<PAGE>
                          UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION
                      Washington, D. C. 20549

                           FORM 10-K

                FOR ANNUAL AND TRANSITION REPORTS
             PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
                  SECURITY EXCHANGE ACT OF 1934

       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934
           For the fiscal year ended December 31, 1996
 
              ------------------------------------



                      US Airways Group, Inc.
                   (Formerly USAir Group, Inc.)
                 (Commission file number:  1-8444)

                               and

                        US Airways, Inc.
                     (Formerly USAir, Inc.)
               (Commission file number:  1-8442)
    (Exact names of registrants as specified in their charters)


       Delaware             US Airways Group, Inc.    54-1194634
(State of incorporation     US Airways, Inc.          53-0218143
  of both registrants)      (I.R.S. Employer Identification Nos.)


                     US Airways Group, Inc.
          2345 Crystal Drive, Arlington, Virginia 22227
           (Address of principal executive offices)
                        (703) 872-5306
                (Registrant's telephone number)


                      US Airways, Inc.
           2345 Crystal Drive, Arlington, Virginia 22227
              (Address of principal executive offices)
                       (703) 872-7000
                 (Registrant's telephone number)


<PAGE>

     Securities registered pursuant to Section 12(b) of the Act:

                                          Name of each exchange
    Registrant    Title of each class      on which registered
    ----------    -------------------    ---------------------

US Airways        Common Stock,            New York Stock
Group, Inc.       par value $1.00          Exchange
                  per share

                  Depositary Shares,       New York Stock
                  each representing        Exchange
                  1/100 of a share of
                  $437.50 Series B
                  Cumulative Convertible
                  Preferred Stock

     Indicate by check mark whether the registrants (1) have 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 and 
(2) have 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 in this 
Form 10-K, and will not be contained, to the best of the 
registrants' 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]

     The aggregate market value of the voting stock of US Airways 
Group, Inc. held by non-affiliates on February 28, 1997 was 
approximately $2,056,729,000. On February 28, 1997, there were 
outstanding approximately 64,347,000 shares of Common Stock of US 
Airways Group, Inc. and 1,000 shares of Common Stock of US 
Airways, Inc.

     The registrant US Airways, Inc. meets the conditions set 
forth in General Instructions J(1)(a) and (b) of Form 10-K and is 
therefore participating in the filing of this form in the reduced 
disclosure format permitted by such Instructions.

Item of Form 10-K             Document Incorporated By Reference
------------------            -----------------------------------

Part III, Items 10, 11,       Proxy Statement* (excluding         
12 and 13                     therefrom the subsections entitled
                              "Report of the Compensation and
                              Benefits Committee of  the Board of
                              Directors" and "Performance Graph")

*   Refers to the definitive Proxy Statement of US Airways Group,
    Inc., to be filed pursuant to Regulation 14A, relating to the
    Annual Meeting of Stockholders of US Airways Group, Inc. to be
    held on May 21, 1997.

<PAGE>

                     US AIRWAYS GROUP, INC.
                              AND
                        US AIRWAYS, INC.
                           FORM  10-K
                  YEAR ENDED DECEMBER 31, 1996

                       TABLE OF CONTENTS


Part I                                                     PAGE

  Item 1.   Business                                        1

   General Information                                      1
   Strategy                                                 2
   Current Industry Conditions                              4
   Industry Regulation and Airport Access                   5
   Relationship with British Airways                        8
   British Airways Investment Agreement                     9
   DOT Order Regarding British Airways' Investment
       in US Airways Group                                  10
   Board of Directors Representation                        10
   U.K.-U.S. Routes                                         11
   Code Sharing and Other Commercial Arrangements           11
   Terms of the Series C Preferred Stock and the 
       Series E Preferred Stock                             12
   Certain Aspects of the Second and Final Purchase         12
   Miscellaneous                                            12
   Payments of Dividends on Senior Preferred Stock          13
   Employees                                                14
   Executive Officers                                       14
   Status of US Airways' Labor Agreements                   16
   Frequent Traveler Program                                18
   Computerized Reservation Systems                         19
   Aviation Fuel                                            19
   Insurance                                                20
   Operating Statistics                                     21

  Item 2.   Properties                                      22

   Flight Equipment                                         22
   Ground Facilities                                        23
   Terminal Construction Projects                           24

  Item 3.   Legal Proceedings                               24

  Item 4.   Submission of Matters to a Vote of 
               Security Holders                             26





<PAGE>

                       TABLE OF CONTENTS
                          (Continued)


Part II                                                    PAGE 

  Item 5A.   Market for US Airways Group's 
                Common Equity and Related 
                Stockholder Matters                         26

  Item 5B.   Market for US Airways' Common Equity
                and  Related Stockholder
                Matters                                     28

  Item 6.    Selected Financial Data                        29

  Item 7.    Management's Discussion and Analysis of 
                Financial Condition and
                Results of Operations                       31

  Item 8A.   Consolidated Financial Statements and 
                Supplementary Information 
                for US Airways Group, Inc.                  56

  Item 8B.   Consolidated Financial Statements and 
                Supplementary Information 
                for US Airways, Inc.                        102

  Item 9.    Changes In and Disagreements with 
                Accountants on Accounting and 
                Financial Disclosure                        136

Part III

  Item 10.   Directors and Executive Officers of  
                US Airways Group, Inc.                      137

  Item 11.   Executive Compensation                         137

  Item 12.   Security Ownership of Certain Beneficial 
                Owners and Management                       137

  Item 13.   Certain Relationships and Related 
                Transactions                                137

Part IV

  Item 14.   Exhibits, Financial Statement Schedules
                and Reports on Form 8-K                     138

Signatures   US Airways Group, Inc.                         144
             US Airways, Inc.                               146

<PAGE>
                           PART I


ITEM 1.  BUSINESS

GENERAL INFORMATION

     US Airways Group, Inc. ("US Airways Group" or the "Company") 
is a corporation organized under the laws of the State of 
Delaware. The Company's executive offices are located at 2345 
Crystal Drive, Arlington, Virginia 22227 (telephone number (703) 
872-5306). Effective February 21, 1997, USAir Group, Inc. changed 
its name to US Airways Group, Inc. and USAir, Inc. ("USAir") 
changed its name to US Airways, Inc. ("US Airways"). USAir's 
operations are now conducted under the name US Airways.

     US Airways Group's primary business activity is ownership of 
all the common stock of US Airways, Allegheny Airlines, Inc. 
("Allegheny"), Piedmont Airlines, Inc. ("Piedmont"), PSA 
Airlines, Inc. ("PSA"), USAir Fuel Corporation ("Fuel Corp."), 
USAir Leasing and Services, Inc. ("USAir Leasing and Services") 
and Material Services Company, Inc. US Airways' accounts include 
its wholly-owned subsidiary USAM Corp. ("USAM"). The OR Group, 
Inc. (the "OR Group") was a wholly-owned subsidiary of US Airways 
Group incorporated in February 1996 and dissolved in the fourth 
quarter of 1996. The OR Group provided resource allocation 
consulting services and decision-making support systems to US 
Airways, which assumed these activities upon OR Group's 
dissolution. 
 
     US Airways, a certificated air carrier engaged primarily in 
the business of transporting passengers, property and mail, is 
the Company's principal operating subsidiary, and accounted for 
approximately 92% of US Airways Group's operating revenues for 
the fiscal year ended December 31, 1996. US Airways enplaned 56.9 
million passengers in 1996 and is the fifth largest United States 
air carrier ranked by revenue passenger miles ("RPMs") flown. As 
of December 31, 1996, US Airways provided regularly scheduled jet 
service through 110 airports to approximately 145 cities in the 
continental U.S., Canada, Mexico, France, Germany, Italy, Spain 
and the Caribbean. US Airways' executive offices are located at 
2345 Crystal Drive, Arlington, Virginia 22227 (telephone number 
(703) 872-7000). 

     A substantial portion of US Airways' operations are located 
in the Eastern United States (that region of the United States 
east of the Mississippi River). US Airways' primary connecting 
hubs are located at the Pittsburgh, Charlotte/Douglas, 
Philadelphia and Baltimore/Washington Inter-national ("BWI") 
Airports, and US Airways also maintains significant operations at 
major airports in Boston, New York City (LaGuardia Airport or 
"LaGuardia") and Washington, D.C.'s National Airport ("Washington 
National"). Measured by departures, US Airways is the largest or 
second largest airline at each of the foregoing airports and is 
the predominant air carrier in many smaller eastern cities, such 
as Albany, Buffalo, Hartford, Providence, Richmond, Rochester and 
Syracuse. In addition, US Airways is the leading airline from the 
Northeast U.S. to Florida. US Airways currently has approximately 
85% of its daily departures and approximately 58% of its capacity 
(available seat miles or "ASMs") deployed in the Eastern U.S.

     US Airways code shares with ten regional airlines operating 
under the "US Airways Express" trade name (formerly doing 
business as "USAir Express"). US Airways Group owns three of the 
US Airways Express air carriers - Piedmont, Allegheny, and PSA. 
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). Through service agreements US 
Airways provides
                                1
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reservations and, at certain stations, ground support services, 
in return for service fees. The US Airways Express network feeds 
traffic into US Airways' route system at several points, 
including its major hub operations at Pittsburgh, Charlotte, 
Philadelphia and BWI. As of December 31, 1996, US Airways Express 
served 174 airports in the United States, Canada and the Bahamas, 
including 72 also served by US Airways. During 1996, US Airways 
Express air carriers enplaned 10.6 million passengers (including 
5.6 million passengers enplaned by Piedmont, PSA and Allegheny), 
approximately half of whom connected to US Airways flights. 
During the fourth quarter of 1996, US Airways began purchasing 
all of the capacity generated by the Company's three wholly-owned 
regional airlines in exchange for all of their transportation 
revenues. The program, which has no effect on the Company's 
Consolidated Financial Statements, is discussed in Part II, Item 
7, "Management's Discussion and Analysis of Financial Condition 
and Results of Operations."

     US Airways also has a management agreement and code shares 
with Shuttle, Inc. operating as "US Airways Shuttle" (formerly 
doing business as "USAir Shuttle"). The US Airways Shuttle 
operates frequent service between LaGuardia and Boston and 
between LaGuardia and Washington National. In 1992, US Airways 
reached an agreement (the "Management Agreement") with the 
consortium of banks (the creditors of the former Trump Shuttle) 
which own Shuttle, Inc. (the "Shuttle") to manage the Shuttle's 
operations under the name "USAir" or any other name the Company 
determines for a period of up to ten years. The Company also has 
an exclusive option, which became effective October 10, 1996 and 
expires April 9, 1997, to purchase all of the debt and equity of 
the Shuttle. The Company has a right of first refusal with 
respect to the purchase of all outstanding shares and warrants of 
the Shuttle until the termination of the Management Agreement. In 
addition, the Company has a right of first refusal with respect 
to the purchase of substantially all of the assets of the Shuttle 
commencing on April 10, 1997 until the termination of the 
Management Agreement.

     US Airways is in the process of terminating its relationship 
with British Airways plc ("British Airways") including the code 
sharing agreement between the companies effective March 29, 1997 
and certain other commercial arrangements. See "British Airways 
Investment Agreement," and "Code Sharing and Other Commercial 
Arrangements" for additional information.

     The Company's second quarter financial results have 
historically been its strongest due to US Airways' combination of 
business traffic and North-South leisure traffic in the Eastern 
U.S. during that period.

STRATEGY

     In January 1996, the Company's and US Airways' boards of 
directors elected Stephen M. Wolf as Chairman of the Board and 
Chief Executive Officer. During February 1996, Rakesh Gangwal was 
elected President and Chief Operating Officer and Lawrence M. 
Nagin was elected Executive Vice President of Corporate Affairs 
and General Counsel of both companies. The new senior management 
team is focusing on addressing US Airways' high cost structure, 
particularly with respect to personnel costs, and has embarked on 
other measures to improve US Airways' competitive position in 
today's highly competitive airline industry environment. These 
other measures include improving and standardizing US Airways' 
product, revamping US Airways' market image and focus, increasing 
international service and rationalizing US Airways' operating 
aircraft fleet.

Addressing US Airways' High Cost Structure - US Airways has the 
highest cost structure of all major domestic air carriers. US 
Airways has been able to reduce costs in certain expense 
categories, but has not been successful in
                                2
<PAGE>
its efforts to reduce costs in its largest expense category - 
Personnel costs. The Company is committed to obtaining a 
significant reduction in US Airways' unit labor costs (see also 
Part II, Item 7, "Management's Discussion and Analysis of 
Financial Condition and Results of Operations" which includes 
additional information related to the Company's ongoing 
negotiations with US Airways' organized labor groups). With 
respect to non-labor cost reductions, for example, US Airways 
imposed limits on the base commissions it pays travel agents for 
domestic air fares beginning in the first quarter of 1995. US 
Airways has experienced cost savings due to the new commissions 
limits (see also Part I, Item 3 "Legal Proceedings").

Improving and Standardizing US Airways' Product - US Airways' 
recent name change signals the expanding reach of US Airways' 
route structure and its changing image. Coinciding with the name 
change, the livery of US Airways' aircraft is being enhanced and 
aircraft interiors upgraded and standardized. New products and 
features, such as a new international business class called "Envoy 
Class" and personal in-seat video systems, will be added in an 
effort to attract more business travelers and improve US Airways' 
image in the marketplace. US Airways is in the process of 
equipping all of its aircraft with in-flight phones and further 
expanding first class cabins and replacing first class seats on 
select aircraft. In addition, US Airways' airport lounges are 
being enhanced and, in some cases, expanded. 

Revamping US Airways' Market Image and Focus - US Airways has also 
undertaken steps to increase its level of on-time performance and 
improve in other key industry performance measurements (as 
compiled and reported by the U.S. Department of Transportation 
("DOT")). For October 1996, US Airways ranked first in on-time 
performance among major domestic air carriers for the first time 
in its history, despite setting a company single-month load factor 
record during that month. US Airways finished first in on-time 
performance among major domestic air carriers for the fourth 
quarter of 1996. During that quarter, US Airways also ranked first 
in fewest damaged or lost baggage complaints, fewest reservations 
complaints and was second overall in fewest complaints of all 
types. In April 1996, US Airways introduced electronic ticketing, 
or "ticketless travel," as an option for customers traveling 
within the U.S. on US Airways or US Airways Express. Electronic 
ticketing enables a customer to book a flight through US Airways' 
reservations system or certain travel agencies and receive a 
confirmation number instead of a paper ticket. The Company 
believes that electronic ticketing enhances customer convenience 
and helps to reduce US Airways' distribution costs. Customer 
response to electronic ticketing has been favorable and customer 
use of electronic ticketing has increased since its introduction. 
In October of 1995, US Airways introduced personal computer 
software that enables certain high-volume customers to engage in 
self-service travel booking. User response has been favorable.

Increasing International Service - During 1996, US Airways' 
transatlantic capacity increased 55.4% versus 1995 levels (as 
measured by ASMs). US Airways launched new European service to 
Munich, Madrid and Rome during mid-1996 and added additional 
service at Frankfurt during 1996. US Airways has also filed with 
the DOT to serve London's Heathrow Airport from Boston, 
Charlotte, Philadelphia and Pittsburgh. US Airways continues to 
explore additional international opportunities. 

Rationalizing US Airways' Operating Aircraft Fleet - US Airways 
announced in November 1996 that it had entered into an agreement 
with AVSA, S.A.R.L., an affiliate of aircraft manufacturer Airbus 
Industrie ("Airbus"), regarding the acquisition of up to 400 
narrowbody Airbus aircraft. The agreement is part of US Airways' 
long-term strategy of replacing several older, diverse aircraft 
types with newer, more efficient aircraft types based on a similar 
design. The Company believes that the operational and customer 
service benefits of modernizing its fleet outweigh the increased
                                3
<PAGE>
expenses that would be incurred by US Airways with the purchase or 
lease of the new aircraft. The agreement with Airbus remains 
subject to US Airways achieving a competitive cost structure and 
the approval of definitive documentation by US Airways' board of 
directors. In early January 1997, Airbus announced that it could 
not support the delivery of six aircraft tentatively scheduled 
for delivery to US Airways in 1997 due to US Airways' inability 
to affirm the arrangement. Airbus subsequently advised US Airways 
that it was also withdrawing all of US Airways' 1998 and 1999 
firm delivery positions as well as support for the twelve 
aircraft contemplated to be leased in 1998 for similar reasons. 
If US Airways is able to achieve a competitive cost structure it 
may still be able to acquire Airbus aircraft during 1998 and 
1999.

     See "Management's Discussion and Analysis of Financial 
Condition and Results of Operations" for additional information 
related to the Company's current strategy, US Airways' program to 
upgrade and enhance the interiors of its aircraft and US Airways' 
agreement with Airbus.

CURRENT INDUSTRY CONDITIONS

     Demand for air transportation historically has tended to 
mirror general economic conditions. US Airways expects that the 
airline industry will remain extremely competitive for the 
foreseeable future, primarily due to the dramatic change which 
has occurred in industry pricing and has resulted in generally 
lower fares.

     Most of the Company's airline subsidiaries operate in 
competitive markets and experience competition of varying degrees 
with other air carriers and with all forms of surface 
transportation. US Airways competes with at least one major 
airline on most of its routes between major cities. Vigorous 
price competition exists in the airline industry, and competitors 
have frequently offered sharply reduced discount fares in many of 
these markets. Airlines, including US Airways, use discount fares 
and other promotions to stimulate traffic during normally slack 
travel periods, to generate cash flow and to increase relative 
market share in selected markets. Discount and promotional fares 
are often subject to various restrictions such as minimum stay 
requirements, advance ticketing, limited seating and refund 
penalties. 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. 

     The Company recorded net income of $263.4 million for 1996, 
net income of $119.3 million for 1995 and a net loss of $684.9 
million for 1994. This upward trend is primarily attributable to 
favorable capacity and pricing trends in markets served by the 
Company's airline subsidiaries, continued stable domestic economic 
conditions and the positive influence of US Airways' revenue 
enhancement and cost-reduction initiatives. The Company's results 
for 1996, although the best in its history, were dampened by 
substantial year-over-year increases in Personnel costs and 
Aviation fuel expenses. The factors contributing to the Company's 
improved financial performance for 1996, as well as changes in 
certain of the Company's operating expenses such as Personnel 
costs and Aviation fuel, are discussed under "Management's 
Discussion and Analysis of Financial Condition and Results of 
Operations."

     Despite the Company's improved financial results for 1996, 
the competitive threat posed by low cost, low fare competition 
presents a serious challenge to the Company to lower US Airways' 
cost structure to ensure long-term financial viability. US 
Airways currently has low cost, low fare competition overlapping 
approximately 43% of its traffic base, up from approximately 40% 
in early 1995. 
                                4
<PAGE>
     As discussed under "Management's Discussion and Analysis of 
Financial Condition and Results of Operations," "Delta Express," 
a low cost, low fare product offered by Delta Air Lines Inc. 
("Delta"), was introduced on October 1, 1996, and Southwest 
Airlines, Inc. ("Southwest") began service to and from 
Providence, Rhode Island on October 27, 1996. Delta Express 
currently operates between Florida and 10 Northeast and Midwest 
cities. Southwest's service at Providence, which is approximately 
60 miles from Boston, has resulted in some passenger traffic 
being drawn from Boston's Logan International Airport. US Airways 
and its regional airline affiliates have substantial operations 
at Boston's Logan International Airport. Southwest, an air 
carrier centered around low cost operations and a low fare 
structure, first entered Northeast U.S. markets during 1993 by 
adding service to and from BWI. Since that time, Southwest has 
expanded service at BWI, initiated service to Florida from BWI 
(among other locations), launched intra-Florida service and, as 
mentioned above, added service to and from Providence. BWI is one 
of US Airways' hub airports and Northeast-Florida service forms 
one of US Airways' primary leisure markets. The Company estimates 
that US Airways' direct route overlap with Delta Express and 
Southwest is currently 3.9% and 2.8%, respectively (as measured 
by ASMs). However, the Company anticipates that US Airways' route 
overlap with both competitors, as well as the intensity of the 
competitive pressure on US Airways, will increase as Delta 
Express follows its planned doubling of operations in 1997 and 
Southwest allocates additional resources to its new Northeast 
U.S. operations. 

     The Company views Southwest's continued expansion into the 
Eastern U.S. and Delta's ability to establish a low cost, low 
fare operation as serious competitive threats. Both Southwest and 
Delta Express have a significant cost advantage over US Airways. 

     As mentioned under "General Information" above, Eastern U.S. 
operations comprise a substantial portion of US Airways' current 
route structure. Although a competitive strength in some regards, 
the regional concentration of significant operations results in US 
Airways being susceptible to changes in certain regional 
conditions that may adversely affect the Company's financial 
condition and results of operations. The combination of a high 
cost structure and the regional concentration of operations has 
also contributed to US Airways being particularly vulnerable to 
competition from air carriers or operations centered on low costs 
of operations and a low fare structure. US Airways has typically 
responded to the entry of a low cost, low fare competitor into its 
markets by matching fares and increasing the frequency of service 
in related markets, generally with the result of diluting US 
Airways' yield (Passenger transportation revenue per RPM) in these 
markets. In some cases US Airways has responded by reducing 
service in affected markets.

INDUSTRY REGULATION AND AIRPORT ACCESS

     US Airways operates under a certificate of public conve-
nience and necessity issued by the DOT. Such certificate may be 
altered, amended, modified or suspended by the DOT if the public 
convenience and necessity so require, or may be revoked for 
intentional failure to comply with the terms and conditions of a 
certificate. Airlines are also regulated by the United States 
Federal Aviation Administration ("FAA"), a division of the DOT, 
under Subtitle VII of 49 U.S.C. 40101 et seq. (the "Act"), 
primarily in the areas of flight operations, maintenance, ground 
facilities and other technical matters. Pursuant to the Act, US 
Airways has established an FAA approved maintenance program for 
each type of aircraft operated by US Airways that provides for 
the ongoing maintenance of such aircraft, ranging from frequent 
routine inspections to major overhauls.
                                5
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     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 
airports, including the major airports at Boston, Washington, 
D.C., Chicago, Los Angeles, San Diego and San Francisco, 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. 

     In the last several years, the FAA has issued a number of 
maintenance directives and other regulations relating to, among 
other things, retirement of older aircraft, collision avoidance 
systems, airborne windshear avoidance systems, noise abatement 
and increased inspections and maintenance procedures to be 
conducted on older aircraft. 

     Several airports have recently sought to increase 
substantially the rates charged to airlines, and the ability of 
airlines to contest such increases has been restricted by federal 
legislation, DOT regulations and judicial decisions. In addition, 
legislation which became effective June 1, 1992 allows public 
airports to impose passenger facility charges of up to $3 per 
departing or connecting passenger at such airports. With certain 
exceptions, airlines pass these charges on to passengers. 

     The FAA has designated New York's John F. Kennedy and 
LaGuardia, Chicago O'Hare and Washington National airports as 
"high density traffic airports" and has limited the number of 
departure and arrival slots at those airports. Currently, slots 
at the high density traffic airports may be voluntarily sold or 
transferred between carriers. The DOT has in the past reallocated 
slots to other carriers and reserves the right to withdraw slots. 
Various amendments to the slot system, proposed from time to time 
by the FAA, members of Congress and others, could, if adopted, 
significantly affect operations at the high density traffic 
airports or expand slot controls to other airports. Certain of 
such proposals could restrict the number of flights, limit the 
ownership transferability of slots, increase the risk of slot 
withdrawal, or otherwise decrease the value of slots. US Airways 
holds a substantial number of slots at LaGuardia and Washington 
National. These slots are valuable assets and important in US 
Airways' overall business strategy. US Airways cannot predict 
whether any of these proposals will be adopted. 

     The availability of international routes to air carriers is 
regulated by agreements between the U.S. and foreign governments. 
The U.S. has in the past generally followed the practice of 
encouraging foreign governments to accept multiple air carrier 
designation on foreign routes, although certain countries have 
sought to limit the number of air carriers. Foreign route 
authorities may become less valuable to the extent that the U.S. 
and other countries adopt "open skies" policies liberalizing 
entry on international routes. In February 1995, the U.S. and 
Canada reached a formal agreement which deregulates airline 
services between Canada and the United States and provides that 
Canadian airlines have immediate "open skies" access to the 
United States and that U.S. airlines will have limited new route 
rights to Vancouver and Montreal for two years and to Toronto for 
three years and open skies thereafter. This agreement has 
increased passenger traffic between the U.S. and Canada. The 
agreement provided for two new Toronto designations in the first 
year. In October 1995, the DOT granted to US Airways route 
authority for non-stop service between Pittsburgh and Toronto. US 
Airways had previously operated this route under temporary 
exemption authority. On May 1, 1995, the DOT granted to US 
Airways temporary exemption authority to begin twice-daily round-
trip nonstop service between Washington National and Toronto once 
a Canadian air carrier entered that market. Air Canada
                                6
<PAGE>
initiated service on that route in June 1995 and US Airways began 
service in the same  month. US Airways received permanent route 
authority in 1996. The route is open to all carriers in 1998.

     In October 1995, the DOT granted US Airways a two-year 
exemption route authority to operate between Madrid, Spain and 
both Philadelphia and Boston. US Airways commenced service from 
Philadelphia to Madrid in June 1996. In February 1996, the DOT 
issued a show cause order awarding US Airways authority to 
institute service to Rome, Italy from Philadelphia with through 
service from Los Angeles. US Airways inaugurated its service to 
Rome in June 1996. In February 1996, US Airways received final 
approval from the DOT to institute service to Munich, Germany 
from Philadelphia. US Airways inaugurated its Munich service in 
May 1996. US Airways has also filed with the DOT to serve 
London's Heathrow Airport from Boston, Charlotte, Philadelphia 
and Pittsburgh. 

     The Federal excise tax on domestic air transportation was 
reinstated on August 27, 1996, for tickets sold for travel before 
January 1, 1997. This tax, 10% of the cost of an airline ticket, 
had previously expired on January 1, 1996. The Company believes 
that its Passenger transportation revenues were stimulated during 
the period the tax was not in effect - the absence of the tax 
effectively reduced the cost of air travel. The Company cannot 
estimate the dollar impact of the tax expiration on its Passenger 
transportation revenues during the period the tax was not 
collected due to the complexity and number of factors that 
contribute to the Company's performance in this area. This tax 
expired again on January 1, 1997. On February 28, 1997, President 
Clinton signed legislation reinstating the tax for tickets sold 
beginning March 7, 1997 through September 30, 1997. Reinstatement 
of this tax, which could effectively increase the cost of air 
transportation, may dampen demand for air transportation which, 
in turn, may have a material adverse effect on the Company's 
financial condition and results of operations.

     The Company's airline subsidiaries became obligated to pay 
the $.043 per gallon Federal Excise Tax on transportation fuels 
on October 1, 1995. Airlines had a three-year exemption from this 
tax, which became effective during 1992. Attempts to either 
rescind this tax or reinstate the airline exemption continue, 
although these efforts have not been successful to date. US 
Airways cannot predict the ultimate outcome of future attempts to 
either rescind the tax or reinstate the airline exemption. US 
Airways recognized expenses of $43.0 million and $11.9 million as 
a result of this tax during 1996 and 1995, respectively.

     The FAA has proposed new regulations that would require 
flight data recorders that measure more flight parameters than 
most original equipment flight data recorders. The proposed 
regulations, subject to DOT approval, would require the upgraded 
flight data recorders to be installed within four years. The 
proposal, as drafted, would affect US Airways' entire operating 
fleet. The Company estimates that the proposed regulations, if 
adopted, would cost US Airways approximately $20 million over the 
four-year period. The Company cannot predict whether or when the 
proposed regulations will be adopted or if the proposed 
regulations will result in expenditures consistent with the 
Company's current estimate.

     Following the July 1996 accident involving a TWA aircraft 
and speculation that the cause of the accident may have been 
sabotage, President Clinton ordered new security measures related 
to passenger, baggage and cargo screening, particularly with 
respect to international operations. The increased security 
measures have resulted in an increase in the Company's operating 
expenses, although the dollar effect of the new security measures 
is not material. The President also formed a special committee 
which reviewed aviation safety and airport security, as well as 
the air traffic control system. The committee released its final 
report on February 12, 1997. The Committee made several 
recommendations in the areas of safety, air traffic control and 
security. The Company is unable to predict whether any 
                                7
<PAGE>
of the recommendations will be adopted, and if adopted, their 
impact on the Company's financial condition and results of 
operations. Further increases in government-mandated security 
measures may have an adverse effect on the Company's results of 
operations and financial condition depending on the ability of US 
Airways and its regional affiliates to pass through any new 
Federal taxes, surcharges or additional operating expenses to 
customers. Any effective increase in the cost of air 
transportation may dampen passenger and cargo traffic levels 
which could have a material adverse effect on the Company's 
financial condition and results of operations.

     Many aspects of US Airways' operations are subject to 
increasingly stringent federal, state and local laws protecting 
the environment. Future regulatory developments could affect 
operations and increase operating costs in the airline industry, 
including for US Airways.

RELATIONSHIP WITH BRITISH AIRWAYS

     On January 21, 1993, US Airways Group entered into an 
investment agreement (the "Investment Agreement") with British 
Airways. On the same date, British Airways purchased the Series F 
Cumulative Convertible Senior Preferred Stock ("Series F 
Preferred Stock") from the Company for $300 million (see Note 
7(b) to the Company's Consolidated Financial Statements contained 
in Part II, Item 8A of this report for the terms of the Series F 
Preferred Stock). In June 1993, pursuant to certain preemptive 
and optional purchase rights under the Investment Agreement, 
British Airways purchased the Series T Cumulative Convertible 
Exchangeable Preferred Stock ("Series T Preferred Stock" and, 
together with the Series F Preferred Stock, the "BA Preferred 
Stock") from the Company for an aggregate purchase price of 
approximately $100.7 million (see Note 7(c) to the Company's 
Consolidated Financial Statements for the terms of the Series T 
Preferred Stock).

     On March 7, 1994, British Airways announced that it would 
not make any additional investments in the Company until the 
outcome of measures by the Company to reduce costs and improve 
financial results was known. On January 19, 1996, British Airways 
announced that it would not exercise its option to make any 
further investment in US Airways Group prior to the January 21, 
1996 deadline provided in the Investment Agreement. See also 
"British Airways Investment Agreement" below and "Management's 
Discussion and Analysis of Financial Condition and Results of 
Operations."

     On June 11, 1996, British Airways announced a proposed 
"operational merger" with American Airlines, Inc. ("American") 
(the "BA/AA Alliance"). The BA/AA Alliance is currently being 
reviewed by regulatory authorities in the United Kingdom, the 
United States and Europe.

     On July 30, 1996, the Company and US Airways initiated a 
lawsuit in the U.S. District Court for the Southern District of 
New York against British Airways, BritAir Acquisition Corp., 
Inc., American and American's parent company, AMR Corp. The 
Company and US Airways claim that British Airways, in pursuit of 
an alliance with American, is responsible for breaches of 
fiduciary duty to the Company and US Airways and violated certain 
provisions of the Investment Agreement between the Company and 
British Airways. The lawsuit also claims that the defendants are 
in violation of U.S. antitrust laws that prohibit conduct that 
harms competition. Although the defendants filed motions to 
dismiss the lawsuit following the filing of the complaint, these 
motions became superseded on March 5, 1997 when the Company filed 
an Amended Complaint with the Court based on information gathered 
in the pre-trial discovery process. The defendants have informed 
the Company that, in response to the Amended Complaint, they 
intend to file new motions to dismiss shortly.
                                8
<PAGE>
     On December 17, 1996, British Airways delivered a notice (the 
"Sale Notice") to the Company of its intent to sell in one or more 
underwritten public offerings or privately negotiated 
transactions, all of the shares of the BA Preferred Stock. Under 
the Investment Agreement, the Sale Notice triggered (i) a right of 
first offer of the Company to purchase all (or in certain 
circumstances, any portion) of such shares at prices set forth in 
the Sale Notice (the "Right of First Offer") and (ii) a public 
offering registration procedure (the "Public Offering Registration 
Procedure"). The Company did not exercise its right to purchase 
the BA Preferred Stock prior to the expiration of the Right of 
First Offer on February 15, 1997.

     Because the Company elected not to exercise the Right of 
First Offer with respect to the BA Preferred Stock, subject to 
certain limitations, British Airways is free to complete a sale on 
terms no less favorable to British Airways than those set forth in 
the Sale Notice, provided that (i) such sale is closed by August 
14, 1997 (or 180 days following the initial filing of the 
Company's registration statement in conjunction with the Public 
Offering Registration Procedure), (ii) in the case of a public 
offering, the sale price may be higher or lower than the price 
offered in the Sale Notice and (iii) in the case of a privately 
negotiated transaction, the price must be equal to or higher than 
the price offered in the Sale Notice.

     In the Sale Notice, British Airways also exercised the Public 
Offering Registration Procedure under the Investment Agreement to 
cause the Company to use its "reasonable efforts" to register the 
BA Preferred Stock for sale in an underwritten public offering at 
British Airways' request on up to three occasions. The 
registration procedures provide that the Company shall prepare and 
file with the U.S. Securities and Exchange Commission and use its 
reasonable efforts to cause to become effective a registration 
statement under the Securities Act by April 16, 1997, provided, 
however, that the Company's obligation to file a registration 
statement may be deferred in certain circumstances for up to 180 
days.

     As described more fully under "Board of Directors 
Representation," the British Airways representatives have resigned 
from the US Airways Group and US Airways boards of directors. 
Based on such resignations, British Airways may take the position 
that British Airways is no longer an affiliate of US Airways Group 
and, therefore, upon the expiration of the third month following 
such change in status, is able to sell the BA Preferred Stock 
without registration under the Securities Act of 1933 in 
compliance with an exemption thereunder.

BRITISH AIRWAYS INVESTMENT AGREEMENT

     The following summary of certain terms of the Investment 
Agreement is subject to, and is qualified in its entirety by the 
Investment Agreement and the exhibits thereto, which have 
previously been filed with the SEC. British Airways has invested 
approximately $400 million in BA Preferred Stock in accordance 
with the Investment Agreement. Based on the circumstances 
described under "Relationship with British Airways" above, the 
Company does not expect that British Airways will make additional 
investments in US Airways Group. 

     On January 19, 1996, British Airways announced that it would 
not exercise its option to make any further investment in US 
Airways Group prior to the January 21, 1996 deadline provided in 
the Investment Agreement. Under the Investment Agreement, 
assuming the Series F Preferred Stock or any shares issued upon 
conversion thereof were outstanding and British Airways had not 
sold any shares of the BA Preferred Stock or any common stock or 
other securities received upon conversion or exchange of the BA 
Preferred Stock, British Airways was entitled at its option to 
elect to purchase, on or prior to January 21, 1996, 50,000 shares 
of Series C Cumulative Convertible Senior Preferred Stock, without 
par value ("Series C Preferred Stock"), at a purchase price of
                                9
<PAGE>
$10,000 per share, to be paid by British Airways' surrender of the 
Series F Preferred Stock and payment of $200 million (the "Second 
Purchase"). The Investment Agreement provides that, on or prior to 
January 21, 1998, assuming that British Airways had purchased (or 
was purchasing simultaneously in accordance with the terms of the 
Investment Agreement) the Series C Preferred Stock, British 
Airways would have the option to purchase 25,000 shares of Series 
E Cumulative Convertible Exchangeable Senior Preferred Stock, 
without par value ("Series E Preferred Stock"), at a purchase 
price of $10,000 per share (the "Final Purchase"). Because British 
Airways did not elect prior to January 21, 1996 to make the Second 
Purchase, it cannot make the Final Purchase, except that if the 
DOT were to approve all the transactions and acts contemplated by 
the Investment Agreement on or prior to January 21, 1998, the 
Second Purchase and Final Purchase could be consummated under 
certain circumstances at the election of British Airways (provided 
that British Airways had not sold any of the BA Preferred Stock) 
or the Company (provided that the Company had not repurchased or 
redeemed any of the BA Preferred Stock). Because British Airways 
did not elect to make the Second Purchase by January 21, 1996, the 
Company may at its option redeem, in whole or in part, the Series 
F Preferred Stock and a like percentage of Series T Preferred 
Stock at the higher of market value or the price of $10,000 per 
share, plus accrued dividends. Under Delaware law, the Company may 
be subject to certain legal restrictions on its ability to 
repurchase or redeem its own shares of capital stock. Based on the 
circumstances described under "Relationship with British Airways" 
above, the Company does not expect that the Second Purchase and 
Final Purchase will be consummated. In addition, assuming British 
Airways continues to pursue the sale of the BA Preferred Stock in 
accordance with the procedures described below, the Company does 
not expect that it will repurchase or redeem the BA Preferred 
Stock. As of December 31, 1996, the BA Preferred Stock 
constituted approximately 23% of the total voting interest in US 
Airways Group.

DOT ORDER REGARDING BRITISH AIRWAYS' INVESTMENT IN US AIRWAYS 
GROUP

     On March 15, 1993, the DOT issued an order (the "DOT Order") 
finding, among other things, that British Airways' initial 
investment of $300 million does not impair US Airways' citizenship 
under Foreign Ownership Restrictions. However, the DOT instituted 
a proceeding to consider whether US Airways will remain a U.S. 
citizen if the transactions and acts contemplated by the 
Investment Agreement, including the transactions discussed under 
"British Airways Investment Agreement" above, are consummated. The 
DOT has suspended indefinitely the period for comments from 
interested parties to the proceeding pending its resolution of 
requests by other airlines for production of additional documents 
from US Airways. The DOT Order states that the DOT expects and 
advises US Airways Group and British Airways not to proceed with 
the Second Purchase and Final Purchase until the DOT has completed 
its review of US Airways' citizenship. On March 7, 1994, British 
Airways announced that it would make no additional investments in 
US Airways Group until the outcome of measures by US Airways Group 
to reduce its costs and improve its financial results was known 
and on January 19, 1996, British Airways announced that it would 
not proceed with the Second Purchase. On December 17, 1996, 
British Airways delivered the Sale Notice to the Company, 
indicating its intent to sell in one or more underwritten public 
offerings or privately negotiated transactions, all of the shares 
of the BA Preferred Stock.

BOARD OF DIRECTORS REPRESENTATION

      Under the Investment Agreement, US Airways Group must use 
its best efforts to cause British Airways to be proportionally 
represented on US Airways Group's board of directors (on the basis 
of its voting interest), up to a maximum representation of 25% of 
the total number of authorized directors, assuming that such 
proportional representation is permitted by then applicable U.S. 
statutory and DOT regulatory or interpretative restrictions on 
foreign ownership or control of US Airways Group or its securities
                                10
<PAGE>
("Foreign Ownership Restrictions"), generally, until the closing 
of the Second Purchase. On January 28, 1997, the Company received 
notice that British Airways' representatives, Messrs. Ayling, 
Stevens and Maynard, resigned as directors of US Airways Group and 
on February 12, 1997, the Company received notice that such 
individuals resigned as directors of US Airways. In the letter of 
resignation, British Airways waived its current and future rights 
under the Investment Agreement to US Airways Group board 
representation.

U.S. - U.K. ROUTES

     Under the Investment Agreement, US Airways Group agreed that 
as promptly as commercially practicable it would divest or, if 
divestiture were not possible, relinquish, all licenses, 
certificates and authorities for each of its routes between the 
U.S. and the United Kingdom (the "U.K. Routes") at such time as 
British Airways and US Airways implemented the code sharing 
arrangement contemplated by the Investment Agreement discussed 
below. US Airways Group and British Airways agreed that they 
should attempt to mitigate any negative impact on US Airways 
employees or communities served by the U.K. Routes and to share 
any losses suffered as a result of such divestiture or 
relinquishment with due regard to their respective interests. 
Accordingly, British Airways operated and marketed certain routes 
formerly operated by US Airways under a "wet lease." Under the wet 
lease arrangements, US Airways leased three Boeing 767-200ER 
aircraft, along with cockpit and cabin crews, to British Airways 
for three routes between the U.S. and London. US Airways 
terminated the wet lease arrangements with British Airways in a 
phased approach with one of the three 767-200ER aircraft returned 
in December 1995, the second in February 1996 and the third 
aircraft in May 1996. US Airways is using the returned aircraft as 
part of its expansion of international service (see "Strategy" 
above). In conjunction with the termination of the wet lease 
arrangements and related to US Airways' relinquishment or 
divestiture of the U.K. Routes, British Airways agreed to pay US 
Airways a total of $47 million in the form of periodic payments 
commencing with the termination of the three wet leases and 
continuing annually for nine years. The first periodic payment was 
received by US Airways in December 1995. The route authorities 
which US Airways was required to sell or relinquish were the 
Philadelphia-London and BWI-London route authorities purchased by 
US Airways from TWA in April 1992 for $50 million, and its route 
authority between Charlotte and London. See Note 12 to the 
Company's Consolidated Financial Statements for additional 
information related to US Airways' note receivable from British 
Airways. 

CODE SHARING AND OTHER COMMERCIAL ARRANGEMENTS

     British Airways and US Airways Group entered into a code 
share agreement on January 21, 1993 (the "Code Share Agreement") 
pursuant to which certain US Airways flights carry the airline 
designator code of both British Airways and US Airways. These 
flights were intended by US Airways Group and British Airways 
eventually to include all routes provided for under the bilateral 
air services agreement between the U.S. and the U.K. to the extent 
possible, consistent with commercial viability and technical 
feasibility. 

     The DOT initially granted approval of the code sharing 
agreement between US Airways and British Airways on March 17, 1993 
for a period of one year. The authorizations to US Airways and 
British Airways were expanded by a supplemental DOT order on 
November 12, 1993 to permit code sharing on flights serving an 
additional number of U.S. points through additional U.S. gateways 
for British Airways' transatlantic flights. In June 1995, the DOT 
renewed its approval of US Airways' and British Airways' authority 
to operate code share service on flights serving 66 U.S. cities 
and Mexico City. US Airways has ceased serving Mexico City. In 
addition, the DOT approved an expansion of the US Airways/British 
Airways code share authority to 65 new U.S. cities, Bermuda, 
Nassau and 
                                11
<PAGE>
five Canadian cities. The approval is valid for two years. As of 
December 31, 1996, US Airways and British Airways had implemented 
code sharing to 80 of the 138 airports authorized by the DOT. 
British Airways has publicly stated that its relationship with US 
Airways has contributed over $100 million in annual additional 
revenues and cost savings to its financial results. US Airways 
believes that the code share arrangement contributed less than $20 
million annually to its operating revenues.

     On October 24, 1996, US Airways notified British Airways that 
it was terminating the code share and frequent traveler agreements 
between the companies effective March 29, 1997 following British 
Airways decision to enter into an alliance with American. The 
Company does not believe that US Airways' lack of an international 
code share partner will have a material impact on its financial 
condition and results of operations. 

TERMS OF THE SERIES C PREFERRED STOCK AND SERIES E PREFERRED STOCK

     The Series C Preferred Stock and Series E Preferred Stock are 
substantially similar to Series F Preferred Stock, except as 
follows. Series C Preferred Stock will be convertible into shares 
of Class B Common Stock or Non-Voting Class C Stock at an initial 
conversion price of approximately $19.79, subject to Foreign 
Ownership Restrictions. Each share of Series C Preferred Stock 
will be entitled to a number of votes equal to the number of 
shares of Class B Common Stock into which it is convertible, 
subject to Foreign Ownership Restrictions. If shares of Series C 
Preferred Stock are transferred to a third party, they convert 
automatically at the seller's option into either shares of Common 
Stock or a like number of shares of Series G Cumulative 
Convertible Senior Preferred Stock.  Series E Preferred Stock will 
be convertible into shares of Common Stock or Non-Voting Class ET 
Stock at an initial conversion price of approximately $21.74, 
subject to increase if the Series E Preferred Stock is originally 
issued on or after January 21, 1997, subject to Foreign Ownership 
Restrictions (the Series B, Series C and Series ET Common Stock 
are collectively referred to as the "BA Common Stock"). Each share 
of Series E Preferred Stock will be entitled to a number of votes 
equal to the number of shares of Common Stock into which it is 
convertible, subject to Foreign Ownership Restrictions. Based on 
the circumstances described under "Relationship with British 
Airways" above, the Company does not expect to issue the Series C 
or Series E Preferred Stock. 

CERTAIN ASPECTS OF THE SECOND AND FINAL PURCHASE

     Under the Investment Agreement, if the Second Purchase were 
consummated, (i) new classes of US Airways Group common stock 
would be created, (ii) certain changes would be implemented with 
respect to the size of the board of directors of the Company and 
the vote required to approve certain actions, which would have had 
the effect of allowing the British Airways representatives to veto 
certain board actions, (iii) the Company and British Airways would 
integrate certain of their operations, subject to Foreign 
Ownership restrictions and (iv) British Airways would be subject 
to reductions in its voting and governance rights following a 
British Airways transfer of capital stock of the Company. Based on 
the circumstances as described under "Relationship with British 
Airways" above, US Airways does not expect that these changes will 
be implemented. 

MISCELLANEOUS

     Under the terms of the Investment Agreement, British Airways 
has the right to maintain its proportionate ownership of US 
Airways Group's securities under certain circumstances by 
purchasing shares of certain series of Series T Preferred Stock, 
Common Stock or BA Common Stock. Pursuant to these provisions, on 
June 10, 1993, British Airways purchased (i) 152.1 shares of 
Series T-1 Preferred Stock for approximately
                                12
<PAGE>
$1.5 million as a result of certain issuances during the period 
January 21 through March 31, 1993 of Common Stock in connection 
with the exercise of certain employee stock options and to certain 
defined contribution retirement plans; and (ii) 9,919.8 shares of 
Series T-2 Preferred Stock for approximately $99.2 million as a 
result of US Airways Group's issuance on May 4, 1993 of 11,500,000 
shares of Common Stock for net proceeds of approximately $231 
million pursuant to a public underwritten offering. Because 
British Airways partially exercised its preemptive right in 
connection with the Common Stock offering and the offering price 
was below a certain level, the conversion price of the Series F 
Preferred Stock was antidilutively adjusted on June 10, 1993 from 
$19.50 to $19.41 per share. As a result, the Series F Preferred 
Stock is convertible into 15,458,851 shares of Common Stock or 
Non-Voting Class ET Common Stock. British Airways advised US 
Airways Group that it would not exercise its optional purchase 
rights under the Investment Agreement to buy additional series of 
Series T Preferred Stock triggered by issuances of Common Stock of 
US Airways Group pursuant to certain US Airways Group benefit 
plans during 1994, 1995 and 1996. 

     The Investment Agreement also imposes certain restrictions on 
British Airways' right to acquire additional voting securities, 
participate in solicitations with respect to US Airways Group 
securities or otherwise propose or discuss extraordinary 
transactions concerning US Airways Group. These restrictions 
remain in effect as long as British Airways or any of its 
affiliates or associates beneficially owns any BA Preferred Stock, 
T Notes or BA Common Stock, and for two years thereafter.

PAYMENTS OF DIVIDENDS ON SENIOR PREFERRED STOCK

     During August and October of 1996, the Company paid 
dividends of $43.0 million and $40.0 million, respectively, on 
its outstanding Senior Preferred Stock (composed of the Company's 
outstanding Series A, Series F and Series T preferred stock 
issuances; see Notes 7 and 8(c) to the Company's Consolidated 
Financial Statements for a description of each of the Company's 
outstanding preferred stock issuances). Prior to these dividend 
payments, the Company had deferred the payment of dividends on 
all of its outstanding preferred stock issuances effective with 
dividend payments due September 30, 1994. 

     On January 31, 1997, the Company paid additional dividends of 
$50.0 million to holders of the Company's Senior Preferred Stock. 
After this payment, deferred dividend and additional dividends 
(interest) thereon of $27.6 million remained in arrears on the 
Company's Senior Preferred Stock. There can be no assurance when 
or if the Company will make additional dividend payments on its 
Senior Preferred Stock. 

     The Company's outstanding publicly-held Series B Preferred 
Stock is junior to the Company's Senior Preferred Stock and is 
not eligible to receive dividends until the deferred dividends on 
the Senior Preferred Stock are paid-in-full. Under the terms of 
the Series B Preferred Stock, its holders have the right to elect 
two additional directors to the Company's board of directors if 
six quarterly dividend payments are not paid. That right became 
effective on February 15, 1996. The right must be exercised by 
notice of holders of record of 20% or more of the Series B 
Preferred Stock. In April and October 1996, two different groups 
of shareholders representing more than 20% of the Series B 
Preferred Stock shares outstanding notified the Company that they 
wished to exercise their right to elect additional directors. 
However, the shareholders in each of these groups subsequently 
sold their shares prior to fully exercising their rights. To the 
Company's knowledge, there is currently no ongoing effort to elect 
directors under the terms of the Series B Preferred Stock.
                                13
<PAGE>
     Under the terms of the Company's Series A Preferred Stock, 
its holders, currently affiliates of Berkshire Hathaway, Inc. 
("Berkshire"), have the right to elect two additional directors to 
the Company's board of directors after a scheduled dividend 
payment has not been made for thirty days. Berkshire has informed 
the Company that it does not intend to exercise its right at this 
time. 

     See Note 7(d) to the Company's Consolidated Financial 
Statements for additional information with respect to accumulated 
deferred dividends on the Company's outstanding preferred stock 
and "Management's Discussion and Analysis of Financial Condition 
and Results of Operations" for information related to potential 
restrictions on the Company's ability to pay dividends on or 
redeem its capital stock.

EMPLOYEES

     As of December 31, 1996, US Airways Group's subsidiaries 
employed approximately 43,500 full-time equivalent employees. US 
Airways employed approximately 4,800 pilots, 8,800 maintenance 
and related personnel, 10,300 station personnel, 4,000 
reservations personnel, 7,800 flight attendants and 4,500 
personnel in other administrative and miscellaneous job 
categories, while the Company's regional airline subsidiaries and 
other subsidiaries employed approximately 900 pilots, 600 
maintenance and related personnel, 1,000 station personnel, 400 
flight attendants and 400 personnel in other administrative and 
miscellaneous job categories. 

     Approximately 28,200, or 65%, of the employees of US Airways 
Group's subsidiaries are covered by collective bargaining 
agreements with various labor unions, or will be covered by a 
collective bargaining agreement for which negotiations are in 
progress. US Airways' four unions include the Air Line Pilots 
Association ("ALPA") which represents US Airways' pilots, the 
International Association of Machinists and Aerospace Workers (the 
"IAM") which represents US Airways' mechanics and fleet service 
employee groups, the Association of Flight Attendants (the "AFA") 
which represents US Airways' flight attendants and the Transport 
Workers' Union ("TWU") which represents US Airways' flight crew 
training instructors, flight simulator engineers and dispatch 
employees.

EXECUTIVE OFFICERS

     The executive officers of US Airways Group and US Airways as 
of March 14, 1997:

     Name               Age               Position
     ----               ---               --------             
Robert L. Fornaro        44          Senior Vice President -   
                                     Planning, US Airways

Rakesh Gangwal           43          President and Chief
                                     Operating Officer, 
                                     US Airways Group and
                                     US Airways

John W. Harper           56          Senior Vice President -
                                     Finance and Chief 
                                     Financial Officer, US 
                                     Airways Group and US 
                                     Airways

John R. Long, III        48          Executive Vice 
                                     President - Human
                                     Resources, US Airways

Lawrence M. Nagin        56          Executive Vice 
                                     President - Corporate
                                     Affairs and General
                                     Counsel, US Airways
                                     Group and US Airways
              (table continued on following page)
                                14
<PAGE>
              (table continued from previous page)
Robert C. Oaks           61          Senior Vice President -
                                     Operations, US Airways

Nancy R. Rohrbach        50          Vice President - Public
                                     and Community 
                                     Relations, US Airways 
                                     Group, Senior Vice 
                                     President - Public and  
                                     Community Relations, US 
                                     Airways

Stephen M. Wolf          55          Chairman of the Board
                                     and Chief Executive 
                                     Officer, 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 him or her and any other person. Officers are elected 
annually to serve for the following year or until the election 
and qualification of their successors. Messrs. Fornaro, Harper 
and Long have been actively engaged in the business and affairs 
of the Company and US Airways during the past five years. The 
business experience of the officers listed above since at least 
January 1, 1992 is as follows:

     Mr. Fornaro previously held several executive positions at 
Northwest Airlines, Inc. ("Northwest") from August 1988 to 
February 1992. He was Senior Vice President - Market Planning at 
Northwest until his election as Senior Vice President - Planning 
of US Airways in March 1992. 

     Mr. Gangwal was elected President and Chief Operating 
Officer of US Airways Group and US Airways effective February 19, 
1996. Mr. Gangwal came to US Airways from Air France where he had 
been Executive Vice President - Planning and Development since 
November 1994. Mr. Gangwal previously served in a variety of 
management roles at United Air Lines, Inc. ("United") over an 
eleven-year period, culminating in the role of Senior Vice 
President - Planning. 

     Mr. Harper was Senior Vice President - Marketing and 
Information Systems at Axe-Houghton Management (investment 
management) until his election as Vice President and Controller 
of US Airways in December 1991. He was elected Senior Vice 
President - Information Systems of US Airways in October 1992 and 
Senior Vice President - Finance and Chief Financial Officer of US 
Airways Group and US Airways in April 1994. 

     Mr. Long served as Senior Vice President - Administration of 
US Airways until his election as Senior Vice President - Customer 
Operations of US Airways in June 1989. He was elected Senior Vice 
President - Customer Services in March 1991 and Executive Vice 
President - Customer Services in May 1992. Mr. Long was elected 
Executive Vice President - Human Resources in May 1996.

     Mr. Nagin practiced law with Skadden, Arps, Slate, Meagher & 
Flom LLP from August 1994 until he joined US Airways Group and US 
Airways in February 1996. He previously served in several 
executive positions at United and UAL Corp. ("UAL") from 
September 1988 to July 1994, culminating in the role of Executive 
Vice President - Corporate Affairs and General Counsel of United 
and UAL. From 1980-1988, Mr. Nagin was Senior Vice President and 
General Counsel of The Flying Tiger Line Inc. ("Flying Tiger"). 

     General Oaks is a retired United States Air Force General. 
He was commander of the Air Training Command, the service's 
organization responsible for all initial training, including 
flight training, prior to his last post in
                                15
<PAGE>
his 35-year career with the Air Force, as commander of U.S. Air 
Forces in Europe. He retired from the Air Force in 1994 and 
joined US Airways in December 1994 as its Vice President - 
Corporate Safety and Regulatory Compliance. He was elected to his 
present position in August 1995.

     Ms. Rohrbach served as a member of the White House 
legislative liaison team (1981 to 1986) and as Assistant to the 
President and Secretary to the Cabinet (1987 to 1988). In 1989 
and 1990, she was a resident fellow at Harvard University's 
Institute of Politics and a consultant to the Department of 
Energy. She was Assistant Secretary of Labor for Policy during 
1991 and 1992 and a public policy and communications consultant 
during 1993. Ms. Rohrbach was elected Vice President - Public and 
Community Relations of US Airways Group and Senior Vice President 
- Public and Community Relations of US Airways in January 1994. 
 
     Mr. Wolf is Chairman of the Board of Directors and Chief 
Executive Officer of US Airways Group and US Airways and was 
elected to those positions in January 1996. Immediately prior to 
joining US Airways, Mr. Wolf was a senior advisor to the 
investment bank Lazard Freres & Co. From 1987 to July 1994, Mr. 
Wolf was Chief Executive Officer of UAL and United and became 
Chairman of each in 1988. From 1986 to 1987, Mr. Wolf was Chief 
Executive Officer of Tiger International, Inc. and Flying Tiger. 
From 1984 to 1986, Mr. Wolf was President and Chief Executive 
Officer of Republic Airlines, Inc. Prior to that time Mr. Wolf 
held senior management positions at Continental Airlines, Inc., 
Pan American World Airways and American Airlines, Inc. Mr. Wolf 
is a Director of Philip Morris Companies, R.R. Donnelley & Sons 
Co., The Brookings Institution and the Alzheimer's Disease and 
Related Disorders Association. He is also a trustee of 
Northwestern University and Rush-Presbyterian-St. Luke's Medical 
Center.

STATUS OF US AIRWAYS' LABOR AGREEMENTS

     The following table presents the status of US Airways' labor 
agreements as of December 31, 1996:

                                                  Expiration   
                         Approximate   Date       of "No-       
                         Number of     Contract   Furlough"
Union   Class or Craft   Employees     Amendable  Clause
-----   --------------   -----------   ---------  ----------

AFA     flight attendants   7,800      01/01/97 (2) 12/31/96

ALPA    pilots              4,800      05/01/96 (2) 06/30/97

IAM     mechanics and 
        related employees   7,600      10/01/95 (2) 09/30/95

IAM     fleet service 
        employees           5,700 (1)         - (3)        -

TWU     flight crew 
        training instructors   50      10/09/96 (2)        -

TWU     flight simulator 
        engineers              60      08/02/97            -

TWU     dispatch employees    160      09/01/96 (2)        -

(1) Estimated number of employees who will be covered under this 
new contract.

(2) Currently in negotiations.

(3)  Initial contract in negotiation.
                                16
<PAGE>
     The Company is unable to predict how long it will take to 
conclude collective bargaining talks with respect to labor 
contracts that are currently amendable or the eventual outcome of 
these discussions. Such negotiations traditionally take one or 
more years from the time a contract becomes amendable, as 
described in the following paragraph. The Company remains 
committed to obtaining a significant reduction in US Airways' 
unit labor costs and believes that US Airways' long-term 
financial viability depends on its success in further reducing 
its cost of operations. 

     Under the Railway Labor Act, a labor contract does not 
"expire," but rather becomes amendable on a certain date. Thirty 
days prior to that date, either party to the contract may give 
notice to the other of its intention to amend the contract, at 
which point the collective bargaining process begins. If, after a 
period of negotiations, the parties cannot reach an agreement, a 
federal mediator from the National Mediation Board ("NMB") is 
brought in to assist. The process of mediation continues until 
the NMB determines, at its sole discretion, that the parties have 
reached an impasse. At that point, the parties enter a thirty-day 
"cooling-off" period before either party may employ so-called 
"self-help" (e.g., the imposition of contract changes or a 
lockout by the company or a strike by the union). While in 
negotiations and mediation, both parties must observe the status 
quo.

     US Airways' current labor contract with ALPA provides that 
in the event of a "change of control" of US Airways Group or US 
Airways, ALPA will have the right to extend the duration of the 
contract for one, two or three years at its option beyond the 
amendable date of the agreement with across-the-board wage 
increases of 4.5% on each anniversary of the amendable date 
through April 30, 1999. A "change of control" is defined as a 
single transaction or multi-step related transactions through 
which (i) securities which constitute and/or are then currently 
exchangeable into, exercisable for or convertible into 50% or 
more of the outstanding Common Stock (and Common Stock then 
currently issuable upon the exchange, exercise or conversion of 
securities) and/or (ii) 50% or more of the value of the assets of 
US Airways Group or US Airways, are acquired or held by a single 
purchaser or a group of purchasers acting in concert. 

     During 1994, certain unions engaged in efforts to unionize 
US Airways' fleet service employees. The Railway Labor Act 
governs, and the NMB has jurisdiction over, campaigns to unionize 
workers. After the IAM won a runoff election, on July 22, 1994 
the NMB certified the IAM to represent the fleet service 
employees. Under the Railway Labor Act, which governs labor 
relations in the airline industry, US Airways is obligated to 
negotiate a collective bargaining agreement with the IAM 
governing the terms and conditions of employment for the fleet 
service employees. This obligation does not require US Airways to 
agree to any particular term or condition sought by the IAM. As 
the table above indicates, US Airways and the IAM are currently 
negotiating an initial contract covering US Airways' fleet 
service employees. 

     In April 1996, the IAM and the Communications Workers of 
America ("CWA") filed applications with the NMB requesting that 
an election be held among US Airways' passenger service 
employees. On November 12, 1996, the NMB issued a decision 
holding that the CWA, but not the IAM, had submitted a sufficient 
number of authorization cards to warrant an election. The NMB 
mailed ballots to eligible passenger service employees and, after 
counting the ballots on January 30, 1997, found the CWA did not 
receive the majority vote required for certification. The CWA 
filed a challenge to the election results on February 3, 1997. US 
Airways cannot predict the outcome of this challenge.
                                17
<PAGE>
     See "Management's Discussion and Analysis of Financial 
Condition and Results of Operations" for additional information 
related to the Company's current negotiations with US Airways' 
organized labor groups.

FREQUENT TRAVELER PROGRAM

     Under US Airways' Frequent Traveler Program ("FTP"), 
participants generally receive mileage credits equal to the 
greater of actual miles flown or 500 miles, effective May 1, 1995 
(750 miles before May 1, 1995), for each paid flight segment on 
US Airways or US Airways Express, or actual miles flown on one of 
US Airways' FTP airline partners. Participants generally receive 
a minimum of 500 mileage credits, effective May 1, 1995, for each 
paid flight on US Airways Shuttle (1,000 miles prior to May 1, 
1995). Participants flying on first or business class tickets 
generally receive additional credits. Participants may also earn 
mileage credits by utilizing certain credit cards, staying at 
participating hotels, renting cars from participating car rental 
companies and through other means. Mileage credits earned by FTP 
participants, which do not expire under current program 
guidelines, can be redeemed for various travel awards, including 
fare discounts, first class upgrades and tickets on US Airways or 
other airlines participating in US Airways' FTP. Certain awards 
also include hotel and car rental awards. Awards may not be 
brokered, bartered or sold, and have no cash value. 

     US Airways and its airline partners limit the number of 
seats allocated per flight for award recipients through inventory 
management techniques. The number of seats available for frequent 
travelers varies depending upon flight, day, season and 
destination. Award travel for all but US Airways' most frequent 
travelers generally is not permitted on blackout dates, which 
correspond to certain holiday periods in the United States or 
peak travel dates to foreign destinations. US Airways reserves 
the right to terminate the FTP or portions of the program at any 
time, and the FTP rules, partners, special offers, blackout 
dates, awards and mileage levels are subject to change without 
prior notice.

     US Airways accounts for its FTP under the incremental cost 
method, whereby 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, 
liability insurance and denied boarding compensation expenses. No 
profit or overhead margin is included in the accrual for 
incremental costs. The Company periodically reviews the 
assumptions made to calculate its FTP liability for 
reasonableness and makes adjustments to these assumptions as 
necessary. No liability is recorded for airline, hotel or car 
rental award certificates that are to be honored by other parties 
because there is no cost to US Airways for such awards. 

     Effective January 1, 1995, US Airways increased the minimum 
mileage level required for a free domestic flight from 20,000 to 
25,000. FTP participants had accumulated mileage credits for 
approximately 3,715,000 awards and 3,350,000 awards as of 
December 31, 1996 and 1995, respectively, at the 25,000 mile 
level required to earn an award. Because US Airways expects that 
some potential awards will never be redeemed, the calculations of 
the accrued liability for incremental costs as of December 31, 
1996 and 1995 were based on approximately 87% of the accumulated 
credits. Mileage for FTP participants who have accumulated less 
than the minimum number of mileage credits necessary to claim an 
award is excluded from the calculation of the accrual. 
Incremental changes in FTP liability resulting from redeemed or 
additional mileage credits are recorded as part of the regular 
review process.
                                18
<PAGE>
     US Airways' customers redeemed approximately 1.0 million, 
1.2 million and 0.9 million awards for free travel on US Airways 
in 1996, 1995 and 1994, respectively, representing approximately 
6.0%, 9.0% and 7.0% of US Airways' RPMs in those years, 
respectively. US Airways does not believe that usage of FTP 
awards results in any significant displacement of revenue 
passengers. US Airways' exposure to the displacement of revenue 
passengers is not significant, as the number of US Airways 
flights that depart 100% full is minimal. In the second quarter 
of 1996, the quarter when the highest number of free frequent 
traveler trips were flown for the year, for example, fewer than 
8.0% of US Airways' flights departed 100% full. During this same 
quarterly period, approximately 6.0% of US Airways' flights 
departed 100% full and also had one or more passengers on board 
who were traveling on FTP award tickets.

     As discussed under "Code Sharing and Other Commercial 
Arrangements" above, US Airways has notified British Airways that 
it is terminating the frequent traveler relationship between the 
Company and British Airways effective March 29, 1997. 

     US Airways renamed its frequent traveler program "Dividend 
Miles" during February of 1997.

COMPUTERIZED RESERVATION SYSTEMS

     As of December 31, 1996, USAM owned 11% of the Galileo 
International Partnership, approximately 11% of the Galileo Japan 
Partnership and approximately 21% of the Apollo Travel Services 
Partnership.  

     The Galileo International Partnership owns and operates the 
Galileo computer reservation system ("Galileo CRS"). Galileo 
Japan Partnership markets the Galileo CRS in Japan and Apollo 
Travel Services markets the Galileo CRS in the U.S. and Mexico. 
The Galileo CRS is currently the second largest of the four 
computer reservation systems ("CRSs") in the U.S. based on 
revenues generated by travel agency subscribers. A subsidiary of 
United controls 38% of the partnership, and the other partners 
exclusive of US Airways' interest are subsidiaries of British 
Airways, Swissair, KLM Royal Dutch Airlines, Alitalia, Air 
Canada, Olympic Airways, Austrian Airlines, Aer Lingus and TAP 
Air Portugal. 

     CRSs play a significant role in the marketing and 
distribution of airline tickets. Travel agents issue tickets 
which generate the majority of US Airways' passenger revenues. 
Most travel agencies use one or more CRSs to obtain information 
about airline schedules and fares and to book their clients' 
travel.

AVIATION FUEL

     All petroleum product prices continue to be subject to 
unpredictable economic, political and market factors. Also, the 
balance among supply, demand and price has become more reactive 
to world market conditions. Accordingly, the price and 
availability of aviation fuel, as well as other petroleum 
products, continues to be unpredictable. Because aviation fuel 
costs constitute a major expenditure for US Airways, significant 
increases in aviation fuel costs could materially and adversely 
affect US Airways' financial condition and results of operations. 

     US Airways continues to adjust its aviation fuel purchasing 
strategy to take advantage of the best available prices while 
attempting to ensure that supplies are secure. In addition, US 
Airways has entered into agreements to hedge the price of a 
portion of its aviation fuel needs, which may have the net effect 
of increasing or decreasing US Airways' Aviation fuel expense 
(see Note 2 to the Company's
                                19
<PAGE>
Consolidated Financial Statements). See "Industry Regulation and 
Airport Access" above for information related to Federal taxes on 
aviation fuel.

     The following table sets forth statistics about US Airways' 
aviation fuel consumption and cost for each of the last four 
fiscal years: 

                                  Average      Percentage
Fiscal     Gallons     Total      Cost Per     Of Operating
Year       Consumed    Cost (1)   Gallon (1)   Expenses (2)
------     --------    -------    ---------    ------------
          (Millions)  (Millions)
1996         1,107      $709.5     $0.64           9.8%
1995         1,137      $605.0     $0.53           9.0%
1994         1,205      $642.3     $0.53           9.4%
1993         1,161      $677.9     $0.58          10.2%

(1) Cost includes the base cost of aviation fuel and    
transportation charges.

(2) Operating expenses have been adjusted to exclude non-
recurring and unusual items and expenses generated under the 
British Airways wet lease arrangements and the US Airways Express 
capacity purchase program. See "Operating Statistics" below for 
additional information. 

INSURANCE

     US Airways Group and its subsidiaries maintain insurance of 
the types and in amounts deemed adequate to protect themselves 
and their property. Principal coverage includes liability for 
bodily injury to or death of members of the public, including 
passengers; damage to property of US Airways Group, US Airways 
and others; loss of or damage to flight equipment, whether on the 
ground or in flight; fire and extended coverage; and workers' 
compensation and employer's liability. Coverage for environmental 
liabilities is expressly excluded from US Airways Group's and US 
Airways' insurance policies.
              (this space intentionally left blank)
                                20

<PAGE>
<TABLE>
OPERATING STATISTICS

     US Airways' operating statistics during the years 1992 through 1996 are set forth in the following table (1): 
<CAPTION>
Years Ended December 31,               1996            1995            1994            1993             1992
-----------------------                ----            ----            ----            ----             ----
<S>                                  <C>             <C>             <C>             <C>              <C>    
Revenue Passengers
   (Thousands)*                      56,640          56,674          59,495          53,678           54,655
Average Passenger
   Journey (Miles)*                     688             664             638             656              642
Total Revenue Passenger
   Miles ("RPMs")
   (Millions)                        39,220          38,079          38,395          35,529           35,436
RPMs (Millions)*                     38,943          37,618          37,941          35,221           35,097
Total Available Seat 
   Miles ("ASMs")
   (Millions)                        57,208          58,678          61,540          59,841           60,052
ASMs (Millions)*                     56,885          58,163          61,027          59,485           59,667
Passenger Load  Factor (2)*           68.5%           64.7%           62.2%           59.2%            58.8%
Break Even Load
   Factor (3) (5)                     67.9%           64.9%           67.3%           61.7%            63.2%
Passenger Revenue Per
   ASM*                              11.95c          10.78c           9.70c          10.22c            9.70c
Total Revenue Per ASM 
   (4) (5)                           13.19c          11.80c          10.59c          11.04c           10.38c
Cost per ASM (4) (5) (6)             12.69c          11.40c          11.02c          11.12c           10.85c
Yield (Revenue Per RPM)*             17.46c          16.66c          15.61c          17.27c           16.49c
Average Stage Length 
     (Miles)*                           578             560            536              536              516

*    Scheduled service only (excludes charter flights).
c    cents

(1)  Statistics include free frequent travelers and the related miles flown.
(2)  Passenger load factor is the percentage of aircraft seating capacity that is actually utilized (RPMs/ASMs). 
(3)  Break even load factor represents the percentage of aircraft seating capacity that must be utilized, based on fares 
in effect during the period, for US Airways to break even at the pre-tax income level, adjusted to exclude non-recurring 
and unusual items.
(4)  Adjusted to exclude non-recurring and unusual items.
(5)  Financial statistics for 1996, 1995, 1994 and 1993 exclude revenues and expenses generated under the British 
Airways wet lease arrangement. Financial statistics for 1996 also exclude revenues and expenses generated under the US 
Airways Express capacity purchase program (see "Management's Discussion and Analysis of Financial Condition and Results 
of Operations" for additional information).
(6)  Certain statistics have been recalculated to reflect expense reclassifications.

</TABLE>
                                21


<PAGE>
ITEM 2.  PROPERTIES

FLIGHT EQUIPMENT

     As of December 31, 1996, US Airways operated the following 
jet aircraft:

                Passenger   Average  
Type            Capacity    Age     Owned(1) Leased(2) Total
----            ---------   ------- -------- --------- -----  
                           (Years)

Boeing 767-200ER     210       7.5     5       7         12
Boeing 757-200       182       6.2    23      11         34
Boeing 737-400       145       7.0    19      35         54
McDonnell Douglas
  MD-80              141      14.8    15      16         31
Boeing 737-300       127       9.7    11      74         85
Boeing 737-200       110      14.7    52      12         64
Douglas DC-9-30      101      23.1    50      12         62
Fokker 100            98       6.1    36       4         40
Fokker F28-4000       68      11.8     1       7          8
                              ----   ---     ---        ---
                              12.0   212     178        390
                             =====   ===     ===        ===

(1) Of the owned aircraft, 106 were pledged as collateral for 
various secured financing obligations aggregating $2.1 billion as 
of December 31, 1996. 

(2) The terms of the leases expire between 1997 and 2015. US 
Airways purchased two DC-9-30 aircraft upon lease expiry in 
January 1997.

     As of December 31, 1996, the Company's three wholly-owned 
regional airline subsidiaries operated the following turboprop 
aircraft:

            Passenger   Average
Type        Capacity      Age       Owned   Leased (1) Total
----        ---------   -------     -----   ---------  -----
                        (Years)
de Havilland
  Dash 7         50        15.5        1 (2)    2         3
de Havilland
  Dash 8         37         6.4       29       53        82
Dornier 328-110  32         1.3        -       25        25
                            ---       --       --       --- 
                            5.5       30       80       110
                            ===       ==       ==       ===

(1)  The terms of the leases expire between 1997 and 2012.

(2) One of the Company's regional airline subsidiaries is party to 
an agreement under which it has the option to require a third 
party to purchase this aircraft beginning in March 1997 and 
extending 22 months.

     US Airways is a party to purchase agreements with Boeing and 
Rolls Royce that provide for the future acquisition of new jet 
aircraft and jet engines. As of December 31, 1996, the Company's 
regional airline subsidiaries, collectively, were party to 
agreements related to the acquisition by lease of up to eighteen 
additional turboprop aircraft. See Note 4(d) to the Company's 
Consolidated Financial Statements for additional information 
regarding outstanding commitments and options for the purchase of 
flight equipment. The Company's airline subsidiaries maintain 
inventories of spare engines, spare parts, accessories and other 
maintenance supplies sufficient to meet their operating 
requirements.
                                22
<PAGE>
     As of December 31, 1996, the Company's airline subsidiaries, 
principally US Airways, owned or leased the following aircraft 
which were not considered part of the operating fleets presented 
in the tables above. These aircraft were either parked in storage 
facilities or, as shown in the far right column, leased or 
subleased to third parties.

             Average                                 Leased/
Type         Age     Owned (1)  Leased (2) Total   Subleased
----         ------- ---------  ---------- -----   ---------
            (Years)    
British
 Aerospace
 BAe-146-200   11.7      1          17        18        13
Boeing 
 737-200       27.8     11           -        11        10
Douglas 
 DC-9-30 (3)   28.5      4           2         6         -
Fokker 
 F28-1000      23.5     17           -        17        17
Fokker 
 F28-4000      12.9      4           6        10         3
Embraer 
 EMB-120        6.8      -           2         2         2
British 
 Aerospace
 Jetstream 31   9.7      -          17        17        17
                ---     --          --        --        --
               17.2     37          44        81        62
               ====     ==          ==        ==        == 

(1)  US Airways sold all eleven 737-200 aircraft and its only 
owned BAe-146-200 aircraft during the first quarter of 1997.
 
(2)  US Airways purchased the two leased DC-9-30 aircraft upon 
lease expiry in January 1997.
 
(3)  US Airways reconditioned three of these aircraft and returned 
them to its operating fleet during the first quarter of 1997.

     See Note 4(b) to the Company's Consolidated Financial 
Statements for additional information related to third party lease 
arrangements.  

     US Airways is a participant in the Civil Reserve Air Fleet 
("CRAF"), a voluntary program administered by the Air Mobility 
Command (the "AMC"). The General Services Administration of the 
United States government also requires that airlines participate 
in CRAF in order to receive United States government business. The 
United States government is US Airways' largest customer. US 
Airways' commitment under CRAF is to provide up to eleven 767-
200ER aircraft in support of military operations, most likely 
aeromedical missions, as specified by the AMC. To date, the AMC 
has not requested US Airways to activate any of its aircraft under 
CRAF.

GROUND FACILITIES

     US Airways leases the majority of its ground facilities, 
including executive and administrative offices in Arlington, 
Virginia adjacent to Washington National; its principal operating, 
overhaul and maintenance bases at the Pittsburgh and 
Charlotte/Douglas International Airports; major training 
facilities in Pittsburgh and Charlotte; central reservations 
offices in several cities; and line maintenance bases and local 
ticket, cargo and administrative offices throughout its system. US 
Airways owns a building and vacant land in Fairfax, Virginia, a 
training facility in Winston-Salem, North Carolina and 
reservations facilities in San Diego, California and Orlando, 
Florida. US Airways' building in Fairfax, Virginia, which is 
leased to the U.S. government, and the vacant land are currently 
for sale.
                                23
<PAGE>
TERMINAL CONSTRUCTION PROJECTS

     The Company's airline subsidiaries utilize public airports 
for their 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 are likely to require 
additional expenditures and long-term commitments. Several 
significant projects which affect large airports on US Airways' 
route system are discussed below. 

     In 1993, US Airways and the City of Philadelphia reached an 
agreement to proceed with certain capital improvements at 
Philadelphia International Airport, where US Airways has its third 
largest hub. The improvements include approximately $130 million 
in various terminal renovations and a new $220 million regional 
airline runway expansion project, exclusive of financing costs. US 
Airways expects construction on the terminal project will be 
completed in 1998. The runway expansion project is not expected to 
be completed until 2000. US Airways expects that its annual costs 
of operations at Philadelphia International Airport will increase 
by approximately $14 million once construction is complete, 
representing more than a 35% increase. 

     The Metropolitan Washington Airport Authority is currently 
undertaking a $1 billion capital development project at Washington 
National, which includes construction of a new terminal currently 
expected to commence operation in the third quarter of 1997. Based 
on current projections, US Airways estimates that its annual 
operating expenses at Washington National will increase by 
approximately $10 million to $12 million. 

     In 1996, US Airways and the Massachusetts Port Authority 
reached an agreement to renovate and expand US Airways' terminal 
premises at Boston's Logan International Airport. The Authority 
issued approximately $49 million of special facilities bonds to 
finance various improvements which include renovation and 
expansion of holdrooms, ticket counter space, public circulation 
areas, concessions, baggage processing, baggage claim areas and 
the US Airways Club facility. The terminal expansion will include 
approximately 95,000 square feet of additional space. US Airways 
will be responsible for the awarding of contracts and managing of 
construction and expects substantial project completion by May, 
1998, except for the remodeling of certain gate areas which will 
be completed by September, 1998. US Airways anticipates that its 
annual operating expenses will increase by approximately $5 
million per year as a result of this project.

ITEM 3.  LEGAL PROCEEDINGS

     US Airways is involved in legal proceedings arising out of 
its two aircraft accidents that occurred in July and September 
1994 near Charlotte, North Carolina and Pittsburgh, Pennsylvania, 
respectively. The National Transportation Safety Board ("NTSB") 
held hearings beginning in September 1994 relating to the July 
accident and January and November of 1995 relating to the 
September accident. In April 1995, the NTSB issued its finding of 
probable causes with respect to the accident near Charlotte. It 
assigned as probable causes flight crew errors and the failure of 
air traffic control to convey weather and windshear hazard 
information. The NTSB has not yet issued its final accident 
investigation report for the accident near Pittsburgh. The NTSB 
has indicated that a determination of the cause of the accident is 
not likely until sometime in 1997. US Airways expects that it will 
be at least two to three years before the accident litigation and 
related settlements will be concluded. Litigation resulting from 
the July 1994 accident in Charlotte was recently tried in U.S. 
District Court in Columbia, South Carolina. The jury found US 
Airways was liable for compensatory damages but was not liable for 
punitive damages. The compensatory damages trials have not been 
concluded and
                                24
<PAGE>
US Airways cannot estimate possible compensatory damages. However, 
US Airways believes that it is fully insured with respect to this 
litigation. Therefore, the Company believes that the litigation 
will not have a material adverse effect on the Company's financial 
condition or results of operations.

     On July 30, 1996, the Company and US Airways initiated a 
lawsuit in U.S. District Court for the Southern District of New 
York against British Airways plc ("British Airways"), BritAir 
Acquisition Corp., Inc., American Airlines Inc. ("American") and 
American's parent company, AMR Corp. The Company and US Airways 
claim that British Airways, in pursuit of an alliance with 
American, is responsible for breaches of fiduciary duty to the 
Company and US Airways and violated certain provisions of the 
January 21, 1993 Investment Agreement between the Company and 
British Airways. The lawsuit also claims that the defendants are 
in violation of U.S. Antitrust laws that prohibit conduct that 
harms competition. Although the defendants filed motions to 
dismiss the lawsuit following the filing of the complaint, these 
motions became superseded on March 5, 1997 when the Company filed 
an Amended Complaint with the Court based on information gathered 
in the pre-trial discovery process.  The defendants have informed 
the Company that, in response to the Amended Complaint, they 
intend to file new motions to dismiss shortly. The Company is 
unable to predict at this time the ultimate outcome of this 
lawsuit.

     In December 1995, US Airways received a Civil Investigative 
Demand ("CID") from the U.S. Department of Justice relating to US 
Airways' compliance with the terms of a consent decree entered 
into in December 1992, as amended in September 1994. The consent 
decree was entered into to resolve litigation concerning US 
Airways' methods of disseminating fare data to the Airline Tariff 
Publishing Company. A CID is a request for information in the 
course of an antitrust investigation and does not constitute the 
institution of a civil or criminal action. The CID issued in 
December 1995 seeks information concerning US Airways' use of 
travel dates in its fare filings, among other things. Although US 
Airways believes there will be no further action stemming from 
this CID, the investigation has not been fully closed.

     In February and March 1995, 39 class action lawsuits were 
filed in various federal district courts by travel agencies and a 
travel agency trade association alleging that seven of the major 
U.S. airlines, including US Airways, violated the antitrust laws 
when they individually capped travel agent base commissions at $50 
for round-trip domestic tickets with base fares above $500 and at 
$25 for one-way domestic tickets with base fares above $250. The 
lawsuits were consolidated in the federal district of Minnesota. 
The plaintiffs sought unspecified treble damages for restraint of 
trade. In September of 1996 the case against US Airways, and 
subsequently the cases against the other airlines, were settled. 
While US Airways believes that its actions in establishing a 
commission cap were in full compliance with the antitrust laws, 
the uncertainty and expense of litigation prompted a settlement of 
the claims. US Airways paid $9.5 million, as part of a total 
settlement of  $85.8 million for all of the defendants. US Airways 
did not admit liability or wrongdoing and the settlement allowed 
the commission cap to remain in place. The settlement was approved 
by the court in January of 1997.

     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"). The agreement contemplated the eventual 
installation of the IFPC System on substantially all of US 
Airways' aircraft. The IFPC System had been installed on 
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
                                25
<PAGE>
IFPC was appropriate and that it is owed significant damages from 
IFPC. On December 7, 1995, US Airways successfully defended IFPC's 
emergency motion for a temporary restraining order. On 
December 13, 1995, IFPC's motion for a preliminary injunction was 
denied and IFPC has relinquished its right to appeal that 
decision. IFPC's claim for damages remains pending. In June 1996, 
US Airways filed a counterclaim against IFPC seeking compensatory 
damages in excess of $25 million and punitive damages in excess of 
$25 million. In January 1997, IFPC filed for protection from its 
creditors under Chapter 11 of the Bankruptcy Code. The parties 
stipulated to lift the automatic stay provided for in the 
Bankruptcy Code which could allow IFPC's and US Airways' claims to 
be fully litigated. The Company is unable to predict at this time 
the ultimate resolution or potential financial impact on the 
Company's financial condition and results of operations of these  
proceedings.

     In May 1995, the Company, US Airways and the Retirement 
Income Plan for Pilots of USAir, Inc. (the "Pilots' Pension Plan") 
were sued in federal district court for the District of Columbia 
by 481 active and retired US Airways pilots alleging violations of 
the Employee Retirement Income Security Act ("ERISA") by 
erroneously calculating benefits under the Pilots' Pension Plan. 
The plaintiffs sought, among other things, damages in excess of 
$70 million. In May 1996, the court issued a decision in the 
lawsuit granting US Airways' Motion to Dismiss the majority of the 
complaint for lack of subject matter jurisdiction, deciding that 
the dispute must be resolved through the arbitration process. The 
court retained jurisdiction over one count of the complaint 
alleging a violation of a disclosure requirement of ERISA. There 
are no significant penalties or damages which can result from this 
remaining claim. The plaintiffs appealed the court's decision, 
however, in the opinion of US Airways' counsel, the appeal is 
unlikely to be successful.

     The Equal Employment Opportunity Commission and various state 
and local fair employment practices agencies are investigating 
charges by certain job applicants, employees and former employees 
of the Company's subsidiaries involving allegations of employment 
discrimination in violation of Federal and state laws. The 
plaintiffs in these cases generally seek declaratory and 
injunctive relief and monetary damages, including back pay. In 
some instances they also seek classification adjustment, 
compensatory damages and punitive damages. Such proceedings are in 
various stages of litigation and investigation, and the outcome of 
these proceedings is difficult to predict. In the Company's 
opinion, however, the disposition of these matters is not likely 
to have a material adverse effect on its financial condition or 
results of operations.

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 1996.


                              PART II


ITEM 5A.  MARKET FOR US AIRWAYS GROUP'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

STOCK EXCHANGE LISTINGS

     US Airways Group's Common Stock, $1 par value (the "Common 
Stock"), is traded on the New York Stock Exchange (Symbol U). On 
February 28, 1997, there were approximately 64,347,000 shares of 
the Company's Common Stock outstanding held by 32,416 stockholders 
of record at that date. The holders reside throughout the United 
States and abroad.

                                26

<PAGE>
MARKET PRICES OF COMMON STOCK

     The high and low sale prices of the Company's Common Stock as 
reported on the New York Stock Exchange Composite Tape during 1996 
and 1995 are presented in the table below:

           Period              High             Low
           ------              ----             ---
    1996
        First Quarter         19  3/4         11  3/4
        Second Quarter        20  3/4         15  7/8
        Third Quarter         19  1/2         15  1/8
        Fourth Quarter        25  7/8         15  1/4

    1995
        First Quarter          6  5/8          4  1/4
        Second Quarter        14               5  5/8
        Third Quarter         12  5/8          8
        Fourth Quarter        15  7/8         10  3/8

     Holders of the Common Stock are entitled to receive such 
dividends as may be lawfully declared by the Company's board of 
directors. The Company paid dividends of $.03 per share on its 
Common Stock every quarter from the second quarter of 1980 through 
the second quarter of 1990. In September 1990, however, the 
Company suspended the payment of dividends on Common Stock for an 
indefinite period.  

     As of the date of this report, the Company's board of 
directors had not authorized the resumption of dividends on the 
Company's Common Stock and there can be no assurance when or if 
such dividend payments will resume. In addition, the Company, 
organized under the laws of the State of Delaware, may be subject 
to certain legal restrictions on its ability to pay dividends on 
or repurchase or redeem its own shares of capital stock. See Note 
7(d) to the Company's Consolidated Financial Statements and 
"Management's Discussion and Analysis of Financial Condition and 
Results of Operations" for additional information.

FOREIGN OWNERSHIP RESTRICTIONS

     In connection with British Airways' 1993 investment in the 
Company, the Company's stock-holders approved an amendment to its 
restated certificate of incorporation ("Charter") at the 1993 
annual meeting that is designed to prevent the loss of US Airways' 
operating certificates due to foreign ownership or control of the 
Company's voting securities exceeding the level permitted by 
relevant Federal law. Under current law, foreign citizens cannot 
own or control more than 25% of the Company's outstanding voting 
securities.

     The Charter provides that non-U.S. citizens ("Aliens") that 
acquire beneficial ownership of the Company's voting securities on 
or after May 27, 1993 have no voting rights and the Company can 
redeem or exchange the voting securities beneficially owned by 
these Aliens. The independent directors of the Company, who are 
those directors other than those employed by or affiliated with 
British Airways or the Company, have broad powers to construe and 
apply these provisions of the Charter, including the determination 
as to whether Aliens have become the beneficial owners of the 
Company's voting securities.

     See Part I, Item 1, "Relationship with British Airways" with 
respect to recent developments concerning British Airways' 
investment in US Airways Group and related matters.

                                27

<PAGE>
ITEM 5B.  MARKET FOR US AIRWAYS' COMMON EQUITY AND RELATED 
          STOCKHOLDER MATTERS

     There is no established public trading market for US Airways' 
common stock, all of which is owned by US Airways Group.  

     US Airways' board of directors has not authorized the payment 
of dividends to US Airways Group since 1988. US Airways, organized 
under the laws of the State of Delaware, may be subject to certain 
legal restrictions on its ability to pay dividends on or 
repurchase or redeem its own shares of capital stock. Covenants 
related to US Airways' 10% and 9 5/8% senior unsecured notes 
currently do not permit the payment of dividends by US Airways to 
US Airways Group. However, these covenants do not restrict US 
Airways from loaning or advancing funds to US Airways Group.

     See Note 6 to US Airways' Consolidated Financial Statements 
contained in Part II, Item 8B  and "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" for 
additional information.





              (this space intentionally left blank)

                                28

<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

     Selected financial data for US Airways Group is presented 
below:

                            1996    1995    1994    1993   1992
                            ----    ----    ----    ----   ----
                        (in millions, except per share amounts)

CONSOLIDATED STATEMENTS OF OPERATIONS

Operating Revenues       $ 8,142 $ 7,474 $ 6,997 $ 7,083 $ 6,686
Operating Expenses       $ 7,705 $ 7,153 $ 7,489 $ 7,179 $ 7,033
Operating Income (Loss)  $   437 $   322 $  (491)$   (96)$  (347)
Income (Loss) Before
  Accounting Change      $   263 $   119 $  (685)$  (349)$  (601)
Accounting Change (1)          -       -       -     (44)   (628)
                             ---     ---     ---     ---   -----
Net Income (Loss)        $   263 $   119 $  (685)$  (393)$(1,229)
Net Income (Loss)
  Applicable to Common
  Stockholders           $   175 $    34 $  (763)$  (467)$(1,281)

Primary Income (Loss) 
Per Common Share
  Before Accounting
    Change               $  2.69 $  0.55 $(12.73)$ (7.68)$(13.88)
  Effect of Accounting
    Change                     -       -       -   (0.80) (13.35)
                            ----    ----   -----    ----   -----
Income (Loss) Per 
  Common Share           $  2.69 $  0.55 $(12.73)$ (8.48)$(27.23)

Fully-Diluted Income (Loss)
Per Common Share
  Before Accounting
    Change                 $2.33 $  0.55 $(12.73)$ (7.68)$(13.88)
  Effect of Accounting
    Change                     -       -       -   (0.80) (13.35)
                            ----    ----   -----    ----   -----
Income (Loss) Per Common
  Share                    $2.33 $  0.55 $(12.73)$ (8.48)$(27.23)

Dividends Per
  Common Share             $   - $     - $     - $     - $     -




               (table continued on following page)

                                29

<PAGE>
              (table continued from previous page)

                                       December 31,
                           -----------------------------------
                           1996    1995    1994    1993   1992
                           ----    ----    ----    ----   ----
                                      (in millions)

CONSOLIDATED BALANCE SHEETS

Total Assets             $ 7,531 $ 6,955 $ 6,808 $ 6,878 $ 6,595
Long-Term Obligations
  and Redeemable Preferred
  Stock  (2)  (3)        $ 4,552 $ 4,572 $ 4,699 $ 4,198 $ 3,714
Series B Preferred
  Stock  (3)             $   213 $   213 $   213 $   213 $   213
Common Stockholders'
  Equity (Deficit)  (3)     (798) (1,049) (1,110)   (426)   (169)
                           -----   -----   -----   -----   -----
Total Stockholders'
  Equity (Deficit)  (3)  $  (584)$  (836)$  (897)$  (213)$    44

Shares of Common Stock 
  Outstanding               64.3    63.4    61.1    59.2    47.2
Book Value Per Share (4) $(14.25)$(18.39)$(18.71)$ (7.19)$ (3.58)

(1)  Cumulative effect of change in method of accounting for
     postemployment benefits in 1993 and postretirement benefits
     other than pensions (net of income tax benefit of $117.6 
     million) in 1992.

(2)  Long-term obligations include long-term debt, capital leases
     and postretirement benefits other than pensions,
     non-current.

(3)  1996, 1995 and 1994 do not include deferred dividends
     on preferred stock. See Note 7(d) to the Company's
     Consolidated Financial Statements.

(4)  Based on Common Stockholders' Equity (Deficit), which is
     adjusted to reflect deferred dividends on preferred stock as
     though they had been declared. See Note 7(d) to the
     Company's Consolidated Financial Statements.

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



                                30

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS


                          OVERVIEW

     Effective February 21, 1997, USAir Group, Inc. changed its 
name to US Airways Group, Inc. ("US Airways Group" or the 
"Company") and its wholly-owned subsidiary, USAir, Inc., changed 
its name to US Airways, Inc. ("US Airways").

     The Company recorded net income of $27.2 million for the 
fourth quarter of 1996 and net income of $263.4 million for all of 
1996. The Company's primary income per common share was $0.08 for 
the fourth quarter of 1996 and $2.69 for all of 1996. US Airways 
recorded net income of $49.5 million for the fourth quarter of 
1996 and net income of $183.2 million for all of 1996. US Airways' 
financial results, which include the results of its wholly-owned 
subsidiary USAM Corp. ("USAM"), were significantly influenced by 
related party transactions as discussed under "Results of 
Operations" below.

     Except where noted, the following discussion relates 
primarily to the financial condition, results of operations and 
future prospects of US Airways. US Airways is the Company's 
principal subsidiary and accounted for approximately 92% of the 
Company's operating revenues for 1996. US Airways is a major 
United States air carrier whose primary business is transporting 
passengers, property and mail. US Airways enplaned more than 56.9 
million passengers during 1996 and is currently the fifth largest 
domestic air carrier, as measured by revenue passenger miles 
("RPMs").

    FACTORS CONTRIBUTING TO IMPROVED 1996 FINANCIAL RESULTS

     The Company recorded net income of $263.4 million for 1996, 
net income of $119.3 million for 1995 and a net loss of $684.9 
million for 1994. This upward trend is primarily attributable to 
favorable capacity and pricing trends in markets served by the 
Company's airline subsidiaries, continued stable domestic economic 
conditions and the positive influence of US Airways' revenue 
enhancement and cost-reduction initiatives. The Company's results 
for 1996, although the best in its history, were dampened by 
substantial year-over-year increases in Personnel costs and 
Aviation fuel expenses, as discussed under "Results of Operations" 
below.

     Favorable capacity and pricing trends have been evident in 
markets served by the Company's airline subsidiaries since early 
1995. As discussed further below, early 1995 marked the demise of 
the "Continental Lite" service offered by Continental Airlines, 
Inc. ("Continental"). Year-over-year industry capacity growth 
within the Eastern United States, that region of the U.S. east of 
the Mississippi River, was 1.4% for 1996 and a contraction of 
3.1% for 1995 (as measured by available seat miles or "ASMs"). US 
Airways currently has approximately 85% of its daily departures 
and approximately 58% of its capacity (ASMs) deployed in the 
Eastern U.S. With respect to pricing factors, the Company 
believes that the absence of the 10% Federal excise tax on 
domestic air transportation ("ticket tax") during the first eight 
months of 1996 had a stimulative effect on the Company's 
Passenger transportation revenues (see "Government Regulation" 
below for additional information).

     The demand for air transportation has historically mirrored 
general economic conditions. The Company believes stable domestic 
economic conditions during the last several years have contributed 
to an overall increase in demand for air travel. As discussed 
under "Revenue Enhancement and Cost Reduction Initiatives" below, 
the Company's revenue enhancement and cost reduction initiatives

                                31
<PAGE>

have also contributed to the Company's improved 1996 results.

     However, as discussed in the following section, the 
Company's airline subsidiaries are currently facing renewed 
pressure from low cost, low fare competition.

           US AIRWAYS' CURRENT COMPETITIVE POSITION - 
                 LOW COST, LOW FARE THREAT

     US Airways has the highest cost structure of all major 
domestic air carriers. Within the last several years, other major 
domestic air carriers have made substantial progress toward 
addressing their cost structures, particularly in response to 
competition from low cost, low fare air carriers. US Airways has 
been able to reduce costs in certain expense categories (see 
"Revenue Enhancement and Cost Reduction Initiatives" below), but 
has not been successful in its efforts to reduce costs in its 
largest expense category - Personnel costs (See "Personnel Costs - 
Continued Negotiations With Organized Labor Groups" below). During 
1993, Continental, Trans World Airlines, Inc. ("TWA") and 
Northwest Airlines, Inc., were able to obtain significant wage 
concessions and productivity improvements from unionized 
employees. The employee concessions achieved by Continental and 
TWA were obtained in the course of bankruptcy proceedings of those 
companies. During 1994, United Air Lines, Inc. ("United") 
completed a transaction in which employees traded significant wage 
concessions and productivity improvements for a majority ownership 
stake in the company and seats on its board of directors. The 
agreement also allowed United to establish a low cost, low fare 
operation, "Shuttle by United." The primary function of this 
operation is to successfully compete with low cost, low fare air 
carriers in mainly secondary or short-haul markets. During 1996, 
Delta Airlines, Inc. ("Delta") launched its own low cost, low fare 
operation, "Delta Express." Delta Express marks the culmination 
of Delta's efforts to establish a product capable of competing 
with low cost, low fare air carriers such as Southwest Airlines, 
Inc. ("Southwest") and ValuJet Airlines, Inc. ("ValuJet"). Delta 
Express became possible as a result of a new labor agreement 
Delta entered into with its unionized pilots group.

     As mentioned above, Eastern U.S. operations comprise a 
substantial portion of US Airways' current route structure. 
Although a competitive strength in some regards, the regional 
concentration of significant operations results in US Airways 
being susceptible to changes in certain regional conditions that 
may adversely effect the Company's financial condition and results 
of operations. The combination of a high cost structure and the 
regional concentration of operations has also contributed to US 
Airways being particularly vulnerable to low cost, low fare 
competition. In late 1993, for example, Continental launched its 
low cost, low fare Continental Lite product in certain markets in 
the Eastern U.S. also served by US Airways. Continental Lite 
operations were substantially expanded during 1994. US Airways 
responded to this competitive threat by selectively lowering its 
fares by as much as 70% compared to the fares in effect prior to 
the Continental Lite incursion. By late 1994, US Airways competed 
with Continental Lite in primary and secondary markets from which 
US Airways then derived approximately 46% of its passenger 
revenues. Continental terminated its Continental Lite service in 
early 1995. Competition with Continental, however, was one of the 
major contributing factors to the Company's poor financial 
performance during 1994. 

     ValuJet, an air carrier centered around low costs of 
operations and a low fare structure, commenced operations in 
October of 1993 by offering service within the Eastern U.S. 
operating two aircraft. By April 1996, ValuJet had grown 
substantially and operated 51 aircraft. However, ValuJet reduced 
its service in May 1996 and suspended operations entirely on June 
17, 1996. The Company estimates that approximately 8% of US 
Airways' capacity (as measured by ASMs) directly overlapped with 
ValuJet's route structure prior to ValuJet's service reduction. 
The Company believes that ValuJet's cessation of operations had a 
favorable effect on the Company's Passenger transportation 

                                32
<PAGE>

revenues, but has not quantified such effect. ValuJet reinstated 
service at reduced levels on September 30, 1996, but the Company 
is unable to predict whether ValuJet's capacity in markets also 
served by US Airways will eventually match or exceed the pre-May 
1996 levels. ValuJet currently operates 21 aircraft.

     The fourth quarter of 1996 included the introduction of 
Delta Express on October 1st and Southwest's inauguration of 
service to and from Providence, Rhode Island on October 27th. As 
mentioned above, Delta Express became possible as a result of a 
new labor agreement Delta reached with its unionized pilots 
group. Delta Express currently operates between Florida and 10 
Northeast and Midwest cities. Southwest's service at Providence, 
which is approximately 60 miles from Boston, has resulted in some 
passenger traffic being drawn from Boston's Logan International 
Airport. US Airways and its regional airline affiliates have 
substantial operations at Boston's Logan International Airport. 
Southwest, another air carrier centered around low cost 
operations and a low fare structure, first entered Northeast U.S. 
markets during 1993 by adding service to and from 
Baltimore/Washington International Airport ("BWI"). Since that 
time, Southwest has expanded service at BWI, initiated service to 
Florida from BWI (among other locations), launched intra-Florida 
service and, as mentioned above, added service to and from 
Providence. BWI is one of US Airways' hub airports and Northeast-
Florida service forms one of US Airways' primary leisure markets.

     The Company estimates that US Airways' direct route overlap 
with Delta Express and Southwest is currently 3.9% and 2.8%, 
respectively (as measured by ASMs). However, the Company 
anticipates that US Airways' route overlap with both competitors, 
as well as the intensity of the competitive pressure on US 
Airways, will increase as Delta Express follows its planned 
doubling of operations in 1997 and Southwest allocates additional 
resources to its new Northeast U.S. operations. The Company views 
Southwest's continued expansion into the intra-Eastern U.S. 
market and Delta's ability to establish a low cost, low fare 
operation as serious competitive threats. For comparative 
purposes, US Airways' unit operating cost (operating expenses per 
ASM or "Cost per ASM") was 12.69 cents for full-year 1996, 
Southwest's unit operating cost for 1996 was 7.50 cents and the 
Company believes that Delta Express' annual unit operating cost is 
close to Southwest's.

     Overall, US Airways currently has low cost, low fare 
competition overlapping approximately 43% of its traffic base; up 
from approximately 40% during early 1995. In an effort to preserve 
market share, US Airways has typically responded to the entry of a 
low cost, low fare competitor into its markets by matching fares 
and increasing the frequency of service in related markets, 
generally with the result of diluting US Airways' yield (Passenger 
transportation revenue per RPM) in these markets. In some cases US 
Airways has responded by reducing service in affected markets.

     The Company believes that lowering US Airways' costs of 
operations is essential in order for US Airways to remain 
competitive and ensure the Company's long-term financial 
viability, particularly in light of recent competitive 
developments.

      REVENUE ENHANCEMENT AND COST REDUCTION INITIATIVES

     In January 1996, the Company's and US Airways' boards of 
directors elected Stephen M. Wolf as Chairman of the Board and 
Chief Executive Officer. During February 1996, Rakesh Gangwal was 
elected President and Chief Operating Officer and Lawrence M. 
Nagin was elected Executive Vice President of Corporate Affairs 
and General Counsel of both companies. The new senior management 
team is focusing on addressing US Airways' high cost structure, 
particularly with respect to Personnel Costs, and has embarked on 
other measures to improve US Airways' competitive position in 

                                33
<PAGE>

today's highly competitive airline industry environment. These 
other measures include improving and standardizing US Airways' 
product, revamping US Airways' market image and focus, increasing 
international service and rationalizing US Airways' operating 
aircraft fleet.

     As mentioned above, US Airways recently changed its name. The 
name change signals the expanding reach of US Airways' route 
structure and its changing image. Coinciding with the name change, 
the livery of US Airways' aircraft will be enhanced and aircraft 
interiors upgraded and standardized. New products and features, 
such as a new international business class called "Envoy Class" 
and personal in-seat video systems, will be added in an effort to 
attract more business travelers and improve US Airways' image in 
the marketplace. US Airways is in the process of equipping all of 
its operating aircraft with in-flight phones and further expanding 
first class cabins and replacing first class seats on select 
aircraft. In addition, US Airways' airport lounges are being 
enhanced and, in some cases, expanded.

     In 1991, US Airways began reducing the size of its operating 
aircraft fleet culminating in a "right-sizing" strategy in the 
Spring of 1995. The goal of this strategy was to reduce annual 
system capacity by five percent and emphasize the strengths of its 
hubs at the major airports in Pittsburgh, Charlotte, Philadelphia 
and Baltimore, as well as its operations at other major East Coast 
urban centers. Capacity reductions were focused on eliminating 
redundant or unprofitable routes. US Airways' capacity (ASMs) for 
1995 decreased by 4.7% versus 1994 as a result of these efforts. 
The strengthening of hub operations was achieved by reducing 
point-to-point flights (flights between cities that are not US 
Airways hubs) thereby increasing the utilization of equipment and 
personnel at hub locations. The percentage of point-to-point 
flights in US Airways' schedule was reduced from approximately 18% 
at the end of 1994 to approximately 10% by the end of 1995. Point-
to-point flying comprised approximately 9% of US Airways' schedule 
at the end of 1996. US Airways also expanded its transatlantic 
focus from Charlotte and Pittsburgh to include Boston and 
Philadelphia to take advantage of better connecting traffic and 
the larger population bases in those cities. These initiatives 
produced substantial financial benefits during 1996 and 1995.

     During 1996, US Airways' redirected its right-sizing efforts 
and began focusing on diversifying its route structure. US 
Airways' transatlantic capacity increased 55.4% in 1996 versus 
1995 levels (as measured by ASMs). US Airways launched new 
European service to Munich, Madrid and Rome during mid-1996 and 
added additional service at Frankfurt during 1996. US Airways has 
also filed with the U.S. Department of Transportation ("DOT") to 
serve London's Heathrow Airport from Boston, Charlotte, 
Philadelphia and Pittsburgh. US Airways continues to explore 
additional international opportunities.

     In light of the proposed alliance between British Airways 
plc ("British Airways") and American Airlines, Inc. ("American") 
(the "BA/AA Alliance"), as described under "Relationship with 
British Airways" below, a critical element of US Airways' 
strategy to achieve sustained financial health and growth in 
international and domestic markets is the establishment of 
competitive service to London's Heathrow Airport ("Heathrow"). 
The BA/AA Alliance is currently being reviewed by regulatory 
authorities in the United Kingdom, the United States and Europe. 
The Company believes that it is likely that British Airways and 
American will be forced to divest slots and ground facilities at 
Heathrow in order for regulatory authorities to approve the BA/AA 
Alliance.

     Based on US Airways' extensive route structure in the 
Eastern U.S., the Company believes that it is uniquely situated 
to receive slots and ground facilities at Heathrow which are 
divested by British Airways or American as part of regulatory 
approval of the BA/AA Alliance. However, many airlines, including 

                                34
<PAGE>

competitors of US Airways, have appealed to the regulatory 
authorities to receive such slots and ground facilities at 
Heathrow.

     The Company is unable to determine whether or when (a) the 
BA/AA Alliance will be approved or (b) it will receive any slots 
or ground facilities at Heathrow. In the event (a) regulatory 
authorities do not approve the BA/AA Alliance or (b) US Airways 
does not receive sufficient slots and ground facilities at 
Heathrow in connection with the regulatory approval of the BA/AA 
Alliance to support our proposed level of service, the Company's 
international strategy will be constrained by its lack of access 
to Heathrow.

     US Airways has also undertaken steps to increase its level of 
on-time performance and improve in other key industry performance 
measurements (as compiled and reported by the DOT). For October 
1996, US Airways ranked first in on-time performance among major 
domestic air carriers for the first time in its history, despite 
setting a company single-month load factor record during that 
month. US Airways finished first in on-time performance among 
major domestic air carriers for the fourth quarter of 1996. During 
that quarter, US Airways also ranked first in fewest damaged or 
lost baggage complaints, fewest reservations complaints and was 
second overall in fewest complaints of all types. US Airways 
continues its efforts to improve its image in the marketplace.

     In October of 1995, US Airways introduced personal computer 
software that enables certain high-volume customers to engage in 
self-service travel booking. User response has been favorable. In 
April 1996, US Airways introduced electronic ticketing, or 
"ticketless travel," as an option for customers traveling within 
the U.S. on US Airways or US Airways Express. Electronic 
ticketing enables a customer to book a flight through US Airways' 
reservations system or certain travel agencies and receive a 
confirmation number instead of a paper ticket. The Company 
believes that electronic ticketing enhances customer convenience 
and helps to reduce US Airways' distribution costs. Distribution 
costs currently account for approximately $1 billion of the 
Company's annual operating expenses. Customer response to 
electronic ticketing has been favorable and customer use of 
electronic ticketing has increased since its introduction. 
Electronic ticketing currently accounts for approximately 14% of 
US Airways' ticket sales.

     During 1996, US Airways continued its cost reduction efforts 
in non-labor areas initiated in late 1994. These efforts have 
included various organizational changes, process reengineering, 
the centralization of US Airways purchasing functions, operations 
research initiatives intended to improve operational efficiency 
and maximize passenger revenue generation and the outsourcing of 
certain cargo, catering and communications functions.  In 
addition, US Airways imposed limits on the base commissions it 
pays travel agents for domestic air fares beginning in the first 
quarter of 1995. The new limits on commissions are designed to 
reduce one of US Airways' largest expenses - Commissions (see 
also "Results of Operations" below). US Airways signed a ten-year 
contract with a subsidiary of the General Electric Company ("GE") 
during the third quarter of 1996 for the upkeep and overhaul of 
US Airways' CFM-56 and CF-6 jet engines. These engines, 
originally manufactured by GE, power US Airways' 737-300, 737-400 
and 767-200ER aircraft. US Airways expects substantial cost 
savings over the next ten years associated with the new GE 
"power-by-the-hour" aircraft engine maintenance contract. The 
Company believes that US Airways' cost reduction efforts helped 
reduce non-labor expenses by approximately $500 million during 
1995, from otherwise expected levels, with similar savings 
achieved during 1996.

     As part of the Company's efforts to reduce its capital 
expenses, the Company reached an agreement with The Boeing Company 
("Boeing") in 1994 which enabled US Airways to reschedule the 
delivery of 40 Boeing 737-Series aircraft from the 1997-2000 time 
period to the years 2003-2005. In addition, as part of the same 
agreement, US Airways relinquished all of its options to purchase 

                                35
<PAGE>

Boeing aircraft during the 1996-2000 time period. During 1995, the 
Company reached agreements with Boeing and Rolls Royce plc ("Rolls 
Royce") regarding the deferral of eight Boeing 757-200 aircraft 
deliveries from 1996 to 1998. As part of the latter agreements, 
the delivery dates for progress payments associated with the 
previously scheduled 1996 deliveries were likewise rescheduled. 
These agreements with Boeing and Rolls Royce have resulted in a 
substantial reduction in US Airways' expected capital expenditures 
for the years 1996 through 2000 (see "Aircraft Fleet and Related 
Matters" below for recent events concerning Boeing).

     US Airways announced in November 1996 that it had entered 
into an agreement with AVSA, S.A.R.L., an affiliate of aircraft 
manufacturer Airbus Industrie ("Airbus"), regarding the 
acquisition of up to 400 narrowbody Airbus aircraft. The 
agreement, discussed further under "Aircraft Fleet and Related 
Matters" below, is part of US Airways' long-term strategy of 
replacing several older, diverse aircraft types with newer, more 
efficient aircraft types based on a similar design. The Company 
believes that the operational and customer service benefits of 
modernizing its fleet outweigh the increased expenses that would 
be incurred by US Airways with the purchase or lease of the new 
aircraft.

           PERSONNEL COSTS - CONTINUED NEGOTIATIONS
                  WITH ORGANIZED LABOR GROUPS

     Personnel costs represented 41.5% of US Airways' operating 
costs for 1996. US Airways currently has the highest unit labor 
costs in the domestic airline industry (see additional information 
regarding Personnel costs under "Results of Operations"). The 
Company remains committed to obtaining a significant reduction in 
US Airways' unit labor costs and believes that US Airways' long-
term financial viability depends on its success in further 
reducing its cost of operations.

     During the Spring of 1995, the Company reached agreements-in-
principle with each of US Airways' major unions regarding 
concession agreements involving wage and benefit reductions, 
improved productivity and other cost savings totaling 
approximately $500 million annually. However, those tentative 
agreements were conditioned on, among other things, ratification 
by the members of each labor group and the approval of the 
Company's stockholders and the Company's and US Airways' boards of 
directors. These agreements-in-principle provided for wage and 
other concessions in exchange for equity participation in the 
Company, profit sharing and representation on the Company's board 
of directors for US Airways' labor groups. In July 1995, the 
membership of the Association of Flight Attendants (the "AFA"), 
which represents US Airways' flight attendants, voted not to 
ratify its agreement-in-principle. The Airline Pilots Association 
("ALPA"), which represents US Airways' pilots, made significant 
additional demands which were unacceptable and negotiations were 
thereafter terminated by the Company.

     US Airways' contract with the employees represented by the 
International Association of Machinists and Aerospace Workers (the 
"IAM") became amendable on October 1, 1995. ALPA's contract became 
amendable on May 1, 1996 and US Airways' contract with the AFA 
became amendable on January 1, 1997. The collective bargaining 
process is in progress with all three unions - the Company is 
unable to predict how long it will take to conclude these 
negotiations or the eventual outcome of these discussions. Such 
negotiations traditionally take one or more years from the time a 
contract becomes amendable, as described in the following 
paragraph. In recent talks, the Company proposed that US Airways 
split-off short-haul and certain longer-haul flights into a 
separate, distinct operating unit. The new operation, centered on 
lower operating costs than the "mainline" service and an 
attractive pricing structure, would be designed to help US 
Airways' competitive stance against Southwest, Delta Express, 
ValuJet and other low cost competitors.

                                36
<PAGE>

     Under the Railway Labor Act, a labor contract does not 
"expire," but rather becomes amendable on a certain date. Thirty 
days prior to that date, either party to the contract may give 
notice to the other of its intention to amend the contract, at 
which point the collective bargaining process begins. If after a 
period of negotiations, the parties cannot reach an agreement, a 
federal mediator from the National Mediation Board ("NMB") is 
brought in to assist. The process of mediation continues until the 
NMB determines, at its sole discretion, that the parties have 
reached an impasse. At that point, the parties enter a thirty-day 
"cooling off" period before either party may employ so-called 
self-help (e.g., the imposition of contract changes or a lockout 
by the company or a strike by the union). While in negotiations 
and mediation, both parties are bound by the contractual terms 
that were in effect prior to the commencement of the collective 
bargaining process.

              AIRCRAFT FLEET AND RELATED MATTERS 

     The Company has embarked on a program to upgrade and 
standardize the interiors of US Airways' operating aircraft over 
the next three years. The first phase of the program, which was 
completed during the fourth quarter of 1996, involved minor 
changes and improvements to the interiors of each of US Airways' 
operating aircraft. This phase of the program resulted in minimal 
incremental expenditures, but has provided a substantial short-
term improvement in the appearance of each aircraft. The second 
phase of the program, which began in February 1997 and is 
expected to be completed in 1999, includes, depending on the type 
of aircraft, replacing carpets, seat cushions, sidewalls and 
overhead storage bins, repainting other aircraft interior 
components, reconfiguring and/or upgrading seats, expanding first 
class seating and adding or replacing lavatories. The Company 
currently estimates that the second phase of this program will 
result in one-time incremental expenditures of approximately $73 
million, approximately $27 million of which is expected to be 
capitalized.

     As mentioned previously, US Airways recently entered into an 
agreement with an affiliate of Airbus regarding the acquisition 
by US Airways of up to 400 Airbus aircraft. The aircraft, A319, 
A320 and A321 narrowbody aircraft (collectively, the "Airbus 
Aircraft") were tentatively scheduled for delivery to US Airways 
between 1997 and 2009. The proposed transaction would be 
comprised of 120 firm Airbus Aircraft and 120 Airbus Aircraft to 
be reconfirmed by US Airways at a future date. In addition, US 
Airways would have the option to acquire up to 160 additional 
Airbus Aircraft with open-ended delivery dates. US Airways would 
have the flexibility in selecting among the 122-seat A319, the 
144-seat A320 and the 168-seat A321, depending upon projected 
industry conditions at the time final delivery schedules were 
set. The Airbus Aircraft are presently intended as, at a minimum, 
replacement aircraft for US Airways' existing fleet of Douglas 
DC-9-30 and MD-80 aircraft, Boeing 737-200 aircraft, and Fokker 
F28-4000 aircraft. US Airways is also examining alternatives for 
widebody aircraft to support US Airways' goal of increased 
international operations.

     The agreement with Airbus remains subject to US Airways 
achieving a competitive cost structure and the approval of 
definitive documentation by US Airways' board of directors. See 
Note 4(d) to the Company's Consolidated Financial Statements 
contained in Part II, Item 8A for additional information.

     In early January 1997, Airbus announced that it could not 
support the delivery of six aircraft tentatively scheduled for 
delivery to US Airways in 1997 due to US Airways' inability to 
affirm the arrangement. Airbus subsequently advised US Airways 
that it was also withdrawing all of US Airways' 1998 and 1999 
firm delivery positions as well as support for the twelve 
aircraft contemplated to be leased in 1998 for similar reasons. 
If US Airways is able to achieve a competitive cost structure it 

                                37
<PAGE>

may still be able to acquire Airbus aircraft during 1998 and 1999 
(see also "Personnel Costs - Continued Negotiations with 
Organized Labor Groups" above).

     The Company has not yet determined whether consummation of 
the Airbus transaction and the disposition of the aircraft 
intended to be replaced with Airbus Aircraft would require the 
Company to recognize an "impairment loss" 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").

     During October 1996, US Airways advised Boeing and Rolls 
Royce that it does not plan to accept delivery of the eight 
Boeing 757-200 aircraft US Airways presently has on firm order. 
Consistent with a written statement from Boeing extending the 
scheduled delivery dates of the Boeing 757s from 1998 to 1999 and 
the ongoing business discussions between the two parties, US 
Airways did not make a progress payment to Boeing of 
approximately $3 million which was, prior to such extension, 
scheduled to be due on November 1, 1996. On November 7, 1996, 
Boeing alleged that US Airways was in default of the 757 purchase 
agreement for failing to make the November 1st payment. Boeing 
has further alleged, among other things, that US Airways has 
repudiated a purchase agreement relating to 40 737-Series 
aircraft scheduled for delivery commencing in 2003. Boeing has 
purported to terminate both such 757-200 and 737-Series purchase 
agreements, an action which US Airways believes is not supported 
by law or the facts, and has claimed almost $450 million as 
damages for US Airways' alleged breach of such agreements. US 
Airways subsequently advised Boeing, among other things, that US 
Airways rejects Boeing's asserted legal basis for termination of 
such agreements. In addition, US Airways stated that it would 
hold Boeing responsible for any damages incurred as a result of 
Boeing's unlawful termination and demanded immediate return of 
all payments made by US Airways in furtherance of the 737-Series 
purchase agreement, together with interest from the date of 
payment. US Airways also expressed its belief that Boeing is 
legally committed to pursue contract resolutions in good faith. 
Notwithstanding the formal legal positions of the parties, both 
sides have expressed a desire to resolve this dispute on a 
mutually satisfactory basis. US Airways cannot predict whether 
Boeing will seek to exercise remedies against US Airways and if 
so, whether the effect on US Airways' financial condition or 
results of operations would be material. See Note 4(d) to the 
Company's Consolidated Financial Statements for additional 
information.

               RELATIONSHIP WITH BRITISH AIRWAYS

     On June 11, 1996, British Airways and American announced a 
proposed alliance to jointly market, price and manage their North 
Atlantic airline services, effective April 1, 1997, subject to 
U.S. and international approvals. The joint services would carry 
the designator codes of both airlines and each would code-share 
beyond the other's gateways. The two airlines have also indicated 
that they intend to act cooperatively in other areas, such as 
marketing, sales, facilities use and cargo. British Airways and 
American are seeking antitrust immunity in connection with 
approval of their alliance. Certain competition authorities in 
the U.S. and Europe have made inquiries into the proposed 
alliance and several airlines serving the North Atlantic have 
raised very strong objections to the proposed alliance.

     On July 30, 1996, the Company and US Airways initiated a 
lawsuit in the U.S. District Court for the Southern District of 
New York against British Airways, BritAir Acquisition Corp., 
Inc., American and American's parent company, AMR Corp. The 
Company and US Airways claim that British Airways, in pursuit of 
an alliance with American, is responsible for breaches of 
fiduciary duty to the Company and US Airways and violated certain 
provisions of the January 21, 1993 Investment Agreement between 
the Company and British Airways. The lawsuit also claims that the

                                38
<PAGE>

defendants are in violation of U.S. antitrust laws that prohibit 
conduct that harms competition. Although the defendants filed 
motions to dismiss the lawsuit following the filing of the 
complaint, these motions became superseded on March 5, 1997 when 
the Company filed an Amended Complaint with the Court based on 
information gathered in the pre-trial discovery process. The 
defendants have informed the Company that, in response to the 
Amended Complaint, they intend to file new motions to dismiss 
shortly.

     The Company is unable to predict at this time the ultimate 
outcome of this lawsuit.

     On October 24, 1996, US Airways notified British Airways 
that it is terminating the code sharing and frequent traveler 
agreements between the two companies effective March 29, 1997 as 
a result of British Airways' decision to enter into an alliance 
with American. In addition, certain other commercial arrangements 
between US Airways and British Airways have been or are in the 
process of being terminated. The Company does not anticipate any 
material adverse impact on its financial condition or results of 
operations as a result of the termination of these arrangements. 
US Airways believes that the code share arrangement contributed 
less than $20 million annually to its operating revenues. 
Further, the Company does not believe that US Airways' lack of an 
international code share partner will have a material impact on 
its financial condition or results of operations.

     On December 17, 1996, British Airways delivered a notice (the 
"Sale Notice") to the Company of its intent to sell in one or more 
underwritten public offerings or privately negotiated 
transactions, all of the shares of Series F and Series T Preferred 
Stock (collectively, the "BA Preferred Stock") (see Note 7(b) and 
7(c) to the Company's Consolidated Financial Statements for a 
description of the Series F and Series T Preferred Stock, 
respectively). Under the Investment Agreement, the Sale Notice 
triggered (i) a right of first offer of the Company to purchase 
all (or in certain circumstances, any portion) of such shares at 
prices set forth in the Sale Notice (the "Right of First Offer")  
and (ii) a public offering registration procedure (the "Public 
Offering Registration Procedure"). The Company did not exercise 
its right to purchase the BA Preferred Stock prior to the 
expiration of the Right of First Offer on February 15, 1997.

     Because the Company elected not to exercise the Right of 
First Offer with respect to the BA Preferred Stock, subject to 
certain limitations, British Airways is free to complete a sale on 
terms no less favorable to British Airways than those set forth in 
the Sale Notice, provided that (i) such sale is closed by August 
14, 1997 (or 180 days following the initial filing of the 
Company's registration statement in conjunction with the Public 
Offering Registration Procedure), (ii) in the case of a public 
offering, the sale price may be higher or lower than the price 
offered in the Sale Notice and (iii) in the case of a privately 
negotiated transaction, the price must be equal to or higher than 
the price offered in the Sale Notice.

     In the Sale Notice, British Airways also exercised the Public 
Offering Registration Procedure under the Investment Agreement to 
cause the Company to use its "reasonable efforts" to register the 
BA Preferred Stock for sale in an underwritten public offering at 
British Airways' request on up to three occasions. The 
registration procedures provide that the Company shall prepare and 
file with the U.S. Securities and Exchange Commission ("SEC") and 
use its reasonable efforts to cause to become effective a 
registration statement under the Securities Act by April 16, 1997, 
provided, however, that the Company's obligation may be deferred 
in certain circumstances for up to 180 days.

     On January 28, 1997, the Company received notice that British 
Airways' representatives, Messrs. Ayling, Stevens and Maynard, 
resigned as directors of US Airways Group and on February 12, 

                                39
<PAGE>

1997, the Company received notice that such individuals resigned 
as directors of US Airways. In the letter of resignation, British 
Airways waived its current and future rights under the Investment 
Agreement to US Airways Group board representation.

     Based on such resignations, British Airways may take the 
position that British Airways is no longer an affiliate of US 
Airways Group and, therefore, upon the expiration of the third 
month following such change in status, is able to sell the BA 
Preferred Stock without registration under the Securities Act of 
1933 in compliance with an exemption thereunder.

        PAYMENTS OF DIVIDENDS ON SENIOR PREFERRED STOCK

     During August and October of 1996, the Company paid 
dividends of $43.0 million and $40.0 million, respectively, on 
its outstanding Senior Preferred Stock (composed of the Company's 
Series A, Series F and Series T Preferred Stock; see Note 7(a) to 
the Company's Consolidated Financial Statements for a description 
of the Series A Preferred Stock). Prior to these dividend 
payments, the Company had deferred the payment of dividends on 
all of its outstanding preferred stock issuances effective with 
dividend payments due September 30, 1994.

     As of December 31, 1996, the Company's capital surplus, as 
calculated in accordance with Delaware General Corporation Law 
based on the Company's Consolidated Balance Sheets (which are 
contained in Part II, Item 8A of this report), was $110.0 
million. The Company, organized under Delaware law, may be 
subject to certain legal restrictions on its ability to pay 
dividends or repurchase or redeem its own shares of capital stock 
for cash or other property depending on the amount of its capital 
surplus. Capital surplus, under Delaware Law, is calculated as (i) 
net assets (total assets minus total liabilities), less (ii) total 
capital (that amount of preferred and common equity designated as 
capital by a company's board of directors). As of December 31, 
1996, the Company's net assets were in a surplus position of 
$174.3 million based on the Company's Consolidated Balance Sheets 
and its total capital was $64.3 million (all attributable to the 
Company's outstanding Common Stock; capital for the Company's 
outstanding preferred stock issuances is a nominal amount of one 
cent per share).

     The Company's outstanding publicly-held Series B Preferred 
Stock is junior to the Company's Senior Preferred Stock and is 
not eligible to receive dividends until the deferred dividends on 
the Senior Preferred Stock are paid-in-full (see Note 8(c) to the 
Company's Consolidated Financial Statements for a description of 
the Series B Preferred Stock). Under the terms of the Series B 
Preferred Stock, its holders have the right to elect two 
additional directors to the Company's board of directors if six 
quarterly dividend payments are not paid. That right became 
effective on February 15, 1996. The right must be exercised by 
notice of the holders of record of 20% or more of the Series B 
Preferred Stock. In April and October 1996, two different groups 
of shareholders representing more than 20% of the Series B 
Preferred Stock shares outstanding notified the Company that they 
wished to exercise their right to elect additional directors. 
However, the shareholders in each of these groups subsequently 
sold their shares prior to fully exercising their rights. To the 
Company's knowledge, there is currently no ongoing effort to elect 
directors under the terms of the Series B Preferred Stock.
     Under the terms of the Company's Series A Preferred Stock, 
its holders, currently affiliates of Berkshire Hathaway, Inc. 
("Berkshire"), have the right to elect two additional directors to 
the Company's board of directors after a scheduled dividend 
payment has not been made for thirty days. Berkshire has informed 
the Company that it does not intend to exercise its right at this 
time. The holder of the Series F and Series T Preferred Stock, an 
affiliate of British Airways, would have the right to nominate an 
additional director to the Company's board of directors pursuant 

                                40
<PAGE>

to its Investment Agreement with the Company if Berkshire and the 
holders of the Series B Preferred Stock were to exercise their 
respective rights to elect additional directors to the Company's 
board of directors. See related discussion under "Relationship 
with British Airways" above.

     As of December 31, 1996, accumulated deferred dividends on 
all of the Company's outstanding preferred stock issuances, 
including penalty dividends thereon, totaled $118.9 million. See 
Note 7(d) to the Company's Consolidated Financial Statements for 
additional information with respect to accumulated deferred 
dividends.

     On January 31, 1997, the Company paid additional dividends of 
$50.0 million to holders of the Company's Senior Preferred Stock. 
After this payment, deferred dividend and additional dividends 
(interest) thereon of $27.6 million remained in arrears on the 
Company's Senior Preferred Stock. There can be no assurance when 
or if the Company will make additional dividend payments on its 
Senior Preferred Stock.

                    GOVERNMENT REGULATION

     The ticket tax was reinstated on August 27, 1996, for 
tickets sold for travel before January 1, 1997. This tax, 10% of 
the cost of an airline ticket, had previously expired on January 
1, 1996. The Company believes that its Passenger transportation 
revenues were stimulated during the period the tax was not in 
effect - the absence of the tax effectively reduced the cost of 
air travel. The Company cannot estimate the dollar impact of the 
tax expiration on its Passenger transportation revenues during 
the period the tax was not collected due to the complexity and 
number of factors that contribute to the Company's performance in 
this area. This tax expired again on January 1, 1997. On February 
28, 1997, President Clinton signed legislation reinstating the 
tax for tickets sold beginning March 7, 1997 through September 
30, 1997. Reinstatement of this tax, which could effectively 
increase the cost of air transportation, may dampen demand for 
air transportation which, in turn, may have a material adverse 
effect on the Company's financial condition and results of 
operations.

     The Company's airline subsidiaries became obligated to pay 
the $.043 per gallon Federal Excise Tax on Transportation Fuels 
on October 1, 1995. Airlines had a three-year exemption from this 
tax, which became law during 1992. Attempts to either rescind 
this tax or reinstate the airline exemption continue, although 
these efforts have not been successful to date. US Airways cannot 
predict the ultimate outcome of future attempts to either rescind 
the tax or reinstate the airline exemption. US Airways recognized 
expenses of $43.0 million and $11.9 million as a result of this 
tax during 1996 and 1995, respectively.

     The Federal Aviation Administration ("FAA") has proposed new 
regulations that would require flight data recorders that measure 
more flight parameters than most original equipment flight data 
recorders. The proposed regulations, subject to DOT approval, 
would require the upgraded flight data recorders to be installed 
within four years. The proposal, as drafted, would affect US 
Airways' entire operating fleet. The Company estimates that the 
proposed regulations, if adopted, would cost US Airways 
approximately $20 million over the four year period. The Company 
cannot predict whether or when the proposed regulations will be 
adopted or if the proposed regulations will result in 
expenditures consistent with the Company's current estimate.

     Following the July 1996 accident involving a TWA aircraft 
and speculation that the cause of the accident may have been 
sabotage, President Clinton ordered new security measures related 
to passenger, baggage and cargo screening, particularly with 
respect to international operations. The increased security 
measures have resulted in an increase in the Company's operating 

                                41
<PAGE>

expenses, although the dollar effect of the new security measures 
is not material. The President also formed a special committee 
which is reviewing aviation safety and airport security, as well 
as the air traffic control system. The committee released its 
final recommendations on February 12, 1997. The committee made 
several recommendations in the areas of safety, air traffic 
control and security. The Company is unable to predict whether 
any of the recommendations will be adopted, and if adopted, their 
impact on the Company's financial condition and results of 
operations. Further increases in government-mandated security 
measures could have an adverse effect on the Company's financial 
condition and results of operations depending on the ability of 
US Airways and its regional affiliates to passthrough any new 
Federal taxes, surcharges or additional operating expenses to 
customers. Any effective increase in the cost of air 
transportation may dampen passenger and cargo traffic levels 
which could have a material adverse effect on the Company's 
financial condition and results of operations.

     Many aspects of US Airways' operations are subject to 
increasingly stringent federal, state and local laws protecting 
the environment. Future regulatory developments could affect 
operations and increase operating costs in the airline industry, 
including for US Airways.

RESULTS OF OPERATIONS

     The following section provides an overview of changes in 
certain components of the Company's results of operations (the 
Company's Consolidated Statements of Operations are contained in 
Part II, Item 8A of this report). See "Operating Statistics" 
contained in Part I, Item 1 of this report for selected US 
Airways operating and financial statistics (which also includes 
the definition of each term used below). All terms used in this 
section refer to US Airways' scheduled service operations except 
for unit operating cost, which includes charter service.

            YEAR ENDED DECEMBER 31, 1996 COMPARED TO 
                  YEAR ENDED DECEMBER 31, 1995

     The Company recorded net income of $263.4 million for 1996, 
an improvement of $144.1 million or more than double its net 
results for 1995. After preferred dividend requirement (the 
Company reflects dividends on all its outstanding preferred stock 
as if paid during the period for purposes of calculating income 
per common share), the Company earned $174.6 million for 1996, or 
$2.69 per common share on a primary basis.

     The Company's second quarter financial results have 
historically been its strongest due to US Airways' combination of 
business traffic and North-South leisure traffic in the Eastern 
U.S. during that period.

     US Airways' RPMs and passenger load factor for 1996 were 
company records. Although US Airways' capacity (ASMs) fell 2.2% 
and the number of revenue passengers carried was relatively 
unchanged year-over-year, yield improved 4.8% and average 
passenger journey increased 3.6%. The yield improvement was 
primarily driven by the factors discussed under "Factors 
Contributing to Improved 1996 Financial Results" and the decrease 
in capacity (ASMs) was due mainly to less operating aircraft in 
US Airways' operating fleet year-over-year. The increase in 
average passenger journey reflects US Airways increased 
transatlantic service (see related discussion under "Revenue 
Enhancement and Cost Reduction Initiatives"). In general, 
favorable capacity and pricing trends have been evident in 
markets served by the Company's airline subsidiaries since the 
demise of Continental Lite in early 1995. Competition with 
Continental Lite included US Airways selectively lowering fares 
in certain markets to maintain market share.

                                42
<PAGE>

     As mentioned above, the Company's airline subsidiaries are 
experiencing increased competitive pressure with the October 1996 
launch of Delta Express, Southwest's late-October 1996 expansion 
into the Northeast U.S. and ValuJet's recent reinstatement of 
service. Direct competition with low cost, low fare air carriers 
or operations has typically resulted in the dilution of yield 
realized by the Company's airline subsidiaries in the affected 
markets.

     US Airways continues to be the highest cost major air 
carrier in the United States. US Airways' unit operating cost was 
12.69 cents for 1996, an 11.3% increase versus its unit operating 
cost for 1995. This increase is primarily the result of higher 
operating expenses applied over slightly less capacity (ASMs) 
year-over-year (see discussion below related to year-over-year 
changes in certain components of the Company's operating 
expenses). US Airways' high cost structure relative to its major 
competitors results in it being particularly susceptible to 
adverse changes in general economic and market conditions.

     During 1996, US Airways recorded two non-recurring items 
related to its subleasing of 11 non-operating British Aerospace 
BAe-146-200 ("BAe-146") aircraft (in addition to the three 
sublease agreements reached during the fourth quarter of 1995 for 
which US Airways recorded a non-recurring item of $4.1 million - 
a credit to Aircraft rent expense).  US Airways reversed $22.5 
million of previously accrued rent obligations related to these 
aircraft against Aircraft rent expense and reversed $7.0 million 
against Aircraft maintenance expense related to previously 
accrued lease return provisions.

OPERATING REVENUES

Passenger Transportation - US Airways' Passenger transportation 
revenues increased $531.7 million, or 8.5%, with the remainder of 
the $622.3 million increase attributable to passengers carried by 
the Company's regional airline subsidiaries. US Airways' increase 
is primarily the result of a 4.8% increase in yield and a 3.6% 
increase in average passenger journey. The main factors 
contributing to the Company's improved performance during 1996 
are discussed above. In addition, the Company estimates that 
severe winter weather within the Eastern U.S. and the partial 
Federal Government shutdown adversely affected first quarter 1996 
revenues by approximately $55 million. Hurricanes Fran and 
Eduoard, which occurred during September 1996, also adversely 
affected the Company's Passenger transportation revenues by 
approximately $10 million. Although a competitive strength, 
concentration of significant operations in the eastern U.S. 
results in the Company's airline subsidiaries being susceptible to 
certain regional conditions that may have an adverse effect on the 
Company's financial condition and results of operations. The 
Company's airline subsidiaries faced intense competitive pressure 
from Continental Lite during early 1995 (see discussion under "US 
Airways' Current Competitive Position - Low Cost, Low Fare 
Threat").

Other Operating Revenues - Fees received by US Airways for 
passenger handling and reservation services from US Airways 
Express air carriers (other than the fees US Airways receives 
from the Company's three wholly-owned regional air carriers, 
which are eliminated during the consolidation of the Company's 
results of operations) increased due to higher passenger volumes 
carried by these air carriers and a higher fee structure. In 
addition, US Airways revenues from frequent traveler program 
participation fees, reservation cancellation fees and aircraft 
lease arrangements all increased year-over-year. US Airways' 
results include certain transactions with related parties that 
are eliminated at the US Airways Group level (for additional 
information see Note 10 to US Airways' Consolidated Financial 
Statements). The final wet lease with British Airways expired 
during the second quarter of 1996. Wet lease revenues of $12.6 
million were included in the Company's Other Operating Revenues 

                                43
<PAGE>

for 1996 as compared to $63.6 million for 1995. See additional 
information related to the Company's third party lease and 
sublease arrangements in Note 4(b) to the Company's Consolidated 
Financial Statements. Increases or decreases in components of 
Other Operating Revenues are largely offset by related changes in 
Other Operating Expenses, Net or other operating expense 
categories.

     US Airways' Operating Revenues include the line item "US 
Airways Express transportation revenues." Effective October 1, 
1996, US Airways began purchasing all of the capacity (ASMs) 
generated by the Company's three wholly-owned regional air 
carriers and, concurrently, recognizing the passenger 
transportation revenues that result 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 produce the 
capacity. The program is designed to reflect the reality of US 
Airways' relationship with the Company's regional airline 
subsidiaries - US Airways controls the markets these air carriers 
operate in, the marketing programs and the fares they charge. US 
Airways' expenses associated with this program are eliminated 
during the consolidation of the Company's results of operations 
and US Airways' revenues associated with this program are 
reclassified to Passenger transportation revenues during the 
consolidation process. The revenues and expenses recognized by US 
Airways during the fourth quarter of 1996 related to this program 
may not be indicative of future revenues and expenses associated 
with this program. For additional information related to this 
program see Note 10 to US Airways' Consolidated Financial 
Statements.

OPERATING EXPENSES

Personnel Costs - Profit sharing expenses, the impact of adding a 
stock appreciation right ("SAR") feature to one of the Company's 
stock option plans, interest rate driven increases in pension and 
postretirement benefits expenses, contractual wage increases that 
US Airways' pilot and flight attendant employee groups received 
in January 1996 and wage increases received by certain non-
contract employees effective January 1, 1996 were the primary 
factors which resulted in the Company's Personnel costs 
increasing $308.3 million or 10.7% versus 1995. US Airways' 
mechanics and pilots also received contractual wage increases in 
March 1995 and July 1995, respectively. US Airways had 40,160 
full-time equivalent employees as of December 31, 1996 versus 
39,900 full-time equivalent employees as of December 31, 1995.

     The Company recorded profit sharing expense related to its 
1992 Salary Reduction Plan of $121.6 million for 1996 versus 
$49.7 million for 1995. The Company's obligations under this plan 
ended with a payment to participants in early March 1997.

     During the fourth quarter of 1996, the Company's 1992 Stock 
Option Plan ("1992 Plan"), a component of the Company's 1992 
Salary Reduction Plan, was amended to include a SAR feature and 
SARs were granted to option holders under this plan on a one-for-
one basis. For each SAR, the holder is entitled to receive the 
excess of the fair market value of a share of the Company's 
Common Stock above $15. The exercise of any SAR cancels its 
tandem option and, conversely, the exercise of any option cancels 
its tandem SAR. The SARs have the same expiration date as the 
tandem options. To the extent the fair market value of a share of 
its Common Stock exceeds $15, the Company recognizes compensation 
expense based on the number of SARs outstanding. The Company 
recognized compensation expense of $41.6 million related to the 
implementation of this program during the fourth quarter of 1996. 
Approximately 4.2 million SARs were outstanding under this plan 
as of December 31, 1996. Additional information related to the 
Company's stock option plans (including SARs) can be found in 
Note 8(e) to the Company's Consolidated Financial Statements.

                                44
<PAGE>

     Pension and postretirement benefits expenses increased 
$107.1 million due primarily to interest rate factors. In 
addition, expenses related to stock option grants, stock grants, 
severance payments and similar-type compensation (excluding SARs 
expense) increased $20.6 million year-over-year. Long-term 
disability expenses increased $22.7 million due mainly to an 
increase in number of employees on long-term disability.

Aviation Fuel - US Airways' aviation fuel consumption was 
relatively unchanged, but rate factors drove the Company's 
Aviation fuel expense up $114.8 million. US Airways' average cost 
of aviation fuel consumed during 1996 was 64.09 cents per gallon 
versus an average rate of 53.23 cents for 1995. Aviation fuel 
prices are subject to market conditions and other factors that 
are generally outside of the Company's control. Fluctuations in 
the price of aviation fuel can have a dramatic effect on the 
Company's results of operations. Based on consumption for 1996, 
each one cent per gallon increase in US Airways' cost of aviation 
fuel translates into an increase of approximately $11 million in 
US Airways' annual aviation fuel expense. See Other Operating 
Expenses, Net below related to Federal taxes on aviation fuel.

Commissions - Increases resulted from higher Passenger 
transportation revenues. See also Other, Net below.

Aircraft Rent - Excluding the effects of the non-recurring item 
discussed above, Aircraft rent expense increased 4.0%. The 
increase is due primarily to two leased Boeing 767-200ER aircraft 
reentering US Airways' operating fleet during the first half of 
1996. US Airways recognized expenses related to these aircraft in 
the Other Operating Expenses category while they were operated by 
British Airways.

Aircraft Maintenance - Excluding the effects of the non-recurring 
item discussed above, Aircraft maintenance expense increased 
$33.1 million. Efficiencies gained from reengineering efforts in 
US Airways maintenance areas and the effects of fewer operating 
aircraft in US Airways' fleet year-over-year were more than 
offset by timing factors and expenses identifiable as transition 
expenses related to a change in service providers for certain jet 
engine maintenance work. US Airways signed a ten year contract 
with a subsidiary of GE during the third quarter of 1996 for the 
upkeep and overhaul of certain jet engines. Although the Company 
expects a significant decrease in maintenance costs associated 
with these engines because of the new contract, US Airways 
experienced approximately $14 million in costs during the fourth 
quarter of 1996 directly related to the transition of work from 
the former contractor to GE (see discussion under "Revenue 
Enhancement and Cost Reduction Initiatives" above).

Depreciation and Amortization - Decreased due mainly to fewer 
owned aircraft in US Airways' operating fleet.

Other Operating Expenses, Net - Increased primarily due to 
additional Federal taxes on aviation fuel and  increases in 
insurance and communications-related costs. US Airways also 
experienced higher credit card expenses linked to higher 
Passenger transportation revenues. The Federal Excise Tax on 
transportation fuels was $43.0 million for 1996 (see also 
"Government Regulation" above). Expenses related to the wet lease 
arrangement with British Airways decreased $51.0 million due to 
the expiration of this arrangement during May 1996 (see also 
Other Operating Revenues and Aircraft Rent above).

     US Airways' Operating Expenses include the line item "US 
Airways Express capacity purchases." These expenses, which are 
eliminated during the consolidation of the Company's results of 
operations, are discussed under Operating Revenues above.

                                45
<PAGE>

OTHER INCOME (EXPENSE)

Interest Income - Increased due mainly to higher Cash and cash 
equivalents and Short-term investments balances.

Interest Expense - Decreased primarily as the result of less 
long-term debt outstanding year-over-year. The Company made early 
debt repayments of $150.5 million during 1996.

Equity in Earnings (Loss) of Affiliates - Amounts pertain to 
USAM's equity interest in the earnings of Galileo International 
Partnership, Apollo Travel Services Partnership ("ATS") and 
Galileo Japan Partnership ("GJP"). USAM owns 11% of the Galileo 
International Partnership, which owns and operates the Galileo 
Computerized Reservation System ("Galileo CRS"), approximately 21% 
of ATS, which markets the Galileo CRS in the U.S. and Mexico and 
approximately 11% of GJP, which markets the Galileo CRS in Japan. 
Results for all three partner-ships improved primarily driven by 
increases in airline industry passenger volumes year-over-year.

Other, Net - Results for 1996 include expenses of $9.5 million 
related to US Airways' settlement of litigation involving travel 
agencies (see Part I, Item 3 "Legal Proceedings" for additional 
information) and losses of $8.7 million related to US Airways' 
disposition of eight non-operating aircraft. Results for 1995 
included gains totaling $10.7 million related to the sale of 
certain 737-300 aircraft. US Airways sold ten non-operating 
Boeing 737-200 aircraft during the first quarter of 1997 which 
resulted in a gain of approximately $18 million.

Provision (Credit) for Income Taxes - The Company was subject to 
Federal alternative minimum tax for 1996 and 1995 as well as 
income taxes in certain states. The Company was not subject to 
regular Federal income tax for 1996 or 1995 as the result of using 
Federal net operating loss carryforwards. See Note 5 to the 
Company's Consolidated Financial Statements for additional 
information.

            YEAR ENDED DECEMBER 31, 1995 COMPARED TO 
                 YEAR ENDED DECEMBER 31, 1994

     US Airways Group recorded net income of $119.3 million for 
1995 compared with a net loss of $684.9 million for 1994. US 
Airways recorded net income of $33.0 million for 1995 which 
represents an improvement of $749.2 million over its 1994 results. 
US Airways' results include the results of its wholly-owned 
subsidiary USAM.

     The Company's year-over-year improvement in net income 
reflects a $477.2 million (6.8%) revenue increase coupled with a 
decrease in operating expenses of approximately $335.9 million 
(4.5%). Excluding the unusual items recognized during 1995 and 
1994, as discussed further below, the Company's operating costs 
decreased approximately 1.1% year-over-year.

     US Airways' yield was 16.66 cents for 1995, a 6.7% 
improvement versus 1994. The stronger than anticipated increase in 
yield primarily resulted from the effects of the relatively 
stable domestic economic climate and favorable capacity and 
pricing trends in markets served by the Company's airline 
subsidiaries which were prevalent during most of 1995 (see 
related discussion in "Factors Contributing to Improved 1996 
Results" above).

     US Airways' capacity (ASMs) for 1995 decreased by 4.7%. RPMs, 
however, decreased less than 1% and US Airways' load factor was 
64.7% for 1995, a historical high (which was subsequently eclipsed 

                                46
<PAGE>

in 1996). US Airways' unit operating cost increased to 11.40 cents 
from 11.02 cents for 1994 primarily due to the capacity (ASMs) 
reductions that occurred in 1995.

     The financial results for 1994 include several non-recurring 
items:

  -  a $172.9 million charge related to US Airways' grounded
     BAe-146 fleet and to US Airways' decision to cease operations
     of its remaining Boeing 727-200 aircraft in 1995 (the last
     operational 727-200 aircraft was retired from service in
     September 1995). During 1994, US Airways again evaluated the
     secondary market for BAe-146 aircraft and determined that it
     was probable that it would not be successful in its efforts
     to sublease or otherwise dispose of these assets (before
     lease expiry). Considering this analysis, US Airways did not
     include a provision for any potential subleasing activity in
     determining the amount of the 1994 charge.

  -  a $54.0 million charge for obsolete inventory and rotables to
     reflect market values.

  -  a $25.9 million charge related to US Airways' decision to
     substantially reduce service between Los Angeles and San
     Francisco in November 1994.

  -  a $28.3 million gain resulting from the sale of certain
     aircraft and assets to Mesa Air Group, Inc. ("Mesa") and the
     accounting treatment of the hull insurance recovery on the
     aircraft lost in the September 1994 accident.

  -  a $1.7 million charge related to the sale of certain assets
     to Mesa. 

     The following table indicates where the above items appear in 
the Company's Consolidated Statements of Operations ($ millions, 
brackets denote expense)


<TABLE>
<CAPTION>
                                                      California     Other Asset
     Line Item              Aircraft     Inventory     Reduction     Dispositions    Total
---------------------      ----------    ---------    ----------     ------------   -------
<S>                          <C>         <C>           <C>            <C>         <C>      
Operating Expenses:
Personnel costs              $     -     $      -      $   (0.3)      $      -    $   (0.3)
Aircraft rent                 (115.5)           -             -              -      (115.5)
Aircraft maintenance             3.4            -             -              -         3.4
Depreciation and
    Amortization               (21.7)       (18.0)        (18.2)             -       (57.9)
Other, net                     (39.1)       (36.0)         (7.4)          (1.7)      (84.2)
                              ------      -------       -------        -------     -------
Total Operating Expenses     $(172.9)    $  (54.0)     $  (25.9)      $   (1.7)   $ (254.5)
                              ======      =======       =======        =======     =======
Other Income (Expense):
Other, net                   $     -     $      -      $      -       $   28.3    $   28.3
                              ------      -------       -------        -------     -------
Total Other Income (Exp.)    $     -     $      -      $      -       $   28.3    $   28.3
                              ======      =======       =======        =======     =======

</TABLE


     US Airways also recorded a $50.0 million addition to 
Passenger transportation revenues in the fourth quarter of 1994 to 
adjust estimates made during the first three quarters of 1994.

     As mentioned above under "Year Ended December 31, 1996 
Compared to Year Ended December 31, 1995," the Company recognized 
a $4.1 million unusual item during the fourth quarter of 1995 
related to US Airways' BAe-146 aircraft (a reduction of Aircraft 
rent expense).

                                47
<PAGE>

OPERATING REVENUES

Passenger Transportation - Increased $391.0 million (6.2%), $345.5 
million of which is attributable to US Airways and the remainder 
to the Company's wholly-owned regional airlines. The Company 
estimates that its Passenger transportation revenues were 
adversely affected during 1994 by approximately $50 million due to 
unfavorable weather during the first quarter and approximately 
$150 million as the result of the two accidents that occurred 
during the third quarter. By early 1995, US Airways' traffic had 
recovered from the effects of the accidents and approached a level 
more normally associated with US Airways' capacity in the 
marketplace. US Airways' 6.7% yield improvement was sufficient to 
offset the effects on revenues of a 4.7% decrease in both revenue 
passengers and capacity (ASMs).

Cargo and Freight - Decreased $6.3 million (3.9%) primarily due to 
US Airways' $6.7 million (4.2%) decrease. The U.S. Postal 
Service's increased emphasis on truck movement of mail in the 
Northeastern U.S. resulted in lower mail volumes and yields.

Other Operating Revenues - Increased $92.5 million (19.4%), $67.5 
million (13.6%) of which is attributable to US Airways, primarily 
due to an increase in fees received from participants in US 
Airways' frequent traveler program and increased revenues from 
higher volumes and rates for cancellation and rebooking fees. 
Revenues from third party aircraft lease and sublease arrangements 
also increased during 1995. US Airways' results include certain 
transactions with related parties that are eliminated at the US 
Airways Group level. Overall, increases in the Other Operating 
Revenue category were largely offset by increases in related 
expenses recognized as Other Operating Expenses, Net.

OPERATING EXPENSES

Personnel Costs - Relatively unchanged year-over-year. US Airways 
recognized profit sharing expense of $49.7 million in 1995 and 
$4.1 million during 1994 associated with the profit sharing 
component of the 1992 Salary Reduction Program (see further 
discussion of this profit sharing plan in "Year Ended December 31, 
1996 Compared to Year Ended December 31, 1995" above). The 1994 
profit sharing expenses resulted from employees receiving certain 
guaranteed profit sharing payments upon their termination. 
Overall, profit sharing expense and the contractual wage increases 
that US Airways' pilots, flight attendants and mechanics received 
during 1995 were offset by lower personnel levels. US Airways' 
workforce had approximately 2,500 fewer employees as of December 
31, 1995 than as of December 31, 1994.

Aviation Fuel - Decreased $37.6 million (5.6%), primarily due to 
US Airways' $37.3 million (5.8%) decrease. Year-over-year, the 
average cost of fuel per gallon was relatively unchanged but US 
Airways' capacity (ASMs) decreased approximately 4.7%. The 
decreased capacity contributed to a 5.6% reduction in fuel 
consumption.

Commissions - Decreased $20.1 million (3.5%) and $22.1 million 
(4.0%) at US Airways despite an increase in Passenger 
transportation revenues primarily due to the effects of a change 
in the rate structure for travel agency commissions that went into 
effect during early 1995.

Aircraft Rent - Decreased $125.9 million (22.3%) primarily due to 
US Airways' $123.3 million (23.7%) decrease. Excluding the unusual 
items recognized during 1995 and 1994, as discussed above, US 
Airways' Aircraft rent expense decreased $3.7 million (0.9%) 
mainly due to fewer leased aircraft in US Airways' operating fleet 
year-over-year.

                                48
<PAGE>

Other Rent and Landing Fees - Decreased $32.4 million (7.4%) and 
$33.3 million (7.9%) at US Airways primarily due to US Airways' 
capacity (ASMs) reductions during 1995 and credits totaling 
approximately $6.0 million received from various airport 
authorities during 1995 related to 1994 activity.

Aircraft Maintenance - Decreased $45.3 million (11.6%) primarily 
due to US Airways' $40.2 million (12.0%) decrease which resulted 
from fewer operating aircraft year-over-year and the positive 
impact of US Airways' re-engineering efforts in the maintenance 
areas.

Depreciation and Amortization - Excluding the effects of the 
unusual items recognized during 1994, as discussed above, US 
Airways' expense increased $7.8 million (2.4%).

Other Operating Expenses, Net - Excluding the effect of the 
unusual items recognized in 1994, as discussed above, these 
expenses increased approximately $68.5 million (4.7%) largely due 
to increases in expenses associated with increased sales activity 
and increased Federal taxes on aviation fuel (see discussion under 
"Government Regulation" above). Increased third party lease and 
sublease arrangements also contributed to the increase in this 
expense category (see also "Other Operating Revenues" above). 
Decreases in certain capacity-related expenses partially offset 
increases in other components of Other Operating Expenses, Net. US 
Airways' results include certain transactions that are eliminated 
at the US Airways Group level.

OTHER INCOME (EXPENSE)

Interest Income - Improved by $24.5 million (90.6%) mainly as a 
result of significantly higher cash levels during 1995.

Interest Expense - Increased $18.6 million (6.5%) primarily as a 
result of interest incurred on debt associated with new aircraft 
deliveries during 1995 and 1994 which outweighed the effects of US 
Airways' early debt repayments during 1995 which totaled $202.1 
million.

Interest Capitalized - Decreased $5.0 million (36.2%) mainly due 
to US Airways' agreement with Boeing to defer the delivery of 
certain 757-200 aircraft from 1996 to 1998 (see related discussion 
under "Aircraft Fleet and Related Matters" above).

Equity in Earnings (Loss) of Affiliates - Results for all three 
of USAM's equity investments improved primarily driven by 
increases in airline industry passenger volumes year-over-year.

Other, Net - Decreased $8.9 million as the effects of the $28.3 
million gain recognized in 1994 (discussed above) were only 
partially offset by US Airways' $10.7 million gain associated with 
the sale of thirteen 737-300 aircraft during 1995.

Provision (Credit) for Income Taxes - The Company was subject to 
Federal alternative minimum tax for 1995 as well as income taxes 
in certain states. The Company was not subject to regular Federal 
income tax for 1995 as the result of using Federal net operating 
loss carryforwards. The results for 1994 do not include any income 
tax credit due to Statement of Financial Accounting Standards No. 
109, "Accounting for Income Taxes" ("SFAS 109") limitations in 
recognizing a current benefit for net operating losses. See Note 5 
to the Company's Consolidated Financial Statements for additional 
information.

                                49
<PAGE>

                INFLATION AND CHANGING PRICES

     Inflation and changing prices do not have a significant 
effect on the Company's operating revenues and expenses (other 
than depreciation and amortization) because such revenues and 
expenses generally reflect current price levels.

     Depreciation and amortization expense is based on historical 
cost. For assets acquired through the purchase of Pacific 
Southwest Airlines, US Airways' historical cost is based on the 
market value of the assets on May 29, 1987. In the case of 
Piedmont Aviation, Inc., US Airways' historical cost is based on 
the fair market value of the assets on November 5, 1987, reduced 
by the tax effect of that portion of fair market value not 
deductible for tax purposes in the form of depreciation and 
amortization. Therefore, aggregate depreciation and amortization 
is lower than if this expense reflected today's replacement costs 
for existing productive assets. In evaluating how inflation would 
increase depreciation expense, however, consideration should also 
be given to the reduction in other operating expenses, such as 
aircraft maintenance and aviation fuel, that would be achieved 
from the operating efficiencies of newer, more technologically 
advanced productive assets.

                LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 1996, Cash and cash equivalents and Short-
term investments totaled $1.59 billion. US Airways also had $74.4 
million deposited in trust accounts to collateralize letters of 
credit and workers' compensation policies at year-end 1996. These 
deposits are included in the Other Asset category on the 
Company's Consolidated Balance Sheets.

     Net cash provided by operations was $1.03 billion for 1996, 
$576.6 million for 1995 and $1.1 million for 1994. The significant 
year-over-year improvements in cash flows from operating 
activities experienced by the Company for the last  three years 
are primarily due to factors discussed under "Factors Contributing 
to Improved 1996 Financial Results" above.

     USAM received a special cash distribution of $33.7 million 
from ATS during the second quarter of 1996, reflected in the 
Other operating adjustments category in the Company's 
Consolidated Statements of Cash Flows (contained in Part II, Item 
8A of this report). This special distribution was part of an ATS 
distribution of cash to its partners. USAM received distributions 
of $48.7 million from its computer reservation system 
investments, including the special ATS distribution, during 1996. 
USAM received distributions of $14.0 million and $8.3 million 
from these investments for 1995 and 1994, respectively.

     As discussed under "Government Regulation" above, the ticket 
tax expired on January 1, 1996, but was reinstated effective 
August 27, 1996 for tickets sold for travel before January 1, 
1997. During February 1997, US Airways remitted approximately 
$180 million to the Federal Government primarily related to 
ticket taxes that US Airways collected during the time period in 
1996 that this tax was in effect. In addition, the Company  paid 
its remaining obligation under the 1992 Salary Reduction Plan, 
$129.1 million, in early March 1997; this payment ended the 
Company's obligations for profit sharing under this plan and was 
based on expenses the Company recognized during 1996 and in 
earlier periods.

     The Company added a SAR feature to its 1992 Stock Option 
Plan during the fourth quarter of 1996 (see discussion of 
Personnel Costs under "Year Ended December 31, 1996 Compared to 
Year Ended December 31, 1995" above). SAR exercises could 
potentially have a material adverse effect on the Company's 
future cash outflows depending on the number and timing of SAR 
exercises and changes in the fair market value of the Company's 

                                50
<PAGE>

Common Stock. Approximately 570,000 SARs were exercised during 
the fourth quarter of 1996 resulting in a cash outlay of $4.9 
million.

     During the third quarter of 1996, the Company revised its 
estimate of short-term pension plan funding requirements 
resulting in a decrease of approximately $137 million in the 
Company's current liabilities as of September 30, 1996 (which was 
offset by a corresponding increase in the Company's long-term 
liabilities) and a significant reduction in the Company's 
original estimate of anticipated cash outflows for 1997.

     The Company has also embarked on a program to upgrade and 
standardize the interiors of US Airways' operating aircraft. This 
program, described under "Aircraft Fleet and Related Matters" 
above, will result in currently estimated incremental 
expenditures of approximately $73 million, primarily during 1997 
and 1998.

     The Company anticipates that its capital expenditures for 
1997 will total approximately $150 million, almost all of which is 
related to US Airways' operations. This estimate includes $20 
million related to the purchase of hush kits for certain aircraft 
in order to comply with Federal noise and pollution mandates and 
$115 million primarily related to the purchase of aircraft 
rotables, other aircraft components (including items associated 
with US Airways' Aircraft Interior Upgrade and Standardization 
Program), ground support equipment and computer equipment. The 
Company expects that it will satisfy its liquidity requirements 
for 1997 through a combination of cash on hand (Cash and cash 
equivalents and Short-term investments) and cash flow from 
operations. The Company's estimate of capital expenditures for 
1997 is subject to change. As discussed further under "Aircraft 
Fleet and Related Matters" above, US Airways has entered into an 
agreement with an affiliate of Airbus for the acquisition of up 
to 400 Airbus Aircraft; however, this agreement is contingent 
upon the Company achieving a competitive cost structure and 
approval of definitive documentation by US Airways' board of 
directors. If an aircraft acquisition agreement with Airbus is 
consummated, the Company's estimate of short-term and long-term 
capital expenditures may be materially effected. In addition, and 
also discussed further under "Aircraft Fleet and Related Matters" 
above, the Company has advised Boeing that it does not plan to 
accept delivery of certain aircraft the Company has on firm order 
with Boeing. The Company's estimate of capital expenditures for 
1997 does not include equipment purchase deposits that had 
originally been scheduled to be paid to Boeing under the terms of 
the Company's contract with Boeing. The outcome of the Company's 
discussions with Boeing and any impact on the Company's future 
capital expenditures that may result from these discussions cannot 
be determined at this time.

     As of December 31, 1996, the Company's current assets were 
$2.31 billion, an increase of $727.1 million since the end of 
1995; however, the Company remains highly leveraged. The Company 
and US Airways require substantial working capital in order to 
meet scheduled debt and lease payments and to finance day-to-day 
operations. In addition, the Company currently does not have in 
place a short-term credit or receivable sale facility. Changes in 
certain factors that are generally outside the Company's control, 
such as an economic downturn, additional government regulation, 
intensified low cost, low fare competition (see related 
discussion under "US Airways' Current Competitive Position - Low 
Cost, Low Fare Threat" above) and further increases in the price 
of aviation fuel, could have a materially adverse effect on the 
Company's liquidity, financial condition and results of 
operations. In addition, the Company is currently in contract 
negotiations with US Airways' organized labor groups with the 
goal of achieving a competitive cost structure. There can be no 
assurance that the Company will be able to accomplish this goal. 
Currently, US Airways' high cost structure relative to its major 
competitors results in the Company being particularly susceptible 
to adverse changes in general economic and market conditions.

                                51
<PAGE>

     Investing activities during 1996 included cash outflows of 
$180.7 million for the acquisition of assets ($34.9 million for 
hush kits, progress payments for 757-200 aircraft of $31.4 
million (see "Aircraft Fleet and Related Matters" above for 
recent developments concerning Boeing), $15.2 million to purchase 
four 737-200 aircraft prior to lease expiry and $99.2 million 
related to the purchase of rotables, various ground support 
equipment and computer equipment). The Company's Short-term 
investments increased $603.6 million year-over-year primarily due 
to the Company's operations generating significantly more cash 
than needed to fulfill immediate operational needs. The Other 
investing uses of cash category on the Company's Consolidated 
Statements of Cash Flows includes $12.2 million related to the 
purchase of debt issued by Shuttle, Inc. during the first quarter 
of 1996. Net cash used by investing activities during 1996 was 
$753.8 million.
     Net cash used by financing activities during 1996 was $209.0 
million. During the third quarter of 1996, US Airways paid off 
certain long-term debt with a principal amount of $42.8 million 
for one of the Company's regional airline subsidiaries (the 
affiliated company repaid US Airways during December 1996).

     US Airways sold $263.0 million principal amount of Enhanced 
Equipment Notes ("Enhanced Notes") during the first quarter of 
1996 through a private placement offering under SEC Regulation 
144A. US Airways used the proceeds from the offering as part of 
the funds necessary to repay in full the indebtedness incurred in 
connection with certain Boeing 757-200 aircraft delivered to US 
Airways in 1995 and 1994. The transaction is reflected on the 
Company's Consolidated Statements of Cash Flows as proceeds from 
the issuance of debt of $103.0 million and a "non-cash" issuance 
of debt of $160.0 million. The non-cash component reflects 
proceeds that US Airways directed to reduce debt and pay 
underwriter's fees at the time of the offering. US Airways used 
the cash proceeds it received from the offering and additional 
funds to make debt repayments of approximately $105.5 million 
immediately following the offering. The Enhanced Notes are 
secured by nine 757-200 aircraft. US Airways filed a Form S-4 
Registration Statement with the SEC during July 1996 in 
connection with its offer to exchange registered Enhanced Notes 
for the privately-placed Enhanced Notes. The exchange offer was 
completed in August 1996. The exchange offer did not result in 
cash inflows or outflows with the exception of filing fees and 
certain administrative costs.

     In addition to the prepayment and refinancing transactions 
and the early pay-off by US Airways of an affiliate's third party 
debt, both discussed above, the Company's subsidiaries made 
scheduled debt repayments of $85.0 million during 1996. US 
Airways also incurred new debt of $29.2 million associated with 
progress payments for 757 aircraft (see "Aircraft Fleet and 
Related Matters" above for recent developments concerning 
Boeing). The $29.2 million is reflected as non-cash activity in 
the Company's Consolidated Statements of Cash Flows because US 
Airways incurred the related debt in conjunction with the payment 
of the progress payments.

     During 1996, the Company paid dividends of $83.0 million on 
its outstanding Senior Preferred Stock. The Company had 
previously deferred the payment of dividends on all of its 
outstanding series of preferred stock beginning in September 1994 
(see discussion under "Payments of Dividends on Senior Preferred 
Stock" above). The combined annual dividend requirement of all the 
Company's outstanding preferred stock issuances, each of which has 
a cumulative dividend feature, is approximately $78.7 million. As 
of December 31, 1996, dividends of $118.9 million on all of the 
Company's outstanding preferred stock issuances had been deferred 
(including additional dividends (interest) on deferred dividends). 
On January 31, 1997, the Company paid dividends of $50.0 million 
to holders of its Senior Preferred Stock. See discussion under 
"Payments of Dividends on Senior Preferred Stock" above. The 

                                52
<PAGE>

Company's Series A Preferred Stock is mandatorily redeemable on 
August 7, 1999 at $1,000 per share plus accrued dividends 
(interest) and the Company's Series F Preferred Stock and Series T 
Preferred Stock are mandatorily redeemable in the year 2008.

     As of December 31, 1996, the redemption values of the Series 
A Preferred Stock, Series F Preferred Stock and Series T Preferred 
Stock were $404.7 million, $323.4 million and $107.6 million, 
respectively, and the liquidation preference of the Series B 
Preferred Stock was $255.1 million.

     Except for the Enhanced Notes sold in 1996, the Company's and 
US Airways' outstanding debt and equity securities are presently 
rated "below investment grade" by Standard and Poor's Corporation 
and Moody's Investors Service, Inc. Such ratings may make it more 
difficult and costly for the Company and US Airways to effect 
additional financing, particularly unsecured financing. US Airways 
recently reached an agreement with a subsidiary of Airbus to 
acquire up 400 Airbus Aircraft. Final consummation of this 
agreement would result in a significant increase in the Company's 
need for additional financing (see discussion under "Aircraft 
Fleet and Related Matters" above).

     US Airways is party to certain financial contracts to reduce 
its exposure to fluctuations in the price of aviation fuel. Under 
these arrangements, US Airways pays a fixed rate per notional 
gallon of fuel and receives in return a floating rate per notional 
gallon based on the market rate during the month of settlement. 
Decreases in the market cost of the fuel below the rates specified 
in the contracts require US Airways to make cash payments. The 
Company believes that these financial contracts, although 
inherently risky, do not present a material risk to the Company's 
or US Airways' liquidity, financial condition or results of 
operations due to the relatively simple terms, the purpose and 
short duration of these arrangements. US Airways periodically 
reviews the financial condition of each counterparty to these 
financial contracts and believes that the potential for default by 
any of the current counterparties is negligible. See Note 2 to the 
Company's Consolidated Financial Statements for additional 
information.

     US Airways and certain of the Company's other subsidiaries 
have received notices from the U.S. Environmental Protection 
Agency and various state agencies that they are potentially 
responsible parties with respect to the remediation of existing 
sites of environmental concern. Negotiations with various 
governmental agencies continue concerning known and possible 
cleanup sites. US Airways has made financial contributions for the 
performance of remedial investigations and feasibility studies at 
sites in Moira, New York; Escondido, California; and Elkton, 
Maryland. The contributions totaled approximately $120,000 in 1996 
and $200,000 for 1995, 1994 and 1993 combined. The Company 
believes that the ultimate resolution of known environmental 
contingencies should not have a material adverse effect on its 
financial condition and results of operations based on the 
Company's experience with similar environmental sites.

     Also, US Airways has been identified as a potentially 
responsible party ("PRP") for environmental contamination at 
Boston's Logan International Airport. There are a number of other 
PRPs at the site. The Company has reached an agreement with the 
Massachusetts Port Authority to pay approximately $300,000 in 
cash, and to undertake certain remedial activities in connection 
with its operations at Boston's  Logan International Airport.

     The Company terminated its revolving credit facility with a 
group of banks during 1994. The Company had historically utilized 
such a facility to supplement its liquidity from time to time. In 
addition, US Airways' revolving accounts receivable sale program 
expired in December 1994. US Airways was unable to sell 
receivables under the agreement during 1994 because of failure to 

                                53
<PAGE>

comply with certain financial covenants required to be maintained 
in connection with that agreement. The Company does not believe 
the absence of either type of liquidity supplement is detrimental 
to its short-term financial condition due primarily to the 
Company's current substantial cash, cash equivalents and short-
term investments reserves.

     Investing activities during 1995 included cash inflows from 
asset sales of approximately $222.3 million (primarily from the 
sale of thirteen 737-300 aircraft) offset by a $146.7 million cash 
outflow for the acquisition of assets ($61.7 million cash payments 
related to new 757-200 aircraft) (see "Aircraft Fleet and Related 
Matters" above for recent developments concerning Boeing) and 
$85.0 million cash payments related to the purchase of aircraft 
rotables, hush kits, computer equipment and various ground support 
equipment. Net cash provided by investing activities for 1995 was 
$148.9 million.

     Financing activities during 1995 included $283.2 million of 
debt payments, including the redemption of US Airways' remaining 
outstanding 12 7/8% Unsecured Senior Notes ("12 7/8% Notes"), 
partially offset by $8.7 million in cash proceeds from the sale of 
the Company's stock to an employee benefit plan stock fund and new 
debt of $1.2 million incurred at one of the Company's regional 
airline subsidiaries. In addition, the Company incurred debt of 
$169.7 million associated with the delivery of seven new 757-200 
aircraft and scheduled progress payments for the future aircraft 
deliveries during 1995. In connection with the deferral of eight 
757-200 deliveries to 1998, US Airways rescheduled the due date of 
$70.8 million of previously satisfied aircraft purchase deposits 
into the future resulting in a reduction of both debt and 
equipment deposits (see "Aircraft Fleet and Related Matters" 
above for recent developments concerning Boeing). The $169.7 
million and $70.8 million are reflected as non-cash activity in 
the Company's Consolidated Statements of Cash Flows because US 
Airways experienced an increase or decrease in fixed assets or 
equipment deposits concurrently with the increase or decrease in 
debt. US Airways made early debt payments, including the 
redemption of the 12 7/8% Notes, totaling approximately $202.1 
million during 1995.

     During December 1995, US Airways completed a transaction 
which enabled it to substitute previously unencumbered aircraft in 
lieu of cash deposits as collateral for certain workers' 
compensation liabilities. As a result of the arrangement, 
approximately $67.2 million of previously restricted cash and 
security deposits were returned to US Airways.

     During 1994, the Company's investment in new aircraft 
acquisitions and purchase deposits totaled $270.6 million (which 
includes $224.6 million presented as non-cash on the Company's 
Consolidated Statement of Cash Flows since debt was incurred upon 
delivery of aircraft or to satisfy equipment deposit progress 
payments). US Airways took delivery of five new 757-200 aircraft 
during 1994. The Company invested $134.1 million in non-aircraft 
property during 1994 (e.g., ground support equipment, computer 
equipment, software, aircraft rotables and hush kits, and take-off 
and landing slots), partly offset by $75.1 million in proceeds 
from disposition of assets which includes the sale of certain 
aircraft and assets to Mesa and insurance proceeds related to the 
jet aircraft involved in the September 1994 accident. Net cash 
provided by financing activities was $183.4 million, which 
includes (i) $172.2 million net proceeds received by US Airways 
upon the sale of $175 million principal amount of 9 5/8% Senior 
Notes due 2001 through an underwritten public offering and (ii) 
$136.7 million of new debt issued which is secured by aircraft 
delivered before 1994, offset by $87.1 million of scheduled debt 
payments and $49.7 million of preferred dividend payments. In 
addition, as discussed above, the Company incurred $270.6 million 
of debt upon delivery of five 757-200 aircraft and to satisfy 
equipment deposit progress payments (see "Aircraft Fleet and 
Related Matters" above for recent developments concerning 
Boeing).

                                54
<PAGE>

     As of December 31, 1996, the Company's ratio of current 
assets to current liabilities was 0.81 to 1 and the debt 
component of the Company's capitalization structure was greater 
than 100% (and also greater than 100% if the three series of 
mandatorily redeemable preferred stock are considered to be debt) 
due to a deficit in stockholders' equity.

     Certain information contained in "Management's Discussion 
and Analysis of Financial Condition and Results of Operations" 
should be considered "forward-looking information" which is 
subject to a number of risks and uncertainties. The preparation 
of forward-looking information requires the use of estimates of 
future revenues, expenses, activity levels and economic and 
market conditions, many of which are outside the Company's 
control. Among the specific factors that could cause actual 
results to differ materially from those set forth in the forward-
looking information are the following: labor costs, or, in the 
alternative, not putting in place a competitive cost structure, 
aviation fuel costs, competitive pressures on pricing 
particularly from low cost air carriers, weather conditions, 
consumer perceptions of the Company's product, demand for air 
transportation in the markets in which the Company operates and 
the risks listed from time to time in the Company's U.S. 
Securities and Exchange Commission reports. Other factors and 
assumptions not identified above are also involved in the 
preparation of forward-looking information, 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.












               (this space intentionally left blank)

                                55

<PAGE>
ITEM 8A.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
          INFORMATION FOR US AIRWAYS GROUP, INC.


                  INDEPENDENT AUDITORS' REPORT



The Stockholders and Board of Directors
US Airways Group, Inc.:

We have audited the consolidated balance sheets of US Airways 
Group, Inc. (formerly USAir Group, Inc.) and subsidiaries as of 
December 31, 1996 and 1995, and the related consolidated 
statements of operations, cash flows, and changes in stockholders' 
equity (deficit) for each of the three years in the period ended 
December 31, 1996. 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 generally accepted 
auditing standards. 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 Group, Inc. and subsidiaries as of 
December 31, 1996 and 1995, and the results of their operations 
and their cash flows for each of the three years in the period 
ended December 31, 1996, in conformity with generally accepted 
accounting principles.


KPMG PEAT MARWICK LLP


Washington, D. C.
February 26, 1997, except as to note 4(c) and note 4(d)
which are as of March 13, 1997

                                56


<PAGE>

</TABLE>
<TABLE>
US Airways Group, Inc.  (Formerly USAir Group, Inc.)
Consolidated Statements of Operations
Years Ended December 31,
---------------------------------------------------------------------------------
(in thousands, except per share amounts)

<CAPTION>
                                                1996         1995          1994
                                                ----         ----          ----
<S>                                         <C>          <C>           <C>
Operating Revenues
  Passenger transportation                  $7,370,888   $6,748,564    $6,357,547
  Cargo and freight                            162,704      157,262       163,598
  Other                                        608,821      568,522       476,049
                                             ---------    ---------     ---------
    Total Operating Revenues                 8,142,413    7,474,348     6,997,194

Operating Expenses
  Personnel costs                            3,195,463    2,887,115     2,889,764
  Aviation fuel                                749,119      634,320       671,926
  Commissions                                  586,226      563,037       583,158
  Aircraft rent                                436,873      437,649       563,572
  Other rent and landing fees                  412,275      404,158       436,540
  Aircraft maintenance                         372,997      346,854       392,181
  Depreciation and amortization                316,043      352,447       408,587
  Other, net                                 1,635,924    1,527,081     1,542,822
                                             ---------    ---------     ---------
    Total Operating Expenses                 7,704,920    7,152,661     7,488,550
                                             ---------    ---------     ---------
    Operating Income (Loss)                    437,493      321,687      (491,356)
Other Income (Expense)
  Interest income                               74,819       51,624        27,088
  Interest expense                            (267,122)    (302,593)     (284,034)
  Interest capitalized                           8,398        8,781        13,760
  Equity in earnings (loss) of affiliates       36,602       34,546        26,535
  Other, net                                   (14,708)      14,227        23,084
                                              --------     --------      --------
    Other Income (Expense), Net               (162,011)    (193,415)     (193,567)
                                              --------     --------      --------
Income (Loss) Before Taxes                     275,482      128,272      (684,923)
  Provision (Credit) for Income Taxes           12,109        8,985             -
                                              --------     --------      --------
Net Income (Loss)                              263,373      119,287      (684,923)
  Preferred Dividend Requirement               (88,775)     (84,904)      (78,036)
                                              --------     --------      --------
Net Income (Loss) Applicable to Common 
  Stockholders                              $  174,598   $   34,383     $(762,959)
                                              ========     ========      ========
Income (Loss) per Common Share
  Primary                                   $     2.69   $     0.55     $  (12.73)
  Fully-diluted                             $     2.33   $     0.55     $  (12.73)
Shares Used for Computation (000)
  Primary                                       64,919       62,430        59,915
  Fully-diluted                                 95,516       62,526        59,915

See accompanying Notes to Consolidated Financial Statements.

                                       57
</TABLE>
<PAGE>
<TABLE>
US Airways Group, Inc.  (Formerly USAir Group, Inc.)
Consolidated Balance Sheets
December 31,
---------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
<CAPTION>
                                                          1996            1995
                                                          ----            ----
                          ASSETS
<S>                                                 <C>             <C>
Current Assets
  Cash and cash equivalents                         $    950,966    $    881,854
  Short-term investments                                 635,839          19,831
  Receivables, net                                       337,025         322,122
  Materials and supplies, net                            248,774         248,144
  Prepaid expenses and other                             137,590         111,131
                                                       ---------       ---------
    Total Current Assets                               2,310,194       1,583,082
Property and Equipment
  Flight equipment                                     5,202,057       5,251,742
  Ground property and equipment                        1,108,648       1,073,720
  Less accumulated depreciation and amortization      (2,470,337)     (2,301,059)
                                                       ---------       ---------
                                                       3,840,368       4,024,403
  Purchase deposits                                       77,620          17,026
    Total Property and Equipment, Net                  3,917,988       4,041,429
Other Assets
  Goodwill, net                                          494,511         510,562
  Other intangibles, net                                 283,309         312,786
  Other assets, net                                      525,409         507,149
                                                       ---------       ---------
    Total Other Assets                                 1,303,229       1,330,497
                                                       ---------       ---------
                                                     $ 7,531,411     $ 6,955,008
                                                       =========       =========
     LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities
  Current maturities of long-term debt               $    84,259     $    80,721
  Accounts payable                                       438,951         325,330
  Traffic balances payable and unused tickets            715,576         607,170
  Accrued aircraft rent                                  510,752         495,489
  Accrued expenses                                     1,099,181         975,986
                                                       ---------       ---------
    Total Current Liabilities                          2,848,719       2,484,696
Long-term Debt, Net of Current Maturities              2,615,780       2,717,085
Deferred Credits and Other Liabilities
  Deferred gains, net                                    359,748         386,947
  Postretirement benefits other than pensions,
    non-current                                        1,093,519       1,015,623
  Non-current employee benefit liabilities and other     439,308         427,726
                                                       ---------       ---------
    Total Deferred Credits and Other Liabilities       1,892,575       1,830,296


                         (continued on next page)

                                       58
</TABLE>
<PAGE>
<TABLE>
US Airways Group, Inc.  (Formerly USAir Group, Inc.)
Consolidated Balance Sheets   (Continued)
December 31,
--------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)


<CAPTION>
                                                          1996            1995
                                                          ----            ----

     LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

<S>                                                  <C>             <C>
Commitments and Contingencies

Redeemable Cumulative Convertible Preferred Stock
  Series A, 358,000 shares issued, no par value          358,000         358,000
    (redemption value of $404,675 at December 31, 1996)
  Series F, 30,000 shares issued, no par value           300,000         300,000
    (redemption value of $323,361 at December 31, 1996)
  Series T, 10,000 shares issued, no par value           100,719         100,719
    (redemption value of $107,602 at December 31, 1996)
Stockholders' Equity (Deficit)
  Series B cumulative convertible preferred stock,       213,128         213,153
    no par value, 4,263,000 depositary shares
    issued (liquidation preference of $255,088 at
    December 31, 1996)
Common stock, par value $1 per share, authorized          64,306          63,449
  150,000,000 shares, issued and outstanding
  64,306,000 and 63,449,000 shares, respectively
Paid-in capital                                        1,386,557       1,362,756
Retained earnings (deficit)                           (2,117,838)     (2,298,211)
Common stock held in treasury                                  -               -
Deferred compensation                                    (95,326)        (98,847)
Adjustment for minimum pension liability                 (35,209)        (78,088)
                                                       ---------       ---------
  Total Stockholders' Equity (Deficit)                  (584,382)       (835,788)
                                                       ---------       ---------
                                                     $ 7,531,411     $ 6,955,008
                                                       =========       =========





See accompanying Notes to Consolidated Financial Statements.


                                       59
</TABLE>
<PAGE>
<TABLE>
US Airways Group, Inc.  (Formerly USAir Group, Inc.)
Consolidated Statements of Cash Flows
Years Ended December 31,
----------------------------------------------------------------------------------------
(in thousands)

<CAPTION>
                                                             1996       1995      1994
                                                             ----       ----      ----
<S>                                                      <C>        <C>        <C>
Cash and cash equivalents beginning of year              $ 881,854  $ 429,538  $ 368,347
                                                           -------    -------    -------
Cash flows from operating activities
  Net income (loss)                                        263,373    119,287   (684,923)
  Adjustments to reconcile net income (loss) to net
    cash provided by (used for) operating activities
      Depreciation and amortization                        316,043    352,447    408,587
      Loss (gain) on disposition of property                   748    (17,043)   (24,099)
      Amortization of deferred gains and credits           (27,668)   (27,817)   (27,396)
      Other                                                 38,048      6,294    (11,605)
      Changes in certain assets and liabilities
        Decrease (increase) in receivables                 (14,903)     2,417     41,101
        Decrease (increase) in materials, supplies,
          prepaid expenses and intangible
          pension assets                                   (45,455)   (74,980)    74,663
        Increase (decrease) in traffic balances 
          payable and unused tickets                       108,406     38,955    (61,932)
        Increase (decrease) in accounts payable, accrued
          aircraft rent and accrued expenses               315,440    120,422    235,105
        Increase (decrease) in postretirement
          benefits other than pensions, non-current         77,896     56,667     51,613
                                                         ---------    -------     ------
          Net cash provided by (used for)
            operating activities                         1,031,928    576,649      1,114

Cash flows from investing activities
  Aircraft acquisitions and purchase deposits, net         (52,854)   (61,689)   (46,022)
  Additions to other property                             (127,875)   (84,980)  (134,086)
  Proceeds from disposition of property                     24,903    222,325     75,075
  Decrease (increase) in short-term investments           (603,593)     2,430    (21,994)
  Decrease (increase) in restricted cash and investments    11,086     71,980      2,578
  Other                                                     (5,497)    (1,134)     1,110
                                                           -------    -------    -------
    Net cash provided by (used for) investing
      activities                                          (753,830)   148,932   (123,339)



                              (continued on next page)

                                       60
</TABLE>
<PAGE>
<TABLE>
US Airways Group, Inc.  (Formerly USAir Group, Inc.)
Consolidated Statements of Cash Flows  (Continued)
Years Ended December 31,
----------------------------------------------------------------------------------------
(in thousands)


<CAPTION>
                                                            1996        1995      1994
                                                            ----        ----      ----
<S>                                                     <C>         <C>        <C>
Cash flows from financing activities
  Issuance of debt                                         103,002      1,162    308,856
  Reduction of debt                                       (235,500)  (283,160)   (87,073)
  Issuance of common stock                                   3,882      8,733         52
  Sale of treasury stock                                     2,630          -     11,244
  Dividends paid                                           (83,000)         -    (49,663)
                                                           -------    -------    -------
    Net cash provided by (used for) financing
      activities                                          (208,986)  (273,265)   183,416
                                                           -------    -------    -------
Net increase (decrease) in cash and cash  equivalents       69,112    452,316     61,191
                                                           -------    -------    -------
Cash and cash equivalents end of year                   $  950,966  $ 881,854  $ 429,538
                                                           =======    =======    =======

Noncash investing and financing activities
  Issuance of debt - refinancing of debt secured
    by aircraft                                         $  159,998  $       -  $       -
                                                           =======    =======    =======
  Reduction of debt - refinancing of debt
    secured by aircraft                                 $  154,422  $       -  $       -
                                                           =======    =======    =======
  Issuance of debt - aircraft acquisitions              $   29,155  $ 169,725  $ 224,614
                                                           =======    =======    =======
  Reduction of debt - aircraft purchase deposits        $        -  $  70,837  $       -
                                                           =======    =======    =======
  Underwriter's fees - refinancing of debt
    secured by aircraft                                 $    2,488  $       -  $       -
                                                           =======    =======    =======
  Treasury stock acquired for tax withholding on
    employee stock grants                               $    2,630  $       -  $       -
                                                           =======    =======    =======


Supplemental Information
  Cash paid during the year for interest, net
   of amounts capitalized                               $  260,625  $ 299,871  $ 251,943
                                                           =======    =======    =======
  Net cash received (paid) during the year
    for income taxes                                    $  (12,325) $  (6,637) $     317
                                                           =======    =======    =======

See accompanying Notes to Consolidated Financial Statements.

                                       61
</TABLE>
<PAGE>
<TABLE>
US Airways Group, Inc.  (Formerly USAir Group, Inc.)
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Three Years Ended December 31, 1996
-----------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)

<CAPTION>
                                                                                            Adjustment
                                                                                               For
                                                          Retained                Deferred   Minimum
                        Preferred  Common     Paid In     Earnings    Treasury     Compen-   Pension
                         Stock  B   Stock     Capital     (Deficit)     Stock      sation   Liability     Total
                           --------   -----     -------     --------     -------     ------    -------      -----
<S>                        <C>       <C>      <C>         <C>           <C>        <C>        <C>        <C>
Balance December 31, 1993  $213,153  $61,080  $1,417,346  $(1,682,912)  $(83,891)  $(94,957)  $(42,395)  $(212,576)

Reversion of 4,000 shares of 
  restricted stock previously
  granted                         -       (4)        (28)           -          -         58          -          26

Sale of 12,400 shares of
  common stock                    -       12          40            -          -          -          -          52

Exercise of 5,000 options         -        -        (177)           -        225          -          -          48

Sale of 1,859,000 shares of
  treasury stock                  -        -     (72,470)           -     83,666          -          -      11,196

Dividends declared
  (preferred stock)
    Series A-$46.25 per share     -        -           -      (16,557)         -          -          -     (16,557)
    Series B-$3.28 per 
      depositary share            -        -           -      (13,988)         -          -          -     (13,988)
    Series F-$525 per share       -        -           -      (15,750)         -          -          -     (15,750)
    Series T-$334.38 per share    -        -           -       (3,368)         -          -          -      (3,368)

Amortization of
  deferred compensation           -        -        (375)           -          -      3,934          -       3,559

Adjustment for minimum pension
  liability                       -        -           -            -          -          -     35,378      35,378

Net loss                          -        -           -     (684,923)         -          -          -    (684,923)
                            -------   ------   ---------    ---------     ------     ------     ------     -------
Balance December 31, 1994  $213,153  $61,088  $1,344,336  $(2,417,498)  $      -   $(90,965)  $ (7,017)  $(896,903)

Sale of 1,384,000 shares of
  common stock                    -    1,384       6,929            -          -          -          -       8,313

Grant of 934,600 shares of
  restricted stock                -      934      10,982            -          -    (11,916)         -           -

Exercise of 42,775 options        -       43         377            -          -          -          -         420

Amortization of 
  deferred compensation           -        -         132            -          -      4,034          -       4,166

Adjustment for  minimum
  pension liability               -        -           -            -          -          -    (71,071)    (71,071)

Net income                        -        -           -      119,287          -          -          -     119,287
                            -------   ------   ---------    ---------     ------     ------     ------     -------
Balance December 31, 1995  $213,153  $63,449  $1,362,756  $(2,298,211)  $      -   $(98,847)  $(78,088)  $(835,788)




                                         (Continued on next page)

                                       62
</TABLE>
<PAGE>
<TABLE>
US Airways Group, Inc.  (Formerly USAir Group, Inc.)
Consolidated Statements of Changes in Stockholders' Equity (Deficit)   (Continued)
Three Years Ended December 31, 1996
------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)

<CAPTION>
                                                                                           Adjustment
                                                                                               For
                                                          Retained                Deferred   Minimum
                        Preferred  Common     Paid In     Earnings    Treasury     Compen-   Pension
                         Stock  B   Stock     Capital     (Deficit)     Stock      sation   Liability     Total
                           --------   -----     -------     --------     -------     ------    -------      -----
<S>                        <C>       <C>      <C>         <C>           <C>        <C>        <C>        <C>
Balance December 31, 1995  $213,153  $63,449  $1,362,756  $(2,298,211)  $      -   $(98,847)  $(78,088)  $(835,788)

Grant of 635,000 shares
  of restricted stock and
  2,415,000 options               -      635      20,668            -          -    (21,303)         -           -

Acquisition of 118,156 
  shares of common stock
  from certain employees          -        -           -            -     (2,630)         -          -      (2,630)

Exercise of 434,876 options       -      317       4,241            -      2,630          -          -       7,188


Conversion of 500
  depositary shares             (25)       1          24            -          -          -          -           -

Reversion of 96,310 shares
  of restricted stock
  previously granted              -      (96)     (1,132)           -          -      1,228          -           -

Dividends declared
  (preferred stock)
    Series A - $133.74 per share  -        -           -      (47,879)         -          -          -     (47,879)
    Series F - $902.14 per share  -        -           -      (27,064)         -          -          -     (27,064)
    Series T - $799.91 per share  -        -           -       (8,057)         -          -          -      (8,057)

Amortization of
  deferred compensation           -        -           -            -          -     23,596          -      23,596

Adjustment for  minimum
  pension liability               -        -           -            -          -          -     42,879      42,879

Net income                        -        -           -      263,373          -          -          -     263,373
                            -------   ------   ---------    ---------     ------     ------     ------     -------
Balance December 31, 1996  $213,128  $64,306  $1,386,557  $(2,117,838)  $      -   $(95,326)  $(35,209)  $(584,382)
                            =======   ======   =========    =========     ======     ======     ======     =======





See accompanying Notes to Consolidated Financial Statements

                                       63
</TABLE>

<PAGE>
                   US AIRWAYS GROUP, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  (a)  BASIS OF PRESENTATION AND NATURE OF OPERATIONS

     The accompanying Consolidated Financial Statements include 
the accounts of US Airways Group, Inc. ("US Airways Group" or the 
"Company") (formerly USAir Group, Inc.) and its wholly-owned 
subsidiaries US Airways, Inc. ("US Airways") (formerly USAir, 
Inc.), Piedmont Airlines, Inc. ("Piedmont"), PSA Airlines, Inc. 
("PSA") (formerly Jetstream International Airlines, Inc.), 
Allegheny Airlines, Inc. ("Allegheny"), USAir Leasing and 
Services, Inc. ("USAir Leasing and Services"), USAir Fuel 
Corporation ("Fuel Corp."), Material Services Company, Inc. 
("MSC") and The OR Group, Inc. ("OR Group"). All significant 
intercompany accounts and transactions have been eliminated.

     US Airways is the Company's principal subsidiary and 
accounted for approximately 92% of its operating revenues in 1996. 
US Airways' results include the results of its wholly-owned 
subsidiary USAM Corp. ("USAM"). US Airways is a major United 
States air carrier whose primary business is transporting 
passengers, property and mail. US Airways enplaned 56.9 million 
passengers during 1996 and is currently the fifth largest domestic 
air carrier, as measured by revenue passenger miles ("RPMs"). US 
Airways operates predominantly in the eastern U.S. with primary 
hubs at the major airports in Pittsburgh, Pennsylvania, Charlotte, 
North Carolina, Philadelphia, Pennsylvania and at 
Baltimore/Washington International Airport. US Airways also 
maintains significant operations at the major airports in Boston, 
Massachusetts, New York, New York and Washington, D.C.  

     USAM owns 11% of the Galileo International Partnership 
("GIP") which owns and operates the Galileo Computer Reservation 
System ("Galileo CRS"), approximately 11% of the Galileo Japan 
Partnership ("GJP") which markets the Galileo CRS in Japan, and 
approximately 21% of the Apollo Travel Services Partnership 
("ATS") which markets the Galileo CRS in the U.S. and Mexico. USAM 
accounts for these investments using the equity method because it 
is represented on the board of directors of each of the 
partnerships and therefore participates in policy making 
processes.

     Piedmont, PSA and Allegheny are regional air carriers that, 
along with seven non-owned regional airline franchisees, form "US 
Airways Express" (formerly doing business as "USAir Express"). US 
Airways Express also has a majority of its operations in the 
eastern U.S. US Airways Express air carriers enplaned 10.6 million 
passengers in 1996 (5.6 million passengers enplaned by Piedmont, 
PSA, and Allegheny), approximately half of whom connected to US 
Airways flights.  

     Fuel Corp. was established in 1987 primarily to serve as a 
fuel wholesaler to US Airways, in certain circumstances. MSC 
performs a function similar to Fuel Corp., selling aviation fuel 
to US Airways Express carriers and also assisting the US Airways 
Express carriers with major maintenance and procurement contracts. 
USAir Leasing and Services' main function is remarketing US 
Airways' surplus or inactive aircraft.

     OR Group was a wholly-owned subsidiary of US Airways Group 
that was incorporated in February 1996 and dissolved in the 
fourth quarter of 1996. The OR Group provided resource allocation 
consulting services and decision-making support systems to US 
Airways, which assumed these activities upon OR Group's 
dissolution.

                               64
<PAGE>

     US Airways terminated its Airline Technical Services, LLC 
joint venture with a subsidiary of British Airways plc ("British 
Airways"), effective January 1997. Amounts related to this joint 
venture (accounted for using the equity method) included in the 
Company's financial results for the years ended 1996 and 1995 are 
immaterial and no material charges resulted from its termination.

     The preparation of financial statements in conformity with 
generally accepted accounting principles 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's principal operating subsidiary, US Airways, and 
its three regional airline subsidiaries operate within one 
industry (air transportation); therefore, no segment information 
is provided.

     Certain 1995 and 1994 amounts have been reclassified to 
conform with 1996 classifications.

  (b)  CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS 

     For financial statement purposes, the Company considers all 
highly liquid investments purchased within three months of 
maturity to be cash equivalents. Cash and cash equivalents are 
stated at cost, which approximates market value. Short-term 
investments consist of certificates of deposit and commercial 
paper purchased with maturities greater than three months but less 
than one year. 

     In 1994, the Company adopted Statement of Financial 
Accounting Standards No. 115, "Accounting for Certain Investments 
in Debt and Equity Securities" ("SFAS 115"). Under this statement, 
the Company has classified its entire short-term investment 
portfolio as "available-for-sale." As of December 31, 1996 and 
1995, there were no material differences between estimated fair 
values and carrying amounts for cash equivalents and short-term 
investments.

  (c)  MATERIALS AND SUPPLIES

     Inventories of materials and supplies are valued at the lower 
of cost or market 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.

  (d)  PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost or, if acquired 
under capital leases, at the lower of the present value of minimum 
lease payments or fair market value at the inception of the lease. 
Maintenance and repairs, including the overhaul of aircraft 
components, are charged to operating expense as incurred and costs 
of major improvements are capitalized for both owned and leased 
assets. Interest related to deposits on aircraft purchase 
contracts and facility and equipment construction projects is 
capitalized as additional cost of the asset or as leasehold 
improvement if the asset is leased. Depreciation and amortization 
for principle asset classifications is provided on a straight-line 
basis to estimated residual values over estimated depreciable 
lives. Estimated depreciable lives and residual values are 
periodically reviewed for reasonableness and estimates are 
revised, if necessary.


                                65
<PAGE>

                                  Depreciable       Residual
             Assets                 Lives            Values
             ------                 --------         --------
                                    (years)       (in millions)
Aircraft
  Boeing 767-200ER                     20             $14.0
  Boeing 757-200                       20               8.0
  Boeing 737-300/400                   20               7.5
  Boeing 737-200                      5-17           0.6-5.0
  McDonnell Douglas MD-80              20               7.5
  Douglas DC-9-30                      17               3.0
  Fokker 100                           20               5.0
  Fokker F28-4000                       8               2.0
  Fokker F28-1000                       6               1.0
  Turboprop aircraft                 11-17            1.2-1.5
  Improvements to leased
    aircraft                    life of lease             -
Ground property, equipment         1-10 or
  and leasehold improvements    life of lease             -
Buildings                           25-30                 -

     Property acquired under capital lease is amortized on a 
straight-line basis over the term of the lease and charged to 
Depreciation and amortization expense. When property and equipment 
is sold or retired, the cost and accumulated depreciation is 
removed from the accounts and any gain or loss recognized as 
Other, net, a component of Other Income (Expense).

  (e)  GOODWILL AND OTHER INTANGIBLES  

     Goodwill, the cost in excess of fair value of identified net 
assets acquired, is being amortized on a straight-line basis over 
40 years. The $629.5 million goodwill resulting from the 
acquisition of Pacific Southwest Airlines ("Pacific Southwest") 
and Piedmont Aviation, Inc. ("Piedmont Aviation"), both in 1987, 
is being amortized as Depreciation and amortization expense. As of 
December 31, 1996 and 1995, accumulated amortization related to 
the Pacific Southwest and Piedmont Aviation acquisitions was 
$144.1 million and $128.3 million, respectively. The $11.4 million 
goodwill resulting from USAM's computer reservation system 
investments is being amortized as a component of Other Income 
(Expense), consistent with the classification of the related 
income or loss on the investments. As of December 31, 1996 and 
1995, USAM's related accumulated amortization was $2.3 million and 
$2.0 million, respectively. US Airways periodically evaluates 
whether goodwill is impaired by comparing the goodwill balances 
with estimated future undiscounted cash flows which, in US 
Airways' judgment, are attributable to the goodwill. This analysis 
is performed separately for the goodwill which resulted from each 
acquisition.

     Intangible assets consist mainly of purchased operating 
rights at various airports, purchased route authorities, 
capitalized software costs and the intangible asset associated 
with the underfunded amounts of certain pension plans ("Intangible 
Pension Asset"). The operating rights, route authorities and 
capitalized software costs are being amortized on a straight-line 
basis over the expected periods of benefit as Depreciation and 
amortization expense. The operating rights, valued at purchase 
cost or appraised value if acquired with Pacific Southwest or 
Piedmont Aviation, are being amortized over periods ranging from 
ten to 25 years, the route authorities are being amortized over 25 
years and capitalized software costs are being amortized over five 
years. The Intangible Pension Asset is recognized in accordance 
with Statement of Financial Accounting Standards No. 87, 
"Employers' Accounting for Pensions" ("SFAS 87") (see Note 10(a)

                                 66
<PAGE>
 for additional information). As of December 31, 1996 and 1995, 
accumulated amortization related to intangible assets was $129.3 
million and $105.0 million, respectively.

     Based on the most recent analyses, US Airways believes that 
goodwill and other intangible assets were not impaired as of 
December 31, 1996.

  (f)  OTHER ASSETS

     Other Assets consists primarily of non-current pension 
assets, restricted cash and investments and a long-term receivable 
from British Airways. Restricted cash and investments are deposits 
in trust accounts to collateralize letters of credit and workers' 
compensation policies. The long-term receivable from British 
Airways resulted from the relinquishment by US Airways of three 
U.S. to London routes. 

     In November 1995, US Airways entered into a five-year 
transaction with a third party pursuant to which US Airways agreed 
to pledge to such third party from time to time certain flight 
equipment and simulators as collateral for up to $70 million 
aggregate principal amount of letters of credit to be issued by 
the third party with respect to certain workers' compensation 
obligations of US Airways. On December 15, 1995, US Airways 
pledged ten aircraft to the third party, resulting in the release 
of $67.2 million in cash and securities that had been previously 
pledged by US Airways to letter of credit providers.

  (g)	  DEFERRED GAINS ON SALE AND LEASEBACK TRANSACTIONS

     Gains on aircraft sale and leaseback transactions are 
deferred and amortized over the term of the leases as a reduction 
of the related aircraft rent expense.

  (h)  RECOGNITION OF PASSENGER TRANSPORTATION REVENUES

     Passenger ticket sales are recognized as revenue when the 
transportation service is rendered or the ticket otherwise 
expires. At the time of sale, a liability is established (Traffic 
balances payable and unused tickets) and subsequently eliminated 
either through carriage of the passenger, through billing from 
another air carrier which renders the service or by refund to the 
passenger.

  (i)  FREQUENT TRAVELER AWARDS 

     US Airways accrues the estimated incremental cost of travel 
awards earned by participants in its frequent traveler program 
when requisite mileage award levels are achieved.  

  (j)  INVESTMENT TAX CREDIT

     Investment tax credit benefits were recorded using the "flow-
through" method as a reduction of the Federal income tax 
provision. No new investment tax credits were generated during 
1996, 1995 or 1994.

  (k)  ADVERTISING COSTS

     Advertising costs are expensed when incurred as other 
operating expense. Advertising expense for 1996, 1995 and 1994 was 
$51.2 million, $66.6 million and $63.4 million, respectively.

                                67

<PAGE>
  (l)  INCOME (LOSS) PER COMMON SHARE

     Primary income (loss) per common share is computed by 
dividing net income or loss, after deducting all preferred stock 
dividend requirements, by the weighted average number of shares of 
US Airways Group, Inc. Common Stock, $1 par value ("Common 
Stock"), outstanding, after giving effect to dilutive stock option 
common stock equivalents. The Company uses the treasury stock 
method to compute dilutive stock option common stock equivalents. 
Stock option common stock equivalents were dilutive for 1996 and 
1995, but were anti-dilutive for 1994. Therefore, stock option 
common stock equivalents of approximately 898,000 shares and 
78,000 shares were added to the weighted average common shares 
outstanding in the calculation of primary income (loss) per common 
share calculation for 1996 and 1995, respectively. None of the 
Company's outstanding preferred stock issuances (see Notes 7 and 
8(c)), all of which are convertible under certain conditions into 
Common Stock, are considered common stock equivalents; 
accordingly, they were excluded from the Company's primary income 
(loss) per common share calculations.

     Fully diluted income (loss) per common share reflects the 
maximum dilution that would result after giving effect to dilutive 
stock option common stock equivalents and to the assumed 
conversion of all dilutive convertible preferred stock issuances. 
Stock option common stock equivalents were dilutive for the years 
1996 and 1995, but were anti-dilutive for 1994. Therefore, stock 
option common stock equivalents of approximately 1,580,000 shares 
and 174,000 shares were added to the weighted average common 
shares outstanding in the calculation of fully diluted income 
(loss) per common share calculation for 1996 and 1995, 
respectively. The assumed conversions of the Series B, Series F 
and Series T Preferred Stock had a dilutive effect on fully 
diluted income (loss) per share for 1996. The income and share 
effects of these assumed conversions were approximately $48.3 
million and 29,915,000 shares, respectively. The assumed 
conversion of the Series A had an anti-dilutive effect on fully 
diluted income (loss) per share for 1996 and was accordingly 
excluded from the calculation. For 1995 and 1994, the assumed 
conversions of all preferred stock issuances had an anti-dilutive 
effect and were accordingly excluded from the fully diluted income 
(loss) per share calculations. See Note 9 regarding Common Stock 
held in trust for US Airways' Employee Stock Ownership Plan 
("ESOP"). 

2.  FINANCIAL INSTRUMENTS

     (a)  TERMS OF CERTAIN FINANCIAL INSTRUMENTS

     US Airways has entered into hedging arrangements designed to 
reduce its exposure to fluctuations in the price of aviation fuel. 
Under these arrangements, US Airways receives or makes payments 
based on the difference between a fixed price and the market price 
for specified petroleum products. Net settlements are recorded as 
adjustments to Aviation fuel expense. The total notional gallons 
under hedging arrangements were 84 million and 38 million as of 
December 31, 1996 and 1995, respectively (US Airways entered into 
arrangements prior to December 31, 1996 which effectively closed 
certain hedging arrangements covering approximately 22 million 
gallons). For hedging arrangements open as of December 31, 1996, 
US Airways will pay fixed prices ranging from $0.553 to $0.700 per 
notional gallon and receive a floating rate per gallon based on 
current market prices. The open hedging arrangements, all of which 
expire during 1997, represent approximately 6% of US Airways' 
expected 1997 fuel consumption. For arrangements open as of 
December 31, 1995, US Airways paid fixed prices ranging from 
$0.499 to $0.548 per notional gallon and received a floating rate 
based on market prices. Although these hedging arrangements expose 
the Company to credit loss in the event of non-performance by the 
other parties to the agreements, the Company does not anticipate 
such non-performance because of the favorable creditworthiness of 
the other parties. The Company may continue to enter into such 
arrangements, depending on market conditions.

                                68
<PAGE>
     An aggregate of $32 million of future principal payments of 
US Airways' long-term debt due 1998 through 2000 is payable in 
Japanese Yen. This foreign currency exposure has been hedged to 
maturity by US Airways' participation in foreign currency 
contracts. Net settlements will be recorded as adjustments to 
Interest expense. Although the Company is exposed to credit loss 
in the event of non-performance by the counterparty to the 
contracts, the Company does not anticipate such non-performance 
because of the favorable creditworthiness of the other party.

     (b)  FAIR VALUE OF FINANCIAL INSTRUMENTS

     Unless a quoted market price indicates otherwise, the fair 
values of short-term investments generally approximates carrying 
values because of the short maturity of these instruments. The 
Company has estimated the fair value of long-term debt and the 
long-term note receivable by discounting future cash flows using 
current rates offered to the Company for debt and note receivables 
of similar maturities. The estimated fair values of the Company's 
outstanding redeemable preferred stock issuances (See Note 7) are 
obtained from an independent external valuation source. The fair 
values of energy swap agreements and foreign currency contracts 
are obtained from dealer quotes. These values represent the 
estimated amount the Company would receive or pay to terminate 
such agreements.

     The estimated fair values of the Company's financial 
instruments, none of which are held for trading purposes, are 
summarized as follows (brackets denote a liability):

<TABLE>
                                              December 31,
                                ----------------------------------------------
                                         1996                   1995
                                         ----                   ----
<CAPTION>
                                Carrying   Estimated     Carrying   Estimated
                                 Amount    Fair Value     Amount    Fair Value
                                 -------    --------       ------     --------
                                                (in thousands)
<S>                         <C>           <C>          <C>          <C>
Short-term investments      $    635,839  $   635,605  $    19,831  $    19,822
Restricted cash and
  investments (1)                 87,783       87,843       98,742       98,539
Long-term note
  receivable (1)                  40,733       30,080       45,433       33,277
Other long-term 
  investments (1) (2)             20,606       22,126        4,607        4,008
Long-term debt (excludes
  capital lease  obligations) (2,650,659)  (2,698,431)  (2,732,310)  (2,543,340)
Redeemable preferred stock      (758,719)    (894,400)    (758,719)    (604,478)
Energy swap agreements:
  In a net receivable position         -        3,550            -        1,845
Foreign currency contracts:
  In a net receivable position         -          963            -        4,050

(1)  Amounts included in Other Assets on the Company's Consolidated Balance Sheets.

(2)  Classified as "held-to-maturity" under SFAS 115.


                       (this space intentionally left blank)

                                       69
</TABLE>

<PAGE>
3.  LONG-TERM DEBT

     Details of long-term debt are as follows:
                                                 December 31,
                                             ---------------------
                                              1996          1995
                                              ----          ----
                                                (in thousands)
  Senior Debt:
    10% Senior Notes due 2003           $    300,000  $    300,000
    9 5/8% Senior Notes due 2001             175,000       175,000
    5.7% to 12% Equipment Financing
      Agreements, Installments due 1997 
      to 2016                              2,117,834     2,226,318
    8.6% Airport Facility Revenue
      Bond due 2022                           27,620        27,620
    7 1/4% Aircraft Purchase Deposit
      Financing due 1998*                     29,155             -
    Other                                      1,050         3,372
                                           ---------     ---------
                                           2,650,659     2,732,310
  Capital Lease Obligations                   49,380        65,496
                                           ---------     ---------
    Total                                  2,700,039     2,797,806
Less Current Maturities                       84,259        80,721
                                           ---------     ---------
                                        $  2,615,780  $  2,717,085
                                           =========     =========

*  See Note 4(d) for additional information with respect to
   aircraft US Airways has scheduled for delivery in 1998.

    Maturities of long-term debt and debt under capital leases for
    the next five years:

                               (in thousands)
                       1997     $   84,259
                       1998        184,788
                       1999         77,454
                       2000        122,681
                       2001        246,494
                 Thereafter      1,984,363

  Interest rates on $242 million principal amount of long-term 
debt as of December 31, 1996 are subject to adjustment to reflect 
prime rate and other rate changes.

  Equipment financings totaling $2.2 billion were collateralized 
by aircraft and engines with a net book value of approximately 
$2.3 billion as of December 31, 1996.

4.  COMMITMENTS AND CONTINGENCIES

     (a)  OPERATING ENVIRONMENT

     The Company's improved financial results for 1996 are 
primarily attributable to favorable capacity and pricing trends 
in markets served by the Company's airline subsidiaries, 
continued stable domestic economic conditions and the positive 
influence of US Airways' revenue enhancement and cost reduction 
initiatives. However, the Company's financial condition, results 
of operations and future prospects are more susceptible to an 
economic downturn and competitive influences than most of its 
major competitors due to US Airways' high cost structure amid the 
growing low cost, low fare environment in the domestic airline 
industry.

                                70

<PAGE>
     Most of the Company's airline subsidiaries operate in 
competitive markets, predominantly in the Eastern U.S. In recent 
years, air carriers with low costs of operations and fare 
structures have initiated and or expanded into markets served by 
the Company's airline subsidiaries. In addition, several of the 
larger, mature air carriers have developed or indicated their 
intention to develop similar low cost, low fare operations. In an 
effort to preserve market share, US Airways has typically 
responded to the entry of a low cost, low fare competitor into 
its markets by matching fares and increasing the frequency of 
service in related markets, generally with the result of diluting 
US Airways' yield in those markets. US Airways' currently has the 
highest unit operating costs among the major domestic air 
carriers and the growth and expansion of low cost, low fare air 
carriers or operations in US Airways' markets has put consider-
able pressure on US Airways to reduce operating costs in order to 
maintain competitiveness.  

     US Airways was able to reduce certain non-labor related 
operating costs during 1996 and 1995 through various 
organizational changes, process reengineering and reducing or 
eliminating capacity in unprofitable markets; however, US Airways 
has not been successful to date in achieving meaningful 
reductions in its largest expense category, Personnel costs. The 
Company believes that US Airways' long-term financial viability 
depends on its success in further reducing its cost of 
operations, including its Personnel costs.

     As of December 31, 1996, the Company's various subsidiaries 
employed approximately 43,500 full-time equivalent employees. 
Approximately 28,200, or 65%, of these employees are covered by 
collective bargaining agreements with various unions, or will be 
covered by collective bargaining agreements for which initial 
negotiations are in progress. US Airways' contracts with the 
International Association of Machinists and Aerospace Workers 
("IAM"), which represents US Airways' machinists group, the Air 
Line Pilots Association ("ALPA"), which represents US Airways' 
pilots, and the Association of Flight Attendants ("AFA"), which 
represents US Airways' flight attendants, are open for 
negotiation and collective bargaining talks are underway. US 
Airways has not yet reached an initial contract with its fleet 
service employees, a class of approximately 5,700 employees who 
are also represented by the IAM. The Company cannot predict the 
ultimate outcome of its negotiations with US Airways' unions or 
if the Company will be successful in achieving meaningful wage 
and benefit concessions from US Airways' employees. 

     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. For 
example, geographically isolated inclement weather and the 
partial Federal government shutdowns which both occurred during 
the first quarter of 1996, adversely affected the Company's 
operating revenues and expenses to a greater degree than some of 
the Company's competitors.

     The operations of the Company's airline subsidiaries are 
dependent on the availability of aviation fuel. The availability 
and price of aviation fuel is largely determined by the actions 
of the nations which compose the Organization of Petroleum 
Exporting Countries ("OPEC") cartel. OPEC, which currently 
controls a significant amount of the world's known crude oil 
reserves, can affect the availability and price of aviation fuel 
through its production and price-targeting actions. In addition, 
aviation fuel prices are affected by political events, seasonal 
factors and other factors generally outside of the Company's 
control. US Airways has a diversified aviation fuel supplier 
network and participates in fuel hedging transactions (see 
Note 2) in order to ensure aviation fuel availability and 
partially protect US Airways from temporary aviation fuel price 
fluctuations.

                                71
<PAGE>

     (b)  LEASES

     The Company's airline subsidiaries lease certain aircraft, 
engines, computer and ground equipment, in addition to the 
majority of their ground facilities. Ground facilities include 
executive offices, overhaul and maintenance bases 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. 

     In addition, the Company subleases certain leased aircraft 
and ground facilities under noncancelable operating leases 
expiring in various years through 2021.

     The following amounts applicable to capital leases are 
included in property and equipment:

                                                 December 31,
                                            --------------------
                                              1996         1995
                                              ----         ----
                                              (in thousands)

Flight equipment                          $ 167,308   $ 192,775
Ground property and equipment                   406       4,767
                                            -------     -------
                                            167,714     197,542
Less accumulated amortization               125,568     140,212
                                            -------     -------
                                          $  42,146   $  57,330
                                            =======     =======

  As of December 31, 1996, obligations under capital and 
noncancelable operating leases for future minimum lease payments 
were as follows:


                                            Capital    Operating
                                             Leases     Leases
                                             ------     -------
                                               (in thousands)

1997                                      $  21,304  $  771,684
1998                                         10,294     732,658
1999                                         10,295     686,805
2000                                          7,193     664,614
2001                                          4,703     659,716
Thereafter                                   14,109   5,844,431
                                             ------   ---------
  Total minimum lease payments               67,898   9,359,908
  Less sublease rental receipts                   -     185,973
                                             ------   ---------
  Total minimum operating lease payments             $9,173,935
                                                      =========
  Less amount representing interest          18,518
                                             ------
  Present value of future minimum
    capital lease payments                   49,380
  Less current obligations under
    capital leases                           15,912
                                             ------
  Long-term obligations under
    capital leases                        $  33,468
                                             ======

  Rental expense under operating leases for 1996, 1995 and 1994 
was $787 million, $773 million and $748 million, respectively. The 
$787 million rental expense for 1996 excludes a credit of $22.5 
million related to US Airways' subleasing of eleven non-operating 
British Aerospace BAe-146-200 ("BAe-146") aircraft. The $773 
million rental expense for 1995 excludes a credit of $4.1 million 
related to US Airways' subleasing of three non-operating BAe-146 
aircraft. The $748 million rental expense for 1994 excludes

                               72

<PAGE>
charges of $103 million related to US Airways' grounded Bae-146 
fleet and $13 million primarily related to US Airways' decision to 
cease operations of its remaining Boeing 727-200 aircraft in 1995. 
See Note 16 for additional information related to US Airways' non-
operating BAe-146 aircraft

     The Company's airline subsidiaries also lease certain owned 
aircraft under noncancelable operating leases which expire in 
various years through the year 2000. The minimum future rentals to 
be received by the Company on these leases are: $6.6 million - 
1997; $2.9 million - 1998; $1.2 million - 1999; and $0.3 million - 
2000. 

     The following amounts are applicable to aircraft leased under 
such agreements as reflected in flight equipment:

                                                  December 31,
                                             ---------------------
                                              1996         1995
                                              ----         ----
                                                  (in thousands)

    Flight equipment                       $ 49,358      $158,688
    Less accumulated amortization            24,711        64,690
                                             ------       -------
                                          $  24,647      $ 93,998
                                             ======        ======


     (c)  LEGAL PROCEEDINGS

     US Airways is involved in legal proceedings arising out of 
its two aircraft accidents that occurred in July and September 
1994 near Charlotte, North Carolina and Pittsburgh, Pennsylvania, 
respectively. The National Transportation Safety Board ("NTSB") 
held hearings beginning in September 1994 relating to the July 
accident and January and November of 1995 relating to the 
September accident. In April 1995, the NTSB issued its finding of 
probable causes with respect to the accident near Charlotte. It 
assigned as probable causes flight crew errors and the failure of 
air traffic control to convey weather and windshear hazard 
information. The NTSB has not yet issued its final accident 
investigation report for the accident near Pittsburgh. The NTSB 
has indicated that a determination of the cause of the accident is 
not likely until sometime in 1997. US Airways expects that it will 
be at least two to three years before the accident litigation and 
related settlements will be concluded. Litigation resulting from 
the July 1994 accident in Charlotte was recently tried in U.S. 
District Court in Columbia, South Carolina. The jury found US 
Airways was liable for compensatory damages but was not liable for 
punitive damages. The compensatory damages trials have not been 
concluded and US Airways cannot estimate possible compensatory 
damages. However, US Airways believes that it is fully insured 
with respect to this litigation. Therefore, the Company believes 
that the litigation will not have a material adverse effect on the 
Company's financial condition or results of operations.

     On July 30, 1996, the Company and US Airways initiated a 
lawsuit in U.S. District Court for the Southern District of New 
York against British Airways, BritAir Acquisition Corp., Inc., 
American Airlines Inc. ("American") and American's parent 
company, AMR Corp. The Company and US Airways claim that British 
Airways, in pursuit of an alliance with American, is responsible 
for breaches of fiduciary duty to the Company and US Airways and 
violated certain provisions of the January 21, 1993 Investment 
Agreement between the Company and British Airways. The lawsuit 
also claims that the defendants are in violation of U.S. 
Antitrust laws that prohibit conduct that harms competition. 
Although the defendants filed motions to dismiss the lawsuit 
following the filing of the complaint, these motions became 
superseded on March 5, 1997 when the Company filed an Amended 
Complaint with the Court based on information gathered in the

                                73

<PAGE>
pre-trial discovery process.  The defendants have informed the 
Company that, in response to the Amended Complaint, they intend 
to file new motions to dismiss shortly. The Company is unable to 
predict at this time the ultimate outcome of this lawsuit.

     In December 1995, US Airways received a Civil Investigative 
Demand ("CID") from the U.S. Department of Justice relating to US 
Airways' compliance with the terms of a consent decree entered 
into in December 1992, as amended in September 1994. The consent 
decree was entered into to resolve litigation concerning US 
Airways' methods of disseminating fare data to the Airline Tariff 
Publishing Company. A CID is a request for information in the 
course of an antitrust investigation and does not constitute the 
institution of a civil or criminal action. The CID issued in 
December 1995 seeks information concerning US Airways' use of 
travel dates in its fare filings, among other things. Although US 
Airways believes there will be no further action stemming from 
this CID, the investigation has not been fully closed.

     In February and March 1995, 39 class action lawsuits were 
filed in various federal district courts by travel agencies and a 
travel agency trade association alleging that seven of the major 
U.S. airlines, including US Airways, violated the antitrust laws 
when they individually capped travel agent base commissions at $50 
for round-trip domestic tickets with base fares above $500 and at 
$25 for one-way domestic tickets with base fares above $250. The 
lawsuits were consolidated in the federal district of Minnesota. 
The plaintiffs sought unspecified treble damages for restraint of 
trade. In September of 1996 the case against US Airways, and 
subsequently the cases against the other airlines, were settled. 
While US Airways believes that its actions in establishing a 
commission cap were in full compliance with the antitrust laws, 
the uncertainty and expense of litigation prompted a settlement of 
the claims. US Airways paid $9.5 million, as part of a total 
settlement of $85.8 million for all of the defendants. US Airways 
did not admit liability or wrongdoing and the settlement allowed 
the commission cap to remain in place. The settlement was approved 
by the court in January of 1997.

     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"). The agreement contemplated the eventual 
installation of the IFPC System on substantially all of US 
Airways' aircraft. The IFPC System had been installed on 
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. On December 7, 1995, US Airways 
successfully defended IFPC's emergency motion for a temporary 
restraining order. On December 13, 1995, IFPC's motion for a 
preliminary injunction was denied and IFPC has relinquished its 
right to appeal that decision. IFPC's claim for damages remains 
pending. In June 1996, US Airways filed a counterclaim against 
IFPC seeking compensatory damages in excess of $25 million and 
punitive damages in excess of $25 million. In January 1997, IFPC 
filed for protection from its creditors under Chapter 11 of the 
Bankruptcy Code. The parties stipulated to lift the automatic stay 
provided for in the Bankruptcy Code which could allow IFPC's and 
US Airways' claims to be fully litigated. The Company is unable to 
predict at this time the ultimate resolution or potential 
financial impact on the Company's financial condition and results 
of operations of these  proceedings.

     In May 1995, the Company, US Airways and the Retirement 
Income Plan for Pilots of USAir, Inc. (the "Pilots' Pension Plan") 
were sued in federal district court for the District of Columbia 
by 481 active and retired US Airways pilots alleging violations of 
the Employee Retirement Income Security Act ("ERISA") by 
erroneously calculating benefits under the Pilots' Pension Plan.

                                74
<PAGE>
The plaintiffs sought, among other things, damages in excess of 
$70 million. In May 1996, the court issued a decision in the 
lawsuit granting US Airways' Motion to Dismiss the majority of the 
complaint for lack of subject matter jurisdiction, deciding that 
the dispute must be resolved through the arbitration process. The 
court retained jurisdiction over one count of the complaint 
alleging a violation of a disclosure requirement of ERISA. There 
are no significant penalties or damages which can result from this 
remaining claim. The plaintiffs appealed the court's decision, 
however, in the opinion of US Airways' counsel, the appeal is 
unlikely to be successful.

     The Equal Employment Opportunity Commission and various state 
and local fair employment practices agencies are investigating 
charges by certain job applicants, employees and former employees 
of the Company's subsidiaries involving allegations of employment 
discrimination in violation of Federal and state laws. The 
plaintiffs in these cases generally seek declaratory and 
injunctive relief and monetary damages, including back pay. In 
some instances they also seek classification adjustment, 
compensatory damages and punitive damages. Such proceedings are in 
various stages of litigation and investigation, and the outcome of 
these proceedings is difficult to predict. In the Company's 
opinion, however, the disposition of these matters is not likely 
to have a material adverse effect on its financial condition or 
results of operations.

     (d)  AIRCRAFT COMMITMENTS

     In June 1995, US Airways entered into agreements with The 
Boeing Company ("Boeing") and Rolls Royce plc ("Rolls Royce") 
deferring the delivery of eight 757-200 aircraft from 1996 to 
1998. As part of the agreements, the due dates for progress 
payments associated with the 1996 deliveries were likewise 
rescheduled. Accordingly, approximately $71 million of progress 
payments that had been paid by US Airways were refunded to US 
Airways in the third quarter of 1995. The related long-term debt 
which financed the deposits was dissolved.

     The following schedule of US Airways' new aircraft deliveries 
and scheduled payments as of December 31, 1996 (including progress 
payments, payments at delivery, buyer furnished equipment, spares, 
and capitalized interest) reflects US Airways' current agreements 
with Boeing and Rolls Royce as discussed above (dollars in 
millions):

                                Delivery Period
                    ------------------------------------------
                                                There-
                   1997  1998  1999  2000  2001  after  Total
                   ----  ----  ----  ----  ----  -----  -----
Boeing
  757-200             -     8     -     -     -      -      8
  737-Series*         -     -     -     -     -     40     40
                   ----  ----  ----  ----  ----  -----  -----
    Total             -     8     -     -     -     40     48
                   ====  ====  ====  ====  ====  =====  =====

Payments          $  74  $254 $  -  $   -  $ 52 $1,803 $2,183
                   ====  ====  ====  ====  ====  =====  =====

*  Purchase agreement includes a provision allowing US Airways to
   purchase any other Boeing commercial aircraft type
   insatisfaction of its obligation to purchase forty 737-Series
   aircraft. Such satisfaction would be accomplished on an
   "equivalent-seat" basis.

     The above aircraft commitments do not include any amounts 
related to a contingent contract to acquire up to 400 aircraft 
from Airbus Industrie. The contract is contingent upon US Airways 
achieving a competitive cost structure and approval of definitive 
documentation by US Airways' board of directors.

                                75

<PAGE>
     During the fourth quarter of 1996, US Airways advised Boeing 
and Rolls Royce that it does not plan to accept delivery of the 
eight Boeing 757-200 aircraft that it presently has on firm order 
and suspended progress payments related to these aircraft. As of 
December 31, 1996, US Airways had made $58.3 million in progress 
payments for these aircraft. Subsequently, Boeing alleged, among 
other things, that US Airways is in default of the 757-200 
purchase agreement and that US Airways has also repudiated the 
purchase agreement related to the 737-Series aircraft scheduled 
for delivery commencing in 2003. Boeing has purported to 
terminate both such 757-200 and 737-Series purchase agreements, 
an action which US Airways believes is not supported by law or 
the facts, and has claimed almost $450 million as damages for US 
Airways' alleged breach of such agreements. US Airways 
subsequently advised Boeing, among other things, that US Airways 
rejects Boeing's asserted legal basis for termination of such 
agreements. In addition, US Airways stated that it would hold 
Boeing responsible for any damages incurred as a result of 
Boeing's unlawful termination and demanded immediate return of 
all payments made by US Airways in furtherance of the 737-Series 
purchase agreement, together with interest from the date of 
payment. US Airways also expressed its belief that Boeing is 
legally committed to pursue contract resolutions in good faith. 
Notwithstanding the formal legal positions of the parties, both 
sides have expressed a desire to resolve this dispute on a 
mutually satisfactory basis. US Airways cannot predict whether 
Boeing will seek to exercise remedies against US Airways and if 
so, whether the effect on US Airways' financial condition or 
results of operations would be material.

     US Airways has a commitment to purchase hush kits for certain 
of its Douglas DC-9-30 and Boeing 737-200 aircraft. The 
installation of these hush kits will bring the aircraft into 
compliance with Federal Aviation Administration Stage 3 noise 
level requirements. The projected payments associated with the 
purchase of the hush kits are $19.7 million during 1997 and $32.1 
million during 1998 and 1999.

     (e)  CONCENTRATION OF CREDIT RISK

     The Company invests available cash in money market securities 
of various banks, commercial paper of financial institutions and 
other companies with high credit ratings and securities backed by 
the United States government.

     As of December 31, 1996, most of the Company's receivables 
related to tickets sold to individual passengers through the use 
of major credit cards (43%) or to tickets sold by other airlines 
(17%) and used by passengers on US Airways or the Company's 
regional airline subsidiaries. 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. The Company does 
not believe it is subject to any significant concentration of 
credit risk.

     (f)  GUARANTEES

     US Airways guarantees the payment of principal and interest 
on special facility revenue bonds issued by certain 
municipalities to build or improve airport and maintenance 
facilities. Under related lease arrangements, US Airways is 
required to make rental payments sufficient to pay maturing 
principal and interest payments on the bonds. As of December 31, 
1996 the principal amount of these bonds outstanding was $77.5 
million.

                                76

<PAGE>
5.  INCOME TAXES

     Effective January 1, 1993, the Company adopted Statement of 
Financial Accounting Standards No. 109, "Accounting for Income 
Taxes" ("SFAS 109"). SFAS 109 required a change from the deferred 
method under Accounting Principles Board Opinion No. 11 to the 
asset and liability method of accounting for income taxes. 

     The Company files a consolidated Federal income tax return 
with its wholly-owned subsidiaries.

     The components of the provision for income taxes are as 
follows:

                                    1996      1995    1994
                                    ----      ----    ----
                                        (in thousands)
Current provision:
  Federal                         $ 6,423  $ 6,081  $     -
  State                             3,000      831        -
                                    -----    -----    -----
    Total current provision         9,423    6,912        0
                                    -----    -----    -----
Deferred provision:
  Federal                               -        -        -
  State                             2,686    2,073        -
                                    -----    -----    -----
    Total deferred provision        2,686    2,073        0
                                    -----    -----    -----
Provision for income taxes        $12,109  $ 8,985   $    0
                                    =====    =====    =====

     In 1996, the Company was not subject to regular Federal 
income tax as a result of using $418 million in Federal net 
operating loss carryforwards. However, the Company was subject to 
Federal alternative minimum tax ("AMT"). Approximately $409 
million in AMT net operating loss carry-forwards and approximately 
$151 million in state net operating loss carryforwards were 
utilized to reduce the Federal and state liabilities.

     The significant components of deferred income tax expense 
(benefit) for the years ended December 31, 1996, 1995 and 1994, 
are as follows:

                                  1996      1995     1994
                                  ----      ----     ----
                                        (in thousands)
Deferred tax expense (benefit)
  (exclusive of the other 
  components listed below)     $ 114,906  $ 51,511  $(240,336)
Increase (decrease) for the
  year in the valuation allowance
  for deferred tax assets       (112,220)  (49,438)   240,336
                                 -------    ------    -------
    Total                      $   2,686  $  2,073  $       0
                                 =======    ======    =======




            (this space intentionally left blank)

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<PAGE>
     A reconciliation of taxes computed at the statutory Federal 
tax rate on earnings before income taxes to the provision for 
income taxes is as follows:

                                   1996       1995     1994
                                   ----       ----     ----
                                        (in thousands)
Tax provision (credit) computed
  at Federal statutory rate      $ 96,419  $ 44,895  $(239,723)
Book expenses not deductible
  for tax purposes                 17,628    16,064     17,257
Limitation in recognizing unused
  net operating loss/credits            -         -    222,466
Utilization of Federal net
  operating loss which reduced
  valuation allowance            (146,472)  (38,177)         -
State income tax provision,
  net of Federal tax benefit        4,636     1,888          -
Current year temporary
  differences which increased
  (reduced) valuation allowance    33,475   (22,492)         -
Alternative minimum tax which
  increased valuation allowance     9,097     3,794          -
Other                              (2,674)    3,013          -
                                    -----     -----      -----
Provision for income taxes       $ 12,109  $  8,985  $       0
                                   ======     =====      =====

Effective tax rate                      4%        7%         0%
                                   ======     =====      =====


     The tax effects of temporary differences that give rise to 
significant portions of the deferred tax assets and liabilities as 
of December 31, 1996, 1995 and 1994 are presented below:

                                  1996        1995         1994
                                  ----        ----         ----
                                         (in thousands)
Deferred tax assets:
  Leasing transactions        $  154,732  $  169,840  $  167,772
  Tax benefits purchased/sold     43,441      55,284      63,557
  Gain on sale and leaseback
    transactions                 135,308     147,930     156,127
  Employee benefits              608,948     512,568     501,599
  Net operating loss
    carryforwards                540,495     685,597     723,275
  Alternative minimum tax
    credit carryforwards          33,459      24,940      21,146
  Investment tax credit
    carryforwards                 49,802      49,802      49,802
  Other deferred tax assets       82,744      61,591      67,718
                               ---------   ---------   ---------
    Total gross deferred
      tax assets               1,648,929   1,707,552   1,750,996
  Less valuation allowance      (643,546)   (755,766)   (805,204)
                               ---------   ---------   ---------
    Net deferred tax assets    1,005,383     951,786     945,792
Deferred tax liabilities:
  Equipment depreciation
    and amortization             966,874     908,917     909,353
  Other deferred tax liabilities  45,415      44,942      36,439
                               ---------   ---------   ---------
    Total deferred tax
      liabilities              1,012,289     953,859     945,792
                               ---------   ---------   ---------
    Net deferred tax
      liabilities             $    6,906  $    2,073  $        0
                               =========   =========   =========

    The valuation allowance for deferred tax assets decreased 
approximately $112 million in 1996, decreased approximately $49 
million in 1995, and increased approximately $240 million in 1994.

     As of December 31, 1996, the Company had unused net operating 
losses of $1.5 billion for Federal tax purposes, which expire in 
the years 2006 to 2009. The Company also has available, to reduce

                                78

<PAGE>
future taxes payable, $375 million alternative minimum tax net 
operating losses expiring in the years 2008 to 2009, $50 million 
of investment tax credits expiring in 2002 to 2003, and $33 
million of alternative minimum tax credits which do not expire. 
The Federal income tax returns of the Company through 1986 have 
been examined and settled with the Internal Revenue Service.

6.  BRITISH AIRWAYS PLC INVESTMENT

     On January 21, 1993, US Airways Group and British Airways 
entered into an  investment agreement (the "Investment Agreement") 
under which a wholly-owned subsidiary of British Airways purchased 
certain series of redeemable convertible preferred stock during 
1993 and British Airways entered into code sharing and wet lease 
arrangements with US Airways.

     As of December 31, 1996, the preferred stock held by British 
Airways constituted approximately 23% of the total voting interest 
in the Company. These holdings included the Company's Series F 
Cumulative Convertible Senior Preferred Stock, without par value 
("Series F Preferred Stock"), the Series T-1 Cumulative 
Convertible Exchangeable Senior Preferred Stock, without par value 
("Series T-1 Preferred Stock"), and the Series T-2 Cumulative 
Convertible Exchangeable Senior Preferred Stock, without par value 
("Series T-2 Preferred Stock"). The Series T-1 Preferred Stock and 
the Series T-2 Preferred Stock are collectively referred to herein 
as the "Series T Preferred Stock," and,  together with the Series 
F Preferred Stock, the "BA Preferred Stock." See Notes 7(b) and 
7(c) for additional information related to the preferred stock 
issuances held by British Airways and Note 7(d) for information 
related to the Company's deferral of dividends on its outstanding 
preferred stock issuances. To the extent permitted by foreign 
ownership restrictions which are applicable by statute regulations 
or interpretation by regulatory authorities, including the United 
States Department of Transportation ("DOT") ("Foreign Ownership 
Restrictions"), the preferred stock owned by British Airways votes 
on all matters presented to the Company's stockholders for a vote 
and has voting power equal to the underlying shares of Common 
Stock. Pursuant to the Investment Agreement, on January 21, 1993, 
British Airways designated three of its officers to serve on the 
Company's and US Airways' boards of directors.  

     On March 15, 1993, the DOT issued an order ("DOT Order") 
stating, among other things, that British Airways' initial 
investment of $300 million does not impair the Company's 
citizenship under current Foreign Ownership Restrictions. However, 
the DOT instituted a proceeding to consider whether the Company 
would remain a U.S. citizen if the transactions and acts 
contemplated by the Investment Agreement, including the possible 
sale of Series C Cumulative Convertible Senior Preferred Stock, 
without par value ("Series C Preferred Stock"), and Series E 
Cumulative Convertible Exchangeable Preferred Stock, without par 
value ("Series E Preferred Stock") to British Airways, are 
consummated. The DOT has indefinitely suspended the period for 
comments from interested parties pending its resolution of 
requests by other airlines for production of additional documents 
from US Airways Group. The DOT Order states that the DOT expects 
and advises the Company and British Airways not to proceed with 
the closing of the purchase of the Series C Preferred Stock or the 
Series E Preferred Stock until the DOT has completed its review of 
the Company's citizenship.  

     On March 7, 1994, British Airways announced it would not make 
any additional investments in the Company until the outcome of 
measures by the Company to reduce costs and improve financial 
results was known. Under the terms of the Investment Agreement, 
assuming the Series F Preferred Stock or any shares issued upon 
conversion thereof were outstanding and British Airways had not 
sold any shares of the BA Preferred Stock or any common stock or 
other securities received upon conversion or exchange of the BA 
Preferred Stock. British Airways was entitled at its option to 
elect to purchase, on or prior to January 21, 1996, 50,000 shares 
of Series C Preferred Stock at a purchase price of $10,000 per

                                79

<PAGE>
share, to be paid by British Airways' surrender of the Series F 
Preferred Stock and payment of $200 million. The Investment 
Agreement also provides that, on or prior to January 21, 1998, 
assuming that British Airways had purchased (or was purchasing 
simultaneously in accordance with the terms of the Investment 
Agreement) Series C Preferred Stock, British Airways would have 
the option to purchase 25,000 shares of Series E Preferred Stock, 
at a purchase price of $10,000 per share. Because British Airways 
did not elect to purchase the Series C Preferred Stock on or prior 
to January 21, 1996, British Airways cannot purchase the Series E 
Preferred Stock, except that if the DOT approves all the 
transactions and acts contemplated by the Investment Agreement on 
or prior to January 21, 1998, British Airways' purchase of the 
Series C Preferred Stock and Series E Preferred Stock must be 
consummated under certain circumstances at the election of either 
British Airways (provided that British Airways had not sold any of 
the BA Preferred Stock) or the Company (provided that the Company 
had not repurchased or redeemed any of the BA Preferred Stock). In 
addition, because British Airways did not elect to purchase the 
Series C Preferred Stock on or prior to January 21, 1996, the 
Company has the right to redeem, in whole or in part, Series F 
Preferred Stock and a like percentage of Series T Preferred Stock 
at the higher of market value or the price of $10,000 per share, 
plus accrued dividends. Under Delaware law, the Company may be 
subject to certain legal restrictions on its ability to repurchase 
or redeem its own shares of capital stock. Based on British 
Airways' actions described below, the Company does not expect that 
the Second Purchase and Final Purchase will be consummated. In 
addition, assuming British Airways sells the BA Preferred Stock in 
accordance with the procedures described below, the Company does 
not expect that it will repurchase or redeem the BA Preferred 
Stock.

     On July 30, 1996, the Company and US Airways initiated a 
lawsuit in the U.S. District Court for the Southern District of 
New York against British Airways, BritAir Acquisition Corp., Inc., 
American Airlines, Inc. ("American") and American's parent 
company, AMR Corp. The Company and US Airways claim that British 
Airways, in pursuit of an alliance with American, is responsible 
for breaches of fiduciary duty to the Company and US Airways and 
violated certain provisions of the Investment Agreement. The 
lawsuit also claims that the defendants are in violation of U.S. 
antitrust laws that prohibit conduct that harms competition. 
Although the defendants filed motions to dismiss the lawsuit 
following the filing of the complaint, these motions became 
superseded on March 5, 1997 when the Company filed an Amended 
Complaint with the Court based on information gathered in the 
pre-trial discovery process.  The defendants have informed the 
Company that, in response to the Amended Complaint, they intend 
to file new motions to dismiss shortly. See Note 4(c) for 
additional information related to this lawsuit. 

     On October 24, 1996, US Airways notified British Airways that 
it is terminating the code sharing and frequent traveler 
agreements between the two companies effective March 29, 1997 
following British Airways' decision to enter into an alliance with 
American. Under the wet lease arrangements, US Airways leased 
three 767-200ER aircraft, along with cockpit and cabin crews, to 
British Airways for three routes between the U.S. and London. US 
Airways terminated the wet lease arrangements with British Airways 
in a phased approach with one of the three aircraft returned to US 
Airways in December 1995, a second in February 1996 and the third 
in May 1996.  

     On December 17, 1996, British Airways delivered a notice (the 
"Sale Notice") to the Company of its intent to sell in one or more 
underwritten public offerings or privately negotiated 
transactions, all of the shares of the BA Preferred Stock. Under 
the Investment Agreement, the Sale Notice triggered (i) a right of 
first offer of the Company to purchase all (or in certain 
circumstances, any portion) of such shares at prices set forth in 
the Sale Notice (the "Right of First Offer") and (ii) a public 
offering registration procedure (the "Public Offering Registration 
Procedure"). The Company did not exercise its right to purchase 
the BA Preferred Stock prior to the expiration of the Right of 
First Offer on February 15, 1997. 

                                80

<PAGE>
     Because the Company elected not to exercise the Right of 
First Offer with respect to the BA Preferred Stock, subject to 
certain limitations, British Airways is free to complete a sale on 
terms no less favorable to British Airways than those set forth in 
the Sale Notice, provided that (i) such sale is closed by August 
14, 1997 (or 180 days following the initial filing of the 
Company's registration statement in conjunction with the Public 
Offering Registration Procedure), (ii) in the case of a public 
offering, the sale price may be higher or lower than the price 
offered in the Sale Notice and (iii) in the case of a privately 
negotiated transaction, the price must be equal to or higher than 
the price offered in the Sale Notice.

   In the Sale Notice, British Airways also exercised the Public 
Offering Registration Procedure under the Investment Agreement to 
cause the Company to use its "reasonable efforts" to register the 
BA Preferred Stock for sale in an underwritten public offering at 
British Airways' request on up to three occasions. The 
registration procedures provide that the Company shall prepare and 
file with the U.S. Securities and Exchange Commission and use its 
reasonable efforts to cause to become effective a registration 
statement under the Securities Act by April 16, 1997, provided, 
however, that the Company's obligation may be deferred in certain 
circumstances for up to 180 days.

     Under the terms of the Investment Agreement, British Airways 
has a right to maintain its proportionate representation on the 
Company's board of directors. As of the date of this report, the 
holders of Series A Preferred Stock and the holders of the Series 
B Preferred Stock each have the right to elect two additional 
directors to the Company's board of directors. If the holders of 
the Series A and Series B Preferred Stock were to exercise their 
right to elect additional directors, British Airways would have 
the right to elect an additional director to the Company's board 
of directors. On January 28, 1997, the Company received notice 
that British Airways' representatives, Messrs. Ayling, Stevens and 
Maynard, resigned as directors of US Airways Group and on 
February 12, 1997, the Company received notice that such 
individuals resigned as directors of US Airways. In the letter of 
resignation, British Airways waived its current and future rights 
under the Investment Agreement to US Airways Group board 
representation.

     Based on such resignations, British Airways may take the 
position that British Airways is no longer an affiliate of US 
Airways Group and, therefore, upon the expiration of the third 
month following such change in status, is able to sell the BA 
Preferred Stock without registration under the Securities Act of 
1933 in compliance with an exemption thereunder.

      See Note 7(a) and 8(c) for additional information related to 
the Series A and Series B Preferred Stock, respectively, and Note 
7(d) related to the Company's deferral of dividends on its 
outstanding preferred stock issuances.

     Based on British Airways' announcement that it does not 
intend to complete the purchase of the Series C Preferred Stock 
and its actions in connection with its proposed sale of the BA 
Preferred Stock, the Company does not expect that the sale of 
Series C and Series E Preferred Stock to British Airways will be 
consummated. In addition, assuming British Airways continues to 
pursue the sale of the BA Preferred Stock in accordance with the 
procedures described above, the Company does not expect that it 
will address the issue of repurchasing or redeeming the BA 
Preferred Stock. The Company cannot predict the outcome of its 
lawsuit against British Airways. As discussed under Note 7(d), the 
Company may be subject to certain legal restrictions on its 
ability to repurchase or redeem its own shares of capital stock.

                                81

<PAGE>
7.  REDEEMABLE PREFERRED STOCK AND DEFERRAL OF DIVIDENDS 

     (a)  SERIES A PREFERRED STOCK

     As of December 31, 1996, the Company had 358,000 shares of 
its 9 1/4% Series A Cumulative Convertible Redeemable Preferred 
Stock ("Series A Preferred Stock"), without par value, out-
standing which were convertible into 9,239,944 shares of Common 
Stock at a conversion price of approximately $38.74 per share. The 
Series A Preferred Stock ranks pari passu with the Series F and 
Series T Preferred Stock and is senior to the Series B Cumulative 
Convertible Preferred Stock ("Series B Preferred Stock"), without 
par value, and the Common Stock, with respect to dividend payments 
and the distribution of assets. As of December 31, 1996, each 
share of Series A Preferred Stock was entitled to approximately 
25.8099 votes per share (a total of 9,239,944 votes) and votes 
together with the Series F Preferred Stock, Series T Preferred 
Stock and the Common Stock, on all matters submitted to a vote of 
stockholders of the Company. 

     The Series A Preferred Stock is mandatorily redeemable on 
August 7, 1999 at $1,000 per share, plus accrued dividends. The 
Company has the right to redeem the stock at a 10% premium plus 
accrued dividends until that time. The agreement relating to the 
sale of the Series A Preferred Stock imposes certain restrictions 
on the purchaser's ability to increase its ownership of, and to 
transfer, its stock in US Airways Group. In addition, the holders 
of the Series A Preferred Stock, affiliates of Berkshire Hathaway 
Inc. ("Berkshire"), can require the Company to redeem the stock 
if, under certain conditions, a non-affiliated entity purchases 
fifty percent or more of the combined voting power of the 
Company's then outstanding voting stock. There have been no 
changes in the balance sheet value of the Series A Preferred Stock 
since its issuance in 1989.

     The Company paid dividends of $25.7 million and $22.2 million 
to the holders of the Series A Preferred Stock during August 1996 
and October 1996, respectively. The Company had previously 
deferred dividend payments on all its outstanding series of 
preferred stock beginning with payments due September 30, 1994. As 
of December 31, 1996, deferred dividends and additional dividends 
(interest) thereon of $46.7 million remained in arrears on the 
Series A Preferred Stock. On January 31, 1997, the Company paid 
dividends of $30.4 million to the holders of its Series A 
Preferred Stock. After this payment, deferred dividends and 
additional dividends (interest) thereon of $16.8 million remained 
in arrears on the Series A Preferred Stock and its redemption 
value was $374.8 million. As long as its dividends are deferred, 
the Series A Preferred Stock will continue to accumulate dividends 
at its stated dividend rate of 9.25% plus additional dividends 
(interest) on the balance of the deferred dividends at the higher 
of the stated dividend rate or the prime rate plus five percentage 
points. As of December 31, 1996, the redemption value of the 
Series A Preferred Stock was $404.7 million (the face amount of 
the issuance of $358.0 million plus unpaid dividends and 
additional dividends (interest) thereon of $46.7 million). The 
annual dividends on the Series A Preferred Stock amount to 
approximately $33.1 million (exclusive of additional dividends 
(interest) on deferred dividends).

     Under the terms of the Series A Preferred Stock, Berkshire 
has the exclusive right to elect two directors to the Company's 
board of directors after a scheduled dividend payment has not been 
paid for thirty days. Berkshire has informed the Company that it 
does not intend to exercise this right at this time.

     See Note 7(d) for additional information with respect to 
deferred dividends and potential restrictions on the Company's 
ability to pay dividends on or repurchase or redeem its own shares 
of capital stock.

                                82

<PAGE>
     (b)  SERIES F PREFERRED STOCK

     As of December 31, 1996, the Company had 30,000 shares of its 
7% Series F Preferred Stock outstanding which were convertible 
into 15,458,851 shares of Common Stock at a conversion price of 
approximately $19.41 per share. The Series F Preferred Stock, 
owned by an affiliate of British Airways, ranks pari passu with 
the Series A and Series T Preferred Stock and is senior to the 
Series B Preferred Stock and the Common Stock, with respect to 
dividend payments and the distribution of assets. As of 
December 31, 1996, each share of Series F Preferred Stock was 
entitled to 515.295 votes per share (a total of 15,458,851 votes) 
to the extent permitted by the existing Foreign Ownership 
Restrictions and votes together with the Series A Preferred Stock, 
Series T Preferred Stock and Common Stock, on all matters 
submitted to a vote of stockholders of the Company. Under Foreign 
Ownership Restrictions, no more than 25% of the Company's voting 
interest may be held by persons other than U.S. citizens. In 
accordance with the terms of any BA Preferred Stock, conversion 
rights and voting rights may not be exercised to the extent that 
doing so would result in a loss of the Company's or any of its 
airline subsidiaries' operating certificates or authorities under 
Foreign Ownership Restrictions, and it is assumed for this purpose 
that Series F Preferred Stock will be fully converted before any 
other BA Preferred Stock.

     The Series F Preferred Stock is convertible at the option of 
the holder at any time on or after January 21, 1997 to the extent 
that such conversion would not violate Foreign Ownership 
Restrictions. The Series F Preferred Stock may be converted at the 
option of the Company at any time after January 21, 1998 if the 
average composite closing market price of Common Stock during any 
30-day calendar period is at least 133% of the conversion price. 
The Series F Preferred Stock is mandatorily redeemable on 
January 21, 2008 at $10,000 per share, plus accrued dividends. The 
deadline for British Airways' election to purchase the Series C 
Preferred Stock and therefore, to elect to make any further 
investment in the Company pursuant to the Investment Agreement, 
was January 21, 1996. Because British Airways declined to exercise 
its right to purchase the Series C Preferred Stock on or before 
this date, the Company may at its option redeem, in whole or in 
part, the Series F Preferred Stock and a like percentage of Series 
T Preferred Stock at the higher of market value or the price of 
$10,000 per share, plus accrued dividends. There have been no 
changes in the balance sheet value of the Series F Preferred Stock 
since its issuance in 1993.

     The Company paid dividends of $13.3 million and $13.7 million 
on the Series F Preferred Stock during August 1996 and October 
1996, respectively. The Company had previously deferred dividend 
payments on all its outstanding series of preferred stock 
beginning with payments due September 30, 1994. As of December 31, 
1996, deferred dividends and additional dividends (interest) 
thereon of $23.4 million remained in arrears on the Series F 
Preferred Stock. As of December 31, 1996, the redemption value of 
the Series F Preferred Stock was $323.4 million (the face amount 
of the issuance of $300.0 million plus unpaid dividends and 
additional dividends (interest) thereon of $23.4 million). 

     On January 31, 1997, the Company paid dividends of $15.2 
million to the holder of its Series F Preferred Stock. After this 
payment, deferred dividends and additional dividends (interest) 
thereon of $8.3 million remained in arrears on the Series F 
Preferred Stock and its redemption value was $308.3 million. The 
annual dividends on the Series F Preferred Stock amount to 
approximately $21.0 million (exclusive of additional dividends 
(interest) on deferred dividends). As long as its dividends are 
deferred, the Series F Preferred Stock will continue to accumulate 
dividends at its stated dividend rate of 7.0% plus additional 
dividends (interest) on the balance of the deferred dividends at 
the stated dividend rate. 

                                83

<PAGE>
     See Note 6 for additional information related to British 
Airways' investment in US Airways Group and Note 7(d) for 
additional information with respect to deferred dividends and 
potential restrictions on the Company's ability to pay dividends 
on or repurchase or redeem its own shares of capital stock. 

     (c)  SERIES T PREFERRED STOCK

     Under the Investment Agreement, British Airways has 
preemptive and optional purchase rights to maintain its 
proportionate ownership of the Company's Common Stock and 
convertible securities, measured in terms of the British Airways 
percentage ("BA Percentage"), which approximates British Airways' 
fully-diluted ownership percentage based on British Airways' 
current and potential holdings in the Company. The BA Percentage 
is calculated without regard to Foreign Ownership Restrictions at 
the time of the calculation. British Airways may exercise such 
preemptive or optional purchase rights by purchasing, from time to 
time, a series of Series T Preferred Stock. 

     As of December 31, 1996, the Company had two series of the 
Series T Preferred Stock outstanding. On June 10, 1993, British 
Airways exercised its preemptive purchase right by purchasing 
9,919.8 shares of Series T-2 Preferred Stock for approximately 
$99.2 million and exercised its optional purchase right by 
purchasing 152.1 shares of a series of Series T-1 Preferred Stock 
for approximately $1.5 million. British Airways' preemptive right 
was triggered by the issuance of Common Stock and British Airways' 
optional purchase rights were triggered by the Company's issuance 
of additional shares of Common Stock as a result of option 
exercises under various employee stock option plans and through 
the sale of Common Stock to certain defined contribution plans 
during the period January 21, 1993 to March 31, 1993. British 
Airways has advised the Company that it will not exercise its 
optional purchase rights to buy additional series of Series T 
Preferred Stock triggered by the Company's issuance of Common 
Stock pursuant to certain employee benefit plans and the exercise 
of options and grant of restricted Common Stock under various 
employee stock option and incentive plans that have occurred 
between March 31, 1993 and March 31, 1996.

     The terms of both outstanding series of Series T Preferred 
Stock are substantially similar to those of the Series F Preferred 
Stock, except as noted. Each share of Series T-2 Preferred Stock 
carries a conversion price of $26.40 and is convertible into 
approximately 378.7879 shares of Common Stock or Non-Voting Class 
ET stock. Each share of Series T-1 Preferred Stock has a 
conversion price of $20.50 and is convertible into approximately 
487.8049 shares of Common Stock or Non-Voting Class ET stock. As 
of December 31, 1996, each share of Series T-2 Preferred Stock was 
entitled to approximately 378.7879 votes (a total of 3,757,500 
votes) and each share of Series T-1 Preferred Stock was entitled 
to approximately 487.8049 votes (a total of 74,195 votes). 
Dividends are payable quarterly in arrears, at 50 basis points 
over the three month LIBOR rate. The Series T Preferred Stock is 
mandatorily redeemable on June 10, 2008 at $10,000 per share, plus 
accrued dividends. Any shares of Series T Preferred Stock held by 
any person other than British Airways or its subsidiaries may be 
redeemed for cash at any time at the option of the Company at 
$10,000, plus accrued dividends, plus a redemption premium equal 
to $700 from the date of issue until the first anniversary thereof 
and reduced by $46.67 on each anniversary thereafter. There has 
been no change in the balance sheet value of the Series T 
Preferred Stock since 1993.

     The Series T Preferred Stock is exchangeable, at the option 
of the Company, for that principal amount of floating rate 
convertible subordinated notes of the Company ("T Notes") equal to 
the redemption value of the shares to be exchanged and bearing 
interest at the dividend rate. Any accrued dividends on the Series 
T Preferred Stock to be exchanged will be treated as accrued

                                84

<PAGE>
interest on the T Notes. Each $10,000 aggregate principal amount 
of such T Notes will be entitled to a number of votes equal to the 
number of votes to which each share of Series T Preferred Stock 
was entitled at the time of its exchange for T Notes, subject to 
adjustment. If issued, T Notes will have terms otherwise 
consistent with the terms of the Series T Preferred Stock.

     The Company paid dividends of $4.0 million and $4.1 million 
to the holder of the Series T Preferred Stock during August 1996 
and October 1996, respectively. The Company had previously 
deferred dividend payments on all its outstanding series of 
preferred stock beginning with payments due September 30, 1994. As 
of December 31, 1996, deferred dividends and additional dividends 
(interest) thereon of $6.9 million remained in arrears on the 
Series T Preferred Stock. As of December 31, 1996, the redemption 
value of the Series T Preferred Stock was $107.6 million (the face 
amount of the issuance of $100.7 million plus unpaid dividends and 
additional dividends (interest) thereon  of $6.9 million). 

     On January 31, 1997, the Company paid dividends of $4.5 
million to the holder of the Series T Preferred Stock. After this 
payment, deferred dividends and additional dividends (interest) 
thereon of $2.5 million remained in arrears on the Series T 
Preferred Stock and its redemption value was $103.2 million. The 
annual dividends on the Series T Preferred Stock currently amount 
to approximately $6.0 million. As long as preferred dividends are 
deferred, the Series T Preferred Stock will continue to accumulate 
dividends at its dividend rate of the three-month LIBOR rate plus 
one-half of a percentage point plus additional dividends 
(interest) on the balance of the deferred dividends at the 
dividend rate.

     See Notes 6 and 7(b) for additional information related to 
British Airways' investment in US Airways Group and Note 7(d) for 
additional information related to deferred dividends and 
potential restrictions on the Company's ability to pay dividends 
on or repurchase or redeem its own shares of capital stock.

     (d)  DEFERRAL OF DIVIDENDS ON PREFERRED STOCK

     On September 29, 1994, the Company announced that it was 
deferring the quarterly dividend payment due September 30, 1994 to 
holders of its Series A Preferred Stock. At that time, the 
Company, organized under the laws of the State of Delaware, 
believed that it was legally prohibited from paying dividends on 
or repurchasing or redeeming its capital stock due to the 
provisions of Sections 160 and 170 of the Delaware General 
Corporation Law ("Delaware Law"). Delaware Law requires a company 
to maintain a capital surplus in order to pay dividends on or 
repurchase or redeem its capital stock. The Company also deferred 
quarterly dividend payments to holders of all its other 
outstanding series of preferred stock, including the Series F and 
Series T Preferred Stock and the publicly-held Series B Preferred 
Stock.

     During 1996, the Company's capital surplus position, as 
calculated under Delaware Law and based on the Company's 
Consolidated Balance Sheets, improved (became positive) and the 
Company made two dividend payments totaling $83.0 million to 
holders of its Senior Preferred Stock. On January 31, 1997, the 
Company made an additional dividend payment of $50.0 million to 
holders of its Senior Preferred Stock. 

     After the January 31, 1997 dividend payment, deferred 
dividends remained outstanding on all of the Company's outstanding 
preferred stock issuances, each of which has a cumulative dividend 
feature. So long as dividends are deferred, the Series A, Series 
F, Series T and Series B Preferred Stock will each accumulate 
dividends at their stated rate. In addition, the Series A, Series 
F and Series T Preferred Stock accumulate additional dividends 
(interest) on the balance of any deferred dividends. 

                                85

<PAGE>
     	There can be no assurance that the Company will be able to 
maintain or further increase its capital surplus or when or if the 
Company will make additional dividend payments on its preferred 
stock.

     See also Notes 7(a), 7(b), 7(c) and 8(c) for information 
regarding each of the Company's outstanding preferred stock 
issuances.


8.  STOCKHOLDERS' EQUITY

     (a)   COMMON STOCK

     As of December 31, 1996 and 1995, the Company had 150,000,000 
authorized shares of Common Stock, par value $1. If British 
Airways purchases the Series C Preferred Stock the number of 
authorized shares of various classes of Common Stock will increase 
to 300,000,000.  As discussed in Note 6, British Airways has 
indicated, however, that it will not make any additional 
investments in the Company. As of December 31, 1996, approximately 
51,073,000 Common Stock shares were reserved for issuance upon the 
conversion of preferred stock and for offerings under employee 
stock purchase, stock option, stock incentive and retirement 
plans.

     The Company has not paid dividends on its Common Stock since 
the second quarter of 1990. There can be no assurance when or if 
dividend payments will resume.  See discussion of deferred 
dividends above in Note 7(d).

     (b)  PREFERRED STOCK AND SENIOR PREFERRED STOCK

     As of December 31, 1996, the Company had 5,000,000 authorized 
shares of preferred stock, without nominal or par value, of which 
358,000 shares were issued as Series A Preferred Stock, and 
approximately 43,000 shares were issued as Series B Preferred 
Stock. Also, as of December 31, 1996, the Company had 3,000,000 
authorized shares of Senior Preferred Stock, without nominal or 
par value, of which 30,000 shares were issued as Series F 
Preferred Stock and approximately 10,000 shares were issued as 
Series T Preferred Stock. The terms of the Series F Preferred 
Stock and the Series T Preferred Stock provide that they rank, 
with respect to dividends and upon distribution of assets in 
liquidation, dissolutions or winding-up, pari passu with the 
Series A Preferred Stock.

     The terms of the Series A, Series F, Series T, and Series B 
Preferred Stock are discussed in Note 7(a), 7(b), 7(c) and 8(c), 
respectively.

    As of December 31, 1996, dividends remained in arrears on 
each of the Company's out-standing preferred stock issuances. See 
Note 7(d).

     (c)  SERIES B PREFERRED STOCK

     As of  December 31, 1996, the Company had 4,262,550 
Depositary Shares, representing 42,625.5 shares of its $437.50 
Series B  Preferred Stock outstanding. Each Depositary Share 
represents 1/100 of a share of the Series B Preferred Stock. The 
Series B Preferred Stock is convertible at any time, at the option 
of the holder, at the rate of 249.25 shares of Common Stock of the 
Company per preferred share, or 2.4925 shares of Common Stock per 
Depositary  Share. The Series B Preferred Stock ranks junior to 
the Company's Series A , Series F and Series T Preferred Stock and

                                86

<PAGE>
senior to the Common Stock with respect to dividend payments and 
the distribution of assets, whether upon liquidation or otherwise. 
Except under certain circumstances, the holders of Series B 
Preferred Stock have no voting rights.

     The Series B Preferred Stock is redeemable, at the option of 
the Company and with consent of the holders of Series F Preferred 
Stock, (i) in whole but not in part, only in certain 
circumstances, for so long as any shares of Series A Preferred 
Stock are outstanding; and (ii) in whole or in part if no shares 
of Series A Preferred Stock are outstanding, in each case at a 
redemption price currently equal to approximately $52.19 per  
Depositary Share and thereafter at prices declining to $50.00 per 
Depositary Share (equivalent to $5,000 per share of Series B 
Preferred Stock) on or after May 15, 2001, plus accrued dividends.

     The Company paid dividends totaling $83.0 million to holders 
of the Company's Senior Preferred Stock during 1996. The Company 
had previously deferred dividend payments on all outstanding 
series of preferred stock beginning with payments due 
September 30, 1994. Because the Series B Preferred Stock is junior 
to the Company's Senior Preferred Stock, the Company cannot pay 
dividends on the Series B Preferred Stock until the dividends in 
arrears on the Senior Preferred Stock are paid in full. As of 
December 31, 1996, deferred dividends of $77.0 million and $42.0 
million remained in arrears on the Company's Senior Preferred 
Stock and the Series B Preferred Stock, respectively. As long as 
preferred dividends are deferred, the Series B Preferred Stock 
will continue to accumulate dividends at its stated dividend rate 
of 8.75% but is not subject to additional dividends (interest) on 
the balance of the deferred dividends. As of December 31, 1996, 
the liquidation preference of the Series B Preferred Stock was 
$255.1 million (the face amount of the issuance of $213.1 million 
plus unpaid dividends of $42.0 million). The annual dividends on 
the Series B Preferred Stock amount to approximately $18.6 
million.

     Under the terms of the Series B Preferred Stock, the holders 
have the right to elect two additional directors to the Company's 
board of directors if six quarterly dividend payments are not 
paid. That right became effective on February 15, 1996. The right 
must be exercised by notice of the holders of record of 20% or 
more of the Series B Preferred Stock.  In April and October 1996, 
two different groups of shareholders representing more than the 
20% of the Series B Preferred Stock shares outstanding notified 
the Company that they wished to exercise their right to elect 
additional directors. However, the shareholders in each of these 
groups subsequently sold their shares prior to fully exercising 
their rights. There is currently no ongoing effort to elect 
directors under the terms of the Series B Preferred Stock.

     See Note 7(d) for additional information with respect to 
deferred dividends and potential restrictions of the Company's 
ability to pay dividends on or repurchase or redeem its own shares 
of capital stock.

     (d)  TREASURY STOCK

     In 1989, the Company's board of directors authorized the 
repurchase from time to time of up to 9.4 million shares of Common 
Stock in open market transactions. As of December 31, 1996, the 
Company had repurchased 2.1 million shares since the inception of 
the program (all the purchases occurred during 1989). The Company 
held 0.6 million Common Stock shares in treasury as of 
December 31, 1988. 

     The Company sold approximately 1.9 million and 0.5 million 
treasury stock shares during 1994 and 1993, respectively, and had 
expended its treasury stock balance prior to December 31, 1994. 

                                87

<PAGE>
     During 1996, certain employees, upon fulfilling the vesting 
requirements of Common Stock grants,  surrendered approximately 
0.1 million shares of Common Stock to the Company in lieu of cash 
payments to satisfy tax withholding requirements. The Company 
reissued these shares prior to December 31, 1996 upon the exercise 
of stock options. 

     The Company has not repurchased shares of its Common Stock 
since 1989 and may be subject to certain legal restrictions on its 
ability to repurchase its Common Stock under Delaware law.

     (e)  STOCK-BASED COMPENSATION

     As of December 31, 1996, approximately 11.0 million shares 
of Common Stock were reserved for future grants of Common Stock 
or the possible exercise of stock options and stock appreciation 
rights ("SARs") issued under the Company's four stock option and 
incentive plans. The Company accounts for stock-based 
compensation using the intrinsic value method prescribed under 
Accounting Principles Board Opinion No. 25, "Accounting for Stock 
Issued to Employees" ("APB 25"). In accordance with APB 25, the 
Company recognized compensation expense (an element of Personnel 
costs) related to Common Stock grants of $11.9 million, $0.3 
million and $0.2 million in 1996, 1995 and 1994, respectively, 
and compensation expense related to stock option grants of $7.9 
million in 1996 (none for 1995 or 1994). In addition, the Company 
recognized compensation expenses related to SARs, the Company's 
only variable stock-based compensation instrument, of $41.6 
million in 1996 (none for 1995 or 1994). Deferred compensation 
related to Common Stock grants was $9.4 million and $11.6 million 
as of December 31, 1996 and 1995, respectively, and deferred 
compensation related to stock option grants was $2.4 million as 
of December 31, 1996 (none as of December 31, 1995).

     The 1996 Stock Incentive Plan ("1996 Plan"), which became 
effective during May 1996 and encompasses the Company's former 
1988 Stock Incentive Plan, provides for the grant of up to 8.4 
million shares of Common Stock and stock options to key 
employees. The 1984 Stock Option and Stock Appreciation Rights 
Plan ("1984 Plan") originally provided for the grant of up to 0.6 
million stock options and SARs to key employees. Common Stock 
grants, available under the 1996 Plan, are subject to a vesting 
period of up to four years. The Company granted 0.6 million and 
0.9 million shares of Common Stock during 1996 and 1995, 
respectively (none during 1994). The weighted average fair value 
per share of Common Stock granted in 1996 and 1995 was $17 and 
$13, respectively. Both plans provide that options may be granted 
as either nonqualified or incentive stock options. Stock options 
awarded under both plans have terms of 10 years and one month. 
Stock options awarded under either plan prior to 1994, except for 
those that have been forfeited, have vested. Stock options 
awarded during 1996, 1995 and 1994 have vesting periods of three 
to four years. SARs, available under the 1984 Plan, permit the 
grantee to receive an amount equal to the excess of the fair 
market value of a share of  Common Stock over the SAR's exercise 
price on the day the SAR is exercised and may be settled in cash 
or Common Stock, or any combination of the two. No SARs were 
granted under the 1996 Plan or the 1988 Plan during 1996 or 1995. 
The 1984 Plan had 24,400 SARs outstanding as of December 31, 
1996.

     Under the 1992 Stock Option Plan ("1992 Plan"), US Airways 
employees whose pay was reduced, generally during a 12 month 
period in 1992 and 1993, received stock options to purchase 50 
shares of Common Stock at a price of $15 per share for each 
$1,000 of salary reduction. Participating employees have five 
years from the grant date to exercise such stock options. 
Effective November 1, 1996, the Company added a SAR feature to 
the 1992 Plan and granted SARs to stock option holders on a one-
for-one basis. For each SAR, the holder is entitled to receive a 
cash distribution equal to the excess of the fair market value of 
a share of Common Stock above $15. The exercise of any SAR 

                                88

<PAGE>
cancels its tandem stock option and, conversely, the exercise of 
any stock option cancels its tandem SAR. The SARs have the same 
expiration date as the tandem stock options. As of December 31, 
1996, all stock options and SARs outstanding under the 1992 Plan 
were vested and 4.2 million shares of Common Stock remain 
reserved for the possible conversion of stock options issued and 
outstanding under this plan (however, the Company expects most 
plan participants to exercise SARs as opposed to stock options 
due to lower transaction fees for SAR exercises).

     The Nonemployee Director Stock Incentive Plan ("Director 
Plan"), which also became effective during May 1996, allows for 
the grant of up to 70,000 shares of Common Stock to the Company's 
nonemployee directors. As of December 31, 1996, 15,000 Common 
Stock shares were reserved for the possible conversion of stock 
options issued and outstanding under this plan. Common Stock 
grants under this plan are subject to a one year vesting period.

     The following table summarizes stock option transactions 
pursuant to the Company's various stock option and incentive 
plans for the years ended December 31, 1996, 1995 and 1994:

                        1996            1995            1994
                  ---------------- --------------- -------------
                          Weighted        Weighted       Weighted
                          Average         Average        Average
                          Exercise        Exercise       Exercise
                  Shares   Price   Shares  Price   Shares Price
                  ------  -------  ------ -------  ------ ------
                  (000)            (000)           (000)
Stock Options
Outstanding at
beginning of year 8,426    $17    8,844    $18     9,009    $19
  Granted (1)        97    $17      155     $9       354     $9
  Granted (2)     2,415    $13        -      -         -      -
  Exercised         435    $15       43    $10         5    $10
  Forfeited (3)     673    $16      489    $25       504    $24
  Expired            48    $32       41    $36        10    $23
                  -----           -----            -----
Outstanding at
  end of year     9,782    $17    8,426    $17     8,844    $18

Exercisable at
  end of year     7,802           7,986            8,237

(1)  Exercise price equal to the fair market value of a share of
     Common Stock at date of grant; 1996 activity includes 20,000
     stock options that were repriced.

(2)  Exercise price lower than the fair market value of a share
     of Common Stock at date of grant.

(3)  1996 activity includes cancellation of repriced stock
     options. See (1) above.

     The weighted average fair value of stock options which had 
an exercise price equal to the fair market value of a share of 
Common Stock at date of grant was $12 and $6 for 1996 and 1995, 
respectively. The weighted average value of stock options which 
had an exercise price lower than the fair market value of a share 
of Common Stock at date of grant was $13 for 1996 (no such grants 
during 1995).

                                89



<PAGE>
<TABLE>
<CAPTION>
                             Stock Options                  Stock Options
                              Outstanding                    Exercisable
                   ----------------------------------  ----------------------
                                 Weighted
                      Number      Average    Weighted                Weighted
                    of Shares    Remaining   Average                 Average
  Range of         Outstanding  Contractual  Exercise    Number      Exercise
Exercise Prices    at 12/31/96     Life       Price    Exerciseable    Price
---------------    -----------  -----------  --------  ------------  --------
                      (000)       (years)                 (000)
<S>                  <C>            <C>       <C>        <C>           <C>
$ 4.25 to $10.00       278          7.8       $  7         145         $  7
$10.01 to $15.00     6,845          3.8       $ 14       5,086         $ 15
$15.01 to $20.00       477          5.9       $ 17         394         $ 18
$20.01 to $25.00     1,924          4.3       $ 22       1,919         $ 22
$25.01 to $40.00        51          1.8       $ 36          51         $ 36
$40.01 to $46.38       207          2.1       $ 46         207         $ 46

</TABLE>



     During 1995, the Financial Accounting Standards Board 
adopted Statement No. 123, "Accounting for Stock-Based 
Compensation" ("SFAS 123"). This statement requires the use of 
fair value techniques to determine compensation expense 
associated with stock-based compensation. Although the Company 
has opted to continue to apply the provisions of APB 25 to 
determine compensation expense, as permitted under SFAS 123, the 
Company is obligated to disclose certain information including 
pro forma net income and earnings per share as if SFAS 123 had 
been adopted by the Company to measure compensation expense. Had 
compensation cost been measured in accordance with SFAS 123, the 
Company's net income and earnings per share would have been 
reduced to the pro forma numbers indicated in the table below. In 
order to calculate the pro forma net income information presented 
below, the Company used the Black-Scholes stock option-pricing 
model with the following weighted-average assumptions for 1996 
and 1995, respectively: stock volatility of 50.1% and 48.8%; 
risk-free interest rates of 6.2% and 6.6%; expected stock option 
life of 9 years for both years; and no dividend yield (0%) for 
either year.

                                                 1996       1995
                                                 ----       ----

Net income                As reported (000s)  $263,373   $119,287
                          Pro forma (000s)    $248,204   $119,074

Net income
  applicable to           As reported (000s)  $174,598  $  34,383
  common stockholders     Pro forma (000s)    $159,429  $  34,170

Primary income per        As reported            $2.69      $0.55
  common share            Pro forma              $2.48      $0.55

Fully-diluted income      As reported            $2.33      $0.55
  per common share        Pro forma              $2.18      $0.55

     Pro forma net income and income per common share information 
reflect stock options granted in 1996 and 1995 only. Therefore, 
the full impact of calculating compensation expense for stock 
options under SFAS 123 is not reflected in the pro forma net 
income and income per common share amounts above because 
compensation expense is recognized over the stock option's vesting 
period and compensation expense for stock options granted prior to 
January 1, 1995 is not considered.  See also Note 1(l).

                                90

<PAGE>
     (F)  ADJUSTMENT FOR MINIMUM PENSION LIABILITY

     The provisions of Statement of Financial Accounting Standards 
No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), require 
the recognition of an additional minimum liability for each 
defined benefit plan for which the accumulated benefit obligation 
exceeds plan assets. This amount has been recognized by the 
Company as a liability with an offsetting intangible asset (see 
Note 1(e)). Because the intangible asset recognized may not exceed 
the amount of unrecognized prior service cost on an individual 
plan basis, the balance is reported as a separate reduction of 
Stockholders' Equity (Deficit) as of December 31, 1996 and 1995. 
See also Note 10(a).

9.  EMPLOYEE STOCK OWNERSHIP PLAN

     In August 1989, US Airways established an Employee Stock 
Ownership Plan ("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 $111.4 
million for its purchase of shares and US Airways contributed an 
additional $2.2 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 the Company did not pay 
dividends on any shares held by the Trust for the years ended 
December 31, 1996, 1995 and 1994, 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. Annual contributions made by US Airways, and 
therefore loan repayments made by the Trust, were $11.4 million in 
each of 1996, 1995 and 1994. The interest portion of these 
contributions was $10.3 million in 1996, $10.4 million in 1995 and 
$10.5 million in 1994. Approximately 582,000 shares of Common 
Stock have been released or committed to be released as of 
December 31, 1996. US Airways recognized approximately $4 million 
of compensation expense related to the ESOP in each of 1996, 1995 
and 1994 based on shares allocated to employees (the "shares 
allocated" method). Deferred compensation related to the ESOP 
amounted to approximately $83.5 million, $87.2 million and $90.9 
million as of December 31, 1996, 1995 and 1994, respectively. All 
shares of Common Stock sold to the Trust are considered issued and 
outstanding for computing the weighted average common shares 
outstanding for the income (loss) per common share calculation.

     See also Note 8(e) regarding the Company's accounting 
treatment for stock-based compensation. 

10.  EMPLOYEE BENEFIT PLANS

     (a)  PENSION PLANS

     The Company's subsidiaries have several pension plans in 
effect covering substantially all employees. One qualified defined 
benefit plan covers US Airways' maintenance employees and provides 
benefits of specified amounts based on periods of service. 
Qualified defined benefit plans for substantially all other

                                91

<PAGE>
employees provide benefits based on years of service and 
compensation. The qualified defined benefit plans for domestic 
employees are funded, on a current basis, to meet the minimum 
funding requirements of the Employee Retirement Income Security 
Act of 1974. 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. 

     In 1996, US Airways changed the annual measurement date for 
its pension plan assets and liabilities to September 30 from 
December 31. The change in measurement date is considered a change 
in a method of accounting and Accounting Principles Board Opinion 
No. 20, "Accounting Changes" ("APB 20"), requires that the 
cumulative effect of such a change be recognized as an adjustment 
to retained earnings. The change in measurement date had no 
material cumulative effect on pension expense for prior years and 
thus no adjustment was recognized. For purposes of determining 
whether a minimum pension liability existed as of September 30, 
1996, plan contributions made in the fourth quarter of 1996 were 
included in plan assets. The Company's other subsidiaries, which 
represent less than 1% of the combined ABO, continue to use a 
December 31 measurement date.


           (this space intentionally left blank)

                                92

<PAGE>
<TABLE>
  The funded status of the Company's qualified defined benefit plans:
<CAPTION>
                                                     1996*                        1995
                                         ---------------------------  --------------------------
                                               Plans in Which               Plans in Which
                                         ---------------------------  --------------------------
                                             Plan            ABO         Plan           ABO
                                         Assets Exceed      Exceeds   Assets Exceed    Exceeds
                                              ABO         Plan Assets      ABO       Plan Assets
                                         -------------    ----------- -------------  -----------
                                                                 (in millions)
<S>                                        <C>            <C>          <C>             <C>
Fair value of plan assets                  $ 2,186        $   305      $ 1,009         $ 1,419

Actuarial present value of:
  Vested benefit obligation                  2,062            369          940           1,603
  Nonvested benefit obligation                  24             13           30              22
                                             -----            ---        -----           -----
    ABO based on salaries to date            2,086            382          970           1,625
    Additional benefits based on
      estimated future salary levels           665              -          143             598
                                             -----            ---        -----           -----
Projected benefit obligation ("PBO")         2,751            382        1,113           2,223
                                             -----            ---        -----           -----

PBO in excess of fair value of plan assets    (565)          (77)         (104)           (804)
Contributions from October 1, 1996
  through December 31, 1996                     45            12             -               -
Unrecognized net transition asset              (21)           (9)           (2)            (34)
Unrecognized prior service (credit) cost       (13)           75             2              66
Unrecognized net loss                          508            40           317             571
                                             -----           ---         -----           -----
  Pension (liability) or asset
  before adjustment                            (46)           41           213            (201)
                                             -----           ---         -----           -----
Adjustment for minimum
  pension liability **                           -          (106)            -            (149)
                                             -----           ---        -----           -----

Pension (liability) or asset as
  adjusted and recognized in
  Consolidated Balance Sheets           $      (46)    $     (65)    $     213       $    (350)
                                             =====           ===         =====           =====


*   See discussion above regarding the measurement dates used by the Company's subsidiaries.
**  See Note 8(f).
</TABLE>



     The weighted average assumptions used to determine the 
actuarial present value of the PBO:

                                           1996*           1995
                                           ----            ----

Discount rate                              8.00%           7.25%
Rate of increase in compensation levels    3.58%           3.59%
Expected long-term rate of return 
  on plan assets                           8.85%           9.32%

Components of plan assets:
Cash equivalents and 
  short-term investments                     10%             7%
Equity investments**                         28%            26%
Fixed income and other investments           62%            67%

*  See discussion above regarding the measurement dates used by
   the Company's subsidiaries. 
** Plan assets as of December 31, 1995 include 205 shares of US
   Airways Group Common Stock.

                                93

<PAGE>
     The components of the net periodic pension cost for the 
qualified defined benefit plans:

                                    1996    1995     1994
                                    ----    ----     ----
                                        (in millions)

Service cost (benefits earned
  during the period)              $  146  $   94  $  127
Interest cost on PBO                 251     218     217
Actual return on plan assets         (57)   (541)     48
Net amortization and deferral       (131)    371    (254)
                                     ---     ---     ---
Net  periodic pension costs       $  209  $  142  $  138
                                     ===     ===     ===

      Non-qualified supplemental pension plans are established for 
certain employee groups, which provide incremental pension 
payments from the Company's funds so that total pension payments 
equal amounts that would have been payable from the Company's 
qualified pension plans if it were not for limitations imposed by 
Federal income tax regulations. 

     The status of the Company's non-qualified supplemental plans:


                                                   1996*    1995
                                                   ----     ----
                                                  (in millions)
Fair value of plan assets                       $    -    $    -
Actuarial present value of:
  Vested benefit obligation                         32        33
  Nonvested benefit obligation                       1         2
                                                    --        --
    ABO based on salaries to date                   33        35
    Additional benefits based on 
     estimated future salary levels                  2         2
                                                    --        --
    PBO                                             35        37

PBO in excess of fair value of plan assets         (35)      (37)
Contributions for October 1, 1996
  to December 31, 1996                               1         -
Unrecognized net transition asset                    -         -
Unrecognized prior service cost                      2         3
Unrecognized net loss                                3         9
                                                    --        --
Pension (liability) or asset before adjustment     (29)      (25)
Adjustment for minimum pension liability **         (6)      (11)
                                                    --        --
Unfunded supplemental liability as adjusted and
  recognized in Consolidated Balance Sheets      $ (35)   $  (36)
                                                    ==        ==

*  See discussion above regarding the measurement dates used by
   the Company's subsidiaries. 
** See Note 8(f).

     The discount rate used to determine the actuarial present 
value of the PBO was 8.00% and 7.25% as of September 30, 1996 and 
December 31, 1995, respectively. Weighted average rates of 6.00% 
and 5.88% were used to estimate future salary levels in 1996 and 
1995, respectively.





            (this space intentionally left blank)


                                94

<PAGE>
     The components of net periodic supplemental pension expense 
for the non-qualified supplemental pension plans: 

                                        1996     1995     1994
                                        ----     ----     ----
                                            (in millions)

Service cost (benefits  earned
 during the period)                     $  2     $  -     $  -
Interest cost on PBO                       2        2        3
Actual return on plan assets               -        -        -
Net amortization and deferral              6       (1)      21
                                          --       --       --
Net periodic supplemental pension cost  $ 10     $  1     $ 24
                                          ==       ==       ==

     In addition to the qualified and non-qualified defined 
benefit plans described above, the Company contributes to certain 
defined contribution plans. The Company's contributions are based 
on a formula which considers the age and earnings of each employee 
and the amount of employee contributions. In addition, certain 
qualified defined contribution plans contain a requirement for 
profit sharing contributions if the Company achieves a certain 
pre-tax margin level. The Company's expense related to its defined 
contribution plans, excluding expenses related to its ESOP (see 
Note 9), was $61 million, $65 million and $43 million for 1996, 
1995 and 1994, respectively. The 1996 expense amount includes $4.8 
million related to the profit sharing component of its defined 
contribution plans. The Company made no contributions to its 
defined contribution plans related to profit sharing in 1995 and 
1994 because it did not achieve the prescribed pre-tax margin 
level. The 1995 expense amount includes a  catch up adjustment of 
$11.6 million for new employer match contributions for certain 
collective bargaining groups. 

     (b)  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

	The Company offers medical and life insurance benefits to 
certain employees who retire, and their eligible dependents. The 
medical benefits provided by the Company are coordinated with 
Medicare benefits. Retirees generally contribute amounts towards 
the cost of their medical expenses based on years of service with 
the Company. The Company also provides uninsured death benefit 
payments to survivors of retired employees for stated dollar 
amounts, or in the case of retired pilot employees, death benefit 
payments determined by age and level of pension benefit. The plans 
for postretirement medical and death benefits are funded on a pay-
as-you-go basis.

     In 1996, US Airways changed the annual measurement date for 
postretirement benefit liabilities to September 30 from 
December 31. The change in measurement date is considered a change 
in a method of accounting and APB 20 requires that the cumulative 
effect of such a change be recognized as an adjustment to retained 
earnings. The change in measurement date had no material 
cumulative effect on postretirement benefit expenses for prior 
years and thus no adjustment was recognized. The Company's 
remaining subsidiaries, which represent less than 1% of the 
combined accumulated postretirement benefit obligation ("APBO"), 
continue to use a December 31 measurement date.





           (this space intentionally left blank)

                                95

<PAGE>
  The status of the plans:

                                               1996*      1995
                                               ----       ----
                                                (in millions)

Plan assets at fair value                  $      -    $      -
APBO:
  Retirees                                      326         338
  Fully eligible active plan participants       170         176
  Other plan participants                       455         482
                                              -----       -----
    Total APBO                                  951         996

  APBO in excess of plan assets                (951)       (996)
  Contributions from October 1, 1996
    through December 31, 1996                     7           -
  Unrecognized prior service credits           (142)       (155)
  Unrecognized net (gain)loss                   (34)        112
                                              -----       -----
  Accrued postretirement benefit liability $ (1,120)   $ (1,039)
                                              =====       =====

  The assumptions used to determine the APBO:

                                  1996*            1995
                                  ----             ----
Discount rate                      8.00%          7.25%
Rate of increase in 
  compensation levels        3.00% to 6.00%    3.00% to 6.00%
Health care cost trend              7.5%           8.5%
 
*  See discussion above regarding the measurement dates used by
   the Company's subsidiaries. 

     The components of net periodic postretirement benefit 
expense:



                                               1996   1995   1994
                                               ----   ----   ----
                                                 (in millions)

Service cost (benefits earned during
  the period)                                $  44  $  29  $  36
Interest cost on APBO                           75     65     60
Net amortization and deferral                  (11)   (15)   (12)
                                               ---    ---    ---
Net periodic postretirement benefit cost     $ 108  $  79  $  84
                                               ===    ===    ===

     The assumed health care cost trend rate used in measuring the 
APBO was 7.5% in 1996, declining by 1% per year after 1996 to an 
ultimate rate of 4.5%. If the assumed health care cost trend rates 
were increased by one percentage point, the APBO at September 30, 
1996 would be increased by 10% and 1996 periodic postretirement 
benefit expense would increase 12%.

     (c)	  POSTEMPLOYMENT BENEFITS

     The Company provides certain postemployment benefits to all 
of its employees. In 1993, US Airways adopted Statement of 
Financial Accounting Standards No. 112, "Employers' Accounting for 
Postemployment Benefits" ("SFAS 112"). SFAS 112 requires the use 
of an accrual method to recognize postemployment benefits such as 
severance, disability-related and workers' compensation benefits. 
The Company records the expense for these benefits once a 
triggering event occurs.

                                96

<PAGE>
11.  PROFIT SHARING

     In exchange for temporary wage and salary reductions and 
other concessions during a twelve month period in 1992 and 1993, 
including certain ongoing work rule and medical benefits 
concessions and the freeze of the defined benefit plan for certain 
non-contract employees, affected US Airways employees participate 
in a profit sharing program and were granted stock options to 
purchase US Airways Group Common Stock (see related discussion 
under Note 8(e)). This profit sharing  program was designed to 
recompense those US Airways employees whose pay had been reduced 
in an amount equal to (i) two times salary forgone plus (ii) one 
time salary forgone (subject to a minimum of $1,000) for the 
freeze of the defined benefit pension plan for certain non-
contract employees. US Airways has recognized charges of $213.5 
million, including $121.6 million and $49.7 million in 1996 and 
1995, respectively. Cash distributions to participants of $213.5 
million have also been made, including $74.9 million and $3.3 
million in 1996 and 1995, respectively, and a final cash 
distribution in the first quarter of 1997 of $129.1 million. After 
the first quarter 1997 payment, the Company's obligations under 
this profit sharing program were satisfied and this program 
ceased.

     US Airways' ESOP and Defined Contribution Retirement Program 
("DCRP") each have profit sharing components. Under the ESOP, each 
eligible US Airways employee receives Common Stock shares based on 
his or her compensation relative to the total compensation of all 
participants and the number of Common Stock shares in the 
allocation pool. When US Airways' return on sales equals or 
exceeds certain prescribed levels, US Airways increases its 
contribution, which effectively increases the number of Common 
Stock shares in the allocation pool (see Note 9). US Airways did 
not make any provision for profit sharing contributions in 
connection with the profit sharing component of the ESOP during 
1996 or 1995.  Under the DCRP, US Airways makes additional 
contributions to participant accounts when US Airways Group 
achieves certain prescribed pre-tax margin levels (see Note 
10(a)). US Airways' 1996 results of operations reflect a provision 
of $4.8 million for the profit sharing component of the DCRP. In 
1995, US Airways' results did not achieve the prescribed pre-tax 
margin levels. Accordingly, US Airways made no such provision in 
1995 for this program.

12.  RELATED PARTY TRANSACTIONS

     US Airways wet leased Boeing 767-200ER aircraft, including 
cockpit and cabin crews, to British Airways in order to serve 
three routes between the U.S. and London beginning June 1993. The 
final wet lease arrangement expired May 31, 1996. US Airways 
recognized other operating revenues of approximately $12.6 
million, $63.6 million and $60.7 million for the years 1996, 1995 
and 1994, respectively, related to the wet lease arrangements. 
These revenues were offset by an equal amount of other operating 
expenses. 

     US Airways also has various agreements with British Airways 
for ground handling at certain airports, contract training and 
other services. US Airways recognized other operating revenues of 
approximately $5.8 million, $4.9 million and $6.4 million for the 
years 1996, 1995 and 1994, respectively, related to the services 
US Airways performed for British  Airways.

     US Airways' current receivables from and payables to British 
Airways were approximately $8.0 million and $5.5 million, 
respectively, as of December 31, 1996 and $11.5 million and $5.3 
million, respectively, as of December 31, 1995. 

     US Airways has a long-term receivable from British Airways 
related to three U.S. to London routes that US Airways 
relinquished at the time of implementation of a code sharing

                                97

<PAGE>
arrangement with British Airways. US Airways is terminating its 
code sharing arrangement with British Airways effective March 29, 
1997.  The balance of the receivable was approximately $40.7 
million and $45.4 million as of December 31, 1996 and 1995, 
respectively. Payments began in December 1995 in conjunction with 
the termination of the first wet lease arrangement and continue 
annually for nine years. 

     See also Note 6 - British Airways Plc Investment and Note 7 - 
Redeemable Preferred Stock and Deferral of Dividends. 

     During 1996, certain employees, upon fulfilling the vesting 
requirements of Common Stock grants, surrendered approximately 
0.1 million shares of Common Stock to the Company in lieu of cash 
payments to satisfy tax withholding requirements (see also Note 
8(d)).

13.  SELECT FINANCIAL INFORMATION - USAM INVESTMENTS

     USAM's equity in the earnings of ATS, GIP and GJP for the 
years 1996, 1995 and 1994 was as follows (in thousands): 

                                          1996     1995     1994
                                          ----     ----     ----
Apollo Travel Services
  Partnership (ATS)                     $19,188  $20,708  $20,089
Galileo International Partnership (GIP)  17,213   13,320    6,081
Galileo Japan Partnership (GJP)             201      518      365
                                         ------   ------   ------
                                        $36,602  $34,546  $26,535
                                         ======   ======   ======

     The following is summarized financial information for these 
partnerships (combined, in millions):

                                               As of December 31,
                                               -----------------
                                                 1996       1995
                                                 ----       ----
                                              (Unaudited)

Current assets                                 $   357   $   405
Noncurrent assets                                  480       512
                                                   ---       ---
  Total assets                                     837       917
                                                   ---       ---
Current liabilities                                227       294
Long-Term liabilities                              209       228
                                                   ---       ---
  Total liabilities                                436       522
                                                   ---       ---
    Net assets                                 $   401   $   395
                                                   ===       ===

                                         Years Ended December 31,
                                         -----------------------
                                         1996     1995      1994
                                         ----     ----      ----
                                      (Unaudited)

Service revenues                        $1,466   $1,327   $1,193
Cost and expenses                        1,207    1,103    1,046
                                         -----    -----    -----
  Net earnings                          $  259   $  224   $  147
                                         =====    =====    =====

      USAM received distributions from GIP, GJP and ATS of 
approximately $4.1 million, $0.1 million and $44.5 million 
(including a special distribution from ATS of $33.7 million

                                98

<PAGE>
during the second quarter of 1996 which represented a 
distribution of cash to partners), respectively, during 1996. 
USAM received distributions from GIP, GJP and ATS of 
approximately $2.6 million, $0.2 million and $11.2 million, 
respectively, during 1995.





14.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table presents selected quarterly financial 
data for 1996 and 1995:

                              First    Second    Third    Fourth
                             Quarter   Quarter   Quarter  Quarter
                             -------   -------   -------  -------
                           (in millions except per share amounts)
1996
Operating revenues          $ 1,868   $ 2,149   $ 2,073   $ 2,052
Operating income (loss)     $    11   $   246   $   131   $    49
Net income (loss)           $   (32)  $   201   $    68   $    27
Net income (loss)
  applicable to common
  stockholders              $   (55)  $   178   $    45   $     6
Income (loss) per 
  common share
    Primary                 $ (0.86)  $  2.71   $  0.69   $  0.08
    Fully-diluted           $ (0.86)  $  1.91   $  0.60   $  0.08

1995
Operating revenues          $ 1,763   $ 1,983   $ 1,873   $ 1,855
Operating income (loss)     $   (42)  $   163   $    93   $   108
Net income (loss)           $   (97)  $   113   $    43   $    60
Net income (loss)
  applicable to common
  stockholders              $  (117)  $    92   $    22   $    38
Income (loss) per common
  share
    Primary                 $ (1.91)  $  1.47   $  0.35   $  0.61
    Fully-diluted           $ (1.91)  $  1.11   $  0.35   $  0.54

See Note 16 - Non-Recurring and Unusual Items.

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

15.  SUPPLEMENTAL BALANCE SHEET INFORMATION

  The components of certain accounts in the accompanying 
Consolidated Balance Sheets are as follows:

                                                  December 31,
                                               ----------------
                                              1996        1995
                                              ----        ----
                                                (in thousands)
(a)  Cash and cash equivalents:
     Cash                                 $  20,986  $  13,539
     Cash equivalents, at cost which
       approximates market                  929,980    868,315
                                            -------    -------
                                           $950,966   $881,854
                                            =======    =======


         (table continued on following page)

                                99

<PAGE>
         (table continued from previous page)


  (b)  Receivables, net:
       Accounts receivable                 $349,214   $334,462
       Less allowance for doubtful accounts  12,189     12,340
                                            -------    -------
                                           $337,025   $322,122
                                            =======    =======

  (c)  Materials and supplies, net:
       Materials and supplies              $395,065   $412,230
       Less allowance for obsolescence      146,291    164,086
                                            -------    -------
                                           $248,774   $248,144
                                            =======    =======

  (d)  Accrued expenses:
       Salaries and wages*               $  422,766   $345,710
       All other                            676,415    630,276
                                          ---------    -------
                                         $1,099,181   $975,986
                                          =========    =======

*  Includes amounts related to profit sharing. See Note 11 for
   additional information. 

Note: Certain 1995 amounts have been reclassified to conform with
      1996 classifications.

16.  NON-RECURRING AND UNUSUAL ITEMS

     (a)  1996

     The Company's results for 1996 include two non-recurring 
items recorded by US Airways during the second quarter of 1996 
related to US Airways' subleasing of  11 non-operating BAe-146 
aircraft (see Note 16 (b) and 16 (c) below). US Airways reversed 
$22.5 million of previously accrued rent obligations related to 
these aircraft against Aircraft rent expense and reversed $7.0 
million against Aircraft maintenance expense related to previously 
accrued lease return provisions. US Airways may reverse additional 
amounts related to the 1994 non-recurring charge in future periods 
dependent upon its success and the terms at which the remaining 
non-operating BAe-146 aircraft are subleased or otherwise 
disposed.

     (b)  1995

     In the fourth quarter of 1995, US Airways reversed $4.1 
million of the $132.8 million non-recurring charge related to its 
grounded BAe-146 fleet that was recorded in the fourth quarter of 
1994 (see Note 16 (c) below). The reversal, a credit to Aircraft 
rent expense, reflects the successful remarketing by US Airways of 
three of these aircraft.  

     (c)  1994

     The Company's results for 1994 include (i) a $132.8 million 
charge related to US Airways' grounded BAe-146 fleet, recorded in 
the fourth quarter of 1994 (During 1994, US Airways again 
evaluated the secondary market for its non-operating BAe-146 
aircraft and determined that it was probable that it would not be 
successful in its efforts to sublease or other wise dispose of 
these assets (before lease expiry). Considering this analysis, US 
Airways did not include a provision for any potential subleasing 
activity in determining the amount of the 1994 charge.); (ii) a 
$54.0 million charge for obsolete inventory and rotables to 
reflect market value, recorded in the fourth quarter of 1994; 
(iii) a $50.0 million addition to Passenger transportation 
revenues in the fourth quarter of 1994 to adjust estimates made 
during the first three quarters of 1994; (iv) a $40.1 million

                                100

<PAGE>
charge primarily related to US Airways' decision to cease 
operations of its remaining Boeing 727-200 aircraft in 1995, 
recorded in the third quarter of 1994; (v) a $25.9 million charge 
related to US Airways' decision to substantially reduce service 
between Los Angeles and San Francisco and close its San Francisco 
crew base, recorded in the third quarter of 1994; (vi) a $28.3 
million gain resulting from the sale of certain aircraft and 
assets to Mesa Air Group, Inc. (formerly Mesa Airlines, Inc.) 
("Mesa") and the accounting treatment of the hull insurance 
recovery on the aircraft lost in the September, 1994 accident, 
recorded in the third quarter of 1994; and (vii) a $1.7 million 
charge related to the sale of assets to Mesa, recorded in the 
third quarter of 1994.







             (this space intentionally left blank)

                                101

<PAGE>

ITEM 8B.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY 
INFORMATION FOR US AIRWAYS, INC.




               INDEPENDENT AUDITORS' REPORT




The Stockholder and Board of Directors
US Airways, Inc.:

We have audited the consolidated balance sheets of US Airways, 
Inc. (formerly USAir, Inc.) and subsidiary as of December 31, 1996 
and 1995, and the related consolidated statements of operations, 
cash flows, and changes in stockholder's equity (deficit) for each 
of the three years in the period ended December 31, 1996. 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 generally accepted 
auditing standards. 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, 
1996 and 1995, and the results of their operations and their cash 
flows for each of the three years in the period ended December 31, 
1996, in conformity with generally accepted accounting principles.


                                            KPMG PEAT MARWICK LLP

Washington, D. C.
February 26, 1997, except as to note 4(c) and note 4(d)
which are as of March 13, 1997
                                102


<PAGE>
<TABLE>
US Airways, Inc.   (Formerly USAir, Inc.)
Consolidated Statements of Operations
Years Ended December 31,
----------------------------------------------------------------------------------------
(in thousands)
<CAPTION>


                                                        1996         1995         1994  
                                                        ----         ----         ----  
<S>                                                 <C>          <C>          <C>       
Operating Revenues
  Passenger transportation                          $6,799,420   $6,267,762   $5,922,223
  Cargo and freight                                    158,899      153,651      160,364
  US Airways Express transportation revenues           145,118            -            -
  Other                                                600,620      563,463      496,006
                                                     ---------    ---------    ---------
    Total Operating Revenues                         7,704,057    6,984,876    6,578,593

Operating Expenses
  Personnel costs                                    3,040,682    2,751,437    2,753,269
  Aviation fuel                                        709,505      605,027      642,305
  Commissions                                          547,048      527,058      549,192
  Aircraft rent                                        387,312      398,063      521,395
  Other rent and landing fees                          394,431      388,866      422,190
  Aircraft maintenance                                 311,901      295,594      335,791
  Depreciation and amortization                        300,608      337,066      387,211
  US Airways Express capacity purchases                 93,042            -            -
  Other, net                                         1,550,860    1,447,114    1,484,212
                                                     ---------    ---------    ---------
    Total Operating Expenses                         7,335,389    6,750,225    7,095,565
                                                     ---------    ---------    ---------

Operating Income (Loss)                                368,668      234,651     (516,972)

Other Income (Expense)
  Interest income                                       75,905       51,122       28,044
  Interest expense                                    (283,936)    (301,923)    (285,846)
  Interest capitalized                                   8,398        8,781       13,760
  Equity in earnings of affiliates                      36,602       34,546       26,535
  Other, net                                           (14,594)      10,221       18,296
                                                     ---------    ---------    ---------
    Other Income (Expense), net                       (177,625)    (197,253)    (199,211)
                                                     ---------    ---------    ---------

Income (Loss) Before Taxes                             191,043       37,398     (716,183)

Provision For Income Taxes                               7,811        4,408            -
                                                     ---------    ---------    ---------
Net Income (Loss)                                   $  183,232   $   32,990   $ (716,183)
                                                     =========    =========    =========



See accompanying Notes to Consolidated Financial Statements.
</TABLE>
                                103

<PAGE>
<TABLE>
US Airways, Inc.  (Formerly USAir, Inc.)
Consolidated Balance Sheets
December 31,
----------------------------------------------------------------------------------------
(dollars in thousands, except per share amount)
<CAPTION>
                                                                1996             1995   
                                                                ----             ----   
                         ASSETS                                                         
<S>                                                         <C>              <C>        
Current Assets
  Cash and cash equivalents                                 $   950,134      $   879,613
  Short-term investments                                        635,839           19,831
  Receivables, net                                              342,718          321,755
  Materials and supplies, net                                   211,184          222,245
  Prepaid expenses and other                                    129,380           97,922
                                                              ---------        ---------
    Total Current Assets                                      2,269,255        1,541,366

Property and Equipment
  Flight equipment                                            4,972,873        5,021,520
  Ground property and equipment                               1,087,178        1,052,706
  Less accumulated depreciation and amortization             (2,381,844)      (2,222,814)
                                                              ---------        ---------
                                                              3,678,207        3,851,412
  Purchase deposits                                              77,620           17,026
                                                              ---------        ---------
    Total Property and Equipment, Net                         3,755,827        3,868,438

Other Assets
  Goodwill, net                                                 494,511          510,562
  Other intangibles, net                                        283,274          312,539
  Other assets, net                                             606,906          590,622
                                                              ---------        ---------
    Total Other Assets                                        1,384,691        1,413,723
                                                              ---------        ---------
                                                            $ 7,409,773      $ 6,823,527
                                                              =========        =========

     LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
  Current maturities of long-term debt                      $    84,171      $    77,496
  Accounts payable                                              472,105          325,079
  Payable to parent company                                     159,383          100,344
  Traffic balances payable and unused tickets                   715,576          638,019
  Accrued aircraft rent                                         495,662          479,749
  Accrued expenses                                            1,073,773          955,445
                                                              ---------        ---------
    Total Current Liabilities                                 3,000,670        2,576,132

Long-term Debt, Net of Current Maturities
  Long-term debt                                              2,614,818        2,674,376
  Note payable - parent company                                       -           67,556
                                                              ---------        ---------
    Total Long-term Debt, Net of Current Maturities           2,614,818        2,741,932

                                                (continued on next page)
</TABLE>
                                104

<PAGE>
<TABLE>
US Airways, Inc.  (Formerly USAir, Inc.)
Consolidated Balance Sheets    (Continued)
December 31,
----------------------------------------------------------------------------------------
(dollars in thousands, except per share amount)
<CAPTION>
                                                                1996             1995   
                                                                ----             ----   
     LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT)  (Continued)
<S>                                                           <C>              <C>      
Deferred Credits and Other Liabilities
  Deferred gains, net                                           356,583          382,995
  Postretirement benefits other than pensions,
    non-current                                               1,093,269        1,015,373
  Non-current employee benefit liabilities and other            429,588          418,268
                                                              ---------        ---------
    Total Deferred Credits and Other Liabilities              1,879,440        1,816,636

Commitments and Contingencies

Stockholder's Equity (Deficit)
Common stock, par value $1 per share, authorized
  1,000 shares, issued and outstanding 1,000 shares                   1                1
Paid-in capital                                               2,416,131        2,416,131
Retained earnings (deficit)                                  (2,466,078)      (2,649,310)
Adjustment for minimum pension liability                        (35,209)         (77,995)
                                                              ---------        ---------
    Total Stockholder's Equity (Deficit)                        (85,155)        (311,173)
                                                              ---------        ---------
                                                            $ 7,409,773      $ 6,823,527
                                                              =========        =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
                                105

<PAGE>
<TABLE>
US Airways, Inc.  (Formerly USAir, Inc.)
Consolidated Statements of Cash Flows
Years Ended December 31,
----------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
                                                        1996         1995         1994  
                                                        ----         ----         ----  
<S>                                                 <C>          <C>          <C>       
Cash and cash equivalents beginning of year         $  879,613   $  428,925   $  367,835

Cash flows from operating activities
  Net income (loss)                                    183,232       32,990     (716,183)
  Adjustments to reconcile net income (loss) to net
    cash provided by (used for) operating activities
      Depreciation and amortization                    300,608      337,066      387,211
      Loss (gain) on disposition of property             1,808      (16,654)     (16,671)
      Amortization of deferred gains and credits       (26,412)     (26,411)     (26,382)
      Other                                             21,524       (4,354)      (8,080)
      Changes in certain assets and liabilities
        Decrease (increase) in receivables             (20,963)       4,257      127,902
        Decrease (increase) in materials, supplies,
          prepaid expenses and intangible
          pension assets                               (32,219)     (68,415)      70,750
        Increase (decrease) in traffic balances
          payable and unused tickets                    77,557       46,865      (68,452)
        Increase (decrease) in accounts payable,
          accrued aircraft rent and accrued expenses   326,727      214,707      326,855
        Increase (decrease) in postretirement
          benefits other than pensions, non-current     77,896       56,667       51,613
                                                     ---------    ---------    ---------
      Net cash provided by (used for) operating
        activities                                     909,758      576,718      128,563

Cash flows from investing activities
  Aircraft acquisitions and purchase deposits, net     (52,854)     (61,689)     (46,022)
  Additions to other property                         (123,575)     (80,644)    (128,874)
  Proceeds from disposition of property                 21,725      219,762       55,540
  Decrease (increase) in short-term investments       (603,593)       2,430      (21,994)
  Decrease (increase) in restricted cash and
    investments                                         11,086       71,980        2,578
  Payment of debt for affiliated company               (42,830)           -            -
  Collection on note receivable from affiliated
    company                                             42,830            -            -
  Other                                                 (5,497)         433        1,110
                                                     ---------    ---------    ---------
      Net cash provided by (used for) investing
        activities                                    (752,708)     152,272     (137,662)



                                                (continued on next page)
</TABLE>
                                106

<PAGE>
<TABLE>
US Airways, Inc.  (Formerly USAir, Inc.)
Consolidated Statements of Cash Flows   (Continued)
Years Ended December 31,
----------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
                                                        1996         1995         1994  
                                                        ----         ----         ----  
<S>                                                  <C>          <C>          <C>      
Cash flows from financing activities
  Issuance of debt                                     103,002            -      172,156
  Reduction of debt                                   (189,531)    (278,302)    (101,967)
                                                     ---------    ---------    ---------
      Net cash provided by (used for)financing
        activities                                     (86,529)    (278,302)      70,189
                                                     ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents    70,521      450,688       61,090
                                                     ---------    ---------    ---------
Cash and cash equivalents end of year               $  950,134   $  879,613   $  428,925
                                                     =========    =========    =========

Noncash investing and financing activities
  Issuance of debt - refinancing of debt secured
    by aircraft                                     $  159,998   $        -   $        -
                                                     =========    =========    =========
  Reduction of debt - refinancing of debt secured
    by aircraft                                     $  154,422   $        -   $        -
                                                     =========    =========    =========
  Issuance of parent company debt - aircraft
    acquisitions                                    $        -   $   68,640   $        -
                                                     =========    =========    =========
  Reduction of parent company debt - aircraft
    acquisitions                                    $   68,640   $        -   $        -
                                                     =========    =========    =========
  Issuance of debt - aircraft acquisitions          $   29,155   $  169,725   $  224,614
                                                     =========    =========    =========
  Reduction of debt - aircraft purchase deposits    $        -   $   70,837   $        -
                                                     =========    =========    =========
  Underwriter's fees - refinancing of debt secured
    by aircraft                                     $    2,488   $        -   $        -
                                                     =========    =========    =========
  Aircraft acquisitions - transfer from affiliated
    company                                         $        -   $        -   $    3,569
                                                     =========    =========    =========
  Other property acquisitions - transfer from
    affiliated company                              $        -   $        -   $    7,925
                                                     =========    =========    =========
  Aircraft dispositions - transfer to affiliated
    company                                         $        -   $        -   $   81,913
                                                     =========    =========    =========

Supplemental Information
  Cash paid during the year for interest, net
     of amounts capitalized                         $  257,689   $  290,560   $  254,199
                                                     =========    =========    =========
  Cash paid (received) during the year for
    income taxes, net                               $   11,061   $   (6,329)  $        -
                                                     =========    =========    =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
                                107

<PAGE>
<TABLE>
US Airways, Inc.  (Formerly USAir, Inc.)
Consolidated Statements of Changes in Stockholder's Equity (Deficit)
Three Years Ended December 31, 1996
-------------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
                                                                     Adjustment            
                                                                         For               
                                                         Retained      Minimum             
                               Common      Paid-In       Earnings      Pension             
                               Stock       Capital       (Deficit)    Liability      Total 
                               ------      -------       --------     ---------      ----- 
<S>                            <C>       <C>           <C>             <C>         <C>     
Balance December 31, 1993      $    1    $2,416,131    $(1,966,117)    $(41,964)   $408,051

Net loss                            -             -       (716,183)           -    (716,183)

Adjustment for minimum
  pension liability                 -             -              -       34,947      34,947
                                -----     ---------      ---------      -------     -------
Balance December 31, 1994           1     2,416,131     (2,682,300)      (7,017)   (273,185)

Net income                          -             -         32,990            -      32,990

Adjustment for minimum
  pension liability                 -             -              -      (70,978)    (70,978)
                                -----     ---------      ---------      -------     -------
Balance December 31, 1995           1     2,416,131     (2,649,310)     (77,995)   (311,173)

Net income                          -             -        183,232            -     183,232

Adjustment for minimum
  pension liability                 -             -              -       42,786      42,786
                                -----     ---------      ---------      -------     -------
Balance December 31, 1996      $    1    $2,416,131    $(2,466,078)    $(35,209)   $(85,155)
                                =====     =========      =========      =======     =======

See accompanying Notes to Consolidated Financial Statements.
</TABLE>
                                108


<PAGE>
                          US AIRWAYS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  BASIS OF PRESENTATION AND NATURE OF OPERATIONS

     The accompanying Consolidated Financial Statements include 
the accounts of US Airways, Inc. ("US Airways") (formerly USAir, 
Inc.) and its wholly-owned subsidiary USAM Corp. ("USAM"). US 
Airways is a wholly-owned subsidiary of US Airways Group, Inc. 
("US Airways Group" or the "Company") (formerly USAir Group, 
Inc.). 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.

     US Airways is a major United States air carrier whose primary 
business is transporting passengers, property and mail. US Airways 
operates predominantly in the eastern U.S. with primary hubs at 
the major airports in Pittsburgh, Pennsylvania, Charlotte, North 
Carolina, Philadelphia, Pennsylvania and at Baltimore/Washington 
International Airport. US Airways also maintains significant 
operations at the major airports in Boston, Massachusetts, New 
York, New York and Washington, D.C. US Airways enplaned 56.9 
million passengers during 1996 and is currently the fifth largest 
domestic air carrier, as measured by revenue passenger miles 
("RPMs").

     USAM owns 11% of the Galileo International Partnership 
("GIP") which owns and operates the Galileo Computer Reservation 
System ("Galileo CRS"), approximately 11% of the Galileo Japan 
Partnership ("GJP") which markets the Galileo CRS in Japan and 
approximately 21% of the Apollo Travel Services Partnership 
("ATS") which markets the Galileo CRS in the U.S. and Mexico. USAM 
accounts for these investments using the equity method because it 
is represented on the board of directors of each of the 
partnerships and therefore participates in policy making 
processes.

     US Airways terminated its Airline Technical Services, LLC 
joint venture with a subsidiary of British Airways plc ("British 
Airways"), effective January 1997. Amounts related to this joint 
venture (accounted for using the equity method) included in US 
Airways' financial results for the years ended 1996 and 1995 are 
immaterial and no material charges resulted from its termination.

     The preparation of financial statements in conformity with 
generally accepted accounting principles 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.

     Certain 1995 and 1994 amounts have been reclassified to 
conform with 1996 classifications.

     (b)  CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

     For financial statement purposes, US Airways considers all 
highly liquid investments purchased within three months of 
maturity to be cash equivalents. Cash and cash equivalents are 
stated at cost, which approximates market value. Short-term 
investments consist of certificates of deposit and commercial 
paper purchased with maturities greater than three months but less 
than one year.

     In 1994, US Airways adopted Statement of Financial Accounting 
Standards No. 115, "Accounting for Certain Investments in Debt and

                                109
<PAGE>
Equity Securities" ("SFAS 115"). Under this statement, US Airways 
has classified its entire short-term investment portfolio as 
"available-for-sale." As of December 31, 1996 and 1995, there were 
no material differences between estimated fair values and carrying 
amounts for cash equivalents and short-term investments.

     (c)  MATERIALS AND SUPPLIES

     Inventories of materials and supplies are valued at the lower 
of cost or market 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.

     (d)  PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost or, if acquired 
under capital leases, at the lower of the present value of minimum 
lease payments or fair market value at the inception of the lease. 
Maintenance and repairs, including the overhaul of aircraft 
components, are charged to operating expense as incurred and costs 
of major improvements are capitalized for both owned and leased 
assets. Interest related to deposits on aircraft purchase 
contracts and facility and equipment construction projects is 
capitalized as additional cost of the asset or as leasehold 
improvement if the asset is leased. Depreciation and amortization 
for principle asset classifications is provided on a straight-line 
basis to estimated residual values over estimated depreciable 
lives. US Airways periodically reviews estimated depreciable lives 
and residual values for reasonableness and revises its estimates, 
if necessary.

                                    Depreciable
            Assets                     Lives      Residual Values
            ------                  -----------   ---------------
                                      (years)       (in millions)
Aircraft
  Boeing 767-200ER                       20              $14.0   
  Boeing 757-200                         20                8.0   
  Boeing 737-300/400                     20                7.5   
  Boeing 737-200                        5-17             0.6-5.0 
  McDonnell Douglas MD-80                20                7.5   
  Douglas DC-9-30                        17                3.0   
  Fokker 100                             20                5.0   
  Fokker F28-4000                         8                2.0   
  Fokker F28-1000                         6                1.0   
  Turboprop aircraft                     15                1.5   
  Improvements to leased aircraft   life of lease            -   
Ground property, equipment and          1-10 or
  leasehold improvements            life of lease            -   
Buildings                                30                  -   

     Property acquired under capital lease is amortized on a 
straight-line basis over the term of the lease and charged to 
Depreciation and amortization expense. When property and equipment 
is sold or retired, the cost and accumulated depreciation is 
removed from the accounts and any gain or loss recognized as 
Other, net, a component of Other Income (Expense).

     (e)  GOODWILL AND OTHER INTANGIBLES

     Goodwill, the cost in excess of fair value of identified net 
assets acquired, is being amortized on a straight-line basis over 
40 years. The $629.5 million goodwill resulting from the 
acquisition of Pacific Southwest Airlines ("Pacific Southwest") 

                                110
<PAGE>
and Piedmont Aviation, Inc. ("Piedmont Aviation"), both in 1987, 
is being amortized as Depreciation and amortization expense. As of 
December 31, 1996 and 1995, accumulated amortization related to 
the Pacific Southwest and Piedmont Aviation acquisitions was 
$144.1 million and $128.3 million, respectively. The $11.4 million 
goodwill resulting from USAM's computer reservation system 
investments is being amortized as a component of Other Income 
(Expense), consistent with the classification of the related 
income or loss on the investments. As of December 31, 1996 and 
1995, USAM's related accumulated amortization was $2.3 million and 
$2.0 million, respectively. US Airways periodically evaluates 
whether goodwill is impaired by comparing the goodwill balances 
with estimated future undiscounted cash flows which, in US 
Airways' judgment, are attributable to the goodwill. This analysis 
is performed separately for the goodwill which resulted from each 
acquisition.

     Other intangible assets consist mainly of purchased operating 
rights at various airports, purchased route authorities, 
capitalized software costs and the intangible asset associated 
with the underfunded amounts of certain pension plans ("Intangible 
Pension Asset"). The operating rights, route authorities and 
capitalized software costs are being amortized on a straight-line 
basis over the expected periods of benefit as Depreciation and 
amortization expense. The operating rights, valued at purchase 
cost or appraised value if acquired with Pacific Southwest or 
Piedmont Aviation, are being amortized over periods ranging from 
ten to 25 years, the route authorities are being amortized over 25 
years and capitalized software costs are being amortized over five 
years. The Intangible Pension Asset is recognized in accordance 
with Statement of Financial Accounting Standards No. 87, 
"Employers' Accounting for Pensions" ("SFAS 87") (see Note 8(a)). 
As of December 31, 1996 and 1995, accumulated amortization related 
to intangible assets was $128.2 million and $104.0 million, 
respectively.

     Based on the most recent analyses, US Airways believes that 
goodwill and other intangible assets were not impaired as of 
December 31, 1996.

     (f)  OTHER ASSETS

     Other Assets consists primarily of non-current pension 
assets, the unamortized balance of deferred compensation, 
restricted cash and investments and a long-term receivable from 
British Airways. Deferred compensation resulted mainly from US 
Airways' establishment of an Employee Stock Ownership Plan 
("ESOP") in 1989 (see Note 7). Restricted cash and investments are 
deposits in trust accounts to collateralize letters of credit and 
workers' compensation policies. The long-term receivable from 
British Airways resulted from the relinquishment by US Airways of 
three U.S. to London routes.

     Besides 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"). In 
accordance with APB 25, US Airways recognizes deferred 
compensation equal to the fair market value of US Airways Group 
common stock for such stock granted to US Airways employees 
("Stock Grants") (which is amortized as Personnel costs over the 
vesting period) but typically records no deferred compensation 
when options to purchase US Airways Group Common Stock are 
granted to US Airways employees ("Option Grants") (because, 
except on limited occasions, there is no difference between the 
exercise price of the stock options and the fair market value of 
US Airways Group Common Stock on the date of grant).

                                111
<PAGE>
     US Airways recognized compensation expense related to Stock 
Grants of $11.9 million, $0.3 million and $0.2 million in 1996, 
1995 and 1994, respectively, and compensation expense related to 
Option Grants of $7.9 million in 1996 (none for 1995 or 1994). In 
addition, US Airways recognized compensation expense related to 
stock appreciation rights tied to the fair market value of US 
Airways Group common stock ("SARs") of $41.6 million in 1996 
(none for 1995 or 1994) as the result of a SAR feature granted to 
stock option holders under US Airways Group's 1992 Stock Option 
Plan. Deferred compensation related to Stock Grants was $9.4 
million and $11.6 million as of December 31, 1996 and 1995, 
respectively, and deferred compensation related to Options Grants 
was $2.4 million as of December 31, 1996 (none as of December 31, 
1995).

     The following table summarizes stock option transactions 
related to US Airways employees pursuant to US Airways Group's 
various stock option and incentive plans for the years ended 
December 31, 1996, 1995 and 1994:

                         1996           1995           1994      
                    --------------- -------------- --------------
                           Weighted       Weighted       Weighted
                           Average        Average        Average 
                           Exercise       Exercise       Exercise
                    Shares  Price  Shares  Price  Shares  Price  
                    ------  ------ ------  ------ ------  ------ 
                     (000)          (000)          (000)         
Stock Options
-------------
Outstanding at
beginning of year    8,426    $17   8,844    $18   9,009    $19  
  Granted (1)           82    $17     155    $ 9     354    $ 9  
  Granted (2)        2,415    $13       -      -       -      -  
  Exercised            435    $15      43    $10       5    $10  
  Forfeited (3)        673    $16     489    $25     504    $24  
  Expired               48    $32      41    $36      10    $23  
                     -----          -----          -----         
Outstanding at
end of year          9,767    $17   8,426    $17   8,844    $18  

Exercisable at
end of year          7,802          7,986          8,237         

(1)  Exercise price equal to the fair market value of a share of 
US Airways Group common stock at date of grant; 1996 activity 
includes 20,000 stock options that were repriced.
(2)  Exercise price lower than the fair market value of a share 
of US Airways Group common stock at date of grant.
(3)  1996 activity includes the cancellation of repriced stock 
options. See (1) above.

     The weighted average fair value of stock options which had 
an exercise price equal to the fair market value of a share of US 
Airways Group common stock at date of grant was $11 and $6 for 
1996 and 1995, respectively. The weighted average value of stock 
options which had an exercise price lower than the fair market 
value of a share of US Airways Group common stock at date of 
grant was $13 for 1996 (no such grants during 1995).

     During 1995, the Financial Accounting Standards Board 
adopted Statement No. 123, "Accounting for Stock-Based 
Compensation" ("SFAS 123"). This statement requires the use of 
fair value techniques to determine compensation expense 
associated with stock-based compensation. As mentioned above, US 
Airways applies the provisions of APB 25 to determine 
compensation expense, as permitted under SFAS 123. However, US 
Airways is obligated to disclose certain information including 

                                112
<PAGE>
pro forma net income as if SFAS 123 had been adopted to measure 
compensation expense. Had compensation cost been measured in 
accordance with SFAS 123, US Airways estimates that its net 
income for 1996 would have been reduced from $183.2 million to 
$168.1 million and its net income for 1995 would have been 
reduced from $33.0 million to $32.8 million. In order to 
calculate this pro forma net income information, US Airways used 
the Black-Scholes stock option-pricing model with the following 
weighted-average assumptions for 1996 and 1995, respectively: 
stock volatility of US Airways Group common stock of 50.1% and 
48.8%; risk-free interest rates of 6.2% and 6.6%; expected stock 
option life of 9 years for both years; and no dividend yield (0%) 
for either year.

     The pro forma net income information reflects Option Grants 
in 1996 and 1995 only. Therefore, the full impact of calculating 
compensation expense for stock options under SFAS 123 is not 
reflected in the pro forma net income amounts above because 
compensation expense is recognized over the stock option's vesting 
period and compensation expense for stock options granted prior to 
January 1, 1995 is not considered.

     In November 1995, US Airways entered into a five-year 
transaction with a third party pursuant to which US Airways agreed 
to pledge to such third party from time to time certain flight 
equipment and simulators as collateral for up to $70 million 
aggregate principal amount of letters of credit to be issued by 
the third party with respect to certain workers' compensation 
obligations of US Airways. On December 15, 1995, US Airways 
pledged ten aircraft to the third party, resulting in the release 
of $67.2 million in cash and securities that had been previously 
pledged by US Airways to letter of credit providers.

     (g)  DEFERRED GAINS ON SALE AND LEASEBACK TRANSACTIONS

     Gains on aircraft sale and leaseback transactions are 
deferred and amortized over the term of the leases as a reduction 
of the related aircraft rent expense.

     (h)  RECOGNITION OF PASSENGER TRANSPORTATION REVENUES

     Passenger ticket sales are recognized as Passenger 
transportation revenues when the transportation service is 
rendered or the ticket otherwise expires. At the time of sale, a 
liability is established (Traffic balances payable and unused 
tickets) and subsequently eliminated through carriage of the 
passenger, through billing from another air carrier which renders 
the service or by refund to the passenger.

     Effective October 1, 1996, US Airways began purchasing all of 
the capacity (available seat miles) generated by US Airways 
Group's three wholly-owned regional air carriers and, 
concurrently, recognizing revenues, "US Airways Express 
transportation revenues," when transportation service is rendered 
by these affiliated air carriers 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 eliminated in the 
same manner as described above. See Note 10 for more information 
related to these capacity purchase arrangements.

     As of December 31, 1995, $30.8 million owed to US Airways 
Group's three wholly-owned regional airline subsidiaries was 
included in Traffic balances payable and unused tickets. No such 
amounts are included as of December 31, 1996 due to the capacity 
purchase arrangements mentioned above.

                                113
<PAGE>
     (i)  FREQUENT TRAVELER AWARDS 

     US Airways accrues the estimated incremental cost of travel 
awards earned by participants in its frequent traveler program 
when requisite mileage award levels are achieved.

     (j)  INVESTMENT TAX CREDIT

     Investment tax credit benefits were recorded using the "flow-
through" method as a reduction of the Federal income tax 
provision.

     (k)  ADVERTISING COSTS

     Advertising costs are expensed when incurred as other 
operating expense. Advertising expense for 1996, 1995 and 1994 was 
$51.2 million, $66.6 million and $63.4 million, respectively.

2.   FINANCIAL INSTRUMENTS

     (a)  TERMS OF CERTAIN FINANCIAL INSTRUMENTS

     US Airways has entered into hedging arrangements designed to 
reduce its exposure to fluctuations in the price of aviation fuel. 
Under these arrangements, US Airways receives or makes payments 
based on the difference between a fixed price and the market price 
for specified petroleum products. Net settlements are recorded as 
adjustments to Aviation fuel expense. The total notional gallons 
under hedging arrangements were 84 million and 38 million as of 
December 31, 1996 and 1995, respectively (US Airways entered into 
arrangements prior to December 31, 1996 which, effectively closed 
certain hedging arrangements covering approximately 22 million 
gallons). For hedging arrangements open as of December 31, 1996, 
US Airways will pay fixed prices ranging from $0.553 to $0.700 per 
notional gallon and receive a floating rate per gallon based on 
current market prices. The open hedging arrangements, all of which 
expire during 1997, represent approximately 6% of US Airways' 
expected 1997 fuel consumption. For arrangements open as of 
December 31, 1995, US Airways paid fixed prices ranging from 
$0.499 to $0.548 per notional gallon and received a floating rate 
based on market prices. Although these hedging arrangements expose 
US Airways to credit loss in the event of non-performance by the 
other parties to the agreements, US Airways does not anticipate 
such non-performance because of the favorable creditworthiness of 
the other parties. US Airways may continue to enter into such 
arrangements, depending on market conditions.

     An aggregate of $32 million of future principal payments of 
US Airways' long-term debt due 1998 through 2000 is payable in 
Japanese Yen. This foreign currency exposure has been hedged to 
maturity by US Airways' participation in foreign currency 
contracts. Net settlements will be recorded as adjustments to 
Interest expense. Although US Airways is exposed to credit loss in 
the event of non-performance by the counterparty to the contracts, 
US Airways does not anticipate such non-performance because of the 
favorable creditworthiness of the other party.

     (b)  FAIR VALUE OF FINANCIAL INSTRUMENTS

     Unless a quoted market price indicates otherwise, the fair 
values of short-term investments and other investments generally 
approximates carrying values because of the short maturity of 
these instruments. US Airways has estimated the fair value of 
long-term debt and the long-term note receivable by discounting 
future cash flows using current rates offered to US Airways for 
debt and note receivables of similar maturities. The fair values 
of energy swap agreements and foreign currency contracts are 

                                114
<PAGE>
obtained from dealer quotes. These values represent the estimated 
amount US Airways would receive or pay to terminate such 
agreements.

     The estimated fair values of US Airways' financial 
instruments, none of which are held for trading purposes, are 
summarized as follows (brackets denote a liability):

                                    December 31,                 
                    ---------------------------------------------
                            1996                    1995         
                    ---------------------    --------------------
                    Carrying   Estimated     Carrying  Estimated 
                     Amount    Fair Value     Amount   Fair Value
                    --------   ----------    --------  ----------
                                  (in thousands)                 

Short-term
  investments     $  635,839  $  635,605   $  19,831   $  19,822
Restricted cash
  and investments(1)  87,783      87,843      98,742      98,539
Long-term note
  receivable(1)       40,733      30,080      45,433      33,277
Other long-term
  investments(1)(2)   20,606      22,126       4,607       4,008
Long-term debt (excludes
  capital lease
  obligations)    (2,649,609) (2,697,422) (2,753,932) (2,564,514)
Energy swap agreements:
  In a net receivable
    position               -       3,550           -       1,845
Foreign currency contracts:
  In a net receivable
    position               -         963           -       4,050

(1)  Amounts included in Other Assets on US Airways' Consolidated 
Balance Sheets.

(2)  Classified as "held-to-maturity" under SFAS 115.

3.   LONG-TERM DEBT

     Details of long-term debt are as follows:
                                                December 31,      
                                           -----------------------
                                           1996              1995 
                                           ----              ---- 
                                               (in thousands)     
Senior Debt:
  10% Senior Notes due 2003           $   300,000      $   300,000
  9 5/8% Senior Notes due 2001            175,000          175,000
  5.7% to 12% Equipment Financing
    Agreements, Installments due 1997
    to 2016                             2,117,834        2,180,430
  8.4% Intercompany Aircraft Loan
    with US Airways Group                       -           68,640
  8.6% Airport Facility Revenue
    Bond due 2022                          27,620           27,620
  7 1/4% Aircraft Purchase Deposit
    Financing due 1998*                    29,155                -
  Other                                         -            2,242
                                       ----------       ----------
                                        2,649,609        2,753,932
Capital Lease Obligations                  49,380           65,496
                                       ----------       ----------
  Total                                 2,698,989        2,819,428
Less Current Maturities                    84,171           77,496
                                       ----------       ----------
                                      $ 2,614,818      $ 2,741,932
                                       ==========       ==========

*  See Note 4(d) for additional information with respect to 
aircraft US Airways has scheduled for delivery in 1998.

                                115
<PAGE>
     Maturities of long-term debt and debt under capital leases 
for the next five years:
                                     (in thousands)
                   1997               $     84,171
                   1998                    184,693
                   1999                     77,351
                   2000                    122,569
                   2001                    246,372
             Thereafter                  1,983,833

     Interest rates on $242 million principal amount of long-term 
debt as of December 31, 1996 are subject to adjustment to reflect 
prime rate and other rate changes.

     Equipment financings totaling $2.2 billion were 
collateralized by aircraft and engines with a net book value of 
approximately $2.3 billion as of December 31, 1996.

4.   COMMITMENTS AND CONTINGENCIES

     (a)  OPERATING ENVIRONMENT

     US Airways improved financial results for 1996 are primarily 
attributable to favorable capacity and pricing trends in markets 
it operates in, continued stable domestic economic conditions and 
the positive influence of its revenue enhancement and cost 
reduction initiatives. However, US Airways' financial condition, 
results of operations and future prospects are more susceptible 
to an economic downturn and competitive influences than most of 
its major competitors due to its high cost structure amid the 
growing low cost, low fare environment in the domestic airline 
industry. As discussed in Note 10, US Airways' financial results 
for the fourth quarter and full-year 1996 were significantly 
affected by related party transactions.

     Most of US Airways' operations are in competitive markets, 
predominantly within the Eastern U.S. In recent years, air 
carriers with low costs of operations and fare structures have 
initiated and or expanded into markets served by US Airways. In 
addition, several of the larger, mature air carriers have 
developed or indicated their intention to develop similar low 
cost, low fare operations. In an effort to preserve market share, 
US Airways has typically responded to the entry of a low cost, 
low fare competitor into its markets by matching fares and 
increasing the frequency of service in related markets, generally 
with the result of diluting US Airways' yield in those markets. 
US Airways' currently has the highest unit operating costs among 
the major domestic air carriers and the growth and expansion of 
low cost, low fare air carriers or operations in US Airways' 
markets has put considerable pressure on US Airways to reduce 
operating costs in order to maintain competitiveness.

     US Airways was able to reduce certain non-labor related 
operating costs during 1996 and 1995 through various 
organizational changes, process reengineering and reducing or 
eliminating capacity in unprofitable markets; however, US Airways 
has not been successful to date in achieving meaningful 
reductions in its largest expense category, Personnel costs. US 
Airways believes that its long-term financial viability depends 
on its success in further reducing its cost of operations, 
including its Personnel costs.

     As of December 31, 1996, US Airways employed approximately 
40,160 full-time equivalent employees. Approximately 26,200, or 
65%, of these employees are covered by collective bargaining 
agreements with various unions, or will be covered by collective 

                                116
<PAGE>
bargaining agreements for which initial negotiations are in 
progress. US Airways' contracts with the International 
Association of Machinists and Aerospace Workers ("IAM"), which 
represents US Airways' machinists group, the Air Line Pilots 
Association ("ALPA"), which represents US Airways' pilots, and 
the Association of Flight Attendants ("AFA"), which represents US 
Airways' flight attendants, are open for negotiation and 
collective bargaining talks are underway. US Airways has not yet 
reached an initial contract with its fleet service employees, a 
class of approximately 5,700 employees who are also represented 
by the IAM. US Airways cannot predict the ultimate outcome of 
these negotiations or if it will be successful in achieving 
meaningful wage and benefit concessions from its employees.

     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 affect on its 
financial condition and results of operations. For example, 
geographically isolated inclement weather and the partial Federal 
government shutdowns which both occurred during the first quarter 
of 1996, adversely effected operating revenues and expenses to a 
greater degree than some of its competitors.

     US Airways' operations are dependent on the availability of 
aviation fuel. The availability and price of aviation fuel is 
largely determined by the actions of the nations which compose 
the Organization of Petroleum Exporting Countries ("OPEC") 
cartel. OPEC, which currently controls a significant amount of 
the world's known crude oil reserves, can affect the availability 
and price of aviation fuel through its production and price-
targeting actions. In addition, aviation fuel prices are affected 
by political events, seasonal factors and other factors generally 
outside of US Airways' control. US Airways has a diversified 
aviation fuel supplier network and participates in fuel hedging 
transactions (see Note 2) in order to ensure aviation fuel 
availability and partially protect US Airways from temporary 
aviation fuel price fluctuations.

     (b)  LEASES

     US Airways leases certain aircraft, engines, computer and 
ground equipment, in addition to the majority of its ground 
facilities. Ground facilities include executive offices, overhaul 
and maintenance bases 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.

     In addition, US Airways subleases certain leased aircraft and 
ground facilities under noncancelable operating leases expiring in 
various years through 2021.

     The following amounts applicable to capital leases are 
included in property and equipment:
                                                 December 31,     
                                            ----------------------
                                            1996             1995 
                                            ----             ---- 
                                                 (in thousands)   
     Flight equipment                   $ 167,308       $ 192,775
     Ground property and equipment            406           4,767
                                         --------        --------
                                          167,714         197,542
     Less accumulated amortization        125,568         140,212
                                         --------        --------
                                        $  42,146       $  57,330
                                         ========        ========

                                117
<PAGE>
     As of December 31, 1996, obligations under capital and 
noncancelable operating leases for future minimum lease payments 
were as follows:
                                          Capital       Operating
                                          Leases         Leases  
                                          -------       ---------
                                              (in thousands)     
1997                                    $  21,304      $  704,579
1998                                       10,294         666,706
1999                                       10,295         628,959
2000                                        7,193         623,135
2001                                        4,703         619,755
Thereafter                                 14,109       5,788,942
                                         --------       ---------
  Total minimum lease payments             67,898       9,032,076
  Less sublease rental receipts                           174,655
                                                        ---------
  Total minimum operating lease payments               $8,857,421
                                                        =========
  Less amount representing interest        18,518                
                                         --------                
  Present value of future minimum 
    capital lease payments                 49,380                
  Less current obligations under 
    capital leases                         15,912                
                                         --------                
  Long-term obligations under 
    capital leases                      $  33,468                
                                         ========                

     Rental expense under operating leases for 1996, 1995 and 1994 
was $731 million, $738 million and $703 million, respectively. The 
$731 million rental expense for 1996 excludes a credit of $22.5 
million related to the US Airways' subleasing of eleven non-
operating British Aerospace BAe-146-200 ("BAe-146") aircraft. The 
$738 million rental expense for 1995 excludes a credit of $4.1 
million related to US Airways' subleasing of three non-operating 
BAe-146 aircraft. See Note 14 for additional information related 
to US Airways' non-operating BAe-146 aircraft. The $703 million 
rental expense for 1994 excludes charges of $103 million related 
to US Airways' grounded BAe-146 fleet and $13 million primarily 
related to US Airways' decision to cease operations of its 
remaining Boeing 727-200 aircraft in 1995.

     US Airways also leases certain owned aircraft under 
noncancelable operating leases which expire in various years 
through 2002 to both third and related parties, primarily 
subsidiaries of US Airways Group. See Note 10 - Related Party 
Transactions. The minimum future rentals to be received by US 
Airways on these leases are: $12.7 million - 1997; $7.2 million - 
1998; $5.4 million - 1999; $4.6 million - 2000; $4.2 million - 
2001; and $1.8 million thereafter. The following amounts are 
applicable to aircraft leased under such agreements as reflected 
in flight equipment:

                                                December 31,      
                                           -----------------------
                                           1996              1995 
                                           ----              ---- 
                                               (in thousands)     
     Flight equipment                  $  82,868        $ 192,198
     Less accumulated amortization        36,947           75,089
                                        --------         --------
                                       $  45,921        $ 117,109
                                        ========         ========

     (c)  LEGAL PROCEEDINGS

     US Airways is involved in legal proceedings arising out of 
its two aircraft accidents that occurred in July and September 
1994 near Charlotte, North Carolina and Pittsburgh, Pennsylvania, 
respectively. The National Transportation Safety Board ("NTSB") 
held hearings beginning in September 1994 relating to the July 
accident and January and November of 1995 relating to the 
September accident. In April 1995, the NTSB issued its finding of 

                                118
<PAGE>
probable causes with respect to the accident near Charlotte. It 
assigned as probable causes flight crew errors and the failure of 
air traffic control to convey weather and windshear hazard 
information. The NTSB has not yet issued its final accident 
investigation report for the accident near Pittsburgh. The NTSB 
has indicated that a determination of the cause of the accident is 
not likely until sometime in 1997. US Airways expects that it will 
be at least two to three years before the accident litigation and 
related settlements will be concluded. Litigation resulting from 
the July 1994 accident in Charlotte was recently tried in U.S. 
District Court in Columbia, South Carolina. The jury found US 
Airways was liable for compensatory damages but was not liable for 
punitive damages. The compensatory damages trials have not been 
concluded and US Airways cannot estimate possible compensatory 
damages. However, US Airways believes that it is fully insured 
with respect to this litigation. Therefore, US Airways believes 
that the litigation will not have a material adverse effect on its 
financial condition or results of operations.

     On July 30, 1996, US Airways Group and US Airways initiated 
a lawsuit in U.S. District Court for the Southern District of New 
York against British Airways plc ("British Airways"), BritAir 
Acquisition Corp., Inc., American Airlines Inc. ("American") and 
American's parent company, AMR Corp. US Airways Group and US 
Airways claim that British Airways, in pursuit of an alliance 
with American, is responsible for breaches of fiduciary duty to 
US Airways Group and US Airways and violated certain provisions 
of the January 21, 1993 Investment Agreement between US Airways 
Group and British Airways. The lawsuit also claims that the 
defendants are in violation of U.S. Antitrust laws that prohibit 
conduct that harms competition. Although the defendants filed 
motions to dismiss the lawsuit following the filing of the 
complaint, these motions became superseded on March 5, 1997 when 
US Airways Group filed an Amended Complaint with the Court based 
on information gathered in the pre-trial discovery process. The 
defendants have informed US Airways Group that, in response to 
the Amended Complaint, they intend to file new motions to dismiss 
shortly. US Airways is unable to predict at this time the 
ultimate outcome of this lawsuit.

     In December 1995, US Airways received a Civil Investigative 
Demand ("CID") from the U.S. Department of Justice relating to US 
Airways' compliance with the terms of a consent decree entered 
into in December 1992, as amended in September 1994. The consent 
decree was entered into to resolve litigation concerning US 
Airways' methods of disseminating fare data to the Airline Tariff 
Publishing Company. A CID is a request for information in the 
course of an antitrust investigation and does not constitute the 
institution of a civil or criminal action. The CID issued in 
December 1995 seeks information concerning US Airways' use of 
travel dates in its fare filings, among other things. Although US 
Airways believes there will be no further action stemming from 
this CID, the investigation has not been fully closed.

     In February and March 1995, 39 class action lawsuits were 
filed in various federal district courts by travel agencies and a 
travel agency trade association alleging that seven of the major 
U.S. airlines, including US Airways, violated the antitrust laws 
when they individually capped travel agent base commissions at $50 
for round-trip domestic tickets with base fares above $500 and at 
$25 for one-way domestic tickets with base fares above $250. The 
lawsuits were consolidated in the federal district of Minnesota. 
The plaintiffs sought unspecified treble damages for restraint of 
trade. In September of 1996 the case against US Airways, and 
subsequently the cases against the other airlines, were settled. 
While US Airways believes that its actions in establishing a 
commission cap were in full compliance with the antitrust laws, 
the uncertainty and expense of litigation prompted a settlement of 
the claims. US Airways paid $9.5 million, as part of a total 
settlement of  $85.8 million for all of the defendants. US Airways 
did not admit liability or wrongdoing and the settlement allowed 
the commission cap to remain in place. The settlement was approved 
by the court in January of 1997.

                                119
<PAGE>
     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"). The agreement contemplated the eventual 
installation of the IFPC System on substantially all of US 
Airways' aircraft. The IFPC System had been installed on 
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. On December 7, 1995, US Airways 
successfully defended IFPC's emergency motion for a temporary 
restraining order. On December 13, 1995, IFPC's motion for a 
preliminary injunction was denied and IFPC has relinquished its 
right to appeal that decision. IFPC's claim for damages remains 
pending. In June 1996, US Airways filed a counterclaim against 
IFPC seeking compensatory damages in excess of $25 million and 
punitive damages in excess of $25 million. In January 1997, IFPC 
filed for protection from its creditors under Chapter 11 of the 
Bankruptcy Code. The parties stipulated to lift the automatic stay 
provided for in the Bankruptcy Code which could allow IFPC's and 
US Airways' claims to be fully litigated. US Airways is unable to 
predict at this time the ultimate resolution or potential 
financial impact on its financial condition and results of 
operations of these proceedings.

     In May 1995, US Airways Group, US Airways and the Retirement 
Income Plan for Pilots of USAir, Inc. (the "Pilots' Pension Plan") 
were sued in federal district court for the District of Columbia 
by 481 active and retired US Airways pilots alleging violations of 
the Employee Retirement Income Security Act ("ERISA") by 
erroneously calculating benefits under the Pilots' Pension Plan. 
The plaintiffs sought, among other things, damages in excess of 
$70 million. In May 1996, the court issued a decision in the 
lawsuit granting US Airways' Motion to Dismiss the majority of the 
complaint for lack of subject matter jurisdiction, deciding that 
the dispute must be resolved through the arbitration process. The 
court retained jurisdiction over one count of the complaint 
alleging a violation of a disclosure requirement of ERISA. There 
are no significant penalties or damages which can result from this 
remaining claim. The plaintiffs appealed the court's decision, 
however, in the opinion of US Airways' counsel, the appeal is 
unlikely to be successful.

     The Equal Employment Opportunity Commission and various state 
and local fair employment practices agencies are investigating 
charges by certain job applicants, employees and former employees 
of US Airways involving allegations of employment discrimination 
in violation of Federal and state laws. The plaintiffs in these 
cases generally seek declaratory and injunctive relief and 
monetary damages, including back pay. In some instances they also 
seek classification adjustment, compensatory damages and punitive 
damages. Such proceedings are in various stages of litigation and 
investigation, and the outcome of these proceedings is difficult 
to predict. In US Airways' opinion, however, the disposition of 
these matters is not likely to have a material adverse effect on 
its financial condition or results of operations.

     (d)  AIRCRAFT COMMITMENTS

     In June 1995, US Airways entered into agreements with The 
Boeing Company ("Boeing") and Rolls Royce plc ("Rolls Royce") 
deferring the delivery of eight 757-200 aircraft from 1996 to 
1998. As part of the agreements, the due dates for progress 
payments associated with the 1996 deliveries were likewise 
rescheduled. Accordingly, approximately $71 million of progress 
payments that had been paid by US Airways were refunded to US 
Airways in the third quarter of 1995. The related long-term debt 
which financed the deposits was dissolved.

                                120
<PAGE>
     The following schedule of US Airways' new aircraft deliveries 
and scheduled payments as of December 31, 1996 (including progress 
payments, payments at delivery, buyer furnished equipment, spares, 
and capitalized interest) reflects US Airways' current agreements 
with Boeing and Rolls Royce as discussed above (dollars in 
millions):

                           Delivery Period - Firm Orders          
                 -------------------------------------------------
                                                    There-       
                 1997   1998   1999   2000   2001   after   Total
                 ----   ----   ----   ----   ----   -----   -----
Boeing
  757-200           -      8      -      -      -       -       8
  737-Series*       -      -      -      -      -      40      40
                 ----   ----   ----   ----   ----   -----   -----
    Total           -      8      -      -      -      40      48
                 ====   ====   ====   ====   ====   =====   =====

Payments        $  74   $254  $   -  $   -  $  52  $1,803  $2,183
                 ====   ====   ====   ====   ====   =====   =====

*  Purchase agreement includes a provision allowing US Airways to 
purchase any other Boeing commercial aircraft type in satisfaction 
of its obligation to purchase forty 737-Series aircraft. Such 
satisfaction would be accomplished on an "equivalent-seat" basis.

     The above aircraft commitments do not include any amounts 
related to a contingent contract to acquire up to 400 aircraft 
from Airbus Industrie. The contract is contingent upon US Airways 
achieving a competitive cost structure and approval of definitive 
documentation by US Airways' board of directors.

     During the fourth quarter of 1996, US Airways advised Boeing 
and Rolls Royce that it does not plan to accept delivery of the 
eight Boeing 757-200 aircraft that it presently has on firm order 
and suspended progress payments related to these aircraft. As of 
December 31, 1996, US Airways had made $58.3 million in progress 
payments for these aircraft. Subsequently, Boeing alleged, among 
other things, that US Airways is in default of the 757-200 
purchase agreement and that US Airways has also repudiated the 
purchase agreement related to the 737-Series aircraft scheduled 
for delivery commencing in 2003. Boeing has purported to 
terminate both such 757-200 and 737-Series purchase agreements, 
an action which US Airways believes is not supported by law or 
the facts, and has claimed almost $450 million as damages for US 
Airways' alleged breach of such agreements. US Airways 
subsequently advised Boeing, among other things, that US Airways 
rejects Boeing's asserted legal basis for termination of such 
agreements. In addition, US Airways stated that it would hold 
Boeing responsible for any damages incurred as a result of 
Boeing's unlawful termination and demanded immediate return of 
all payments made by US Airways in furtherance of the 737-Series 
purchase agreement, together with interest from the date of 
payment. US Airways also expressed its belief that Boeing is 
legally committed to pursue contract resolutions in good faith. 
Notwithstanding the formal legal positions of the parties, both 
sides have expressed a desire to resolve this dispute on a 
mutually satisfactory basis. US Airways cannot predict whether 
Boeing will seek to exercise remedies against US Airways and if 
so, whether the effect on US Airways' financial condition or 
results of operations would be material.

     US Airways has a commitment to purchase hush kits for certain 
of its Douglas DC-9-30 and Boeing 737-200 aircraft. The 
installation of these hush kits will bring the aircraft into 
compliance with Federal Aviation Administration Stage 3 noise 
level requirements. The projected payments associated with the 
purchase of the hush kits are $19.7 million during 1997 and $32.1 
million during 1998 and 1999.

                                121
<PAGE>
     (e)  CONCENTRATION OF CREDIT RISK

     US Airways invests available cash in money market securities 
of various banks, commercial paper of financial institutions and 
other companies with high credit ratings and securities backed by 
the United States government.

     As of December 31, 1996, most of US Airways' receivables 
related to tickets sold to individual passengers through the use 
of major credit cards (42%) or to tickets sold by other airlines 
(17%) 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.

     (f)  GUARANTEES

     As of December 31, 1996, US Airways guaranteed payments of 
debt and lease obligations of Piedmont Airlines, Inc. ("Piedmont") 
and PSA Airlines, Inc. ("PSA"), both wholly-owned subsidiaries of 
US Airways Group, totaling $83.6 million.

     US Airways also guarantees the payment of principal and 
interest on special facility revenue bonds issued by certain 
municipalities to build or improve airport and maintenance 
facilities. Under related lease arrangements, US Airways is 
required to make rental payments sufficient to pay maturing 
principal and interest payments on the bonds. As of December 31, 
1996 the principal amount of these bonds outstanding was $77.5 
million.

5.   INCOME TAXES

     Effective January 1, 1993, US Airways adopted Statement of 
Financial Accounting Standards No. 109, "Accounting for Income 
Taxes" ("SFAS 109"). SFAS 109 required a change from the deferred 
method under Accounting Principles Board Opinion No. 11 to the 
asset and liability method of 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 (loss), taking into 
consideration its allocated tax loss carryforwards and tax credit 
carryforwards.

           (this space intentionally left blank)

                                122
<PAGE>
     The components of the provision for income taxes are as 
follows:

                                         1996      1995      1994
                                         ----      ----      ----
                                              (in thousands)
Current provision:
  Federal                              $4,432    $4,107    $    -
  State                                 3,026       301         -
                                        -----     -----     -----
    Total current provision             7,458     4,408         0
                                        -----     -----     -----
Deferred provision:
  Federal                                   -         -         -
  State                                   353         -         -
                                        -----     -----     -----
    Total deferred provision              353         0         0
                                        -----     -----     -----

Provision for income taxes             $7,811    $4,408   $     0
                                        =====     =====    ======

     In 1996, US Airways was not subject to regular Federal income 
tax as a result of using $320 million in Federal net operating 
loss carryforwards. However, US Airways was subject to Federal 
alternative minimum tax ("AMT"). Approximately $318 million in AMT 
net operating loss carry-forwards and approximately $148 million 
in state net operating loss carryforwards were utilized to reduce 
the Federal and state tax liabilities.

     The significant components of deferred income tax expense 
(benefit) for the years ended December 31, 1996, 1995, and 1994, 
are as follows:

                                       1996      1995       1994 
                                       ----      ----       ---- 
                                            (in thousands)       
Deferred tax expense (benefit)
  (exclusive of the other
  components listed below)         $ 90,583  $ 17,779  $(234,269)
Increase (decrease) for the
  year in the valuation
  allowance for deferred tax
  assets                            (90,230)  (17,779)   234,269 
                                    -------   -------   -------- 
     Total                         $    353  $      0  $       0 
                                    =======   =======   ======== 

           (this space intentionally left blank)

                                123
<PAGE>
     A reconciliation of taxes computed at the statutory Federal 
tax rate on earnings before income taxes to the provision (credit) 
for income taxes is as follows:

                                       1996      1995       1994 
                                       ----      ----       ---- 
                                            (in thousands)       
Tax provision (credit) computed
  at Federal statutory rate        $ 66,865  $ 13,089  $(250,664)
Book expenses not deductible
  for tax purposes                   16,535    15,088     15,691 
Limitation in recognizing tax
  benefit of net operating
  loss/credits                            -         -    234,973 
Utilization of Federal net
  operating loss which reduced
  valuation allowance              (111,920)   (7,778)         - 
State income tax provision,
  net of Federal tax benefit          2,320       196          - 
Current year temporary differences
  which reduced valuation allowance  29,579   (20,293)         - 
Alternative minimum tax which
  increased valuation allowance       7,208     3,384          - 
Other                                (2,776)      722          - 
                                   --------   -------   -------- 
Provision for income taxes        $   7,811  $  4,408  $       0 
                                   ========   =======   ======== 

Effective tax rate                        4%       12%         0%
                                   ========   =======   ======== 

     The tax effects of temporary differences that give rise to 
significant portions of the deferred tax assets and liabilities as 
of December 31, 1996, 1995 and 1994 are presented below:

                                   1996        1995        1994  
                                   ----        ----        ----  
                                         (in thousands)          
Deferred tax assets:
  Leasing transactions        $  153,952  $  168,813  $  164,513 
  Tax benefits purchased/sold     54,173      67,348      76,784 
  Gain on sale and leaseback
    transactions                 134,090     146,387     154,246 
  Employee benefits              606,213     510,213     498,710 
  Net operating loss
    carryforwards                473,918     627,357     657,870 
  Alternative minimum tax
    credit carryforwards          32,681      25,819      20,881 
  Investment tax credit
    carryforwards                 48,720      48,720      47,880 
  Other deferred tax assets      156,811      95,358      85,005 
                               ---------   ---------   ---------
    Total gross deferred tax
      assets                   1,660,558   1,690,015   1,705,889 
  Less valuation allowance      (695,076)   (785,306)   (803,085)
                               ---------   ---------   --------- 
    Net deferred tax assets      965,482     904,709     902,804 
Deferred tax liabilities:
  Equipment depreciation and
    amortization                 927,442     871,056     866,356 
  Other deferred tax
    liabilities                   38,393      33,653      36,448 
                               ---------   ---------   --------- 
    Total deferred tax
      liabilities                965,835     904,709     902,804 
                               ---------   ---------   --------- 
    Net deferred tax
      liabilities             $      353  $        0  $        0 
                               =========   =========   ========= 

     Included in "Other Deferred Tax Assets" above for 1996, 1995 
and 1994 are approximately $79 million, $38 million and $16 
million, respectively, of tax assets which originate from 
subsidiaries of US Airways Group in accordance with US Airways' 
Tax Sharing Agreement.

                                124
<PAGE>
     The valuation allowance for deferred tax assets decreased 
approximately $90 million in 1996, decreased approximately $18 
million in 1995, and increased approximately $234 million in 1994.

     As of December 31, 1996, US Airways had unused net operating 
losses of $1.4 billion for Federal tax purposes, which expire in 
the years 2006 to 2009. US Airways also has available, to reduce 
future taxes payable, $251 million alternative minimum tax net 
operating losses expiring in the year 2009, $49 million of 
investment tax credits expiring in the years 2002 to 2003, and $33 
million of alternative minimum tax credits which do not expire. 
The Federal income tax returns of US Airways through 1986 have 
been examined and settled with the Internal Revenue Service.

6.   STOCKHOLDER'S EQUITY AND DIVIDEND RESTRICTIONS

     US Airways Group owns all of the outstanding common stock of 
US Airways. US Airways' board of directors has not authorized the 
payment of dividends to US Airways Group since 1988. In addition, 
US Airways, organized under the laws of the State of Delaware, may 
be subject to certain legal restrictions on its ability to pay 
dividends on or repurchase or redeem its own shares of capital 
stock. Covenants related to US Airways' 10% and 9 5/8% Senior 
Unsecured Notes currently do not permit the payment of dividends 
by US Airways to US Airways Group. However, these covenants do not 
restrict US Airways from loaning or advancing funds to US Airways 
Group.

     The provisions of Statement of Accounting Standards No. 87, 
"Employers' Accounting for Pensions," require the recognition of a 
minimum liability for each defined benefit plan for which the 
accumulated benefit obligation exceeds plan assets.  This amount 
has been recognized by US Airways as a liability with an 
offsetting intangible asset (see Note 1(e)). Because the 
intangible asset recognized may not exceed the amount of 
unrecognized prior service cost on an individual plan basis, the 
balance is reported as a separate reduction of Stockholder's 
Equity (Deficit) as of December 31, 1996 and 1995. See also Note 
9.

7.   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 $111.4 million for its purchase of shares and 
US Airways contributed an additional $2.2 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 the Company 
did not pay dividends on any shares held by the Trust for the 
years ended December 31, 1996, 1995 and 1994, 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. Annual contributions made by US Airways, and 
therefore loan repayments made by the Trust, were $11.4 million in 
each of 1996, 1995 and 1994. The interest portion of these 
contributions was $10.3 million in 1996, $10.4 million in 1995 and 
$10.5 million in 1994. Approximately 582,000 shares of Common 

                                125
<PAGE>
Stock have been released or committed to be released as of 
December 31, 1996. US Airways recognized approximately $4 million 
of compensation expense related to the ESOP in each of 1996, 1995 
and 1994 based on shares allocated to employees (the "shares 
allocated" method). Deferred compensation related to the ESOP 
amounted to approximately $83.5 million, $87.2 million and $90.9 
million as of December 31, 1996, 1995 and 1994, respectively.

8.   EMPLOYEE BENEFIT PLANS 

     (a)  PENSION PLANS

     US Airways has several pension plans in effect covering 
substantially all of its employees. One qualified defined benefit 
plan covers US Airways' maintenance employees and provides 
benefits of specified amounts based on periods of service. 
Qualified defined benefit plans for substantially all other 
employees provide benefits based on years of service and 
compensation. The qualified defined benefit plans for domestic 
employees are funded, on a current basis, to meet the minimum 
funding requirements of the Employee Retirement Income Security 
Act of 1974. 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.

     In 1996, US Airways changed the annual measurement date for 
its pension plan assets and liabilities to September 30 from 
December 31. The change in measurement date is considered a change 
in a method of accounting and Accounting Principles Board Opinion 
No. 20, "Accounting Changes" ("APB 20"), requires that the 
cumulative effect of such a change be recognized as an adjustment 
to retained earnings. The change in measurement date had no 
material cumulative effect on pension expense for prior years and 
thus no adjustment was recognized. For purposes of determining 
whether a minimum pension liability existed as of September 30, 
1996, plan contributions made in the fourth quarter of 1996 were 
included in plan assets.

           (this space intentionally left blank)

                                126



<PAGE>
<TABLE>
     The funded status of US Airways' qualified defined benefit plans:
<CAPTION>
                                                      1996                          1995            
                                           ---------------------------   ---------------------------
                                                 Plans in Which               Plans in Which        
                                           ---------------------------   ---------------------------
                                               Plan            ABO           Plan            ABO    
                                           Assets Exceed     Exceeds     Assets Exceed     Exceeds  
                                               ABO         Plan Assets       ABO         Plan Assets
                                           -------------   -----------   -------------   -----------
                                                                  (in millions)                     
<S>                                           <C>            <C>            <C>            <C>      
Fair value of plan assets                     $ 2,168        $   305        $   993        $ 1,419  

Actuarial present value of:
  Vested benefit obligation                     2,050            369            929          1,603  
  Nonvested benefit obligation                     23             13             29             22  
                                               ------         ------         ------         ------  
    ABO based on salaries to date               2,073            382            958          1,625  
    Additional benefits based on
      estimated future salary levels              653              -            130            598  
                                               ------         ------         ------         ------  
Projected benefit obligation ("PBO")            2,726            382          1,088          2,223  

PBO in excess of fair value of plan assets       (558)           (77)           (95)          (804) 
Contributions from October 1, 1996
  through December 31, 1996                        45             12              -              -  
Unrecognized net transition asset                 (22)            (9)            (2)           (34) 
Unrecognized prior service (credit) cost          (13)            75              -             66  
Unrecognized net loss                             506             40            312            571  
                                               ------         ------         ------         ------  
  Pension (liability) or asset
    before adjustment                             (42)            41            215           (201) 
                                               ------         ------         ------         ------  
Adjustment for minimum
  pension liability *                               -           (106)             -           (149) 
                                               ------         ------         ------         ------  
Pension (liability) or asset as 
  adjusted and recognized in 
  Consolidated Balance Sheets                 $   (42)       $   (65)       $   215        $  (350) 
                                               ======         ======         ======         ======  

See Note 8(f).
</TABLE>


     The weighted average assumptions used to determine the 
actuarial present value of the PBO:

                                        1996              1995    
                                       ------            ------   
Discount rate                           8.00%             7.25%   
Rate of increase in 
  compensation levels                   3.52%             3.54%   
Expected long-term rate
  of return on plan assets              8.84%             9.33%   

Components of plan assets:
Cash equivalents and
  short-term investments                  11%                7%   
Equity investments*                       27%               26%   
Fixed income and other investments        62%               67%   

*  Plan assets as of December 31, 1995 include 205 shares of US 
Airways Group Common Stock.

                                127
<PAGE>
     The components of the net periodic pension cost for the 
qualified defined benefit plans:

                                   1996        1995        1994  
                                   ----        ----        ----  
                                          (in millions)          

Service cost (benefits earned
  during the period)             $  143      $   92      $  124  
Interest cost on PBO                250         216         216  
Actual return on plan assets        (55)       (539)         48  
Net amortization and deferral      (132)        371        (254) 
                                  -----       -----       -----  
Net periodic pension cost        $  206      $  140      $  134  
                                  =====       =====       =====  

      Non-qualified supplemental pension plans are established for 
certain employee groups, which provide incremental pension 
payments from US Airways' funds so that total pension payments 
equal amounts that would have been payable from US Airways' 
qualified pension plans if it were not for limitations imposed by 
Federal income tax regulations.

     The status of US Airways' non-qualified supplemental plans:

                                                1996       1995  
                                                ----       ----  
                                                 (in millions)   

Fair value of plan assets                     $    -     $    -  
Actuarial present value of:
  Vested benefit obligation                       31         30  
  Nonvested benefit obligation                     1          2  
                                               -----      -----  
    ABO based on salaries to date                 32         32  
    Additional benefits based on
      estimated future salary levels               1          2  
                                               -----      -----  
    PBO                                           33         34  
                                               -----      -----  

PBO in excess of fair value of plan assets       (33)       (34) 
Contributions from October 1, 1996 through
  December 31, 1996                                1          -  
Unrecognized net transition asset                  -          -  
Unrecognized prior service cost                    2          3  
Unrecognized net loss                              3          8  
                                               -----      -----  
Pension (liability) or asset before
  adjustment                                     (27)       (23) 
Adjustment for minimum pension liability *        (7)       (11) 
                                               -----      -----  
Unfunded supplemental liability as
  adjusted and recognized in 
  Consolidated Balance Sheets                 $  (34)    $  (34) 
                                               =====      =====  

*  See Note 8(f).

     The discount rate used to determine the actuarial present 
value of the PBO was 8.00% and 7.25% as of September 30, 1996 and 
December 31, 1995, respectively. A rate of 6% was used to estimate 
future salary levels in 1996 and 1995.

           (this space intentionally left blank)

                                128
<PAGE>
     The components of net periodic supplemental pension expense 
for the non-qualified supplemental pension plans:

                                   1996        1995        1994  
                                   ----        ----        ----  
                                          (in millions)          

Service cost (benefits earned
  during the period)             $    2      $    -      $    -  
Interest cost on PBO                  2           2           2  
Actual return on plan assets          -           -           -  
Net amortization and deferral         6          (1)         21  
                                  -----       -----       -----  
Net periodic supplemental
  pension cost                   $   10      $    1      $   23  
                                  =====       =====       =====  

     In addition to the qualified and non-qualified defined 
benefit plans described above, US Airways also contributes to 
certain defined contribution plans. US Airways' contributions are 
based on a formula which considers the age and earnings of each 
employee and the amount of employee contributions. In addition, 
certain qualified defined contribution plans contain a requirement 
for profit sharing contributions if US Airways Group achieves a 
certain pre-tax margin level. US Airways' expense related to its 
defined contribution plans, excluding expenses related to its ESOP 
(see Note 7), was $59 million, $64 million and $43 million for 
1996, 1995 and 1994, respectively. The 1996 expense amount 
includes $4.8 million related to the profit sharing component of 
its defined contribution plan. US Airways made no contributions 
related to the profit sharing component of its defined contribu-
tion plans in 1995 or 1994 because US Airways Group did not 
achieve the prescribed pre-tax margin level. The 1995 expense 
amount includes a catch up adjustment of $11.6 million for new 
employer match contributions for certain collective bargaining 
groups.

     (b)  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

     US Airways offers medical and life insurance benefits to 
certain employees who retire from US Airways and their eligible 
dependents. The medical benefits provided by US Airways are 
coordinated with Medicare benefits. Retirees generally contribute 
amounts towards the cost of their medical expenses based on years 
of service with US Airways. US Airways provides uninsured death 
benefit payments to survivors of retired employees for stated 
dollar amounts, or in the case of retired pilot employees, death 
benefit payments determined by age and level of pension benefit. 
The plans for postretirement medical and death benefits are funded 
on a pay-as-you-go basis.

     In 1996, US Airways changed the annual measurement date for 
postretirement benefit liabilities to September 30 from December 
31. The change in measurement date is considered a change in a 
method of accounting and APB 20 requires that the cumulative 
effect of such a change be recognized as an adjustment to retained 
earnings. The change in measurement date had no material effect on 
postretirement benefit expenses for prior years and thus no 
adjustment was recognized.

           (this space intentionally left blank)

                                129
<PAGE>
     The status of the plans:
                                              1996        1995   
                                             ------      ------  
                                                 (in millions)   

Plan assets at fair value                   $     -     $     -  

Accumulated Postretirement Benefit
  Obligation ("APBO"):
    Retirees                                    326         338  
    Fully eligible active plan
      participants                              170         176  
    Other plan participants                     454         482  
                                             ------      ------  
      Total APBO                                950         996  

APBO in excess of plan assets                  (950)       (996) 

    Contributions from October 1, 1996
      through December 31, 1996                   7           -  
    Unrecognized prior service credits         (143)       (155) 
    Unrecognized net (gain) loss                (34)        112  
                                             ------      ------  
Accrued postretirement benefit liability    $(1,120)    $(1,039) 
                                             ======      ======  

     The assumptions used to determine the APBO:

                                    1996               1995       
                                    -----              -----      
Discount rate                       8.00%              7.25%      
Rate of increase in
  compensation levels          3.00% to 6.00%     3.00% to 6.00%  
Health care cost trend              7.50%              8.50%      

     The components of net periodic postretirement benefit 
expense:

                                   1996        1995        1994  
                                   ----        ----        ----  
                                          (in millions)          

Service cost (benefits earned
  during the period)             $   44      $   29      $   36  
Interest cost on APBO                74          65          60  
Net amortization and deferral       (11)        (15)        (12) 
                                  -----       -----       -----  
Net periodic postretirement
  benefit expense                $  107      $   79      $   84  
                                  =====       =====       =====  

     The assumed health care cost trend rate used in measuring the 
APBO was 7.5% in 1996, declining by 1% per year after 1996 to an 
ultimate rate of 4.5%. If the assumed health care cost trend rates 
were increased by one percentage point, the APBO at September 30, 
1996 would be increased by 10% and 1996 periodic postretirement 
benefit expense would increase 12%.

     (c)  POSTEMPLOYMENT BENEFITS

     US Airways provides certain postemployment benefits to all of 
its employees. In 1993, US Airways adopted Statement of Financial 
Accounting Standards No. 112, "Employers' Accounting for 
Postemployment Benefits" ("SFAS 112"). SFAS 112 requires the use 
of an accrual method to recognize postemployment benefits such as 
severance, disability-related and workers' compensation benefits. 
US Airways records the expense for these benefits once a 
triggering event occurs.

                                130
<PAGE>
9.   PROFIT SHARING

     In exchange for temporary wage and salary reductions and 
other concessions during a twelve month period in 1992 and 1993, 
including certain ongoing work rule and medical benefits 
concessions and the freeze of the defined benefit plan for certain 
non-contract employees, affected US Airways employees participate 
in a profit sharing program and were granted stock options to 
purchase US Airways Group Common Stock (see related discussion 
under Note 1(f)). This  profit sharing  program was designed to 
recompense those US Airways employees whose pay had been reduced 
in an amount equal to (i) two times salary forgone plus (ii) one 
time salary forgone (subject to a minimum of $1,000) for the 
freeze of the defined benefit pension plan for certain non-
contract employees. US Airways has recognized charges of $213.5 
million, including $121.6 million and $49.7 million in 1996 and 
1995, respectively. Cash distributions to participants of $213.5 
million have also been made, including $74.9 million and $3.3 
million in 1996 and 1995, respectively, and a final cash 
distribution in the first quarter of 1997 of $129.1 million. After 
the first quarter 1997 payment, US Airways' obligations under this 
profit sharing program were satisfied and this program ceased.

     US Airways' ESOP and Defined Contribution Retirement Program 
("DCRP") each have profit sharing components. Under the ESOP, each 
eligible US Airways employee receives Common Stock shares based on 
his or her compensation relative to the total compensation of all 
participants and the number of Common Stock shares in the 
allocation pool. When US Airways' return on sales equals or 
exceeds certain prescribed levels, US Airways increases its 
contribution, which effectively increases the number of Common 
Stock shares in the allocation pool (see Note 7). US Airways did 
not make any provision for profit sharing contributions in 
connection with the profit sharing component of the ESOP during 
1996 or 1995. Under the DCRP, US Airways makes additional 
contributions to participant accounts when US Airways Group 
achieves certain prescribed pre-tax margin levels (see Note 8(a)). 
US Airways' 1996 results of operations reflect a provision of $4.8 
million for the profit sharing component of the DCRP. In 1995, US 
Airways' results did not achieve the prescribed pre-tax margin 
levels. Accordingly, US Airways made no such provision in 1995 for 
this program.

10.  RELATED PARTY TRANSACTIONS

     (a)  PARENT COMPANY

     US Airways' balance sheet line item, Payable to parent 
company, includes intercompany loans from US Airways Group which 
arise in the normal course of business. These loans bear interest 
at market rates which are reset quarterly.

     As of December 31, 1995, US Airways had a $68.6 million 8.4% 
note payable to US Airways Group related to US Airways Group's 
purchase of aircraft-secured debt obligations of US Airways. US 
Airways repaid the note in February 1996.

     Net interest expense related to the notes payable and 
intercompany loans was $19.7 million, $7.8 million and $11.3 
million for the years 1996, 1995 and 1994, respectively.

     (b)  REGIONAL AIRLINE SUBSIDIARIES OF US AIRWAYS GROUP

     Effective October 1, 1996, US Airways began purchasing all of 
the capacity (available seat miles or "ASMs") generated by US 
Airways Group's three wholly-owned regional airline subsidiaries, 
Allegheny Airlines, Inc. ("Allegheny"), Piedmont and PSA, at a 
rate per ASM that is determined by US Airways on a monthly basis 

                                131
<PAGE>
and, concurrently, recognizing revenues that result 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 produce the capacity. During the fourth quarter of 
1996, US Airways recorded US Airways Express transportation 
revenues of $145.1 million and US Airways Express capacity 
purchases (expenses) of $93.0 million related to this program. The 
revenues and expenses recognized by US Airways during the fourth 
quarter of 1996 related to this program may not be indicative of 
future revenues and expenses associated with this program. The 
revenues and expenses associated with this program are eliminated 
during the consolidation of US Airways Group's results of 
operations.

     US Airways provides various services including passenger 
handling, contract training and catering. US Airways recognized 
other operating revenues of approximately $63.5 million, $46.5 
million and $43.5 million related to these services for the years 
1996, 1995 and 1994, 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 approximately  $18.7 million, $21.0 million and $15.3 million 
for the years 1996, 1995 and 1994 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 approximately $14.4 million, $18.7 million and $22.0 million 
for the years 1996, 1995 and 1994, respectively. US Airways 
entered into a sale-leaseback arrangement with Allegheny during 
1994 involving certain turboprop aircraft (in return, US Airways 
subleases these same aircraft back to Allegheny). This arrangement 
was terminated in September 1996. US Airways recognized other 
operating expenses related to the lease of these aircraft from 
Allegheny of approximately $6.0 million, $9.8 million and $3.1 
million for 1996, 1995 and 1994, respectively.

     US Airways' receivables from and payables to these regional 
airlines were approximately $17.3 million and $34.1 million, 
respectively, as of December 31, 1996 and $9.6 million and $1.6 
million, respectively, as of December 31, 1995. As a result of  
the capacity purchase program discussed above, liabilities related 
to tickets sold for travel on the regional airline subsidiaries 
are included in the US Airways' Traffic balances payable and 
unused tickets. As of December 31, 1995 US Airways' Traffic 
balances payable and unused tickets included $30.8 million owed to 
the regional airline subsidiaries for passengers flown by the 
regional airline subsidiaries on behalf of US Airways during the 
month of December 1995.

     (c)  OTHER US AIRWAYS GROUP SUBSIDIARIES

     US Airways leases certain aircraft to US Airways Group's 
wholly-owned subsidiary USAir Leasing and Services, Inc. ("USAir 
Leasing and Services"). USAir Leasing and Services subleases these 
aircraft to third parties. US Airways recognized other operating 
revenues related to these arrangements of approximately $4.3 
million, $4.6 million and $2.2 million for the years 1996, 1995 
and 1994, respectively.

     US Airways purchases a portion of its aviation fuel from US 
Airways Group's wholly-owned subsidiary USAir Fuel Corporation 
("Fuel Corp."), which acts as a fuel wholesaler to US Airways in 
certain circumstances. US Airways' aviation fuel purchases were 
approximately $205.9 million, $104.9 million and $57.8 million for 
the years 1996, 1995 and 1994, respectively. US Airways' accounts 
payable to Fuel Corp. was $17.4 million and $20.7 million as of 
December 31, 1996 and 1995, respectively.

                                132
<PAGE>
     The OR Group, Inc. (the "OR Group") was a wholly-owned 
subsidiary of US Airways Group incorporated in February 1996 and 
dissolved in the fourth quarter of 1996.  OR Group provided 
resource allocation consulting services and decision-making 
support systems to US Airways, which assumed these activities upon 
OR Group's dissolution. US Airways recorded other operating 
expenses of $6.1 million for the year 1996 related to these 
services.

     (d)  BRITISH AIRWAYS

     On January 21, 1993, US Airways Group and British Airways 
entered into an Investment Agreement under which a wholly-owned 
subsidiary of British Airways purchased certain series of 
convertible preferred stock and British Airways entered into code 
sharing and wet lease arrangements with US Airways. US Airways is 
terminating its code sharing arrangement with British Airways 
effective March 29, 1997 and the final wet lease arrangement 
expired May 31, 1996. As of December 31, 1996, British Airways' 
total voting interest in US Airways Group was approximately 23%.

     US Airways wet leased Boeing 767-200ER aircraft, including 
cockpit and cabin crews, to British Airways in order to serve 
three routes between the U.S. and London beginning June 1993. US 
Airways recognized other operating revenues of approximately $12.6 
million, $63.6 million and $60.7 million for the years 1996, 1995 
and 1994, respectively, related to the wet lease arrangements. 
These revenues were offset by an equal amount of other operating 
expenses.

     US Airways also has various agreements with British Airways 
for ground handling at certain airports, contract training and 
other services. US Airways recognized other operating revenues of 
approximately $5.8 million, $4.9 million and $6.4 million for the 
years 1996, 1995 and 1994, respectively, related to the services 
US Airways performed for British Airways.

     US Airways' current receivables from and payables to British 
Airways were approximately $8.0 million and $5.5 million, 
respectively, as of December 31, 1996 and $11.5 million and $5.3 
million, respectively, as of December 31, 1995.

     US Airways has a long-term receivable from British Airways 
related to three U.S. to London routes that US Airways 
relinquished at the time of implementation of a code sharing 
arrangement with British Airways. The balance of the receivable 
was approximately $40.7 million and $45.4 million as of 
December 31, 1996 and 1995, respectively. Payments began in 
December 1995 in conjunction with the termination of the first wet 
lease arrangement and continue annually for nine years.

11.  SELECT FINANCIAL INFORMATION - USAM INVESTMENTS

     USAM's equity in the earnings of ATS, GIP and GJP for the 
years 1996, 1995 and 1994 was as follows (in thousands):

                                     1996       1995       1994  
                                    ------     ------     ------ 
Apollo Travel Services
  Partnership (ATS)                $19,188    $20,708    $20,089 
Galileo International
  Partnership (GIP)                 17,213     13,320      6,081 
Galileo Japan Partnership (GJP)        201        518        365 
                                    ------     ------     ------ 
                                   $36,602    $34,546    $26,535 
                                    ======     ======     ====== 

                                133
<PAGE>
     The following is summarized financial information for these 
partnerships (combined, in millions):
                                          As of December 31,     
                                          ------------------     
                                          1996          1995     
                                          ----          ----     
                                       (Unaudited)               
Current assets                           $ 357         $ 405     
Noncurrent assets                          480           512     
                                          ----          ----     
  Total assets                             837           917     
                                          ----          ----     
Current liabilities                        227           294     
Long-Term liabilities                      209           228     
                                          ----          ----     
  Total liabilities                        436           522     
                                          ----          ----     
    Net assets                           $ 401         $ 395     
                                          ====          ====     

                                      Years Ended December 31,   
                                  -------------------------------
                                   1996         1995         1994
                                  -----        -----        -----
                               (Unaudited)                       
Service revenues                 $1,466       $1,327       $1,193
Cost and expenses                 1,207        1,103        1,046
                                  -----        -----        -----
  Net earnings                   $  259       $  224       $  147
                                  =====        =====        =====

     USAM received distributions from GIP, GJP and ATS of 
approximately $4.1 million, $0.1 million and $44.5 million 
(including a special distribution from ATS of $33.7 million 
during the second quarter of 1996 which represented a 
distribution of cash to partners), respectively, during 1996. 
USAM received distributions from GIP, GJP and ATS of 
approximately $2.6 million, $0.2 million and $11.2 million, 
respectively, during 1995.

12.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table presents selected quarterly financial 
data for 1996 and 1995:

                          First     Second      Third     Fourth 
                         Quarter    Quarter    Quarter    Quarter
                         -------    -------    -------    -------
                                       (in millions)             
1996
Operating revenues       $ 1,740    $ 1,994    $ 1,924    $ 2,047
Operating income (loss)  $    (9)   $   207    $    97    $    74
Net income (loss)        $   (55)   $   161    $    28    $    50

1995
Operating revenues       $ 1,664    $ 1,852    $ 1,743    $ 1,725
Operating income (loss)  $   (50)   $   135    $    66    $    84
Net income (loss)        $  (102)   $    85    $    17    $    34

See Note 14 - Non-Recurring and Unusual Items.

See Note 10(b) with respect to US Airways' capacity purchase 
arrangements with US Airways Group's regional airline 
subsidiaries implemented during the fourth quarter of 1996.

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

                                134
<PAGE>
13.  SUPPLEMENTAL BALANCE SHEET INFORMATION

     The components of certain accounts in the accompanying 
Consolidated Balance Sheets are as follows:
                                                  December 31,    
                                            --------------------- 
                                               1996        1995  
                                               ----        ----  
                                                (in thousands)   
(a)  Cash and cash equivalents:
     Cash                                 $   20,154   $  11,298 
     Cash equivalents, at cost which
       approximates market                   929,980     868,315 
                                           ---------    -------- 
                                          $  950,134   $ 879,613 
                                           =========    ======== 
(b)  Receivables, net:
     Accounts receivable                  $  354,671   $ 333,859 
     Less allowance for doubtful accounts     11,953      12,104 
                                           ---------    -------- 
                                          $  342,718   $ 321,755 
                                           =========    =========
(c)  Materials and supplies, net:
     Materials and supplies               $  353,994   $ 383,910 
     Less allowance for obsolescence         142,810     161,665 
                                           ---------    -------- 
                                          $  211,184   $ 222,245 
                                           =========    ======== 
(d)  Accrued expenses:
     Salaries and wages*                  $  419,688   $ 342,391 
     All other                               654,085     613,054 
                                           ---------    -------- 
                                          $1,073,773   $ 955,445 
                                           =========    ======== 

*  Includes amounts related to profit sharing. See Note 9 for 
additional information.

Note:  Certain 1995 amounts have been reclassified to conform with 
1996 classifications.

14.  NON-RECURRING AND UNUSUAL ITEMS

     (a)  1996

     US Airways' results for 1996 include two non-recurring items 
recorded during the second quarter of 1996 related to its 
subleasing of 11 non-operating BAe-146 aircraft (see Note 14 (b) 
and 14 (c) below). US Airways reversed $22.5 million of previously 
accrued rent obligations related to these aircraft against 
Aircraft rent expense and reversed $7.0 million against Aircraft 
maintenance expense related to previously accrued lease return 
provisions. US Airways may reverse additional amounts related to 
the 1994 non-recurring charge in future periods dependent upon its 
success and the terms at which the remaining five grounded BAe-146 
aircraft are subleased or otherwise disposed.

     (b)  1995

     In the fourth quarter of 1995, US Airways reversed $4.1 
million of the $132.8 million non-recurring charge related to its 
grounded BAe-146 fleet that was recorded in the fourth quarter of 
1994 (see Note 14 (c) below). The reversal, a credit to Aircraft 
rent expense, reflects the successful remarketing by US Airways of 
three of these aircraft. 

                                135
<PAGE>
     (c)  1994

     US Airways' results for 1994 include (i) a $132.8 million 
charge related to its grounded BAe-146 fleet, recorded in the 
fourth quarter of 1994 (During 1994, US Airways again evaluated 
the secondary market for its non-operating BAe-146 aircraft and 
determined that it was probable that it would not be successful 
in its efforts to sublease or otherwise dispose of these assets 
(before lease expiry). Considering this analysis, US Airways did 
not include a provision for any potential subleasing activity in 
determining the amount of the 1994 charge.); (ii) a $54.0 million 
charge for obsolete inventory and rotables to reflect market 
value, recorded in the fourth quarter of 1994; (iii) a $50.0 
million addition to Passenger Transportation revenues in the 
fourth quarter of 1994 to adjust estimates made during the first 
three quarters of 1994; (iv) a $40.1 million charge primarily 
related to US Airways' decision to cease operations of its 
remaining Boeing 727-200 aircraft in 1995, recorded in the third 
quarter of 1994; (v) a $25.9 million charge related to US Airways' 
decision to substantially reduce service between Los Angeles and 
San Francisco and close its San Francisco crew base, recorded in 
the third quarter of 1994; and (vi) an $18.6 million gain 
resulting from the accounting treatment of the hull insurance 
recovery on the aircraft lost in the September, 1994 accident, 
recorded in the third quarter of 1994.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE

     None.




















             (this space intentionally left blank)

















                                   136
<PAGE>

                          PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

     Information regarding this item appears in the Company's 
definitive Proxy Statement to be filed pursuant to Regulation 14A 
relating to the Company's Annual Meeting of Stockholders on May 
21, 1997 and is incorporated herein by reference. Information 
concerning executive officers of the Company is set forth in Item 
1 of the Report under the caption "Executive Officers" in reliance 
on General Instruction G to Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION.

     Information regarding this item appears in the Company's 
definitive Proxy Statement to be filed pursuant to Regulation 14A 
relating to the Company's Annual Meeting of Stockholders on May 
21, 1997 and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     Information regarding this item appears in the Company's 
definitive Proxy Statement to be filed pursuant to Regulation 14A 
relating to the Company's Annual Meeting of Stockholders on May 
21, 1997 and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Information regarding this item appears in the Company's 
definitive Proxy Statement to be filed pursuant to Regulation 14A 
relating to the Company's Annual Meeting of Stockholders on May 
21, 1997 and is incorporated herein by reference.




              (this space intentionally left blank)



                                   137
<PAGE>
                           PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K

     (a)  The following documents are filed as part of this 
report:

1.  CONSOLIDATED FINANCIAL STATEMENTS

     (i)  The following consolidated financial statements of US
          Airways Group are included in Part II, Item 8A. of this
          report:
      -Consolidated Statements of Operations for each of the Three
       Years Ended December 31, 1996
      -Consolidated Balance Sheets as of December 31, 1996 and
       1995
      -Consolidated Statements of Cash Flows for each of the Three 
       Years Ended December 31, 1996
      -Consolidated Statements of Changes in Stockholders' Equity
       (Deficit) for each of the Three Years Ended December 31,
       1996
      -Notes to Consolidated Financial Statements

     (ii) The following consolidated financial statements of US
          Airways are included in Part II, Item 8B. of this
          report:
      -Consolidated Statements of Operations for each of the Three
       Years Ended December 31, 1996
      -Consolidated Balance Sheets as of December 31, 1996 and
       1995
      -Consolidated Statements of Cash Flows for each of the Three 
       Years Ended December 31, 1996
      -Consolidated Statements of Changes in Stockholder's Equity 
       (Deficit) for each of the Three Years Ended December 31,
       1996
      -Notes to Consolidated Financial Statements

2.  CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

     (i)  Independent Auditors' Report on the Consolidated
          Financial Statement Schedule of US Airways Group.
      -Consolidated Financial Statement Schedule - Three Years
       Ended December 31, 1996:

      VIII Valuation and Qualifying Accounts and Reserves

     (ii) Independent Auditors' Report on the Consolidated 
          Financial Statement Schedule of US Airways.

      -Consolidated Financial Statement Schedule - Three Years
       Ended December 31, 1996:

      VIII Valuation and Qualifying Accounts and Reserves

     All other schedules are 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.

                                   138
<PAGE>

(B)  REPORTS ON FORM 8-K

DATE OF REPORT                SUBJECT OF REPORT

February 27, 1997  News release dated February 27, 1997 of US
                   Airways Group, Inc. announcing the change of
                   the Company's name from USAir Group, Inc. to
                   US Airways Group, Inc. and the change of
                   USAir, Inc. to US Airways, Inc.

January 30, 1997   News release dated January 28, 1997 of US
                   Airways Group, Inc. announcing the resignation
                   of Robert Ayling, Roger P. Maynard and Derek
                   M. Stevens from the board of directors of US
                   Airways Group, Inc.

January 22, 1997   News release dated January 22, 1997 of US
                   Airways Group, Inc. and US Airways, Inc. with
                   consolidated statements of operations for both
                   companies for the three months and year ended
                   December 31, 1996, and select operating and
                   financial statistics for US Airways, Inc.

December 20, 1996  Letter, dated December 17, 1996, from British
                   Airways plc ("British Airways") to US Airways
                   Group, Inc. giving notice that British
                   Airways' wholly-owned subsidiary, BritAir
                   Acquisition Corp. Inc. ("BritAir") intends to
                   sell in one or more underwritten public
                   offerings or privately negotiated transactions
                   all of the 30,000 shares of Series F
                   Cumulative Convertible Senior Preferred Stock,
                   the 152.1 shares of Series T-1 Cumulative
                   Convertible Exchangeable Senior Preferred
                   Stock and the 9,919.8 shares of Series T-2
                   Cumulative Convertible Exchangeable Senior
                   Preferred Stock of US Airways Group, Inc.
                   which are owned by BritAir.

3.  EXHIBITS

DESIGNATION                   DESCRIPTION

3.1      Restated Certificate of Incorporation of US Airways 
         Group, Inc. ("US Airways Group") (incorporated by
         reference to Exhibit 3.1 to US Airways Group's
         Registration Statement on Form 8-B dated January 27,
         1983), including the Certificate of Amendment dated May
         13, 1987 (incorporated by reference to Exhibit 3.1 to US
         Airways Group's and US Airways, Inc.'s ("US Airways")
         Quarterly Report on Form 10-Q for the quarter ended March
         31, 1987), the Certificate of Increase dated June 30,
         1987 (incorporated by reference to Exhibit 3 to US
         Airways Group's and US Airways' Quarterly Report on Form
         10-Q for the quarter ended June 30, 1987), the
         Certificate of Increase dated October 16, 1987
         (incorporated by reference to Exhibit 3.1 to US Airways
         Group's and US Airways' Quarterly Report on Form 10-Q for
         the quarter ended September 30, 1987), the Certificate of
         Increase dated August 7, 1989 (incorporated by reference
         to Exhibit 3.1 to US Airways Group's Annual Report on
         Form 10-K for the year ended December 31, 1989), the
         Certificate of Increase dated April 9, 1992 (incorporated 
         by reference to Exhibit 3.1 to US Airways Group's and US
         Airways' Annual Report on Form 10-K for the year ended
         December 31, 1992), the Certificate of Increase dated
         January 21, 1993 (incorporated by reference to US Airways
         Group's and US Airways' Annual Report on Form 10-K for
         the year ended December 31, 1992), and the Certificate of
         Amendment dated May 26, 1993 (incorporated by reference
         to Appendix II to US Airways Group's Proxy Statement

                                   139
<PAGE>
         dated April 26, 1993); and the Certificate of Ownership
         and Merger merging Nameco, Inc. into USAir Group, Inc.
         dated February 17, 1997.

3.2      By-Laws of US Airways Group.

3.3      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.

3.4      By-Laws of US Airways.

4.1      Certificate of Designation of Series A Cumulative
         Convertible Preferred Stock of US Airways Group
         (incorporated by reference to Exhibit 4(b) to US Airways
         Group's Current Report on Form 8-K dated August 11,
         1989).

4.2      Certificate of Designation of Series B Cumulative
         Convertible Preferred Stock of US Airways Group
         (incorporated by reference to Exhibit 3.3 to Amendment
         No. 4 to US Airways Group's Registration Statement on
         Form S-3 (Registration No. 33-39540) dated May 17, 1991).

4.3      Agreement between US Airways Group and Berkshire Hathaway
         Inc. dated August 7, 1989 (incorporated by reference to
         Exhibit 4(a) to US Airways Group's Current Report on Form
         8-K dated August 11, 1989).

4.4      Certificate of Designation of Series F Cumulative
         Convertible Senior Preferred Stock of US Airways Group
         (incorporated by reference to Exhibit 28.2 to US Airways
         Group's Current Report on Form 8-K dated January 21,
         1993).

4.5      Form of Certificate of Designation of Series T Cumulative
         Exchangeable Convertible Senior Preferred Stock of US
         Airways Group (incorporated by reference to Appendix VII
         to US Airways Group's Proxy Statement dated April 26,
         1993). Neither US Airways Group nor US Airways is filing
         any instrument (with the exception of holders of exhibits
         10.1(a-c)) defining the rights of holders of long-term
         debt because the total amount of securities authorized
         under each such instrument does not exceed ten percent of
         the total assets of US Airways. Copies of such
         instruments will be furnished to the Securities and
         Exchange Commission upon request.

10.1(a)  Supplemental Agreement No. 16, dated July 19, 1990, to
         Purchase Agreement No. 1102 between US Airways and The
         Boeing Company (incorporated by reference to Exhibit
         10.2(a) to US Airways Group's Annual Report on Form 10-K
         for the year ended December 31, 1990).

10.1(b)  Supplemental Agreement No. 17, dated November 28, 1990,
         to Purchase Agreement No. 1102 between US Airways and The
         Boeing Company (incorporated by reference to Exhibit
         10.2(b) to US Airways Group's Annual Report on Form 10-K
         for the year ended December 31, 1990).

10.1(c)  Supplemental Agreement No. 18, dated December 23, 1991,
         to Purchase Agreement No. 1102 between US Airways and The
         Boeing Company (incorporated by reference to Exhibit
         10.2(c) to US Airways Group's Annual Report on Form 10-K
         for the year 

                                   140
<PAGE>

         ended December 31, 1991).

10.2     Purchase Agreement No. 1725 dated December 23, 1991
         between US Airways and The Boeing Company (incorporated
         by reference to Exhibit 10.3 to US Airways Group's and US
         Airways' Annual Report on Form 10-K for the year ended
         December 31, 1991).

10.3     Incentive Compensation Plan of US Airways Group, Inc. as
         amended and restated January 1, 1996. 

10.4     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).

10.5     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).

10.6     US Airways Group's 1984 Stock Option and Stock
         Appreciation Rights Plan (incorporated by reference to
         Exhibit A to US Airways Group's Proxy Statement dated
         March 30, 1984).

10.7     US Airways Group's 1992 Stock Option Plan (incorporated
         by reference to Exhibit A to US Airways Group's Proxy
         Statement dated March 31, 1992).

10.8     US Airways Group's 1996 Stock Incentive Plan.
         (incorporated by reference to Exhibit A to US Airways
         Group's Proxy Statement dated April 15, 1996).

10.9     Employment Agreement between US Airways and its Chief
         Executive Officer. (incorporated by reference to Exhibit
         10.11 to US Airways Group's Annual Report on Form 10-K
         for the year ended December 31, 1995).

10.10    Employment Agreement between US Airways and its President
         and Chief Operating Officer (incorporated by reference to
         Exhibit 10.12 to US Airways Group's Annual Report on Form
         10-K for the year ended December 31, 1995).

10.11    Employment Agreement between US Airways and its Executive
         Vice President -Corporate Affairs and General Counsel
         (incorporated by reference to Exhibit 10.13 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 Chief Executive
         Officer 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).

10.13    Agreement between US Airways and its President and Chief
         Operating Officer with respect to certain employment
         arrangements (incorporated by reference to Exhibit 10.15
         to US Airways Group's Annual Report on Form 10-K for the
         year ended December 31, 1995).

                                   141
<PAGE>

10.14    Agreement between US Airways and its Executive Vice
         President - Corporate Affairs and General Counsel with
         respect to certain employment arrangements (incorporated
         by reference to Exhibit 10.16 to US Airways Group's
         Annual Report on Form 10-K for the year ended December
         31, 1995).

10.15    Employment Agreement between US Airways and its former
         Chief Executive Officer as amended by a severance
         agreement (incorporated by reference to Exhibit 10.17 to
         US Airways Group's Annual Report on Form 10-K for the
         year ended December 31, 1995).

10.16    Employment Agreement between US Airways and its former
         Executive Vice President - Marketing (incorporated by
         reference to Exhibit 10.20 to US Airways Group's Annual
         Report on Form 10-K for the year ended December 31,
         1995).

10.17    Trust Agreement dated as of April 1, 1992 between US
         Airways and Wachovia Bank of North Carolina, N.A.
         providing for certain compensation arrangements for US
         Airways' former Executive Vice President-Marketing
         (incorporated by reference to Exhibit 10.21 to US Airways
         Group's Annual Report on Form 10-K for the year ended
         December 31, 1995).

10.18    Employment Agreement between US Airways and its Executive
         Vice President -Human Resources (incorporated by
         reference to Exhibit 10.22 to US Airways Group's Annual
         Report on Form 10-K for the year ended December 31,
         1995). 

10.19    Agreement between US Airways and its Chief Executive
         Officer 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).

10.20    Agreement between US Airways and its President and Chief
         Operating Officer providing supplemental retirement
         benefits (incorporated by reference to Exhibit 10.24 to
         US Airways Group's Annual Report on Form 10-K for the
         year ended December 31, 1995).

10.21    Agreement between US Airways and its Executive Vice
         President - Corporate Affairs and General Counsel
         providing supplemental retirement benefits (incorporated
         by reference to Exhibit 10.25 to US Airways Group's
         Annual Report on Form 10-K for the year ended December
         31, 1995).

10.22    Agreement between US Airways and its former Chief
         Executive Officer providing supplemental retirement
         benefits (incorporated by reference to Exhibit 10.26 to
         US Airways Group's Annual Report on Form 10-K for the
         year ended December 31, 1995).

10.23    Agreement between US Airways and its former Executive
         Vice President - Marketing providing supplemental
         retirement benefits (incorporated by reference to Exhibit
         10.29 to US Airways Group's Annual Report on Form 10-K
         for the year ended December 31, 1995).

10.24    Employment Agreement between US Airways and its Executive
         Vice President - Human Resources providing retirement
         benefits (incorporated by reference to Exhibit 

                                   142
<PAGE>

         10.30 to US Airways Group's Annual Report on Form 10-K
         for the year ended December 31, 1995).

10.25    Agreement between US Airways and its former Executive
         Vice President - Marketing providing for supplemental
         severance benefits. 

11       Computation of primary and fully diluted earnings per
         share of US Airways Group for the three years ended
         December 31, 1996.

21       Subsidiaries of US Airways Group and US Airways.

23.1     Consent of the Auditors of US Airways Group to the
         incorporation of their report concerning certain
         financial statements contained in this report in certain
         registration statements.

23.2     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
         Group, authorizing their signatures on this report.

24.2     Powers of Attorney signed by the directors of US Airways,
         authorizing their signatures on this report.

27.1     Financial Data Schedule - US Airways Group

27.2     Financial Data Schedule - US Airways










               (this space intentionally left blank)







                                   143
<PAGE>

                         SIGNATURES

     Pursuant to the requirements of Section 13 of 15(d) of the 
Securities Exchange Act of 1934, US Airways Group, Inc. has duly 
caused this report to be signed on its behalf by the undersigned, 
thereunto duly authorized.

                                     US AIRWAYS GROUP, INC.
                                  (Formerly USAir Group, Inc.)

                               By:    /s/Stephen M. Wolf
                                    ----------------------
                                         Stephen M. Wolf
                                        Chairman and Chief
                                         Executive Officer
                                  (Principal Executive Officer)

Date:  March 14, 1997

     Pursuant to the requirements of the Securities Exchange Act 
of 1934, this report has been signed below by the following 
persons on behalf of US Airways Group, Inc. and in the capacities 
and on the dates indicated.

March 14, 1997                 By:     /s/Stephen M. Wolf
                                     ------------------------
                                          Stephen M. Wolf
                                         Chairman and Chief
                                          Executive Officer
                                    (Principal Executive Officer)


March 14, 1997                 By:     /s/John W. Harper
                                     ------------------------
                                          John W. Harper
                                  Senior Vice President-Finance
                                  (Principal Financial Officer)


March 14, 1997                 By:    /s/James A. Hultquist
                                     ------------------------
                                         James A. Hultquist
                                             Controller
                                  (Principal Accounting Officer)


March 14, 1997                 By:               *
                                     ------------------------
                                          Robert W. Bogle
                                             Director


March 14, 1997                 By:               *
                                     ------------------------
                                          Edwin I. Colodny
                                              Director


March 14, 1997                 By:               *
                                     -------------------------
                                          Mathias J. DeVito
                                              Director

                                   144
<PAGE>

March 14, 1997                 By:               *
                                     -------------------------
                                           Rakesh Gangwal
                                               Director


March 14, 1997                 By:               *
                                     -------------------------
                                         George J. W. Goodman
                                               Director


March 14, 1997                 By:               *
                                     -------------------------
                                            John W. Harris
                                               Director


March 14, 1997                 By:               *
                                     -------------------------
                                        Edward A. Horrigan, Jr.
                                              Director


March 14, 1997                 By:               *
                                     -------------------------
                                            Robert LeBuhn
                                              Director


March 14, 1997                 By:               *
                                     -------------------------
                                          John G. Medlin, Jr.
                                               Director


March 14, 1997                 By:               *
                                     -------------------------
                                          Hanne M. Merriman
                                               Director


March 14, 1997                 By:               *
                                     -------------------------
                                           Raymond W. Smith
                                                Director





By:     /s/John W. Harper
      -----------------------  
           John W. Harper
          Attorney-In-Fact







                                   145
<PAGE> 

SIGNATURES

     Pursuant to the requirements of Section 13 of 15(d) of the 
Securities Exchange Act of 1934, US Airways, Inc. has duly caused 
this report to be signed on its behalf by the undersigned, 
thereunto duly authorized.

                                        US AIRWAYS, INC.
                                     (Formerly USAir, Inc.)

                               By:    /s/Stephen M. Wolf
                                    ----------------------
                                         Stephen M. Wolf
                                        Chairman and Chief
                                         Executive Officer
                                  (Principal Executive Officer)

Date:  March 14, 1997

     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, Inc. and in the capacities and 
on the dates indicated.

March 14, 1997                 By:     /s/Stephen M. Wolf
                                     ------------------------
                                          Stephen M. Wolf
                                         Chairman and Chief
                                          Executive Officer
                                    (Principal Executive Officer)


March 14, 1997                 By:     /s/John W. Harper
                                     ------------------------
                                          John W. Harper
                                  Senior Vice President-Finance
                                  (Principal Financial Officer)


March 14, 1997                 By:    /s/James A. Hultquist
                                     ------------------------
                                         James A. Hultquist
                                             Controller
                                  (Principal Accounting Officer)


March 14, 1997                 By:               *
                                     ------------------------
                                          Robert W. Bogle
                                             Director


March 14, 1997                 By:               *
                                     ------------------------
                                          Edwin I. Colodny
                                              Director


March 14, 1997                 By:               *
                                     -------------------------
                                          Mathias J. DeVito
                                              Director

                                   146
<PAGE>

March 14, 1997                 By:               *
                                     -------------------------
                                           Rakesh Gangwal
                                               Director


March 14, 1997                 By:               *
                                     -------------------------
                                         George J. W. Goodman
                                               Director


March 14, 1997                 By:               *
                                     -------------------------
                                            John W. Harris
                                               Director


March 14, 1997                 By:               *
                                     -------------------------
                                        Edward A. Horrigan, Jr.
                                              Director


March 14, 1997                 By:               *
                                     -------------------------
                                            Robert LeBuhn
                                              Director


March 14, 1997                 By:               *
                                     -------------------------
                                          John G. Medlin, Jr.
                                               Director


March 14, 1997                 By:               *
                                     -------------------------
                                          Hanne M. Merriman
                                               Director


March 14, 1997                 By:               *
                                     -------------------------
                                           Raymond W. Smith
                                                Director





By:     /s/John W. Harper
      -----------------------  
           John W. Harper
          Attorney-In-Fact






                                   147
<PAGE>

                 INDEPENDENT AUDITORS' REPORT
       ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE FOR 
                    US AIRWAYS GROUP, INC.






The Stockholders and Board of Directors
US Airways Group, Inc.

Under date of February 26, 1997, except as to note 4(c) and note 
4(d) which are as of March 13, 1997, we reported on the 
consolidated balance sheets of US Airways Group, Inc. (formerly 
USAir Group, Inc.) and subsidiaries as of December 31, 1996 and 
1995, and the related consolidated statements of operations, cash 
flows, and changes in stockholders' equity (deficit) for each of 
the three years in the period ended December 31, 1996, included 
in Item 14(a)1(i) in this annual report on Form 10-K for the year 
1996. In connection with our audits of the aforementioned 
consolidated financial statements, we also audited the 
consolidated financial statement schedule as listed in Item 
14(a)2(i). This consolidated financial statement schedule is the 
responsibility of the Company's management. Our responsibility is 
to express an opinion on the consolidated financial statement 
schedule based on our audits.

In our opinion, this consolidated financial statement schedule, 
when considered in relation to the basic consolidated financial 
statements taken as a whole, presents fairly, in all material 
respects, the information set forth therein.





                                       KPMG PEAT MARWICK LLP


Washington, D. C.
February 26, 1997, except as to note 4(c) and note 4(d)
which are as of March 13, 1997





                                   148
<PAGE>

                      US AIRWAYS GROUP, INC.
                   (FORMERLY USAIR GROUP, INC.)
                           SCHEDULE II
          VALUATION AND QUALIFYING ACCOUNTS AND RESERVES





                                 Allowance For
                                 Uncollectible      Inventory
                                    Accounts       Obsolescence
                                 --------------    ------------
                                          (in thousands)

Balance December 31, 1993           $ 10,818         $ 95,171

  Additions charged to income (1)     11,763           86,775

  Amounts charged to reserve         (13,110)          (9,155)
                                     -------          -------

Balance December 31, 1994              9,471          172,791

  Additions charged to income         12,046           12,146

  Amounts charged to reserve          (9,177)         (20,851)
                                      ------          -------

Balance December 31, 1995             12,340          164,086

  Additions charged to income         11,086           10,501

  Amounts charged to reserve         (11,237)         (28,296)
                                      ------          -------

Balance December 31, 1996           $ 12,189         $146,291
                                     =======          =======


(1)  1994 additions to inventory obsolescence include charges of
     $75 million to reflect market value of parts related to
     certain aircraft which have been or will be withdrawn from
     service and inventory parts which have been identified for
     sale.


                                   149
<PAGE>

                     INDEPENDENT AUDITORS' REPORT
           ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE FOR 
                          US AIRWAYS, INC.





The Stockholder and Board of Directors
US Airways, Inc.

Under date of February 26, 1997, except as to note 4(c) and note 
4(d) which are as of March 13, 1997, we reported on the 
consolidated balance sheets of US Airways, Inc. (formerly USAir, 
Inc.) and subsidiary as of December 31, 1996 and 1995, and the 
related consolidated statements of operations, cash flows, and 
changes in stockholder's equity (deficit) for each of the three 
years in the period ended December 31, 1996, included in Item 
14(a)1(ii) in this annual report on Form 10-K for the year 1996. 
In connection with our audits of the aforementioned consolidated 
financial statements, we also audited the consolidated financial 
statement schedule as listed in Item 14(a)2(ii). This consolidated 
financial statement schedule is the responsibility of the 
Company's management. Our responsibility is to express an opinion 
on the consolidated financial statement schedule based on our 
audits.

In our opinion, this consolidated financial statement schedule, 
when considered in relation to the basic consolidated financial 
statements taken as a whole, presents fairly, in all material 
respects, the information set forth therein.





                                       KPMG PEAT MARWICK LLP

Washington, D. C.
February 26, 1997, except as to note 4(c) and note 4(d)
which are as of March 13, 1997





                                   150
<PAGE>

                         US AIRWAYS, INC.
                      (FORMERLY USAIR, INC.)
                           SCHEDULE II
          VALUATION AND QUALIFYING ACCOUNTS AND RESERVES




                                 Allowance For
                                 Uncollectible     Inventory
                                    Accounts      Obsolescence
                                 --------------   ------------
                                         (in thousands)

Balance December 31, 1993           $ 10,595        $ 92,592

  Additions charged to income (1)     11,600          85,633

  Amounts charged to reserve         (12,973)         (8,398)
                                     -------         -------

Balance December 31, 1994              9,222         169,827

  Additions charged to income         12,000           9,667

  Amounts charged to reserve          (9,118)        (17,829)
                                      ------         -------

Balance December 31, 1995             12,104         161,665

  Additions charged to income         11,000           9,440

  Amounts charged to reserve         (11,151)        (28,295)
                                     -------         -------

Balance December 31, 1996           $ 11,953        $142,810
                                      =======         =======


(1)  1994 additions to inventory obsolescence include charges of
     $75 million to reflect market value of parts related to
     certain aircraft which have been or will be withdrawn from
     service and inventory parts which have been identified for
     sale.


                                   151