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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K.



ANNUAL REPORT PURSUANT TO SECTION 13

OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



(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, 2002



or



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



For the transition period from
to



LOGO

US Airways, Inc.

(DEBTOR AND DEBTOR-IN-POSSESSION)

(Exact name
of registrant as specified in its charter)



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)



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 the 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 Securities Exchange Act of
1934).    Yes ̈No  x



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



On February 28, 2003 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, 2002



Table of Contents



|        |  |                                                                      |  | Page
|------- |  | -------------------------------------------------------------------- |  | ----
|       
|Part I  |  |                                                                      |  |     
|       
|Item 1. |  | Business                                                             |  | 1   
|        |  | Overview                                                             |  | 1   
|        |  | Update on Chapter 11 Proceedings                                     |  | 2   
|        |  | Airline Industry and the Companys Position in the Marketplace       |  | 9   
|        |  | US Airways Express Network                                           |  | 11  
|        |  | Marketing Agreements with United Air Lines, Inc.                     |  | 12  
|        |  | Restructuring Cost Savings                                           |  | 13  
|        |  | Industry Regulation and Airport Access                               |  | 13  
|        |  | Employees                                                            |  | 15  
|        |  | Aviation Fuel                                                        |  | 15  
|        |  | Distribution Channels                                                |  | 15  
|        |  | Frequent Traveler Program                                            |  | 16  
|        |  | Insurance                                                            |  | 17  
|       
|Item 2. |  | Properties                                                           |  | 17  
|        |  | Flight Equipment                                                     |  | 17  
|        |  | Ground Facilities                                                    |  | 18  
|        |  | Terminal Construction Projects                                       |  | 18  
|       
|Item 3. |  | Legal Proceedings                                                    |  | 19  
|       
|Item 4. |  | Submission of Matters to a Vote of Security Holders                  |  | 22  
|       
|Part II |  |                                                                      |  |     
|       
|Item 5. |  | Market for US Airways Common Equity and Related Stockholder Matters |  | 22  
|       
|Item 6. |  | Selected Financial Data                                              |  | 23  
|        |  | Consolidated Statements of Operations                                |  | 23  
|        |  | Consolidated Balance Sheets                                          |  | 23  
|        |  | Pro Forma Consolidated Statements of Operations                      |  | 23  







(table of contents continued on following page)



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##### Table of Contents

US Airways, Inc.

Form 10-K

Year Ended December 31, 2002



Table of Contents

(continued)



|               |  |                                                                                       |  | Page
|-------------- |  | ------------------------------------------------------------------------------------- |  | ----
|              
|Item 7.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 24  
|               |  | Results of Operations                                                                 |  | 25  
|               |  | Liquidity and Capital Resources                                                       |  | 31  
|              
|Item 7A.       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 43  
|              
|Item 8.        |  | Consolidated Financial Statements                                                     |  | 45  
|              
|Item 9.        |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 90  
|              
|Part III       |  |                                                                                       |  |     
|              
|Item 10.       |  | Directors and Executive Officers of US Airways                                        |  | 91  
|              
|Item 11.       |  | Executive Compensation                                                                |  | 96  
|              
|Item 12.       |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 107 
|              
|Item 13.       |  | Certain Relationships and Related Party Transactions                                  |  | 108 
|              
|Item 14.       |  | Controls and Procedures                                                               |  | 109 
|              
|Part IV        |  |                                                                                       |  |     
|              
|Item 15.       |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 109 
|               |  | Consolidated Financial Statements                                                     |  | 109 
|               |  | Consolidated Financial Statement Schedules                                            |  | 109 
|               |  | Exhibits                                                                              |  | 109 
|               |  | Reports on Form 8-K                                                                   |  | 112 
|              
|Signatures     |  | 114                                                                                  
|              
|Certifications |  | 117                                                                                  



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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 47 million passengers in 2002 and was the seventh largest U.S. air carrier (as ranked by revenue passenger miles (RPMs)). As of December 31, 2002, US Airways
operated 280 jet aircraft (see Part I, Item 2 Properties for additional information related to aircraft operated by US Airways) and provided regularly scheduled service at 91 airports in the continental United States, Canada, Mexico,
France, Germany, Italy, Spain, the Netherlands, the United Kingdom and the Caribbean. US Airways expects to begin service to Ireland in May 2003. US Airways executive offices are located at 2345 Crystal Drive, Arlington, Virginia 22227
(telephone number (703) 872-7000). US Airways internet address is www.usairways.com.



As discussed in more detail below, on August 11, 2002 (Petition Date), 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 or Court) (Case No. 02-83985-SSM). On the same date, US Airways Group,
US Airways parent company, and six of its other subsidiaries (collectively with US Airways, the Debtors) also filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors cases are
being jointly administered under the caption In re US Airways Group, Inc., et al., Case No. 02-83984-SSM. US Airways continues to operate its business as a debtor-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.



US Airways has two reportable operating segments: US Airways and US Airways Express. The US Airways segment includes the operations of US
Airways jet service. The US Airways Express segment only includes certain revenues and expenses related to US Airways Groups wholly-owned regional airlines and from marketing agreements with three non-owned US Airways Express air carriers. US
Airways accounted for approximately 83% of the Companys operating revenues on a consolidated basis in 2002. 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 U.S. during those periods.



US Airways major connecting hubs are at airports in Charlotte, Philadelphia and Pittsburgh. US Airways also has substantial
operations at Bostons Logan International Airport (Logan), New Yorks LaGuardia Airport (LaGuardia) 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 and is the largest air carrier in many smaller eastern U.S. cities such as Buffalo, Hartford, Richmond, and Rochester. US Airways is also a leading airline from the Northeast U.S. to Florida. US Airways East
coast-based hubs, combined with its strong presence at many East coast airports, have made it the largest intra-East coast carrier, comprising 35% of the industrys intra-East coast revenues based on the most recent industry revenue data
available.



Filings with the Securities and
Exchange Commission (SEC) for US Airways, including 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.cfm.



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Update on Chapter 11 Proceedings



Chapter 11 Reorganization



The following discussion provides general background information regarding the Debtors Chapter 11 cases, but is not intended to be an exhaustive summary. For additional information regarding the effect of these cases on the
Debtors, investors should refer to the Bankruptcy Code and to the disclosure statement approved by the Bankruptcy Court on January 17, 2003 and filed with US Airways Current Report on Form 8-K, dated January 31, 2003 and filed with the
SEC on February 4, 2003 (Disclosure Statement).



In response to a series of adverse events that led to severe financial losses, in mid-2002, US Airways management undertook a comprehensive restructuring effort to achieve cost competitiveness through economic concessions from
key stakeholders, such as employees, aircraft lenders and lessors and other vendors in order to allow the Company to reduce costs, create financial flexibility and restore its long-term viability and profitability. Despite extensive negotiations and
substantial progress in obtaining concessions, the Company was unable to achieve sufficient cost savings from a sufficient number of its key stakeholders to enable it to restructure on a consensual basis outside of Chapter 11 of the Bankruptcy Code.
Accordingly, faced with declining seasonal revenues and cash flow, the Company determined it was necessary to file for relief under Chapter 11 as a means of completing the restructuring process and putting the Company in a position to return to
profitability.



On August 11, 2002, US Airways
filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (Case No. 02-83985-SSM). On the same date, US Airways Group, US Airways parent company, and six of its other subsidiaries (collectively with
US Airways, the Debtors) also filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors cases are being jointly administered under the caption In re US Airways Group, Inc., et al., Case
No. 02-83984-SSM. 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.



At hearings held on August 12, 2002, the
Bankruptcy Court granted the Debtors first day motions for various relief designed to stabilize their operations and business relationships with customers, vendors, employees and others and entered orders granting authority to the Debtors to,
among other things: (a) pay pre-petition and post-petition employee wages, salaries, benefits and other employee obligations; (b) pay vendors and other providers in the ordinary course for goods and services received from and after the Petition
Date; (c) honor customer service programs, including the Debtors Dividend Miles program and its ticketing programs; (d) honor obligations arising prior to the Petition Date related to the Companys interline, clearinghouse, code sharing
and other similar agreements; (e) pay certain pre-petition taxes and fees, including transportation excise taxes, payroll taxes and passenger facilities charges; and (f) pay certain other obligations. The Bankruptcy Court also gave interim approval
for US Airways Group to borrow $75 million under a proposed $500 million 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 Texas
Pacific Group (Original DIP Facility). At that time, US Airways Group also announced its entry into a memorandum of understanding with Texas Pacific Group (TPG) for a $200 million equity investment upon emergence from bankruptcy (the TPG MOU). Such
proposed investment was subject to higher or otherwise better offers. As required by the Bankruptcy Code, the United States Trustee appointed an official committee of unsecured creditors (the Official Committee). The Official Committee and its legal
representatives have a right to be heard on all matters that come before the Bankruptcy Court.



On September 25, 2002, each of the Debtors filed with the Bankruptcy Court their respective Schedules of Assets and Liabilities and Statements of Financial Affairs (Initial Schedules and
Statements) and the corresponding explanatory notes (Explanatory Notes), which set forth, among



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other things, the assets and
liabilities of the Debtors, subject to the assumptions contained in the Explanatory Notes. On December 2, 2002, certain of the Debtors filed amendments to the Initial Schedules and Statements to add certain new creditors thereto. The deadline for
filing proofs of claim with the Bankruptcy Court was November 4, 2002 (General Bar Date), with a limited exception for governmental entities, which had until February 7, 2003 to file proofs of claim (Governmental Units Bar Date). The Debtors
claims agent received approximately 4,500 timely-filed proofs of claims as of the General Bar Date totaling approximately $61 billion in the aggregate, and approximately 350 proofs of claims timely-filed by governmental entities totaling
approximately $225 million in the aggregate. As is typical in reorganization cases, differences between amounts scheduled by the Debtors and claims by creditors are being investigated and resolved in connection with the claims resolution process.
The aggregate amount of claims filed with the Bankruptcy Court far exceeds the Debtors estimate of such liability. The Debtors believe that many of these claims are duplicative, based upon contingencies that have not occurred, or otherwise are
overstated, and are therefore invalid. The Plan of Reorganization (defined below) provides for a disputed claims resolution process. In light of the number of creditors of the Debtors, the claims resolution process may take considerable time to
complete. Accordingly, the ultimate number and amount of allowed claims is not presently known. Until the disputed claims resolution process is finalized and the amount of allowed claims determined in connection therewith, distributions to general
unsecured claimants under the Plan of Reorganization will not be made. On February 27, 2003, the Debtors filed an exhibit to its Plan of Reorganization listing the contracts that were assumed and rejected.



On September 26, 2002, after receiving an offer on September
25, 2002, US Airways Group entered into a definitive investment agreement with the Retirement Systems of Alabama to be the proposed Plan of Reorganization equity sponsor, superseding the TPG MOU. On January 17, 2003, US Airways Group and the
Retirement Systems of Alabama entered into an amendment to the investment agreement (as amended, the RSA Investment Agreement) which provides that the Retirement Systems of Alabama Holdings LLC (RSA) will replace The Retirement Systems of Alabama as
the investor under the RSA Investment Agreement. Under the RSA Investment Agreement, which is a keystone to the Plan of Reorganization, RSA will invest $240 million in cash and is expected to hold approximately 36.2%, on a fully-diluted basis, of
the equity in, and the right to designate eight of 15 directors of, the reorganized US Airways Group immediately upon emergence from Chapter 11 pursuant to a confirmed plan of reorganization, as more fully described in the Disclosure Statement (the
RSA Investment). Just as with the TPG MOU, the RSA Investment was subject to higher or otherwise better offers, to be solicited by the Debtors in accordance with the amended bidding procedures (Amended Bidding Procedures) approved by the Bankruptcy
Court. The Amended Bidding Procedures established November 15, 2002 as the deadline for submission to the Debtors of competing plan proposals. No competing proposals were received by the Debtors and, accordingly, RSA was designated as the winning
plan sponsor. US Airways Group also accepted a commitment from The Retirement Systems of Alabama for a fully-underwritten $500 million debtor-in-possession financing facility on substantially the same terms as the Original DIP Facility (RSA DIP
Facility or DIP Facility). The RSA DIP Facility replaced the Original DIP Facility. See Debtor-In-Possession Financing and RSA Investment below for more information regarding the RSA DIP Facility and RSA Investment.



Under the Bankruptcy Code, the Debtors had the
exclusive right for 120 days after the Petition Date to file a plan of reorganization and, if they did so, 60 additional days to obtain necessary acceptances of their plan. Such periods were subject to extension by the Bankruptcy Court for cause. On
December 12, 2002, the Bankruptcy Court extended the Debtors exclusive period to propose a plan of reorganization (Filing Period) through January 31, 2003, and to solicit acceptances of such plan (Solicitation Period) through April 1, 2003. On
February 20, 2003, the Bankruptcy Court once again extended the Filing Period and Solicitation Period through March 31, 2003 and May 30, 2003, respectively.



Bankruptcy law does not permit solicitation of votes on a reorganization plan until the Bankruptcy Court approves the applicable
disclosure statement relating to the reorganization plan. On December 20, 2002, the Debtors filed the Joint Plan of Reorganization of US Airways Group, Inc. and Affiliated Debtors and Debtors-in-Possession and the related disclosure
statement. On



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January 17, 2003, the Debtors
filed the First Amended Joint Plan of Reorganization of US Airways Group, Inc. and Affiliated Debtors and Debtors-in-Possession (Plan of Reorganization) and related Disclosure Statement. On January 16 and January 17, 2003, the Bankruptcy
Court held hearings on the Disclosure Statement and, on January 17, 2003, entered an order approving the Disclosure Statement as containing information adequate to enable creditors whose votes are being solicited to make an informed judgment whether
to accept or reject the Plan of Reorganization and, among other things, authorized a balloting and solicitation process. That solicitation process commenced on January 31, 2003 when the Debtors mailed solicitation packages to creditors and concluded
on March 10, 2003, which was the date by which creditors ballots were to be received by the Debtors voting agent in order to be counted. March 10, 2003 also marked the deadline by which objections to the Plan of Reorganization were to be
filed with the Bankruptcy Court. In addition, the Bankruptcy Court scheduled March 18, 2003 as the date for commencement of a hearing on confirmation of the Plan of Reorganization.



The Plan of Reorganization constitutes a separate plan of reorganization for each of the Debtors. In
accordance with the Bankruptcy Code, the Plan of Reorganization divides claims against, and interests in, each of the Debtors into classes (Classes of Claims and Interests) according to their relative seniority and other criteria and provides the
same treatment for each claim or interest of a particular class unless the holder of a particular claim or interest agrees to a less favorable treatment of its claim or interest. Among other things, the Plan of Reorganization generally provides for
full payment of all allowed administrative and priority claims, and the distribution of shares of new equity in reorganized US Airways Group to unsecured creditors of the Debtors in satisfaction of their allowed claims, which distribution is
estimated to have a value, as disclosed in the Disclosure Statement, expected to be between 1.2 percent to 1.8 percent of total allowed unsecured claims. US Airways Groups existing subordinated creditors and equity security holders are not
entitled to any distribution under the Plan of Reorganization. Investors should refer to the Plan of Reorganization and the Disclosure Statement for a complete statement of its terms.



On March 18, 2003, the Bankruptcy Court entered an order confirming the Plan of Reorganization (Confirmation
Order). While the Plan of Reorganization has been confirmed by the Bankruptcy Court, it has not yet been consummated. The Plan of Reorganization will be consummated on the business day determined by the Debtors on which all conditions to the
consummation of the Plan of Reorganization have been satisfied or waived and is the day upon which the Plan of Reorganization is substantially consummated (the Effective Date). Provided that the conditions precedent to consummation are either
satisfied or waived in accordance with the Plan of Reorganization, the Effective Date of the Plan of Reorganization is expected to occur on or about March 31, 2003, unless such date is extended by the Debtors. The following are the conditions
precedent to the occurrence of the Effective Date: (i) the Bankruptcy Court shall have entered one or more orders (which may include the Confirmation Order) authorizing the assumption of unexpired leases and executory contracts by the Debtors as
contemplated by the Plan of Reorganization; (ii) all conditions precedent to the funding under the RSA Investment Agreement shall have been satisfied or waived in accordance with the terms thereof and the funding under such agreement shall have
occurred; (iii) the $900 million loan guarantee (ATSB Guarantee) from the Air Transportation Stabilization Board (Stabilization Board  see ATSB Loan below) shall have been executed and delivered by all of the parties thereto, and
all conditions precedent to the consummation thereof shall have been waived or satisfied in accordance with the terms thereof, and funding as agreed upon under the ATSB Guarantee shall have occurred; (iv) the tentative agreements reached in December
2002, between US Airways and the employee groups represented by the Association of Flight Attendants, the Communication Workers of America, the International Association of Machinists and Aerospace Workers and the Transport Workers Union modifying
earlier restructuring agreements to incorporate additional cost reductions shall have been ratified and executed by the parties thereto; (v) requisite actions shall have been taken such that the pension funding requirements with respect to the
employee defined benefit pension plans maintained by US Airways shall be consistent with the pro forma financial projections appended to the Disclosure Statement; and (vi) the Confirmation Order shall remain unstayed. There can be no assurance that
all conditions will be satisfied by March 31, 2003.



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The Chapter 11
filing triggered defaults on substantially all debt and lease obligations of the Debtors. Subject to certain exceptions under the Bankruptcy Code, the Debtors Chapter 11 filing automatically enjoined, or 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 the Petition Date. Thus, for example, creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the Debtors, or to collect on or otherwise exercise rights or remedies with respect to a pre-petition claim were enjoined unless and until the Bankruptcy Court lifted the
automatic stay.



Notwithstanding the above
general discussion of the automatic stay, however, the Debtors right to retain and operate certain aircraft, aircraft engines and other equipment defined in section 1110 of the Bankruptcy Code that are leased or subject to a security interest
or conditional sale contract are specifically governed by section 1110 of the Bankruptcy Code. That section provides, in relevant part, that unless the Debtors, within 60 days after the Petition Date (Section 1110 Deadline), agree to perform all of
the obligations (Section 1110 Agreement) under the lease, security agreement, or conditional sale contract and cure all defaults thereunder (other than defaults constituting a breach of provisions relating to the filing of the Chapter 11 cases, the
Debtors insolvency or other financial condition of the Debtors) within the time specified in section 1110, the right of the lessor, secured party or conditional vendor to take possession of such equipment in compliance with the provisions of
the lease, security agreement, or conditional sale contract and to enforce any of its other rights or remedies under such lease, security agreement, or conditional sale contract is not limited or otherwise affected by the automatic stay, by any
other provision of the Bankruptcy Code, or by any power of the Bankruptcy Court. Until the occurrence of the Effective Date, the provisions of section 1110 may materially impact the Debtors options with respect to its fleet optimization
strategy.



In order to address the fleet-related
issues raised by section 1110, the Debtors entered into various stipulations and agreements with their respective aircraft lessors and mortgagees including, but not limited to, stipulations to extend the section 1110 deadline (Section 1110 Deadline
Extension) and Section 1110 Agreements. By March 31, 2003, the Debtors expect that every aircraft in the Debtors fleet will be subject to a restructuring agreement, a Section 1110 Agreement or a Section 1110 Deadline Extension, the agreement
with respect to the aircraft will have been assumed, or such aircraft will have been abandoned or rejected. The Debtors may make further adjustments to their aircraft fleet consistent with the Plan of Reorganization and the Confirmation Order. As of
December 31, 2002, US Airways had rejected or abandoned 75 aircraft including 51 aircraft that were parked prior to the Petition Date.



On January 30, 2003, the Debtors filed a motion requesting (i) a determination from the Bankruptcy Court that the Debtors satisfy the
financial requirements for a distress termination of the defined benefit Retirement Income Plan for Pilots of US Airways, Inc. (Pilot Retirement Plan) under section 404(c)(2)(B)(ii)(IV) of the Employee Retirement Income Security Act of
1974, as amended, and approval of such pension plans termination and (ii) the authorization of the implementation of a defined contribution retirement plan for its pilots (Distress Termination Motion). A hearing on the Distress Termination
Motion began on February 21, 2003 and continued thereafter from February 24 through March 1, 2003. On March 2, 2003, the Bankruptcy Court authorized the Debtors to terminate the Pilot Retirement Plan on March 31, 2003 subject to a determination,
under the arbitration procedures established by the collective bargaining agreement and the Railway Labor Act, that the proposed termination does not violate the collective bargaining agreement between US Airways and the Air Line Pilots
Association (ALPA). The Bankruptcy Court authorized US Airways to establish, effective as of the date of termination, a follow-on defined contribution retirement plan for the pilots of US Airways, on terms consistent with the letter
agreement of December 13, 2002, between US Airways and ALPA. On March 21, 2003, the Company and ALPA reached agreement on a replacement pension plan to be effective April 1, 2003. The agreement was ratified by the ALPA Master Executive Council and
is subject to approval by the Pension Benefit Guaranty Corporation (PBGC) and final approval by the Bankruptcy Court. On March 24, 2003, the Debtors filed a motion with the Bankruptcy Court seeking supplemental authority to implement the new
defined contribution plan. The motion is expected to be heard on March 28, 2003. The Company anticipates receiving final PBGC approval prior to the proposed plan



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termination on March 31, 2003.



Debtor-In-Possession Financing



On September 26, 2002, the Bankruptcy Court approved US Airways Groups designation of RSA as its proposed Plan of Reorganization
equity sponsor and granted interim approval of the $500 million RSA DIP Facility on substantially the same terms as the Original DIP Facility. The Bankruptcy Court also granted US Airways Group the authority to borrow up to $300 million under the
RSA DIP Facility. On September 27, 2002, US Airways Group borrowed $300 million under the RSA DIP Facility and used a portion of such funds to repay the $75 million that was outstanding under the Original DIP Facility. A final order approving the
RSA DIP Facility was entered by the Bankruptcy Court on November 8, 2002. On March 7, 2003, an additional $69 million was borrowed under the RSA DIP Facility.



The RSA DIP Facility consists of a $250 million term loan facility and a $250 million revolving credit
facility (with a $50 million letter of credit sub-facility) and is guaranteed by each of the Debtors (other than US Airways Group). The RSA DIP Facility is secured by first priority liens on all unencumbered present and future assets of the Debtors
and by best priority available junior liens on all other assets of the Debtors, other than certain specified assets, including assets which are subject to financing agreements that are entitled to the benefits of section 1110 of the Bankruptcy Code
to the extent such financing agreements prohibit such junior liens. US Airways Group has the option of borrowing under the RSA DIP Facility at an interest rate of the prime rate plus 2.5% or LIBOR plus 4.0%.



The maturity date of the RSA DIP Facility is the earlier of
the effective date of a plan of reorganization of the Debtors or September 30, 2003. The RSA DIP Facility may be accelerated upon the occurrence of an event of default under the RSA DIP Facility and contains customary mandatory prepayment events
including, among other things, the occurrence of certain asset sales and the issuance of certain debt or equity securities.



The definitive documentation relating to the RSA DIP Facility contains covenants that require US Airways Group to satisfy ongoing
financial requirements including operating results, cash receipts and liquidity. Such covenants also limit, among other things, the Debtors ability to borrow additional money, pay dividends and make additional corporate investments.



Under the RSA DIP Facility, borrowing
availability is determined by a formula based on a percentage of eligible assets. The eligible assets consist of certain previously unencumbered aircraft, aircraft engines, spare parts, flight simulators, real property (including interests in
certain airport facilities), takeoff and landing slots, ground equipment and accounts receivable. The underlying values of such assets may fluctuate periodically due to prevailing market conditions, and fluctuations in value may have an impact on
the borrowing availability under the RSA DIP Facility. Availability may be further limited by additional reserves imposed by the administrative agent and the collateral agent as they deem necessary in their reasonable credit judgment.



The remaining $131 million of availability under the RSA DIP
Facility, subject to the limitation on borrowing availability discussed above, will be available to US Airways Group after certain conditions are met, including (i) the entry by the Bankruptcy Court of a final order approving the terms and
conditions of the RSA DIP Facility documents; (ii) the minimum statutory and regulatory review periods shall have expired with respect to US Airways marketing agreements with United Air Lines, Inc. (United) and neither the U.S. Department of
Transportation nor any other applicable governmental authority or third party has filed any material objection to such marketing agreements which has not been resolved; (iii) (a) the receipt of written confirmation from the Stabilization Board of
its conditional approval for the ATSB Guarantee under the Air Transportation Safety and System Stabilization Act (Stabilization Act), subject to confirmation by the Bankruptcy Court of a plan of reorganization reasonably acceptable to the
Stabilization Board, (b) the approval by the Stabilization Board of a substantially final draft of the plan of reorganization and disclosure statement to be filed in the cases, and (c) the Company demonstrating to the reasonable satisfaction of RSA
that it is likely



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to satisfy all of the conditions to the issuance of the ATSB Guarantee; and (iv) banks, financial institutions and other institutional
lenders satisfactory to the Company and RSA delivering commitments to lend at least the $100 million at-risk portion of the $1 billion Stabilization Board guaranteed loan. US Airways Group met the condition described in clause
(i) above when the Bankruptcy Court entered a final order approving the RSA DIP Facility on November 8, 2002. With respect to the marketing agreements described in clause (ii) above, on October 2, 2002, the U.S. Department of Transportation
announced that it had completed its review of US Airways marketing agreements with United and had determined to end the statutory waiting period for such agreements. US Airways Group met the conditions described in clauses (iii)(a) and
(iii)(b) above when the Company received written confirmation from the Stabilization Board of its conditional approval of the ATSB Guarantee by letter on February 11, 2003 and the Plan of Reorganization, which was reasonably acceptable to the
Stabilization Board, was confirmed by the Bankruptcy Court on March 18, 2003. US Airways Group met the condition in clause (iv) above when US Airways secured commitments from its at-risk lenders.



On March 20, 2003, US Airways Group notified RSA that it was
not in compliance with a material financial covenant under the DIP Facility. Under the terms of the DIP Facility, RSA could exercise one or more remedies, including but not limited to, a cancellation of its commitment to lend under the DIP Facility
as well as the right, upon five business days notice, to recover the collateral for the loan. The Company is in discussions with RSA regarding the funding of the remaining $131 million available under the DIP Facility and a potential waiver or
standstill agreement while the Company completes the final stages of emergence from Chapter 11.



RSA Investment



The RSA Investment Agreement covers certain matters, including but not limited to, board composition, US Airways Groups
post-emergence capital structure and the replacement of the Retirement Systems of Alabama with the Retirement Systems of Alabama Holdings LLC as the investor under the RSA Investment Agreement. RSA will invest $240 million in cash and is expected to
hold approximately 36.2%, on a fully-diluted basis, of the equity in the reorganized US Airways Group immediately upon emergence from Chapter 11 pursuant to the confirmed Plan of Reorganization. If the RSA Investment is consummated in accordance
with its terms, RSA is expected to have a voting interest of approximately 71.6% in the reorganized US Airways Group immediately upon emergence from Chapter 11 pursuant to the confirmed Plan of Reorganization and would hold eight of 15 seats on
US Airways Groups Board of Directors. The RSA Investment is subject to customary conditions to closing as well as US Airways Groups achievement of certain financial and operational benchmarks. The RSA Investment, if
consummated, contemplates the cancellation of the common stock of US Airways Group (Common Stock).



Notice and Hearing Procedures for Trading in Claims and Equity Securities



In connection with US Airways Groups bankruptcy filing,
on August 12, 2002, the Bankruptcy Court entered an interim order (Interim NOL Order) to assist the Debtors in monitoring and preserving their net operating losses (NOLs) by imposing certain notice and hearing procedures on trading in (i) claims
against the Debtors (Claims) or (ii) equity securities in US Airways Group. In general, the Interim NOL Order applied to any person or entity that, directly or indirectly, beneficially owns, or was about to enter into a transaction pursuant to which
it would directly or indirectly beneficially own, (i) an aggregate principal amount of Claims equal to or exceeding $50 million (including a lease or leases under which one or more of the Debtors are lessees and pursuant to which payments of $50
million or more, in the aggregate, are or will become due) or (ii) three million or more shares of Common Stock. Under the Interim NOL Order, such persons or entities were required to provide 30 calendar days advance notice to the Court, the
Debtors, and Debtors counsel prior to purchasing or selling any Claims or Common Stock, and the Debtors had 30 calendar days after receipt of such notice to object to any proposed transfer described therein. If the Debtors filed an objection,
such transaction would not be effective unless approved by a final and nonappealable order of the Bankruptcy Court. If the Debtors did not object within such 30 day period, such transaction may have proceeded solely as set forth in the notice.
Moreover, the Interim



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NOL Order required that any person or entity who, directly or indirectly, beneficially owned $50 million or more in Claims or three million
or more shares of Common Stock file and serve a notice setting forth the size of their holdings on or before the later of (i) 40 days after the effective date of the notice of entry of the Interim NOL Order or (ii) 10 days after becoming such a
beneficial owner. Pursuant to the Interim NOL Order, any purchase, sale or other transfer of Claims or equity securities in US Airways Group in violation of these procedures was null and void ab initio as an act in violation of the automatic
stay under section 362 of the Bankruptcy Code.



After holding a final hearing on the Interim NOL Order on September 26, 2002, the Bankruptcy Court entered the final order on October 2, 2002 (Final NOL Order), which modified certain aspects of the Interim Order. The modifications
include, among others, (i) an increase from $50 million to $100 million of the Claims threshold amount for determining which creditors are subject to the notice and objection procedures of the Final NOL Order and (ii) a decrease from 30 calendar
days to 10 business days of the period during which the Debtors may object to a notice of proposed transfer of Claims or Common Stock. The Common Stock threshold amount for determining which equity holders are subject to the notice and objection
procedures of the Final NOL Order remains unchanged from the Interim NOL Order.



ATSB Loan



As part of its restructuring efforts, US Airways sought and received conditional approval for a $900 million loan guarantee under the Stabilization Act from the Stabilization Board in connection with a proposed $1 billion
loan financing (the ATSB Loan). US Airways applied for this loan and related guarantee in order to provide additional liquidity necessary to carry out its restructuring plan. On February 11, 2003, the Stabilization Board issued a letter to US
Airways reaffirming its approval of the ATSB Guarantee, subject to certain conditions. The Stabilization Boards conditions for issuance of the ATSB Guarantee included, among other things, the execution and delivery of legally binding
agreements acceptable to the Stabilization Board containing economic concessions from key stakeholders, confirmation of the Plan of Reorganization by the Bankruptcy Court, a resolution of US Airways pension funding issue approved by the Pension
Benefit Guarantee Corporation and, if necessary, the Bankruptcy Court, resolution of certain collateral issues, as well as customary closing documentation.



It is expected that the ATSB Loan will consist of a $1 billion term loan facility to US Airways, $900 million of which will be guaranteed
by the Stabilization Board. The ATSB Loan will also be guaranteed by each of the Debtors (other than US Airways). The ATSB Loan will be secured by first priority liens on substantially all of the unencumbered present and future assets of the Debtors
(including certain 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. The ATSB Loan is expected to bear interest as follows: (i) 90% of the ATSB Loan will bear interest (a) if funded through a participating lenders commercial paper conduit program, at a rate of
interest 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% or (b) if not funded through such commercial paper conduit program, at a
rate of interest equal to LIBOR plus 0.40% and (ii) 10% of the ATSB Loan will bear interest at LIBOR plus 4.0%. In addition, it is expected that US Airways will be charged an annual guarantee fee in respect of the ATSB Guarantee equal to
4.0% of the Stabilization Boards exposure under the ATSB Guarantee, with such guarantee fee increasing by ten basis points annually. In addition, it is expected that the Stabilization Board will receive warrants that will enable it to purchase
approximately 10% of the Companys common stock on a fully diluted basis.



The maturity date of the ATSB Loan is expected to be six and one-half years following the funding date. In addition, it is expected that the ATSB Loan will require semi-annual amortization payments
commencing in October 2006, each such amortization payment to be in the amount of $125 million, with a final scheduled principal payment of $250 million due on the maturity date of the ATSB Loan.



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The ATSB Loan
will be subject to acceleration upon the occurrence of an event of default under the ATSB Loan and will contain 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) from excess cash flow should the value of the collateral pledged in respect of the ATSB Loan decrease below a specified coverage level.



It is expected that the definitive documentation relating to the ATSB Loan will contain covenants that will
require US Airways to satisfy ongoing financial requirements including operating results, fixed charge coverage and liquidity. Such covenants also limit, among other things, the Debtors ability to pay dividends, make additional corporate
investments and acquisitions, enter into mergers and consolidations and modify certain concessions obtained as part of the Chapter 11 restructuring.



Definitive documentation for the ATSB Loan has not yet been completed and funding of the ATSB Loan is subject to certain conditions
precedent which have not yet been satisfied. While the Company expects to satisfy such conditions in the near future, there is no assurance that it will satisfy such conditions.



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 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. Despite numerous competitive pressures, the Company has
remained the leading carrier at 71 of the 148 airports it serves on the East coast.



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 Groups results of operations and financial condition. With its concentration in the eastern United States, US Airways average stage length (i.e., trip distance) is shorter than those of other
major airlines. This makes US Airways more susceptible than other major airlines to competition from surface transportation (e.g., automobile, trains, etc.).



US Airways considers the growth of low-cost competition and the growing presence of competitors regional jets in certain of its
markets to be its foremost competitive threats. Recent years have seen the entrance and growth of 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. The Company anticipates
further low-cost competition in the industry in the future.



Other major airlines have substantially increased the number of regional jets in the eastern United States. Regional jets are faster, quieter, more comfortable than turboprops and generally preferred by customers over turboprops. The
Company continues to add regional jets to its fleet (see US Airways Express Network below); however, it continues to lose significant market share in markets where its turboprop affiliates compete with other major airline affiliates
which operate regional jets.



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In August
2002, Continental Airlines, Delta Air Lines, and Northwest Airlines entered into a marketing alliance (CO/DL/NW Alliance). Implementation of that alliance is subject to a number of conditions imposed by the Department of Justice and the Department
of Transportation (DOT). The carriers have objected to the DOT imposed conditions and indicated an intention to proceed without accepting them. However, to date, no substantive components of the alliance have been implemented and the carriers are in
further discussion with the DOT. Should the CO/DL/NW Alliance be implemented without conditions similar to those indicated by the DOT, it could negatively impact the Companys business and the benefits that the Company may ultimately realize
from its own alliance with United, which is described below (See Marketing Agreements with United Air Lines, Inc.).



The growth of low cost carriers and the rise of price transparency due to the internet have resulted in continued pricing pressure for the
Company. A decline in overall industry traffic since 2001 has also not been matched by an equivalent reduction in industry capacity, resulting in an oversupply situation that also has depressed yields. As fares have lowered and the range of fares
has become more transparent, the gap between the lowest fares and the highest fares on any given route has come under increasing scrutiny. In response, the Company has undertaken several initiatives to modify the rules regarding the lowest priced
tickets. In addition, several competitors have instituted revised fare structures centered on a lower fare for walk-up business travel. Given the Companys route network and its corresponding dependence on business travelers, these new fare
structures pose a threat to revenues to the extent that they encroach into the Companys network.



In recent years, the Companys profitability was significantly eroded by competitive pressures (including the incursion of both
regional jets and low-cost carriers into its operating territories), unfavorable economic trends, and rising fuel and labor costs. The May 2000 proposed merger of United Air Lines, Inc. (United) and US Airways Group was designed to address this
profitability erosion by adding US Airways Group into a global network. During the merger period, which ended in the termination of the agreement after failing to receive approval from the United States Department of Justice in late July 2001, the
Company was 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 it; however, this plan was preempted
by the September 11thterrorist attacks.



US Airways was one of the airlines most significantly affected by the events of September 11th. Not only were US Airways operations shut down entirely for three days in September, but Reagan National, at which US
Airways is the largest carrier, was closed until October 4, 2001. Service was not fully restored there until May 2002. In addition, the East coast in general has been the part of the country most affected in the aftermath of the attacks. US Airways
competes heavily with trains and automobiles as a result of their short-haul network and, as such, have been more affected than other airlines. The increased airport security charges and procedures have also had a disproportionate impact on
short-haul travel.



In response to these adverse
events, the Company, led by a new management team headed by David N. Siegel, who joined the Company in March 2002, implemented a plan to return the Company to profitability. The plan first required significant cost savings from key constituent
groups including employees, vendors, aircraft lenders/lessors and financiers and other groups. Second, the plan sought to boost revenues and enhance competitiveness by the increased use of regional jets to service markets in an efficient manner.
Finally, the Company sought to enhance revenues by entering into a strategic alliance for code sharing with domestic and international airlines. To obtain sufficient liquidity to implement the restructuring plan, the Company sought and obtained
approval for a $1 billion, six and one-half year term loan, $900 million of which will be guaranteed by the federal governments Stabilization Board, subject to certain conditions.



While the Company was able to successfully negotiate cost
savings from many of its employee groups, the Company determined that it was unlikely to conclude consensual negotiations with all of the remaining labor groups, various vendors, aircraft lenders/lessors and financiers in a time frame necessary to
complete an out-of-court restructuring. Factors contributing to this conclusion included the large number of lenders/lessors and financiers, the inability of trustees to modify payment terms



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of public equipment financings without the unanimous consent of holders of widely-held trust certificates and the Companys inability to
reject/abandon surplus aircraft leases, return excess aircraft and extinguish applicable obligations outside of Chapter 11. Faced with declining seasonal revenues, the Company filed voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code for it and its domestic subsidiaries to maximize their liquidity position and their prospects for a successful reorganization. As described above, on March 18, 2003 the Bankruptcy Court confirmed the Companys Plan of Reorganization
subject to certain conditions and the Company currently expects to complete its emergence on or about March 31, 2003.



On March 20, 2003, the Company announced that the formal commencement of military action against Iraq required the airline to take
immediate steps to limit the wars impact on its restructuring. The Company said it is evaluating actions that must be taken to actively manage the economic and operating challenges presented by the war. The Company also disclosed that its
passenger bookings had been severely impacted as customers delayed or cancelled their travel plans, with transatlantic bookings the most heavily impacted. The Company noted that all of the airlines labor contracts contain a provision that
allows it to implement a 5 percent pay deferral for up to 18 months for all union, management and administrative employees, in conjunction with this military action. The Company is evaluating cost-reduction or deferral initiatives, with pay deferral
and capacity reductions among the actions being considered.



US Airways Express Network



Certain air carriers have code share arrangements with US Airways to operate under the trade name US Airways Express, including US Airways Groups wholly-owned regional airlines Allegheny, Piedmont and PSA.
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 to US
Airways hubs. As of December 2002, the US Airways Express network served 157 airports in the continental U.S., Canada and the Bahamas, including 46 airports also served by US Airways. During 2002, US Airways Express air carriers
enplaned approximately 13 million passengers (of these approximately 7 million passengers were enplaned by US Airways Groups wholly-owned regional airlines), approximately 58% of whom connected to US Airways Groups flights. The
Company uses its US Airways Express operations to feed connecting traffic at its hubs from low density markets that are uneconomical for US Airways to serve with large jets. In addition, US Airways Express operators offer
complementary service in existing US Airways markets by operating flights in scheduling gaps between US Airways flights.



The US Airways Express code share arrangements are either in the form of a capacity purchase or a prorate agreement. The three
regional wholly-owned airlines and the regional jet affiliate operators are capacity purchase relationships. The regional jet affiliates with a capacity purchase agreement are Chautauqua Airlines (Chautauqua), Mesa Airlines, Inc. (Mesa), Trans
States Airlines, Inc. (Trans States), Midway Airlines Corporation (Midway) and Republic Airlines (Republic). 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, 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 2012 and provide for optional extensions at
the Companys discretion. The carriers with a prorate agreement are non-owned turboprop operators and include all or a portion of the turboprop operations of Colgan Airlines, Inc. (Colgan), Trans States, Shuttle Acquisition LLC (Shuttle
America), and Air Midwest, Inc. (Air Midwest). The prorate agreements provide for affiliate carriers to pay certain service fees to US Airways as well as 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



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US Airways Express carriers use US Airways reservation systems, logos, service marks, aircraft paint schemes and uniforms similar to US
Airways.



US Airways agreements with its
pilots provides that it may operate up to 465 regional jets, subject to certain restrictions. As of December 31, 2002, the regional jet affiliates operated 70 regional jets as US Airways Express. Additional regional jets up to 465 are subject to the
Jets for Jobs protocol and related agreements with US Airways pilots. The Jets for Jobs protocol provides for 50% of new regional jet flight crew opportunities created as a result of increased use of regional jets at US Airways to be
offered to furloughed US Airways pilots. The Jets for Jobs protocol requires consensus by the pilots union at each regional carrier where additional regional jets will be flown. Allegheny, PSA, Piedmont, Mesa and Midway pilots have all agreed to
Jets for Jobs.



In an attempt to boost revenues
and enhance competitiveness, the Company has begun to implement a key component to its overall restructuring plan - increased use of regional jets. To this end, in October 2002, US Airways reached agreement with Mesa to fly 20 additional 50-seat
regional jets as part of the US Airways Express network. Some of these additional Mesa aircraft started flying in February 2003 and all are expected to enter service during calendar year 2003. In December 2002, US Airways reached an agreement with
Midway to fly 18 50-seat regional jets as part of the US Airways Express network. These aircraft began to enter service in January 2003 and all such new service is expected to be complete during 2003. In December 2002, US Airways and Chautauqua
reached an agreement to fly an additional nine regional jet aircraft that will enter into service in the second half of 2003. Also, US Airways and Republic agreed to a new Jet Service Agreement that provides for an additional 23 regional jets that
will enter service in 2003 and 2004. Both the Chautauqua and the Republic agreements remain contingent on Jets for Job-related pilot provisions. An agreement between US Airways and Midway provides for a US Airways option, at its sole discretion, to
add up to 48 additional aircraft. In connection with the Midway agreement, the Company has provided debtor-in-possession financing to Midway and will receive a substantial equity stake in the reorganized Midway, subject to consummation of binding
agreements and completion of Midways reorganization.



The additional Mesa, Midway, Chautauqua and Republic regional jets are subject to certain conditions, including but not limited to, aircraft availability, the affiliates ability to finance the additional aircraft at agreed upon
economic terms, and in the case of Chautauqua and Republic, each remains contingent upon a pilot agreement on Jets for Jobs. In addition, US Airways pilots have filed a grievance with the Company with respect to the interpretation and
implementation of provisions of the Jets for Jobs protocol at Mesa. Because each of these situations is subject to an agreement on labor practices or economic terms by multiple parties, the implementation of the Companys restructuring plan
with respect to increased use of regional jets could be adversely affected.



Marketing Agreements with United Air Lines, Inc.



US Airways reached comprehensive marketing agreements with United in July 2002. The agreements received approvals from the pilot unions for both US Airways and United. The Department of Transportation
announced on October 2, 2002, that it had concluded its review of the agreements. These agreements are in the process of being implemented. Once fully implemented, US Airways and United passengers will be able to contact either airline and make
a single reservation that involves travel on either or both airlines (code share travel) through new streamlined ticketing, baggage handling and check-in procedures. In addition, US Airways and United customers have the opportunity to earn
Dividend Miles and Mileage Plus Miles on both airlines and members of either airlines airport club may access both airlines airport clubs under certain conditions. US Airways and United customers will also have the opportunity to redeem
Dividend Miles and Mileage Plus awards on both airlines. The first elements of the marketing agreements began October 14, 2002, with the introduction of reciprocal airport lounge access between the two carriers club programs, as well as
interline electronic ticketing. The ability for passengers to earn frequent flier miles on flights operated by either of the two airlines began November 1, 2002. The first code share flights began in January of 2003.



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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 requested bankruptcy court authority immediately to assume these agreements
and the court granted Uniteds request.



Restructuring Cost Savings



The Company has projected total savings from its restructuring efforts averaging approximately $1.9 billion per year for US Airways Group over the period through 2008. Savings are comprised of employee cost reductions,
restructured aircraft obligations, and other savings from vendors and affiliates and from process reengineering benefits. Employee cost reductions are expected to yield approximately $1.0 billion in annual savings as a result of pay and benefit
reductions and changes in work rules. These savings estimates include the impact of contractual and inflationary cost increases that would have occurred during this period. Restructured aircraft obligations and changes in the mix of the operating
fleet are expected to generate $460 million to $500 million in average annual savings and changes in vendor contracts, management concessions, and process reengineering initiatives are expected to generate at least $400 million in annual savings.
For 2003, however, the improvement in expenses is expected to be approximately $1.5 billion compared to pre-restructured 2003 expenses due to timing and other differences in certain cash costs as compared to expenses. The estimated savings are
subject to change with changes in the Companys operating environment and level of operations over the forecast period.



Industry Regulation and Airport Access



US Airways operates under a certificate of public convenience and necessity issued by the 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 certificate. 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, expanded flight data recorder parameters; cargo hold smoke detection/fire suppression systems; 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 quality system improvements; and domestic reduced vertical separation.



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, San Francisco and Orange County (California), 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 could affect operations and increase operating costs for the airline industry,
including the Company.



The Company is obligated
to collect a federal excise tax on domestic and international air transportation (commonly referred to as the ticket tax). The Company collects these taxes, along with certain other U.S. and foreign taxes and user fees on air
transportation, and passes through the



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collected amounts to the appropriate governmental agencies. Although such taxes are not operating expenses to 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. The 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; regulations issued in connection therewith require fingerprint-based
background checks of all employees and vendor employees with access to secure areas of airports; and provision of passenger data to U.S. Customs. Funding for the TSA is provided by a new fee collected by air carriers from their passengers of $2.50
per flight, but not more than $5.00 per one-way trip, and a new fee on air carriers that is limited to the amount that 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 and its passengers and has and will likely continue to result in service disruptions and delays.



Many 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), Chicago OHare International Airport (OHare), 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 beginning in 2001 at OHare and 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, 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 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. Based on the excessive flight delays
resulting from the initial grant of slot exemptions, along with LaGuardias limited ability to expand operations due to land and airspace constraints, the Company believes that it is likely some form of slot restrictions will remain despite
their scheduled elimination in 2007.



As a result
of the September 11thterrorist attacks, the FAA closed Reagan National, where the Company has substantial
operations, until October 4, 2001, after which the FAA permitted carriers to reinstate service in phases. As of March 2002, the Company was operating 77% of its pre-September 11thdepartures. On March 13, 2002, the FAA announced that airlines were authorized to return to their pre-September 11thservice levels at Reagan National effective April 15, 2002.



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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Employees



As of
December 31, 2002, on a full-time equivalent basis, US Airways employed 31,400 active full-time equivalent employees including approximately 7,600 station personnel, 6,900 flight attendants, 6,000 mechanics and related employees, 4,100 pilots, 1,800
reservations personnel, and 5,000 personnel in administrative and miscellaneous job categories.



As of December 31, 2002, approximately 27,700, or 87%, 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, 2002 is as follows:



|Union (1) |  | Class or Craft                  |  | Employees (2) |  | Date Contract Amendable
|--------- |  | ------------------------------- |  | ------------- |  | -----------------------
|ALPA      |  | Pilots                          |  | 4,100         |  | 12/31/08               
|IAMAW     |  | Mechanics and related employees |  | 6,200         |  | 12/31/08               
|IAMAW     |  | Fleet service employees         |  | 4,800         |  | 12/31/08               
|CWA       |  | Passenger service employees     |  | 5,700         |  | 12/31/08               
|AFA       |  | Flight attendants               |  | 6,900         |  | 12/31/08               



|(1) |  | ALPA IAMAW CWA AFA                                              |  | Air Line Pilots Association, International International Association of Machinists and Aerospace Workers Communications Workers of America Association of Flight Attendants
|--- |  | --------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Approximate number of active employees covered by the
contract.



Aviation Fuel



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. The military action in the Middle East, continued political unrest in Venezuela and adverse weather during the 2002-2003 winter season continue to impact the supply and demand for oil and consequently the price. Because the
operations of the Company are dependent upon aviation fuel, significant increases in aviation fuel costs could materially and adversely affect the Companys liquidity, results of operations and financial condition. For 2002, 2001 and 2000,
aviation fuel expenses, including fuel-related taxes, were 9.1%, 11.3% and 13.1%, respectively, of the Companys total operating expenses (as adjusted to exclude unusual items for comparability purposes).



US Airways periodically participates in arrangements designed
to reduce its exposure to significant increases in the price of aviation fuel (see Note 3(a) to the Companys Notes to Consolidated Financial Statements for additional information).



See Selected US Airways Operating and Financial Statistics in MD&A for additional information
related to aviation fuel.



Distribution Channels



During 2002, US Airways ceased paying base commissions to travel agencies in the U.S. US Airways continues to participate in contractual relationships with certain travel agencies that pay them a bonus commission, often called an
override, based on sales on the airline. Total commissions paid to travel agencies accounted for approximately 1.5%, 2.8% and 3.7% of US Airways total operating expenses (as adjusted to exclude unusual items for comparability purposes) for the
years 2002, 2001 and 2000, respectively.



Growing
usage of electronic distribution systems, including electronic tickets and internet booking channels, has helped the Company to reduce its cost while changing the dynamics of ticket purchasing. The Company began selling electronic tickets in 1996.
During 2002, electronic ticket sales represented 90% of all ticket sales. The Company currently charges a $25 fee to customers,



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except for certain elite status frequent fliers, who choose a paper ticket when an electronic ticket is available.



Consumers are increasingly using online travel agencies to buy
tickets. The largest of these, Orbitz, Travelocity, and Expedia, now each handle a meaningful volume of ticket purchases for the Company. Travelocity and Expedia each are increasingly charging suppliers for preferential display and promotion in
their sites, a practice that is not allowed in the traditional global distribution systems environment. As a result, these sites have become more expensive distribution channels for the Company, especially as traditional distribution, travel
agencies, have become less expensive through the elimination of base commissions. Orbitz is not acting this way today, and as a result is a lower cost channel for the Company. The Companys own website, usairways.com, continues to be
developed and expanded as it provides the lowest ticketing cost of any distribution channel. During the fourth quarter of 2002, sales from all internet bookings comprised 20% of total sales. Approximately half of the internet bookings were through
usairways.com.



Frequent Traveler Program



Under US Airways Dividend Miles frequent traveler program (FTP), participants generally receive mileage credits for each paid flight segment on US Airways, US Airways Shuttle and US Airways Express. Participants can also
receive mileage for each paid flight segment on one of US Airways FTP airline partners. Participants flying on first class or Envoy class tickets receive additional mileage credits. Participants can also receive additional 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 FTP partners. Mileage credits earned by FTP participants can be redeemed for
various travel awards, including upgrades to first class or Envoy class, and tickets on US Airways or on one of US Airways FTP airline partners.



US Airways and its FTP 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 with or without prior notice.



US Airways uses the incremental cost method to account for
liabilities associated with Dividend Miles. Estimated future travel awards are valued at the estimated average incremental cost of carrying one additional passenger. Incremental costs include unit costs for passenger food, beverages and supplies,
fuel, reservations, communications, insurance and denied boarding compensation. No profit or overhead margin is included in the accrual for incremental costs. US Airways periodically reviews the assumptions made to calculate its FTP liability for
reasonableness and makes adjustments to these assumptions as necessary.



In January 1999, US Airways announced changes to its FTP. Mileage credits earned prior to January 1, 2000 do not expire. Mileage credits earned on or after January 1, 2000 do not expire provided that the participant earns or
redeems any amount of Dividend Miles at least once every 36 months.



As of December 31, 2002 and 2001, Dividend Miles participants had accumulated mileage credits for approximately 7,011,000 awards and 6,817,000 awards, respectively. Because US Airways expects that some potential awards will
never be redeemed, calculations of FTP liabilities are based on approximately 79% of total accumulated mileage credits. Mileage credits for Dividend Miles participants who have accumulated less than the minimum number of mileage credits necessary to
claim an award and a portion of mileage credits of Dividend Miles participants who have excessive balances are excluded from calculations of FTP liabilities. The liability for the accumulated Dividend Miles was $90 million and $89 million as of
December 31, 2002 and 2001, respectively. Incremental changes in FTP liabilities resulting from participants earning or redeeming mileage credits or changes in assumptions used for the related calculations are recorded as part of the regular



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review process.



The number of awards redeemed for free travel during the years ending December 31, 2002, 2001 and 2000 was approximately 1.3 million, 1.1
million and 1.1 million, respectively, representing approximately 6% of US Airways RPMs in those years. These low percentages as well as the use of certain inventory management techniques (see above) minimize the displacement of revenue
passengers by passengers traveling on Dividend Miles award tickets.



Insurance



The
Company maintains insurance of the types and in amounts deemed adequate to protect themselves and their property. Principal coverage includes liability for 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; and workers compensation and employers liability. Coverage for environmental liabilities is expressly excluded
from current insurance policies.



Item 2.
Properties



Flight Equipment



As
of December 31, 2002, US Airways operated the following jet aircraft:



|Type             |  | Average Seat Capacity |  | Average Age (years) |  | Owned (1) |  | Leased (2) |  | Total
|---------------- |  | --------------------- |  | ------------------- |  | --------- |  | ---------- |  | -----
|Airbus A330      |  | 266                   |  | 2.4                 |  | 9         |  |           |  | 9    
|Boeing 767-200ER |  | 203                   |  | 13.7                |  | 7         |  | 4          |  | 11   
|Boeing 757-200   |  | 182                   |  | 12.4                |  | 21        |  | 11         |  | 32   
|Airbus A321      |  | 169                   |  | 1.6                 |  | 20        |  | 8          |  | 28   
|Airbus A320      |  | 144                   |  | 3.2                 |  | 11        |  | 13         |  | 24   
|Boeing 737-400   |  | 144                   |  | 12.9                |  | 18        |  | 25         |  | 43   
|Boeing 737-300   |  | 126                   |  | 15.7                |  | 11        |  | 56         |  | 67   
|Airbus A319      |  | 120                   |  | 2.9                 |  | 22        |  | 44         |  | 66   
|                 |  |                       |  |                     |  |           |  |            |  |      
|                 |  |                       |  | 8.9                 |  | 119       |  | 161        |  | 280  
|                 |  |                       |  |                     |  |           |  |            |  |      

|(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, 2002, the Company has firm orders for 38 Airbus aircraft scheduled for delivery between 2005 and 2009. During the first
quarter of 2003, the Company reached an agreement in principle with AVSA. S.A.R.L. to convert its firm orders for 37 A320-family aircraft and one A330-300 aircraft into firm orders for 19 A320-family aircraft and ten A330-200 aircraft. The Company
currently expects to return certain leased aircraft including a Boeing 767-200 aircraft, a Boeing 757-200ER aircraft and a Boeing 737-400 aircraft by April 2003. The Company expects to add two Boeing 737-400 aircraft to its fleet to maintain a
minimum US Airways fleet count of 279.



The
Company maintains inventories of spare engines, spare parts, accessories and other maintenance supplies sufficient to meet its operating requirements.



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As of December
31, 2002, US Airways owned or leased the following aircraft which were not considered part of its operating fleet presented in the table above. These aircraft were either parked at storage facilities or, as shown in the far right column, leased or
subleased to related parties or third parties.



|Type                        |  | Average Age (years) |  | Owned |  | Leased |  | Total |  | Leased/ Subleased
|--------------------------- |  | ------------------- |  | ----- |  | ------ |  | ----- |  | -----------------
|Boeing 737-200              |  | 21.7                |  | 7     |  |       |  | 7     |  | 4                
|Douglas DC-9-30             |  | 23.8                |  | 7     |  |       |  | 7     |  | 6                
|Fokker 100                  |  | 10.7                |  | 2     |  |       |  | 2     |  |                 
|De Havilland Dash 8-100/200 |  | 6.6                 |  | 13    |  | 1      |  | 14    |  | 14               
|                            |  |                     |  |       |  |        |  |       |  |                  
|                            |  | 14.4                |  | 29    |  | 1      |  | 30    |  | 24               
|                            |  |                     |  |       |  |        |  |       |  |                  



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 Airways 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 prescribed and
compensatory rates when aircraft are activated under CRAF.



In February 2003, AMC activated Stage One of CRAF. US Airways commitment for Stage One is to provide two A330-300 aircraft for missions as required by AMC. Currently AMC has allowed the Company to replace its A330-300 aircraft
commitment with two 767-200ER aircraft, allowing the company to maintain its full Transatlantic schedule during the Stage One activation. Because the two 767-200ER aircraft provide fewer total seats than two A330-300 aircraft, AMC has the option to
call up a third 767-200ER aircraft to make up this difference. If AMC chooses to activate CRAF Stage Two, in addition to providing more A330-300 aircraft the Company may be required to provide up to six 767-200ER aircraft for use in the Aeromed
medical program. Under the Aeromed medical program, AMC will convert the aircraft into flying hospitals. Currently, only US Airways and Delta are participants in the Aeromed medical program. Participation in the Aeromed medical program
leads to increased peacetime U.S. Government revenues for the Company, compensating for schedule disruptions which will result from the CRAF deployments.



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 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. During 2002, the
Company also closed its Tampa maintenance hangar and sold its San Diego reservation center.



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. Several significant projects, which affect large airports in US Airways route system, are discussed below.



In 2000, US Airways reached an agreement with the Philadelphia Authority for Industrial Development (PAID) and the City of Philadelphia to
finance the construction of a new aircraft maintenance hangar, as well as the fit-out of two new US Airways Clubs and other improvements at



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the Philadelphia International Airport. The new aircraft maintenance hangar was completed in November 2000. PAID issued approximately $71
million in special facility revenue bonds to finance these projects. See MD&A contained in Item 7 for developments related to the bonds.



In 2000, US Airways reached an agreement with the City of Charlotte to finance the construction of a crew training center expansion, a new
aircraft maintenance hangar and other improvements at the Charlotte/Douglas International Airport. The City of Charlotte issued approximately $35 million in special facility revenue bonds to finance these projects. Construction of the crew training
center addition and the new aircraft maintenance hangar was completed in March 2001.



In 1999, the signatory airlines, including US Airways, at Charlotte/Douglas International Airport granted a Majority In Interest (MII) approval for the issuance of $191 million in general airport
revenue bonds for airfield projects and various terminal projects. The MII includes $80 million for land acquisitions for a future third parallel runway that is expected to be completed by June 2005. The bond issue also includes $71 million for the
expansion of domestic and international terminals. An expanded US Airways Express terminal was completed in February 2002. The international terminal expansion, which includes a federal customs and immigration facility, is expected to be operational
by June 2003.



In 1999, US Airways and the
Massachusetts Port Authority (MassPort) reached an agreement to further renovate and expand US Airways terminal facilities at Logan. MassPort issued approximately $33 million of special facility bonds to finance various improvements. The
renovations and expansions were completed in June 2001.



In 1998, US Airways reached an agreement with 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 will include 12 gates for widebody aircraft and new federal customs and immigration facilities and is currently expected to be partially
operational by the end of April 2003. The US Airways Express facility, completed in June 2001, can accommodate 38 turboprop and/or regional jet aircraft. PAID has issued approximately $632 million in airport revenue bonds to finance the two
terminals, ramp control tower, and related projects.



Item 3.
Legal Proceedings



On
August 11, 2002, the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (Case No. 02-83985-SSM). The reorganization is being administered under the caption In re US Airways Group,
Inc., et al., Case No. 02-83984-SSM. US Airways 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 filing, attempts to collect,
secure or enforce remedies with respect to pre-petition claims against US Airways are subject to the automatic stay provisions of section 362(a) of the Bankruptcy Code. The Chapter 11 case is discussed in greater detail in Item 1, Update on
Chapter 11 Proceedings.



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 the Company 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 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. The Company currently is negotiating the resolution of the amount of U.S. federal income taxes, interest, and
penalties due with the IRS Examination Office and IRS Appeals Office. The Company believes that it will have sufficient net operating losses to carry back to tax years in which the IRS has proposed income adjustments with respect to USLM and
eliminate the $68 million in proposed U.S. federal income taxes. The Company cannot predict the amount of any ultimate proposed adjustment for USLM, or the likelihood that any IRS determination would be sustained.



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On January 30,
2003, the Company filed a motion seeking the Bankruptcy Courts approval of a distress termination of the Pilot Retirement Plan. On March 2, 2003, the Bankruptcy Court entered an order approving the termination of the Pilot Retirement Plan, but
declined to rule on whether the termination of the Pilot Retirement Plan would violate the collective bargaining agreement (CBA) between US Airways and the Air Line Pilots Association (ALPA). The Bankruptcy Courts order included a finding that
unless the Pilot Retirement Plan is terminated, the Company will be unable to pay all of its debts pursuant to a plan of reorganization and will be unable to continue in business outside the chapter 11 reorganization process. The Bankruptcy Court
authorized US Airways to establish, effective as of the date of termination, a follow-on defined contribution retirement plan for the pilots of US Airways, on terms consistent with the letter agreement of December 13, 2002, between US
Airways and ALPA.



ALPA filed a grievance
alleging that the distress termination violates the CBA. Under the Employee Retirement Income Security Act of 1974, as amended (ERISA), the PBGC is required to suspend processing of a termination if the termination would violate the terms and
conditions of an existing collective bargaining agreement. On March 21, 2003, the Company and ALPA reached agreement on a replacement pension plan to be effective April 1, 2003 and ALPA agreed to withdraw its grievance. The agreement was ratified by
the ALPA Master Executive Council and is subject to approval by the PBGC and final approval by the Bankruptcy Court. On March 24, 2003, the Debtors filed a motion with the Bankruptcy Court seeking supplemental authority to implement the new defined
contribution plan. The motion is expected to be heard on March 28, 2003.



If the Pilot Retirement Plan is terminated, the PBGC will have a claim for the amount of the Pilot Retirement Plans unfunded benefit liabilities, as well as a claim for any minimum funding contributions due and unpaid
on the date of plan termination. The PBGC has filed twenty-one proofs of claim in the aggregate amount of approximately $3.8 billion and asserts joint and several liability against the Debtors for seven defined benefit pension plans sponsored and
maintained by US Airways Group for unfunded pension liability as of October 31, 2002, contingent upon plan termination. The PBGC has agreed to withdraw its proofs of claim in the aggregate amount of approximately $1.7 billion filed in connection
with the non-pilot pension plans as of March 18, 2003 upon the occurrence of the Effective Date of the Plan of Reorganization. The PBGC claimed priority treatment for some or all of these claims. The Debtors have contested both the amount and
priority of the PBGCs remaining claims with respect to the termination of the Pilot Retirement Plan.



Eighteen pilots who, had it not been for the filing of the Notice of Intent to Terminate, would have received lump sum payments under the
US Airways Pilot Defined Benefit Retirement Plan on either February 1, 2003 or March 1, 2003, filed grievances alleging that without ALPAs consent to terminate the plan, the Company cannot escape its contractual obligation to pay these lump
sums by virtue of filing the Notice of Intent to Terminate. The grievances have not been scheduled for hearing before an arbitrator and are the subject of ongoing settlement discussions.



On March 6, 2003, the Retired Pilots Association of US Airways
(known as the Soaring Eagles) filed a Notice of Appeal from the Bankruptcy Courts March 2, 2003 Order granting in part, and denying in part the Debtors Motion Seeking (1) A Determination That They Satisfy The Financial
Requirements For A Distress Termination of the Retirement Income Plan for Pilots of US Airways, Inc., and Approval of Such Pension Plans Termination, and (2) Approval of a new Defined Contribution Plan for Pilots (March 2nd Order).
Subsequently, three additional Notices of Appeal were filed from the March 2nd Order on behalf of ALPA, a group of eighteen pilots collectively referred to as the Lump Sum Eligible Pilots, and a group of forty-nine active pilots
collectively referred to as the Menear Claimants Pilot Group. None of these appeals have been set for a hearing. In connection with the March 21, 2003 agreement noted above, ALPA agreed to withdraw its appeal with prejudice.



US Airways Group and US Airways have been named
as defendants in two lawsuits filed in United States District Court for the Eastern District of Michigan. Delta Air Lines is also named as a defendant in both actions, while Northwest Airlines and the Airlines Reporting Corporation are



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named as defendants in one additional 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 trebled
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 once the stay is lifted. The plaintiffs filed a motion to lift the automatic stay under section 362(a) to allow the litigation to proceed against US Airways Group and US Airways. US Airways Group and US
Airways filed a response in opposition to the motion, and the motion was heard by the Bankruptcy Court on December 12, 2002. On December 13, 2002, the Bankruptcy Court ordered that the automatic stay remain in place until April 15, 2003.



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. The case against US Airways is subject to the automatic stay provisions of section 362(a) of the Bankruptcy Code. Discovery has now closed and the other defendants have filed motions for summary judgment. On March 6, 2003, the
Court issued an order setting a September 2, 2003 trial date.



A declaratory judgment against certain airlines including the Company is being sought in Quebec Superior Court that, if obtained, would require the Company and such other named airlines to pay commissions to travel agents under the
IATA rules. The amount of commissions sought has not been specified. Under Quebec civil procedure, a motion for a declaratory judgment must be supported by an affidavit from each plaintiff. As of August 13, 2002, more than 30 plaintiffs have filed
affidavits indicating their participation in this lawsuit. During a hearing held August 29, 2002, the plaintiffs advised the court that they were dismissing the Company from the case. The parties filed a motion stipulating to dismissal of the case
against the Company on November 13, 2002.



In May 1995, US Airways Group, US Airways and the Retirement Income Plan for Pilots of US Airways, Inc. were sued in federal district court for the District of Columbia by 481 active and retired pilots alleging that defendants had
incorrectly interpreted the plan provisions and erroneously calculated benefits under the Pilots Pension 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 Pilots Pension 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 have filed a claim
before the US Airways Pilot Retirement



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Board requesting arbitration of their claim for benefits that they believe were erroneously calculated. The Retirement Board has selected an
arbitrator to decide certain issues related to the plaintiffs claims for benefits. US Airways Group and the Company are unable to predict at this time the ultimate resolution of these proceedings.



In October 1995, US Airways terminated for cause an agreement
with In-Flight Phone Corporation (IFPC). IFPC was US Airways provider of on-board telephone and interactive data systems. The IFPC system had been installed in approximately 80 aircraft prior to the date of termination of the agreement.
On December 6, 1995, IFPC filed suit against US Airways in Illinois state court seeking equitable relief and damages in excess of $186 million. US Airways believes that its termination of its agreement with IFPC was appropriate and that it is
owed significant damages from IFPC. US Airways has filed a counterclaim against IFPC seeking compensatory damages in excess of $25 million and punitive damages in excess of $25 million. In January 1997, IFPC filed for protection from its creditors
under Chapter 11 of the Bankruptcy Code. On March 19, 1997, the automatic stay provided for in the Bankruptcy Code was lifted, which allowed IFPCs and US Airways claims to be fully litigated. As a result of the Debtors
commencement of chapter 11 proceedings, this case is subject to the automatic stay provisions of section 362(a) of the Bankruptcy Code. The Company is unable to predict at this time the ultimate resolution or potential financial impact of these
proceedings on the Companys financial condition or results of operations.



On September 29, 2000, US Airways intervened in a proceeding that was originally brought on January 26, 1998 by the Pennsylvania Department of Environmental Protection (DEP) against Allegheny County,
Pennsylvania and the Allegheny County Aviation Administration (ACAA) alleging that a variety of airfield and aircraft deicing activities at Greater 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
Environmental 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 deicing 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 deicing 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.



Claims arising out of the litigation proceedings discussed above, if ultimately determined to have merit, will likely constitute
prepetition general unsecured nonpriority claims in the Chapter 11 cases and will thus be subject to the discharge and distribution provisions contained in the Plan of Reorganization.



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



No matters were submitted to a vote of security holders during the fourth quarter of 2002.



Part II



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



US Airways Group owns all of US Airways outstanding common stock, par value $1 (US Airways Common Stock).
US Airways board of directors has not authorized the payment of dividends on US Airways 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



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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 RSA DIP Facility.



Item 6.
Selected Financial Data



Consolidated Statements of Operations (in millions) (1)



|                                                                       |  | 2002 |        |   | 2001 |   |        | 2000 |  |   | 1999  |   | 1998
|---------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ----- | - | ----
|Operating Revenues                                                     |  | $    | 6,915  |   |      | $ | 8,253  |      |  | $ | 9,181 |   |     
|Operating Expenses                                                     |  |      | 8,236  |   |      |   | 9,874  |      |  |   | 9,225 |   |     
|                                                                       |  |      |        |   |      |   |        |      |  |   |       |   |     
|Operating Income (Loss)                                                |  | $    | (1,321 | ) |      | $ | (1,621 | )    |  | $ | (44   | ) |     
|                                                                      
|Income (Loss) Before Cumulative Effect of Accounting Change            |  | $    | (1,659 | ) |      | $ | (1,996 | )    |  | $ | (152  | ) |     
|Cumulative Effect of Accounting Change, Net of Applicable Income Taxes |  |      |       |   |      |   | 7      |      |  |   | (103  | ) |     
|                                                                       |  |      |        |   |      |   |        |      |  |   |       |   |     
|Net Income (Loss)                                                      |  | $    | (1,659 | ) |      | $ | (1,989 | )    |  | $ | (255  | ) |     
|                                                                       |  |      |        |   |      |   |        |      |  |   |       |   |     



Consolidated Balance Sheets (in millions)



|                                     |  | As of December 31,
|------------------------------------ |  | ------------------
|                                     |  | 2002              
|Total Assets                         |  | $                 
|Long-Term Obligations (2)            |  | $                 
|Total Stockholders Equity (Deficit) |  | $                 



Pro Forma Consolidated Statements of Operations (in millions) (1)



The pro forma amounts below are provided to show what US Airways would have reported if the new accounting policy related to Dividend Miles revenue recognition had been in effect in periods prior to
2000 and the Shuttle, Inc. (Shuttle) merger had occurred prior to July 1, 2000. See Notes 2(a) and 2(i) in Part II, Item 8 for additional information related to the revenue recognition change and the Shuttle merger.



|                                                                       |  | 2002 |        |   | 2001 |   |        | 2000 |  |   | Pro Forma 1999 |   | Pro Forma 1998
|---------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | -------------- | - | --------------
|Income (Loss) Before Cumulative Effect of Accounting Change            |  | $    | (1,659 | ) |      | $ | (1,996 | )    |  | $ | (142           | ) |               
|Cumulative Effect of Accounting Change, Net of Applicable Income Taxes |  |      |       |   |      |   | 7      |      |  |   | (103           | ) |               
|                                                                       |  |      |        |   |      |   |        |      |  |   |                |   |               
|Net Income (Loss)                                                      |  | $    | (1,659 | ) |      | $ | (1,989 | )    |  | $ | (245           | ) |               
|                                                                       |  |      |        |   |      |   |        |      |  |   |                |   |               

|(1) |  | Includes unusual items (See Note 14 to the Companys Notes to Consolidated Financial Statements for related information).
|--- |  | -------------------------------------------------------------------------------------------------------------------------



|(2) |  | Includes long-term debt, capital leases and postretirement benefits other than pensions (noncurrent). Includes liabilities subject to compromise.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------



Note: Numbers may not add or calculate due to
rounding.



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



General Information



Certain of the information contained herein should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect the
Companys current views with respect to current events and financial performance. 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 operate pursuant to the terms of the DIP facility and any exit financing
facilities that become effective following consummation of the First Amended Plan of Reorganization of US Airways Group, Inc. and Its Affiliated Debtors and Debtors-in-Possession, As Modified (Amended Plan); the Companys ability to obtain
court approval with respect to motions in the Chapter 11 cases prosecuted by it from time to time; the ability of the Company to consummate the Amended Plan and the transactions contemplated by it; 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, for the appointment of a Chapter 11 trustee or to convert the cases to Chapter 7 cases should the
Amended Plan not be consummated; 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 cases on the Companys liquidity or results of operations should the Amended Plan not be consummated; the ability of the Company to fund and execute its business plan; 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; demand for transportation in the markets in which the Company operates; economic conditions; labor costs; financing costs; aviation fuel costs;
security-related costs; competitive pressures on pricing (particularly from lower-cost competitors); weather conditions; government legislation and regulation; consumer perceptions of the Companys products; acts of war or terrorism; and other
risks and uncertainties listed from time to time in the Companys reports to the United States Securities and Exchange Commission. Other factors and assumptions not identified above are also involved in the preparation of forward-looking
statements, and the failure of such other factors and assumptions to be realized 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 and consummated can affect the value of the
Companys various pre-petition liabilities. Accordingly, the Company urges that the appropriate caution be exercised with respect to existing and future investments in any of these liabilities.



Financial Overview for 2002



For 2002, the Companys operating revenues were $6.92
billion, operating loss was $1.32 billion, loss before cumulative effect of accounting change was $1.66 billion. For 2001, operating revenues were $8.25 billion, operating loss was $1.62 billion, loss before cumulative effect of accounting change
was $2.00 billion. As a result of the Companys Chapter 11 filing as well as the September 11thterrorist
attacks and the related aftermath, the Companys results for both 2002 and 2001 include unusual items (see discussion in Results of Operations below).



The weak economic conditions that began in 2001 continued throughout 2002. In the aftermath of the September
11thterrorist attacks, airline passenger demand dropped precipitously industry-wide. The decline in high-yield
business traffic, which was down significantly prior to the terrorist attacks, was exacerbated after these attacks as many companies imposed corporate travel restrictions due to the further weakening of the general economy. In response to these
adverse events, the Company, led by a new management team headed by David N. Siegel, who joined the Company in March 2002,



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implemented a plan to return the Company to profitability. The Company was able to successfully negotiate cost savings from many of its
employee groups. However, the Company determined that it was unlikely to conclude consensual negotiations with all of the remaining labor groups, various vendors, aircraft lenders/lessors and financiers in a time frame necessary to complete an
out-of-court restructuring. Factors contributing to this conclusion include the large number of lenders/lessors and financiers, the inability of trustees to modify payment terms of public equipment financings without the unanimous consent of holders
of widely-held trust certificates and the Companys inability to reject/abandon surplus aircraft leases, return excess aircraft and extinguish applicable obligations without relief under Chapter 11 of the Bankruptcy Code. Faced with declining
seasonal revenues, the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code to maximize its liquidity position and its prospects for a successful reorganization. Refer to Update on Chapter 11 Proceedings
contained in Item 1 for more details.



Subsequent
to its Chapter 11 filing, the Companys remaining organized labor groups ratified restructuring agreements, the Company transitioned its aircraft negotiations to either rejecting aircraft debt and leases under the provisions of the Bankruptcy
Code or working with lessors and lenders under the section 1110 process, and the Company continued to pursue savings from vendors as well from reengineering internal processes. In December 2002 and January 2003, the Companys organized labor
groups agreed to a second round of restructuring agreements, including changes in benefits and productivity improvements. As of February 28, 2003, US Airways Group has substantially achieved savings expected to average approximately $1.9
billion annually over the period through 2008. See Restructuring Cost Savings in Item 1 for more information. During the third and fourth quarters of 2002, expenses associated with severance, asset impairment, and other
reorganization-related costs offset the early benefits of the Companys cost reductions.



The Company continues to face a weak revenue environment. The airline industry recovery that appeared to be underway during the first half of 2002 stalled. As a result, airlines have consistently been
offering steep discounts and attempts to raise prices have repeatedly failed in the face of competitive pressure. In light of its Chapter 11 filing on August 11, 2002, US Airways suffered additional revenue impact as passenger bookings deteriorated
for a short period subsequent to the filing. In September, industry revenue also began declining versus previous, already depressed levels. If the current negative trends in industry revenues persist, or should there be another shock to industry
demand due to acts of war or terrorism, the implications for the Companys recovery could be significant.



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. The military action in the Middle
East, continued political unrest in Venezuela and adverse weather during the 2002-2003 winter season continue to impact the supply and demand for oil and consequently the price. Because the operations of the Company are dependent upon aviation fuel,
significant increases in aviation fuel costs could materially and adversely affect the Companys liquidity, results of operations and financial condition. Furthermore, the implications of a sharp increase in the price of aviation fuel for a
prolonged period of time for the Companys recovery would be significant. To manage this risk, the Company utilizes financial instruments designed to reduce the Companys exposure related to fuel price increases. As of February 28, 2003
the Company had hedges in place for approximately 30% of its remaining 2003 consumption (51% for March, 58% for the second quarter of 2003, 0% for the third quarter of 2003, and 25% for the fourth quarter of 2003). Refer to Item 7A below for more
information.



Results of Operations



The following section pertains to activity included in the Companys Consolidated Statements of Operations (contained in Part II, Item 8) and to changes in selected US Airways operating and financial statistics (see
Selected US Airways Operating and Financial Statistics below). Except where noted, operating statistics referred to in this section are for scheduled service only. The pro forma amounts and certain noted operating and financial
statistics presented herein for US Airways



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are adjusted to show what US Airways would have reported if the merger of Shuttle, Inc. (Shuttle) had occurred on January 1, 2000. See Note 2
in Part II, Item 8 for additional information related to the Shuttle merger.



2002 Compared With 2001



Operating RevenuesPassenger transportation revenues decreased $1.36 billion. Passenger transportation revenues for US Airways decreased $1.36 billion due to an 8.9% decrease in yield and a 12.9% decrease in RPMs.
The unfavorable yield variance reflects a decline in business traffic as many companies imposed corporate travel restrictions due to the further weakening of the general economy, particularly after September 11th. In addition, the airline industry engaged in heavy price discounting to stimulate the industry-wide soft demand related to the sluggish economic
conditions as well as the threat of war in Iraq and further terrorist attacks. The decrease in RPMs primarily is due to the schedule reductions that were initiated after September 11thand again after the Companys bankruptcy filing in August 2002. US Airways Express Transportation Revenues increased 10.4% due to a 21.9% increase
in RPMs partially offset by a 9.3% decrease in yield. Cargo and freight revenues decreased 14.3% primarily as a result of lower mail revenues, which reflect mail carriage restrictions imposed by the Federal Aviation Administration in the
aftermath of September 11th. Other operating revenues decreased principally due to decreases in mileage credit sales and revenues related to lease of surplus aircraft.



Operating ExpensesOperating expenses declined 16.6%. Excluding unusual items for both 2002 and 2001 (see
Unusual Items below), the Companys operating expenses were lower by 14.2% on a capacity decrease of 15.5%. The Companys Personnel costs decreased 14.4% due to lower headcount levels and wage rate and salary reductions
relating to the Companys restructuring. This was partially offset by increases in employee pension and benefit expenses. Aviation fuel decreased 30.6% due to lower average fuel prices and schedule-driven decreases in consumption.
Aircraft rent decreased 8.4% due to the reduction in the number of leased aircraft that were operated. Other rent and landing fees decreased 6.8% due to schedule-driven reductions in landings partially offset by higher landing fee
rates. Aircraft maintenance decreased 33.2% reflecting the retirement of older aircraft as well as the closure of the US Airways engine shop in Pittsburgh, PA in the fourth quarter of 2001. Other selling expenses decreased 16.4% due to
sales volume driven decreases in credit card fees and computer reservation service fees. Depreciation and amortization decreased 26.1% due to the retirement of the F100, B737-200, MD80 and DC9 aircraft fleets partially offset by the purchase
of new Airbus aircraft. In addition, the Company ceased amortizing its goodwill effective January 1, 2002 in connection with its adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS
142). This favorably impacted expenses by $19 million. Commissions decreased 53.3% due to lower ticket sales and lower average commission rates. Commission rates decreased due to the elimination of the base domestic commissions in March 2002,
increases in internet bookings which are less costly to the Company and generally lower maximum payments to travel agents implemented in August 2001. US Airways Express capacity purchases increased 20.5% due to an increase of 19.1% in
purchased ASMs. Other operating expenses decreased 11.6% due to decreases in schedule-related expenses including passenger food expenses, crew travel expenses and interrupted trip expenses. These decreases were partially offset by higher
insurance expenses and higher security expenses. Refer to Unusual Items below for information on Asset impairments and other special items and Airline stabilization act grant.



Other Income (Expense)Interest income decreased due to
lower average investment balances and return rates. Interest expense increased due to more debt outstanding. Refer to Unusual Items below for information on Reorganization items, net and Merger termination fee.



Provision (Credit) for Income TaxesDuring 2001,
the Company recognized a valuation allowance against its net deferred tax asset. As a result of the March 2002 enactment of the Job Creation and Worker Assistance Act of 2002 (Act), the Company recognized an income tax credit equal to the
Companys carryback potential. The 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



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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 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%. The effective tax rate was 33% for the first
six months of 2001 after which the Company recorded a valuation allowance which resulted in an effective tax rate of 12%. The tax credit for the first six months of 2001 results from the tax benefits associated with the pretax losses offset by the
tax effects of the Companys permanent tax differences.



Selected US Airways Operating and Financial StatisticsCapacity (as measured by ASMs) decreased 15.5% and passenger volume (as measured by RPMs) decreased 12.9% in 2002. These decreases resulted in a 71.0% passenger load
factor, representing a 2.1 percentage point increase over 2001. Full year comparisons are rendered less meaningful due to the events of September 11th. Commercial flights were suspended for almost three days and resumed gradually once the FAA allowed resumption of operations. In addition, the Company made very significant schedule changes as a
result of the conditions after September 11th. Yields decreased 8.9% for 2002 reflecting fewer high-yield ticket
sales (i.e. business sales) and heavy price discounting used to stimulate the industry-wide soft demand related to the sluggish economic conditions as well as the threat of war in Iraq and further terrorist attacks.



2001 Compared With 2000



Operating RevenuesPassenger transportation revenues
decreased $1.07 billion on a pro forma basis due to a 12.0% decrease in yield and a 2.3% decrease in RPMs. The unfavorable yield variance reflects a decline in business traffic as many companies imposed corporate travel restrictions as the general
economy weakened, particularly after September 11th. In addition, the airline industry engaged in heavy price
discounting to entice customers to fly post-September 11th. The decrease in RPMs primarily is due to the
post-September 11thschedule reductions. US Airways Express transportation revenues increased 9.4% due to a
24.2% increase in RPMs partially offset by a 11.8% decrease in yield.Cargo and freight revenues were flat. Higher freight revenues reflecting the larger cargo-carrying capability of the Airbus aircraft were offset by lower mail revenues.
Mail revenues were down sharply in the fourth quarter of 2001 reflecting mail carriage restrictions imposed by the FAA. Other operating revenues decreased 6.2% due to lower revenues associated with Shuttle, Inc (see Note 10(b) to the
Companys Financial Statements contained in Item 8) partially offset by increased cancellation fee revenues reflecting a rate increase from $75 to $100 per cancellation that went into effect during the first quarter of 2001.



Operating ExpensesOperating expenses increased
7.0%. ExcludingAsset impairments and other special items and the Airline stabilization act grant (see Unusual Items below), operating expenses were flat on essentially the same level of capacity. The Companys
Personnel costs decreased 2.8% due to lower headcount levels relating to the Companys post-September 11threstructuring. This was partially offset by higher wage rates and increases in employee pension expenses. Effective May 1, 2001 most US Airways pilots received 17.0% wage rate increases pursuant to the parity plus 1%
provision in their labor contract. Aviation fuel decreased 13.5% due to lower average fuel prices and schedule-driven decreases in consumption. Aircraft rent increased 12.6% as expense reductions from lease expirations were more than
offset with rent expense associated with new leased aircraft. Aircraft maintenance increased 7.5% due to aircraft engine repair timing factors. Other selling expenses decreased 12.3% due to lower advertising expenditures and sales
volume driven decreases in credit card fees. Depreciation and amortization increased 8.1% due to the purchase of new Airbus aircraft partially offset by less depreciation resulting from the aircraft impairment charges. Commissions
decreased 24.3% due to lower ticket sales and lower average commission rates. Commission rates decreased due to increases in internet bookings which are less costly to the Company. In addition, the Company revised its travel agent commission rate
structure. Effective August 24, 2001, the maximum payment to travel agents was generally reduced. US Airways Express capacity purchases increased 18.8% due to an increase of 29.7% in purchased ASMs partially offset by 6.8% rate decrease.
Other operating expenses decreased 4.6% due to lower schedule-driven expenses such as crew travel and passenger food as well as expenses associated with US Airways information systems contract with Electronic Data Systems Corporation
(EDS)



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partially offset by higher insurance expenses.



Other Income (Expense)Interest income decreased due to lower average investment balances and return
rates. Interest expense increased due to more aircraft-related debt outstanding and airport construction financing. Other, net for 2000 includes an $18 million impairment charge related to warrants the Company held in priceline.com
Incorporated (Priceline). Refer to Unusual Items below for information on Merger termination fee.



Provision (Credit) for Income TaxesDuring 2001, the Company recorded a net tax provision of $272 million including a valuation allowance
against its net deferred tax asset. The Companys tax credit for 2000 was $50 million, representing an effective tax rate of 25%.



Selected US Airways Operating and Financial StatisticsCapacity (as measured by ASMs) was slightly lower and passenger volume (as measured by
RPMs) decreased 2.3% in 2001 on a pro forma basis. These decreases resulted in a 68.9% passenger load factor, representing a 1.4 percentage point decrease over 2000. Full year comparisons are rendered less meaningful due to the events of September
11th. Commercial flights were suspended for almost three days and resumed gradually once the FAA allowed resumption
of operations. As a result of the conditions after September 11th, the Company adopted a restructuring plan which
included very significant schedule changes. By comparison to the prior year, fourth quarter 2001 capacity decreased 19.9%, passenger volume decreased 26.9% and passenger load factor decreased 6.1 percentage points. Load factor year-over-year
comparisons improved each month during the fourth quarter: October down 8.5 percentage points, November down 7.1 percentage points and December down 2.6 percentage points. Yields decreased 15.3% and 12.0% for the fourth quarter and full year 2001,
respectively. The yield decreases reflect fewer high-yield ticket sales (i.e. business sales) which is typical when there is a general economic slowdown as corporations move to impose travel restrictions. The lower yields also reflect heavy price
discounting used to entice customers to fly post-September 11th.



Unusual Items



Asset Impairments and Other Special ItemsAsset impairments and
other special items included within the Companys Consolidated Statements of Operations includes the following components (dollars in millions):



|                                                |  | 2002 |      |  |   |   | 2001 |   |     | 
|----------------------------------------------- |  | ---- | ---- |  | - | - | ---- | - | --- | 
|Aircraft impairments and related charges        |  | $    | 392  |  | a | ) |      | $ | 787 | 
|Pension and postretirement benefit curtailments |  |      | (90) |  | b | ) |      |   | 2   | 
|Employee severance including benefits           |  |      | (3)  |  | c | ) |      |   | 83  | 
|Future aircraft lease commitments               |  |      |     |  |   |   |      |   | 70  | 
|Other                                           |  |      | 21   |  | f | ) |      |   | 16  | 
|                                                |  |      |      |  |   |   |      |   |     | 
|                                                |  | $    | 320  |  |   |   |      | $ | 958 | 
|                                                |  |      |      |  |   |   |      |   |     | 



|a) |  | 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.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) |  | 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. During the fourth quarter of 2001, US Airways recognized a $2 million curtailment charge related to a certain postretirement benefit plan. These curtailments resulted from
headcount reductions.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|c) |  | 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 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. In the fourth quarter, 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 second quarter of 2002, US Airways recognized a $3 million reduction in accruals related to
the involuntary severance primarily as a result of an agreement reached with the US Airways pilot group.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|d) |  | During the third and fourth quarters of 2001, US Airways recorded charges of $4 million and $66 million, respectively, representing the present value of the future
minimum lease payments on three B737-200 aircraft and four F-100 aircraft, respectively, that were permanently removed from service.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|e) |  | During August 2001, US Airways conducted an impairment analysis in accordance with Statement of Financial Accounting Standards No. 121 Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121) on its 36 F-100 aircraft, 16 MD-80 aircraft and 39 B737-200 aircraft as a result of changes to the fleet plan 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. In accordance with SFAS 121, the carrying values were reduced to
fair market value. This analysis resulted in a pretax charge of $403 million. In the aftermath of September 11, 2001, the Company elected to accelerate the retirement of the aforementioned aircraft. All B737-200 aircraft retirements were accelerated
to the end of 2001 while the F-100s and MD-80s were scheduled to be retired by April 2002. Based on this, the Company conducted another impairment analysis which revealed that these aircraft were impaired. This culminated in an additional pretax
charge of $173 million largely reflecting the further diminution in value of used aircraft arising from the events of September 11, 2001. Management estimated fair market value using third-party appraisals, published sources and recent sales and
leasing transactions. As a result of the events of September 11, 2001, the Company reviewed other aircraft-related assets which resulted in a pretax charge of $15 million as certain aircraft assets had carrying values in excess of their fair value
less costs to sell. Management estimated fair value based on recent sales and leasing transactions. US Airways also recognized a pretax charge of $26 million in connection with the write-down to lower of cost or market of surplus parts for the
F-100, B737-200 and MD-80 fleets. Management estimated market value based on recent sales activity related to these parts. During the first quarter of 2002, US Airways entered into agreements to sell 97 surplus aircraft and related spare engines and
parts, including substantially all its DC-9, MD-80 and B737-200 aircraft. In connection with these agreements, US Airways reduced the carrying values of these assets resulting in a $148 million charge during the fourth quarter of 2001, including a
$138 million impairment charge and a charge of $10 million to write down the related spare parts. Additionally, the Company recognized a pretax impairment charge of $22 million in connection with the planned retirement of five B737-200 aircraft due
to a third-partys early return of certain leased B737-200 aircraft, and early retirement of certain other B737-200s during the first quarter of 2001.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|f) |  | During the fourth quarter of 2002, US Airways recognized an impairment charge 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. During the third quarter of 2001, US Airways recognized a pretax charge of $13 million representing the unamortized leasehold improvement balance for
facilities to be abandoned and aircraft to be parked as of the facility abandonment date or aircraft park date. In addition, US Airways recognized a pretax charge of $3 million representing the present value of future noncancelable lease commitments
beyond the facility abandonment date.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Reorganization Items,
NetReorganization items, net represents amounts incurred as a direct result of the Companys Chapter 11 filing and are presented separately in the Companys Consolidated Statement of Operations. Such items consist of the
following (dollars in millions):



|                                             |  | Year Ended December 31, 2002 |    
|-------------------------------------------- |  | ---------------------------- | ---
|Severance including benefits a)              |  | $                            | 89 
|Loss on aircraft abandonment/rejection b)    |  |                              | 68 
|Professional fees                            |  |                              | 61 
|Write-off of ESOP deferred compensation      |  |                              | 50 
|DIP financing related expenses               |  |                              | 13 
|Write off of unamortized debt issuance costs |  |                              | 12 
|Interest income on accumulated cash          |  |                              | (2 
|Other                                        |  |                              | 3  
|                                             |  |                              |    
|                                             |  | $                            | 294
|                                             |  |                              |    

|a) |  | As a result of schedule reductions made in connection with the Companys Chapter 11 reorganization, 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.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) |  | Includes aircraft (34 F-100s, two B757-200s and one B737-400) that were legally abandoned as part of US Airways Chapter 11 reorganization. Related aircraft
liabilities were adjusted for each aircrafts expected allowed collateral value.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Airline Stabilization Act GrantThrough December 31, 2002, the Company had received approximately $306 million from the U.S. Government under the Stabilization Act. The rules governing
the distribution were finalized during the year and an adjustment of $3 million was recognized in 2002 to reduce the amount of compensation received. The payments partially compensated the Company for its direct and incremental losses incurred
beginning on September 11, 2001 and ending on December 31, 2001.



Merger Termination FeesIn connection with the merger termination agreement, UAL paid $50 million to US Airways. Separately, US Airways paid a merger termination fee of approximately $2 million to Robert L. Johnson,
a member of the Board of Directors of US Airways Group and US Airways, representing reimbursement for his expenses in connection with his activities to establish a new airline which would have addressed certain potential competitive issues
surrounding the proposed merger transaction, and supported regulatory approval of the new airline. This amount is included in Other, net on the Companys Consolidated Statements of Operations (see Other Information below).



Priceline ImpairmentDuring the fourth quarter of
2000, the Company recognized an $18 million pretax impairment charge in Other, net on the Consolidated Statement of Operations related to warrants the Company held in priceline.com Incorporated.



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Selected US Airways
Operating and Financial Statistics (1)



|                                                            |  | 2002   |   |  | 2001   |   |  | Pro Forma 2000 (2) |  
|----------------------------------------------------------- |  | ------ | - |  | ------ | - |  | ------------------ | -
|Revenue passengers (thousands)*                             |  | 47,155 |   |  | 56,114 |   |  | 60,636             |  
|RPMs (millions)*                                            |  | 40,038 |   |  | 45,948 |   |  | 47,012             |  
|ASMs (millions)*                                            |  | 56,360 |   |  | 66,704 |   |  | 66,851             |  
|Passenger load factor* (3)                                  |  | 71.0   | % |  | 68.9   | % |  | 70.3               | %
|Break-even load factor (4)                                  |  | 86.4   | % |  | 80.8   | % |  | 73.0               | %
|Yield* (5)                                                  |  | 13.05  | ¢ |  | 14.32  | ¢ |  | 16.28              | ¢
|Passenger revenue per ASM* (6)                              |  | 9.27   | ¢ |  | 9.86   | ¢ |  | 11.45              | ¢
|Revenue per ASM (7)                                         |  | 10.38  | ¢ |  | 10.92  | ¢ |  | 12.51              | ¢
|Cost per ASM (8)                                            |  | 12.10  | ¢ |  | 12.46  | ¢ |  | 12.72              | ¢
|Average stage length (miles)*                               |  | 685    |   |  | 667    |   |  | 633                |  
|Cost of aviation fuel per gallon (9)                        |  | 74.36  | ¢ |  | 86.28  | ¢ |  | 95.76              | ¢
|Cost of aviation fuel per gallon, excluding fuel taxes (10) |  | 68.90  | ¢ |  | 80.09  | ¢ |  | 89.11              | ¢
|Gallons of aviation fuel consumed (millions)                |  | 972    |   |  | 1,208  |   |  | 1,267              |  
|Operating aircraft at year-end                              |  | 280    |   |  | 342    |   |  | 417                |  
|Full-time equivalent employees at year-end                  |  | 31,404 |   |  | 35,232 |   |  | 43,467             |  
|                                                            |  |        |   |  |        |   |  |                    |  

|* |  | Scheduled service only (excludes charter service).
|- |  | --------------------------------------------------



|(1) |  | Operating statistics include free frequent travelers and the related miles they flew. Unusual items (see above for additional information) and revenues and expenses
associated with US Airways capacity purchase arrangements with certain affiliated airlines have been excluded from US Airways financial results for purposes of financial statistical calculation and to provide better comparability between
periods.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Includes the activity of the former Shuttle on a pro forma basis as if it was merged into US Airways as of January 1, 2000.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------



|(3) |  | Percentage of aircraft seating capacity that is actually utilized (RPMs/ASMs).
|--- |  | ------------------------------------------------------------------------------



|(4) |  | Percentage of aircraft seating capacity utilized that equates to US Airways breaking-even at the pretax income level.
|--- |  | ---------------------------------------------------------------------------------------------------------------------



|(5) |  | Passenger transportation revenue divided by RPMs.
|--- |  | -------------------------------------------------



|(6) |  | Passenger transportation revenue divided by ASMs (a measure of unit revenue).
|--- |  | -----------------------------------------------------------------------------



|(7) |  | Total Operating Revenues divided by ASMs (a measure of unit revenue).
|--- |  | ---------------------------------------------------------------------



|(8) |  | Total Operating Expenses divided by ASMs (a measure of unit cost).
|--- |  | ------------------------------------------------------------------



|(9) |  | Includes fuel taxes and transportation charges.
|--- |  | -----------------------------------------------



|(10) |  | Includes transportation charges (excludes fuel taxes).
|---- |  | ------------------------------------------------------



Liquidity and Capital Resources



As of December 31, 2002, the Companys Cash, Cash equivalents and Short-term investments totaled $629 million compared to $1.02 billion as of December 31, 2001 (the Companys Consolidated Balance Sheets are contained in
Part II, Item 8 of this report).



Statements of Cash Flow Narrative



For 2002, the Companys operating activities used net cash of $315 million (as presented in the Companys Consolidated Statements of Cash Flows, which are contained in Part II, Item 8 of this report). Operating cash flows
were adversely affected by the same factors that adversely affected financial results during that period (see discussion in Results of Operations above). Included in net cash used for operating activities for 2002 is an income tax refund
of $169 million received by the Company primarily as a result of the enactment of the Job Creation and Worker Assistance Act of 2002, $52 million of compensation received under the Stabilization Act and payments of $188 million of ticket taxes for
which remittance was deferred until January 2002 under the Stabilization Act. As a result of filing for bankruptcy in August 2002, the Company received liquidity protection under the automatic stay provisions of the Bankruptcy Code related to
prepetition liabilities. While difficult to quantify, this impacted cash flows from operating activities favorably after the Petition



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Date. For 2001, the Companys operating activities used net cash of $146 million. Operating cash flows were adversely impacted by the
weak economic environment that was prevalent most of the year and the precipitous drop in operating revenues after September 11th. Operating cash flows were favorably impacted by $264 million of grants pursuant to the Stabilization Act and $188 million of ticket taxes deferrals (see above). For 2000, the Companys operating activities provided net cash of
$626 million reflecting operating results partially offset by income taxes refunded in 2000.



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. Decrease (increase) in short-term investments reflects proceeds from the
sale of short-term investments. The Companys cash and cash equivalents and short-term investments as of December 31, 2001 include funds which, in the ordinary course of business, it withholds from employees and collects from passengers. These
funds are required to be paid to applicable governmental authorities, and include withholding for payroll taxes, transportation excise taxes, passenger facility charges and transportation security charges. 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 trust are reflected in Decrease (increase) in restricted cash on the Companys Consolidated
Statements of Cash Flows. The funds in the trust accounts, which totaled $208 million as of December 31, 2002, are classified as Restricted cash on the Companys Consolidated Balance Sheets, including $146 million in current Restricted cash and
$62 million in noncurrent Restricted cash.



For
2001, investing activities included cash outflows of $1.07 billion related to capital expenditures. Capital expenditures included $992 million for the purchase of 23 A321 aircraft and three A330 aircraft as well as purchase deposits on future
aircraft deliveries with the balance related to rotables, ground equipment and miscellaneous assets. The net cash used for investing activities was $840 million.



For 2000, investing activities included cash outflows of $1.85 billion related to capital expenditures.
Capital expenditures included $1.68 billion for the purchase of 50 A320-family aircraft and six A330 aircraft as well as purchase deposits on future aircraft deliveries with the balance related to rotables, ground equipment and miscellaneous assets.
During January 2000, US Airways received $81 million related to its December 1999 exercise of certain Sabre options. The net cash used for investing activities was $1.99 billion.



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 $33 million with the private placement of pass through certificates that partially
finance five previously delivered A330s and $18 million from an engine manufacturer credit facility (see below). The Company also borrowed $300 million under the RSA DIP Facility and $75 million under the 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 bankruptcy filing, the Company made scheduled principal repayments of long-term debt in the amount of $77
million. Subsequent to the bankruptcy filing, the Company made principal repayments of debt of $56 million including $38 million to the engine manufacturer credit facility.



Net cash provided by financing activities during 2001 was $1.03 billion. This included proceeds of $344
million from the sale-leaseback of eight A320-family aircraft, $389 million from the engine manufacturer credit facility and $562 million from the mortgages of ten A320-family aircraft and three A330 aircraft. In addition, US Airways received $22
million from special facility revenue bond financings (see below). These proceeds were partially offset by the scheduled principal repayments of long-term debt in the amount of $290 million including the February 1, 2001 repayment of



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US Airways $175 million 95/8% Senior Notes.



Net cash provided by financing activities during 2000 was $1.63 billion. US Airways received proceeds of $500 million from its secured
revolving credit facilities in March 2000 and $794 million from mortgages of 17 A320-family aircraft and six A330 aircraft. In addition, US Airways received $46 million from special facility revenue bond financings (see below) and $910 million from
sale-leaseback transactions for 28 A320-family aircraft. These proceeds were partially offset by the $500 million repayment of the secured revolving credit facilities on May 4, 2000 and scheduled principal repayments of long-term debt of $118
million.



Financings
During Chapter 11 and Post Effective Date Financings



As part of its restructuring efforts, US Airways sought and received approval subject to certain conditions for a $900 million loan guarantee under the Stabilization Act from the Stabilization Board in connection with a proposed $1
billion loan financing. US Airways applied for this loan and related guarantee in order to provide additional liquidity necessary to carry out its restructuring plan. The Stabilization Boards conditions for issuance of the ATSB Guarantee
included, among other things, the execution and delivery of legally binding agreements acceptable to the Stabilization Board containing economic concessions from key stakeholders, confirmation of the Plan of Reorganization by the Bankruptcy Court, a
resolution of US Airways pension funding issue approved by the Pension Benefit Guarantee Corporation and, if necessary, the Bankruptcy Court, resolution of certain collateral issues, as well as customary closing documentation. See ATSB
Loan in Item 1 for more information.



On
September 26, 2002, the Bankruptcy Court approved US Airways Groups designation of RSA as its proposed Plan of Reorganization equity sponsor and granted interim approval of the $500 million RSA DIP Facility on substantially the same terms as
the Original DIP Facility. The Bankruptcy Court also granted US Airways Group the authority to borrow up to $300 million under the RSA DIP Facility. On September 27, 2002, US Airways Group borrowed $300 million under the RSA DIP Facility and used a
portion of such funds to repay the $75 million that was outstanding under the Original DIP Facility. A final order approving the RSA DIP Facility was entered by the Bankruptcy Court on November 8, 2002. On March 7, 2003, an additional $69 million
was borrowed under the RSA DIP Facility.



The RSA DIP Facility consists of a $250 million term loan facility and a $250 million revolving credit facility (with a $50 million letter of credit sub-facility) and is guaranteed by each of the Debtors (other than US Airways
Group). The RSA DIP Facility is secured by first priority liens on all unencumbered present and future assets of the Debtors and by best priority available junior liens on all other assets of the Debtors, other than certain specified assets,
including assets which are subject to financing agreements that are entitled to the benefits of section 1110 of the Bankruptcy Code to the extent such financing agreements prohibit such junior liens. US Airways Group has the option of borrowing
under the RSA DIP Facility at an interest rate of the prime rate plus 2.5% or LIBOR plus 4.0%.



The maturity date of the RSA DIP Facility is the earlier of the effective date of a plan of reorganization of the Debtors or September 30, 2003. The RSA DIP Facility may be accelerated upon the
occurrence of an event of default under the RSA DIP Facility and contains customary mandatory prepayment events including, among other things, the occurrence of certain asset sales and the issuance of certain debt or equity securities.



The definitive documentation relating to the RSA DIP Facility
contains covenants that require US Airways Group to satisfy ongoing financial requirements including operating results, cash receipts and liquidity. Such covenants also limit, among other things, the Debtors ability to borrow additional money,
pay dividends and make additional corporate investments.



Under the RSA DIP Facility, borrowing availability is determined by a formula based on a percentage of eligible assets. The eligible assets consist of certain previously unencumbered aircraft, aircraft engines, spare parts,
flight simulators, real property (including interests in certain airport



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facilities), takeoff and landing slots, ground equipment and accounts receivable. The underlying values of such assets may fluctuate
periodically due to prevailing market conditions, and fluctuations in value may have an impact on the borrowing availability under the RSA DIP Facility. Availability may be further limited by additional reserves imposed by the administrative agent
and the collateral agent as they deem necessary in their reasonable credit judgment.



The remaining $131 million of availability under the RSA DIP Facility, subject to the limitation on borrowing availability discussed above, will be available to US Airways Group after certain
conditions are met, including (i) the entry by the Bankruptcy Court of a final order approving the terms and conditions of the RSA DIP Facility documents; (ii) the minimum statutory and regulatory review periods shall have expired with respect to US
Airways marketing agreements with United Air Lines, Inc. (United) and neither the U.S. Department of Transportation nor any other applicable governmental authority or third party has filed any material objection to such marketing agreements
which has not been resolved; (iii) (a) the receipt of written confirmation from the Stabilization Board of its conditional approval for the ATSB Guarantee under the Stabilization Act, subject to confirmation by the Bankruptcy Court of a plan of
reorganization reasonably acceptable to the Stabilization Board, (b) the approval by the Stabilization Board of a substantially final draft of the plan of reorganization and disclosure statement to be filed in the cases, and (c) the Company
demonstrating to the reasonable satisfaction of RSA that it is likely to satisfy all of the conditions to the issuance of the ATSB Guarantee; and (iv) banks, financial institutions and other institutional lenders satisfactory to the Company and RSA
delivering commitments to lend at least the $100 million at-risk portion of the $1 billion Stabilization Board guaranteed loan. US Airways Group met the condition described in clause (i) above when the Bankruptcy Court entered a final
order approving the RSA DIP Facility on November 8, 2002. With respect to the marketing agreements described in clause (ii) above, on October 2, 2002, the U.S. Department of Transportation announced that it had completed its review of US
Airways marketing agreements with United and had determined to end the statutory waiting period for such agreements. US Airways Group met the conditions described in clauses (iii)(a) and (iii)(b) above when the Company received written
confirmation from the Stabilization Board of its conditional approval of the ATSB Guarantee by letter on February 11, 2003 and the Plan of Reorganization, which was reasonably acceptable to the Stabilization Board, was confirmed by the Bankruptcy
Court on March 18, 2003. US Airways Group met the condition in clause (iv) above when US Airways secured commitments from its at-risk lenders.



On March 20, 2003, US Airways Group notified RSA that it was not in compliance with a material financial covenant under the DIP Facility.
Under the terms of the DIP Facility, RSA could exercise one or more remedies, including but not limited to, a cancellation of its commitment to lend under the DIP Facility as well as the right, upon five business days notice, to recover the
collateral for the loan. The Company is in discussions with RSA regarding the funding of the remaining $131 million available under the DIP Facility and a potential waiver or standstill agreement while the Company completes the final stages of
emergence from Chapter 11.



On September 26,
2002, US Airways Group entered into a definitive investment agreement with RSA to be the proposed Plan of Reorganization equity sponsor, superceding the TPG MOU. On January 17, 2003, US Airways Group and RSA entered into the RSA Investment Agreement
covering certain matters, including but not limited to board composition, US Airways Groups post-emergence capital structure and the replacement of the Retirement Systems of Alabama with the Retirement Systems of Alabama Holdings LLC as the
investor under the RSA Investment Agreement. RSA will invest $240 million in cash and is expected to hold approximately 36.2%, on a fully-diluted basis, of the equity in the reorganized US Airways Group immediately upon emergence from Chapter 11
pursuant to a confirmed plan of reorganization. This percentage of equity ownership is subject to change based upon definitive agreements in the final plan of reorganization. If the RSA Investment is consummated in accordance with its terms, RSA is
expected to have a voting interest of approximately 71.6% in the reorganized US Airways Group immediately upon emergence from Chapter 11 pursuant to a confirmed plan of reorganization and would hold eight of 15 seats on US Airways Groups Board
of Directors. The RSA Investment is subject to customary conditions to closing as well as US Airways Groups achievement of certain financial and operational benchmarks. As discussed above, the RSA



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Investment, if consummated, contemplates the cancellation of the US Airways Groups Common Stock.



In November 2001, US Airways obtained a $404 million credit
facility from General Electric (GE Credit Facility) from which it initially received proceeds of $389 million. During the fourth quarter of 2002, the Company repaid $38 million and subsequently received proceeds of $18 million from the facility. The
Company received an additional $18 million during the first quarter of 2003. The GE Credit Facility is secured by collateral including 11 A320-family aircraft and 28 spare engines. As discussed below, the terms of this credit facility were
renegotiated so that borrowings bear interest rates of LIBOR plus 3.5% and the term of the facility is extended from 2006 to 2012.



GE is the Companys largest creditor. In addition to the GE Credit Facility, GE has provided financing or guarantees on 114 of the
Companys aircraft. It also maintains the engines on the Companys B737-family aircraft, the A320-family aircraft and the B767 aircraft. In connection with its reorganization under Chapter 11, the Company reached a settlement with GE that
resolves substantially all aircraft, aircraft engine and loan-related issues. In exchange for equity in the reorganized US Airways Group and certain other concessions, GE i) modified the terms of certain agreements to meet the cost savings
requirements of the Companys business plan published in its Amended Disclosure Statement, ii) is providing a DIP liquidity facility (secured by the same collateral as the GE Credit Facility) of up to $120 million (GE DIP Facility), iii) will
provide an exit liquidity facility of up to $360 million that will refinance obligations under the GE DIP Facility and provide additional liquidity, iv) will provide $350 million of lease equity for the financing of regional jets and v) extended the
term of the GE Credit Facility (see above).



Every obligation of the Company to GE is generally cross-defaulted to all GE obligations including the GE Credit Facility and are cross-collateralized to the collateral securing the GE Credit Facility. The Company commenced making
draws under the GE DIP Facility in January 2003.



The Company believes that substantially all of its needs for funds necessary to consummate the Plan and for post-Effective Date working capital financing will be met by projected operating cash flow, the RSA Investment and the ATSB
Loan. Moreover, if the Company requires working capital and financing for aircraft acquisitions greater than that provided by projected operating cash flow, the RSA Investment and the ATSB Loan, it may be required either to (a) obtain other sources
of financing or (b) curtail their operations. The Company believes that the recapitalization to be accomplished through the Plan will facilitate the ability to obtain additional or replacement working capital financing. No assurance can be given,
however, that any additional replacement financing will be available on terms that are favorable or acceptable to the Company. Moreover, there can be no assurance that the Company will be able to obtain an acceptable credit facility upon expiration
of the ATSB Guarantee.



Other



On February 1,
2001, US Airways 9 5/8% Senior Notes matured. In connection with this, US Airways paid off these notes, which had a principal amount outstanding of $175 million, using cash on hand.



In September 2000, the City of Charlotte issued $35 million of special facility revenue bonds, the proceeds
of which were used to pay the cost of design, acquisition, construction and equipping of certain airport-related facilities to be leased to US Airways at the Charlotte/Douglas International Airport.



In July 2000, the Philadelphia Authority for Industrial
Development (PAID) issued $71 million of special facility revenue bonds, the proceeds of which were provided to US Airways in the form of an unsecured loan. US Airways utilized the proceeds to finance various improvements at the Philadelphia
International Airport where US Airways has significant operations. The bond proceeds were restricted to expenditures at the Philadelphia International Airport and unspent amounts, which were approximately $22 million as of December 31, 2002, are
classified as a component of Other assets, net in the Companys Consolidated Balance Sheet.On January 16, 2003, the Bankruptcy Court approved a



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settlement between US Airways and HSBC Bank USA, Trustee (HSBC) which serves as indenture trustee for the PAID loan. The settlement provides
for the return of approximately $19 million to the debt holders and payment of approximately $3 million to the Company. HSBC will receive a virtual deficiency claim in the event that the recovery received by holders of general unsecured claims
pursuant to the Plan exceeds 10%. This claim will be an obligation of the Company. However, the Company believes that it is unlikely such virtual deficiency claim will ever arise given the estimated recoveries on account of general unsecured claims.



Effective August 15, 2001, US Airways terminated
its $190 million 364-day secured revolving credit facility and its $250 million three-year secured revolving credit facility. No amounts were outstanding under these facilities, as of August 15, 2001, or at any time during the calendar year. The
Company currently has no revolving credit facility.



The following table provides detail of the Companys future cash contractual obligations, including those obligations subject to compromise, as of December 31, 2002 (dollars in millions). These amounts are subject to change
pending the completion of the Companys reorganization under Chapter 11 of the Bankruptcy Code.



|                                                 |  | 2003 |       | 2004 |   | 2005  |  | 2006 |       | 2007 |   | Thereafter
|------------------------------------------------ |  | ---- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ----------
|Long-term debt and capital lease obligations (1) |  | $    | 520   |      | $ | 166   |  | $    | 208   |      | $ | 205       
|Operating lease commitments (2)                  |  |      | 904   |      |   | 786   |  |      | 776   |      |   | 695       
|Aircraft purchase commitments (3)                |  |      | 4     |      |   | 14    |  |      | 96    |      |   | 598       
|Regional jet capacity purchase agreements (4)    |  |      | 320   |      |   | 299   |  |      | 285   |      |   | 285       
|                                                 |  |      |       |      |   |       |  |      |       |      |   |           
|Total                                            |  | $    | 1,748 |      | $ | 1,265 |  | $    | 1,365 |      | $ | 1,783     
|                                                 |  |      |       |      |   |       |  |      |       |      |   |           

|(1) |  | Excludes related interest amounts.
|--- |  | ----------------------------------



|(2) |  | Includes aircraft obligations financed under enhanced equipment trust certificates.
|--- |  | -----------------------------------------------------------------------------------



|(3) |  | Amounts do not reflect an agreement in principle to reduce the number of firm-order aircraft.
|--- |  | ---------------------------------------------------------------------------------------------



|(4) |  | See US Airways Express Network in Item 1 for more information regarding these agreements.
|--- |  | -------------------------------------------------------------------------------------------



As discussed in Update on Chapter 11 Proceedings
in Item 1, on March 21, 2003 the Company and ALPA reached agreement to terminate the Pilot Retirement Plan and implement a replacement defined contribution plan in its place, effective April 1, 2003. As noted above, resolution of the pension funding
issue is a condition to issuance of the ATSB Guarantee and therefore, to the Companys emergence from Chapter 11. Under the Pilot Retirement Plan, the Companys funding requirement would be $1.66 billion between 2003 and 2009. Under the
new defined contribution plan, funding requirements are estimated to decline to approximately $960 million over the same period.



The Companys agreements to acquire new Airbus aircraft, accompanying jet engines and ancillary assets have increased the
Companys financing needs and added to the Companys financial obligations. Through December 31, 2002, US Airways has used cash to purchase substantially all Airbus aircraft and subsequently financed all the aircraft through leveraged
lease transactions or

secured loan transactions. Additional financing or internally-generated funds will be needed to satisfy the
Companys capital commitments for the balance of firm-order aircraft commitments and for other aircraft-related expenditures beyond 2002. Other capital expenditures, such as rotables and other aircraft components, are also expected to
increase in conjunction with the acquisition of the new aircraft and jet engines. There can be no assurance that sufficient financing will be available for all aircraft and other capital expenditures not covered by committed financing.



The Company continues to be highly leveraged. Substantially
all of its aircraft and engines are subject to liens securing indebtedness. The Company requires substantial working capital in order to meet scheduled debt and lease payments and to finance day-to-day operations. Although the



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Company does project that it will begin to generate positive cash flow from operations beginning in 2004,
there can be no assurances that the Company can achieve or sustain positive cash flow from operations.



The Company estimates that it had substantial net operating loss (NOL) carryforwards at December 31, 2002, for U.S. federal income tax
purposes. The Company anticipates that it will experience an ownership change (within the meaning of the U.S. Internal Revenue Code Section 382) on the Effective Date as a result of the issuance of equity to the claimholders and RSA
pursuant to the plan of reorganization. As a result, the Companys ability to use any pre-Effective Date NOLs, capital loss carryovers, and certain other tax attributes to offset its income in any post-Effective Date taxable year (and in the
portion of the taxable year of the ownership change following the Effective Date) generally will be limited. Moreover, such Companys tax attributes will be subject to further limitations if the Company experiences additional future ownership
changes or if it does not continue its business enterprise for at least two years following the Effective Date. The Company does not expect to have any meaningful pre-Effective Date NOLs or capital loss carryovers following the consummation of the
reorganization transactions.



Because RSA will
hold a significant equity position in the reorganized Company following the occurrence of the Effective Date, if RSA disposes of all or some significant amount of this position after the Effective Date, it could cause the reorganized Company to
undergo an ownership change. This would generally limit (or possibly eliminate) the reorganized Companys ability to use post-Effective Date NOLs and other tax attributes.



US Airways utilizes third party service providers to process credit card transactions. As a result of the
Chapter 11 filing, these providers have required additional cash collateral to minimize their exposure. If US Airways fails to meet certain financial or nonfinancial covenants, these providers can (i) require additional cash collateral or additional
discretionary amounts upon the occurrence of certain events; and (ii) under certain circumstances, terminate such credit card processing agreements. US Airways has received proposals from and is in negotiations with potential credit card processors
for Visa and MasterCard transactions, once US Airways emerges from Chapter 11 bankruptcy protection and transitions its current relationship with National Processing Corporation (NPC), a division of National City Bank of Cleveland. US Airways
currently has an agreement with NPC which expires March 31, 2003, but which provides for a 45-day extension if a series of milestones are met. Specifically, the 45-day extension with NPC requires that the Company have a confirmed plan of
reorganization and a new credit card processing agreement in place by March 31, 2003. The Company then has to substantially complete the plan and close on the ATSB Loan by April 15, 2003, allowing for an extension of the NPC agreement until May 15,
2003. Assuming these conditions are met, US Airways would expect to transition to its new processor in late April or early May. However, there can be no assurance that the current contract can be extended beyond March 31, 2003, if US Airways does
not execute an agreement with a new processor by this date. The termination of credit card processing agreements could have a material adverse effect on the Companys liquidity, financial condition and results of operations.



On August 12, 2002, Standard and Poors (S&P) lowered
its corporate credit ratings on US Airways Group and US Airways to D (Default) from SD (Selective Default). Ratings on most issues of US Airways that had not already defaulted were lowered as well, and remain on CreditWatch
with developing implications. On August 12, 2002, Moodys Investor Service (Moodys) downgraded its Senior Implied Ratings of US Airways Group and US Airways to Caa3 from Caa2 and the rating outlook is negative. Credit ratings issued by
agencies such as S&P and Moodys affect US Airways Groups and US Airways ability to issue debt or equity securities and the effective rate at which such financings are undertaken.



Eastern U.S. operations comprise a substantial portion of the
Companys route structure. Although a competitive strength in some regards, the regional concentration of significant operations results in the Company being susceptible to changes in certain regional conditions. Factors such as weather
conditions or a decrease in the demand for air transportation in the markets in which the Company operates may adversely affect the Companys financial condition or results of operations.



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Adverse changes in certain factors that are generally outside the Companys control, such as an economic downturn, additional government
regulation, intensified competition from lower-cost competitors or increases in the cost of aviation fuel, could have a materially adverse effect on the Companys liquidity, financial condition, results of operations and future prospects. Other
factors that may affect the Companys actual results include labor costs and consumer perceptions of the Companys products. The Company is unable to predict the effect that these factors may have on its financial condition or results of
operations.



The Company will largely rely on
cash flows from operations, the ATSB Loan and the RSA Investment to fund its operations in the near term. Although it has taken aggressive action to reduce its costs, including significant reductions in workforce, many of the Companys costs
are fixed over the intermediate to longer term, so that the Company is not able to reduce its costs as quickly as it is able to reduce its capacity. The impact of the current financial crisis on the Company and the sufficiency of its financial
resources to absorb that impact will depend on a number of factors, including: (1) the continuing adverse impact of the terrorist attacks and war on the economy in general; (2) the level of air travel demand, mix of business and leisure travel and
related yields; (3) the Companys ability to reduce its operating costs and conserve its financial resources; (4) the higher costs associated with new FAA security directives and any other increased regulation of air carriers; (5) the
significantly higher costs of aviation insurance coverage, and the extent to which such insurance (and war-risk coverage for vendors) will continue to be commercially available or available through government sources to the Company and its vendors;
(6) the ability of the Company to reduce costs to a level that takes into account the significantly reduced size of its operation, and the timing of those cost reductions; (7) the Companys ability to raise financing in light of the various
factors referred to herein; (8) the price and availability of jet fuel, and the availability to the Company of fuel hedges in light of current industry conditions; and (9) the extent of the decline in value of the aircraft in the Companys
fleet. Due in part to the lack of predictability of future traffic, business-leisure mix and related yields as well as costs of aviation fuel, the Company is unable to predict whether it can absorb that impact. However, given the magnitude of the
unprecedented events leading up to the financial crisis and the possible subsequent effects, the adverse impact to the Companys liquidity, financial condition, results of operations and prospects may continue to be material.



Critical Accounting Policies



The Companys discussion and analysis of its financial
condition and results of operations are based upon the Companys consolidated 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.



The Company believes that the following accounting policies are critical because they are subject to significant judgments and
uncertainties and could potentially result in materially different results under different assumptions and conditions:



Impairment of Long-Lived Assets and Intangible Assets Subject to AmortizationThe Company assesses the impairment of long-lived assets and
intangible assets subject to amortization 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



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transactions. Changes in industry capacity and demand for air transportation can significantly impact the fair value of aircraft and related
assets. Refer to Unusual Items above for details regarding impairment charges taken in 2002 and 2001.



Impairment of GoodwillEffective January 1, 2002 the Company adopted the provisions of SFAS 142. Upon adoption, the Company assigned all of it
assets and liabilities to its reporting units and ceased amortizing goodwill. All goodwill was assigned to the US Airways reporting unit. SFAS 142 requires management to make judgements about the fair value of the US Airways reporting unit to
determine whether goodwill is impaired. The Company believes that this accounting estimate is a critical accounting estimate because: (1) goodwill is a significant asset; (2) amortization expense was a significant component of operating
expenses; and (3) the impact that recognizing an impairment would have on the assets reported on the balance sheet, as well as the net loss, could be material. Beginning January 1, 2002, goodwill is tested annually for impairment or more frequently
if events or changes in circumstances indicate that the assets might be impaired. In assessing the recoverability of goodwill, the Company must make assumptions about the estimated future cash flows and other factors to determine the fair value.
During 2002, the Company tested its goodwill for impairment in connection with the required SFAS 142 transitional test and again after its Chapter 11 filing. See Note 2 to the Consolidated Financial Statements (contained in Item 8) for details
regarding these tests.



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 Consolidated Balance Sheets. Due to various factors including refunds, exchanges, unused tickets and transactions involving other carriers, certain amounts are recorded based on estimates. The Company routinely
performs evaluations of the liability which 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. Such differences have
historically not been material.



Accounting for Income
TaxesAs of December 31, 2002, the Company has a valuation allowance recorded against its net deferred tax asset of $1.22 billion. 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 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 deductible.



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 curtailment and settlement items, the
Company recognized defined benefit pension plan expense of $323 million, $196 million and $226 million in 2002, 2001 and 2000, respectively, and other postretirement benefit expense of $145 million, $127 million and $118 million in 2002, 2001 and
2000, respectively.



The fair value of the Companys pension
plan assets decreased from $3.12 billion at September 30, 2001 to $2.82 billion at September 30, 2002 (All US Airways plans are measured as of September 30). Lower investment returns, increased benefit payments and declining discount rates have
increased the plans under-funded status from $2.33 billion at September 30, 2001 to $2.43 billion at September 30, 2002.



The calculation of pension and other postretirement benefit expenses and liabilities requires the use of a number of assumptions. Changes in these
assumptions can result in different expense and liability amounts, and future actual experience can differ from the assumptions. The Company



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believes that the two most critical assumptions for pension plans are the expected long-term rate of return on plan assets and the assumed
discount rate and for other postretirement benefit plans are the assumed discount rate and the assumed health care trend rate.



The Company assumed that its pension plans assets would generate a long-term rate of return of 8.75% at September 30, 2002. This rate is lower than
the assumed rate of 9.5% used at both September 30, 2001 and 2000. 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 expected long-term rate of return on plan assets is based on a target allocation of assets to the following fund types:



|             |  | Percent of Total |   |  | Expected Long-Term Rate of Return
|------------ |  | ---------------- | - |  | ---------------------------------
|Equities     |  | 40               | % |  | 10%                              
|Fixed Income |  | 40               |   |  | 7%                               
|Other        |  | 20               |   |  | 12%                              
|             |  |                  |   |  |                                  
|Total        |  | 100              | % |  |                                  
|             |  |                  |   |  |                                  



The Company believes
that its long-term asset allocation on average will approximate the targeted allocation. The Company regularly reviews its actual asset allocation and periodically rebalances its investments to its targeted allocation when considered appropriate.



Pension expense increases as the expected rate of return on plan
assets decreases. Lowering the expected long-term rate of return on plan assets by one-half of a percentage point (from 9.5% to 9.0%) would have increased US Airways 2002 pension expense by approximately $17 million.



The Company discounted both its future pension obligations and its other
postretirement benefit obligations using a rate of 6.75% at September 30, 2002, compared to 7.5% at September 30, 2001 and 8.0% at September 30, 2000. 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. Both liabilities and future expense increase as the discount rate is reduced. Lowering the discount rate by one-half of a percentage point would increase US Airways pension and
other postretirement liabilities at September 30, 2002 by approximately $395 million and $130 million, respectively. Lowering the discount rate used to calculate US Airways pension and post-retirement benefit expenses by one-half of a
percentage point would have increased 2002 expenses by approximately $30 million and $6 million, respectively.



At September 30, 2002, the Company assumed a health care cost trend rate of 10% in 2003 decreasing to 5% in 2008 and thereafter when computing its other postretirement benefit liabilities and expenses.
This compares to a health care cost trend rate of 7% in 2002 decreasing to 4.5% in 2005 and thereafter assumed as of September 30, 2001. The Company substantially increased its health care cost trend rate as of September 30, 2002 in order to reflect
the overall increase in general health care costs which will be partially offset by specific changes in the Companys plan design. Both the liability and future expense increase as the health care cost trend rate is increased. Increasing the
health care cost trend rate by one percentage point would increase the Companys other postretirement liabilities at September 30, 2002 by approximately $266 million.



Future changes in plan asset returns, assumed discount rates, assumed health care trend rates and various other factors
related to the participants in the Companys pension and other postretirement benefit plans will impact future expenses and liabilities. The Company cannot predict with certainty what these factors will be in the future.



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Accounting
Changes



In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). This statement established accounting and reporting standards 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 adopted SFAS 133, as amended, on January 1, 2001. This resulted in a $7 million
credit, net of income taxes, from a cumulative effect of a change in accounting principle, and a $1 million increase, net of income taxes, in Stockholders Equity (Deficit).



On January 1, 2002, the Company adopted SFAS 142 under which goodwill and intangible assets acquired in a
purchase business combination and determined to have an indefinite useful life are not amortized but instead are assessed for impairment at least annually and also between annual tests when a significant triggering event occurs. During the second
quarter of 2002, the Company completed its initial assessment. The fair value of US Airways, the sole reporting unit assigned goodwill, exceeded US Airways carrying value, indicating that an impairment did not exist. As a result of the
Companys Chapter 11 filing, the Company reassessed its goodwill for impairment during the third quarter of 2002. This reassessment included an analysis of the fair value of the reporting unit using discounted cash flows based on its September
2002 financial projections which were prepared on a going-concern basis. The projections reflect a number of assumptions as to current and projected market conditions including improved revenue trends from the airline industrys current
depressed levels, assume that the Company achieves its targeted cost reductions and assume that the ATSB Guarantee and the RSA Investment are consummated upon emergence from bankruptcy. Based on the results of this assessment, the fair value of the
reporting unit exceeded its carrying value which led the Company to conclude that the reporting units goodwill was not impaired as of September 30, 2002. Year 2002 amortization expense was favorably impacted by $19 million as a result of
ceasing amortization of goodwill. SFAS 142 also 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.



In December 1999, the SEC issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. Although SAB 101 does not change existing
accounting rules on revenue recognition, changes in accounting to apply the guidance in SAB 101 may be accounted for as a change in accounting principle. On January 1, 2000, the Company changed its method of accounting for the sale of mileage
credits in its Dividend Miles program from recognizing revenue when credits are sold, to deferring the portion of revenue attributable to future transportation and recognizing it as passenger revenue when the service is provided. The remaining
portion of sales proceeds will continue to be recognized immediately as a component of Other operating revenues. The Company believes the new method results in a better matching of revenue with the period in which travel services are provided. In
connection with the change, the Company recognized a $103 million, net of applicable income taxes, cumulative effect charge on January 1, 2000.



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Recent
Accounting Pronouncements



In January 2003,
the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) which requires the consolidation by primary beneficiaries of variable interest entities (VIEs), as
defined. Public companies will generally be subject to its provisions effective after January 31, 2003 for newly-acquired VIEs and the first fiscal or interim period beginning after June 15, 2003 for VIE holdings acquired prior to February 1, 2003.
The adoption of FIN 46 is not expected to have a material effect on the Companys financial statements. However, as a result of the complexities of this interpretation, the evolving understanding and forthcoming implementation guidance from the
FASB, the Company is continuing to evaluate the provisions of FIN 46.



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB
Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34 (FIN 45). FIN 45 expands on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. It
also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions are applicable to guarantees issued or modified
after December 31, 2002 and are not expected to have a material effect on the Companys financial statements. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002. Refer
to Note 7(e) to the Companys Notes to Consolidated Financial Statements for more information regarding guarantees.



In July 2002, the FASB issued Statement of Financial Accounting Standards No.146, Accounting for Costs Associated with Exit or
Disposal Activities (SFAS 146).The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered
by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. Previous accounting guidance was provided by
Emerging Issues Task Force Issue No. 94-3 (EITF 94-3), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 replaces EITF
94-3. The principal effect of applying SFAS 146 will be on the timing of recognition of costs associated with exit or disposal activities. In many cases, those costs will be recognized as liabilities in periods following a commitment to a plan, not
at the date of the commitment. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.



In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145). SFAS No. 145 amends existing guidance on reporting gains and losses on the extinguishment of debt to prohibit the classification of the gain or loss as extraordinary, as
the use of such extinguishments have become part of the risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have economic effects similar to
sale-leaseback transactions. The provisions of the Statement related to the rescission of Statement No. 4 is applied in fiscal years beginning after May 15, 2002. Earlier application of these provisions is encouraged. The provisions of the Statement
related to Statement No. 13 were effective for transactions occurring after May 15, 2002, with early application encouraged. The adoption of SFAS No. 145 is not expected to have a material effect on the Companys financial statements.



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Other
Information



On July 27, 2001, the U.S.
Department of Justice announced its intention to file suit to block the proposed merger of US Airways Group with a wholly-owned subsidiary of UAL, Uniteds parent corporation. As a result, US Airways Group, UAL and Yellow Jacket
Acquisition Corp. (the UAL wholly-owned subsidiary formed for the purpose of this merger) entered into a termination agreement on July 27, 2001 with respect to that certain Agreement and Plan of Merger, dated as of May 23, 2000, as amended, among
the parties. In connection with such termination agreement, UAL paid $50 million to US Airways. Separately, US Airways paid a merger termination fee of approximately $2 million to Robert L. Johnson, a member of the Board of Directors of
US Airways Group and US Airways, representing reimbursement for his expenses in connection with his activities to establish a new airline which would have addressed certain potential competitive issues surrounding the proposed merger
transaction, and supported regulatory approval of the new airline. The amount paid to Mr. Johnson is included in Other, net on the Companys Consolidated Statements of Operations.



The Company places significant reliance on its information technology systems. To reduce costs and improve
service levels, the Company entered into a long-term agreement with Sabre, Inc. (Sabre) effective January 1, 1998 to provide substantially all of the Companys information technology requirements. On July 1, 2001, Sabre completed the sale of
its airline infrastructure outsourcing business to EDS but retained ownership of its intellectual property. In connection with this sale, US Airways bifurcated its service agreement with Sabre into an agreement with EDS and an agreement with Sabre.
EDS became responsible for substantially all of the Companys information technology requirements except for certain programming and support for most of Sabres intellectual property, including Sabres reservation and fare pricing
systems, which Sabre continues to provide to the Company. The Company does not expect its information technology costs to change materially as a result of these new relationships. In February 2003, the Company assumed the EDS contract after it
reached an agreement with EDS with significantly improved terms and conditions upon emergence from bankruptcy.



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 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



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. The war in the Middle East,
continued political unrest in Venezuela and adverse weather during the 2002-2003 winter season continue to impact the supply and demand for oil and consequently the price. Because the operations of the Company are dependent upon aviation fuel,
significant increases in aviation fuel costs could materially and adversely affect the Companys liquidity, results of operations and financial condition. For 2002 and 2001, aviation fuel expenses represented 9.1% and 11.3%, respectively, of
the Companys total operating expenses (as adjusted to exclude unusual items for comparability purposes).



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The Company
utilizes financial derivatives, including fixed price swap agreements, collar structures and other similar instruments, to manage the risk associated with changes in aviation fuel prices. As of December 31, 2002, the Company had open fuel hedge
positions in place to hedge 62% of its first quarter 2003 anticipated jet fuel requirements and 24% of its second quarter 2003 anticipated jet fuel requirements. The fair value of these positions was a net asset of approximately $12 million, which
is recorded in Prepaid expenses and other in the Companys Consolidated Balance Sheet. An immediate hypothetical ten percent increase or decrease in underlying fuel-related commodity prices from the December 31, 2002 prices would change the
fair value of the commodity derivative financial instruments in place by $11 million.



Interest Rate Risk



Exposure to interest rate risk relates primarily to the Companys cash equivalents and short-term investments portfolios and long-term debt obligations.



Considering the Companys average balance and typically short duration of cash equivalents and
short-term investments during 2002, an assumed 10% decrease in the average interest earned on these financial instruments would not materially impact the Companys results of operations.



As of December 31, 2002 and 2001, the Company had $745 million
and $468 million of variable-rate debt outstanding, respectively. Assuming a hypothetical 10% increase in average interest rates during 2003 as compared to 2002 and normalized for new debt issued, interest expense would increase by $4 million.
Additional information regarding the Companys long-term debt obligations (including liabilities subject to compromise) as of December 31, 2002 is as follows (dollars in millions):



|                            |  | Expected Maturity Date |     | 12/31/02 Fair Value |     
|--------------------------- |  | ---------------------- | --- | ------------------- | ----
|                            |  | 2003                   |     |                     | 2004
|                           
|Fixed-rate debt             |  | $                      | 209 |                     |     
|Weighted avg. interest rate |  |                        | 8.5 | %                   |     
|Variable-rate debt          |  | $                      | 310 |                     |     
|Weighted avg. interest rate |  |                        | 5.6 | %                   |     



|(a) |  | As a result of the Companys Chapter 11 filing, the fair value of debt outstanding cannot be reasonably determined.
|--- |  | -------------------------------------------------------------------------------------------------------------------



As of December 31, 2002, US Airways Group has firm orders for
38 Airbus aircraft scheduled for delivery between 2005 and 2009. During the first quarter of 2003, the Company reached an agreement in principle with AVSA. S.A.R.L. to convert its firm orders for 37 A320-family aircraft and one A330-300 aircraft
into firm orders for 19 A320-family aircraft and ten A330-200 aircraft. See Note 7(a) to the Companys Notes to Consolidated Financial Statements for additional information.



Equity Price Risk



US Airways holds Sabre Holdings Corporation (SHC) stock options that have a fair value and carrying value of
$5 million as of December 31, 2002. Fair value is computed using the Black-Scholes stock option pricing model. A hypothetical ten percent decrease in the December 31, 2002 value of the SHC stock price would decrease the fair value of the stock
options by $1 million. See Note 3(b) to the Companys Notes to Consolidated Financial Statements for information related to the fair value of these options.



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Item 8.
Consolidated Financial Statements of US Airways, Inc.



Independent Auditors Report



The Stockholder and Board of Directors

US Airways, Inc.:



We have audited the accompanying consolidated balance sheets of US Airways, Inc. and subsidiary as of December 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of US Airways, Inc. and subsidiary as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.



The accompanying consolidated 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 consolidated 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 the debtor-in-possession financing agreement; (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 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 consolidated 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 uncertainties are also described in Note 1. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.



As discussed in Note 2 to the consolidated financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142  Goodwill and Other Intangible Assets. Also, as discussed
in Note 2 to the consolidated financial statements, effective January 1, 2001, the Company changed its method of accounting for derivative instruments and hedging activities; and effective January 1, 2000, the Company changed its method of
accounting for the sale of mileage credits in its frequent traveler programs.



KPMG LLP



McLean, Virginia

March 24, 2003



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US Airways, Inc.

(Debtor and Debtor-in-Possession)

Consolidated Statements of Operations

Year Ended December 31,

---

(in millions)



|                                                                       |  | 2002 |        |   | 2001 |   |        | 2000 | 
|---------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- | 
|Operating Revenues                                                     |  |      |        |   |      |   |        |      | 
|Passenger transportation                                               |  | $    | 5,224  |   |      | $ | 6,580  |      | 
|US Airways Express transportation revenues                             |  |      | 1,063  |   |      |   | 963    |      | 
|Cargo and freight                                                      |  |      | 138    |   |      |   | 161    |      | 
|Other                                                                  |  |      | 490    |   |      |   | 549    |      | 
|                                                                       |  |      |        |   |      |   |        |      | 
|Total Operating Revenues                                               |  |      | 6,915  |   |      |   | 8,253  |      | 
|Operating Expenses                                                     |  |      |        |   |      |   |        |      | 
|Personnel costs                                                        |  |      | 2,989  |   |      |   | 3,492  |      | 
|Aviation fuel                                                          |  |      | 723    |   |      |   | 1,042  |      | 
|Aircraft rent                                                          |  |      | 468    |   |      |   | 511    |      | 
|Other rent and landing fees                                            |  |      | 397    |   |      |   | 426    |      | 
|Aircraft maintenance                                                   |  |      | 296    |   |      |   | 443    |      | 
|Other selling expenses                                                 |  |      | 280    |   |      |   | 335    |      | 
|Depreciation and amortization                                          |  |      | 275    |   |      |   | 372    |      | 
|Commissions                                                            |  |      | 121    |   |      |   | 259    |      | 
|Asset impairments and other special items                              |  |      | 320    |   |      |   | 958    |      | 
|Airline stabilization act grant                                        |  |      | 3      |   |      |   | (309   | )    | 
|US Airways Express capacity purchases                                  |  |      | 1,094  |   |      |   | 908    |      | 
|Other                                                                  |  |      | 1,270  |   |      |   | 1,437  |      | 
|                                                                       |  |      |        |   |      |   |        |      | 
|Total Operating Expenses                                               |  |      | 8,236  |   |      |   | 9,874  |      | 
|                                                                       |  |      |        |   |      |   |        |      | 
|Operating Loss                                                         |  |      | (1,321 | ) |      |   | (1,621 | )    | 
|Other Income (Expense)                                                 |  |      |        |   |      |   |        |      | 
|Interest income                                                        |  |      | 30     |   |      |   | 73     |      | 
|Interest expense                                                       |  |      | (322   | ) |      |   | (298   | )    | 
|Interest capitalized                                                   |  |      | 3      |   |      |   | 10     |      | 
|Merger termination fee                                                 |  |      |       |   |      |   | 50     |      | 
|Reorganization items, net                                              |  |      | (294   | ) |      |   |       |      | 
|Other, net                                                             |  |      | (10    | ) |      |   | (1     | )    | 
|                                                                       |  |      |        |   |      |   |        |      | 
|Other Income (Expense), Net                                            |  |      | (593   | ) |      |   | (166   | )    | 
|                                                                       |  |      |        |   |      |   |        |      | 
|Loss Before Income Taxes and Cumulative Effect of Accounting Change    |  |      | (1,914 | ) |      |   | (1,787 | )    | 
|Provision (Credit) for Income Taxes                                    |  |      | (255   | ) |      |   | 209    |      | 
|                                                                       |  |      |        |   |      |   |        |      | 
|Loss Before Cumulative Effect of Accounting Change                     |  |      | (1,659 | ) |      |   | (1,996 | )    | 
|Cumulative Effect of Accounting Change, Net of Applicable Income Taxes |  |      |       |   |      |   | 7      |      | 
|                                                                       |  |      |        |   |      |   |        |      | 
|Net Loss                                                               |  | $    | (1,659 | ) |      | $ | (1,989 | )    | 
|                                                                       |  |      |        |   |      |   |        |      | 



See accompanying Notes
to Consolidated Financial Statements.



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US Airways, Inc.

(Debtor and Debtor-in-Possession)

Consolidated Balance Sheets

December 31,

---

(dollars in millions, except per share amount)



|                                                                                                   |  | 2002 |        |   | 2001 |  
|-------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|ASSETS                                                                                             |  |      |        |   |      |  
|Current Assets                                                                                     |  |      |        |   |      |  
|Cash and cash equivalents                                                                          |  | $    | 580    |   |      | $
|Short-term investments                                                                             |  |      | 49     |   |      |  
|Restricted cash                                                                                    |  |      | 150    |   |      |  
|Receivables, net                                                                                   |  |      | 220    |   |      |  
|Receivables from related parties, net                                                              |  |      | 92     |   |      |  
|Materials and supplies, net                                                                        |  |      | 176    |   |      |  
|Prepaid expenses and other                                                                         |  |      | 83     |   |      |  
|                                                                                                   |  |      |        |   |      |  
|Total Current Assets                                                                               |  |      | 1,350  |   |      |  
|Property and Equipment                                                                             |  |      |        |   |      |  
|Flight equipment                                                                                   |  |      | 5,137  |   |      |  
|Ground property and equipment                                                                      |  |      | 1,108  |   |      |  
|Less accumulated depreciation and amortization                                                     |  |      | (2,495 | ) |      |  
|                                                                                                   |  |      |        |   |      |  
|                                                                                                   |  |      | 3,750  |   |      |  
|Purchase deposits for flight equipment                                                             |  |      |       |   |      |  
|                                                                                                   |  |      |        |   |      |  
|Total Property and Equipment                                                                       |  |      | 3,750  |   |      |  
|Other Assets                                                                                       |  |      |        |   |      |  
|Goodwill                                                                                           |  |      | 531    |   |      |  
|Pension assets                                                                                     |  |      |       |   |      |  
|Other intangibles, net                                                                             |  |      | 307    |   |      |  
|Receivable from parent company                                                                     |  |      | 66     |   |      |  
|Restricted cash                                                                                    |  |      | 364    |   |      |  
|Other assets, net                                                                                  |  |      | 96     |   |      |  
|                                                                                                   |  |      |        |   |      |  
|Total Other Assets                                                                                 |  |      | 1,364  |   |      |  
|                                                                                                   |  |      |        |   |      |  
|                                                                                                   |  | $    | 6,464  |   |      | $
|                                                                                                   |  |      |        |   |      |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                              |  |      |        |   |      |  
|Current Liabilities                                                                                |  |      |        |   |      |  
|Current maturities of long-term debt and DIP Facility                                              |  | $    | 300    |   |      | $
|Accounts payable                                                                                   |  |      | 217    |   |      |  
|Traffic balances payable and unused tickets                                                        |  |      | 784    |   |      |  
|Accrued aircraft rent                                                                              |  |      | 164    |   |      |  
|Accrued salaries, wages and vacation                                                               |  |      | 281    |   |      |  
|Other accrued expenses                                                                             |  |      | 438    |   |      |  
|                                                                                                   |  |      |        |   |      |  
|Total Current Liabilities                                                                          |  |      | 2,184  |   |      |  
|Noncurrent Liabilities                                                                             |  |      |        |   |      |  
|Long-term debt, net of current maturities                                                          |  |      | 18     |   |      |  
|Accrued aircraft rent                                                                              |  |      |       |   |      |  
|Deferred gains, net                                                                                |  |      |       |   |      |  
|Postretirement benefits other than pensions                                                        |  |      | 1,443  |   |      |  
|Employee benefit liabilities and other                                                             |  |      | 2,272  |   |      |  
|                                                                                                   |  |      |        |   |      |  
|Total Noncurrent Liabilities                                                                       |  |      | 3,733  |   |      |  
|Liabilities subject to compromise                                                                  |  |      | 5,503  |   |      |  
|Commitments and Contingencies                                                                      |  |      |        |   |      |  
|Stockholders Deficit                                                                              |  |      |        |   |      |  
|Common stock, par value $1 per share, authorized 1,000 shares, issued and outstanding
1,000 shares |  |      |       |   |      |  
|Paid-in capital                                                                                    |  |      | 2,661  |   |      |  
|Accumulated deficit                                                                                |  |      | (4,485 | ) |      |  
|Receivable from parent company                                                                     |  |      | (2,262 | ) |      |  
|Accumulated other comprehensive loss, net of income tax effect                                     |  |      | (870   | ) |      |  
|                                                                                                   |  |      |        |   |      |  
|Total Stockholders Deficit                                                                        |  |      | (4,956 | ) |      |  
|                                                                                                   |  |      |        |   |      |  
|                                                                                                   |  | $    | 6,464  |   |      | $
|                                                                                                   |  |      |        |   |      |  



See accompanying Notes to Consolidated Financial Statements.



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US Airways, Inc.

(Debtor and Debtor-in-Possession)

Consolidated Statements of Cash Flows

Year Ended December 31,

---

(in millions)



|                                                                                                |  | 2002 |        |   | 2001 |   |        | 2000 | 
|----------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- | 
|Cash flows from operating activities                                                            |  |      |        |   |      |   |        |      | 
|Net loss                                                                                        |  | $    | (1,659 | ) |      | $ | (1,989 | )    | 
|Adjustments to reconcile net loss to net cash provided by (used for) operating
activities       |  |      |        |   |      |   |        |      | 
|Non-cash impairment and other special charges                                                   |  |      | 442    |   |      |   | 927    |      | 
|Depreciation and amortization                                                                   |  |      | 275    |   |      |   | 372    |      | 
|Deferred income tax provision (credit)                                                          |  |      |       |   |      |   | 514    |      | 
|Gains on dispositions of property                                                               |  |      | (2     | ) |      |   | (3     | )    | 
|Amortization of deferred gains and credits                                                      |  |      | (45    | ) |      |   | (47    | )    | 
|Cumulative effect of accounting change, net of applicable income taxes                          |  |      |       |   |      |   | (7     | )    | 
|Other                                                                                           |  |      | 182    |   |      |   | (30    | )    | 
|Changes in certain assets and liabilities                                                       |  |      |        |   |      |   |        |      | 
|Decrease (increase) in receivables                                                              |  |      | 66     |   |      |   | (2     | )    | 
|Decrease (increase) in materials and supplies, prepaid expenses and pension
assets              |  |      | 420    |   |      |   | (25    | )    | 
|Increase (decrease) in traffic balances payable and unused tickets                              |  |      | (34    | ) |      |   | (73    | )    | 
|Increase (decrease) in accounts payable and accrued expenses                                    |  |      | (50    | ) |      |   | 151    |      | 
|Increase (decrease) in postretirement benefits other than pensions,
noncurrent                  |  |      | 90     |   |      |   | 66     |      | 
|                                                                                                |  |      |        |   |      |   |        |      | 
|Net cash provided by (used for) operating activities                                            |  |      | (315   | ) |      |   | (146   | )    | 
|Reorganization items, net                                                                       |  |      | (62    | ) |      |   |       |      | 
|Cash flows from investing activities                                                            |  |      |        |   |      |   |        |      | 
|Capital expenditures                                                                            |  |      | (135   | ) |      |   | (1,067 | )    | 
|Proceeds from dispositions of property                                                          |  |      | 99     |   |      |   | 49     |      | 
|Proceeds from exercise of Sabre options                                                         |  |      |       |   |      |   |       |      | 
|Decrease (increase) in short-term investments                                                   |  |      | 430    |   |      |   | 280    |      | 
|Decrease (increase) in restricted cash and investments                                          |  |      | (370   | ) |      |   | (72    | )    | 
|Funding of parent companys common stock purchases                                              |  |      |       |   |      |   |       |      | 
|Funding of parent companys aircraft purchase deposits                                          |  |      |       |   |      |   | (37    | )    | 
|Merger of USLM Corporation                                                                      |  |      | 54     |   |      |   |       |      | 
|Other                                                                                           |  |      | 8      |   |      |   | 7      |      | 
|                                                                                                |  |      |        |   |      |   |        |      | 
|Net cash provided by (used for) investing activities                                            |  |      | 86     |   |      |   | (840   | )    | 
|Cash flows from financing activities                                                            |  |      |        |   |      |   |        |      | 
|Proceeds from the sale-leaseback of aircraft                                                    |  |      |       |   |      |   | 344    |      | 
|Proceeds from issuance of long-term debt                                                        |  |      | 167    |   |      |   | 973    |      | 
|Proceeds from issuance of Debtor-in-Possession financing                                        |  |      | 375    |   |      |   |       |      | 
|Principal payments on long-term debt and capital lease obligations                              |  |      | (133   | ) |      |   | (290   | )    | 
|Principal payments on Debtor-in-Possession financing                                            |  |      | (75    | ) |      |   |       |      | 
|                                                                                                |  |      |        |   |      |   |        |      | 
|Net cash provided by (used for) financing activities                                            |  |      | 334    |   |      |   | 1,027  |      | 
|                                                                                                |  |      |        |   |      |   |        |      | 
|Net increase (decrease) in Cash and Cash equivalents                                            |  |      | 43     |   |      |   | 41     |      | 
|                                                                                                |  |      |        |   |      |   |        |      | 
|Cash and Cash equivalents at beginning of year                                                  |  |      | 537    |   |      |   | 496    |      | 
|                                                                                                |  |      |        |   |      |   |        |      | 
|Cash and Cash equivalents at end of year                                                        |  | $    | 580    |   |      | $ | 537    |      | 
|                                                                                                |  |      |        |   |      |   |        |      | 
|Noncash investing and financing activities                                                      |  |      |        |   |      |   |        |      | 
|Reduction of parent company receivable-assignment of aircraft purchase rights by parent
company |  | $    |       |   |      | $ | 152    |      | 
|Flight equipment acquired through issuance of debt                                              |  | $    | 77     |   |      | $ |       |      | 
|Capital lease obligation incurred                                                               |  | $    |       |   |      | $ | 32     |      | 
|Supplemental Information                                                                        |  |      |        |   |      |   |        |      | 
|Interest paid, net of amounts capitalized                                                       |  | $    | 248    |   |      | $ | 274    |      | 
|Income taxes received                                                                           |  | $    | 175    |   |      | $ | 113    |      | 



See accompanying Notes to Consolidated Financial Statements.



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US Airways, Inc.

(Debtor and Debtor-in-Possession)

Consolidated Statements of Stockholders Deficit

Three Years Ended December 31, 2002

---

(in millions)



|                                                                                              |  |              |   |                 |   |       |                     |  |   |                                |   |  | Accumulated other comprehensive income (loss), net of income tax effect |        |   |                                            |   |    |                                          | 
|--------------------------------------------------------------------------------------------- |  | ------------ | - | --------------- | - | ----- | ------------------- |  | - | ------------------------------ | - |  | ----------------------------------------------------------------------- | ------ | - | ------------------------------------------ | - | -- | ---------------------------------------- | 
|                                                                                              |  | Common Stock |   | Paid-in capital |   |       | Accumulated deficit |  |   | Receivable from parent company |   |  | Unrealizedgain
(loss) onavailable-for-sale securities                   |        |   | Unrealized gain (loss) on cash flow hedges |   |    | Adjustment for minimum pension liability | 
|Balance as of December 31, 1999                                                               |  | $            |  |                 | $ | 2,406 |                     |  | $ | (582                           | ) |  | $                                                                       | (2,010 | ) |                                            | $ |   |                                          | 
|Funding of parent companys common stock purchases                                            |  |              |  |                 |   |      |                     |  |   |                               |   |  |                                                                         | (20    | ) |                                            |   |   |                                          | 
|Distributions to affiliate, net                                                               |  |              |  |                 |   | (22   | )                   |  |   |                               |   |  |                                                                         |       |   |                                            |   |   |                                          | 
|Merger of Shuttle, Inc.                                                                       |  |              |  |                 |   | 217   |                     |  |   |                               |   |  |                                                                         | (232   | ) |                                            |   |   |                                          | 
|Interest related to $232 million financing to purchase Shuttle, Inc. net of income tax
effect |  |              |  |                 |   | 7     |                     |  |   |                               |   |  |                                                                         |       |   |                                            |   |   |                                          | 
|Unrealized gain on available-for-sale securities                                              |  |              |  |                 |   |      |                     |  |   |                               |   |  |                                                                         |       |   |                                            |   | 2  |                                          | 
|Net loss                                                                                      |  |              |  |                 |   |      |                     |  |   | (255                           | ) |  |                                                                         |       |   |                                            |   |   |                                          | 
|                                                                                              |  |              |   |                 |   |       |                     |  |   |                                |   |  |                                                                         |        |   |                                            |   |    |                                          | 
|Total comprehensive loss                                                                      |  |              |   |                 |   |       |                     |  |   |                                |   |  |                                                                         |        |   |                                            |   |    |                                          | 
|                                                                                              |  |              |   |                 |   |       |                     |  |   |                                |   |  |                                                                         |        |   |                                            |   |    |                                          | 
|Balance as of December 31, 2000                                                               |  |              |  |                 |   | 2,608 |                     |  |   | (837                           | ) |  |                                                                         | (2,262 | ) |                                            |   | 2  |                                          | 
|Distributions to affiliate, net                                                               |  |              |  |                 |   | (7    | )                   |  |   |                               |   |  |                                                                         |       |   |                                            |   |   |                                          | 
|Interest related to $232 million financing to purchase Shuttle, Inc. net of income tax
effect |  |              |  |                 |   | 10    |                     |  |   |                               |   |  |                                                                         |       |   |                                            |   |   |                                          | 
|Unrealized loss on fuel cash flow hedges, net of reclassification
adjustment                  |  |              |  |                 |   |      |                     |  |   |                               |   |  |                                                                         |       |   |                                            |   |   |                                          | 
|Minimum pension liability change                                                              |  |              |  |                 |   |      |                     |  |   |                               |   |  |                                                                         |       |   |                                            |   |   |                                          | 
|Net loss                                                                                      |  |              |  |                 |   |      |                     |  |   | (1,989                         | ) |  |                                                                         |       |   |                                            |   |   |                                          | 
|                                                                                              |  |              |   |                 |   |       |                     |  |   |                                |   |  |                                                                         |        |   |                                            |   |    |                                          | 
|Total comprehensive loss                                                                      |  |              |   |                 |   |       |                     |  |   |                                |   |  |                                                                         |        |   |                                            |   |    |                                          | 
|                                                                                              |  |              |   |                 |   |       |                     |  |   |                                |   |  |                                                                         |        |   |                                            |   |    |                                          | 
|Balance as of December 31, 2001                                                               |  |              |  |                 |   | 2,611 |                     |  |   | (2,826                         | ) |  |                                                                         | (2,262 | ) |                                            |   | 2  |                                          | 
|Merger of USLM, Inc.                                                                          |  |              |  |                 |   | 47    |                     |  |   |                               |   |  |                                                                         |       |   |                                            |   |   |                                          | 
|Interest related to $232 million financing to purchase Shuttle, Inc. net of income tax
effect |  |              |  |                 |   | 3     |                     |  |   |                               |   |  |                                                                         |       |   |                                            |   |   |                                          | 
|Unrealized (loss) on available-for-sale securities, net of reclassification
adjustment        |  |              |  |                 |   |      |                     |  |   |                               |   |  |                                                                         |       |   |                                            |   | (2 | )                                        | 
|Unrealized gain on fuel cash flow hedges, net of reclassification
adjustment                  |  |              |  |                 |   |      |                     |  |   |                               |   |  |                                                                         |       |   |                                            |   |   |                                          | 
|Minimum pension liability change                                                              |  |              |  |                 |   |      |                     |  |   |                               |   |  |                                                                         |       |   |                                            |   |   |                                          | 
|Net loss                                                                                      |  |              |  |                 |   |      |                     |  |   | (1,659                         | ) |  |                                                                         |       |   |                                            |   |   |                                          | 
|                                                                                              |  |              |   |                 |   |       |                     |  |   |                                |   |  |                                                                         |        |   |                                            |   |    |                                          | 
|Total comprehensive loss                                                                      |  |              |   |                 |   |       |                     |  |   |                                |   |  |                                                                         |        |   |                                            |   |    |                                          | 
|                                                                                              |  |              |   |                 |   |       |                     |  |   |                                |   |  |                                                                         |        |   |                                            |   |    |                                          | 
|Balance as of December 31, 2002                                                               |  | $            |  |                 | $ | 2,661 |                     |  | $ | (4,485                         | ) |  | $                                                                       | (2,262 | ) |                                            | $ |   |                                          | 
|                                                                                              |  |              |   |                 |   |       |                     |  |   |                                |   |  |                                                                         |        |   |                                            |   |    |                                          | 



See accompanying Notes to Consolidated Financial Statements.



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US Airways,
Inc.

Notes to Consolidated Financial Statements



1. Proceedings Under Chapter 11 of the Bankruptcy Code



Chapter 11 Reorganization



On August 11, 2002 (Petition Date), US Airways, Inc. (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 or Court) (Case No. 02-83985-SSM). On the same date, US Airways
Group, Inc. (US Airways Group), US Airways parent company, and six of its other subsidiaries (collectively with US Airways, the Debtors) also filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy
Court. The Debtors cases are being jointly administered under the caption In re US Airways Group, Inc., et al., Case No. 02-83984-SSM. US Airways will continue to operate its business as a debtor-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.



The following discussion provides general background information regarding the Debtors Chapter 11 cases, but is not intended to be
an exhaustive summary. For additional information regarding the effect of these cases on the Debtors, investors should refer to the Bankruptcy Code and to the disclosure statement approved by the Bankruptcy Court on January 17, 2003 and filed with
US Airways Current Report on Form 8-K, dated January 31, 2003 and filed with the Securities and Exchange Commission (SEC) on February 4, 2003 (Disclosure Statement).



In response to a series of adverse events that led to severe financial losses, in mid-2002, US Airways
management undertook a comprehensive restructuring effort to achieve cost competitiveness through economic concessions from key stakeholders, such as employees, aircraft lenders and lessors and other vendors in order to allow the Company to reduce
costs, create financial flexibility and restore its long-term viability and profitability. Despite extensive negotiations and substantial progress in obtaining concessions, the Company was unable to achieve sufficient cost savings from a sufficient
number of its key stakeholders to enable it to restructure on a consensual basis outside of Chapter 11 of the Bankruptcy Code. Accordingly, faced with declining seasonal revenues and cash flow, the Company determined it was necessary to file for
relief under Chapter 11 as a means of completing the restructuring process and putting the Company in a position to return to profitability.



At hearings held on August 12, 2002, the Bankruptcy Court granted the Debtors first day motions for various relief designed to
stabilize their operations and business relationships with customers, vendors, employees and others and entered orders granting authority to the Debtors to, among other things: (a) pay pre-petition and post-petition employee wages, salaries,
benefits and other employee obligations; (b) pay vendors and other providers in the ordinary course for goods and services received from and after the Petition Date; (c) honor customer service programs, including the Debtors Dividend Miles
program and its ticketing programs; (d) honor obligations arising prior to the Petition Date related to the Companys interline, clearinghouse, code sharing and other similar agreements; (e) pay certain pre-petition taxes and fees,
including transportation excise taxes, payroll taxes and passenger facilities charges; and (f) pay certain other obligations. The Bankruptcy Court also gave interim approval for US Airways Group to borrow $75 million under a proposed $500 million
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 Texas Pacific Group (Original DIP Facility). At that time, US Airways Group also
announced its entry into a memorandum of understanding with Texas Pacific Group (TPG) for a $200 million equity investment upon emergence from bankruptcy (the TPG MOU). Such proposed investment was subject to higher or otherwise better offers. As



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required by the Bankruptcy Code, the United States Trustee appointed an official committee of unsecured creditors (the Official Committee).
The Official Committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court.



On September 25, 2002, each of the Debtors filed with the Bankruptcy Court their respective Schedules of Assets and Liabilities and
Statements of Financial Affairs (Initial Schedules and Statements) and the corresponding explanatory notes (Explanatory Notes), which set forth, among other things, the assets and liabilities of the Debtors, subject to the assumptions
contained in the Explanatory Notes. On December 2, 2002, certain of the Debtors filed amendments to the Initial Schedules and Statements to add certain new creditors thereto. The deadline for filing proofs of claim with the Bankruptcy Court was
November 4, 2002 (General Bar Date), with a limited exception for governmental entities, which had until February 7, 2003 to file proofs of claim (Governmental Units Bar Date). As is typical in reorganization cases, differences between amounts
scheduled by the Debtors and claims by creditors are being investigated and resolved in connection with the claims resolution process. The aggregate amount of claims filed with the Bankruptcy Court far exceeds the Debtors estimate of such
liability. The Debtors believe that many of these claims are duplicative, based upon contingencies that have not occurred, or otherwise are overstated, and are therefore invalid. The Plan of Reorganization (defined below) provides for a disputed
claims resolution process. In light of the number of creditors of the Debtors, the claims resolution process may take considerable time to complete. Accordingly, the ultimate number and amount of allowed claims is not presently known. Until the
disputed claims resolution process is finalized and the amount of allowed claims determined in connection therewith, distributions to general unsecured claimants under the Plan of Reorganization will not be made. On February 27, 2003, the Debtors
filed an exhibit to its Plan of Reorganization listing the contracts that were assumed and rejected.



On September 26, 2002, after receiving an offer on September 25, 2002, US Airways Group entered into a definitive investment agreement
with the Retirement Systems of Alabama to be the proposed Plan of Reorganization equity sponsor, superseding the TPG MOU. On January 17, 2003, US Airways Group and the Retirement Systems of Alabama entered into an amendment to the investment
agreement (as amended, the RSA Investment Agreement) which provides that the Retirement Systems of Alabama Holdings LLC (RSA) will replace The Retirement Systems of Alabama as the investor under the RSA Investment Agreement. Under the RSA Investment
Agreement, which is a keystone to the Plan of Reorganization, RSA will invest $240 million in cash and is expected to hold approximately 36.2%, on a fully-diluted basis, of the equity in, and the right to designate eight of 15 directors of, the
reorganized US Airways Group immediately upon emergence from Chapter 11 pursuant to a confirmed plan of reorganization, as more fully described in the Disclosure Statement (the RSA Investment). Just as with the TPG MOU, the RSA Investment was
subject to higher or otherwise better offers, to be solicited by the Debtors in accordance with the amended bidding procedures (Amended Bidding Procedures) approved by the Bankruptcy Court. The Amended Bidding Procedures established November 15,
2002 as the deadline for submission to the Debtors of competing plan proposals. No competing proposals were received by the Debtors and, accordingly, RSA was designated as the winning plan sponsor. US Airways Group also accepted a commitment from
The Retirement Systems of Alabama for a fully-underwritten $500 million debtor-in-possession financing facility on substantially the same terms as the Original DIP Facility (RSA DIP Facility or DIP Facility). The RSA DIP Facility replaced the
Original DIP Facility. See Debtor-In-Possession Financing and RSA Investment below for more information regarding the RSA DIP Facility and RSA Investment.



Under the Bankruptcy Code, the Debtors had the exclusive right for 120 days after the Petition Date to file a
plan of reorganization and, if they did so, 60 additional days to obtain necessary acceptances of their plan. Such periods were subject to extension by the Bankruptcy Court for cause. On December 12, 2002, the Bankruptcy Court extended the
Debtors exclusive period to propose a plan of reorganization (Filing Period) through January 31, 2003, and to solicit acceptances of such plan (Solicitation Period) through April 1, 2003. On February 20, 2003, the



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Bankruptcy Court once again extended the Filing Period and Solicitation Period through March 31, 2003 and May 30, 2003, respectively.



Bankruptcy law does not permit solicitation of
votes on a reorganization plan until the Bankruptcy Court approves the applicable disclosure statement relating to the reorganization plan. On December 20, 2002, the Debtors filed the Joint Plan of Reorganization of US Airways Group, Inc. and
Affiliated Debtors and Debtors-In-Possession and the related disclosure statement. On January 17, 2003, the Debtors filed the First Amended Joint Plan of Reorganization of US Airways Group, Inc. and Affiliated Debtors and
Debtors-In-Possession (Plan of Reorganization) and related Disclosure Statement. On January 16 and January 17, 2003, the Bankruptcy Court held hearings on the Disclosure Statement and, on January 17, 2003, entered an order approving the
Disclosure Statement as containing information adequate to enable creditors whose votes are being solicited to make an informed judgment whether to accept or reject the Plan of Reorganization and, among other things, authorized a balloting and
solicitation process. That solicitation process commenced on January 31, 2003 when the Debtors mailed solicitation packages to creditors and concluded on March 10, 2003, which was the date by which creditors ballots were to be received by the
Debtors voting agent in order to be counted. March 10, 2003 also marked the deadline by which objections to the Plan of Reorganization were to be filed with the Bankruptcy Court. In addition, the Bankruptcy Court scheduled March 18, 2003 as
the date for commencement of a hearing on confirmation of the Plan of Reorganization.



The Plan of Reorganization constitutes a separate plan of reorganization for each of the Debtors. In accordance with the Bankruptcy Code, the Plan of Reorganization divides claims against, and
interests in, each of the Debtors into classes (Classes of Claims and Interests) according to their relative seniority and other criteria and provides the same treatment for each claim or interest of a particular class unless the holder of a
particular claim or interest agrees to a less favorable treatment of its claim or interest. Among other things, the Plan of Reorganization generally provides for full payment of all allowed administrative and priority claims, and the distribution of
shares of new equity in reorganized US Airways Group to unsecured creditors of the Debtors in satisfaction of their allowed claims, which distribution is estimated to have a value, as disclosed in the Disclosure Statement, expected to be between 1.2
percent to 1.8 percent of total allowed unsecured claims. US Airways Groups existing subordinated creditors and equity security holders are not entitled to any distribution under the Plan of Reorganization. Investors should refer to the Plan
of Reorganization and the Disclosure Statement for a complete statement of its terms.



On March 18, 2003, the Bankruptcy Court entered an order confirming the Plan of Reorganization (Confirmation Order). While the Plan of Reorganization has been confirmed by the Bankruptcy Court, it has
not yet been consummated. The Plan of Reorganization will be consummated on the business day determined by the Debtors on which all conditions to the consummation of the Plan of Reorganization have been satisfied or waived and is the day upon which
the Plan of Reorganization is substantially consummated (the Effective Date). Provided that the conditions precedent to consummation are either satisfied or waived in accordance with the Plan of Reorganization, the Effective Date of the Plan of
Reorganization is expected to occur on or about March 31, 2003, unless such date is extended by the Debtors. The following are the conditions precedent to the occurrence of the Effective Date: (i) the Bankruptcy Court shall have entered one or more
orders (which may include the Confirmation Order) authorizing the assumption of unexpired leases and executory contracts by the Debtors as contemplated by the Plan of Reorganization; (ii) all conditions precedent to the funding under the RSA
Investment Agreement shall have been satisfied or waived in accordance with the terms thereof and the funding under such agreement shall have occurred; (iii) the $900 million loan guarantee (ATSB Guarantee) from the Air Transportation Stabilization
Board (Stabilization Boardsee ATSB Loan below) shall have been executed and delivered by all of the parties thereto, and all conditions precedent to the consummation thereof shall have been waived or satisfied in



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accordance with the terms thereof, and funding as agreed upon under the ATSB Guarantee shall have occurred; (iv) the tentative agreements
reached in December 2002, between US Airways and the employee groups represented by the Association of Flight Attendants, the Communication Workers of America, the International Association of Machinists and Aerospace Workers and the Transport
Workers Union modifying earlier restructuring agreements to incorporate additional cost reductions shall have been ratified and executed by the parties thereto; (v) requisite actions shall have been taken such that the pension funding requirements
with respect to the employee defined benefit pension plans maintained by US Airways shall be consistent with the pro forma financial projections appended to the Disclosure Statement; and (vi) the Confirmation Order shall remain unstayed. There can
be no assurance that all conditions will be satisfied by March 31, 2003.



The Chapter 11 filing triggered defaults on substantially all debt and lease obligations of the Debtors. Subject to certain exceptions under the Bankruptcy Code, the Debtors Chapter 11 filing automatically enjoined, or
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 the Petition Date. Thus, for example, creditor actions to obtain
possession of property from the Debtors, or to create, perfect or enforce any lien against the property of the Debtors, or to collect on or otherwise exercise rights or remedies with respect to a pre-petition claim were enjoined unless and until the
Bankruptcy Court lifted the automatic stay.



Notwithstanding the above general discussion of the automatic stay, however, the Debtors right to retain and operate certain aircraft, aircraft engines and other equipment defined in section 1110 of the Bankruptcy Code
that are leased or subject to a security interest or conditional sale contract are specifically governed by section 1110 of the Bankruptcy Code. That section provides, in relevant part, that unless the Debtors, within 60 days after the Petition Date
(Section 1110 Deadline), agree to perform all of the obligations (Section 1110 Agreement) under the lease, security agreement, or conditional sale contract and cure all defaults thereunder (other than defaults constituting a breach of provisions
relating to the filing of the Chapter 11 cases, the Debtors insolvency or other financial condition of the Debtors) within the time specified in section 1110, the right of the lessor, secured party or conditional vendor to take possession of
such equipment in compliance with the provisions of the lease, security agreement, or conditional sale contract and to enforce any of its other rights or remedies under such lease, security agreement, or conditional sale contract is not limited or
otherwise affected by the automatic stay, by any other provision of the Bankruptcy Code, or by any power of the Bankruptcy Court. Until the occurrence of the Effective Date, the provisions of section 1110 may materially impact the Debtors
options with respect to its fleet optimization strategy.



In order to address the fleet-related issues raised by section 1110, the Debtors entered into various stipulations and agreements with their respective aircraft lessors and mortgagees including, but not limited to, stipulations to
extend the section 1110 deadline (Section 1110 Deadline Extension) and Section 1110 Agreements. By March 31, 2003, the Debtors expect that every aircraft in the Debtors fleet will be subject to a restructuring agreement, a Section 1110
Agreement or a Section 1110 Deadline Extension, the agreement with respect to the aircraft will have been assumed, or such aircraft will have been abandoned or rejected. The Debtors may make further adjustments to their aircraft fleet consistent
with the Plan of Reorganization and the Confirmation Order. As of December 31, 2002, US Airways had rejected or abandoned 75 aircraft including 51 aircraft that were parked prior to the Petition Date.



On January 30, 2003, the Debtors filed a motion requesting (i)
a determination from the Bankruptcy Court that the Debtors satisfy the financial requirements for a distress termination of the defined benefit Retirement Income Plan for Pilots of US Airways, Inc. (Pilot Retirement Plan) under section
404(c)(2)(B)(ii)(IV) of the Employee Retirement Income Security Act of 1974, as amended, and approval of such pension plans termination and (ii) the authorization of the implementation of a defined contribution retirement plan for its pilots
(Distress Termination



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Motion). A hearing on the Distress Termination Motion began on February 21, 2003 and continued thereafter from February 24 through March
1, 2003. On March 2, 2003, the Bankruptcy Court authorized the Debtors to terminate the Pilot Retirement Plan on March 31, 2003 subject to a determination, under the arbitration procedures established by the collective bargaining agreement and
the Railway Labor Act, that the proposed termination does not violate the collective bargaining agreement between US Airways and the Air Line Pilots Association (ALPA). The Bankruptcy Court authorized US Airways to establish, effective as
of the date of termination, a follow-on defined contribution retirement plan for the pilots of US Airways, on terms consistent with the letter agreement of December 13, 2002, between US Airways and ALPA. On March 21, 2003, the Company and ALPA
reached agreement on a replacement pension plan to be effective April 1, 2003. The agreement was ratified by the ALPA Master Executive Council and is subject to approval by the Pension Benefit Guaranty Corporation (PBGC) and final approval by the
Bankruptcy Court. On March 24, 2003 the Debtors filed a motion with the Bankruptcy Court seeking supplemental authority to implement a new defined contribution plan. The motion is expected to be heard March 28, 2003. The Company
anticipates receiving final PBGC approval prior to the proposed plan termination on March 31, 2003.



Debtor-In-Possession Financing



On September 26, 2002, the Bankruptcy Court approved US Airways Groups designation of RSA as its proposed Plan of Reorganization
equity sponsor and granted interim approval of the $500 million RSA DIP Facility on substantially the same terms as the Original DIP Facility. The Bankruptcy Court also granted US Airways Group the authority to borrow up to $300 million under the
RSA DIP Facility. On September 27, 2002, US Airways Group borrowed $300 million under the RSA DIP Facility and used a portion of such funds to repay the $75 million that was outstanding under the Original DIP Facility. A final order approving the
RSA DIP Facility was entered by the Bankruptcy Court on November 8, 2002. On March 7, 2003, an additional $69 million was borrowed under the RSA DIP Facility.



The RSA DIP Facility consists of a $250 million term loan facility and a $250 million revolving credit
facility (with a $50 million letter of credit sub-facility) and is guaranteed by each of the Debtors (other than US Airways Group). The RSA DIP Facility is secured by first priority liens on all unencumbered present and future assets of the Debtors
and by best priority available junior liens on all other assets of the Debtors, other than certain specified assets, including assets which are subject to financing agreements that are entitled to the benefits of section 1110 of the Bankruptcy Code
to the extent such financing agreements prohibit such junior liens. US Airways Group has the option of borrowing under the RSA DIP Facility at an interest rate of the prime rate plus 2.5% or LIBOR plus 4.0%.



The maturity date of the RSA DIP Facility is the earlier of
the effective date of a plan of reorganization of the Debtors or September 30, 2003. The RSA DIP Facility may be accelerated upon the occurrence of an event of default under the RSA DIP Facility and contains customary mandatory prepayment events
including, among other things, the occurrence of certain asset sales and the issuance of certain debt or equity securities.



The definitive documentation relating to the RSA DIP Facility contains covenants that require US Airways Group to satisfy ongoing
financial requirements including operating results, cash receipts and liquidity. Such covenants also limit, among other things, the Debtors ability to borrow additional money, pay dividends and make additional corporate investments.



Under the RSA DIP Facility, borrowing
availability is determined by a formula based on a percentage of eligible assets. The eligible assets consist of certain previously unencumbered aircraft, aircraft engines, spare parts, flight simulators, real property (including interests in
certain airport facilities), takeoff and landing slots, ground equipment and accounts receivable. The



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underlying values of such assets may fluctuate periodically due to prevailing market conditions, and fluctuations in value may have an impact
on the borrowing availability under the RSA DIP Facility. Availability may be further limited by additional reserves imposed by the administrative agent and the collateral agent as they deem necessary in their reasonable credit judgment.



The remaining $131 million of availability under
the RSA DIP Facility, subject to the limitation on borrowing availability discussed above, will be available to US Airways Group after certain conditions are met, including (i) the entry by the Bankruptcy Court of a final order approving the terms
and conditions of the RSA DIP Facility documents; (ii) the minimum statutory and regulatory review periods shall have expired with respect to US Airways marketing agreements with United Air Lines, Inc. (United) and neither the U.S. Department
of Transportation nor any other applicable governmental authority or third party has filed any material objection to such marketing agreements which has not been resolved; (iii) (a) the receipt of written confirmation from the Stabilization Board of
its conditional approval for the ATSB Guarantee under the Air Transportation Safety and System Stabilization Act (Stabilization Act), subject to confirmation by the Bankruptcy Court of a plan of reorganization reasonably acceptable to the
Stabilization Board, (b) the approval by the Stabilization Board of a substantially final draft of the plan of reorganization and disclosure statement to be filed in the cases, and (c) the Company demonstrating to the reasonable satisfaction of RSA
that it is likely to satisfy all of the conditions to the issuance of the ATSB Guarantee; and (iv) banks, financial institutions and other institutional lenders satisfactory to the Company and RSA delivering commitments to lend at least the $100
million at-risk portion of the $1 billion Stabilization Board guaranteed loan. US Airways Group met the condition described in clause (i) above when the Bankruptcy Court entered a final order approving the RSA DIP Facility on
November 8, 2002. With respect to the marketing agreements described in clause (ii) above, on October 2, 2002, the U.S. Department of Transportation announced that it had completed its review of US Airways marketing agreements with United and
had determined to end the statutory waiting period for such agreements. US Airways Group met the conditions described in clauses (iii)(a) and (iii)(b) above when the Company received written confirmation from the Stabilization Board of its
conditional approval of the ATSB Guarantee by letter on February 11, 2003 and the Plan of Reorganization, which was reasonably acceptable to the Stabilization Board, was confirmed by the Bankruptcy Court on March 18, 2003. US Airways Group
met the condition in clause (iv) above when US Airways secured commitments from its at-risk lenders.



On March 20, 2003, US Airways Group notified RSA that it was not in compliance with a material financial covenant under the DIP Facility.
Under the terms of the DIP Facility, RSA could exercise one or more remedies, including but not limited to, a cancellation of its commitment to lend under the DIP Facility as well as the right, upon five business days notice, to recover the
collateral for the loan. The Company is in discussions with RSA regarding the funding of the remaining $131 million available under the DIP Facility and a potential waiver or standstill agreement while the Company completes the final stages of
emergence from Chapter 11.



RSA
Investment



The RSA Investment
Agreement covers certain matters, including but not limited to, board composition, US Airways Groups post-emergence capital structure and the replacement of the Retirement Systems of Alabama with the Retirement Systems of Alabama
Holdings LLC as the investor under the RSA Investment Agreement. RSA will invest $240 million in cash and is expected to hold approximately 36.2%, on a fully-diluted basis, of the equity in the reorganized US Airways Group immediately upon emergence
from Chapter 11 pursuant to the confirmed Plan of Reorganization. If the RSA Investment is consummated in accordance with its terms, RSA is expected to have a voting interest of approximately 71.6% in the reorganized US Airways Group immediately
upon emergence from Chapter 11 pursuant to the confirmed Plan of Reorganization and would hold eight of 15 seats on US Airways Groups Board of Directors. The RSA Investment is subject to customary conditions to closing as well as
US Airways Groups achievement of certain



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financial and operational benchmarks. The RSA Investment, if consummated, contemplates the cancellation of the common stock of
US Airways Group (Common Stock).



Notice and Hearing Procedures for Trading in Claims and Equity Securities



In connection with US Airways Groups bankruptcy filing, on August 12, 2002, the Bankruptcy Court entered an interim order (Interim
NOL Order) to assist the Debtors in monitoring and preserving their net operating losses (NOLs) by imposing certain notice and hearing procedures on trading in (i) claims against the Debtors (Claims) or (ii) equity securities in US Airways Group. In
general, the Interim NOL Order applied to any person or entity that, directly or indirectly, beneficially owns, or was about to enter into a transaction pursuant to which it would directly or indirectly beneficially own, (i) an aggregate principal
amount of Claims equal to or exceeding $50 million (including a lease or leases under which one or more of the Debtors are lessees and pursuant to which payments of $50 million or more, in the aggregate, are or will become due) or (ii) three million
or more shares of Common Stock. Under the Interim NOL Order, such persons or entities were required to provide 30 calendar days advance notice to the Court, the Debtors, and Debtors counsel prior to purchasing or selling any Claims or Common
Stock, and the Debtors had 30 calendar days after receipt of such notice to object to any proposed transfer described therein. If the Debtors filed an objection, such transaction would not be effective unless approved by a final and nonappealable
order of the Bankruptcy Court. If the Debtors did not object within such 30 day period, such transaction may have proceeded solely as set forth in the notice. Moreover, the Interim NOL Order required that any person or entity who, directly or
indirectly, beneficially owned $50 million or more in Claims or three million or more shares of Common Stock file and serve a notice setting forth the size of their holdings on or before the later of (i) 40 days after the effective date of the
notice of entry of the Interim NOL Order or (ii) 10 days after becoming such a beneficial owner. Pursuant to the Interim NOL Order, any purchase, sale or other transfer of Claims or equity securities in US Airways Group in violation of these
procedures was null and void ab initio as an act in violation of the automatic stay under section 362 of the Bankruptcy Code.



After holding a final hearing on the Interim NOL Order on September 26, 2002, the Bankruptcy Court entered the final order on October 2,
2002 (Final NOL Order), which modified certain aspects of the Interim Order. The modifications include, among others, (i) an increase from $50 million to $100 million of the Claims threshold amount for determining which creditors are subject to the
notice and objection procedures of the Final NOL Order and (ii) a decrease from 30 calendar days to 10 business days of the period during which the Debtors may object to a notice of proposed transfer of Claims or Common Stock. The Common Stock
threshold amount for determining which equity holders are subject to the notice and objection procedures of the Final NOL Order remains unchanged from the Interim NOL Order.



ATSB Loan



As part of its restructuring efforts, US Airways sought and received conditional approval for a $900 million loan guarantee under the
Stabilization Act from the Stabilization Board in connection with a proposed $1 billion loan financing (the ATSB Loan). US Airways applied for this loan and related guarantee in order to provide additional liquidity necessary to carry out its
restructuring plan. On February 11, 2003, the Stabilization Board issued a letter to US Airways reaffirming its approval of the ATSB Guarantee, subject to certain conditions. The Stabilization Boards conditions for issuance of the ATSB
Guarantee included, among other things, the execution and delivery of legally binding agreements acceptable to the Stabilization Board containing economic concessions from key stakeholders, confirmation of the Plan of Reorganization by the
Bankruptcy Court, a resolution of US Airways pension funding issue approved by the Pension Benefit Guarantee Corporation and, if necessary, the Bankruptcy Court, resolution of certain collateral issues, as well as customary closing documentation.



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It is expected
that the ATSB Loan will consist of a $1 billion term loan facility to US Airways, $900 million of which will be guaranteed by the Stabilization Board. The ATSB Loan will also be guaranteed by each of the Debtors (other than US Airways). The ATSB
Loan will be secured by first priority liens on substantially all of the unencumbered present and future assets of the Debtors (including certain 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. The ATSB Loan is expected to bear interest as follows: (i) 90% of the ATSB
Loan will bear interest (a) if funded through a participating lenders commercial paper conduit program, at a rate of interest 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% or (b) if not funded through such commercial paper conduit program, at a rate of interest equal to LIBOR plus 0.40% and (ii) 10% of the ATSB Loan will bear interest at LIBOR plus 4.0%. In addition, it is
expected that US Airways will be charged an annual guarantee fee in respect of the ATSB Guarantee equal to 4.0% of the Stabilization Boards exposure under the ATSB Guarantee, with such guarantee fee increasing by ten basis points annually. In
addition, it is expected that the Stabilization Board will receive warrants that will enable it to purchase approximately 10% of the Companys common stock on a fully diluted basis.



The maturity date of the ATSB Loan is expected to be six and one-half years following the funding date. In
addition, it is expected that the ATSB Loan will require semi-annual amortization payments commencing in October 2006, each such amortization payment to be in the amount of $125 million, with a final scheduled principal payment of $250 million due
on the maturity date of the ATSB Loan.



The ATSB
Loan will be subject to acceleration upon the occurrence of an event of default under the ATSB Loan and will contain 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) from excess cash flow should the value of the collateral pledged in respect of the ATSB Loan decrease below a specified coverage level.



It is expected that the definitive documentation relating to the ATSB Loan will contain covenants that will
require US Airways to satisfy ongoing financial requirements including operating results, fixed charge coverage and liquidity. Such covenants also limit, among other things, the Debtors ability to pay dividends, make additional corporate
investments and acquisitions, enter into mergers and consolidations and modify certain concessions obtained as part of the Chapter 11 restructuring.



Definitive documentation for the ATSB Loan has not yet been completed and funding of the ATSB Loan is subject to certain conditions
precedent which have not yet been satisfied. While the Company expects to satisfy such conditions in the near future, there is no assurance that it will satisfy such conditions.



2. Summary of Significant Accounting Policies



(a) Basis of presentation and nature of operations



The accompanying Consolidated Financial Statements include
the accounts of US Airways and US Airways Investment Management Company, Inc. (USIM), a former 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 10, US Airways financial
results are significantly influenced by related party transactions. Certain



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prior year amounts have been reclassified to conform with 2002 classifications.



Effective July 1, 2000, Shuttle, Inc. (Shuttle) was merged into US Airways. The operations of the former
Shuttle subsequent to June 30, 2000 are included in US Airways consolidated financial statements. The merger was accounted for as a combination of entities under common control. Shuttle was formerly a wholly-owned subsidiary of US Airways
Group. See Note 2(j) for pro forma information related to the Shuttle merger.



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 Consolidated Financial
Statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business, and in accordance with Statement of Position 90-7 (SOP
90-7), Financial Reporting by Entities in Reorganization under the Bankruptcy Code. SOP 90-7 requires that the financial statements for periods subsequent to the Chapter 11 filing petition distinguish transactions and events that are
directly associated with the reorganization from the ongoing operations of the business.



Revenues, expenses, realized gains and losses, and provisions for losses directly associated with the reorganization and restructuring of the business are reported separately as Reorganization items,
net in the Consolidated Statements of Operations. The Consolidated Balance Sheets distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition
liabilities. Unless otherwise settled, 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 Consolidated Statements of Cash Flows.



US
Airways is a major U.S. air carrier engaged primarily in the business of transporting passengers, property and mail. US Airways enplaned approximately 47 million passengers during 2002 and was the seventh largest U.S. air carrier, as ranked by
revenue passenger miles (RPMs). US Airways operates predominantly in the eastern U.S. with major connecting hubs at airports in Charlotte, Philadelphia and Pittsburgh. US Airways also has substantial operations at Bostons Logan International
Airport (Logan), New Yorks LaGuardia Airport and Washingtons Ronald Reagan Washington National Airport (Reagan National).



As of December 31, 2002, US Airways owned approximately 11% of the Galileo Japan Partnership (GJP), which markets the Galileo Computer
Reservation System in Japan. US Airways accounts for its investment in GJP using the equity method because it is represented on the board of directors and therefore participates in policy making processes.



(b) Operating environment



Most of US Airways operations are in competitive
markets. Competitors include other air carriers along with other modes of transportation.



The weak economic conditions that began in 2001 continued throughout 2002. In the aftermath of the September 11thterrorist attacks, airline passenger demand dropped precipitously industry-wide. The decline in high-yield business traffic, which was down significantly prior to the terrorist attacks, was
exacerbated after these attacks as many companies imposed corporate travel restrictions due to the further weakening of the general economy. In response to these adverse events, the Company, led by a new management team headed by David N. Siegel,
who joined the Company in March 2002, implemented a plan to return the Company to profitability. The Company was able to successfully



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negotiate cost savings from many of its employee groups. However, the Company determined that it was unlikely to conclude consensual
negotiations with all of the remaining labor groups, various vendors, aircraft lenders/lessors and financiers in a time frame necessary to complete an out-of-court restructuring. Factors contributing to this conclusion include the large number of
lenders/lessors and financiers, the inability of trustees to modify payment terms of public equipment financings without the unanimous consent of holders of widely-held trust certificates and the Companys inability to reject/abandon surplus
aircraft leases, return excess aircraft and extinguish applicable obligations without relief under Chapter 11 of the Bankruptcy Code. Faced with declining seasonal revenues, the Company filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code to maximize its liquidity position and its prospects for a successful reorganization. See Note 1 for more details.



The Company continues to face a weak revenue environment. The airline industry recovery that appeared to be underway during the first half
of 2002 stalled. As a result, airlines have consistently been offering steep discounts and attempts to raise prices have repeatedly failed in the face of competitive pressure. In light of its Chapter 11 filing on August 11, 2002, US Airways suffered
additional revenue impact as passenger bookings deteriorated for a short period subsequent to the filing. In September, industry revenue also began declining versus previous, already depressed levels. If the current negative trends in industry
revenues persist, or should there be another shock to industry demand due to acts of war or terrorism, the implications for the Companys recovery could be significant.



The growth and expansion of competitors with lower cost and fare structures in its markets has put
considerable pressure on US Airways to reduce its operating costs in order to maintain its competitiveness. In addition, 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, 2002, the Company
employed approximately 31,400 full-time equivalent employees. Approximately 27,700 (87%) of the Companys active employees are covered by collective bargaining agreements with various unions.



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. The military action in the Middle East, continued political unrest in Venezuela and adverse weather during the 2002-2003 winter season continue to impact the supply and demand for oil and consequently the
price. Because the operations of the Company are dependent upon aviation fuel, significant 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 to manage the risk associated with changes in aviation fuel price. However, the implications of a sharp increase in the price of aviation fuel for a prolonged period of time for the Companys recovery
would be significant. See Note 3 for more information on the Companys derivative instruments.



(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.



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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 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 Stockholders Deficit within Accumulated other comprehensive income (loss), net of income tax effect.



(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 20-30 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. On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, (SFAS 142) under which goodwill and intangible assets acquired in a purchase business
combination and determined to have an indefinite useful life are not amortized but instead are assessed for impairment at least annually and also between annual tests when a significant triggering event occurs. During the second quarter of 2002, the
Company completed its initial assessment. The



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fair value of US Airways, the sole reporting unit assigned goodwill, exceeded US Airways carrying value, indicating that an impairment
did not exist. As a result of the Companys Chapter 11 filing, the Company reassessed its goodwill for impairment during the third quarter of 2002. This reassessment included an analysis of the fair value of the reporting unit using discounted
cash flows based on its September 2002 financial projections which were prepared on a going-concern basis. The projections reflect a number of assumptions as to current and projected market conditions including improved revenue trends from the
airline industrys current depressed levels, assume that the Company achieves its targeted cost reductions and assume that the ATSB Guarantee and the RSA Investment are consummated upon emergence from bankruptcy. Based on the results of this
assessment, the fair value of the reporting unit exceeded its carrying value which led the Company to conclude that the reporting units goodwill was not impaired as of September 30, 2002. Year 2002 amortization expense was favorably impacted
by $19 million as a result of ceasing amortization of goodwill.



Results for the years ended December 31, 2001 and 2000, as adjusted, assuming the discontinuation of amortization of goodwill, are shown below (in millions):



|                                  |  | 2001 |        |   | 2000 |  
|--------------------------------- |  | ---- | ------ | - | ---- | -
|Reported net loss                 |  | $    | (1,989 | ) |      | $
|Goodwill amortization, net of tax |  |      | 19     |   |      |  
|                                  |  |      |        |   |      |  
|Adjusted net loss                 |  | $    | (1,970 | ) |      | $
|                                  |  |      |        |   |      |  



SFAS 142
also 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 (except where noted) as of December 31, 2002 and 2001 (in millions):



|                                   |  | Original Cost |     | AccumulatedAmortization
|---------------------------------- |  | ------------- | --- | -----------------------
|                                   |  | 2002          |     | 2001                   
|Airport take-off and landing slots |  | $             | 184 |                        
|Airport gate leasehold rights      |  |               | 165 |                        
|Capitalized software costs         |  |               | 220 |                        
|Intangible pension asset (1)       |  |               | 114 |                        
|                                   |  |               |     |                        
|Total                              |  | $             | 683 |                        
|                                   |  |               |     |                        

|(1) |  | Not subject to amortization.
|--- |  | ----------------------------



During 2002, the Company recorded capitalized software costs of $9 million and an increase to the intangible pension asset of $28 million.
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 included in Depreciation and amortization on the Consolidated Statements of Operations. The intangible pension asset is recognized in accordance with Statement of Financial Accounting Standards No. 87, Employers
Accounting for Pensions (SFAS 87). 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 (which are included in the US Airways operating segment) were impaired. The Company estimated fair market value using third-party appraisals. This culminated in an
impairment charge of $21 million reflected in Asset impairments and other special items on the Consolidated Statement of Operations. For the years ended December 31, 2002, 2001 and 2000, US Airways recorded amortization expense of $51 million
(exclusive of the impairment charge discussed above), $56 million and $47 million, respectively, related to its intangible assets. US Airways expects to record annual amortization expense of $45 million in 2003; $22 million in 2004; $14 million in



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2005; $12 million in 2006; and $10 million in 2007 related to these intangible assets.



(h) Other assets, net



Other assets, net consist primarily of long-term investments,
unamortized debt issuance costs, unspent bond proceeds to finance various improvements at the Philadelphia International Airport and the unamortized balance of deferred compensation. As of December 31, 2001, deferred compensation resulted mainly
from US Airways establishment of an employee stock ownership plan (ESOP) in 1989, which was written off in 2002 (see Note 6(d)).



Other than the deferred compensation that arose from the establishment of the ESOP, US Airways accounts for deferred compensation and the
related amortization by applying the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (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) is recognized based on the fair market value of the stock on the date of grant. Except on limited occasions, no deferred compensation is recognized when options to purchase US
Airways Group common stock are granted to employees (Option Grants) because the exercise price of the stock options is set equal to the fair market value of the underlying stock on the date of grant. Any deferred compensation is amortized as
Personnel costs over the applicable vesting period.



US Airways recognized expenses related to Stock Grants of $3 million, $9 million and $29 million in 2002, 2001 and 2000, respectively, and expenses related to Option Grants of $1 million in 2001 and 2000, respectively. Deferred
compensation related to Stock Grants was $5 million and $9 million as of December 31, 2002 and 2001, respectively.



The weighted average fair value per stock option for stock options which have an exercise price equal to the fair market value of a share
of US Airways Group common stock at date of grant was $3, $3 and $11 for 2002, 2001 and 2000, respectively. The weighted average fair value per stock option for stock options which have an exercise price greater than the fair market value of a share
of US Airways Group common stock was $3 for 2002 and $10 for 2000. There were no such grants 2001. The weighted average fair value per stock option for stock options which have an exercise price lower than the fair market value of US Airways
Group common stock was $21 for 2001. There were no such grants during 2002 and 2000.



Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS 123) established accounting and disclosure requirements using a fair-value-based method
of accounting for stock-based employee compensation plans. As allowed by SFAS 123, US Airways has elected to continue to apply the provisions of APB 25 as described above, and has adopted only the disclosure requirements of SFAS 123. In order to
calculate this pro forma net loss information, US Airways used the Black-Scholes stock option pricing model with the following weighted-average assumptions for 2002, 2001 and 2000, respectively: stock volatility of US Airways Group common stock of
80.1%, 58.1% and 50.6%; risk-free interest rates of 4.2%, 4.6% and 6.6%; expected stock option lives of four years and no dividend yield in each year. The following table discloses the effect on net loss if the fair-value-based method had been
applied to all outstanding and unvested awards in each period presented:



|                                                                             |  | 2002          |        |   | 2001 |   |        | 2000 | 
|---------------------------------------------------------------------------- |  | ------------- | ------ | - | ---- | - | ------ | ---- | 
|                                                                             |  | (in millions) |       
|                                                                            
|Net Loss, as reported                                                        |  | $             | (1,659 | ) |      | $ | (1,989 | )    | 
|Recorded stock-based compensation expense                                    |  |               |       |   |      |   | 1      |      | 
|Stock-based compensation expense determined underthe fair-value based
method |  |               | (13    | ) |      |   | (37    | )    | 
|                                                                             |  |               |        |   |      |   |        |      | 
|Net Loss, pro forma                                                          |  | $             | (1,672 | ) |      | $ | (2,025 | )    | 
|                                                                             |  |               |        |   |      |   |        |      | 



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(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. US Airways also sells mileage credits to certain
marketing partners. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), which provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. Although SAB 101 does not change existing accounting rules on revenue recognition, changes in accounting to apply the guidance in SAB 101 may be accounted for as a change in accounting principle. On January 1, 2000, US Airways
changed its method of accounting for the sale of mileage credits in its Dividend Miles program from recognizing all revenue when credits are sold, to deferring the portion of revenue attributable to future transportation and recognizing it as
passenger revenue when the service is provided. The remaining portion of sales proceeds is recognized immediately as a component of Other operating revenues. US Airways believes the new method results in a better matching of revenue with the
period in which travel services are provided. In connection with the change, US Airways recognized a $103 million, net of applicable income taxes, cumulative effect charge on January 1, 2000.



(j) Pro Forma Information - Shuttle Merger



The unaudited pro forma amounts below are
provided to show what US Airways would have reported if the Shuttle merger had occurred on January 1, 2000 for the years ended December 31, 2002, 2001 and 2000. See Note 2(a) for further information.





|As reported, before Cumulative Effect of Accounting Change |  | 2002          |        |   | 2001 |   |        | 2000 | 
|---------------------------------------------------------- |  | ------------- | ------ | - | ---- | - | ------ | ---- | 
|                                                           |  | (in millions) |       
|Total Operating Revenues                                   |  | $             | 6,915  |   |      | $ | 8,253  |      | 
|Loss                                                       |  | $             | (1,659 | ) |      | $ | (1,996 | )    | 





|Pro forma, before Cumulative Effect of Accounting Change |  | 2002          |        |   | 2001 |   |        | 2000 | 
|-------------------------------------------------------- |  | ------------- | ------ | - | ---- | - | ------ | ---- | 
|                                                         |  | (in millions) |       
|Total Operating Revenues                                 |  | $             | 6,915  |   |      | $ | 8,253  |      | 
|Loss                                                     |  | $             | (1,659 | ) |      | $ | (1,996 | )    | 



(k)
Derivative financial instruments



US
Airways results of operations can be significantly impacted by changes in the price of aircraft fuel. To manage this risk, US Airways periodically enters into fixed price swap agreements, collar structures and other similar instruments,
which may have maturities of up to 12 months. These agreements substantially fix US Airways cash flows related to fuel expense. Because there is not a readily available market for derivatives in aircraft fuel, US Airways 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 contracts have a high correlation to changes in aircraft fuel prices. The agreements generally qualify as
cash flow hedges under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging (SFAS 133). US Airways does not purchase or hold any derivative financial instruments for trading purposes.



Upon adoption of SFAS 133 on January 1, 2001, US
Airways recorded the fair market value of its fuel hedge contracts, which was approximately $2 million, on its Consolidated Balance Sheets. On an ongoing basis, US Airways 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 change in the value of the fuel hedge
contract does not perfectly offset the change in the value of the aircraft fuel purchase being hedged, the excess gain



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or loss is considered ineffective and is immediately recognized in earnings. The fuel hedge contracts gains and losses including
those classified as ineffective are recognized to Aviation fuel on US Airways Consolidated 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.



US Airways holds stock options in Sabre, Inc. (Sabre) and warrants in a number of e-commerce companies as a result of service agreements with them. Upon adoption of SFAS 133 on January 1, 2001, US Airways recorded the fair market
value of its stock options and warrants, which was approximately $12 million, on its Consolidated Balance Sheets. The offset was a $7 million credit, net of income taxes, recorded to Cumulative Effect of Accounting Change on US Airways
Consolidated Statements of Operations. On an ongoing basis, US Airways adjusts its balance sheet to reflect changes in the current fair market value of the stock options and warrants to Other, net on its Consolidated Statements of Operations.



Prior to its adoption of SFAS 133, US Airways
deferred all gains and losses on its fuel hedge contracts until the month the underlying jet fuel being hedged was used and its stock options and warrants were accounted for using the cost method. See Note 3 for more information on US Airways
derivative financial instruments.



(l)
Deferred gains, net



Gains on aircraft sale
and leaseback transactions are 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.



(m) 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 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 which are recognized as a component of Passenger transportation revenue. Actual refund, exchange and expiration activity may vary from estimated amounts. Such differences have
historically not been material.



US Airways
purchases all of the 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. In 2003, US Airways will also begin purchasing the capacity of Midway Airlines Corporation (Midway) and Republic Airlines (Republic). Mesa, Chautauqua, Trans States, Midway and Republic operate regional jet
aircraft in these markets as part of US Airways Express. US Airways recognizes revenues related to these arrangements as US Airways Express transportation revenues 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 10(b) for additional information related to US Airways transactions with its affiliates.



See Note 2(i) above for information on the sale of Dividend Miles that are recognized as a component of passenger transportation revenues.



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(n)
Maintenance and repair costs



Maintenance
and repair costs for owned and leased flight equipment are charged to operating expense as incurred.



(o) Other selling expenses



Other selling expenses include credit card fees, computerized reservations systems fees and advertising and promotional expenses.
Advertising and promotional expenses for 2002, 2001 and 2000 were $30 million, $28 million and $52 million, respectively (such costs are expensed when incurred).



(p) Recent Accounting Pronouncements



In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46) which requires the consolidation by primary beneficiaries of variable interest entities (VIEs), as defined. Public companies will generally be subject to its provisions effective after
January 31, 2003 for newly-acquired VIEs and the first fiscal or interim period beginning after June 15, 2003 for VIE holdings acquired prior to February 1, 2003. The adoption of FIN 46 is not expected to have a material effect on the Companys
financial statements. However, as a result of the complexities of this interpretation, the evolving understanding and forthcoming implementation guidance from the FASB, the Company is continuing to evaluate the provisions of FIN 46.



In November 2002, the FASB issued Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34 (FIN
45). FIN 45 expands on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. It also clarifies that a guarantor is required to recognize, at inception of a guarantee,
a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material effect on the
Companys financial statements. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002. Refer to Note 7(e) below for more information regarding guarantees.



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



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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, collar structures and other similar instruments to manage its exposure related to jet fuel price changes. During 2002, the Company recognized gains of
approximately $18 million related to its fuel hedging activities including a gain of $1 million related to hedge ineffectiveness. During 2001, the Company recognized losses of approximately $18 million including a loss of $1 million related to hedge
ineffectiveness. These recognized gains and losses were primarily included in Aviation Fuel on the Companys Consolidated Statements of Operations. As of December 31, 2002, the Company had open fuel hedge positions in place to hedge 62% of its
first quarter 2003 anticipated jet fuel requirements and 24% of its second quarter 2003 anticipated jet fuel requirements. The Company had $10 million of unrealized gains related to fuel hedge positions recorded in Accumulated other comprehensive
loss, net of income tax effect on its Consolidated Balance Sheet as of December 31, 2002. These gains are expected to be realized in 2003 results.



US Airways is a member of the SITA Foundation (SITA), the principal asset of which is its equity interest in Equant N.V., an international
data network service company. In February and December 1999, SITA sold a portion of its interest in Equant in secondary public offerings and distributed the pro rata proceeds to certain of its members (including US Airways) that elected to
participate in the offerings. In connection with this transaction, US Airways recorded pretax gains of $17 million in 1999. During 2001, US Airways remaining Equant ownership was converted to France Telecom shares, which US Airways then sold
resulting in a $3 million pretax gain. These gains are included in Other, net on the Companys Consolidated Statements of Operations.



In November 1999, US Airways entered into an agreement with priceline.com Incorporated (Priceline) which sets forth the terms and
conditions under which ticket inventory provided by US Airways may be sold utilizing Pricelines internet-based electronic commerce system. In connection with the agreement, US Airways received warrants to purchase up to 1.5 million shares of
Pricelines common stock for $52.625 per share. The fair value of these warrants was $18 million as of December 31, 1999 and was determined using valuations obtained from third parties. In 2000, US Airways recorded an $18 million pretax
impairment charge related to these warrants. See Note 14 for more information.



US Airways periodically reviews the financial condition of each counterparty to its financial contracts and believes that the potential for default by any of the current counterparties is negligible.



(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, 2002 and 2001.



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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,    |       
|------------------------------------------------------- |  | --------------- | ------
|                                                        |  | 2002            |       
|                                                        |  | Carrying Amount |       
|Cash equivalents                                        |  | $               | 554   
|Short-term investments (a)                              |  |                 | 49    
|Restricted cash                                         |  |                 | 514   
|Notes receivable (b)                                    |  |                 | 17    
|SHC Stock Options (c)                                   |  |                 | 5     
|Long-term debt (excludes capital lease obligations) (d) |  |                 | (3,518
|Contracts in a net receivable (payable) position:       |  |                 |       
|Fuel contracts (e)                                      |  |                 | 12    



|(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 Consolidated Balance Sheets, except for the noncurrent portion ($7 million and $11 million at
December 31, 2002 and 2001, respectively) which is included in Other assets, net.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) |  | Carrying amount included in Other assets, net on the Companys Consolidated Balance Sheets.
|--- |  | -------------------------------------------------------------------------------------------



|(d) |  | Includes Long-term debt classified as subject to compromise.
|--- |  | ------------------------------------------------------------



|(e) |  | Carrying amount included in Prepaid expenses and other of Other accrued expense, as applicable on the Companys Consolidated Balance Sheet.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------



|(f) |  | As a result of the Companys Chapter 11 filing, the fair value of the debt outstanding cannot be reasonably determined.
|--- |  | -----------------------------------------------------------------------------------------------------------------------



4. Income Taxes



US Airways accounts for income taxes according to the
provisions of 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 have executed a tax sharing agreement which allocates tax and tax items, such as net operating losses and tax credits between members of the group based on their proportion of taxable income and other items. This tax
sharing and allocation impacts the deferred tax assets and liabilities reported by each corporation on a separate company basis. Accordingly, US Airways tax expense is based on its taxable income, taking into consideration its allocated tax
loss carryforwards/carrybacks and tax credit carryforwards.



During 2001, US Airways recorded a valuation allowance against its net deferred tax asset. 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 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 deductible.



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The components
of US Airways provision (credit) for income taxes are as follows (in millions):



|                                    |  | 2002 |      |   | 2001 |   |      | 2000 | 
|----------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- | 
|                                   
|Current provision:                  |  |      |      |   |      |   |      |      | 
|Federal                             |  | $    | (248 | ) |      | $ | (298 | )    | 
|State                               |  |      | (7   | ) |      |   | (7   | )    | 
|                                    |  |      |      |   |      |   |      |      | 
|Total current                       |  |      | (255 | ) |      |   | (305 | )    | 
|                                    |  |      |      |   |      |   |      |      | 
|Deferred provision:                 |  |      |      |   |      |   |      |      | 
|Federal                             |  |      |     |   |      |   | 459  |      | 
|State                               |  |      |     |   |      |   | 55   |      | 
|                                    |  |      |      |   |      |   |      |      | 
|Total deferred                      |  |      |     |   |      |   | 514  |      | 
|                                    |  |      |      |   |      |   |      |      | 
|Provision (credit) for income taxes |  | $    | (255 | ) |      | $ | 209  |      | 
|                                    |  |      |      |   |      |   |      |      | 



The
significant components of deferred income tax provision (credit) for the years ended December 31, 2002, 2001 and 2000 are as follows (in millions):



|                                                                        |  | 2002 |      |   | 2001 |   |      | 2000 | 
|----------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- | 
|                                                                       
|Deferred tax provision (exclusive of the other components listed below) |  | $    | (359 | ) |      | $ | (343 | )    | 
|Increase in the valuation allowance for deferred tax assets             |  |      | 359  |   |      |   | 857  |      | 
|                                                                        |  |      |      |   |      |   |      |      | 
|Total                                                                   |  | $    |     |   |      | $ | 514  |      | 
|                                                                        |  |      |      |   |      |   |      |      | 



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):



|                                                                |  | 2002 |      |   | 2001 |   |      | 2000 | 
|--------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- | 
|                                                               
|Tax credit computed at federal statutory rate                   |  | $    | (670 | ) |      | $ | (626 | )    | 
|Book expenses not deductible for tax purposes                   |  |      | 14   |   |      |   | 17   |      | 
|State income tax provision (credit), net of federal tax benefit |  |      | (5   | ) |      |   | 31   |      | 
|Increase in the federal valuation allowance                     |  |      | 317  |   |      |   | 789  |      | 
|Limitation of recognizing tax benefit of NOLs/credits           |  |      | 80   |   |      |   |     |      | 
|Expiration of ITC Credit                                        |  |      | 9    |   |      |   |     |      | 
|Other                                                           |  |      |     |   |      |   | (2   | )    | 
|                                                                |  |      |      |   |      |   |      |      | 
|Provision (credit) for income taxes                             |  | $    | (255 | ) |      | $ | 209  |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|Effective tax rate                                              |  |      | 13   | % |      |   | 12   | %    | 
|                                                                |  |      |      |   |      |   |      |      | 



The tax
effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2002 and 2001 are as follows (in millions):



|                                        |  | 2002 |        |   | 2001 |  
|--------------------------------------- |  | ---- | ------ | - | ---- | -
|                                       
|Deferred tax assets:                    |  |      |        |   |      |  
|Leasing transactions                    |  | $    | 199    |   |      | $
|Gain on sale and leaseback transactions |  |      | 167    |   |      |  
|Employee benefits                       |  |      | 1,164  |   |      |  
|Net operating loss carryforwards        |  |      | 57     |   |      |  
|Investment tax credit carryforwards     |  |      | 24     |   |      |  
|AMT credit carryforward                 |  |      | 2      |   |      |  
|Other deferred tax assets               |  |      | 268    |   |      |  
|Valuation allowance                     |  |      | (1,216 | ) |      |  
|                                        |  |      |        |   |      |  
|Net deferred tax assets                 |  |      | 665    |   |      |  
|                                        |  |      |        |   |      |  
|Deferred tax liabilities:               |  |      |        |   |      |  
|Depreciation and amortization           |  |      | 648    |   |      |  
|Other deferred tax liabilities          |  |      | 17     |   |      |  
|                                        |  |      |        |   |      |  
|Total deferred tax liabilities          |  |      | 665    |   |      |  
|                                        |  |      |        |   |      |  
|                                        |  |      |        |   |      |  
|Net deferred tax assets                 |  |      |       |   |      |  
|Less: current net deferred tax assets   |  |      |       |   |      |  
|                                        |  |      |        |   |      |  
|Noncurrent net deferred tax assets      |  | $    |       |   |      | $
|                                        |  |      |        |   |      |  



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The deferred
tax assets and liabilities disclosed above include a deferred tax liability of $5 million as of December 31, 2001 related to the cumulative effect of a change in accounting principle for derivative instruments and hedging activities.



Included in the employee benefit deferred tax assets at
December 31, 2002 and 2001, among other items, is $565 million and $534 million, respectively, related to obligations of postretirement medical benefits.



As of December 31, 2002, US Airways had a $163 million federal net operating loss carryforward expiring in 2022, $24 million of investment
tax credits expiring in 2003 and 2004, $2 million of alternative minimum tax credits which do not expire, and $1.9 billion of state net operating loss carryforwards primarily expiring from 2006 to 2022. However, these attributes are expected to be
substantially reduced or totally eliminated by cancellation of debt income that will result under the bankruptcy proceedings. In addition, an Internal Revenue Code Section 382 change of ownership will occur upon issuance of new common stock to
claimholders. Section 382 will substantially limit the annual usage of any remaining tax attributes that were generated prior to the change of ownership. The amount of the limitation will be determinable at the time of the ownership change.



The federal income tax returns of US Airways
through 1986 have been examined and settled with the Internal Revenue Service. The 1999 federal income tax return is currently under examination. See Note 7(d) below.



The following table is a summary of pretax book income and taxable income prior to net operating loss
carryforwards/carrybacks for the last three years (in millions):



|                          |  | 2002 |        |   | 2001 |   |        | 2000 | 
|------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- | 
|Pretax book income (loss) |  | $    | (1,914 | ) |      | $ | (1,787 | )    | 
|Taxable income (loss)     |  | $    | (1,102 | ) |      | $ | (894   | )    | 



The
reasons for significant differences between taxable income and pretax book income primarily relate to employee pension and postretirement benefit costs, employee related accruals, leasing transactions, gains on sale-leaseback transactions,
investment gains and certain aircraft impairment charges.



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5. Long-Term Debt,
Including Capital Lease Obligations



Details of long-term
debt are as follows (in millions):



|                                                                          |  | December 31, |       
|------------------------------------------------------------------------- |  | ------------ | ------
|                                                                          |  | 2002         |       
|Senior Debt:                                                              |  |              |       
|Debtor-in-Possession Financing due 2003                                   |  | $            | 300   
|Equipment Financing Agreements, Installments due 2003 to 2022 *           |  |              | 2,750 
|Engine Manufacturer Credit Facility, Installments due 2004 to 2012 *      |  |              | 369   
|8.6% Airport Facility Revenue Bond due 2022 *                             |  |              | 28    
|Philadelphia Authority for Industrial Development Loan due 2003 to 2030
* |  |              | 71    
|                                                                          |  |              |       
|                                                                          |  |              | 3,518 
|Capital Lease Obligations *                                               |  |              | 52    
|                                                                          |  |              |       
|Total                                                                     |  |              | 3,570 
|Less: Unamortized discount                                                |  |              | (4    
|Obligations classified as subject to compromise                           |  |              | (3,248
|Current Maturities                                                        |  |              | (300  
|                                                                          |  |              |       
|                                                                          |  | $            | 18    
|                                                                          |  |              |       

|* |  | Obligations classified as subject to compromise.
|- |  | ------------------------------------------------



Maturities of long-term debt and debt under capital leases (including those subject to compromise) for the next five years (in millions):



|2003       |  | $   520
|---------- |  | -------
|2004       |  | 166    
|2005       |  | 208    
|2006       |  | 205    
|2007       |  | 217    
|Thereafter |  | 2,254  
|           |  |        
|           |  | $3,570 
|           |  |        



Debt
outstanding as of December 31, 2002 includes $300 million of drawings under the RSA DIP Facility. The RSA DIP Facility is secured by a first priority lien senior to all other liens on substantially all existing assets of the Company, except in the
cases that such lien is junior in priority to existing first liens. The Company has the option of borrowing under the RSA DIP Facility at an interest rate of LIBOR plus 4.0% or the prime rate plus 2.5%. The maturity date of the RSA DIP Facility is
the earlier of the effective date of a Plan of Reorganization of the Debtors or September 30, 2003. The RSA DIP Facility may be accelerated upon the occurrence of an event of default under the RSA DIP Facility and contains customary mandatory
prepayment events including, among other things, the occurrence of certain asset sales and the issuance of certain debt or equity securities. Refer to Note 1 for more details regarding the RSA DIP Facility.



As of December 31, 2002, the weighted average interest rate is
8.5% and 8.1% for the Equipment Financing Agreements and the Philadelphia Authority for Industrial Development Loan (PAID Loan), respectively.



On January 16, 2003, the Bankruptcy Court approved a settlement between US Airways and HSBC Bank USA, Trustee (HSBC) which serves as
indenture trustee for the PAID Loan. The settlement provides for the return of approximately $19 million to the debt holders and payment of approximately $3 million to the Company. HSBC will receive a virtual deficiency claim in the event that the
recovery received by holders of general unsecured claims pursuant to the Plan of Reorganization exceeds 10%. This claim will be an obligation of the Company. However, the Company believes that it is unlikely such virtual deficiency claim will ever
arise given the estimated recoveries on account of general unsecured claims.



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In November
2001, the Company obtained a $404 million credit facility from General Electric (GE Credit Facility) from which it initially received proceeds of $389 million. The GE Credit Facility is secured by collateral including 11 A320-family aircraft and 28
spare engines. As discussed below, the terms of this credit facility were renegotiated so that borrowings bear interest rates of LIBOR plus 3.5% and the term of the facility is extended from 2006 to 2012.



General Electric (GE) is the Companys largest creditor.
In addition to the GE Credit Facility, GE has provided financing or guarantees on 114 of the Companys aircraft. It also maintains the engines on the Companys B737-family aircraft, the A320-family aircraft and the B767 aircraft. In
connection with its reorganization under Chapter 11, the Company reached a settlement with GE that resolves substantially all aircraft, aircraft engine and loan-related issues. In exchange for equity in the reorganized US Airways Group and certain
other concessions, GE i) modified the terms of certain agreements to meet the cost savings requirements of the Companys business plan published in its Amended Disclosure Statement, ii) is providing a DIP liquidity facility (secured by the same
collateral as the GE Credit Facility) of up to $120 million (GE DIP Facility), iii) will provide an exit liquidity facility of up to $360 million that will refinance obligations under the GE DIP Facility and provide additional liquidity, iv) will
provide $350 million of lease equity for the financing of regional jets and v) extended the term of the GE Credit Facility (see above).



Every obligation of the Company to GE is generally cross-defaulted to all GE obligations including the GE Credit Facility and are
cross-collateralized to the collateral securing the GE Credit Facility. The Company commenced making draws under the GE DIP Facility in January 2003.



Interest rates on $745 million principal amount of long-term debt as of December 31, 2002 are subject to adjustment to reflect changes in
LIBOR rates.



Effective August 15, 2001, US
Airways terminated its $190 million 364-day secured revolving credit facility and its $250 million three-year secured revolving credit facility. No amounts were outstanding under these facilities as of August 15, 2001.



6. 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 and employee stock ownership plans.



(a) Defined benefit and other postretirement benefit plans



US Airways sponsors several qualified and nonqualified
defined benefit plans and other postretirement benefit plans for certain employees. 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.



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The following
table sets forth changes in the fair value of plan assets, benefit obligations and the funded status of the plans as of September 30, 2002 and 2001, in addition to the amounts recognized in US Airways Consolidated Balance Sheets as of December
31, 2002 and 2001, respectively (in millions):



|                                                                    |  | Defined Benefit Pension Plans (1) |        |   | Other Postretirement Benefits |  
|------------------------------------------------------------------- |  | --------------------------------- | ------ | - | ----------------------------- | -
|                                                                    |  | 2002                              |        |   | 2001                          |  
|Fair value of plan assets at the beginning of the period            |  | $                                 | 3,116  |   |                               | $
|Actual return on plan assets                                        |  |                                   | (101   | ) |                               |  
|Employer contributions                                              |  |                                   | 72     |   |                               |  
|Plan participants contributions                                    |  |                                   |       |   |                               |  
|Gross benefits paid                                                 |  |                                   | (272   | ) |                               |  
|                                                                    |  |                                   |        |   |                               |  
|Fair value of plan assets at the end of the period                  |  |                                   | 2,815  |   |                               |  
|                                                                    |  |                                   |        |   |                               |  
|Benefit obligation at the beginning of the period                   |  |                                   | 5,446  |   |                               |  
|Service cost                                                        |  |                                   | 191    |   |                               |  
|Interest cost                                                       |  |                                   | 417    |   |                               |  
|Plan participants contributions                                    |  |                                   |       |   |                               |  
|Plan amendments                                                     |  |                                   | 2      |   |                               |  
|Actuarial (gain) loss                                               |  |                                   | (502   | ) |                               |  
|Curtailment/settlement (2)                                          |  |                                   | (38    | ) |                               |  
|Gross benefits paid                                                 |  |                                   | (272   | ) |                               |  
|                                                                    |  |                                   |        |   |                               |  
|Benefit obligation at the end of the period                         |  |                                   | 5,244  |   |                               |  
|                                                                    |  |                                   |        |   |                               |  
|Funded status of the plan                                           |  |                                   | (2,429 | ) |                               |  
|Unrecognized actuarial (gain) loss                                  |  |                                   | 1,203  |   |                               |  
|Unrecognized prior service cost                                     |  |                                   | 87     |   |                               |  
|Unrecognized transition asset                                       |  |                                   | (1     | ) |                               |  
|Contributions for October to December                               |  |                                   | 4      |   |                               |  
|                                                                    |  |                                   |        |   |                               |  
|Net liability recognized in US Airways Consolidated Balance Sheets |  | $                                 | (1,136 | ) |                               | $
|                                                                    |  |                                   |        |   |                               |  



Components of the amounts recognized in US Airways Consolidated Balance Sheets:



|                                                                 |  | Defined BenefitPension Plans (1) |        |   | OtherPostretirement Benefits |  
|---------------------------------------------------------------- |  | -------------------------------- | ------ | - | ---------------------------- | -
|                                                                 |  | 2002                             |        |   | 2001                         |  
|Prepaid benefit cost                                             |  | $                                |       |   |                              | $
|Accrued benefit cost                                             |  |                                  | (1,136 | ) |                              |  
|Adjustment for minimum pension liability                         |  |                                  | (994   | ) |                              |  
|Intangible asset                                                 |  |                                  | 114    |   |                              |  
|Accumulated other comprehensive income                           |  |                                  | 880    |   |                              |  
|                                                                 |  |                                  |        |   |                              |  
|Net amount recognized in US Airways Consolidated Balance Sheets |  | $                                | (1,136 | ) |                              | $
|                                                                 |  |                                  |        |   |                              |  

|(1) |  | For plans with accumulated benefit obligations in excess of plan assets, the aggregate accumulated benefit obligations and plan assets were $4.74 billion and $2.82
billion, respectively, as of September 30, 2002, and $3.12 billion and $2.24 billion, respectively, as of September 30, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | In 2002 and 2001, US Airways recognized curtailments and settlements related to certain executive retirement agreements. 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. In 2002 and 2001, US Airways
recognized a curtailment related to the furlough of certain employees.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The following
table presents the weighted average assumptions used to determine the actuarial present value of Pension Benefits and Other Postretirement Benefits:



|                               |  | Defined Benefit Pension Plans |   |  | Other Postretirement Benefits |  
|------------------------------ |  | ----------------------------- | - |  | ----------------------------- | -
|                               |  | 2002                          |   |  | 2001                          |  
|Discount rate                  |  | 6.75                          | % |  | 7.50                          | %
|Expected return on plan assets |  | 8.75                          | % |  | 9.50                          | %
|Rate of compensation increase  |  | 5.43                          | % |  | 6.44                          | %



The
assumed health care cost trend rates are 10% in 2003, decreasing to 5% in 2008, 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, 2002 (in millions):



|                                            |  | 1% Increase |     | 1% Decrease |  
|------------------------------------------- |  | ----------- | --- | ----------- | -
|Effect on total service and interest costs  |  | $           | 19  |             | $
|Effect on postretirement benefit obligation |  | $           | 266 |             | $



Total
periodic cost for Pension Benefits and Other Postretirement Benefits (in millions):



|                               |  | Defined BenefitPension Plans |      |   | OtherPostretirement Benefits |  
|------------------------------ |  | ---------------------------- | ---- | - | ---------------------------- | -
|                               |  | 2002                         |      |   | 2001                         |  
|Service cost                   |  | $                            | 191  |   |                              | $
|Interest cost                  |  |                              | 417  |   |                              |  
|Expected return on plan assets |  |                              | (330 | ) |                              |  
|Amortization of:               |  |                              |      |   |                              |  
|Transition asset               |  |                              | (4   | ) |                              |  
|Prior service cost             |  |                              | 10   |   |                              |  
|Actuarial (gain) / loss        |  |                              | 39   |   |                              |  
|                               |  |                              |      |   |                              |  
|Net periodic cost              |  |                              | 323  |   |                              |  
|Curtailment/settlement         |  |                              | 42   |   |                              |  
|                               |  |                              |      |   |                              |  
|Total periodic cost            |  | $                            | 365  |   |                              | $
|                               |  |                              |      |   |                              |  

See Note 8(c) for the amount included within other comprehensive income arising from
a change in the additional minimum pension liability.



(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
contributions generally range from 4% to 12% of the employees compensation. Expenses related to these plans, excluding expenses related to US Airways ESOP and any profit sharing contributions, were approximately $64 million, $77 million
and $79 million for the years 2002, 2001 and 2000, respectively. See Notes 6(d) and 6(e) for information related to US Airways ESOP and profit sharing contributions.



(c) Postemployment benefits



US Airways provides certain postemployment benefits to its employees. Such benefits include
disability-related and workers compensation benefits and severance payments for certain employees (See Note 14). 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



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 9 3/4% loan for $111 million for its purchase of shares
and US Airways contributed an additional $2 million to the Trust. US Airways makes a yearly contribution to the Trust sufficient to cover the Trusts debt service requirement. The contributions are made in amounts equal to the periodic
loan payments as they come due, less dividends available for loan payment. Since US Airways Group did not pay dividends on any shares held by the Trust for the years ended December 31, 2002, 2001 and 2000, the Trust did not utilize dividends to
service its debt during those periods. The initial maturity of the loan is 30 years. As the loan is repaid over time, the trustee systematically releases shares of the common stock from the suspense account and allocates them to participating
employees. Each participants allocation is 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 are
released from the suspense account and allocated to participant accounts. If US Airways Groups return on sales equals or exceeds four percent in a given year, more shares are released and repayment of the loan is accelerated. See
also Note 6(e) regarding the profit sharing component of US Airways ESOP. Annual contributions made by US Airways, and therefore loan repayments made by the Trust, were $9 million, $9 million and $10 million in 2002, 2001 and 2000,
respectively. The interest portion of these contributions was $7 million in 2002, 2001 and 2000. Approximately 1,234,000 shares of US Airways Group common stock have been released or committed to be released as of December 31, 2002. US Airways
recognized compensation expense related to the ESOP of $4 million in 2002, 2001 and 2000, 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 shares remaining in the ESOP will be
cancelled in accordance with the Companys Plan of Reorganization. As a result, the Company recognized a charge of $50 million representing the remaining unamortized deferred compensation to Reorganization items, net on the Companys
Consolidated Statement of Operations. Deferred compensation related to the ESOP was zero as of December 31, 2002 and approximately $54 million December 31, 2001.



See Note 2(h) with respect to the Companys accounting policies for stock-based compensation.



(e) Profit sharing plans



US Airways ESOP and Defined Contribution Retirement
Program (DCRP) each have profit sharing components. Under the ESOP, each eligible US Airways employee receives shares of US Airways Group common stock based on his or her compensation relative to the total compensation of all participants and the
number of shares of US Airways Group common stock in the allocation pool. When US Airways Groups return on sales equals or exceeds certain prescribed levels, US Airways increases its contribution, which effectively increases the number of
shares of US Airways Group common stock in the allocation pool (see Note 6(d)). Under the DCRP, 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 contributions relating to 2002, 2001 or 2000 for the profit sharing components of the ESOP and DCRP.



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7. Commitments and
Contingencies



(a) Commitments to
purchase flight equipment



As of December
31, 2002, US Airways Group had 37 A320-family aircraft on firm order scheduled for delivery in the years 2005 through 2009, 173 purchase right aircraft which may be converted to firm order and options for 72 additional aircraft. In addition, US
Airways Group had one A330-300 aircraft on firm order, scheduled for delivery in 2007, and options for 20 additional aircraft. As of December 31, 2002, the minimum determinable payments associated with these acquisition agreements for firm-order
Airbus aircraft (including progress payments, payments at delivery, buyer-furnished equipment, spares, capitalized interest, penalty payments, cancellation fees and/or nonrefundable deposits) were estimated to be $4 million in 2003, $14 million in
2004, $96 million in 2005, $598 million in 2006, $317 million in 2007 and $980 million thereafter. In the first quarter of 2003, the Company reached an agreement in principle with AVSA, S.A.R.L. to convert its firm orders for 37 A320-family and one
A330-300 aircraft into firm orders for 19 A320-family aircraft and ten A330-200 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 shall 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 2011.



The
following amounts related to capital leases are included in property and equipment (in millions):



|                                       |  | December 31, |   
|-------------------------------------- |  | ------------ | --
|                                       |  | 2002         |   
|Flight equipment                       |  | $            |  
|Ground property                        |  |              | 51
|                                       |  |              |   
|Total Cost                             |  |              | 51
|Less accumulated amortization          |  |              | (4
|                                       |  |              |   
|Total Net Book Value of Capital Leases |  | $            | 47
|                                       |  |              |   



As of
December 31, 2002, obligations under capital and noncancelable operating leases for future minimum lease payments were as follows (in millions):



|                                                       |  | Capital Leases |     |   | Operating Leases |  
|------------------------------------------------------ |  | -------------- | --- | - | ---------------- | -
|2003                                                   |  | $              | 7   |   |                  | $
|2004                                                   |  |                | 5   |   |                  |  
|2005                                                   |  |                | 5   |   |                  |  
|2006                                                   |  |                | 5   |   |                  |  
|2007                                                   |  |                | 5   |   |                  |  
|Thereafter                                             |  |                | 114 |   |                  |  
|                                                       |  |                |     |   |                  |  
|Total minimum lease payments                           |  |                | 141 |   |                  |  
|Less sublease rental receipts                          |  |                |    |   |                  |  
|                                                       |  |                |     |   |                  |  
|Total minimum operating lease payments                 |  |                |     |   |                  | $
|                                                       |  |                |     |   |                  |  
|Less amount representing interest                      |  |                | (90 | ) |                  |  
|                                                       |  |                |     |   |                  |  
|Present value of future minimum capital lease payments |  |                | 51  |   |                  |  
|Less current obligations under capital leases          |  |                | (1  | ) |                  |  
|                                                       |  |                |     |   |                  |  
|Long-term obligations under capital leases             |  | $              | 50  |   |                  |  
|                                                       |  |                |     |   |                  |  



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For 2002, 2001
and 2000 rental expense under operating leases was $792 million, $850 million and $785 million, respectively.



US Airways also leases certain owned flight equipment to both third and related parties (see Note 10(b)) under noncancelable operating
leases which expire in the years 2004 through 2009. The future minimum rental receipts associated with these leases are: $14 million2003; $14 million2004; $13 million2005; $7 million2006; $6 million2007; and $10 million
thereafter.



The following amounts relate to
aircraft leased under such agreements as reflected in flight equipment (in millions):



|                              |  | December 31, |     
|----------------------------- |  | ------------ | ----
|                              |  | 2002         |     
|Flight equipment              |  | $            | 212 
|Less accumulated depreciation |  |              | (142
|                              |  |              |     
|                              |  | $            | 70  
|                              |  |              |     



(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,
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 2012 and provide for optional extensions at the
Companys discretion. The future minimum noncancelable commitments under the regional jet capacity purchase agreements are $320 million in 2003; $299 million in 2004, $285 million in 2005, $285 million in 2006, $285 million in 2007, and $767
million thereafter.



(d) Legal proceedings



On August 11, 2002, the Company filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (Case No. 02-83985-SSM). The reorganization is being administered under the caption In re US Airways Group, Inc., et al., Case No.
02-83984-SSM. US Airways 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 filing, attempts to collect, secure or enforce remedies
with respect to pre-petition claims against US Airways are subject to the automatic stay provisions of section 362(a) of the Bankruptcy Code. The Chapter 11 case is discussed in greater detail in Item 1, Update on Chapter 11
Proceedings.



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 the Company 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 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. The Company currently is negotiating the resolution of the amount of U.S. federal income taxes, interest, and penalties
due with the IRS Examination Office and IRS Appeals Office. The Company believes that it will have sufficient net operating losses to carry back to tax years in which the IRS has proposed income adjustments with respect to USLM and eliminate the $68
million in proposed U.S. federal income taxes. The Company cannot predict the amount of any ultimate proposed adjustment for USLM, or the likelihood that any IRS determination would be



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sustained.



On January 30, 2003, the Company filed a motion seeking the Bankruptcy Courts approval of a distress termination of the Pilot
Retirement Plan. On March 2, 2003, the Bankruptcy Court entered an order approving the termination of the Pilot Retirement Plan, but declined to rule on whether the termination of the Pilot Retirement Plan would violate the collective bargaining
agreement (CBA) between US Airways and the Air Line Pilots Association (ALPA). The Bankruptcy Courts order included a finding that unless the Pilot Retirement Plan is terminated, the Company will be unable to pay all of its debts pursuant to a
plan of reorganization and will be unable to continue in business outside the chapter 11 reorganization process. The Bankruptcy Court authorized US Airways to establish, effective as of the date of termination, a follow-on defined contribution
retirement plan for the pilots of US Airways, on terms consistent with the letter agreement of December 13, 2002, between US Airways and ALPA.



ALPA filed a grievance alleging that the distress termination violates the CBA. Under the Employee Retirement Income Security Act of 1974,
as amended (ERISA), the PBGC is required to suspend processing of a termination if the termination would violate the terms and conditions of an existing collective bargaining agreement. On March 21, 2003, the Company and ALPA reached agreement on a
replacement pension plan to be effective April 1, 2003 and ALPA agreed to withdraw its grievance. The agreement was ratified by the ALPA Master Executive Council and is subject to approval by the PBGC and final approval by the Bankruptcy Court. On
March 24, 2003, the Debtors filed a motion with the Bankruptcy Court seeking supplemental authority to implement the new defined contribution plan. The motion is expected to be heard on March 28, 2003.



If the Pilot Retirement Plan is terminated, the PBGC will have
a claim for the amount of the Pilot Retirement Plans unfunded benefit liabilities, as well as a claim for any minimum funding contributions due and unpaid on the date of plan termination. The PBGC has filed twenty-one proofs of claim in the
aggregate amount of approximately $3.8 billion and asserts joint and several liability against the Debtors for seven defined benefit pension plans sponsored and maintained by US Airways Group for unfunded pension liability as of October 31, 2002,
contingent upon plan termination. The PBGC has agreed to withdraw its proofs of claim in the aggregate amount of approximately $1.7 billion filed in connection with the non-pilot pension plans as of March 18, 2003 upon the occurrence of the
Effective Date of the Plan of Reorganization. The PBGC claimed priority treatment for some or all of these claims. The Debtors have contested both the amount and priority of the PBGCs remaining claims with respect to the termination of the
Pilot Retirement Plan.



Eighteen pilots who, had
it not been for the filing of the Notice of Intent to Terminate, would have received lump sum payments under the US Airways Pilot Defined Benefit Retirement Plan on either February 1, 2003 or March 1, 2003, filed grievances alleging that without
ALPAs consent to terminate the plan, the Company cannot escape its contractual obligation to pay these lump sums by virtue of filing the Notice of Intent to Terminate. The grievances have not been scheduled for a hearing before an
arbitrator and are the subject of ongoing settlement discussions.



On March 6, 2003, the Retired Pilots Association of US Airways (known as the Soaring Eagles) filed a Notice of Appeal from the Bankruptcy Courts March 2, 2003 Order granting in part, and denying in part the
Debtors Motion Seeking (1) A Determination That They Satisfy The Financial Requirements For A Distress Termination of the Retirement Income Plan for Pilots of US Airways, Inc., and Approval of Such Pension Plans Termination,
and (2) Approval of a new Defined Contribution Plan for Pilots (March 2nd Order). Subsequently, three additional Notices of Appeal were filed from the March 2nd Order on behalf of ALPA, a group of eighteen pilots collectively referred to as the
Lump Sum Eligible Pilots, and a group of forty-nine active pilots collectively referred to as the Menear Claimants Pilot Group. None of these appeals have been set for a hearing. In connection with the March 21, 2003
agreement noted above,



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ALPA agreed to withdraw its appeal with prejudice.



US Airways Group and US Airways have been named as defendants in two lawsuits filed in United States District Court for the Eastern
District of Michigan. Delta Air Lines is also named as a defendant in both actions, while Northwest Airlines and the Airlines Reporting Corporation are named as defendants in one additional 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 trebled 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 once the stay is lifted. The plaintiffs filed a motion to lift the automatic stay under section 362(a) to allow the litigation to proceed against US Airways Group and US Airways. US Airways Group and US Airways filed a response in
opposition to the motion, and the motion was heard by the Bankruptcy Court on December 12, 2002. On December 13, 2002, the Bankruptcy Court ordered that the automatic stay remain in place until April 15, 2003.



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. The case against US Airways is subject to the automatic stay provisions of section 362(a) of the Bankruptcy Code. Discovery has now closed and the other defendants have filed motions for summary judgment. On March 6, 2003, the Court issued
an order setting a September 2, 2003 trial date.



A declaratory judgment against certain airlines including the Company is being sought in Quebec Superior Court that, if obtained, would require the Company and such other named airlines to pay commissions to travel agents under the
IATA rules. The amount of commissions sought has not been specified. Under Quebec civil procedure, a motion for a declaratory judgment must be supported by an affidavit from each plaintiff. As of August 13, 2002, more than 30 plaintiffs have filed
affidavits indicating their participation in this lawsuit. During a hearing held August 29, 2002, the plaintiffs advised the court that they were dismissing the Company from the case. The parties filed a motion stipulating to dismissal of the case
against the Company on November 13, 2002.



In May 1995, US Airways Group, US Airways and the Retirement Income Plan for Pilots of US Airways, Inc. were sued in federal district court for the District of Columbia by 481 active and retired pilots alleging that defendants had
incorrectly interpreted the plan provisions and erroneously calculated benefits under the Pilots Pension 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



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resolved through the arbitration process under the Railway Labor Act because the Pilots Pension 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 have filed a claim before the US Airways Pilot Retirement Board requesting arbitration of their claim for benefits that they believe were erroneously calculated. The Retirement Board has selected an arbitrator to decide certain issues
related to the plaintiffs claims for benefits. US Airways Group and the Company are unable to predict at this time the ultimate resolution of these proceedings.



In October 1995, US Airways terminated for cause an agreement with In-Flight Phone Corporation (IFPC). IFPC
was US Airways provider of on-board telephone and interactive data systems. The IFPC system had been installed in approximately 80 aircraft prior to the date of termination of the agreement. On December 6, 1995, IFPC filed suit against US
Airways in Illinois state court seeking equitable relief and damages in excess of $186 million. US Airways believes that its termination of its agreement with IFPC was appropriate and that it is owed significant damages from IFPC. US Airways has
filed a counterclaim against IFPC seeking compensatory damages in excess of $25 million and punitive damages in excess of $25 million. In January 1997, IFPC filed for protection from its creditors under Chapter 11 of the Bankruptcy Code. On March
19, 1997, the automatic stay provided for in the Bankruptcy Code was lifted, which allowed IFPCs and US Airways claims to be fully litigated. As a result of the Debtors commencement of chapter 11 proceedings, this case is subject
to the automatic stay provisions of section 362(a) of the Bankruptcy Code. The Company is unable to predict at this time the ultimate resolution or potential financial impact of these proceedings on the Companys financial condition or results
of operations.



On September 29, 2000, US Airways
intervened in a proceeding that was originally brought on January 26, 1998 by the Pennsylvania Department of Environmental Protection (DEP) against Allegheny County, Pennsylvania and the Allegheny County Aviation Administration (ACAA) alleging that
a variety of airfield and aircraft deicing activities at Greater 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 Environmental 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 deicing 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 deicing 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.



Claims arising out of the litigation proceedings discussed above, if ultimately determined to have merit, will likely constitute prepetition general unsecured nonpriority claims in the Chapter 11 cases and will thus be subject to the
discharge and distribution provisions contained in the Plan of Reorganization.



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(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 sufficient to pay maturing principal and interest payments on the related bonds. As of December 31, 2002, the principal amount of these bonds outstanding was $81 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.



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, 2002, 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, generally being
settled within 14 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.



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8. 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 (US Airways Common Stock). US Airways board of directors has not authorized the payment of dividends on US Airways 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, the Company may not pay dividends in accordance with provisions contained in the RSA DIP Facility.



(b) Receivable from parent company



See Note 10(a).



(c) Accumulated other comprehensive income (loss), net of income tax effect



Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income establishes standards for the reporting and presentation of comprehensive income and its components in financial statements. Comprehensive income encompasses net income and other comprehensive
income, which includes all other non-owner transactions and events that change stockholders 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.



Unrealized gains (losses) on available-for-sale securities are accounted for in accordance with SFAS 115. US Airways records an adjustment
to Stockholders Deficit to reflect differences between the fair value of short-term investments (considered available-for-sale under SFAS 115) and carrying value at each balance sheet date. In accordance with SFAS 133, US Airways
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 unless they are considered ineffective
until the hedged fuel is recognized into earnings. In accordance with SFAS 87, US Airways recorded an adjustment for minimum pension liability as of December 31, 2002 and 2001. SFAS 87 requires the recognition of an additional minimum pension
liability for each defined benefit plan for which the accumulated benefit obligation exceeds the fair value of the plans assets and accrued pension costs. An offsetting intangible asset is recognized for each additional minimum pension
liability recorded. Because each intangible asset recognized is limited to the amount of unrecognized prior service cost, any balance is reflected as a reduction of Stockholders Deficit.



As presented in the accompanying Consolidated Statements of
Stockholders Deficit, US Airways recognized a comprehensive loss of $2.38 billion for the year ended December 31, 2002, including a net loss of $1.66 billion and other comprehensive loss of $717 million. For the year ended December 31, 2001,
US Airways recognized a comprehensive loss of $2.14 billion, including a net loss of $1.99 billion and other comprehensive loss of $155 million. For the year ended December 31, 2000, US Airways recognized comprehensive loss of $253 million,
including a net loss of $255 million and other comprehensive income of $2 million.



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The components
of other comprehensive income (loss) and the related income tax effects are as follows (in millions):



|                                                                             |  | 2002              |      |   | 2001                 |   |                   | 2000
|---------------------------------------------------------------------------- |  | ----------------- | ---- | - | -------------------- | - | ----------------- | ----
|                                                                             |  | Before tax effect |      |   | Tax effect (expense) |   | Net of tax effect |     
|Unrealized gain (loss) on available-for-sale securities                      |  | $                 | (2   | ) |                      | $ |                  |     
|Fuel cash flow hedges:                                                       |  |                   |      |   |                      |   |                   |     
|SFAS 133 transition adjustment                                               |  |                   |     |   |                      |   |                  |     
|Reclassification adjustment for gains included in net loss during the
period |  |                   | (13  | ) |                      |   |                  |     
|Change in fair value of hedges                                               |  |                   | 40   |   |                      |   |                  |     
|                                                                             |  |                   |      |   |                      |   |                   |     
|Unrealized gain (loss), net of reclassification adjustment                   |  |                   | 27   |   |                      |   |                  |     
|Change in adjustment for minimum pension liability                           |  |                   | (742 | ) |                      |   |                  |     
|                                                                             |  |                   |      |   |                      |   |                   |     
|Other comprehensive income (loss)                                            |  | $                 | (717 | ) |                      | $ |                  |     
|                                                                             |  |                   |      |   |                      |   |                   |     



(d)
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 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
consolidated financial statements. In connection with this arrangement, US Airways had note payables of $558 million and $16 million, each bearing interest at 8.25%, to fund USLM operations. During 2002, 2001, and 2000, US Airways paid interest of
$24 million, $48 million and $48 million, respectively, to USLM of which $24 million, $41 million and $26 million, respectively, was used to reduce US Airways liabilities for this population of retirees.



US Airways accounted for the effects of these transactions,
including the net distributions of $7 million and $22 million in 2001 and 2000, respectively, in the Stockholders Equity (Deficit) section of its Consolidated Balance Sheets.



9. Operating Segments and Related Disclosures



US Airways has two reportable operating segments: US Airways and US Airways Express. The US Airways
segment includes the operations of US Airways (excluding US Airways former wholly-owned subsidiary). The US Airways Express segment only includes certain revenues and expenses related to US Airways Groups wholly-owned regional airlines
and from marketing agreements with three non-owned US Airways Express air carriers. Both reportable operating segments are engaged in the business of transporting passengers, property and mail, but have different operating and economic
characteristics. US Airways offers air transportation using exclusively jets. Its cost structure is higher than US Airways Express due to, among other things, higher labor and operating equipment costs. US Airways Express provides air transportation
using primarily turboprop aircraft. Its route network is designed to feed traffic into US Airways route system at several points, primarily at US Airways hubs. All Other (as presented in the table below) reflects the activity of USIM, a
former wholly-owned subsidiary of US Airways. See also Notes 2(a) and 2(b).



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The accounting
policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). US Airways evaluates segment performance based on several factors, of which the primary financial measure is income (loss)
before income taxes and cumulative effect of accounting change.



Financial information for each reportable operating segment is set forth below (in millions):



|                                                                              |  | Year ended December 31, |       
|----------------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                              |  | 2002                    |       
|Operating Revenues:                                                           |  |                         |       
|US Airways (1)                                                                |  | $                       | 5,852 
|US Airways Express                                                            |  |                         | 1,063 
|                                                                              |  |                         |       
|                                                                              |  | $                       | 6,915 
|                                                                              |  |                         |       
|Depreciation and amortization expense:                                        |  |                         |       
|US Airways (1)                                                                |  | $                       | 275   
|US Airways Express                                                            |  |                         |      
|                                                                              |  |                         |       
|                                                                              |  | $                       | 275   
|                                                                              |  |                         |       
|Interest income:                                                              |  |                         |       
|US Airways (1)                                                                |  | $                       | 46    
|US Airways Express                                                            |  |                         |      
|All Other                                                                     |  |                         | 24    
|Intercompany eliminations                                                     |  |                         | (40   
|                                                                              |  |                         |       
|                                                                              |  | $                       | 30    
|                                                                              |  |                         |       
|Interest expense:                                                             |  |                         |       
|US Airways (1)                                                                |  | $                       | 338   
|US Airways Express                                                            |  |                         |      
|All Other                                                                     |  |                         | 24    
|Intercompany eliminations                                                     |  |                         | (40   
|                                                                              |  |                         |       
|                                                                              |  | $                       | 322   
|                                                                              |  |                         |       
|Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change: |  |                         |       
|US Airways (1)                                                                |  | $                       | (1,885
|US Airways Express                                                            |  |                         | (31   
|All Other                                                                     |  |                         | 2     
|                                                                              |  |                         |       
|                                                                              |  | $                       | (1,914
|                                                                              |  |                         |       
|Capital Expenditures:                                                         |  |                         |       
|US Airways (1)                                                                |  | $                       | 135   
|US Airways Express                                                            |  |                         |      
|All Other                                                                     |  |                         |      
|                                                                              |  |                         |       
|                                                                              |  | $                       | 135   
|                                                                              |  |                         |       
|Assets (2):                                                                   |  |                         |       
|US Airways (1)                                                                |  | $                       | 6,464 
|US Airways Express                                                            |  |                         |      
|All Other                                                                     |  |                         |      
|                                                                              |  |                         |       
|                                                                              |  | $                       | 6,464 
|                                                                              |  |                         |       

|(1) |  | Amounts include activity of former Shuttle as of July 1, 2000.
|--- |  | --------------------------------------------------------------



|(2) |  | Substantially all located in the United States.
|--- |  | -----------------------------------------------



Information concerning operating revenues (based on revenue passenger miles and yield) in principal geographic areas is as follows (in
millions):



|                  |  | 2002 |       | 2001 |   | 2000 
|----------------- |  | ---- | ----- | ---- | - | -----
|United States (1) |  | $    | 6,003 |      | $ | 7,414
|Foreign           |  |      | 912   |      |   | 839  
|                  |  |      |       |      |   |      
|                  |  | $    | 6,915 |      | $ | 8,253
|                  |  |      |       |      |   |      



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10. Related Party
Transactions



(a) Parent company



US Airways provides loans to US Airways
Group which arise in the normal course of business and bear interest at market rates, which are reset quarterly. US Airways net receivable from US Airways Group for these loans was $129 million and $162 million as of December 31, 2002 and
2001, respectively.



US Airways is currently
financing US Airways Groups purchase deposits for Airbus aircraft at a blended interest rate, which is reset quarterly, based upon US Airways outstanding debt and capital lease obligations. The related short-term receivable from
US Airways Group was $22 million as of December 31, 2001. In addition, Receivable from parent company, which is a component of Other Assets, included $66 million and $43 million related to financing for long-term purchase deposits for Airbus
aircraft as of December 31, 2002 and 2001, respectively.



US Airways provided $232 million in financing to US Airways Group for the purchase of Shuttle at an interest rate of 7.5% until May 1999 and then at a variable market rate thereafter, which is reset quarterly. As mentioned in Note
2(a), Shuttle was merged into US Airways effective July 1, 2000 resulting in a reduction of Stockholders Equity (Deficit) related to the financing of $232 million as of December 31, 2000.



US Airways has periodically advanced funds to US Airways Group
to finance purchases of US Airways Groups common stock which were recorded as a reduction of Stockholders Equity (Deficit). Interest, at market rates, was accrued on these advances through September 30, 1999 at which time such advances
became non-interest bearing.



US Airways recorded
interest income of $9 million, $14 million and $32 million in 2002, 2001 and 2000, respectively, related to the above transactions.



(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 $559 million, $448 million and $498 million in 2002, 2001 and 2000, respectively, 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 $63 million, $63 million and $71 million related to these services for the years 2002, 2001 and 2000,
respectively. These regional airlines also perform passenger and ground handling for US Airways at certain airports for which US Airways recognized other operating expenses of $71 million, $58 million and $44 million for the years 2002, 2001 and
2000, respectively. US Airways also leases or subleases certain turboprop aircraft to these regional airline subsidiaries. US Airways recognized other operating revenues related to these arrangements of $7 million, $8 million and $8 million for
the years 2002, 2001 and 2000, respectively.



US
Airways receivables from and payables to these regional airlines were $15 million and $54 million, respectively, as of December 31, 2002 and $11 million and $37 million, respectively, as of December 31, 2001.



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Prior to the
merger of Shuttle into US Airways on July 1, 2000, US Airways provided various services to Shuttle. These services included management services, maintenance services, the sale of fuel, the subleasing of certain facilities, the sale of frequent
traveler mileage credits and reservations support. US Airways recognized other operating revenues related to these services of $33 million for the year 2000.



(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 $13 million, $18 million and $108 million for the years 2002, 2001 and 2000, respectively. US
Airways accounts payable to MSC was $1 million as of December 31, 2002 and 2001.



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 accounts receivable from MSC was $5 million and $3 million as of December 31, 2002 and 2001, respectively.



Prior to USLMs merger into US Airways on July 1, 2002, US Airways had a promissory note due to USLM of $10 million which accrued
interest at market rates and was included as a component of Employee benefit liabilities and other on US Airways Consolidated Balance Sheets as of December 31, 2001. US Airways recorded interest expense of $1 million related to this note
during 2001 and 2000.



(space intentionally left
blank)



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11. Valuation and
Qualifying Accounts and Reserves



|                                                        |  | Balance at beginning of year |     | Additions chargedto expense |   |    | Payments |  |   | Write-offs (net of recoveries) |   |  | Sales, retire- ments and transfers |     |   | Other |   |     | Balance at end of year
|------------------------------------------------------- |  | ---------------------------- | --- | --------------------------- | - | -- | -------- |  | - | ------------------------------ | - |  | ---------------------------------- | --- | - | ----- | - | --- | ----------------------
|(in millions)                                           |  |                             
|Year ended December 31, 2002                            |  |                              |     |                             |   |    |          |  |   |                                |   |  |                                    |     |   |       |   |     |                       
|Allowance for obsolescence of inventories               |  | $                            | 201 |                             | $ | (1 | )        |  | $ |                               |   |  | $                                  | (6  | ) |       | $ | (90 | )                     
|Allowance for uncollectible accounts                    |  |                              | 21  |                             |   | 8  |          |  |   |                               |   |  |                                    | (12 | ) |       |   |    |                       
|Reserves for workforce reduction (1)                    |  |                              | 52  |                             |   | 89 |          |  |   | (59                            | ) |  |                                    |    |   |       |   |    |                       
|Reserves for future rent paymentsparked aircraft (1)   |  |                              | 70  |                             |   |   |          |  |   | (6                             | ) |  |                                    |    |   |       |   |    |                       
|Year ended December 31, 2001                            |  |                              |     |                             |   |    |          |  |   |                                |   |  |                                    |     |   |       |   |     |                       
|Allowance for obsolescence of inventories (1)           |  |                              | 132 |                             |   | 74 |          |  |   |                               |   |  |                                    | (2  | ) |       |   | (2  | )                     
|Allowance for uncollectible accounts                    |  |                              | 28  |                             |   | 5  |          |  |   |                               |   |  |                                    | (12 | ) |       |   |    |                       
|Reserves for workforce reduction (1)                    |  |                              |    |                             |   | 85 |          |  |   | (31                            | ) |  |                                    |    |   |       |   |    |                       
|Reserves for future rent payments  parked aircraft (1) |  |                              |    |                             |   | 70 |          |  |   |                               |   |  |                                    |    |   |       |   |    |                       
|Year ended December 31, 2000                            |  |                              |     |                             |   |    |          |  |   |                                |   |  |                                    |     |   |       |   |     |                       
|Allowance for obsolescence of inventories               |  |                              | 118 |                             |   | 17 |          |  |   |                               |   |  |                                    | (2  | ) |       |   | (1  | )                     
|Allowance for uncollectible accounts                    |  |                              | 30  |                             |   | 7  |          |  |   |                               |   |  |                                    | (9  | ) |       |   |    |                       



|(1) |  | See also Note 14.
|--- |  | -----------------



12. Liabilities Subject to Compromise



Under the Bankruptcy Code certain claims against US Airways in existence prior to the Petition Date are stayed while US Airways
continues operating as a debtor-in possession. US Airways has received approval from the Court to (a) pay pre-petition and post-petition employee wages, salaries, benefits and other employee obligations; (b) pay vendors and other providers in the
ordinary course for goods and services received from and after the Petition Date; (c) honor customer service programs, including the Debtors Dividend Miles program and its ticketing programs; (d) honor obligations arising prior to the Petition
Date related to the Companys interline, clearinghouse, code sharing and other similar agreements; (e) pay certain pre-petition taxes and fees, including transportation excise taxes, payroll taxes and passenger facilities charges; and (f) pay
certain other obligations. Substantially all other pre-petition liabilities not mentioned above have been classified as Liabilities subject to compromise in the Consolidated Balance Sheets. Adjustments to these liabilities may result from
negotiations, payments authorized by Court order, additional rejection of executory contracts including leases, or other events.



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Shortly after
the Chapter 11 filing, US Airways began notifying all known or potential creditors of the filing for the purpose of identifying all pre-petition claims against the Company. Amounts that US Airways has recorded may be different than amounts filed by
its creditors. The claims reconciliation process may result in adjustments to allowable claims.



The following table summarizes the components of Liabilities subject to compromise included in US Airways Consolidated Balance Sheets as of December 31, 2002 (in millions):



|Debt                                    |  | $ | 3,248
|--------------------------------------- |  | - | -----
|Aircraft-related accruals and deferrals |  |   | 1,008
|Accounts payable                        |  |   | 344  
|Other accrued expenses                  |  |   | 294  
|Deficiency claims and other             |  |   | 609  
|                                        |  |   |      
|Total liabilities subject to compromise |  | $ | 5,503
|                                        |  |   |      



13. Selected
Quarterly Financial Information (Unaudited)



|                            |  | First Quarter |       |   | Second Quarter |   |       | Third Quarter |  |   | Fourth Quarter |  
|--------------------------- |  | ------------- | ----- | - | -------------- | - | ----- | ------------- |  | - | -------------- | -
|                            |  | (in millions) |      
|2002                        |  |               |       |   |                |   |       |               |  |   |                |  
|Operating Revenues          |  | $             | 1,695 |   |                | $ | 1,891 |               |  | $ | 1,735          |  
|Operating Loss              |  | $             | (369  | ) |                | $ | (176  | )             |  | $ | (182           | )
|Loss Before Cumulative      |  |               |       |   |                |   |       |               |  |   |                |  
|Effect of Accounting Change |  | $             | (298  | ) |                | $ | (225  | )             |  | $ | (358           | )
|Net Loss                    |  | $             | (298  | ) |                | $ | (225  | )             |  | $ | (358           | )
|                           
|2001                        |  |               |       |   |                |   |       |               |  |   |                |  
|Operating Revenues          |  | $             | 2,233 |   |                | $ | 2,486 |               |  | $ | 1,980          |  
|Operating Income (Loss)     |  | $             | (217  | ) |                | $ | 31    |               |  | $ | (741           | )
|Loss Before Cumulative      |  |               |       |   |                |   |       |               |  |   |                |  
|Effect of Accounting Change |  | $             | (170  | ) |                | $ | (16   | )             |  | $ | (756           | )
|Net Loss                    |  | $             | (163  | ) |                | $ | (16   | )             |  | $ | (756           | )



See also Note 14.



Note: The sum of the four quarters may not equal the totals for
the year due to rounding of quarterly results.



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14. Unusual Items



| | (a) |  | Asset Impairments and Other Special Items
| | --- |  | -----------------------------------------



Asset impairments and other special items included within the Companys Consolidated Statements of Operations includes the following
components (dollars in millions):



|                                                |  | 2002 |     |   |  |   |   | 2001 |   |     | 
|----------------------------------------------- |  | ---- | --- | - |  | - | - | ---- | - | --- | 
|Aircraft impairments and related charges        |  | $    | 392 |   |  | a | ) |      | $ | 787 | 
|Pension and postretirement benefit curtailments |  |      | (90 | ) |  | b | ) |      |   | 2   | 
|Employee severance including benefits           |  |      | (3  | ) |  | c | ) |      |   | 83  | 
|Future aircraft lease commitments               |  |      |    |   |  |   |   |      |   | 70  | 
|Other                                           |  |      | 21  |   |  | f | ) |      |   | 16  | 
|                                                |  |      |     |   |  |   |   |      |   |     | 
|                                                |  | $    | 320 |   |  |   |   |      | $ | 958 | 
|                                                |  |      |     |   |  |   |   |      |   |     | 

|a) |  | During the fourth quarter of 2002, US Airways conducted an impairment analysis in accordance with 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.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) |  | 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. During the fourth quarter of 2001, US Airways recognized a $2 million curtailment charge related to a certain postretirement benefit plan. These curtailments resulted from
headcount reductions.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|c) |  | 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 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. In the fourth quarter, 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 second quarter of 2002, US Airways recognized a $3 million reduction in accruals related to
the involuntary severance primarily as a result of an agreement reached with the US Airways pilot group.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|d) |  | During the third and fourth quarters of 2001, US Airways recorded charges of $4 million and $66 million, respectively, representing the present value of the future
minimum lease payments on three B737-200 aircraft and four F-100 aircraft, respectively, that were permanently removed from service.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|e) |  | During August 2001, US Airways conducted an impairment analysis in accordance with Statement of Financial Accounting Standards No. 121 Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121) on its 36 F-100 aircraft, 16 MD-80 aircraft and 39 B737-200 aircraft as a result of changes to the fleet plan 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. In accordance with SFAS 121, the carrying values were reduced to
fair
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | market value. This analysis resulted in a pretax charge of $403 million. In the aftermath of September 11, 2001, the Company elected to
accelerate the retirement of the aforementioned aircraft. All B737-200 aircraft retirements were accelerated to the end of 2001 while the F-100s and MD-80s were scheduled to be retired by April 2002. Based on this, the Company conducted another
impairment analysis which revealed that these aircraft were impaired. This culminated in an additional pretax charge of $173 million largely reflecting the further diminution in value of used aircraft arising from the events of September 11, 2001.
Management estimated fair market value using third-party appraisals, published sources and recent sales and leasing transactions. As a result of the events of September 11, 2001, the Company reviewed other aircraft-related assets which resulted in a
pretax charge of $15 million as certain aircraft assets had carrying values in excess of their fair value less costs to sell. Management estimated fair value based on recent sales and leasing transactions. US Airways also recognized a pretax charge
of $26 million in connection with the write-down to lower of cost or market of surplus parts for the F-100, B737-200 and MD-80 fleets. Management estimated market value based on recent sales activity related to these parts. During the first quarter
of 2002, US Airways entered into agreements to sell 97 surplus aircraft and related spare engines and parts, including substantially all its DC-9, MD-80 and B737-200 aircraft. In connection with these agreements, US Airways reduced the carrying
values of these assets resulting in a $148 million charge during the fourth quarter of 2001, including a $138 million impairment charge and a charge of $10 million to write down the related spare parts. Additionally, the Company recognized a pretax
impairment charge of $22 million in connection with the planned retirement of five B737-200 aircraft due to a third-partys early return of certain leased B737-200 aircraft, and early retirement of certain other B737-200s during the first
quarter of 2001.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|f) |  | During the fourth quarter of 2002, US Airways recognized an impairment charge 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. During the third quarter of 2001, US Airways recognized a pretax charge of $13 million representing the unamortized leasehold improvement balance for
facilities to be abandoned and aircraft to be parked as of the facility abandonment date or aircraft park date. In addition, US Airways recognized a pretax charge of $3 million representing the present value of future noncancelable lease commitments
beyond the facility abandonment date.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(b) Reorganization Items, Net



Reorganization items, net represents amounts incurred as a direct result of the Companys Chapter 11 filing and are presented separately in the Companys Consolidated Statement of Operations. Such items consist of
the following (dollars in millions):



|                                             |  | Year Ended December 31, 2002 |    
|-------------------------------------------- |  | ---------------------------- | ---
|Severance including benefits a)              |  | $                            | 89 
|Loss on aircraft abandonment/rejection b)    |  |                              | 68 
|Professional fees                            |  |                              | 61 
|Write-off of ESOP deferred compensation      |  |                              | 50 
|DIP financing related expenses               |  |                              | 13 
|Write off of unamortized debt issuance costs |  |                              | 12 
|Interest income on accumulated cash          |  |                              | (2 
|Other                                        |  |                              | 3  
|                                             |  |                              |    
|                                             |  | $                            | 294
|                                             |  |                              |    



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| | a) |  | As a result of schedule reductions made in connection with the Companys Chapter 11 reorganization, 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.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Includes aircraft (34 F-100s, two B757-200s and one B737-400) that were legally abandoned as part of US Airways Chapter 11 reorganization. Related aircraft
liabilities were adjusted for each aircrafts expected allowed collateral value.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(c)  Airline Stabilization Act Grant



Through December 31, 2002, the Company had received approximately $306 million from the U.S. Government under
the Stabilization Act. The rules governing the distribution were finalized during the year and an adjustment of $3 million was recognized in 2002 to reduce the amount of compensation received. The payments partially compensated the Company for its
direct and incremental losses incurred beginning on September 11, 2001 and ending on December 31, 2001.



(d)  Merger Termination Fees



In connection with the merger termination agreement, UAL Corporation paid $50 million to US Airways. Separately, US Airways paid a
merger termination fee of approximately $2 million to Robert L. Johnson, a member of the Board of Directors of US Airways Group and US Airways, representing reimbursement for his expenses in connection with his activities to establish a
new airline which would have addressed certain potential competitive issues surrounding the proposed merger transaction, and supported regulatory approval of the new airline. This amount is included in Other, net on the Companys Consolidated
Statements of Operations.



(e)  Priceline Impairment



During the fourth quarter of 2000, the Company recognized an $18 million pretax impairment charge in Other, net on the Consolidated Statement of Operations related to warrants the Company held in priceline.com Incorporated.



Item 9.  
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



Not applicable.



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Part III



US Airways
is a wholly-owned subsidiary of US Airways Group. Any reference in Part III to Common Stock, Stock Options and Ownership is made in reference to US Airways through US Airways Groups ownership of US Airways.



Item 10.  
Directors and Executive Officers of US Airways



Pursuant to the by-laws of the Company, the Board of Directors consists of 12 members. All of the directors were elected in May, 2002. Each director of the Company is also a director of US Airways
Group, the parent company of US Airways. Directors will be elected to hold office for one year or until the election and qualification of their successors. Except as noted otherwise, the following biographies describe the business experience of each
director for at least the past five years.



|                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Served as director since
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------
|Mathias J. DeVito, 72 |  | Mr. DeVito is Chairman Emeritus of The Rouse Company (real estate development and management). He serves as a Director
of Mars Supermarkets, Inc. and Sitel Corporation. He is a member of the Board of the Maryland Institute College of Art, and former Chairman of the Greater Baltimore Committee. Mr. DeVito is Chairman of the Human Resources Committee and a member of
the Executive, Labor and Safety Committees of the Board of Directors.                                                                                                               |  | 1981                    
|                     
|Peter M. George, 59   |  | Mr. George has since November 2001 been Senior Vice President and Managing Director of the International Group for
Park Place Entertainment. Mr. George was, until he retired in August 2000, Vice Chairman and Chief Executive Officer of Hilton Group PLC (hotel and gaming industries) and held such position since 1994. Mr. George also serves as a Director of the
Hilton Hotels Corporation and Magna Entertainment Corporation. Mr. George is a member of the Corporate Governance and Nominating and Human Resources Committee of the Board of Directors. |  | 1998                    
|                     
|Robert L. Johnson, 56 |  | Mr. Johnson is the Chief Executive Officer of BET Holdings, Inc., a subsidiary of Viacom Inc. (media-entertainment
holding company). Mr. Johnson also serves as a Director of the Hilton Hotels Corporation, The United Negro College Fund, the American Film Institute, General Mills Corporation and Strayer Education, Inc. He is a member of the Audit and Corporate
Governance and Nominating Committees of the Board of Directors.                                                                                                                           |  | 1998                    
|                     
|Robert LeBuhn, 70     |  | Mr. LeBuhn is a private investor and is a Director of Cambrex Corporation and Enzon Pharmaceutical, Inc. He is Trustee
and Chairman of the Geraldine R. Dodge Foundation, Morristown, New Jersey; a trustee of All Kinds of Minds, Chapel Hill, North Carolina; a trustee of Executive Service Corps, Aspen, Colorado; and a trustee of the Aspen Music Festival and School and
President of its National Council in Aspen, Colorado. He is Chairman of the Safety Committee and a member of the Audit and Executive Committees of the Board of Directors.         |  | 1966                    



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|                            
|----------------------------
|John G. Medlin, Jr., 69     
|                            
|Hanne M. Merriman, 61       
|                            
|Thomas H. OBrien, 66       
|                            
|Hilda Ochoa-Brillembourg, 58
|                            
|Richard B. Priory, 56       



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|David N. Siegel, 41  |  | Mr. Siegel became President and Chief Executive Officer of US Airways Group and US Airways in March 2002.
Immediately prior to joining US Airways, Mr. Siegel was Chairman and Chief Executive Officer of Avis Rent A Car since September 2001. He also served as Managing Director of eVolution Global Partners from June 2000 until August 2001. Prior thereto,
Mr. Siegel was President and Chief Operating Officer of Budget Group from November 1999 to May 2000. Mr. Siegel previously served in a variety of management roles at Continental Airlines including President, Continental Express from November 1995 to
October 1999, Senior Vice President, Planning and Scheduling from August 1994 to October 1995, and Vice President, Corporate Development from June 1993 to July 1994. Prior to joining Continental Airlines, Mr. Siegel was a Director, Corporate
Planning at Northwest Airlines. Mr. Siegel is a Director of Mountain Province Diamonds. Mr. Siegel is a member of the Executive Committee of the Board of Directors.             |  | 2002
|-------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                    
|Raymond W. Smith, 65 |  | Mr. Smith is the founding partner of Arlington Capital Partners. He is also Chairman of Rothschild North America, Inc.
(international investment banking) and Chairman of Verizon Ventures. Prior to that he was Chairman of the Board and Chief Executive Officer of Bell Atlantic Corporation from 1989 until December 1998. Previously, Mr. Smith had served as Vice Chairman
and President of Bell Atlantic and Chairman of The Bell Telephone Company of Pennsylvania. He is a trustee of Carnegie Mellon University and the Lincoln Center Theater and serves on the boards of Carnegie Corporation and Rothschild Continuation
Holdings AG. Mr. Smith is Chairman of the Audit Committee and is a member of the Executive, Human Resources and Labor Committees of the Board of Directors.                                                                                                                                                                                                                                                              |  | 1990
|                    
|Stephen M. Wolf, 61  |  | Mr. Wolf is non-executive Chairman of the Board of Directors of US Airways Group and US Airways and has served in
those positions since March 2002. Prior to that, Mr. Wolf served as Chairman of US Airways Group and US Airways since January 1996. He reassumed the position of Chief Executive Officer of the companies in November 2001 when Mr. Gangwal resigned
those positions. Mr. Wolf also served as Chief Executive Officer of the Company from January 1996 until November 1998, and as the Chief Executive Officer of US Airways from January 1996 until May 1998. Immediately prior to joining
US Airways, Mr. Wolf was a senior advisor to the investment bank Lazard Frères & Co. Mr. Wolf was Chairman and Chief Executive Officer of UAL Corporation and United Air Lines, Inc. from December 1987 until July 1994.
Mr. Wolf is a Director of Philip Morris Companies, Inc., R.R. Donnelley & Sons Co., The Brookings Institution, Georgetown University and the World Wildlife Fund. Mr. Wolf is also Chairman of the Executive Committee. |  | 1996



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The
following individuals are the executive officers of US Airways Group and US Airways as of March 15, 2003:



|Name                   |  | Age |  | Position                                                                                       
|---------------------- |  | --- |  | -----------------------------------------------------------------------------------------------
|David N. Siegel        |  | 41  |  | President and Chief Executive Officer, US Airways Group and US Airways                         
|Michelle V. Bryan      |  | 46  |  | Executive Vice PresidentCorporate Affairs and General Counsel, US Airways Group and
US Airways
|Neal S. Cohen          |  | 42  |  | Executive Vice PresidentFinance and Chief Financial Officer, US Airways Group and
US Airways  
|Alan W. Crellin        |  | 56  |  | Executive Vice PresidentOperations, US Airways                                                
|Elizabeth K. Lanier    |  | 51  |  | Executive Vice President, US Airways Group and US Airways                                      
|N. Bruce Ashby         |  | 42  |  | Senior Vice PresidentCorporate Development, US Airways Group and US Airways                   
|B. Ben Baldanza        |  | 41  |  | Senior Vice PresidentMarketing & Planning, US Airways                                         
|Christopher L. Chiames |  | 43  |  | Senior Vice PresidentCorporate Affairs, US Airways                                            
|Jerold A. Glass        |  | 48  |  | Senior Vice PresidentEmployee Relations, US Airways                                           
|John Prestifilippo     |  | 45  |  | Senior Vice PresidentMaintenance, US Airways                                                  
|Anita P. Beier         |  | 47  |  | Vice President and Controller, US Airways Group and US Airways                                 



There
are no family relationships among any of the officers listed above. No officer was selected pursuant to any arrangement between himself and any other person. Officers are elected annually to serve for the following year or until the election and
qualification of their successors.



The business
experience of the officers listed in the table above since at least January 1, 1998 is summarized below:



Mr. Siegel became President and Chief Executive Officer of US Airways Group and US Airways in March 2002. Immediately prior to joining US
Airways, Mr. Siegel was Chairman and Chief Executive Officer of Avis Rent A Car since September 2001. He also served as Managing Director of eVolution Global Partners from June 2000 until August 2001. Prior thereto, Mr. Siegel was President and
Chief Operating Officer of Budget Group from November 1999 to May 2000. Mr. Siegel previously served in a variety of management roles at Continental Airlines, Inc. (Continental) including PresidentContinental Express from November 1995 to
October 1999, Senior Vice PresidentPlanning and Scheduling from August 1994 to October 1995, and Vice PresidentCorporate Development from June 1993 to July 1994. Prior to joining Continental, Mr. Siegel was a DirectorCorporate
Planning at Northwest Airlines Corporation (Northwest). Mr. Siegel is a Director of Mountain Province Diamonds.



Ms. Bryan became Executive Vice PresidentCorporate Affairs and General Counsel of US Airways Group and US Airways in April 2002. As
noted below, Ms. Lanier will succeed Ms. Bryan as Executive Vice PresidentCorporate Affairs and General Counsel of the Company upon Ms. Bryans planned departure in April 2003. Ms. Bryan joined US Airways in 1983 as a staff attorney. She
was elected Corporate Secretary and Assistant General Counsel of US Airways in 1988. In 1995, Ms. Bryan was named Vice President and Deputy General Counsel of US Airways, retaining her position as US Airways Corporate Secretary. She was also
named Corporate Secretary of US Airways Group in 1996. Ms. Bryan was elected Senior Vice PresidentHuman Resources of US Airways in January 1999.



Mr. Cohen joined US Airways Group and US Airways in April 2002. Previously, Mr. Cohen held a number of executive positions, including
Senior Vice President and Treasurer, during his nine years with Northwest. Since leaving Northwest, Mr. Cohen served as Chief Financial Officer for Conseco Finance, Sylvan Learning Systems and the Budget Group.



Mr. Crellin joined US Airways in 1988 as a result of the
Companys 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



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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 and will succeed Ms. Bryan as Executive Vice PresidentCorporate Affairs and General Counsel upon Ms. Bryans planned departure in
April 2003. Previously, Ms. Lanier was Senior Vice President  General Counsel for Trizec Properties, Inc. 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.



Mr. Ashby served as Vice PresidentFinancial Planning and Analysis of US Airways 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. He previously served as Vice PresidentMarketing Development at Delta 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. Baldanza joined US Airways in September 1999 as Senior Vice PresidentMarketing from Grupo Taca. Mr. Baldanza served as Managing Director and Chief Operating Officer at Grupo Taca since April
1997. Mr. Baldanza previously served in a variety of management roles after joining Continental in 1994, where he rose to become Executive Vice PresidentMarketing, before joining Grupo Taca. Prior to joining Continental, Mr. Baldanza served in
a variety of roles at American Airlines, Inc. (American) and Northwest.



Mr. Chiames joined US Airways in May 2002. Mr. Chiames is responsible for US Airways government relations and corporate communications functions. Mr. Chiames has more than 11 years of airline experience, including
leadership of Burson-Marstellers transportation and tourism public affairs practice and Managing Director of Public Relations at American.



Mr. Glass joined US Airways in April 2002. Mr. Glass is a recognized expert in airline and railroad labor issues. Mr. Glass has served as
chief negotiator for major, national and international airlines operating in the United States and has negotiated collective bargaining agreements with all major airline groups. Mr. Glass has successfully concluded nearly 60 separate labor
agreements without any disruptions to service or job actions.



Mr. Prestifilippo joined US Airways in August 2002. 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 and other senior-level management positions for Continental Express and Continental Airlines.



Ms. Beier joined US Airways in June 1999 from CSX Corporation. 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.



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Item 11.  
Executive Compensation



Compensation of Directors



The annual retainer and meeting fee payable to non-employee directors in 2002 were $22,000 and $1,000, respectively. The annual retainer fee was reduced by 20% during 2002. Mr. DeVito, Chairman of the Human Resources Committee, Mr.
Smith, Chairman of the Audit Committee, Mr. Medlin, Chairman of the Nominating Committee, Mr. LeBuhn, Chairman of the Safety Committee, and Ms. Merriman, Chairman of the Social Responsibility Committee, each receives an additional fee of $2,000 per
year for serving in those respective capacities. During the first half of 2002 pursuant to the terms of the US Airways Group, Inc. Nonemployee Directors Stock Purchase Plan, the directors could elect to receive all or a portion of their retainer and
meeting fees in the form of Common Stock. Effective with the filing of the Companys petition for Chapter 11 on August 11, 2002, directors could no longer receive their compensation in the form of stock. Mr. Siegel receives his compensation in
his capacity as an officer of US Airways and receives no additional compensation as director of US Airways Group and US Airways. During the time he served as an officer of US Airways Group and US Airways, Mr. Wolf received his compensation in
his capacity as an officer of US Airways, and received no additional compensation as a director of US Airways Group and US Airways. Since assuming the role of non-executive Chairman in March 2002, Mr. Wolf has not received any compensation for his
role.



The compensation for non-employee
directors consists of cash and stock compensation. Each year active directors receive a grant of 1,500 stock options and 500 units of phantom stock of US Airways Group (Deferred Stock Units), both of which vest on the earlier of the completion of
their term of office or one year after grant. Using stock based compensation for directors is intended to more closely align directors financial interests with that of shareholders of the Company. All options granted to the directors will be
cancelled in accordance with US Airways Groups (or the Corporation hereafter) Plan of Reorganization dated December 20, 2002.



Each director, directors spouse and the directors dependent children are provided free transportation on US Airways and
reimbursement for federal and state income taxes incurred thereon. Additionally, these benefits are provided for retired directors. During 2002, non-employee directors received the following benefits under this program: Christopher L. Beebe, $0;
Mathias J. DeVito, $850; Peter M. George, $1,349; Robert L. Johnson, $0; Robert LeBuhn, $6,656; John G. Medlin, Jr., $1,287; Hanne M. Merriman, $5,822; Thomas H. OBrien, $0; Hilda Ochoa-Brillembourg, $7,087; Richard B. Priory, $592; and
Raymond W. Smith, $1,884.



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Compensation of Executive
Officers



The Summary Compensation Table
below sets forth the compensation paid during the years indicated to the individuals who served as the Chief Executive Officer during the last fiscal year and the four remaining most highly compensated executive officers of the Company or its
subsidiaries as of the last day of the last fiscal year.



Summary Compensation Table



|Name and PrincipalPosition                                                         |  | Year           |  | Salary |                         |     | Bonus (C) |       | OtherAnnual Compensation |  |       | RestrictedStockAwards (A) |             |  | Options (#) |                             | LTIP Payouts |  | All OtherCompensation (P)
|---------------------------------------------------------------------------------- |  | -------------- |  | ------ | ----------------------- | --- | --------- | ----- | ------------------------ |  | ----- | ------------------------- | ----------- |  | ----------- | --------------------------- | ------------ |  | -------------------------
|                                                                                  
|Stephen M. Wolf Non-executive Chairman and former Chief Executive Officer          |  | 2002 2001 2000 |  | $ $ $  | 126,923 438,461 600,000 | (B) |           | $ $ $ | 112,500 0 0              |  | $ $ $ | 306,324 77,847 7,691,036  | (D) (D) (D) |  | $ $ $       | 785,400 1,393,600 3,112,500 | (J) (J) (J)  |  | 210,000 390,000 0        
|                                                                                  
|David N. Siegel President and Chief Executive Officer                              |  | 2002 2001 2000 |  | $ $ $  | 533,654               |     |           | $ $ $ | 750,000                |  | $ $ $ | 47,637                  | (E)         |  | $ $ $       | 2,359,000                 | (K)          |  | 750,000                
|                                                                                  
|Michelle V. Bryan Executive Vice President  Corporate Affairs and General Counsel |  | 2002 2001 2000 |  | $ $ $  | 391,509 303,346 275,000 |     |           | $ $ $ | 112,294 0 0              |  | $ $ $ | 25,481 12,055 137,831     | (F) (F) (F) |  | $ $ $       | 0 80,400 643,125            | (L) (L)      |  | 0 50,000 0               
|                                                                                  
|Neal S. Cohen Executive Vice President  Finance and Chief Financial Officer       |  | 2002 2001 2000 |  | $ $ $  | 306,923               |     |           | $ $ $ | 435,000                |  | $ $ $ | 40,523                  | (G)         |  | $ $ $       | 604,000                   | (M)          |  | 300,000                
|                                                                                  
|Alan W. Crellin Executive Vice President  Operations                              |  | 2002 2001 2000 |  | $ $ $  | 392,962 278,346 239,038 |     |           | $ $ $ | 102,081 0 0              |  | $ $ $ | 19,116 1,565 115,385      | (H) (H) (H) |  | $ $ $       | 56,100 80,400 517,500       | (N) (N) (N)  |  | 25,000 50,000 0          
|                                                                                  
|Jerrold A. Glass Senior Vice President  Employee Relations                        |  | 2002 2001 2000 |  | $ $ $  | 248,769               |     |           | $ $ $ | 192,500                |  | $ $ $ | 4,887                   | (I)         |  | $ $ $       | 151,000                   | (O)          |  | 100,000                



| | (A) |  | The figures in this column reflect the value of shares of common stock subject to certain restrictions (Restricted Stock) on the date of each grant using
the closing price of the stock on the date of grant as further described in footnotes J through O below. None of the named executive officers have sold any of these shares of common stock. Additionally, in connection with the Corporations
reorganization under Chapter 11 of the U.S. Bankruptcy Code, on December 20, 2002, the corporation filed its plan of reorganization pursuant to which all outstanding shares of common stock will be cancelled on the effective date of the plan of
reorganization. Accordingly, the Corporation has valued the shares at $0 as of year end. The aggregate number of shares of Restricted Stock held by each of Messrs. Wolf, Siegel, Cohen, Crellin and Glass and Ms. Bryan on December 31, 2002, and the
respective fair market value of the stock on such date were, respectively, Mr. Wolf  350,000 shares, $0; Mr. Siegel, 350,000 shares, $0; Mr. Cohen  100,000 shares, $0; Mr. Crellin  32,125 shares, $0; Mr. Glass, 25,000 shares, $0
and Ms. Bryan  25,000 shares, $0. The Restricted Stock is entitled to the same dividends payable on outstanding shares of Common Stock.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (B) |  | Mr. Wolf declined to accept any salary during the period from September 17, 2001 though December 31, 2001.
| | --- |  | ----------------------------------------------------------------------------------------------------------



| | (C) |  | Incentive awards reflected for Messrs. Wolf and Crellin and Ms. Bryan for 2002 were earned in 2001 and paid in monthly installments beginning in June 2002. Awards
for Messrs. Siegel, Cohen and Glass were paid in connection with their employment by US Airways.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(D) |  | Amount disclosed for 2002 includes $15,250 paid for tax and financial planning services, $15,661 in income and tax liability payments related to personal travel
provided by US Airways, $4,500 paid for automobile expenses and $270,913 in accrued vacation. Amount disclosed for 2001 includes $18,000 paid for automobile expenses, $25,000 paid for tax and financial planning services and $34,847 in income and tax
liability payments related to personal travel provided by US Airways. Amount disclosed for 2000 includes $7,620,370 for income tax liabilities incurred in connection with Restricted Stock vesting pursuant to Mr. Wolfs Restricted Stock
agreements with US Airways, $18,000 paid for automobile expenses, $7,029 paid for tax and financial planning services and $45,637 in income and tax liability payments related to personal travel provided by US Airways.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(E) |  | Amount disclosed for 2002 includes $31,663 for tax liability related to moving expense and $13,500 paid for automobile expenses and $2,474 in income and tax
liability payments related to personal travel provided by US Airways.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(F) |  | Amount for 2002 includes $14,472 for income tax liabilities incurred in connection with certain compensation related expense, $6,000 paid for automobile expenses,
and $5,009 for income and tax liability payments related to personal travel provided by US Airways. Amount disclosed for 2001 includes $12,055 in income and tax liability payments related to personal travel provided by US Airways. Amount
disclosed for 2000 includes $10,908 in income and tax liability payments related to personal travel provided by US Airways and $126,923 in accrued compensation-related benefits.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(G) |  | Amount disclosed for 2002 includes $31,392 for tax liability related to moving expense, $6,000 paid for automobile expenses and $3,131 for income and tax liability
payments related to personal travel provided by US Airways.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(H) |  | 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. Amount disclosed for 2001 includes $1,565 in income and tax liability payments related to personal travel provided by US
Airways. Amount disclosed for 2000 includes $115,385 in accrued compensation-related benefits
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(I) |  | Amount disclosed for 2002 includes $4,887 for income and tax liability payments related to personal travel provided by US Airways.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



|(J) |  | Mr. Wolf has not sold any of these shares of Restricted Stock. They are currently valued at $0 and will be canceled on the effective date of the Corporations
plan of reorganization in the Chapter 11 bankruptcy proceeding. Amount disclosed for 2002 reflects an award of 140,000 shares of Restricted Stock effective January 16, 2002, vesting 25% on January 16, 2002 and the three succeeding anniversaries of
the grant date based on the closing price of ($5.61) on the grant date. Amount disclosed for 2001 reflects an award of 260,000 shares of Restricted Stock effective October 16, 2001, vesting 25% on November 15, 2001, 25% on December 1, 2002 and 25%
on each of October 16, 2003 and October 16, 2004, based on the closing price ($5.36) on the grant date. Amount disclosed for 2000 reflects an award of 100,000 shares of Restricted Stock effective January 18, 2000, vesting 25% on each of January 18,
2001 and the three succeeding anniversaries of the grant date, based on the closing price ($25.125) on the grant date; and an award of 29,721 shares of Restricted Stock effective March 9, 2000, vesting immediately, based on the closing price
($20.1875) on the grant date.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(K) |  | Amount disclosed for 2002 reflects an award of 350,000 shares of Restricted Stock effective March 11, 2002, vesting 100% on March 11, 2005, based on the closing
price ($6.74) on the grant date. The shares of Restricted Stock are currently valued at $0 and will be canceled on the effective date of the Corporations plan of reorganization in the Chapter 11 bankruptcy proceeding.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(L) |  | Ms. Bryan has not sold any of these shares of Restricted Stock. They are currently valued at $0 and will be canceled on the effective date of the Corporations
plan of reorganization in the Chapter 11 bankruptcy proceeding. Amount disclosed for 2001 reflects an award of 15,000 shares of Restricted Stock effective October 16, 2001, vesting 25% on November 15, 2001, 25% on December 1, 2002 and 25% on each of
October 16, 2003 and October 16, 2004, based on the closing price ($5.36) on the grant date. Amount disclosed for 2000 reflects an award of 15,000 shares of Restricted Stock effective January 18, 2000, scheduled to vest 25% on each of January 18,
2001 and the three succeeding anniversaries of the grant date, based on the closing price ($25.125) on the grant date; and an award of 10,000 shares of Restricted Stock effective May 16, 2000, scheduled to vest 25% on each of May 16, 2001 and the
three succeeding anniversaries of the grant date, based on the closing price ($26.625) on the grant date.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(M) |  | Amount disclosed for 2002 reflects an award of 100,000 shares of Restricted Stock effective April 8, 2002, vesting 34% on April 8, 2003, and 33% on each of April 8,
2004 and April 8, 2005, based on the closing price ($6.04) on the grant date. The shares of Restricted Stock are currently valued at $0 and will be canceled on the effective date of the Corporations plan of reorganization in the Chapter 11
bankruptcy proceeding.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(N) |  | Mr. Crellin has not sold any of these shares of Restricted Stock. They are currently valued at $0 and will be canceled on the effective date of the
Corporations plan of reorganization in the Chapter 11 bankruptcy proceeding. Amount disclosed for 2002 reflects an award of 10,000 shares of Restricted Stock effective January 16, 2002, vesting 25% on each of January 16, 2003 and the three
succeeding anniversaries thereafter, based on the closing price ($5.61) on the grant date. Amount disclosed for 2001 reflects an award of 15,000 shares of Restricted Stock effective October 16, 2001, vesting 25% on November 15, 2001, 25% on December
1, 2002 and 25% on each of October 16, 2003 and October 16, 2004, based on the closing price ($5.36) on the grant date. Amount disclosed for 2000 reflects an award of 10,000 shares of Restricted Stock effective January 18, 2000, scheduled to vest
25% on each of January 18, 2001 and the three succeeding anniversaries of the grant date, based on the closing price ($25.125) on the grant date; and an award of 10,000 shares of Restricted Stock effective May 16, 2000, scheduled to vest 25% on each
of May 16, 2001 and the three succeeding anniversaries of the grant date, based on the closing price ($26.625) on the grant date.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(O) |  | Amount disclosed for 2002 reflects an award of 25,000 shares of Restricted Stock effective April 8, 2002, vesting 34% on April 8, 2003 and 33% on each of April 8,
2004 and April 8, 2005, based on the closing price ($6.04) on the grant date. The shares of Restricted Stock are currently valued at $0 and will be canceled on the effective date of the Corporations plan of reorganization in the Chapter 11
bankruptcy proceeding.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(P) |  | As further described herein, amounts disclosed include the value of life insurance benefits for the named executive officers and contributions to the 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. Based on life expectancy and other
assumptions, US Airways expects to recover the premiums it pays with respect to the whole life component of the coverage. The following amounts reflect the value of the benefits accrued in 2002, calculated on an actuarial basis, ascribed to the
insurance policies purchased on the lives of the executives, plus the dollar value of premiums paid by US Airways with respect to the insurance. Mr. Wolf$13,240; Mr. Siegel$31,109; Mr. Cohen$0; Mr. Crellin$18,207;
Mr. Glass$26,774; and Ms. Bryan$12,833. During 2002, US Airways made contributions to the accounts of Messrs. Wolf, Siegel, Cohen, Crellin, Glass and Ms. Bryan in certain defined contribution plans, in the following amounts,
respectively: $60,260; $16,269; $5,459; $57,168; $5,899; $50,663. During 2002, US Airways paid $68,087 in moving expenses for Mr. Siegel and $40,640 in moving expenses for Mr. Cohen. Subsequent to the Corporations filing for Chapter 11
reorganization on August 11, 2002, the split dollar life insurance plan of US Airways, Inc. was terminated.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Stock Option Grants in Last Fiscal Year



The following table provides information on stock option grants in 2002 to the named executive officers.



|Name              |  | Number of Shares Underlying Option Granted |  | Percent of Total Options Granted to
Employees in 2002 |   |  | Exercise or Base Price |       | Expiration Date |         | Grant Date Present Value $(1)
|----------------- |  | ------------------------------------------ |  | ----------------------------------------------------- | - |  | ---------------------- | ----- | --------------- | ------- | -----------------------------
|                 
|Stephen M. Wolf   |  | 210,000                                    |  | 5.36                                                  | % |  | $                      | 5.620 |                 | 2/16/12 |                              
|                 
|David N. Siegel   |  | 750,000                                    |  | 19.15                                                 | % |  | $                      | 5.340 |                 | 4/11/12 |                              
|                 
|Michelle V. Bryan |  | 0                                          |  | 0                                                     | % |  | $                      | N/A   |                 | N/A     |                              
|                 
|Neal S. Cohen     |  | 300,000                                    |  | 7.66                                                  | % |  | $                      | 5.775 |                 | 5/8/12  |                              
|                 
|Alan W. Crellin   |  | 25,000                                     |  | 0.64                                                  | % |  | $                      | 5.555 |                 | 2/16/12 |                              
|                 
|Jerrold A. Glass  |  | 100,000                                    |  | 2.55                                                  | % |  | $                      | 5.775 |                 | 5/8/12  |                              



|(1) |  | Under the Plan of Reorganization as filed with the Bankruptcy Court on December 20, 2002, all stock options will be cancelled upon the Corporations emergence
from bankruptcy. Accordingly, the named executive officers will not realize any value on the stock options granted. If the Black-Scholes model were used to estimate the present value on the date of grant, the following values would result  Mr.
Wolf, $711,900; Mr. Siegel, $3,300,000; Mr. Cohen, $1,152,000; Mr. Crellin, $85,250; and Mr. Glass, $384,000. The Black-Scholes model considers a number of factors, including the stocks projected volatility, the expected exercise period of the
option, interest rates and the vesting features of the option. The following assumptions were used in determining the values under the Black-Scholes model: (i) the risk free rate of return: 4.2%; (ii) expected stock price volatility: 80%; (iii)
exercise period of 4 years, and (iv) dividend yield: 0.00%.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Aggregated Option/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values



The following table provides information on the number of options held by the named executive officers at fiscal year-end 2002. None of the unexercised options held by the officers were in-the-money based on the fair market
value of the Common Stock on December 31, 2002 ($0).



|                  |  |                                 |  |                  |   | Number of Unexercised
Options/SARs at Year-End (#) |           | Value of Unexercised
In-the-Money Options/SARs at Year- End (#)
|----------------- |  | ------------------------------- |  | ---------------- | - | --------------------------------------------------- | --------- | ----------------------------------------------------------------
|Name              |  | Shares Acquired on Exercise (#) |  | Value Realized $ |   | Exercisable                                         |           | Unexercisable                                                   
|                 
|Stephen M. Wolf   |  | 0                               |  | $                | 0 |                                                     | 2,125,000 |                                                                 
|                 
|David N. Siegel   |  | 0                               |  | $                | 0 |                                                     | 187,500   |                                                                 
|                 
|Michelle V. Bryan |  | 0                               |  | $                | 0 |                                                     | 39,500    |                                                                 
|                 
|Neal S. Cohen     |  | 0                               |  | $                | 0 |                                                     | 0         |                                                                 
|                 
|Alan W. Crellin   |  | 0                               |  | $                | 0 |                                                     | 42,000    |                                                                 
|                 
|Jerrold A. Glass  |  | 0                               |  | $                | 0 |                                                     | 0         |                                                                 



Long-Term Incentive
PlanBasis of Awards in Last Fiscal Year



|Name              |  | Performance or other period until maturation or payout(1) |  | Estimated future payouts under non-stock price-based plans(2)(3)
|----------------- |  | --------------------------------------------------------- |  | ----------------------------------------------------------------
|                  |  | Threshold (%)                                             |  | Target (%)                                                      
|                 
|Stephen M. Wolf   |  | 2000-2002                                                 |  | 0                                                               
|                 
|David N. Siegel   |  | 2000-2002                                                 |  | 0                                                               
|                 
|Michelle V. Bryan |  | 2000-2002                                                 |  | 0                                                               
|                 
|Neal S. Cohen     |  | 2000-2002                                                 |  | 0                                                               
|                 
|Alan W. Crellin   |  | 2000-2002                                                 |  | 0                                                               
|                 
|Jerrold A. Glass  |  | 2000-2002                                                 |  | 0                                                               



|(1) |  | Awards for this cycle are determined based upon the Companys pre-tax margin as compared to the pre-tax margin of selected competitors.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Awards are stated as a percentage of the officers base annual salary. Actual awards paid for the performance period are listed in the LTIP Payout
column in the Summary Compensation Table above.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Based on 2000-2002 financial performance, there will not be a payout under this program for the 2000-2002 performance period.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------



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Employment Arrangements



Mr. Siegel joined US Airways in March,
2002. Under his employment arrangements with US Airways, Mr. Siegel is entitled to an annual base salary of not less than $750,000. In August, 2002 Mr. Siegel agreed to a salary reduction of 20% in connection with the Companys cost savings
initiatives and restructuring plan. Upon employment, Mr. Siegel received a one time payment of $750,000. Mr. Siegels pay reduction will continue for the entire term of the proposed $1 billion loan guaranteed in part by the Air Transportation
Stabilization Board. Eventual restoration of Mr. Siegels pay reductions will use the same methodology developed for restoration of pay cuts under the collective bargaining agreement for US Airways flight attendants.



In addition, Mr. Siegel is eligible for an annual bonus
pursuant to the terms of the Companys Incentive Compensation Plan. Under the plan, Mr. Siegel may receive a bonus of 100% of annual base salary for target results, which may be increased for results in excess of the target up to a maximum
bonus of 200% of base salary. Mr. Siegels employment arrangement provides that he is entitled to a minimum incentive payment for the 2002 fiscal year of no less than the target amount. However, in connection with the Corporations cost
savings initiatives and restructuring efforts, the Incentive Compensation Plan (ICP) was suspended during 2002 for payments to be made in 2003, which will result in no payments to Mr. Siegel for the 2002 fiscal year. In addition, the ICP payments
also will be foregone for 2003 for payments that would have otherwise been made to Mr. Siegel in 2004.



Mr. Siegel is also eligible for a bonus of 220% of his average annual base salary from the Companys Long Term Incentive Plan (LTIP)
if certain target results are achieved during the performance period, which may be increased to a maximum bonus of 440% for results exceeding the target. However, the LTIP will not be implemented for fiscal year 2003 and no subsequent payments will
be made on account of 2003. In addition, the LTIP was also suspended during 2002 and there have not been any plan payments for the last three years.



In connection with his employment, Mr. Siegel is entitled to an award of stock options and Restricted Stock, as follows: (i) 750,000 stock
options effective March 1, 2002, at an exercise price based on the fair market value of the stock on the date of the grant, scheduled to vest 25% on each of March 11, 2002 and the three succeeding anniversaries of the grant date; (ii) 500,000 stock
options effective March 11, 2003, at an exercise price based on the fair market value of the stock on the date of the grant with such options vesting on a pro-rata basis over a three year period; and (iii) 350,000 shares of Restricted Stock,
effective March 11, 2002, with all shares vesting on the third anniversary of the grant date, provided however, that if Mr. Siegels employment should terminate under certain circumstances prior to the third anniversary of the grant date, he
will vest in the number of shares determined as if 25% of the shares vested on March 11, 2002 and each of the three succeeding anniversaries of the grant date. As set forth in the Joint Plan of Reorganization dated December 20, 2002, all of the
Restricted Stock and stock options issued to Mr. Siegel will be cancelled upon the effective date of the Plan of Reorganization.



Prior to his assumption of the role of non-executive Chairman of US Airways Group and US Airways in March, 2002, Mr. Wolf was entitled to
an annual base salary of not less than $875,000 effective January 2002 through the date of his retirement from the Company on March 8, 2002. From September 17, 2001 through December 31, 2001, Mr. Wolf did not accept any base salary and he only
accepted base salary at an annual rate of $600,000 beginning January 2002 through his retirement as Chief Executive Officer. In addition, Mr. Wolf was eligible for an annual bonus pursuant to the terms of the Companys Incentive Compensation
Plan. Under the plan, Mr. Wolf could have received a bonus of 100% of annual base salary for target results, which could have been increased for results in excess of the target up to a maximum bonus of 200% of base salary. Mr. Wolf received a bonus
related to fiscal year 2001 which was payable in



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monthly installments beginning on June 30, 2002. Mr. Wolf received the bonus payment related to two months or one-sixth of his total bonus
payment due and declined to accept any additional bonus payments in consideration of the Corporations decision to file for bankruptcy protection. Mr. Wolf was also eligible for a bonus of 220% of his average annual base salary from the
Companys Long Term Incentive Plan (LTIP) if certain target results were achieved during the performance period, which could have been increased to a maximum bonus of 440% for results exceeding the target. Mr. Wolf declined to accept payment
from the LTIP for the performance period ending with fiscal year 1999 and no amount was payable from the LTIP for the performance periods ending with fiscal years 2000, 2001 and 2002.



Messrs. Cohen, Crellin and Glass and Ms. Bryan are eligible for an annual bonus pursuant to the terms of the
Companys Incentive Compensation Plan. If the Company achieves its target objectives, Messrs. Cohen and Crellin and Ms. Bryan may receive a bonus of 60% of their respective annual base salaries, which may be increased for results in excess of
the target up to a maximum bonus of 120% of base salary. Mr. Glass may receive a bonus of 50% of his annual base salary, which may be increased for results in excess of the target up to a maximum bonus of 100% of base salary. As discussed above, the
ICP was suspended during fiscal year 2002 for payments to be made in 2003. In addition, the ICP also will not be implemented during 2003 for payments that would have otherwise been made to the above-named officers in 2004.



Messrs. Cohen and Crellin and Ms. Bryan are also eligible for
a bonus under the LTIP of 80% of their respective average annual base salaries if the Company achieves its target objectives which may be increased up to a maximum of 160% of average annual base salary for results exceeding target. Mr. Glass is
eligible for a bonus under the LTIP of 70% of his average annual base salary if the Company achieves its target objectives which may be increased up to a maximum of 140% of average annual base salary for results exceeding target. However, the LTIP
will not be implemented for fiscal year 2003 and no subsequent payments will be made on account of 2003. In addition, the LTIP was also suspended during 2002 and there have not been any plan payments during the last three years.



In connection with their employment arrangements, each of
Messrs. Siegel, Cohen, Crellin and Wolf (prior to his retirement) and Ms. Bryan are entitled to reimbursement of fees for certain tax and financial planning advice.



Retirement Benefits



US Airways previously maintained a defined benefit retirement plan (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. Under the Retirement Plan, benefits were generally payable commencing at age
of 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.



Other than Mr. Crellin and Ms. Bryan, none of the named
executive officers participate in the Retirement Plan. Ms. Bryan has eight years of Credited Service under the Retirement Plan. Mr. Crellin has 16 years of Credited Service under the Retirement Plan. However, Messrs. Siegel, Cohen, Crellin and
Glass, have entered into agreements which provide for the payment of the same supplemental retirement benefits as would have been payable had they participated in the Retirement Plan. The benefits under the supplemental retirement arrangements,
which are payable when the executive is no longer a full-time employee, are based on actual salary and assumed target bonus (unreduced for pay reductions). This formula assumes no cutback for benefits that would otherwise be payable but cannot be
paid from a qualified plan pursuant to Internal Revenue Service regulations. The benefits payable to Messrs. Siegel, Cohen, Crellin and Glass are subject to an offset for benefits payable under the tax-qualified and non-qualified defined
contribution plan retirement program.



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During Mr.
Wolfs employment with the Corporation, he was entitled to benefits under a supplemental retirement arrangement upon the termination of his employment that was based upon his actual salary and assumed maximum bonus with respect to his last year
of actual employment. Mr. Wolf retired from the Corporation in March, 2002 and his accrued benefit was paid at that time.



The credited years of service under these supplemental arrangements for Mr. Siegel are as follows: 3 years of credited service for each of
his first five years of service, 5 additional years of credited service upon the completion of five years of service, and thereafter an additional 1.5 years of credited service for each year of service up to a maximum of 30 years of credited
service. Messrs. Cohen and Glass will receive 2 years of credited service for each of the first five years of service, and thereafter one year of credited service for each actual year of service up to a maximum of 30 years of credited service. Mr.
Crellin will receive a benefit based upon 30 years of credited service under the Retirement Plan, and will vest in 10 percent of such benefit on July 17, 2003 and an additional 10% on each of the nine succeeding anniversaries. Mr. Wolfs
supplemental retirement arrangement entered into when he joined the Company in 1996 provided that he received 30 years of credited service upon his retirement.



The following table presents the noncontributory benefits payable per year for life to employees under the Retirement Plan and
supplemental retirement arrangements, assuming normal retirement in the current year. The table also assumes the retiree would be entitled to the maximum Social Security benefit in addition to the amounts shown.



|                       |  | Credited Service
|---------------------- |  | ----------------
|Final Average Earnings |  | 10 Years        
|$   250,000            |  | $               
|500,000                |  | $               
|750,000                |  | $               
|1,000,000              |  | $               
|1,250,000              |  | $               
|1,500,000              |  | $               
|1,750,000              |  | $               
|2,000,000              |  | $               
|2,250,000              |  | $               
|2,500,000              |  | $               



The
values reflected in the above chart represent the application of the Retirement Plan formula to the specified amounts of compensation and years of service.



Pursuant to the Summary of the Management Compensation Plan filed as Exhibit A to the First Amended Plan of Reorganization on February 27,
2003, the supplemental retirement arrangements for Messrs. Siegel, Cohen, Crellin and Glass will be modified upon the Corporations emergence from Chapter 11 to provide for a defined contribution benefit amount which will be individually
determined based upon age, service and projected earnings such that using the annual contribution and an assumed 8% investment return will achieve 50% of final average earnings (based on total cash compensation) at normal retirement age.



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Arrangements Concerning
Termination of Employment and Change of Control



Consistent with the practice in the industry, US Airways has entered into an employment agreement with Mr. Siegel. The term of Mr. Siegels employment agreement extends until the third anniversary thereof, or his normal
retirement date, and is subject to automatic one-year annual extensions on each anniversary date unless advance written notice is given by US Airways. In exchange for his commitment to devote his full business efforts to US Airways, Mr.
Siegels employment agreement provides that he will be re-elected to his current position and will receive (1) an annual base salary at a rate not less than that in effect during the previous year, (2) incentive compensation as provided in
the employment agreement and (3) insurance, disability, medical and other benefits generally granted to other officers. In the event of a change of control, as defined in Mr. Siegels employment agreement, the term of his employment agreement
is automatically extended until the third anniversary of the change of control date or his normal retirement date.



Mr. Siegels employment agreement provides that, should US Airways or any successor fail to re-elect Mr. Siegel to his position,
assign him to duties which result in a diminution in his position, duties, authority or responsibilities, fail to compensate him as provided in his employment agreement (except with respect to the reduction in salary in 2002 pursuant to the
Corporations cost savings initiatives), relocate him in violation of the terms of his employment agreement, fail to require any successor to US Airways to comply with the employment agreement or otherwise terminate his employment in violation
of the employment agreement, Mr. Siegel may elect to treat such failure as a breach of the employment agreement if he then terminates employment. As liquidated damages as the result of an event not following a change of control that is deemed to be
a breach of his employment agreement, US Airways or its successor would be required to pay Mr. Siegel a lump sum equal to three years base salary (unreduced) and to continue granting certain employee benefits for 3 years. If the breach
follows a change of control, Mr. Siegel will be entitled to receive (i) a lump sum payment equal to the product of three times the sum of his annual base salary (unreduced) plus an annual bonus, and (ii) continuation of his pension, health
insurance, travel and certain other welfare and fringe benefits for 3 years (except for travel and health insurance benefits which will continue for the remainder of his life). Mr. Siegel shall be entitled to recover from US Airways reasonable
attorneys fees in connection with enforcement of his rights under his employment agreement. Mr. Siegels employment agreement also provides that any payments Mr. Siegel receives in the event of a termination after a change of control
shall be increased, if necessary, such that, after taking into account all taxes he would incur as a result of such payments, Mr. Siegel would receive the same after-tax amount he would have received had no excise tax been imposed under Section 4999
of the Code.



Mr. Wolfs agreement provided
for his employment as Chief Executive Officer until a replacement was elected by the Board of Directors, which occurred in March 2002 when Mr. Siegel was elected Chief Executive Officer of US Airways Group and US Airways. In addition, Mr.
Wolfs agreement provided for Mr. Wolfs continued service as non-executive Chairman, the position he assumed when Mr. Siegel was elected Chief Executive Officer, or as a director or consultant to the Board of Directors until the earlier
of (i) age 65 or (ii) a change of control. While Mr. Wolf served as non-executive Chairman, he requested that he not receive any base salary or director fees but was eligible for such incentive compensation as determined by the Board of Directors
and he was to continue to receive certain benefits on the same basis that such benefits were provided to him immediately prior to the change in his status from Chief Executive Officer to non-executive Chairman. Mr. Wolfs agreement also
provides that in the event of a change of control during the term of his agreement, Mr. Wolfs role with the Company would cease and he will be entitled to receive (i) a lump sum equal to three times the sum of his highest annual salary in
effect during the term of the agreement and highest bonus, and (ii) a payment with respect to each performance period under the LTIP that had not been completed on the date



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of the change of Mr. Wolfs status to non-executive Chairman equal to the amount that would have been
paid with respect to such performance period if the performance factors for such period had been achieved. Mr. Wolf previously declined to accept a severance payment to which he would have been entitled under his prior employment agreement.



Mr. Wolfs agreement also provided that
regardless of the reason for the termination of Mr. Wolfs services to the Company, he was entitled to receive (i) travel benefits for his lifetime; (ii) health benefits for he and his spouse for the remainder of their lives; and (iii) certain
other fringe benefits provided to him as Chief Executive Officer to the extent such benefits are provided to other officers of the Company. Under the terms of his employment contract, Mr. Wolf is also entitled to recover from US Airways reasonable
attorneys fees in connection with enforcement of his rights under the agreement. Mr. Wolfs agreement provides that any payments that Mr. Wolf receives in the event of a change of control shall be increased, if necessary, such that, after
taking into account all taxes he would incur as a result of such payments, Mr. Wolf would receive the same after-tax amount he would have received had no excise tax been imposed under Section 4999 of the Code. Mr. Wolfs current agreement will
not be assumed upon the Corporations emergence from the Chapter 11 proceeding and Mr. Wolf will leave his position on the Board of Directors at that time and be treated as a retired employee of the Corporation.



In 2002, the Company entered into severance agreements
(Severance Agreement) with Messrs. Cohen, Crellin and Glass and Ms. Bryan. The Severance Agreement extends until the earlier of the severance of their employment, or their retirement date. The Severance Agreements provide that if the executive
officers employment should be terminated other than for cause (as defined in the Severance Agreement), or if the executive officer is demoted or if there is a reduction in base salary (other than the salary reductions implemented in 2002), he
or she may elect to treat such occurrence as a breach of the Severance Agreement if he or she then elects to terminate employment. Under such circumstances, Messrs. Cohen, Crellin and Glass and Ms. Bryan would be entitled to receive a lump sum
payment equal to the product of two times the sum of his or her annual salary (unreduced) plus target bonus. In addition, under the terms of their Severance Agreement, Mr. Crellin and Ms. Bryan are entitled to receive certain health insurance and
travel benefits for the remainder of his or her life if their employment is terminated involuntarily prior to the date specified in the agreement, or if either terminates employment voluntarily after a later dated specified in their agreement.



Pursuant to the terms of the Severance
Agreement, if following a change of control, US Airways should assign him or her duties which are inconsistent with his or her position, authorities, duties or responsibilities, fail to compensate him or her in accordance with the terms of the
Severance Agreement, require relocation under certain circumstances, fail to require any successor to US Airways to comply with the Severance Agreement or otherwise terminate his or her employment in violation of the Severance Agreement, the named
executive officer may elect to treat such failure as a breach of the Severance Agreement if he or she then terminates employment.



Under such circumstances Messrs. Cohen, Crellin and Glass and Ms. Bryan will be entitled to receive (i) a lump sum payment equal to the
product of three times the sum of his or her annual salary (unreduced) plus annual bonus, (ii) continuation of certain health insurance and other benefits during the three year period following the termination of employment (lifetime health
insurance benefits for Mr. Crellin and Ms. Bryan), and (iii) travel benefits for life. The Severance Agreement provides that Messrs. Cohen, Crellin and Glass and Ms. Bryan shall be entitled to recover from US Airways reasonable attorneys fees
in connection with enforcement of their rights under the Severance Agreement. The Severance Agreement further provides that any payments received in the event of termination after a change of control shall be increased, if necessary, such that,
after taking into account all taxes incurred as a result of such payments, Messrs. Cohen, Crellin and Glass and Ms. Bryan would receive the same after-tax amount they would have received had no excise tax been imposed under Section 4999 of the Code.



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In connection
with the Management Compensation Plan and Assumption of Employment-Related Agreements filed as Exhibits A and E-3 to the Plan of Reorganization on February 27, 2003, certain changes will be implemented with respect to the employment and severance
agreements of the named executive officers as follows: (a) no change of control will be deemed to have occurred in connection with transactions under the Retirement Systems of Alabama investment agreement, or in connection with the
Companys emergence from bankruptcy; (b) the Severance Agreements will be amended to include in the definition of good reason to trigger severance payment obligations in the event that the corporate headquarters is relocated outside the
Washington, D.C. metropolitan area; (c) all Severance Agreements will be conformed to include the same compensation definition as exists in the majority of agreements whereby, severance benefits prior to a change of control are determined by a
multiple of base salary plus target bonus; (d) the agreement for Mr. Siegel will be modified to include a trigger that may be exercised at the discretion of Mr. Siegel to receive pre-change of control severance benefits during the period starting on
the first anniversary of the effective date of the emergence from bankruptcy and ending on the last day of the 13thmonth following the effective date of the emergence from bankruptcy; and (e) the agreement for Mr. Cohen will be modified to include a trigger that may be exercised by Mr. Cohen to receive pre-change of control severance benefits only in the event
that Mr. Siegel leaves the company during the period starting on the first anniversary of the effective date of emergence from bankruptcy and ending on the last day of the 13thmonth following the effective date of emergence from bankruptcy and Mr. Cohen also terminates employment during such period.



Messr. Siegels, Cohens, Crellins and
Glass benefits under the supplemental retirement agreement will vest immediately upon a change of control.



Currently, under the US Airways Group 1996 Stock Incentive Plan (1996 Plan), pursuant to which employees of the Company and its
subsidiaries have been awarded stock options with respect to Common Stock and shares of restricted stock, the occurrence of a change of control, as defined, would make all granted options immediately exercisable without regard to the vesting
provisions thereof, and under certain circumstances, would cause shares of restricted stock to vest. Under the terms of the First Amended Plan of Reorganization, all of the stock issued under the 1996 Plan will be cancelled upon confirmation of the
Corporations Plan of Reorganization and the plan will be terminated.



In addition under the terms of the LTIP, upon the occurrence of a change in control, as defined, each participant in the LTIP will be entitled to receive a payment with respect to each performance
period that has not been completed equal to the amount that would have been paid with respect to such performance period if the performance factors for such period had been achieved at the target level.



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Item 12.
Security Ownership of Certain Beneficial Owners and Management



The following information pertains to Common Stock beneficially owned by all directors and executive officers of the Company (or its principal operating subsidiary US Airways) as of January 31, 2003.
Information with respect to beneficial ownership is based upon information furnished by each director and executive officer of the Company. Unless indicated otherwise by footnote, the owner exercises sole voting and investment power over the
securities (other than unissued securities, the ownership of which has been imputed to such owner).



|Owner                                                         |  | Number of Shares |        |  | Percent of Class (1) |  
|------------------------------------------------------------- |  | ---------------- | ------ |  | -------------------- | -
|Directors and Nominees for Director                           |  |                  |        |  |                      |  
|Mathias J. DeVito                                             |  | 11,000           | (2)    |  |                      |  
|Peter M. George                                               |  | 12,871           | (3)    |  |                      |  
|Robert L. Johnson                                             |  | 20,727           | (4)    |  |                      |  
|Robert LeBuhn                                                 |  | 45,199           | (2)(5) |  |                      |  
|John G. Medlin, Jr.                                           |  | 14,000           | (2)    |  |                      |  
|Hanne M. Merriman                                             |  | 10,500           | (2)    |  |                      |  
|Thomas H. OBrien                                             |  | 6,875            | (3)    |  |                      |  
|Hilda Ochoa-Brillembourg                                      |  | 33,620           | (3)(6) |  |                      |  
|Richard B. Priory                                             |  | 11,452           | (3)    |  |                      |  
|David N. Siegel                                               |  | 725,000          | (7)    |  | 1.1                  | %
|Raymond W. Smith                                              |  | 29,011           | (2)    |  |                      |  
|Stephen M. Wolf                                               |  | 3,179,616        | (8)    |  | 4.7                  | %
|Executive Officers                                            |  |                  |        |  |                      |  
|Michelle V. Bryan                                             |  | 83,263           | (9)    |  |                      |  
|Neal S. Cohen                                                 |  | 100,000          | (10)   |  |                      |  
|Alan W. Crellin                                               |  | 96,134           | (11)   |  |                      |  
|Jerrold A. Glass                                              |  | 25,000           | (12)   |  |                      |  
|21 directors and executive officers of the Company as a group |  | 4,740,852        | (13)   |  | 7.0                  | %



|(1) |  | Percentages are shown only where they exceed one percent of the number of shares outstanding and are based on shares of Common Stock outstanding on January 31, 2003.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | These holdings include 9,000 shares of Common Stock issuable within 60 days of January 31, 2003 upon exercise of stock options.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------



|(3) |  | These holdings include 4,500 shares of Common Stock issuable within 60 days of January 31, 2003 upon exercise of stock options.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------



|(4) |  | These holdings include 6,000 shares of Common Stock issuable within 60 days of January 31, 2003 upon exercise of stock options.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------



|(5) |  | These holdings include 10,000 shares of Common Stock held in trust.
|--- |  | -------------------------------------------------------------------



|(6) |  | These holdings include 14,000 shares of Common Stock held jointly by Ms. Ochoa-Brillembourg and her spouse.
|--- |  | -----------------------------------------------------------------------------------------------------------



|(7) |  | Mr. Siegels holdings include 350,000 shares of Restricted Stock and 375,000 shares of Common Stock issuable within 60 days of January 31, 2003 upon exercise of
stock options.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) |  | Mr. Wolfs holdings include 350,000 shares of Restricted Stock and 2,125,000 shares of Common Stock issuable within 60 days of January 31, 2003 upon exercise of
stock options. Mr. Wolf retired as Chairman and Chief Executive Officer of both US Airways Group and US Airways on March 11, 2002. He remains non-executive Chairman of both Companies.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) |  | Ms. Bryans holdings include 25,000 shares of Restricted Stock and 39,500 shares of Common Stock issuable within 60 days of January 31, 2003 upon exercise of
stock options.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) |  | Mr. Cohens holdings include 100,000 shares of Restricted Stock.
|---- |  | ----------------------------------------------------------------



|(11) |  | Mr. Crellins holdings include 32,125 shares of Restricted Stock and 48,250 shares of Common Stock issuable within 60 days of January 31, 2003 upon exercise of
stock options.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(12) |  | Mr. Glass holdings include 25,000 shares of Restricted Stock.
|---- |  | --------------------------------------------------------------



|(13) |  | All directors and executive officers holdings include 963,500 shares of Restricted Stock and 2,856,750 shares of Common Stock issuable within 60 days of
January 31, 2003 upon exercise of stock options.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Set forth
below are the number of options and units of phantom stock of the Company (Deferred Stock Units) held by each director who participates in the director compensation programs. See Compensation of Directors below. Although each
Deferred Stock Unit represents the economic equivalent of a share of Common Stock, no voting rights are attached thereto and the Deferred Stock Units lack certain other attributes of Common Stock.





|Owner                    |  | Number of Deferred Stock Units |  | Number of Director Stock Options(1)
|------------------------ |  | ------------------------------ |  | -----------------------------------
|Directors                |  |                                |  |                                    
|Mathias J. DeVito        |  | 11,569.29                      |  | 10,500                             
|Peter M. George          |  | 2,000.00                       |  | 6,000                              
|Robert L. Johnson        |  | 2,500.00                       |  | 7,500                              
|Robert LeBuhn            |  | 10,611.38                      |  | 10,500                             
|John G. Medlin, Jr.      |  | 10,685.42                      |  | 10,500                             
|Hanne M. Merriman        |  | 7,739.13                       |  | 10,500                             
|Thomas H. OBrien        |  | 2,000.00                       |  | 6,000                              
|Hilda Ochoa-Brillembourg |  | 2,000.00                       |  | 6,000                              
|Richard B. Priory        |  | 2,000.00                       |  | 6,000                              
|David N. Siegel          |  |                               |  |                                   
|Raymond W. Smith         |  | 6,194.78                       |  | 10,500                             
|Stephen M. Wolf          |  |                               |  |                                   



|(1) |  | The holdings for Messrs. DeVito, LeBuhn, Medlin and Smith and Ms. Merriman include 9,000 shares of Common Stock issuable within 60 days of January 31, 2003 upon the
exercise of stock options. The holdings for Mr. Johnson include 6,000 shares of Common Stock issuable within 60 days of January 31, 2003 upon the exercise of stock options. The holdings for Messrs. George, OBrien and Priory and Ms.
Ochoa-Brillembourg include 4,500 shares of Common Stock issuable within 60 days of January 31, 2003. These options are also reflected in the Beneficial Security Ownership table on page 2.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The only persons known to the Company (from Company records
and reports on Schedules 13D and 13G filed with the SEC) which owned, as of January 31, 2003, more than 5% of the Common Stock are listed below:





|Title of Class |  | Name and address of beneficial owner                                            |  | Amount and nature Of beneficial ownership |     |  | Percent of Class(1) |  
|-------------- |  | ------------------------------------------------------------------------------- |  | ----------------------------------------- | --- |  | ------------------- | -
|Common Stock   |  | Aon Fiduciary Counselors, Inc. 200 East Randolph Street Chicago, Illinois 60601 |  | 12,975,767                                | (2) |  | 19.06               | %



|(1) |  | Represents percentage of shares of Common Stock outstanding on January 31, 2003.
|--- |  | --------------------------------------------------------------------------------



|(2) |  | As set forth in a Schedule 13G, dated February 13, 2003, as of December 31, 2002.
|--- |  | ---------------------------------------------------------------------------------



Item 13.
Certain Relationships and Related Transactions



Prior to joining US Airways in April 2002, Mr. Glass was associated with J. Glass and Associates, where he was founder and president. Mr. Glass was also an employee of the law firm of Ford &
Harrison, which received approximately $120,000 in professional fees in 2002 from US Airways directly related to work performed by J. Glass and Associates. Mr. Glass did not receive any financial remuneration or bonus from Ford & Harrison or J.
Glass and Associates related to any work performed by these firms after he joined US Airways in April 2002.



108



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Item 14.  
Controls and Procedures



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 within 90 days before the filing date of this annual report. 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. There have been no significant changes in the Companys internal controls or in other factors that could significantly affect internal controls since their evaluation.



Part IV



Item 15.  
Exhibits, Financial Statement Schedules and Reports on Form 8-K



The following documents are filed as part of this report:



Consolidated Financial Statements



The following consolidated financial statements of US Airways, Inc. are included in Part II, Item 8 of this report:



| |  |  | Consolidated Statements of Operations for each of the three years ended December 31, 2002
| | - |  | -----------------------------------------------------------------------------------------

| |  |  | Consolidated Balance Sheets as of December 31, 2002 and 2001
| | - |  | ------------------------------------------------------------

| |  |  | Consolidated Statements of Cash Flows for each of the three years ended December 31, 2002
| | - |  | -----------------------------------------------------------------------------------------

| |  |  | Consolidated Statements of Stockholders Equity (Deficit) for each of the three years ended December 31, 2002
| | - |  | -------------------------------------------------------------------------------------------------------------

| |  |  | Notes to Consolidated Financial Statements
| | - |  | ------------------------------------------



Consolidated 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.



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                                                                                                                                                                                                                                                                                                                                                                                                         
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           
|3.1         |  | Restated Certificate of Incorporation of US Airways (incorporated by reference to
Exhibit 3.1 to US Airways Registration Statement on Form 8-B dated January 27, 1983); and the Certificate of Amendment to Restated Certificate of Incorporation of USAir, Inc. dated February 17, 1997 (incorporated by reference to Exhibit 3.3 to
US Airways Annual Report on Form 10-K for the year ended December 31, 1996).



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|      |  |                                                                                                                                                                                                                                                                                   
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|3.5   |  | By-Laws of US Airways amended March 1, 2002 (incorporated by
reference to Exhibit 3.6 to US Airways Group Annual Report on Form 10-K for the year ended December 31, 2001).                                                                                                       
|     
|     
|10.1  |  | US Airways, Inc. Supplementary Retirement Benefit Plan (incorporated by reference to
Exhibit 10.5 to US Airways Groups Annual Report on Form 10-K for the year ended December 31, 1989).                                                                                         
|     
|10.2  |  | US Airways, Inc. Supplemental Executive Defined Contribution Plan (incorporated by
reference to Exhibit 10.6 to US Airways Groups Annual Report on Form 10-K for the year ended December 31, 1994).                                                                              
|     
|10.3  |  | Amendment No. 1 effective September 19, 2000 to the US Airways, Inc. Supplemental
Executive Defined Contribution Plan (incorporated by reference to Exhibit 10.18 to US Airways Groups Annual Report on Form 10-K for the year ended December 31, 2000).                         
|     
|10.4  |  | Amendment No. 2 effective December 29, 2000 to the US Airways, Inc. Supplemental
Executive Defined Contribution Plan (incorporated by reference to Exhibit 10.19 to US Airways Groups Annual Report on Form 10-K for the year ended December 31, 2000).                          
|     
|10.5  |  | Amended and Restated Employment Agreement between US Airways Group and US Airways and
the former Chairman of both companies effective January 16, 2002 (incorporated by reference to Exhibit 10.40 to US Airways Annual Report on Form 10-K for the year ended December 31, 2001).
|     
|10.6  |  | Employment Agreement between US Airways and the President and Chief Executive Officer
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).                                        
|     
|10.7  |  | Severance Agreement between US Airways and the Executive Vice
PresidentCorporate Affairs and General Counsel effective April 8, 2002.                                                                                                                                            
|     
|10.8  |  | Severance Agreement between US Airways and the Executive Vice PresidentFinance
and Chief Financial Officer effective April 8, 2002.                                                                                                                                              
|     
|10.9  |  | Severance Agreement between US Airways and the Executive Vice
PresidentOperations effective June 26, 2002.                                                                                                                                                                       
|     
|10.10 |  | Severance Agreement between US Airways and the Senior Vice PresidentEmployee
Relations effective April 8, 2002.                                                                                                                                                                  
|     
|10.11 |  | Agreement between US Airways and its former Chairman with respect to certain
employment arrangements (incorporated by reference to Exhibit 10.14 to US Airways Groups Annual Report on Form 10-K for the year ended December 31, 1995).                                          
|     
|10.12 |  | Agreement between US Airways and its President and Chief Executive Officer 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).   



110



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##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|10.13 |  | Agreement between US Airways and its President and Chief Executive Officer with
respect to certain employment arrangements effective July 25, 2002 (incorporated by reference to Exhibit 10.1 to US Airways Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).                         
|     
|10.14 |  | Agreement between US Airways and its Executive Vice PresidentFinance and Chief
Financial Officer with respect to certain employment arrangements effective April 8, 2002.                                                                                                                                   
|     
|10.15 |  | Agreement between US Airways and its Executive Vice PresidentFinance and Chief
Financial Officer with respect to certain employment arrangements effective July 25, 2002.                                                                                                                                   
|     
|10.16 |  | Agreement between US Airways and its Executive Vice PresidentCorporate Affairs
and General Counsel with respect to certain employment arrangements effective July 25, 2002 (incorporated by reference to Exhibit 10.2 to US Airways Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
|     
|10.17 |  | Agreement between US Airways and its Executive Vice PresidentOperations with
respect to certain employment arrangements effective July 25, 2002.                                                                                                                                                            
|     
|10.18 |  | Agreement between US Airways and its Senior Vice PresidentEmployee Relations
with respect to certain employment arrangements effective April 8, 2002.                                                                                                                                                       
|     
|10.19 |  | Agreement between US Airways and its Senior Vice PresidentEmployee Relations
with respect to certain employment arrangements effective July 25, 2002.                                                                                                                                                       
|     
|10.20 |  | Agreement between US Airways and its former Chairman providing supplemental
retirement benefits (incorporated by reference to Exhibit 10.23 to US Airways Groups Annual Report on Form 10-K for the year ended December 31, 1995).                                                                          
|     
|10.21 |  | Amendment No. 1 to the agreement between US Airways and its former Chairman providing
supplemental retirement benefits (incorporated by reference to Exhibit 10.27 to US Airways Groups Annual Report on Form 10-K for the year ended December 31, 1998).                                                   
|     
|10.22 |  | Amendment No. 2 to the agreement between US Airways and its former Chairman providing
supplemental retirement benefits effective January 16, 2002 (incorporated by reference to Exhibit 10.55 to US Airways Annual Report on Form 10-K for the year ended December 31, 2001).                                
|     
|10.23 |  | Agreement between US Airways and its President and Chief Executive Officer providing
supplemental retirement benefits effective March 11, 2002 (incorporated by reference to Exhibit 10.56 to US Airways Annual Report on Form 10-K for the year ended December 31, 2001).                                   
|     
|10.24 |  | Agreement between US Airways and Executive Vice PresidentFinance and Chief
Financial Officer providing supplemental retirement benefits effective April 8, 2002.                                                                                                                                            
|     
|10.25 |  | Agreement between US Airways and Executive Vice PresidentOperations providing
supplemental retirement benefits effective July 17, 2002.                                                                                                                                                                     



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|      |  |                                                                                                                                                                                
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|10.26 |  | Agreement between US Airways and Senior Vice PresidentEmployee Relations
providing supplemental retirement benefits effective April 8, 2002.                                  
|     
|23.1  |  | Consent of the Auditors 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.                                                                         
|     
|99.1  |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.                                                        



B.
Reports on Form 8-K



|Date of Report    |  | Subject of Report                                                                                                                                                                                                                         
|----------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 
|March 20, 2003    |  | News release disclosing the deferral of payments on certain Airbus aircraft, the failure to meet a financial covenant
of the RSA DIP Facility and managements rejection of the latest ALPA proposal regarding a replacement pension plan.
|                 
|March 18, 2003    |  | News release disclosing confirmation of the Plan of Reorganization.                                                                                                                                                                       
|                 
|March 18, 2003    |  | US Airways Group, Inc. disclosed certain forward-looking information in a slide presentation before the United States
Bankruptcy Court for the Eastern District of Virginia, Alexandria Division.                                         
|                 
|March 7, 2003     |  | News release disclosing US Airways Inc. made cure payments related to its deferral of payments due on its pass through
trust certificates related to 23 Airbus aircraft.                                                                  
|                 
|March 5, 2003     |  | News release disclosing February 2002 performance for US Airways Group, Inc. and US Airways, Inc. including certain
forward looking information.                                                                                          
|                 
|March 3, 2003     |  | News release disclosing US Airways, Inc.s deferral of payments due on its pass through trust certificates
related to 23 Airbus aircraft.                                                                                                 
|                 
|February 27, 2003 |  | Monthly operating report for US Airways Group, Inc. for the period January 1, 2003 through January 31, 2003, as filed
with the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division.                  
|                 
|February 21, 2003 |  | US Airways Group, Inc. disclosed certain forward-looking information in a slide presentation before the United States
Bankruptcy Court for the Eastern District of Virginia, Alexandria Division.                                         
|                 
|February 20, 2003 |  | News release disclosing US Airways, Inc.s deferral of payments of public debt instruments related to five Airbus
A330 aircraft totaling $19.7 million.                                                                                   
|                 
|February 11, 2003 |  | News release disclosing the Air Transportation Stabilization Board (ATSB) approval of US Airways application for
a $900 million loan guarantee subject to certain conditions.                                                            



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|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 
|February 5, 2003  |  | News release disclosing January 2003 performance for US Airways Group, Inc. and US Airways, Inc. including certain
forward looking information.                                                                                                                                                                                                                                                                                                                                               
|                 
|February 3, 2003  |  | Monthly operating report for US Airways Group, Inc. for the period December 1, 2002 through December 31, 2002, as
filed with the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division, and a news release disclosing results of operations for both US Airways Group, Inc. and US Airways, Inc. for the three months and
twelve months ended December 31, 2002, and selected operating and financial statistics for US Airways, Inc. for the same periods.
|                 
|January 31, 2003  |  | Amended Joint Plan of Reorganization and Disclosure statement with Respect to Joint Plan of Reorganization for US
Airways Group, Inc. and certain subsidiaries, as filed with the Bankruptcy Court for the Eastern District of Virginia, Alexandria Division.                                                                                                                                                                                                                                 
|                 
|January 30, 2003  |  | News release disclosing US Airways, Inc.s filing for termination of the pilot defined benefit pension plan and
plans to replace it with a new pilot defined contribution pension plan.                                                                                                                                                                                                                                                                                                       
|                 
|January 6, 2003   |  | Monthly operating report for US Airways Group, Inc. for the period November 1, 2002 through November 30, 2002, as
filed with the Bankruptcy Court for the Eastern District of Virginia, Alexandria Division, and a news release disclosing December 2002 performance for US Airways Group, Inc. and US Airways, Inc.                                                                                                                                                                          
|                 
|December 20, 2002 |  | Joint Plan of Reorganization and Disclosure statement with Respect to Joint Plan of Reorganization for US Airways
Group, Inc. and certain subsidiaries, as filed with the Bankruptcy Court for the Eastern District of Virginia, Alexandria Division.                                                                                                                                                                                                                                         
|                 
|December 6, 2002  |  | News release disclosing November 2002 performance for US Airways Group, Inc. and US Airways, Inc. including certain
forward looking information.                                                                                                                                                                                                                                                                                                                                              
|                 
|December 2, 2002  |  | Monthly operating report for US Airways Group, Inc. for the period October 1, 2002 through October 31, 2002, as filed
with the Bankruptcy Court for the Eastern District of Virginia, Alexandria Division.                                                                                                                                                                                                                                                                                    
|                 
|November 26, 2002 |  | News release disclosing US Airways, Inc.s furlough of 2,500 employees in connection with its restructuring
plan.                                                                                                                                                                                                                                                                                                                                                                             
|                 
|November 18, 2002 |  | News release announcing the official designation of the Retirement Systems of Alabama as equity sponsor in US Airways
Group, Inc.s reorganization plan.                                                                                                                                                                                                                                                                                                                                      



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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 March 26, 2003.



US Airways, Inc. (registrant)



|By: |  | /s/    DAVID N.
SIEGEL                                                                       
|--- |  | ---------------------------------------------------------------------------------------------
|    |  | David N. Siegel,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 in the capacities indicated, on March 26, 2003.



|By: |  | /s/    DAVID N.
SIEGEL                                                                       
|--- |  | ---------------------------------------------------------------------------------------------
|    |  | David N. Siegel,Director, President and Chief Executive Officer (Principal
Executive Officer)
|   
|By: |  | /s/    NEAL S.
COHEN                                                                         
|    |  | Neal S. Cohen,Chief Financial Officer(Principal Financial
Officer)                           
|   
|By: |  | /s/    ANITA P.
BEIER                                                                        
|    |  | Anita P. Beier,Vice President and Controller(Chief Accounting
Officer)                       
|   
|By: |  | *                                                                                            
|    |  | Stephen M. Wolf,Director and Chairman                                                        
|   
|By: |  | *                                                                                            
|    |  | Mathias J. DeVito,Director                                                                   
|   
|By: |  | *                                                                                            
|    |  | Peter M. George,Director                                                                     
|   
|By: |  | *                                                                                            
|    |  | Robert L. Johnson,Director                                                                   
|   
|By: |  | *                                                                                            
|    |  | Robert LeBuhn,Director                                                                       
|   
|By: |  | *                                                                                            
|    |  | John G. Medlin, Jr.,Director                                                                 



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|By: |  | *                                 
|--- |  | ----------------------------------
|    |  | Hanne M. Merriman, Director       
|   
|By: |  | *                                 
|    |  | Thomas H. OBrien, Director       
|   
|By: |  | *                                 
|    |  | Hilda Ochoa-Brillembourg, Director
|   
|By: |  | *                                 
|    |  | Richard B. Priory, Director       
|   
|By: |  | *                                 
|    |  | Raymond W. Smith, Director        
|   
|By: |  | /s/    NEAL S. COHEN              
|    |  | Neal S. Cohen, Attorney-In-Fact   



|* |  | Signed pursuant to power of attorney filed herewith.
|- |  | ----------------------------------------------------



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Certifications



Certification of the Principal Executive Officer

Pursuant to 15 U.S.C. 78m(a) or 78o(d)

(Section 302 of the Sarbanes-Oxley Act of 2002)



I, David N. Siegel, President and Chief Executive Officer of US Airways, Inc. (the Company), certify that:



(1) I have reviewed this annual report on Form 10-K of the
Company;



(2) Based on my knowledge, this annual
report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this annual report;



(3) Based on my
knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods
presented in this annual report;



(4) The
Companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:



(a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



(b) evaluated the effectiveness of the Companys
disclosure controls and procedures as of a date within 90 days prior to the filing of this annual report (Evaluation Date); and



(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;



(5) The
Companys other certifying officer and I have disclosed, based on our most recent evaluation, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent function):



(a) all significant deficiencies in the design
or operation of internal controls which could adversely affect the Companys ability to record, process, summarize and report financial data and have identified for the Companys auditors any material weaknesses in internal controls; and



(b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the Companys internal controls; and



(6) The Companys other certifying officer and I have indicated in this annual report whether or not there were any significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.



|      
|------
|By:   
|Name: 
|Title:
|Date: 



116



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Certification
of the Principal Financial Officer

Pursuant to 15 U.S.C. 78m(a) or 78o(d)

(Section 302 of the Sarbanes-Oxley Act of 2002)



I, Neal S. Cohen, Chief Financial Officer of US Airways, Inc. (the Company), certify that:



(1) I have reviewed this annual report on Form 10-K of the Company;



(2) Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual
report;



(3) Based on my knowledge, the financial
statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual
report;



(4) The Companys other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:



(a) designed such disclosure controls and procedures to ensure that material information relating to the
Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



(b) evaluated the effectiveness of the Companys disclosure controls and procedures as of a date within
90 days prior to the filing of this annual report (Evaluation Date); and



(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



(5) The Companys other certifying officer and I have
disclosed, based on our most recent evaluation, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent function):



(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Companys ability to record, process, summarize and report financial data and have identified for the Companys auditors any material weaknesses in internal controls; and



(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Companys internal controls; and



(6) The Companys other certifying officer and I have indicated in this annual report whether or not there were any significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.



|      
|------
|By:   
|Name: 
|Title:
|Date: 



117