##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2008
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 US Airways Group, Inc.
 
 
 US Airways, Inc.
 
 
 
 
 þ o
  US Airways Group, Inc.
    
    Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company oUS Airways, Inc.
    
    Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
  US Airways Group, Inc.
    
    Yes o
    
    No þUS Airways, Inc.
    
    Yes o
    
    No þ
  US Airways Group, Inc.
    
    Yes þ
    
    No oUS Airways, Inc.
    
    Yes þ
    
    No o




---



##### 



US Airways Group, Inc.
US Airways, Inc.
Form 10-Q
Quarterly Period Ended September 30, 2008
Table of Contents
 PagePart I. Financial InformationItem 1A. Condensed Consolidated Financial Statements of US Airways Group, Inc.
    
    
    5Condensed Consolidated Statements of Operations
    
    
    5Condensed Consolidated Balance Sheets
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7Notes to the Condensed Consolidated Financial Statements
    
    
    8Item 1B. Condensed Consolidated Financial Statements of US Airways, Inc.
    
    
    19Condensed Consolidated Statements of Operations
    
    
    19Condensed Consolidated Balance Sheets
    
    
    20Condensed Consolidated Statements of Cash Flows
    
    
    21Notes to the Condensed Consolidated Financial Statements
    
    
    22Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    64Item 4. Controls and Procedures
    
    
    66Part II. Other InformationItem 1. Legal Proceedings
    
    
    67Item 1A. Risk Factors
    
    
    67Item 6. Exhibits
    
    
    76Signatures
    
    
    77Exhibit 10.3Exhibit 10.4Exhibit 31.1Exhibit 31.2Exhibit 31.3Exhibit 31.4Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



Note Concerning Forward-Looking Statements
  
    
    the impact of future significant operating losses;
 
    
    changes in prevailing interest rates and increased costs of financing;
 
    
    economic conditions;
 
    
    our high level of fixed obligations and our ability to obtain and maintain financing for
operations and other purposes and operate pursuant to the terms of our financing facilities
(particularly the financial covenants);
 
    
    our ability to maintain adequate liquidity;
 
    
    labor costs and relations with unionized employees generally and the impact and outcome
of labor negotiations;
 
    
    the impact of high fuel costs, significant disruptions in the supply of aircraft fuel and
further significant increases to fuel prices;
 
    
    our reliance on vendors and service providers and our ability to obtain and maintain
commercially reasonable terms with those vendors and service providers;
 
    
    our reliance on automated systems and the impact of any failure or disruption of these
systems;
 
    
    the impact of changes in our business model;
 
    
    the impact of industry consolidation;
 
    
    competitive practices in the industry, including significant fare restructuring
activities, capacity reductions and in court or out of court restructuring by major
airlines;
 
    
    our ability to attract and retain qualified personnel;
 
    
    the impact of global instability, including the current instability in the Middle East,
the continuing impact of the military presence in Iraq and Afghanistan and the terrorist
attacks of September 11, 2001 and the potential impact of future hostilities, terrorist
attacks, infectious disease outbreaks or other global events that affect travel behavior;
 
    
    changes in government legislation and regulation, including environmental regulation;
 
    
    our ability to obtain and maintain adequate facilities and infrastructure to operate and
grow our route network;
 
    
    costs of ongoing data security compliance requirements and the impact of any data
security breach;
  3




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##### Table of Contents




    
    interruptions or disruptions in service at one or more of our hub airports;
    
    the impact of any accident involving our aircraft;
    
    delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity;
    
    security-related and insurance costs;
    
    weather conditions;
    
    the cyclical nature of the airline industry;
    
    the impact of foreign currency exchange rate fluctuations;
    
    our ability to use pre-merger NOLs and certain other tax attributes;
 
    
    our ability to complete the integration of the labor groups of US Airways Group and
America West Holdings;
    
    our ability to maintain contracts that are critical to our operations;
    
    our ability to attract and retain customers; and
 
    
    other risks and uncertainties listed from time to time in our reports to the Securities
and Exchange Commission.
  
 Part I. Financial Information
   4




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating revenues:Mainline passenger
    
    $
    2,197
    
    
    $
    2,133
    
    
    $
    6,364
    
    
    $
    6,233Express passenger
    
    
    771
    
    
    
    692
    
    
    
    2,230
    
    
    
    2,039Cargo
    
    
    37
    
    
    
    32
    
    
    
    111
    
    
    
    102Other
    
    
    256
    
    
    
    179
    
    
    
    652
    
    
    
    550Total operating revenues
    
    
    3,261
    
    
    
    3,036
    
    
    
    9,357
    
    
    
    8,924Operating expenses:Aircraft fuel and related taxes
    
    
    1,110
    
    
    
    692
    
    
    
    3,018
    
    
    
    1,900Loss (gain) on fuel hedging instruments, net
    
    
    420
    
    
    
    (33
    )
    
    
    (80
    )
    
    
    (111
    )Salaries and related costs
    
    
    567
    
    
    
    555
    
    
    
    1,701
    
    
    
    1,659Express expenses
    
    
    844
    
    
    
    649
    
    
    
    2,400
    
    
    
    1,921Aircraft rent
    
    
    183
    
    
    
    182
    
    
    
    544
    
    
    
    542Aircraft maintenance
    
    
    188
    
    
    
    144
    
    
    
    601
    
    
    
    479Other rent and landing fees
    
    
    137
    
    
    
    141
    
    
    
    424
    
    
    
    408Selling expenses
    
    
    120
    
    
    
    116
    
    
    
    340
    
    
    
    347Special items, net
    
    
    8
    
    
    
    17
    
    
    
    67
    
    
    
    83Depreciation and amortization
    
    
    52
    
    
    
    47
    
    
    
    159
    
    
    
    137Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    622
    
    
    
    Other
    
    
    321
    
    
    
    324
    
    
    
    982
    
    
    
    952Total operating expenses
    
    
    3,950
    
    
    
    2,834
    
    
    
    10,778
    
    
    
    8,317Operating income (loss)
    
    
    (689
    )
    
    
    202
    
    
    
    (1,421
    )
    
    
    607Nonoperating income (expense):Interest income
    
    
    19
    
    
    
    43
    
    
    
    69
    
    
    
    131Interest expense, net
    
    
    (57
    )
    
    
    (66
    )
    
    
    (173
    )
    
    
    (206
    )Other, net
    
    
    (135
    )
    
    
    2
    
    
    
    (140
    )
    
    
    (11
    )Total nonoperating expense, net
    
    
    (173
    )
    
    
    (21
    )
    
    
    (244
    )
    
    
    (86
    )Income (loss) before income taxes
    
    
    (862
    )
    
    
    181
    
    
    
    (1,665
    )
    
    
    521Income tax provision
    
    
    3
    
    
    
    4
    
    
    
    3
    
    
    
    15Net income (loss)
    
    $
    (865
    )
    
    $
    177
    
    
    $
    (1,668
    )
    
    $
    506Earnings (loss) per common share:Basic earnings (loss) per common share
    
    
    (8.45
    )
    
    
    1.93
    
    
    
    (17.47
    )
    
    
    5.54Diluted earnings (loss) per common share
    
    
    (8.45
    )
    
    
    1.87
    
    
    
    (17.47
    )
    
    
    5.33Shares used for computation (in thousands):Basic
    
    
    102,406
    
    
    
    91,542
    
    
    
    95,522
    
    
    
    91,461Diluted
    
    
    102,406
    
    
    
    95,492
    
    
    
    95,522
    
    
    
    95,776
   5




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##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    1,168
    
    
    $
    1,948Investments in marketable securities
    
    
    109
    
    
    
    226Restricted cash
    
    
    161
    
    
    
    2Accounts receivable, net
    
    
    423
    
    
    
    374Materials and supplies, net
    
    
    261
    
    
    
    249Prepaid expenses and other
    
    
    476
    
    
    
    548Total current assets
    
    
    2,598
    
    
    
    3,347Property and equipmentFlight equipment
    
    
    3,031
    
    
    
    2,414Ground property and equipment
    
    
    777
    
    
    
    703Less accumulated depreciation and amortization
    
    
    (900
    )
    
    
    (757
    )2,908
    
    
    
    2,360Equipment purchase deposits
    
    
    225
    
    
    
    128Total property and equipment
    
    
    3,133
    
    
    
    2,488Other assetsOther intangibles, net of accumulated amortization of $80 million and $62 million, respectively
    
    
    551
    
    
    
    553Restricted cash
    
    
    583
    
    
    
    466Investments in marketable securities
    
    
    261
    
    
    
    353Goodwill
    
    
    
    
    
    
    622Other assets, net
    
    
    211
    
    
    
    211Total other assets
    
    
    1,606
    
    
    
    2,205Total assets
    
    $
    7,337
    
    
    $
    8,040LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent maturities of debt and capital leases
    
    $
    191
    
    
    $
    117Accounts payable
    
    
    538
    
    
    
    366Air traffic liability
    
    
    962
    
    
    
    832Accrued compensation and vacation
    
    
    173
    
    
    
    225Accrued taxes
    
    
    122
    
    
    
    152Other accrued expenses
    
    
    892
    
    
    
    859Total current liabilities
    
    
    2,878
    
    
    
    2,551Noncurrent liabilities and deferred creditsLong-term debt and capital leases, net of current maturities
    
    
    3,423
    
    
    
    3,031Deferred gains and credits, net
    
    
    152
    
    
    
    168Postretirement benefits other than pensions
    
    
    136
    
    
    
    138Employee benefit liabilities and other
    
    
    729
    
    
    
    713Total noncurrent liabilities and deferred credits
    
    
    4,440
    
    
    
    4,050Commitments and contingenciesStockholders equityCommon stock, $0.01 par value; 200,000,000 shares authorized, 114,516,633 and 114,102,640
shares issued and outstanding at September 30, 2008; 92,278,557 and 91,864,564 shares issued
and outstanding at December 31, 2007
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    1,741
    
    
    
    1,536Accumulated other comprehensive income
    
    
    55
    
    
    
    10Accumulated deficit
    
    
    (1,765
    )
    
    
    (95
    )Treasury stock, common stock, 413,993 shares at September 30, 2008 and December 31, 2007
    
    
    (13
    )
    
    
    (13
    )Total stockholders equity
    
    
    19
    
    
    
    1,439Total liabilities and stockholders equity
    
    $
    7,337
    
    
    $
    8,040
   6




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##### Table of Contents



Nine Months Ended September 30,2008
    
    
    2007Net cash provided by (used in) operating activities
    
    $
    (583
    )
    
    $
    415Cash flows from investing activities:Purchases of property and equipment
    
    
    (755
    )
    
    
    (345
    )Purchases of marketable securities
    
    
    (299
    )
    
    
    (2,560
    )Sales of marketable securities
    
    
    416
    
    
    
    3,124Proceeds from sale of other investments
    
    
    1
    
    
    
    31Decrease (increase) in long-term restricted cash
    
    
    (117
    )
    
    
    217Proceeds from dispositions of property and equipment
    
    
    17
    
    
    
    4Increase in equipment purchase deposits
    
    
    (97
    )
    
    
    (30
    )Other
    
    
    2
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (832
    )
    
    
    441Cash flows from financing activities:Repayments of debt and capital lease obligations
    
    
    (205
    )
    
    
    (1,668
    )Proceeds from issuance of debt
    
    
    669
    
    
    
    1,732Deferred financing costs
    
    
    (8
    )
    
    
    (6
    )Proceeds from issuance of common stock, net
    
    
    179
    
    
    
    3Net cash provided by financing activities
    
    
    635
    
    
    
    61Net increase (decrease) in cash and cash equivalents
    
    
    (780
    )
    
    
    917Cash and cash equivalents at beginning of period
    
    
    1,948
    
    
    
    1,116Cash and cash equivalents at end of period
    
    $
    1,168
    
    
    $
    2,033Non-cash investing and financing activities:Net unrealized loss on available for sale securities
    
    $
    
    
    
    $
    38Supplemental information:Interest paid, net of amounts capitalized
    
    $
    173
    
    
    $
    201Income taxes paid
    
    
    
    
    
    
    4
   7




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##### Table of Contents



1. Basis of presentation
   Recent Accounting Pronouncements
     8




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##### Table of Contents



FSP APB
14-1
 share-based
 "
 2. Special items, net
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Merger related transition expenses (a)
    
    $
    
    
    
    $
    17
    
    
    $
    35
    
    
    $
    83Asset impairment charges (b)
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    Lease return and cancellation charges (c)
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    Severance charges (d)
    
    
    8
    
    
    
    
    
    
    
    8
    
    
    
    Special items, net
    
    $
    8
    
    
    $
    17
    
    
    $
    67
    
    
    $
    83
 
 (a)
    
    In connection with the effort to consolidate functions and integrate the Companys
organizations, procedures and operations, the Company incurred $35 million of merger related
transition expenses in the first nine months of 2008. These expenses included $12 million in
uniform costs to transition employees to the new US Airways uniforms; $5 million in applicable
employment tax expenses related to contractual benefits granted to certain current and former
employees as a result of the merger; $6 million in compensation expenses for equity awards granted in connection with the merger to retain key
employees through the integration period; $5 million of aircraft livery costs; $4 million in
professional and technical fees related to the integration of the Companys airline operations
systems and $3 million in other expenses.  9




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##### Table of Contents



In connection with the merger transition efforts noted above, the Company incurred $17
million of merger related transition expenses during the third quarter of 2007. These
expenses included $1 million in training and related expenses; $3 million in compensation
expenses for equity awards granted in connection with the merger to retain key employees
through the integration period; $5 million of aircraft livery costs; $7 million in
professional and technical fees related to the integration of the Companys airline
operations systems and $1 million in other expenses. In the first nine months of 2007, the
Company incurred $83 million of merger related transition expenses. These expenses included
$12 million in training and related expenses; $16 million in compensation expenses for
equity awards granted in connection with the merger to retain key employees through the
integration period; $15 million of aircraft livery costs; $30 million in professional and
technical fees related to the integration of the Companys airline operations systems; $1
million in employee moving expenses; $4 million related to reservation system migration
expenses and $5 million in other expenses.(b)
    
    In the second quarter of 2008, the Company recorded $18 million in non-cash impairment
charges related to the decline in fair value of certain spare parts associated with the
Companys Boeing 737 aircraft fleet. See Note 11 for further discussion of these charges.(c)
    
    In the second quarter of 2008, the Company recorded $6 million in charges for lease return
costs and lease cancellation penalties related to certain Airbus aircraft as a result of the
planned fleet reductions.(d)
    
    In the third quarter of 2008, in connection with planned capacity reductions, the Company
recorded $8 million in charges related to involuntary furloughs as well as terminations of
non-union administrative and management staff.  Of this amount, $4 million was paid out prior
to September 30, 2008. The Company expects that the remaining $4 million will be substantially
paid by the end of the first quarter of 2009. 3. Earnings (loss) per common share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Basic earnings (loss) per share:Net income (loss)
    
    $
    (865
    )
    
    $
    177
    
    
    $
    (1,668
    )
    
    $
    506Weighted average common shares outstanding (in thousands)
    
    
    102,406
    
    
    
    91,542
    
    
    
    95,522
    
    
    
    91,461Basic earnings (loss) per share
    
    $
    (8.45
    )
    
    $
    1.93
    
    
    $
    (17.47
    )
    
    $
    5.54Diluted earnings (loss) per share:Net income (loss)
    
    $
    (865
    )
    
    $
    177
    
    
    $
    (1,668
    )
    
    $
    506Interest expense on 7.0% senior convertible notes
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    4Income (loss) for purposes of computing diluted net
income (loss) per share
    
    $
    (865
    )
    
    $
    178
    
    
    $
    (1,668
    )
    
    $
    510Share computation (in thousands):Weighted average common shares outstanding
    
    
    102,406
    
    
    
    91,542
    
    
    
    95,522
    
    
    
    91,461Dilutive effect of stock awards and warrants
    
    
    
    
    
    
    900
    
    
    
    
    
    
    
    1,265Assumed conversion of 7.0% senior convertible notes
    
    
    
    
    
    
    3,050
    
    
    
    
    
    
    
    3,050Weighted average common shares outstanding as adjusted
    
    
    102,406
    
    
    
    95,492
    
    
    
    95,522
    
    
    
    95,776Diluted earnings (loss) per share
    
    $
    (8.45
    )
    
    $
    1.87
    
    
    $
    (17.47
    )
    
    $
    5.33
   10




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##### Table of Contents



4. Debt
  September 30,
    
    
    December 31,2008
    
    
    2007SecuredCiticorp North America loan, variable interest rate of 6.21%, installments due through 2014
    
    $
    1,584
    
    
    $
    1,600Equipment notes payable and aircraft pre-delivery payment financings, fixed and variable interest
rates ranging from 3.89% to 9.01%, maturing from 2008 to 2022
    
    
    1,868
    
    
    
    1,378Slot financing, interest rate of 8.08%, interest only payments until due in 2015
    
    
    47
    
    
    
    47Capital lease obligations, interest rate of 8%, installments due through 2021
    
    
    39
    
    
    
    41Senior secured discount notes, variable interest rate of 6.8%, installments due through 2009
    
    
    32
    
    
    
    32Capital lease obligations, computer software, installments due through 2009
    
    
    1
    
    
    
    13,571
    
    
    
    3,099Unsecured7% senior convertible notes, interest only payments until due in 2020
    
    
    74
    
    
    
    74GE Engine Maintenance term note, variable interest rate of 6.94%, installments due through 2011
    
    
    41
    
    
    
    57Industrial development bonds, fixed interest rate of 6.3%, interest only payments until due in 2023
    
    
    29
    
    
    
    29Note payable to Pension Benefit Guaranty Corporation, interest rate of 6%, interest only payments
until due in 2012
    
    
    10
    
    
    
    10154
    
    
    
    170Total long-term debt and capital lease obligations
    
    
    3,725
    
    
    
    3,269Less: Unamortized discount on debt
    
    
    (111
    )
    
    
    (121
    )Current maturities
    
    
    (191
    )
    
    
    (117
    )Long-term debt and capital lease obligations, net of current maturities
    
    $
    3,423
    
    
    $
    3,031
     11




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##### Table of Contents



5. Income taxes
     6. Express expenses
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Aircraft fuel and related taxes
    
    $
    349
    
    
    $
    199
    
    
    $
    938
    
    
    $
    539Salaries and related costs
    
    
    36
    
    
    
    35
    
    
    
    110
    
    
    
    106Capacity purchases
    
    
    269
    
    
    
    238
    
    
    
    798
    
    
    
    738Aircraft rent
    
    
    2
    
    
    
    2
    
    
    
    6
    
    
    
    6Aircraft maintenance
    
    
    20
    
    
    
    20
    
    
    
    59
    
    
    
    58Other rent and landing fees
    
    
    35
    
    
    
    28
    
    
    
    89
    
    
    
    84Selling expenses
    
    
    45
    
    
    
    39
    
    
    
    127
    
    
    
    119Depreciation and amortization
    
    
    6
    
    
    
    6
    
    
    
    18
    
    
    
    17Other expenses
    
    
    82
    
    
    
    82
    
    
    
    255
    
    
    
    254Express expenses
    
    $
    844
    
    
    $
    649
    
    
    $
    2,400
    
    
    $
    1,921
  12




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##### Table of Contents



7. Derivative instruments
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Unrealized loss (gain)
    
    $
    488
    
    
    $
    (13
    )
    
    $
    262
    
    
    $
    (128
    )Realized loss (gain)
    
    
    (68
    )
    
    
    (20
    )
    
    
    (342
    )
    
    
    17Loss (gain) on fuel hedging instruments, net
    
    $
    420
    
    
    $
    (33
    )
    
    $
    (80
    )
    
    $
    (111
    )
     13




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##### Table of Contents



8. Investments in marketable securities (noncurrent)
      9. Fair value measurements
  Level 1.
    
    Observable inputs such as quoted prices in active markets;Level 2.
    
    Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; andLevel 3.
    
    Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions.
  14




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##### Table of Contents



Quoted Prices in
    
    
    Significant Other
    
    
    SignificantFair Value
    
    
    Active Markets for
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Valuation2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TechniqueInvestments in marketable securities (noncurrent)
    
    $
    261
    
    
    $
    
    
    
    $
    
    
    
    $
    261
    
    
    
    (1
    )Fuel hedging derivatives
    
    
    (141
    )
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    (2
    )
 (1)
    
    The Company estimated the fair value of these auction rate securities based on the
following: (i) the underlying structure of each security; (ii) the present value of future
principal and interest payments discounted at rates considered to reflect current market
conditions; (iii) consideration of the probabilities of default, passing a future auction,
or repurchase at par for each period; and (iv) estimates of the recovery rates in the event
of default for each security. These estimated fair values could change significantly based
on future market conditions. Refer to Note 8 for further discussion of the Companys
investments in marketable securities.(2)
    
    Since the Companys fuel hedging derivative instruments are not traded on a market
exchange, the fair values are determined using valuation models which include assumptions
about commodity prices based on those observed in the underlying markets. The fair value of
fuel hedging derivatives is recorded in accounts payable on the condensed consolidated
balance sheets. Refer to Note 7 for further discussion of the Companys fuel hedging
derivatives.  Investments inMarketableSecurities(Noncurrent)Balance at December 31, 2007
    
    $
    353Losses deemed to be other than temporary reclassified from
other comprehensive income to other nonoperating expense,
net
    
    
    48Impairment losses included in other nonoperating expense, net
    
    
    (140
    )Balance at September 30, 2008
    
    $
    261
 10. Other comprehensive income (loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (865
    )
    
    $
    177
    
    
    $
    (1,668
    )
    
    $
    506Unrealized losses on available for sale securities
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    (38
    )Recognition of previous unrealized losses now deemed other than temporary
    
    
    103
    
    
    
    
    
    
    
    48
    
    
    
    Amortization of actuarial gains associated with pension and other
postretirement benefits
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    Total comprehensive income (loss)
    
    $
    (762
    )
    
    $
    139
    
    
    $
    (1,623
    )
    
    $
    468
  September 30,
    
    
    December 31,2008
    
    
    2007Accumulated net unrealized losses on available for sale securities
    
    $
    
    
    
    $
    (48
    )Adjustment to initially apply FASB Statement No. 158
    
    
    3
    
    
    
    3Actuarial gains associated with pension and other postretirement benefits
    
    
    52
    
    
    
    55Accumulated other comprehensive income
    
    $
    55
    
    
    $
    10
   15




---



##### Table of Contents



11. Impairment
 Goodwill
      GoodwillBalance at December 31, 2007
    
    $
    622Impairment charge
    
    
    (622
    )Balance at September 30, 2008
    
    $
    
  16




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##### Table of Contents



Intangible Assets
  Other Assets
   12. Pass through trusts
     17




---



##### Table of Contents



13. Stockholders equity
  14. Subsequent events
    18




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating revenues:Mainline passenger
    
    $
    2,197
    
    
    $
    2,133
    
    
    $
    6,364
    
    
    $
    6,233Express passenger
    
    
    771
    
    
    
    692
    
    
    
    2,230
    
    
    
    2,039Cargo
    
    
    37
    
    
    
    32
    
    
    
    111
    
    
    
    102Other
    
    
    288
    
    
    
    208
    
    
    
    742
    
    
    
    637Total operating revenues
    
    
    3,293
    
    
    
    3,065
    
    
    
    9,447
    
    
    
    9,011Operating expenses:Aircraft fuel and related taxes
    
    
    1,110
    
    
    
    692
    
    
    
    3,018
    
    
    
    1,900Loss (gain) on fuel hedging instruments, net
    
    
    420
    
    
    
    (33
    )
    
    
    (80
    )
    
    
    (111
    )Salaries and related costs
    
    
    567
    
    
    
    555
    
    
    
    1,701
    
    
    
    1,659Express expenses
    
    
    872
    
    
    
    678
    
    
    
    2,485
    
    
    
    1,997Aircraft rent
    
    
    183
    
    
    
    182
    
    
    
    544
    
    
    
    542Aircraft maintenance
    
    
    188
    
    
    
    144
    
    
    
    601
    
    
    
    479Other rent and landing fees
    
    
    137
    
    
    
    141
    
    
    
    424
    
    
    
    408Selling expenses
    
    
    120
    
    
    
    116
    
    
    
    340
    
    
    
    347Special items, net
    
    
    8
    
    
    
    17
    
    
    
    67
    
    
    
    83Depreciation and amortization
    
    
    55
    
    
    
    49
    
    
    
    166
    
    
    
    143Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    622
    
    
    
    Other
    
    
    321
    
    
    
    322
    
    
    
    977
    
    
    
    937Total operating expenses
    
    
    3,981
    
    
    
    2,863
    
    
    
    10,865
    
    
    
    8,384Operating income (loss)
    
    
    (688
    )
    
    
    202
    
    
    
    (1,418
    )
    
    
    627Nonoperating income (expense):Interest income
    
    
    19
    
    
    
    43
    
    
    
    68
    
    
    
    131Interest expense, net
    
    
    (48
    )
    
    
    (55
    )
    
    
    (146
    )
    
    
    (174
    )Other, net
    
    
    (135
    )
    
    
    2
    
    
    
    (140
    )
    
    
    6Total nonoperating expense, net
    
    
    (164
    )
    
    
    (10
    )
    
    
    (218
    )
    
    
    (37
    )Income (loss) before income taxes
    
    
    (852
    )
    
    
    192
    
    
    
    (1,636
    )
    
    
    590Income tax provision
    
    
    3
    
    
    
    5
    
    
    
    3
    
    
    
    16Net income (loss)
    
    $
    (855
    )
    
    $
    187
    
    
    $
    (1,639
    )
    
    $
    574
   19




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##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    1,163
    
    
    $
    1,940Investments in marketable securities
    
    
    109
    
    
    
    226Restricted cash
    
    
    161
    
    
    
    2Accounts receivable, net
    
    
    420
    
    
    
    366Materials and supplies, net
    
    
    216
    
    
    
    197Prepaid expenses and other
    
    
    467
    
    
    
    524Total current assets
    
    
    2,536
    
    
    
    3,255Property and equipmentFlight equipment
    
    
    2,895
    
    
    
    2,295Ground property and equipment
    
    
    753
    
    
    
    681Less accumulated depreciation and amortization
    
    
    (863
    )
    
    
    (729
    )2,785
    
    
    
    2,247Equipment purchase deposits
    
    
    225
    
    
    
    128Total property and equipment
    
    
    3,010
    
    
    
    2,375Other assetsOther intangibles, net of accumulated amortization of $75 million and $58 million, respectively
    
    
    514
    
    
    
    514Restricted cash
    
    
    583
    
    
    
    466Investments in marketable securities
    
    
    261
    
    
    
    353Goodwill
    
    
    
    
    
    
    622Other assets, net
    
    
    203
    
    
    
    202Total other assets
    
    
    1,561
    
    
    
    2,157Total assets
    
    $
    7,107
    
    
    $
    7,787LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent maturities of debt and capital leases
    
    $
    175
    
    
    $
    101Accounts payable
    
    
    522
    
    
    
    333Payables to related parties, net
    
    
    1,235
    
    
    
    1,067Air traffic liability
    
    
    962
    
    
    
    832Accrued compensation and vacation
    
    
    165
    
    
    
    214Accrued taxes
    
    
    128
    
    
    
    158Other accrued expenses
    
    
    874
    
    
    
    841Total current liabilities
    
    
    4,061
    
    
    
    3,546Noncurrent liabilities and deferred creditsLong-term debt and capital leases, net of current maturities
    
    
    1,781
    
    
    
    1,373Deferred gains and credits, net
    
    
    152
    
    
    
    168Postretirement benefits other than pensions
    
    
    136
    
    
    
    137Employee benefit liabilities and other
    
    
    722
    
    
    
    713Total noncurrent liabilities and deferred credits
    
    
    2,791
    
    
    
    2,391Commitments and contingenciesStockholders equityCommon stock, $1 par, 1,000 shares issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    1,845
    
    
    
    1,845Accumulated other comprehensive income (loss)
    
    
    45
    
    
    
    (1
    )Retained earnings (deficit)
    
    
    (1,635
    )
    
    
    6Total stockholders equity
    
    
    255
    
    
    
    1,850Total liabilities and stockholders equity
    
    $
    7,107
    
    
    $
    7,787
   20




---



##### Table of Contents



Nine Months Ended September 30,2008
    
    
    2007Net cash provided by (used in) operating activities
    
    $
    (438
    )
    
    $
    425Cash flows from investing activities:Purchases of property and equipment
    
    
    (734
    )
    
    
    (333
    )Purchases of marketable securities
    
    
    (299
    )
    
    
    (2,560
    )Sales of marketable securities
    
    
    416
    
    
    
    3,124Proceeds from sale of other investments
    
    
    1
    
    
    
    31Decrease (increase) in long-term restricted cash
    
    
    (117
    )
    
    
    217Proceeds from dispositions of property and equipment
    
    
    17
    
    
    
    4Increase in equipment purchase deposits
    
    
    (97
    )
    
    
    (30
    )Other
    
    
    2
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (811
    )
    
    
    453Cash flows from financing activities:Repayments of debt and capital lease obligations
    
    
    (189
    )
    
    
    (93
    )Proceeds from issuance of debt
    
    
    669
    
    
    
    132Deferred financing costs
    
    
    (8
    )
    
    
    Net cash provided by financing activities
    
    
    472
    
    
    
    39Net increase (decrease) in cash and cash equivalents
    
    
    (777
    )
    
    
    917Cash and cash equivalents at beginning of period
    
    
    1,940
    
    
    
    1,111Cash and cash equivalents at end of period
    
    $
    1,163
    
    
    $
    2,028Non-cash investing and financing activities:Net unrealized loss on available for sale securities
    
    $
    
    
    
    $
    38Repayment of Barclays prepaid miles by parent
    
    
    
    
    
    
    325Forgiveness of intercompany payable to US Airways Group
    
    
    
    
    
    
    1,834Supplemental information:Interest paid, net of amounts capitalized
    
    $
    101
    
    
    $
    106Income taxes paid
    
    
    
    
    
    
    4
   21




---



##### Table of Contents



1. Basis of presentation
   Recent Accounting Pronouncements
     22




---



##### Table of Contents



"
 2. Special items, net
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Merger related transition expenses (a)
    
    $
    
    
    
    $
    17
    
    
    $
    35
    
    
    $
    83Asset impairment charges (b)
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    Lease return and cancellation charges (c)
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    Severance charges (d)
    
    
    8
    
    
    
    
    
    
    
    8
    
    
    
    Special items, net
    
    $
    8
    
    
    $
    17
    
    
    $
    67
    
    
    $
    83
 
 (a)
    
    In connection with the effort to consolidate functions and integrate organizations,
procedures and operations with AWA, US Airways incurred $35 million of merger related
transition expenses in the first nine months of 2008. These expenses included $12 million in
uniform costs to transition employees to the new US Airways uniforms; $5 million in applicable
employment tax expenses related to contractual benefits granted to certain current and former
employees as a result of the merger; $6 million in compensation expenses for equity awards
granted in connection with the merger to retain key employees through the integration period;
$5 million of aircraft livery costs; $4 million in professional and technical fees related to
the integration of airline operations systems and $3 million in other expenses.  23




---



##### Table of Contents



In connection with the merger transition efforts noted above, US Airways incurred $17
million of merger related transition expenses during the third quarter of 2007. These
expenses included $1 million in training and related expenses; $3 million in compensation
expenses for equity awards granted in connection with the merger to retain key employees
through the integration period; $5 million of aircraft livery costs; $7 million in
professional and technical fees related to the integration of airline
operations systems and $1 million in other expenses. In the first nine months of 2007, US Airways
incurred $83 million of merger related transition expenses. These expenses included $12 million
in training and related expenses; $16 million in compensation expenses for equity awards granted
in connection with the merger to retain key employees through the integration period; $15 million
of aircraft livery costs; $30 million in professional and technical fees related to the
integration of airline operations systems; $1 million in employee moving expenses; $4 million
related to reservation system migration expenses and $5 million in other expenses.(b)
    
    In the second quarter of 2008, US Airways recorded $18 million in non-cash impairment charges
related to the decline in fair value of certain spare parts associated with US Airways Boeing
737 aircraft fleet. See Note 11 for further discussion of these charges.(c)
    
    In the second quarter of 2008, US Airways recorded $6 million in charges for lease return
costs and lease cancellation penalties related to certain Airbus aircraft as a result of the
planned fleet reductions.(d)
    
    In the third quarter of 2008, in connection with planned capacity reductions, US Airways
recorded $8 million in charges related to involuntary furloughs as well as terminations of
non-union administrative and management staff.  Of this amount, $4 million was paid out prior
to September 30, 2008. US Airways expects that the remaining $4 million will be substantially
paid by the end of the first quarter of 2009. 3. Debt
  September 30,
    
    
    December 31,2008
    
    
    2007SecuredEquipment notes payable and aircraft pre-delivery payment financings, fixed and variable interest
rates ranging from 3.89% to 9.01%, maturing from 2008 to 2022
    
    $
    1,868
    
    
    $
    1,378Slot financing, interest rate of 8.08%, interest only payments until due in 2015
    
    
    47
    
    
    
    47Capital lease obligations, interest rate of 8%, installments due through 2021
    
    
    39
    
    
    
    41Senior secured discount notes, variable interest rate of 6.8%, installments due through 2009
    
    
    32
    
    
    
    32Capital lease obligations, computer software, installments due through 2009
    
    
    1
    
    
    
    11,987
    
    
    
    1,499UnsecuredGE Engine Maintenance term note, variable interest rate of 6.94%, installments due through 2011
    
    
    41
    
    
    
    57Industrial development bonds, fixed interest rate of 6.3%, interest only payments until due in 2023
    
    
    29
    
    
    
    29Note payable to Pension Benefit Guaranty Corporation, interest rate of 6%, interest only payments
until due in 2012
    
    
    10
    
    
    
    1080
    
    
    
    96Total long-term debt and capital lease obligations
    
    
    2,067
    
    
    
    1,595Less: Unamortized discount on debt
    
    
    (111
    )
    
    
    (121
    )Current maturities
    
    
    (175
    )
    
    
    (101
    )Long-term debt and capital lease obligations, net of current maturities
    
    $
    1,781
    
    
    $
    1,373
    24




---



##### Table of Contents



4. Related party transactions
  September 30, 2008
    
    
    December 31, 2007US Airways Group
    
    $
    1,148
    
    
    $
    986US Airways Group wholly owned subsidiaries
    
    
    87
    
    
    
    81$
    1,235
    
    
    $
    1,067
   5. Income taxes
       25




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##### Table of Contents



6. Express expenses
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Aircraft fuel and related taxes
    
    $
    349
    
    
    $
    199
    
    
    $
    938
    
    
    $
    539Salaries and related costs
    
    
    5
    
    
    
    4
    
    
    
    16
    
    
    
    15Capacity purchases
    
    
    419
    
    
    
    390
    
    
    
    1,255
    
    
    
    1,179Other rent and landing fees
    
    
    30
    
    
    
    23
    
    
    
    74
    
    
    
    70Selling expenses
    
    
    45
    
    
    
    39
    
    
    
    127
    
    
    
    119Other expenses
    
    
    24
    
    
    
    23
    
    
    
    75
    
    
    
    75Express expenses
    
    $
    872
    
    
    $
    678
    
    
    $
    2,485
    
    
    $
    1,997
 7. Derivative instruments
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Unrealized loss (gain)
    
    $
    488
    
    
    $
    (13
    )
    
    $
    262
    
    
    $
    (128
    )Realized loss (gain)
    
    
    (68
    )
    
    
    (20
    )
    
    
    (342
    )
    
    
    17Loss (gain) on fuel hedging instruments, net
    
    $
    420
    
    
    $
    (33
    )
    
    $
    (80
    )
    
    $
    (111
    )
    26




---



##### Table of Contents



8. Investments in marketable securities (noncurrent)
       27




---



##### Table of Contents



9. Fair value measurements
  Level 1.
    
    Observable inputs such as quoted prices in active markets;Level 2.
    
    Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; andLevel 3.
    
    Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions.
  Quoted Prices in
    
    
    Significant Other
    
    
    SignificantFair Value
    
    
    Active Markets for
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Valuation2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TechniqueInvestments in marketable securities (noncurrent)
    
    $
    261
    
    
    $
    
    
    
    $
    
    
    
    $
    261
    
    
    
    (1
    )Fuel hedging derivatives
    
    
    (141
    )
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    (2
    )
 (1)
    
    US Airways estimated the fair value of these auction rate securities based on the
following: (i) the underlying structure of each security; (ii) the present value of future
principal and interest payments discounted at rates considered to reflect current market
conditions; (iii) consideration of the probabilities of default, passing a future auction,
or repurchase at par for each period; and (iv) estimates of the recovery rates in the event
of default for each security. These estimated fair values could change significantly based
on future market conditions. Refer to Note 8 for further discussion of US Airways
investments in marketable securities.(2)
    
    Since US Airways fuel hedging derivative instruments are not traded on a market
exchange, the fair values are determined using valuation models which include assumptions
about commodity prices based on those observed in the underlying markets. The fair value of
fuel hedging derivatives is recorded in accounts payable on the condensed consolidated
balance sheets. Refer to Note 7 for further discussion of US Airways fuel hedging
derivatives.  Investments inMarketableSecurities(Noncurrent)Balance at December 31, 2007
    
    $
    353Losses deemed to be other than temporary reclassified from
other comprehensive income to other nonoperating expense,
net
    
    
    48Impairment losses included in other nonoperating expense, net
    
    
    (140
    )Balance at September 30, 2008
    
    $
    261
  28




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##### Table of Contents



10. Other comprehensive income (loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (855
    )
    
    $
    187
    
    
    $
    (1,639
    )
    
    $
    574Unrealized losses on available for sale securities
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    (38
    )Recognition of previous unrealized losses now deemed other than temporary
    
    
    103
    
    
    
    
    
    
    
    48
    
    
    
    Amortization of actuarial gains associated with pension and other
postretirement benefits
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    Total comprehensive income (loss)
    
    $
    (752
    )
    
    $
    149
    
    
    $
    (1,593
    )
    
    $
    536
  September 30,
    
    
    December 31,2008
    
    
    2007Accumulated net unrealized losses on available for sale securities
    
    $
    
    
    
    $
    (48
    )Actuarial gains associated with pension and other postretirement benefits
    
    
    45
    
    
    
    47Accumulated other comprehensive income (loss)
    
    $
    45
    
    
    $
    (1
    )
  11. Impairment
 Goodwill
     29




---



##### Table of Contents



GoodwillBalance at December 31, 2007
    
    $
    622Impairment charge
    
    
    (622
    )Balance at September 30, 2008
    
    $
    
 Intangible Assets
  Other Assets
   12. Pass through trusts
   30




---



##### Table of Contents



13. Subsequent events
    31




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
   Industry Environment
   
    
    Substantial capacity reductions. Domestic ASMs are expected to be down 10% in the fourth
quarter of 2008 and 10% in 2009 as compared to 2008. These capacity cuts are expected to
create an environment that supports ticket price increases and in turn increases yields,
reduces costs and minimizes cash burn.
 
    
    Development and implementation of new revenue initiatives to supplement existing sources
of revenue.
 
    
    Implementation of cost containment strategies to minimize non-essential expenditures and
conserve cash.
 
    
    Enhancement of near-term liquidity through a number of cash raising initiatives such as
traditional capital market issuances, asset sales, sale and leaseback transactions and
prepaid sales of miles to affinity card issuers.
    32




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##### Table of Contents



US Airways Response to Record High Fuel Prices
  Capacity and Fleet Reductions
   
    
    Fleet Reduction: We are returning ten aircraft to lessors, which includes six Boeing
737-300 aircraft to be returned by the end of 2008 and four Airbus A320 aircraft to be
returned in the first half of 2009. We have also cancelled the leases of two A330-200
wide-body aircraft that had been scheduled for delivery in the second half of 2009. Further,
we plan to reduce additional aircraft in 2009 and 2010.
 
    
    Las Vegas Flight Reduction: We closed our Las Vegas night operation, except for limited
night service to the East Coast, in early September 2008. In the current fuel environment,
the revenue generated from the Las Vegas night operation no longer exceeded the incremental
cost of that flying. Overall, daily departures from Las Vegas, which were as high as 141
during September 2007, have been reduced to 81, and will decrease further to approximately
77 by the end of 2008 as aircraft are retired from our fleet.
 New Revenue Initiatives
  Cost Control
  
    
    Employee Reduction: As a result of the reduced flying, we required approximately 2,200
fewer positions across the system, including approximately 300 pilots, 400 flight
attendants, 800 airport employees, and 700 non-union administrative management and staff.
These headcount reductions were implemented during the third quarter of 2008 through a
combination of voluntary and involuntary furloughs and attrition.
 
    
    Reduced Capital Expenditures: We have reduced our planned 2008 non-aircraft capital
expenditures by $90 million to $225 million, while maintaining critical operational projects
such as our Reliability, Convenience and Appearance initiative, which includes cabin
refurbishments, improved and additional check-in kiosks, airport club refurbishments,
facility upgrades, new gate reading technology and the completion of our next generation
website.
 
    
    Certain Facilities Closed: The US Airways Club in the Baltimore/Washington International
Airport, arrivals lounges in Munich, Rome and Zurich, and cargo stations in Burbank,
Colorado Springs and Reno were closed during the third quarter of 2008.
 
    
    Reduced Partner Costs: We have revised our wholesale programs for cruise lines, tour
operators and consolidators, which
included the reduction of the number of agency partners, decreased discounts, tighter
restrictions on travel rules, and a reduction in commissions.
  33




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##### Table of Contents



Liquidity
  
    
    In August 2008, we completed an underwritten public stock offering of 19 million common
 shares, as well as the full exercise of 2.85 million common shares included in an
overallotment option, at an offering price of $8.50 per share. Net proceeds from the
offering, after underwriting discounts and commissions, were $179 million. We plan to use
the proceeds from the offering for general corporate purposes.
 
    
    On October 23, 2008, we announced that as part of a comprehensive liquidity program
launched in mid-August, we have raised approximately $950 million of financing and near-term
liquidity commitments. On October 20, 2008, we closed on $800 million of these transactions
with $400 million of proceeds used to prepay our $1.6 billion credit facility administered by
Citicorp North America. In exchange for this prepayment, the unrestricted cash covenant
contained in the Citicorp credit facility has been reduced from $1.25 billion to $850 million.
The credit facilitys term remains the same at seven years with substantially all of the
remaining principal amount payable at maturity in March 2014. The remaining proceeds from
these financing transactions, approximately $370 million after payment of certain bank and
other service fees, increase our total cash position and will be used for general corporate
purposes. The remaining $150 million of liquidity commitments are expected to close during the
fourth quarter, with cash benefits realized through 2009.
 Current Financial Results and Outlook
    34




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##### Table of Contents



Customer Service
   2008
    
    
    2007
    
    
    Percent Change 2008-2007July
    
    
    August
    
    
    September
    
    
    July
    
    
    August
    
    
    September
    
    
    July
    
    
    August
    
    
    SeptemberOn-time performance (a)
    
    
    78.3
    
    
    
    80.8
    
    
    
    84.1
    
    
    
    66.3
    
    
    
    69.3
    
    
    
    80.1
    
    
    
    18.1
    
    
    
    16.6
    
    
    
    5.0Completion factor (b)
    
    
    98.3
    
    
    
    98.2
    
    
    
    98.8
    
    
    
    98.1
    
    
    
    98.4
    
    
    
    99.2
    
    
    
    0.2
    
    
    
    (0.2
    )
    
    
    (0.4
    )Mishandled baggage (c)
    
    
    4.22
    
    
    
    4.09
    
    
    
    3.09
    
    
    
    9.89
    
    
    
    9.61
    
    
    
    5.84
    
    
    
    (57.3
    )
    
    
    (57.4
    )
    
    
    (47.1
    )Customer complaints (d)
    
    
    2.16
    
    
    
    2.45
    
    
    
    2.39
    
    
    
    4.97
    
    
    
    4.42
    
    
    
    2.13
    
    
    
    (56.5
    )
    
    
    (44.6
    )
    
    
    12.2
 
 (a)
    
    Percentage of reported flight operations arriving on time as defined by the DOT.(b)
    
    Percentage of scheduled flight operations completed.(c)
    
    Rate of mishandled baggage reports per 1,000 passengers.(d)
    
    Rate of customer complaints filed with the DOT per 100,000 passengers.   35




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##### Table of Contents



US Airways Groups Results of Operations
       36




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##### Table of Contents



Three Months Ended
    
    
    Percent
    
    
    Nine Months Ended
    
    
    PercentSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2008
    
    
    2007
    
    
    2008-2007
    
    
    2008
    
    
    2007
    
    
    2008-2007Revenue passenger miles (millions) (a)
    
    
    16,270
    
    
    
    16,395
    
    
    
    (0.8
    )
    
    
    46,952
    
    
    
    47,106
    
    
    
    (0.3
    )Available seat miles (millions) (b)
    
    
    19,402
    
    
    
    19,669
    
    
    
    (1.4
    )
    
    
    57,124
    
    
    
    57,748
    
    
    
    (1.1
    )Passenger load factor (percent) (c)
    
    
    83.9
    
    
    
    83.4
    
    
    0.5
    pts
    
    
    82.2
    
    
    
    81.6
    
    
    0.6
    ptsYield (cents) (d)
    
    
    13.50
    
    
    
    13.01
    
    
    
    3.8
    
    
    
    13.56
    
    
    
    13.23
    
    
    
    2.4Passenger revenue per available seat mile (cents) (e)
    
    
    11.32
    
    
    
    10.85
    
    
    
    4.4
    
    
    
    11.14
    
    
    
    10.79
    
    
    
    3.2Operating cost per available seat mile (cents) (f)
    
    
    16.01
    
    
    
    11.11
    
    
    
    44.1
    
    
    
    14.67
    
    
    
    11.07
    
    
    
    32.5Passenger enplanements (thousands) (g)
    
    
    14,068
    
    
    
    14,962
    
    
    
    (6.0
    )
    
    
    42,014
    
    
    
    44,317
    
    
    
    (5.2
    )Departures (thousands)
    
    
    124.7
    
    
    
    131.6
    
    
    
    (5.3
    )
    
    
    377.6
    
    
    
    397.6
    
    
    
    (5.0
    )Aircraft at end of period
    
    
    358
    
    
    
    359
    
    
    
    (0.3
    )
    
    
    358
    
    
    
    359
    
    
    
    (0.3
    )Block hours (thousands) (h)
    
    
    331.8
    
    
    
    340.1
    
    
    
    (2.4
    )
    
    
    996.4
    
    
    
    1,019.8
    
    
    
    (2.3
    )Average stage length (miles) (i)
    
    
    986
    
    
    
    945
    
    
    
    4.4
    
    
    
    965
    
    
    
    929
    
    
    
    3.9Average passenger journey (miles) (j)
    
    
    1,645
    
    
    
    1,558
    
    
    
    5.5
    
    
    
    1,583
    
    
    
    1,505
    
    
    
    5.1Fuel consumption (gallons in millions)
    
    
    297.3
    
    
    
    311.3
    
    
    
    (4.5
    )
    
    
    881.9
    
    
    
    909.8
    
    
    
    (3.1
    )Average aircraft fuel price including related taxes
(dollars per gallon)
    
    
    3.73
    
    
    
    2.22
    
    
    
    68.0
    
    
    
    3.42
    
    
    
    2.09
    
    
    
    63.9Full time equivalent employees at end of period
    
    
    32,779
    
    
    
    34,321
    
    
    
    (4.5
    )
    
    
    32,779
    
    
    
    34,321
    
    
    
    (4.5
    )
 
 (a)
    
    Revenue passenger mile (RPM)  A basic measure of sales volume. A RPM represents one
passenger flown one mile.(b)
    
    Available seat mile (ASM)  A basic measure of production. An ASM represents one seat flown
one mile.(c)
    
    Passenger load factor  The percentage of available seats that are filled with revenue
passengers.(d)
    
    Yield  A measure of airline revenue derived by dividing passenger revenue by revenue
passenger miles and expressed in cents per mile.(e)
    
    Passenger revenue per available seat mile (PRASM)  Total passenger revenues divided by
total available seat miles.(f)
    
    Operating cost per available seat mile (CASM)  Total mainline operating expenses divided
by total available seat miles.(g)
    
    Passenger enplanements  The number of passengers on board an aircraft including local,
connecting and through passengers.(h)
    
    Block hours  The hours measured from the moment an aircraft first moves under its own power,
including taxi time, for the purposes of flight until the aircraft is docked at the next point
of landing and its power is shut down.(i)
    
    Average stage length  The average of the distances flown on each segment of every route.(j)
    
    Average passenger journey  The average one-way trip measured in miles for one passenger
origination.  37




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##### Table of Contents



Three Months Ended September 30, 2008
Compared with the
Three Months Ended September 30, 2007
 Operating Revenues:
 Percent2008
    
    
    2007
    
    
    Change(In millions)Operating revenues:Mainline passenger
    
    $
    2,197
    
    
    $
    2,133
    
    
    
    3.0Express passenger
    
    
    771
    
    
    
    692
    
    
    
    11.3Cargo
    
    
    37
    
    
    
    32
    
    
    
    14.8Other
    
    
    256
    
    
    
    179
    
    
    
    43.4Total operating revenues
    
    $
    3,261
    
    
    $
    3,036
    
    
    
    7.4
     38




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##### Table of Contents



Operating Expenses:
 Percent2008
    
    
    2007
    
    
    Change(In millions)Operating expenses:Aircraft fuel and related taxes
    
    $
    1,110
    
    
    $
    692
    
    
    
    60.4Loss (gain) on fuel hedging instruments, net:Realized
    
    
    (68
    )
    
    
    (20
    )
    
    nmUnrealized
    
    
    488
    
    
    
    (13
    )
    
    nmSalaries and related costs
    
    
    567
    
    
    
    555
    
    
    
    2.1Aircraft rent
    
    
    183
    
    
    
    182
    
    
    
    0.3Aircraft maintenance
    
    
    188
    
    
    
    144
    
    
    
    30.8Other rent and landing fees
    
    
    137
    
    
    
    141
    
    
    
    (2.5
    )Selling expenses
    
    
    120
    
    
    
    116
    
    
    
    3.7Special items, net
    
    
    8
    
    
    
    17
    
    
    
    (51.5
    )Depreciation and amortization
    
    
    52
    
    
    
    47
    
    
    
    12.8Other
    
    
    321
    
    
    
    324
    
    
    
    (1.6
    )Total mainline operating expenses
    
    
    3,106
    
    
    
    2,185
    
    
    
    42.1Express expenses:Fuel
    
    
    349
    
    
    
    199
    
    
    
    75.4Other
    
    
    495
    
    
    
    450
    
    
    
    9.9Total Express expenses
    
    
    844
    
    
    
    649
    
    
    
    30.0Total operating expenses
    
    $
    3,950
    
    
    $
    2,834
    
    
    
    39.4
   Percent2008
    
    
    2007
    
    
    Change(In cents)Mainline CASM:Aircraft fuel and related taxes
    
    
    5.72
    
    
    
    3.52
    
    
    
    62.6Loss (gain) on fuel hedging instruments, net
    
    
    2.17
    
    
    
    (0.17
    )
    
    nmSalaries and related costs
    
    
    2.92
    
    
    
    2.82
    
    
    
    3.5Aircraft rent
    
    
    0.94
    
    
    
    0.93
    
    
    
    1.7Aircraft maintenance
    
    
    0.97
    
    
    
    0.73
    
    
    
    32.6Other rent and landing fees
    
    
    0.71
    
    
    
    0.72
    
    
    
    (1.2
    )Selling expenses
    
    
    0.62
    
    
    
    0.59
    
    
    
    5.1Special items, net
    
    
    0.04
    
    
    
    0.09
    
    
    
    (50.8
    )Depreciation and amortization
    
    
    0.27
    
    
    
    0.24
    
    
    
    14.3Other
    
    
    1.65
    
    
    
    1.64
    
    
    
    (0.2
    )Total mainline CASM
    
    
    16.01
    
    
    
    11.11
    
    
    
    44.1
  
    
    Aircraft fuel and related taxes per ASM increased 62.6% due primarily to a 68% increase
in the average price per gallon of fuel to a record high $3.73 in the third quarter of 2008
from $2.22 in the 2007 period.
 
    
    Loss (gain) on fuel hedging instruments, net per ASM fluctuated from a gain of 0.17 cents
in the third quarter of 2007 to a loss
of 2.17 cents in the third quarter of 2008. The net loss in the 2008 period is the result of
unrealized losses of $488 million due to the significant decrease in the price of oil in
September 2008, which required that we reverse mark-to-market gains recognized in prior
periods.
  39




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##### Table of Contents




    
    Aircraft maintenance expense per ASM increased 32.6% due principally to increases in the
number of engine and landing gear overhauls performed in the 2008 period as compared to the
2007 period.
 
    
    Depreciation and amortization expense per ASM increased 14.3% due primarily to an
increase in depreciation of owned aircraft as a result of the acquisition of three Embraer
190 aircraft subsequent to the third quarter of 2007, 13 Embraer 190 aircraft in the first
nine months of 2008 and three Airbus A321 aircraft in the third quarter of 2008.
  Nonoperating Income (Expense):
 Percent2008
    
    
    2007
    
    
    Change(In millions)Nonoperating income (expense):Interest income
    
    $
    19
    
    
    $
    43
    
    
    
    (56.3
    )Interest expense, net
    
    
    (57
    )
    
    
    (66
    )
    
    
    (13.9
    )Other, net
    
    
    (135
    )
    
    
    2
    
    
    nmTotal nonoperating expense, net
    
    $
    (173
    )
    
    $
    (21
    )
    
    nm
    40




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##### Table of Contents



Nine Months Ended September 30, 2008
Compared with the
Nine Months Ended September 30, 2007
 Operating Revenues:
 Percent2008
    
    
    2007
    
    
    Change(In millions)Operating revenues:Mainline passenger
    
    $
    6,364
    
    
    $
    6,233
    
    
    
    2.1Express passenger
    
    
    2,230
    
    
    
    2,039
    
    
    
    9.4Cargo
    
    
    111
    
    
    
    102
    
    
    
    8.3Other
    
    
    652
    
    
    
    550
    
    
    
    18.7Total operating revenues
    
    $
    9,357
    
    
    $
    8,924
    
    
    
    4.9
     41




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##### Table of Contents



Operating Expenses:
 Percent2008
    
    
    2007
    
    
    Change(In millions)Operating expenses:Aircraft fuel and related taxes
    
    $
    3,018
    
    
    $
    1,900
    
    
    
    58.9Loss (gain) on fuel hedging instruments, net:Realized
    
    
    (342
    )
    
    
    17
    
    
    nmUnrealized
    
    
    262
    
    
    
    (128
    )
    
    nmSalaries and related costs
    
    
    1,701
    
    
    
    1,659
    
    
    
    2.5Aircraft rent
    
    
    544
    
    
    
    542
    
    
    
    0.3Aircraft maintenance
    
    
    601
    
    
    
    479
    
    
    
    25.5Other rent and landing fees
    
    
    424
    
    
    
    408
    
    
    
    4.1Selling expenses
    
    
    340
    
    
    
    347
    
    
    
    (1.9
    )Special items, net
    
    
    67
    
    
    
    83
    
    
    
    (19.0
    )Depreciation and amortization
    
    
    159
    
    
    
    137
    
    
    
    16.3Goodwill impairment
    
    
    622
    
    
    
    
    
    
    nmOther
    
    
    982
    
    
    
    952
    
    
    
    3.2Total mainline operating expenses
    
    
    8,378
    
    
    
    6,396
    
    
    
    31.0Express expenses:Fuel
    
    
    938
    
    
    
    539
    
    
    
    73.8Other
    
    
    1,462
    
    
    
    1,382
    
    
    
    5.8Total Express expenses
    
    
    2,400
    
    
    
    1,921
    
    
    
    24.9Total operating expenses
    
    $
    10,778
    
    
    $
    8,317
    
    
    
    29.6
    Percent2008
    
    
    2007
    
    
    Change(In cents)Mainline CASM:Aircraft fuel and related taxes
    
    
    5.28
    
    
    
    3.29
    
    
    
    60.6Gain on fuel hedging instruments, net
    
    
    (0.14
    )
    
    
    (0.19
    )
    
    
    (27.2
    )Salaries and related costs
    
    
    2.98
    
    
    
    2.87
    
    
    
    3.6Aircraft rent
    
    
    0.95
    
    
    
    0.94
    
    
    
    1.4Aircraft maintenance
    
    
    1.05
    
    
    
    0.83
    
    
    
    26.9Other rent and landing fees
    
    
    0.74
    
    
    
    0.71
    
    
    
    5.2Selling expenses
    
    
    0.60
    
    
    
    0.60
    
    
    
    Special items, net
    
    
    0.12
    
    
    
    0.14
    
    
    
    (18.1
    )Depreciation and amortization
    
    
    0.28
    
    
    
    0.24
    
    
    
    17.6Goodwill impairment
    
    
    1.09
    
    
    
    
    
    
    nmOther
    
    
    1.72
    
    
    
    1.64
    
    
    
    4.3Total Mainline CASM
    
    
    14.67
    
    
    
    11.07
    
    
    
    32.5
  42




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##### Table of Contents




    
    Aircraft fuel and related taxes per ASM increased 60.6% due primarily to a 63.9% increase
in the average price per gallon of fuel to a record high $3.42 in the first nine months of
2008 from $2.09 in 2007 period.
    
    Gain on fuel hedging instruments, net per ASM decreased from a gain of 0.19 cents in the
first nine months of 2007 to a gain of 0.14 cents in the first nine months of 2008. The net
gain in the 2008 period is the result of realized gains of $342 million due to the
settlement of fuel hedge transactions in the period, offset by unrealized losses on open
fuel hedge transactions of $262 million. During the 2008 period, we recognized gains from
the effectiveness of our fuel hedging program in the first half of 2008; however, the
significant decline in the price of oil in September 2008 required the reversal of
mark-to-market gains recognized in prior periods during the third quarter of 2008.
    
    Aircraft maintenance expense per ASM increased 26.9% due principally to increases in the
number of engine and landing gear overhauls performed in the 2008 period as compared to the
2007 period.
    
    Depreciation and amortization expense per ASM increased 17.6% due primarily to an
increase in depreciation of owned aircraft as a result of the acquisition of three Embraer
190 aircraft subsequent to the third quarter of 2007, 13 Embraer 190 aircraft in the first
nine months of 2008 and three Airbus A321 aircraft in the third quarter of 2008.
  Nonoperating Income (Expense):
 Percent2008
    
    
    2007
    
    
    Change(In millions)Nonoperating income (expense):Interest income
    
    $
    69
    
    
    $
    131
    
    
    
    (47.8
    )Interest expense, net
    
    
    (173
    )
    
    
    (206
    )
    
    
    (15.9
    )Other, net
    
    
    (140
    )
    
    
    (11
    )
    
    nmTotal nonoperating expense, net
    
    $
    (244
    )
    
    $
    (86
    )
    
    nm
    43




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##### Table of Contents



US Airways Results of Operations
       44




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##### Table of Contents



Three Months Ended
    
    
    Percent
    
    
    Nine Months Ended
    
    
    PercentSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2008
    
    
    2007
    
    
    2008-2007
    
    
    2008
    
    
    2007
    
    
    2008-2007Revenue passenger miles (millions) (a)
    
    
    16,270
    
    
    
    16,395
    
    
    
    (0.8
    )
    
    
    46,952
    
    
    
    47,106
    
    
    
    (0.3
    )Available seat miles (millions) (b)
    
    
    19,402
    
    
    
    19,669
    
    
    
    (1.4
    )
    
    
    57,124
    
    
    
    57,748
    
    
    
    (1.1
    )Passenger load factor (c)
    
    
    83.9
    
    
    
    83.4
    
    
    0.5
    pts
    
    
    82.2
    
    
    
    81.6
    
    
    0.6
    ptsYield (d)
    
    
    13.50
    
    
    
    13.01
    
    
    
    3.8
    
    
    
    13.56
    
    
    
    13.23
    
    
    
    2.4Passenger
revenue per available seat mile
(e)
    
    
    11.32
    
    
    
    10.85
    
    
    
    4.4
    
    
    
    11.14
    
    
    
    10.79
    
    
    
    3.2Aircraft at end of period
    
    
    358
    
    
    
    359
    
    
    
    (0.3
    )
    
    
    358
    
    
    
    359
    
    
    
    (0.3
    )
 
 (a)
    
    Revenue passenger mile (RPM)  A basic measure of sales volume. A RPM represents one
passenger flown one mile.(b)
    
    Available seat mile (ASM)  A basic measure of production. An ASM represents one seat flown
one mile.(c)
    
    Passenger load factor  The percentage of available seats that are filled with revenue
passengers.(d)
    
    Yield  A measure of airline revenue derived by dividing passenger revenue by revenue
passenger miles and expressed in cents per mile.(e)
    
    Passenger revenue per available seat mile (PRASM)  Total passenger revenues divided by
total available seat miles.  45




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Three Months Ended September 30, 2008
Compared with the
Three Months Ended September 30, 2007
 Operating Revenues:
 Percent2008
    
    
    2007
    
    
    Change(In millions)Operating revenues:Mainline passenger
    
    $
    2,197
    
    
    $
    2,133
    
    
    
    3.0Express passenger
    
    
    771
    
    
    
    692
    
    
    
    11.3Cargo
    
    
    37
    
    
    
    32
    
    
    
    14.8Other
    
    
    288
    
    
    
    208
    
    
    
    38.9Total operating revenues
    
    $
    3,293
    
    
    $
    3,065
    
    
    
    7.4
     46




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Operating Expenses:
 Percent2008
    
    
    2007
    
    
    Change(In millions)Operating expenses:Aircraft fuel and related taxes
    
    $
    1,110
    
    
    $
    692
    
    
    
    60.4Loss (gain) on fuel hedging instruments, net:Realized
    
    
    (68
    )
    
    
    (20
    )
    
    nmUnrealized
    
    
    488
    
    
    
    (13
    )
    
    nmSalaries and related costs
    
    
    567
    
    
    
    555
    
    
    
    2.1Aircraft rent
    
    
    183
    
    
    
    182
    
    
    
    0.3Aircraft maintenance
    
    
    188
    
    
    
    144
    
    
    
    30.8Other rent and landing fees
    
    
    137
    
    
    
    141
    
    
    
    (2.5
    )Selling expenses
    
    
    120
    
    
    
    116
    
    
    
    3.7Special items, net
    
    
    8
    
    
    
    17
    
    
    
    (51.5
    )Depreciation and amortization
    
    
    55
    
    
    
    49
    
    
    
    12.2Other
    
    
    321
    
    
    
    322
    
    
    
    (0.4
    )Total mainline operating expenses
    
    
    3,109
    
    
    
    2,185
    
    
    
    42.3Express expenses:Fuel
    
    
    349
    
    
    
    199
    
    
    
    75.4Other
    
    
    523
    
    
    
    479
    
    
    
    9.2Total Express expenses
    
    
    872
    
    
    
    678
    
    
    
    28.6Total operating expenses
    
    $
    3,981
    
    
    $
    2,863
    
    
    
    39.1
   
    
    Aircraft fuel and related taxes increased 60.4% due primarily to a 68% increase in the
average price per gallon of fuel to a record high $3.73 in the third quarter of 2008 from
$2.22 in the 2007 period.
    
    Loss (gain) on fuel hedging instruments, net fluctuated from a gain of $33 million in the
third quarter of 2007 to a loss of $420 million in the third quarter of 2008. The net loss
in the 2008 period is the result of unrealized losses of $488 million due to the significant
decrease in the price of oil in September 2008, which required that US Airways reverse
mark-to-market gains recognized in prior periods.
    
    Aircraft maintenance expense increased 30.8% due principally to increases in the number
of engine and landing gear overhauls performed in the 2008 period as compared to the 2007
period.
    
    Depreciation and amortization expense increased 12.2% due primarily to an increase in
depreciation of owned aircraft as a result of the acquisition of three Embraer 190 aircraft
subsequent to the third quarter of 2007, 13 Embraer 190 aircraft in the first nine months of
2008 and three Airbus A321 aircraft in the third quarter of 2008.
   47




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Nonoperating Income (Expense):
 Percent2008
    
    
    2007
    
    
    Change(In millions)Nonoperating income (expense):Interest income
    
    $
    19
    
    
    $
    43
    
    
    
    (56.7
    )Interest expense, net
    
    
    (48
    )
    
    
    (55
    )
    
    
    (13.1
    )Other, net
    
    
    (135
    )
    
    
    2
    
    
    nmTotal nonoperating expense, net
    
    $
    (164
    )
    
    $
    (10
    )
    
    nm
    48




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Nine Months Ended September 30, 2008
Compared with the
Nine Months Ended September 30, 2007
 Operating Revenues:
 Percent2008
    
    
    2007
    
    
    Change(In millions)Operating revenues:Mainline passenger
    
    $
    6,364
    
    
    $
    6,233
    
    
    
    2.1Express passenger
    
    
    2,230
    
    
    
    2,039
    
    
    
    9.4Cargo
    
    
    111
    
    
    
    102
    
    
    
    8.3Other
    
    
    742
    
    
    
    637
    
    
    
    16.5Total operating revenues
    
    $
    9,447
    
    
    $
    9,011
    
    
    
    4.8
     49




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Operating Expenses:
 Percent2008
    
    
    2007
    
    
    Change(In millions)Operating expenses:Aircraft fuel and related taxes
    
    $
    3,018
    
    
    $
    1,900
    
    
    
    58.9Loss (gain) on fuel hedging instruments, net:Realized
    
    
    (342
    )
    
    
    17
    
    
    nmUnrealized
    
    
    262
    
    
    
    (128
    )
    
    nmSalaries and related costs
    
    
    1,701
    
    
    
    1,659
    
    
    
    2.5Aircraft rent
    
    
    544
    
    
    
    542
    
    
    
    0.3Aircraft maintenance
    
    
    601
    
    
    
    479
    
    
    
    25.5Other rent and landing fees
    
    
    424
    
    
    
    408
    
    
    
    4.1Selling expenses
    
    
    340
    
    
    
    347
    
    
    
    (1.9
    )Special items, net
    
    
    67
    
    
    
    83
    
    
    
    (18.9
    )Depreciation and amortization
    
    
    166
    
    
    
    143
    
    
    
    15.5Goodwill impairment
    
    
    622
    
    
    
    
    
    
    nmOther
    
    
    977
    
    
    
    937
    
    
    
    4.2Total mainline operating expenses
    
    
    8,380
    
    
    
    6,387
    
    
    
    31.2Express expenses:Fuel
    
    
    938
    
    
    
    539
    
    
    
    74.0Other
    
    
    1,547
    
    
    
    1,458
    
    
    
    6.2Total Express expenses
    
    
    2,485
    
    
    
    1,997
    
    
    
    24.4Total operating expenses
    
    $
    10,865
    
    
    $
    8,384
    
    
    
    29.6
  non-union
  
    
    Aircraft fuel and related taxes increased 58.9% due primarily to a 63.9% increase in the
average price per gallon of fuel to a record high $3.42 in the first nine months of 2008
from $2.09 in the 2007 period.
    
    Loss (gain) on fuel hedging instruments, net decreased from a gain of $111 million in the
first nine months of 2007 to a gain of $80 million in the first nine months of 2008. The net
gain in the 2008 period is the result of realized gains of $342 million due to the
settlement of fuel hedge transactions in the period, offset by unrealized losses on open
fuel hedge transactions of $262 million. During the 2008 period, US Airways recognized gains
from the effectiveness of its fuel hedging program in the first half of 2008; however, the
significant decline in the price of oil in September 2008 required the reversal of
mark-to-market gains recognized in prior periods during the third quarter of 2008.
    
    Aircraft maintenance expense increased 25.5% due principally to increases in the number
of engine and landing gear overhauls performed in the 2008 period as compared to the 2007
period.
    
    Depreciation and amortization expense increased 15.5% due primarily to an increase in
depreciation of owned aircraft as a result of the acquisition of three Embraer 190 aircraft
subsequent to the third quarter of 2007, 13 Embraer 190 aircraft in the first nine months of
2008 and three Airbus A321 aircraft in the third quarter of 2008.
  50




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Nonoperating Income (Expense):
 Percent2008
    
    
    2007
    
    
    Change(In millions)Nonoperating income (expense):Interest income
    
    $
    68
    
    
    $
    131
    
    
    
    (47.9
    )Interest expense, net
    
    
    (146
    )
    
    
    (174
    )
    
    
    (15.9
    )Other, net
    
    
    (140
    )
    
    
    6
    
    
    nmTotal nonoperating expense, net
    
    $
    (218
    )
    
    $
    (37
    )
    
    nm
    51




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Liquidity and Capital Resources
  Investments in Marketable Securities
         52




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Derivative instruments
   non-performance
   Sources and Uses of Cash
 US Airways Group
   53




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US Airways
     54




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Commitments
  Citicorp Credit Facility
      Credit Card Processing Agreements
   55




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Other
2008 Financing Transactions
            Aircraft and Engine Purchase Commitments
       56




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Covenants and Credit Rating
   S&P
    
    Fitch
    
    MoodysCorporate
    
    Senior Unsecured
    
    Long-term Issuer
    
    Senior Unsecured
    
    Corporatecredit rating
    
    credit rating
    
    credit rating
    
    credit rating
    
    Family ratingUS Airways Group
    
    B-
    
    CCC
    
    CCC
    
    CC
    
    Caa1US Airways
    
    B-
    
    *
    
    *
    
    *
    
    *
 (*)
    
    The credit agencies do not rate these categories for US Airways.  Off-Balance Sheet Arrangements
   Pass Through Trusts
    57




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Contractual Obligations
  Payments Due by Period2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter
    
    
    TotalUS Airways Group (1)Debt (2)
    
    $
    
    
    
    $
    16
    
    
    $
    16
    
    
    $
    16
    
    
    $
    16
    
    
    $
    1,594
    
    
    $
    1,658Interest obligations (3)
    
    
    26
    
    
    
    103
    
    
    
    102
    
    
    
    101
    
    
    
    100
    
    
    
    179
    
    
    
    611Aircraft related and other commitments
    
    
    44
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79US Airways (4)Debt and capital lease obligations (5) (6)
    
    
    29
    
    
    
    210
    
    
    
    127
    
    
    
    143
    
    
    
    150
    
    
    
    1,408
    
    
    
    2,067Interest obligations (3) (6)
    
    
    32
    
    
    
    122
    
    
    
    112
    
    
    
    103
    
    
    
    94
    
    
    
    374
    
    
    
    837Aircraft purchase and operating lease commitments (7)
    
    
    349
    
    
    
    2,286
    
    
    
    2,249
    
    
    
    2,101
    
    
    
    1,547
    
    
    
    5,957
    
    
    
    14,489Regional capacity purchase agreements (8)
    
    
    254
    
    
    
    1,023
    
    
    
    1,041
    
    
    
    1,059
    
    
    
    922
    
    
    
    3,285
    
    
    
    7,584Other US Airways Group subsidiaries (9)
    
    
    3
    
    
    
    7
    
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    15Total
    
    $
    737
    
    
    $
    3,802
    
    
    $
    3,649
    
    
    $
    3,524
    
    
    $
    2,830
    
    
    $
    12,798
    
    
    $
    27,340
 
 (1)
    
    These commitments represent those specifically entered into by US Airways Group or joint
commitments entered into by US Airways Group and US Airways under which each entity is jointly
and severally liable.(2)
    
    Includes $74 million aggregate principal amount of 7% senior convertible notes due 2020
issued by US Airways Group and the $1.6 billion Citicorp credit facility due March 23, 2014.(3)
    
    For variable-rate debt, future interest obligations are shown above using interest rates in
effect as of September 30, 2008.(4)
    
    Commitments listed separately under US Airways and its wholly owned subsidiaries represent
commitments under agreements entered into separately by those companies.(5)
    
    Excludes $111 million of unamortized debt discount as of September 30, 2008.(6)
    
    Includes $540 million of future principal payments and $270 million of future interest
payments as of September 30, 2008, respectively, related to pass through trust certificates or
EETCs associated with mortgage financings for the purchase of certain aircraft as described
above under Off-Balance Sheet Arrangements and in Note 12 to US Airways Groups and US
Airways condensed consolidated financial statements in Item 1A and 1B of this report,
respectively.(7)
    
    Includes $3.59 billion of future minimum lease payments related to EETC leveraged leased
financings of certain aircraft as of September 30, 2008, as described above under Off-Balance
Sheet Arrangements and in Note 12 to US Airways Groups and US Airways condensed
consolidated financial statements in Item 1A and 1B of this Form 10-Q, respectively.(8)
    
    Represents minimum payments under capacity purchase agreements with third-party Express
carriers.(9)
    
    Represents operating lease commitments entered into by US Airways Groups other airline
subsidiaries Piedmont and PSA.   58




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Critical Accounting Policies and Estimates
  Impairment of Goodwill
      GoodwillBalance at December 31, 2007
    
    $
    622Impairment charge
    
    
    (622
    )Balance at September 30, 2008
    
    $
    
  59




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Impairment of Intangible Assets
  Impairment of Other Assets
  long-lived
 Investments in Marketable Securities
       60




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61




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Recent Accounting Pronouncements
       62




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share-based
 "
  63




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk Sensitive Instruments
  Commodity price risk
      Interest rate risk
   64




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65




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Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  Changes in internal control over financial reporting.
  Limitation on the effectiveness of controls.
   66




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Part II. Other Information
 
 Item 1. Legal Proceedings
 post-bankruptcy
 
 Item 1A. Risk Factors
  Risk Factors Relating to the Company and Industry Related Risks
 US Airways Group could experience significant operating losses in the future.
  Increased costs of financing and fluctuations in interest rates could adversely affect our
liquidity, operating expenses and results.
   Our business may be adversely affected by a downturn in economic conditions that can result in
decreased demand for air travel.
   67




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Our high level of fixed obligations limits our ability to fund general corporate requirements and
obtain additional financing, limits our flexibility in responding to competitive developments and
increases our vulnerability to adverse economic and industry conditions.
  
    
    A decrease in revenues results in a disproportionately greater percentage decrease in
earnings.
    
    We may not have sufficient liquidity to fund all of these fixed costs if our revenues
decline or costs increase.
    
    We may have to use our working capital to fund these fixed costs instead of funding
general corporate requirements, including capital expenditures.
    
    We may not have sufficient liquidity to respond to competitive developments and adverse
economic conditions.
   If our financial condition worsens, provisions in our credit card processing and other commercial
agreements may adversely affect our liquidity.
  Union disputes, employee strikes and other labor-related disruptions may adversely affect our
operations.
 multi-stage
  68




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Our business is dependent on the price and availability of aircraft fuel. Continued periods of high
fuel costs, significant disruptions in the supply of aircraft fuel or sharp drops in fuel prices
could have a significant negative impact on our operating results and liquidity.
     If we incur problems with any of our third party service providers, our operations could be
adversely affected by a resulting decline in revenue or negative public perception about our
services.
  We rely heavily on automated systems to operate our business and any failure or disruption of
these systems could harm our business.
  Changes to our business model that are designed to increase revenues may not be successful and may
cause operational difficulties or decreased demand.
   69




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Industry consolidation could weaken our competitive position.
 post-combination
 The airline industry is intensely competitive and dynamic.
   The loss of key personnel upon whom we depend to operate our business or the inability to attract
additional qualified personnel could adversely affect the results of our operations or our
financial performance.
  The travel industry continues to face ongoing security concerns.
  Changes in government regulation could increase our operating costs and limit our ability to
conduct our business.
   70




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The inability to maintain labor costs at competitive levels could harm our financial performance.
   Our ability to operate and grow our route network in the future is dependent on the availability
of adequate facilities and infrastructure throughout our system.
  We are subject to many forms of environmental regulation and may incur substantial costs as a
result.
     71




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locally-imposed
 Ongoing data security compliance requirements could increase our costs, and any significant data
breach could harm our business, financial condition or results of operations.
    Interruptions or disruptions in service at one of our hub airports could have a material adverse
impact on our operations.
  We are at risk of losses and adverse publicity stemming from any accident involving any of our
aircraft.
   72




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Delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity may adversely
impact our operations and financial results.
  Increases in insurance costs or reductions in insurance coverage may adversely impact our
operations and financial results.
  Our business is subject to weather factors and seasonal variations in airline travel, which cause
our results to fluctuate.
  We may be adversely affected by global events that affect travel behavior.
  We are exposed to foreign currency exchange rate fluctuations.
  The use of US Airways Groups pre-merger NOLs and certain other tax attributes could be limited in
the future.
   73




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Risks Related to Our Common Stock
 Our common stock has limited trading history and its market price may be volatile.
  
    
    movements in fuel prices;
    
    our operating results failing to meet the expectations of securities analysts or
investors;
    
    changes in financial estimates or recommendations by securities analysts;
    
    material announcements by us or our competitors;
    
    new regulatory pronouncements and changes in regulatory guidelines;
    
    general and industry-specific economic conditions;
    
    public sales of a substantial number of shares of our common stock; and
    
    general market conditions.
 Conversion of our convertible notes will dilute the ownership interest of existing stockholders
and could adversely affect the market price of our common stock.
  Certain provisions of the amended and restated certificate of incorporation and amended and
restated bylaws of US Airways Group make it difficult for stockholders to change the composition
of our board of directors and may discourage takeover attempts that some of our stockholders might
consider beneficial.
  
    
    a classified board of directors with three-year staggered terms;
    
    advance notice procedures for stockholder proposals to be considered at stockholders
meetings;
    
    the ability of US Airways Groups board of directors to fill vacancies on the board;
    
    a prohibition against stockholders taking action by written consent;
    
    a prohibition against stockholders calling special meetings of stockholders;
    
    a requirement that holders of at least 80% of the voting power of the shares entitled to
vote in the election of directors approve amendment of the amended and restated bylaws; and
    
    super-majority voting requirements to modify or amend specified provisions of US Airways
Groups amended and restated certificate of incorporation.
  74




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Our charter documents include provisions limiting voting and ownership by foreign owners.
   75




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Item 6. Exhibits
 Exhibit No.
    
    Description10.1
    
    
    Form of Restricted Stock Unit Award Agreement under the US
Airways Group, Inc. 2008 Equity Incentive Plan (incorporated
by reference to Exhibit 10.1 to US Airways Groups Current
Report on Form 8-K filed August 7, 2008).10.2
    
    
    Form of Stock Appreciation Right Agreement under the US
Airways Group, Inc. 2008 Equity Incentive Plan (incorporated
by reference to Exhibit 10.2 to US Airways Groups Current
Report on Form 8-K filed August 7, 2008).10.3
    
    
    Amendment No. 2 to Loan Agreement, dated as of January 14,
2008, between US Airways Group, Inc., as Borrower, and
Citicorp North America, Inc., as Administrative Agent and
Collateral Agent.10.4
    
    
    Amendment No. 5 to America West Co-Branded Credit Card
Agreement, dated as of August 28, 2008, between US Airways
Group and Barclays Bank Delaware.*31.1
    
    
    Certification of US Airways Groups Chief Executive Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934, as amended.31.2
    
    
    Certification of US Airways Groups Chief Financial Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934, as amended.31.3
    
    
    Certification of US Airways Chief Executive Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934, as amended.31.4
    
    
    Certification of US Airways Chief Financial Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934, as amended.32.1
    
    
    Certification of US Airways Groups Chief Executive Officer
and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of US Airways Chief Executive Officer and
Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 
    
    Management contract or compensatory plan or arrangement.*
    
    Portions of this exhibit have been omitted under a request for confidential treatment and
filed separately with the Securities and Exchange Commission.  76




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Signatures
  US Airways Group, Inc. (Registrant)Date: October 23, 2008
    By:
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and
Chief Financial OfficerUS Airways, Inc. (Registrant)Date: October 23, 2008
    By:
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and
Chief Financial Officer  77




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Exhibit Index
 Exhibit No.
    
    Description10.1
    
    
    Form of Restricted Stock Unit Award Agreement under the US Airways Group, Inc. 2008
Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to US Airways
Groups Current Report on Form 8-K filed August 7, 2008).10.2
    
    
    Form of Stock Appreciation Right Agreement under the US Airways Group, Inc. 2008
Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to US Airways
Groups Current Report on Form 8-K filed August 7, 2008).10.3
    
    
    Amendment No. 2 to Loan Agreement, dated as of January 14, 2008, between US Airways
Group, Inc., as Borrower, and Citicorp North America, Inc., as Administrative Agent
and Collateral Agent.10.4
    
    
    Amendment No. 5 to America West Co-Branded Credit Card Agreement, dated as of
August 28, 2008, between US Airways Group and Barclays Bank Delaware.*31.1
    
    
    Certification of US Airways Groups Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended.31.2
    
    
    Certification of US Airways Groups Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended.31.3
    
    
    Certification of US Airways Chief Executive Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.31.4
    
    
    Certification of US Airways Chief Financial Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.32.1
    
    
    Certification of US Airways Groups Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of US Airways Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
    
    Management contract or compensatory plan or arrangement.*
    
    Portions of this exhibit have been omitted under a request for confidential treatment and
filed separately with the Securities and Exchange Commission.  78