any litigation.

US Airways agreed to reimburse Mr. Siegel up to an additional $50,000 for his legal fees incurred

in connection with the
separation agreement and supplemental separation agreement. The

agreement also entitled Mr. Siegel to receive $75,000 for accrued but unused vacation time.
Mr.

Siegel also agreed not to solicit customers, clients or employees for six months, and the agreement

provided for mutual general releases of claims.



Employment Agreement with David N. Siegel



US Airways Employment Agreement with Mr. Siegel was dated as of March 11, 2002 and was

filed as Exhibit 10.41 to US Airways Annual Report on Form 10-K for the year ended December 31,

2001. In addition, a
letter agreement between US Airways and Mr. Siegel dated as of March 11, 2002,

which supplemented the employment agreement, was filed as Exhibit 10.49 to
US Airways Annual

Report on Form 10-K for the year ended December 31, 2001. Mr. Siegels employment agreement

and the supplementary letter agreement were terminated and superseded by the separation agreement

and supplemental separation agreement described above, except that the following provisions of the

employment agreement
survived: (i) US Airways agreed to pay Mr. Siegels reasonable legal fees and

expenses incurred as a result of any contest by US Airways or others of
the validity or enforceability

of, or liability under, the separation agreement and supplemental separation agreement, plus interest,

and (ii) in the event that any of Mr. Siegels compensation would be subject to an excise tax under

Internal Revenue Code Section 4999, US Airways is required to pay Mr. Siegel an additional gross-up

payment, such that
after payment of all taxes, including interest or penalties, on the gross-up payment,

Mr. Siegel will retain an amount of the gross-up payment equal to the
excise tax (and any penalties

and interest on the excise tax).



Separation and Consulting Agreement with Neal S. Cohen



US Airways Group and US Airways entered into a Separation and Consulting Agreement with

Mr. Cohen dated April 30, 2004, which is filed as Exhibit 10.12 to US Airways Quarterly Report

on Form 10-Q for the
quarter ended June 30, 2004.



The agreement provided that Mr.
Cohens service as Executive Vice President and Chief

Financial Officer of Airways was terminated by Mr. Cohen for good reason on April
30, 2004.

The agreement provided for a cash severance payment of $1,523,033, which was paid in a single

lump sum. In addition, 223,200 outstanding Warrants held by Mr. Cohen were fully vested and

remain exercisable until April 1, 2010. 376,800 shares of restricted stock held by Mr. Cohen

became fully vested under the
agreement. The agreement provided that Mr. Cohen would provide

consulting services for three months, which could be extended by mutual written agreement.
For

the consulting services, Mr. Cohen received $50,000 per month, plus $20,000 per month in future

first class travel on Airways at a value of $200 per domestic flight round trip, $400 per Caribbean



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flight round trip and $600 per European flight round trip, prorated for partial months. The

agreement required US Airways to reimburse Mr. Cohen up to $10,000 for his legal fees incurred in

connection with the separation agreement. The agreement requires Mr. Cohen to protect

US Airways and US Airways
Groups confidential information for one year, and not to solicit

customers, clients or employees for nine months. The agreement provided for mutual
general

releases of claims.



Severance Agreement with Neal S. Cohen



US Airways Severance Agreement with Mr. Cohen was dated as of April 8, 2002 and was filed as

Exhibit 10.8 to US Airways Annual Report on Form 10-K for the year ended December 31, 2002.

Mr. Cohens severance agreement was terminated and superseded by the separation agreement

described above.



Compensation Committee Interlocks and Insider Participation



None of the Companys executive officers or directors serves as a
member of the board of directors

or compensation committee of any entity that has one or more of its executive officers serving as a

member of the Companys Board of Directors or Human Resources Committee.



Item 12. Security Ownership of Certain Beneficial Owners and Management



US Airways Group is the sole shareholder of US Airways, and holds all 1,000 shares of outstanding

common stock.



Item 13. Certain Relationships and Related Transactions



In connection with the consummation of the 2003 Plan, RSA made an equity investment in

US Airways Group equal to $240
million. In exchange for the $240 million investment, RSA received

the following securities of US Airways Group, representing approximately 36.2%, on a
fully-diluted

basis, of US Airways Groups equity: 20,652,593 shares of Class A Common Stock, 5,000,000 shares

of Class B Common Stock, 75,000 shares of Class B Preferred Stock, 1,380,570 Warrants and

1,380,570 shares of Class A Preferred Stock. As of February 1, 2005, in connection with its

investment, RSA held a voting
interest of approximately 71.7% in US Airways Group and is entitled

to designate and vote to elect eight of the 15 directors on US Airways Groups
board of directors. Dr.

David G. Bronner and Mr. William T. Stephens, two of the directors of both US Airways Group and

US Airways, are the Manager and Secretary of RSA, respectively.



Until September 26, 2007, RSA has agreed to vote all of the shares of voting capital stock received

in connection with the consummation of the 2003 Plan and then owned by it in favor of all of the

directors nominated in accordance with the investment agreement between US Airways Group and

RSA, which directors include
US Airways Groups chief executive officer, four directors nominated

by the various unions and their affiliates, and two directors identified by US
Airways Groups chief

executive officer, neither of whom is an employee or affiliate of US Airways Group, at each annual

meeting of US Airways Groups stockholders or at any meeting of the stockholders at which members

of its Board of Directors are to be elected.



RSA funded $75 million of the non-guaranteed portion of the ATSB Loan. For more information

about the ATSB Loan, see Part
I, Item 3. Managements Discussion and Analysis of Financial

Condition and Results of Operations  Liquidity and Capital Resources.
In connection with RSAs

partial funding, it received from US Airways Group 636,249 additional Warrants and 636,249

additional shares of Class A Preferred Stock. With respect to the prepayments of the ATSB Loan,

RSA, as one of the lenders under the ATSB Loan, has received prepayments totaling $21 million

through December 31, 2004,
which represented its pro rata portion of the prepayment amount based

on the percentage of the original aggregate amount of the ATSB Loan that RSA funded.
As of



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December 31, 2004, $54 million was outstanding under RSAs portion of the ATSB Loan.



See also Note 12 in the Notes to the Financial Statements included in this
report for additional

information regarding related party transactions between the Company, US Airways Group and

US Airways Groups other wholly owned subsidiaries.



Item 14. Principal Accountant Fees and Services.



Audit and Non-Audit Fees



Aggregate fees for
professional services rendered for US Airways Group and US Airways by

KPMG LLP as of or for the fiscal years ended December 31, 2004 and 2003 are set forth
below. The

aggregate fees included in the Audit category are fees forthe fiscal years for the audit of the annual

financial statements and review of quarterly financial statements and statutory and regulatory filings or

engagements. The aggregate fees included in each of the other categories are fees billed inthe fiscal

years.



|                   |  |                  |           |                  |   |          
|------------------ |  | ---------------- | --------- | ---------------- | - | ---------
|                   |  | Fiscal Year 2004 |           | Fiscal Year 2003
|Audit Fees         |  | $                | 2,332,895 |                  | $ | 2,015,000
|Audit-Related Fees |  | $                | 562,801   |                  | $ | 714,300  
|Tax Fees           |  | $                | 597,698   |                  | $ | 745,578  
|All Other Fees     |  | $                |          |                  | $ |         
|                   |  |                  |           |                  |   |          
|Total              |  | $                | 3,493,394 |                  | $ | 3,474,878
|                   |  |                  |           |                  |   |          



Audit Feesfor
the fiscal years ended December 31, 2004 and 2003 were for professional services

rendered for the audits of the annual financial statements, the audit of
internal control over financial

reporting (2004) and quarterly review of the financial statements included in the Quarterly Reports on

Form 10-Q, including bankruptcy related transactions and the adoption of fresh start reporting (2003).

Audit fees also include statutory audits and consents to the use of audit reports in SEC filings.



Audit-Related Feesas of the fiscal years ended December 31, 2004 and 2003 were for audits of

employee benefit plans and other audit related services.



Tax Feesas of the fiscal years ended December 31, 2004 and 2003 were for tax compliance advice

related primarily to bankruptcy matters, change of ownership and review of tax returns.



There were no fees which fall into the classification ofAll Other Feesas of the fiscal years ended

December 31, 2004 and 2003.



Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services



Commencing in May 2003, with the effectiveness of new rules adopted under the Sarbanes-

Oxley Act of 2002, the Audit Committee established a practice of pre-approving all services (audit

and non-audit) provided
by the Companys independent auditors and is responsible for determining

whether these services are consistent with the auditors independence.
The Audit Committee

adopted a pre-approval policy in May 2003 that provides guidelines for the audit, audit-related, tax

and other non-audit services that may be provided to the Company by its independent auditors. The

policy requires the pre-approval of all services at a meeting of the Audit Committee or through the

following detailed
process:



| |  | submission by the independent auditors of a detailed description of the audit or non-audit
| | - | ------------------------------------------------------------------------------------------

service being requested by management, including an engagement fee or range of fees for

the service;



| |  | the Companys analysis and certification that the services are not prohibited services under
| | - | --------------------------------------------------------------------------------------------

the Sarbanes-Oxley Act of 2002 and related rules or regulations;



| |  | the Companys certification that the services are compatible with the auditors
| | - | -------------------------------------------------------------------------------



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independence requirements;



| |  | the review and approval of one authorized member of management (either the General
| | - | ----------------------------------------------------------------------------------

Counsel or the Executive Vice President - Finance and Chief Financial Officer) before

submitting the proposal to the Chairman of the Audit Committee;



| |  | the analysis and verification by the independent auditor that the services are not prohibited
| | - | ---------------------------------------------------------------------------------------------

services under the Sarbanes-Oxley Act of 2002 and related rules or regulations;



| |  | the verification by the independent auditor that the services are compatible with the
| | - | -------------------------------------------------------------------------------------

auditors independence requirements;



| |  | the review and approval by the lead engagement partner before submitting the proposal to
| | - | ----------------------------------------------------------------------------------------

the Chairman of the Audit Committee;



| |  | the approval by the Chairman of the Audit Committee; and
| | - | --------------------------------------------------------



| |  | informing the full Audit Committee of such approval in a timely manner.
| | - | -----------------------------------------------------------------------



Part IV



Item 15. Exhibits and Financial Statement Schedules



The following documents are filed as part of this report:



Financial Statements



The
following financial statements of US Airways, Inc. are included in Part II, Item 8 of this report:



| |  | Statements of Operations for the year ended December 31, 2004, the nine months ended
| | - | ------------------------------------------------------------------------------------

December 31, 2003 (Successor Company), the three months ended March 31, 2003 and the

year ended December 31, 2002 (Predecessor Company)



| |  | Balance Sheets as of December 31, 2004 and December 31, 2003 (Successor Company)
| | - | --------------------------------------------------------------------------------



| |  | Statements of Cash Flows for the year ended December 31, 2004, the nine months ended
| | - | ------------------------------------------------------------------------------------

December 31, 2003 (Successor Company), the three months ended March 31, 2003 and the

year ended December 31, 2002 (Predecessor Company)



| |  | Statements of Stockholders Equity (Deficit) for the year ended December 31, 2004, the nine
| | - | -------------------------------------------------------------------------------------------

months ended December 31, 2003 (Successor Company), the three months ended March 31,

2003 and the year ended December 31, 2002 (Predecessor Company)



| |  | Notes to Financial Statements
| | - | -----------------------------



Financial Statement Schedules



All financial statement schedules have been omitted because they are not applicable or not required,

or because the required information is either
incorporated herein by reference or included in the

financial statements or notes thereto included in this report.



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Exhibits



Exhibits required to
be filed by Item 601 of Regulation S-K. Where the amount of securities

authorized to be issued under any of the Companys long-term debt agreements
does not exceed 10

percent of the Companys assets, pursuant to paragraph (b)(4)(iii) of Item 601 of Regulation S-K, in

lieu of filing such as an exhibit, the Company hereby agrees to furnish to the Commission upon

request a copy of any agreement with respect to such long-term debt.



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Designation |  | Description                                                                                                                                                                                                                                                                                                                                                                                          
|2.1         |  | First Amended Joint Plan of Reorganization of US Airways Group and Its Affiliated Debtors and Debtors-in-Possession, As Modified (incorporated by reference to Exhibit 2.1 to US Airways Current Report on Form 8-K dated March 18, 2003)                                                                                                                                                           
|            | 
|2.2         |  | Findings of Fact, Conclusions of Law, and Order Under 11 U.S.C. Secs. 1129(a) and (b) and Fed. R. Bankr. P. 3020 Confirming the First Amended Joint Plan of Reorganization of US Airways Group, Inc. and Its Affiliated Debtors and Debtors-in-Possession, As Modified (incorporated by reference to Exhibit 2.2 to
US Airways Current Report on Form 8-K dated March 18, 2003)                     
|            | 
|3.1         |  | Amended and Restated Certificate of Incorporation of US Airways, Inc., effective as of March 31, 2003 (incorporated by reference to Plan Exhibit C-2 to the First Amended Joint Plan of Reorganization of US Airways Group and Its Affiliated Debtors and Debtors-in-Possession, As Modified (incorporated by reference to Exhibit 2.1 to
US Airways Current Report on Form 8-K dated March 18, 2003)
|            | 
|3.2         |  | Amended and restated By-Laws of US Airways, Inc., effective as of March 31, 2003 (incorporated by reference to Exhibit 3.1 to US Airways Quarterly Report on Form 10-Q for the quarter ended March 31, 2003)                                                                                                                                                                                        
|            | 
|10.1        |  | Loan Agreement dated March 31, 2003 among US Airways, Inc. and Phoenix American Financial Services, Inc., Bank of America, N.A. and the Air Transportation Stabilization Board (incorporated by reference to Exhibit 10.5 to US Airways Quarterly Report on Form 10-Q for the quarter ended March 31,
2003)                                                                                         
|            | 
|10.2        |  | Amendment No. 1 dated December 18, 2003 to Loan Agreement dated March 31, 2003 among US Airways, Inc. and Phoenix American Financial Services, Inc., Bank of America, N.A. and the Air Transportation
Stabilization Board (incorporated by reference to Exhibit 10.1 to US Airways Quarterly Report on Form 10-Q for the quarter ended March 31,
2004)                                              
|            | 
|10.3        |  | Amendment No. 2 dated March 12, 2004 to Loan Agreement dated March 31, 2003 among US Airways, Inc. and Phoenix American Financial Services, Inc., Bank of America, N.A. and the Air Transportation
Stabilization Board (incorporated by reference to Exhibit 10.2 to US Airways Quarterly Report on Form 10-Q for the quarter ended March 31,
2004)                                                 
|            | 
|10.4        |  | Amendment No. 3 dated May 21, 2004 to Loan Agreement dated March 31, 2004 among US Airways, Inc. and Phoenix American Financial Services, Inc., Bank of America, N.A. and the Air Transportation
Stabilization Board (incorporated by reference to Exhibit 10.1 to US Airways Quarterly Report on Form 10-Q for the quarter ended June 30,
2004)                                                    
|            | 
|10.5        |  | Amendment No. 4 dated July 13, 2004 to Loan Agreement dated March 31, 2004 among US Airways, Inc. and Phoenix American Financial Services, Inc., Bank of America, N.A. and the Air Transportation
Stabilization Board (incorporated by reference to Exhibit 10.2 to US Airways Quarterly Report on Form 10-Q for the quarter ended June 30,
2004)                                                   



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.6  |  | Final Order (I) Authorizing Debtors Use of Cash Collateral and (II) Providing Adequate Protection Pursuant to Bankruptcy Rules 4001(b) and 4001(d) (incorporated by reference to Exhibit 99 to US Airways
Groups Current Report on Form 8-K dated October 14, 2004) (incorporated by reference to Exhibit 10.2 to US Airways Quarterly Report on Form
10-Q for the quarter ended September 30, 2004)                                                                                                                                                              
|      | 
|10.7  |  | Motion to Authorize and Approve (1) The Primary Tranche A Lender Assignment, (2) The Alternate Tranche A Lender Assignment, and (3) Amendment No. 5 to the Loan Agreement pursuant to 11 U.S.C. Sections 105,
363, 1108, and Bankruptcy Rules 4001 and 6004 ) (incorporated by reference to Exhibit 99.1 to US Airways Groups Current Report on Form 8-K
dated December 28, 2004)                                                                                                                                                                                   
|      | 
|10.8  |  | Order Approving (1) The Primary Tranche A Lender Assignment, (2) The Alternate Tranche A Lender Assignment, and (3) Amendment No. 5 to Loan Agreement pursuant to 11 U.S.C. Sections 105, 363, 1108, and Bankruptcy Rules 4001 and 6004 (incorporated by reference to Exhibit 99.2 to US Airways Groups Current Report on
Form 8-K dated December 28, 2004)                                                                                                                                                                                                         
|      | 
|10.9  |  | Master Memorandum of Understanding among US Airways Group, Inc., US Airways, Inc., and General Electric Capital Corporation acting through its agent GE Capital Aviation Services, Inc. and General Electric Company, GE Transportation Component (incorporated by reference to Exhibit 10.9 to US Airway
Groups Annual Report on Form 10-K for the year ended December 31, 2004) (portions of this exhibit have been omitted pursuant to a request
for confidential treatment and filed separately with the United States Securities and Exchange Commission (SEC))
|      | 
|10.10 |  | US Airways Funded Executive Defined Contribution Plan (incorporated by reference to Exhibit 10.1 to US Airways Annual Report on Form 10-K for the year ended December 31, 2003)                                                                                                                                                                                                                                                                                                                                                                                     
|      | 
|10.11 |  | First Amendment to the US Airways Funded Executive Defined Contribution Plan dated January 26, 2004 (incorporated by reference to Exhibit 10.4 to US Airways Quarterly Report for the quarter ended June 30, 2004)                                                                                                                                                                                                                                                                                                                                                  
|      | 
|10.12 |  | Second Amendment to the US Airways Funded Executive Defined Contribution Plan (incorporated by reference to Exhibit 10.5 to US Airways Quarterly Report for the quarter ended June 30,
2004)                                                                                                                                                                                                                                                                                                                                                                        
|      | 
|10.13 |  | Third Amendment to the US Airways Funded Executive Defined Contribution Plan (incorporated by reference to Exhibit 10.6 to US Airways Quarterly Report for the quarter ended June 30, 2004)                                                                                                                                                                                                                                                                                                                                                                         
|      | 
|10.14 |  | US Airways Unfunded Executive Defined Contribution Plan (incorporated by reference to Exhibit 10.2 to US Airways Annual Report on Form 10-K for the year ended December 31, 2003)                                                                                                                                                                                                                                                                                                                                                                                   
|      | 
|10.15 |  | First Amendment to the US Airways Unfunded Executive Defined Contribution Plan dated January 26, 2004 (incorporated by reference to Exhibit 10.7 to US Airways Quarterly Report for the quarter ended June
30, 2004)                                                                                                                                                                                                                                                                                                                                                
|      | 
|10.16 |  | Second Amendment to the US Airways Unfunded Executive Defined Contribution Plan (incorporated by reference to Exhibit 10.8 to US Airways Quarterly Report for the quarter ended June 30,
2004)                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|10.17 |  | Third Amendment to the US Airways Unfunded Executive Defined Contribution Plan (incorporated by reference to Exhibit 10.9 to US Airways Quarterly Report for the quarter ended June 30,
2004)                                                                                                                                                                                                                                                                                                                                                                       
|      | 
|10.18 |  | Employment Agreement between US Airways Group, Inc. and US Airways, Inc. and its President and Chief Executive Officer effective May 19, 2004 (incorporated by reference to Exhibit 10.6 to US Airways Quarterly Report for the quarter ended September 30, 2004)                                                                                                                                                                                                                                                                                                   



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|      |  |                                                                                                                                                                                                                                                                                     
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.19 |  | Employment Agreement between US Airways and David N. Siegel effective March 11, 2002 (incorporated by reference to Exhibit 10.41 to US Airways Annual Report on Form 10-K for the year ended December 31,
2001)                                                                    
|      | 
|10.20 |  | Amendment No. 1 effective March 31, 2003 to the Employment Agreement dated March 11, 2002 between US Airways and David N. Siegel (incorporated by reference to Exhibit 10.1 to US Airways Quarterly Report on Form 10-Q for the quarter ended March 31, 2003)                      
|      | 
|10.21 |  | Separation Agreement between U.S. Airways Group, Inc., U.S. Airways, Inc. and David N. Siegel dated April 23, 2004 (incorporated by reference to Exhibit 10.10 to US Airways Quarterly Report for the quarter ended June 30, 2004)                                                 
|      | 
|10.22 |  | Supplemental Separation Agreement between US Airways Group, Inc., US Airways, Inc. and David N. Siegel dated May 19, 2004 (incorporated by reference to Exhibit 10.11 to US Airways Quarterly Report for the quarter ended June 30, 2004)                                          
|      | 
|10.23 |  | Employment agreement between US Airways and its Executive Vice PresidentCorporate Affairs and General Counsel effective March 1, 2003 (incorporated by reference to Exhibit 10.5 to US Airways Annual Report on Form 10-K for the year ended December 31, 2003)                   
|      | 
|10.24 |  | Severance Agreement between US Airways and Neal S. Cohen effective April 8, 2002 (incorporated by reference to Exhibit 10.8 to US Airways Annual Report on Form 10-K for the year ended December 31,
2002)                                                                         
|      | 
|10.25 |  | First Amendment effective March 31, 2003 to the Severance Agreement dated April 8, 2002 between US Airways and Neal S. Cohen (incorporated by reference to Exhibit 10.2 to US Airways Quarterly Report on Form 10-Q for the quarter ended March 31, 2003)                          
|      | 
|10.26 |  | Separation and Consulting Agreement between US Airways Group, Inc., US Airways, Inc. and Neal S. Cohen effective April 30, 2004 (incorporated by reference to Exhibit 10.12 to US Airways Quarterly Report for the quarter ended June 30, 2004)                                    
|      | 
|10.27 |  | Severance Agreement between US Airways and the Executive Vice PresidentOperations effective June 26, 2002 (incorporated by reference to Exhibit 10.9 to US Airways Annual Report on Form 10-K for the year ended December 31, 2002)                                               
|      | 
|10.28 |  | First Amendment effective March 31, 2003 to the Severance Agreement dated June 26, 2002 between US Airways and the Executive Vice President-Operations (incorporated by reference to Exhibit 10.3 to US Airways Quarterly Report on Form 10-Q for the quarter ended March 31, 2003)
|      | 
|10.29 |  | Severance Agreement between US Airways and the Senior Vice PresidentMarketing effective June 26, 2002 (incorporated by reference to Exhibit 10.14 to US Airways Annual Report on Form 10-K for the year ended December 31, 2003)                                                  
|      | 
|10.30 |  | First Amendment effective March 31, 2003 to the Severance Agreement dated June 26, 2002 between US Airways and the Senior Vice President-Marketing (incorporated by reference to Exhibit 10.15 to US Airways Annual Report on Form 10-K for the year ended December 31, 2003)      
|      | 
|10.31 |  | Agreement between US Airways and David N. Siegel with respect to certain employment arrangements effective March 11, 2002 (incorporated by reference to Exhibit 10.49 to US Airways Annual Report on Form
10-K for the year ended December 31, 2001)                               



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|      |  |                                                                                                                                                                                                                                                                                            
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.32 |  | Severance Agreement between US Airways and its Senior Vice PresidentEmployee Relations effective April 8, 2002 (incorporated by reference to Exhibit 10.10 to US Airways Annual Report on Form 10-K for the year ended December 31, 2002)                                                
|      | 
|10.33 |  | First Amendment dated March 31, 2003 to the Severance Agreement dated as April 8, 2002 between US Airways and its Senior Vice President-Labor Relations                                                                                                                                    
|      | 
|10.34 |  | Agreement between US Airways and its Senior Vice PresidentMarketing with respect to certain employment arrangements effective July 25, 2002 (incorporated by reference to Exhibit 10.18 to Amendment No. 1 to US Airways Annual Report on Form 10-K for the year ended December 31, 2003)
|      | 
|10.35 |  | Agreement between US Airways and its Senior Vice PresidentMarketing with respect to certain employment arrangements effective October 20, 2004                                                                                                                                            
|      | 
|10.36 |  | Agreement between US Airways and its Executive Vice PresidentOperations with respect to certain employment arrangements effective July 25, 2002 (incorporated by reference to Exhibit 10.17 to US Airways Annual Report on Form 10-K for the year ended December 31, 2002)               
|      | 
|10.37 |  | Agreement between US Airways and its Executive Vice PresidentOperations with respect to certain employment arrangements effective October 20, 2004                                                                                                                                        
|      | 
|10.38 |  | Agreement between US Airways and its Executive Vice PresidentCorporate Affairs, General Counsel and Secretary with respect to certain employment arrangements effective October 20, 2004                                                                                                  
|      | 
|10.39 |  | Agreement between US Airways and its Senior Vice PresidentLabor Relations with respect to certain employment arrangements effective July 25, 2002 (incorporated by reference to Exhibit 10.18 to US Airways Annual Report on Form 10-K for the year ended December 31, 2002)             
|      | 
|10.40 |  | Agreement between US Airways and its Senior Vice PresidentLabor Relations with respect to certain employment arrangements effective October 20, 2004                                                                                                                                      
|      | 
|23.1  |  | Consent of Independent Registered Public Accounting Firm of US Airways to the incorporation of their report concerning certain financial statements contained in this report in certain registration statements                                                                            
|      | 
|24.1  |  | Powers of Attorney signed by the directors of US Airways, authorizing their signatures on this report                                                                                                                                                                                      
|      | 
|31.1  |  | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)                                                                                                                                              
|      | 
|31.2  |  | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)                                                                                                                                              
|      | 
|32.1  |  | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                    
|      | 
|99.1  |  | Disclosure Statement with Respect to First Amended Joint Plan of Reorganization of US Airways Group, Inc. and Its Affiliated Debtors and Debtors-in-Possession (incorporated by reference to Exhibit 99.2 to US Airways Current Report on Form 8-K dated on January 31, 2003).            



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SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly

authorized, on February 28, 2005.



|                              |  |                                                                    
|----------------------------- |  | -------------------------------------------------------------------
|US Airways, Inc. (registrant)
|                              | 
|By:                           |  | /s/ Bruce R. Lakefield                                             
|                              |  | Bruce R. Lakefield, Director, President and Chief Executive Officer
|                              |  | (Principal Executive Officer)                                      



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed

below by the following persons on behalf of US Airways Group in the
capacities indicated, on

February 28, 2005.



|    |  |                                                                        
|--- |  | -----------------------------------------------------------------------
|By: |  | /s/ Bruce R. Lakefield                                                 
|    |  | Bruce R. Lakefield, Director, President and Chief Executive Officer    
|    |  | (Principal Executive Officer)                                          
|    | 
|By: |  | /s/ Ronald E. Stanley                                                  
|    |  | Ronald E. Stanley, Executive Vice President and Chief Financial Officer
|    |  | (Principal Financial Officer)                                          
|    | 
|By: |  | /s/ Anita P. Beier                                                     
|    |  | Anita P. Beier, Senior Vice President-Finance and Controller           
|    |  | (Chief Accounting Officer)                                             
|    | 
|By: |  | *                                                                      
|    |  | Dr. David G. Bronner, Director and Chairman                            
|    | 
|By: |  | *                                                                      
|    |  | Robert L. Johnson, Director                                            
|    | 
|By: |  | *                                                                      
|    |  | Cheryl G. Krongard, Director                                           
|    | 
|By: |  | *                                                                      
|    |  | John A. McKenna, Jr., Director                                         
|    | 
|By: |  | *                                                                      
|    |  | Hans Mirka, Director                                                   
|    | 
|By: |  | *                                                                      
|    |  | George M. Philip, Director                                             
|    | 
|By: |  | *                                                                      
|    |  | William D. Pollock, Director                                           



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|    |  |                                    
|--- |  | -----------------------------------
|By: |  | *                                  
|    |  | William T. Stephens, Director      
|    | 
|By: |  | /s/ Ronald E. Stanley              
|    |  | Ronald E. Stanley, Attorney-In-Fact

---

|* | Signed pursuant to power of attorney filed herewith.
|- | ----------------------------------------------------



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