##### 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
 September 30, 2005
  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 (FLAG GRAPHIC)
US Airways Group, Inc.
 
 
  America West Airlines, Inc.
 
 
 
 
  Yes þ
    
    No o
  US Airways Group, Inc.
    
    Yes þ
    
    No oAmerica West Airlines, Inc.
    
    Yes o
    
    No þ
  US Airways Group, Inc.
    
    Yes o
    
    No þAmerica West Airlines, Inc.
    
    Yes o
    
    No þ
  Yes þ
    
    No o




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##### Table of Contents



US Airways Group, Inc.
Form 10-Q
Quarterly Period Ended September 30, 2005
 Table of Contents
 PagePart I.
    
    Financial InformationItem 1A.
    
    Condensed Consolidated Financial Statements of US Airways Group, Inc.Condensed Consolidated Statements of Operations
    
    
    1Condensed Consolidated Balance Sheets
    
    
    2Condensed Consolidated Statements of Cash Flows
    
    
    3Notes to the Condensed Consolidated Financial Statements
    
    
    4Item 1B.
    
    Condensed Consolidated Financial Statements of America West Airlines, Inc.Condensed Consolidated Statements of Operations
    
    
    27Condensed Consolidated Balance Sheets
    
    
    28Condensed Consolidated Statements of Cash Flows
    
    
    29Notes to the Condensed Consolidated Financial Statements
    
    
    30Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    38Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    71Item 4.
    
    Controls and Procedures
    
    
    72Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    73Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    76Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    76Item 6.
    
    Exhibits
    
    
    76Signatures
    
    
    
    
    80Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 10.6Exhibit 10.7Exhibit 10.8Exhibit 10.9Exhibit 10.11Exhibit 31.1Exhibit 31.2Exhibit 31.3Exhibit 31.4Exhibit 32.1Exhibit 32.2




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##### Table of Contents



Part I. Financial Information
  
 Item 1A. Condensed Consolidated Financial Statements of US Airways Group, Inc.
 
 
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in millions, except share and per share amounts)Operating revenuesMainline passenger
    
    $
    704
    
    
    $
    542
    
    
    $
    1,935
    
    
    $
    1,649Express revenue
    
    
    157
    
    
    
    98
    
    
    
    392
    
    
    
    260Cargo
    
    
    9
    
    
    
    6
    
    
    
    25
    
    
    
    20Other
    
    
    56
    
    
    
    33
    
    
    
    130
    
    
    
    93Total operating revenues
    
    
    926
    
    
    
    679
    
    
    
    2,482
    
    
    
    2,022Operating expensesAircraft fuel and related taxes
    
    
    252
    
    
    
    153
    
    
    
    611
    
    
    
    416Gain on fuel hedging instruments, net
    
    
    (56
    )
    
    
    (26
    )
    
    
    (124
    )
    
    
    (36
    )Salaries and related costs
    
    
    193
    
    
    
    165
    
    
    
    542
    
    
    
    493Express expenses
    
    
    168
    
    
    
    101
    
    
    
    414
    
    
    
    264Aircraft rent
    
    
    90
    
    
    
    77
    
    
    
    248
    
    
    
    227Aircraft maintenance
    
    
    64
    
    
    
    54
    
    
    
    162
    
    
    
    157Other rent and landing fees
    
    
    48
    
    
    
    43
    
    
    
    135
    
    
    
    127Selling expenses
    
    
    48
    
    
    
    38
    
    
    
    129
    
    
    
    117Special charges, net
    
    
    84
    
    
    
    2
    
    
    
    85
    
    
    
    1Depreciation and amortization
    
    
    16
    
    
    
    13
    
    
    
    39
    
    
    
    40Other
    
    
    90
    
    
    
    69
    
    
    
    232
    
    
    
    185Total operating expenses
    
    
    997
    
    
    
    689
    
    
    
    2,473
    
    
    
    1,991Operating income (loss)
    
    
    (71
    )
    
    
    (10
    )
    
    
    9
    
    
    
    31Nonoperating income (expense)Interest income
    
    
    4
    
    
    
    2
    
    
    
    8
    
    
    
    5Interest expense, net
    
    
    (21
    )
    
    
    (20
    )
    
    
    (60
    )
    
    
    (59
    )Other, net
    
    
    1
    
    
    
    (1
    )
    
    
    3
    
    
    
    3Total nonoperating expense, net
    
    
    (16
    )
    
    
    (19
    )
    
    
    (49
    )
    
    
    (51
    )Loss before income taxes
    
    
    (87
    )
    
    
    (29
    )
    
    
    (40
    )
    
    
    (20
    )Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (87
    )
    
    $
    (29
    )
    
    $
    (40
    )
    
    $
    (20
    )Loss per common shareBasic
    
    $
    (5.04
    )
    
    $
    (1.92
    )
    
    $
    (2.51
    )
    
    $
    (1.32
    )Diluted
    
    $
    (5.04
    )
    
    $
    (1.92
    )
    
    $
    (2.51
    )
    
    $
    (1.32
    )Weighted average shares used for computation (000)Basic
    
    
    17,262
    
    
    
    14,896
    
    
    
    15,737
    
    
    
    14,845Diluted
    
    
    17,262
    
    
    
    14,896
    
    
    
    15,737
    
    
    
    14,845
  1




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September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    1,210
    
    
    $
    149Short-term investments
    
    
    168
    
    
    
    127Restricted cash
    
    
    87
    
    
    
    41Accounts receivable, net
    
    
    425
    
    
    
    109Materials and supplies, net
    
    
    206
    
    
    
    58Prepaid expenses and other
    
    
    372
    
    
    
    141Total current assets
    
    
    2,468
    
    
    
    625Property and equipmentFlight equipment
    
    
    2,892
    
    
    
    927Other property and equipment
    
    
    521
    
    
    
    291Less accumulated depreciation and amortization
    
    
    (545
    )
    
    
    (625
    )2,868
    
    
    
    593Equipment purchase deposits
    
    
    52
    
    
    
    63Net property and equipment
    
    
    2,920
    
    
    
    656Other assetsGoodwill
    
    
    584
    
    
    
    Other intangibles, net
    
    
    592
    
    
    
    Restricted cash
    
    
    702
    
    
    
    72Other assets, net
    
    
    362
    
    
    
    122Total other assets
    
    
    2,240
    
    
    
    194$
    7,628
    
    
    $
    1,475LIABILITIES & STOCKHOLDERS EQUITYCurrent liabilitiesCurrent maturities of debt and capital leases
    
    $
    244
    
    
    $
    155Accounts payable
    
    
    544
    
    
    
    174Air traffic liability
    
    
    898
    
    
    
    195Accrued compensation and vacation
    
    
    214
    
    
    
    43Accrued taxes
    
    
    199
    
    
    
    33Other accrued expenses
    
    
    743
    
    
    
    65Total current liabilities
    
    
    2,842
    
    
    
    665Noncurrent liabilities and deferred creditsLong-term debt and capital leases, net of current maturities
    
    
    2,902
    
    
    
    640Deferred credits
    
    
    219
    
    
    
    43Employee benefit liabilities and other
    
    
    758
    
    
    
    91Total noncurrent liabilities and deferred credits
    
    
    3,879
    
    
    
    774Commitments and contingenciesStockholders equityPreferred stock, $0.01 par value; 48,800,000 shares authorized, no shares issued
    
    
    
    
    
    
    Class A common stock, $0.01 par value; 1,200,000 shares authorized, 460,657
shares issued and outstanding at December 31, 2004
    
    
    
    
    
    
    Class B common stock, $0.01 par value; 100,000,000 shares authorized,
21,270,506 shares issued and outstanding at December 31, 2004
    
    
    
    
    
    
    1Common
stock, $0.01 par value; 200,000,000 shares authorized, 74,584,120 shares
outstanding at September 30, 2005
    
    
    1
    
    
    
    Additional paid-in capital
    
    
    1,234
    
    
    
    632Accumulated deficit
    
    
    (328
    )
    
    
    (289
    )Treasury
stock, Class B common stock at cost, 6,780,500 shares in 2004
    
    
    
    
    
    
    (308
    )Total stockholders equity
    
    
    907
    
    
    
    36$
    7,628
    
    
    $
    1,475
  2




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Nine Months Ended September 30,2005
    
    
    2004Net cash provided by operating activities
    
    $
    164
    
    
    $
    90Cash flows from investing activitiesPurchase of property and equipment
    
    
    (148
    )
    
    
    (126
    )Sales (purchases) of short-term investments
    
    
    (12
    )
    
    
    33Increase in restricted cash
    
    
    (22
    )
    
    
    (1
    )Acquisition of business, net of cash acquired
    
    
    305
    
    
    
    Proceeds from dispositions of assets
    
    
    74
    
    
    
    2Increase in investments in debt securities
    
    
    
    
    
    
    (20
    )Net cash
provided by (used for) for investing activities
    
    
    197
    
    
    
    (112
    )Cash flows from financing activitiesProceeds from issuance of common stock, net
    
    
    694
    
    
    
    Proceeds from issuance of debt, net
    
    
    314
    
    
    
    110Principal payments on debt and capital lease obligations
    
    
    (306
    )
    
    
    (174
    )Other
    
    
    (2
    )
    
    
    Net cash provided by (used for) financing activities
    
    
    700
    
    
    
    (64
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,061
    
    
    
    (86
    )Cash and cash equivalents at beginning of period
    
    
    149
    
    
    
    153Cash and cash equivalents at end of period
    
    $
    1,210
    
    
    $
    67Noncash investing and financing activitiesReclassification of investments in debt securities to short-term
investments
    
    $
    30
    
    
    $
    16Notes payable cancelled under the aircraft purchase agreement
    
    
    12
    
    
    
    Notes payable issued under aircraft purchase agreement
    
    
    9
    
    
    
    7Payment in kind notes issued, net of returns
    
    
    
    
    
    
    5Acquisition of shares due to loan default
    
    
    
    
    
    
    2Supplemental InformationInterest paid during the period, net of amounts capitalized
    
    $
    28
    
    
    $
    18Income taxes paid during the period
    
    
    
    
    
    
    1
  3




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US Airways Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 1. Merger with America West Holdings Corporation
   The
New Equity Investments
 Public stock offering 
 GE
Merger MOU
 
    
    The GE Merger MOU provided for continued use by US Airways Group of
certain leased Airbus, Boeing and regional jet aircraft, the
modification of monthly lease rates, and the return to GECC of
certain other leased Airbus and Boeing aircraft.
    
    GECC provided a bridge facility of approximately $56 million for
use by US Airways Group during the pendency of the Chapter 11
proceedings. US Airways paid an affiliate of General Electric (GE)
$125 million in cash on September 30, 2005 in exchange for
retirement of the bridge facility, forgiveness and release of US Airways from certain prepetition obligations, deferral of certain
payment obligations, and amendments to maintenance agreements.
    
    In June 2005, GECC purchased and immediately leased back to US Airways Group: (a) the assets securing the credit facility obtained
from GE in 2001 (the 2001 GE Credit Facility) and the liquidity
facility obtained from GE in 2003 in connection with US Airways
Groups emergence from the first bankruptcy (the 2003 GE Liquidity
Facility), and other GE obligations, consisting of 11 Airbus
aircraft and 28 spare engines and engine stands, and (b) ten
regional jet aircraft previously debt financed by GECC. The
proceeds from the sale leaseback transaction of approximately $633
million were used to pay down balances due to GE by US Airways
Group under the 2003 GE Liquidity Facility in full, the GECC
 4




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Airbus MOU
 
    
    On September 27, 2005, US Airways and AWA entered into two loan
agreements with Airbus Financial Services (AFS), as Initial Lender
and Loan Agent, Wells Fargo Bank Northwest, National Association,
as Collateral Agent, and US Airways Group, as guarantor, with
commitments in initial aggregate amounts of up to $161 million and
up to $89 million (the Airbus $161 Million Loan and the Airbus $89
Million Loan and, collectively, the Airbus Loans). The Airbus Loans
bear interest at a rate of LIBOR plus a margin, subject to
adjustment, and have been recorded as an obligation of US Airways
Group.
    
    Airbus has rescheduled US Airways Groups A320-family and A330-200
delivery commitments and has agreed to provide backstop financing
for a substantial number of aircraft, subject to certain terms and
conditions, on an order of 20 A350 aircraft. US Airways Groups
A320-family aircraft are now scheduled for delivery in 2009 and
2010. US Airways Groups A330-200 aircraft are scheduled for
delivery in 2009 and 2010 and A350 aircraft deliveries are
currently scheduled to occur beginning in 2011. The Airbus MOU also
eliminates cancellation penalties on US Airways Groups orders for
the ten A330-200 aircraft, provided that US Airways Group has met
certain predelivery payment obligations under the A350 order. In
connection with the restructuring of aircraft firm orders, US Airways Group and America West Holdings were required to pay an
aggregate non-refundable restructuring fee which was paid by means
of set-off against existing equipment purchase deposits of US Airways Group and America West Holdings held by Airbus. The US Airways Group restructuring fee of $39 million was recorded as a
reduction in the assets acquired by America West Holdings in
purchase accounting. The America West Holdings restructuring fee of
$50 million has been recorded as a special charge in the
accompanying consolidated statement of operations, along with $7
million in related capitalized interest.
 Restructuring of the ATSB Loan Guarantees
   
    
    90% of the US Airways ATSB Loan (Tranche A), the guaranteed portion of the loan, was funded
through a participating lenders commercial paper conduit program and bears interest at a rate
equal to the conduit providers weighted average cost related to the issuance of certain
commercial paper notes and other short term borrowings plus 0.30%, provided that portions of
Tranche A that are held by the ATSB or by an assignee and are no longer subject to such
commercial paper conduit program bear
 5




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interest at LIBOR plus 40 basis points, and portions of Tranche A that are under certain
circumstances assigned free of the ATSB guarantee bear interest at LIBOR plus 6.0%; and
    
    10% of the US Airways ATSB Loan (Tranche B) bears interest at the greater of the Tranche A
interest rate plus 6.0% and LIBOR plus 6.0% from a current rate of LIBOR plus 4.0%.
      New Convertible Notes 
 Restructuring of Affinity Credit Card Partner Agreement
 6




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##### Table of Contents



Restructuring of Credit Card Processing Agreement
    Asset Based Financings
 7




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US Airways Groups Emergence from Bankruptcy 
  
    
    PBGC ClaimOn November 12, 2004, US Airways filed a motion
requesting a determination from the United States Bankruptcy Court
for the Eastern District of Virginia that US Airways satisfied the financial requirements for a distress
termination of the Retirement Plan for Flight Attendants in the
Service of US Airways, Inc. (AFA Plan), the Pension Plan for
Employees of US Airways, Inc. Who Are Represented by the
International Association of Machinists and Aerospace Workers (IAM
Plan), and the Retirement Plan for Certain Employees of US Airways,
Inc. (CE Plan) under section 4041(c)(2)(B)(ii)(IV) of the Employee
Retirement Security Act of 1974, as amended (ERISA), and approval
of each such plans termination. These plans were projected to
have benefit obligations and plan assets aggregating $2.7 billion
and $1.7 billion, respectively, as of September 30, 2004, the most
recent valuation date. On January 6, 2005, the Bankruptcy Court
entered an order (i) finding that the financial requirements under
section 4041(c)(2)(B)(ii)(IV) of ERISA for a distress termination
of the plans had been met and (ii) approving termination of the
plans. The AFA Plan and the IAM Plan were terminated effective
January 10, 2005, by agreement between the Pension Benefit Guaranty
Corporation (PBGC) and US Airways. The CE Plan was terminated
effective January 17, 2005, by agreement between the PBGC and US Airways. Effective February 1, 2005, the PBGC was appointed
trustee for each of the three plans. As a result of these
terminations, the PBGC filed
claims against the Company for the unfunded portion of each of the
Plans. Under the plan of reorganization, the PBGC received, as
treatment for its claims: (i) cash in the amount of $13,500,000;
(ii) an unsecured promissory note in the principal amount of
$10,000,000 issued by US Airways and guaranteed by US Airways
Group, bearing interest at a rate of 6.00% per annum payable
annually in arrears, with such promissory note to be payable in a
single installment on the seventh anniversary of the effective date
of the plan of reorganization; and (iii) 70 percent, or 4,873,485
shares, of common stock of US Airways Group issued to the unsecured
creditors, net of the shares allocated to the Air Line Pilots
Association (ALPA).
    
    Agreements with ALPAOn September 14, 2005, US Airways Group, US Airways, America West Holdings and AWA reached agreement with the
two ALPA-represented pilot groups at the separate airlines on a
comprehensive agreement (the Transition Agreement) that will govern
many merger-related aspects of the parties relationships until
there is a single collective bargaining agreement covering all
pilots. US Airways Group and US Airways entered into a letter of
agreement which provides that US Airways pilots designated by ALPA
will receive 1.25 million shares of US Airways Group common stock
and options to purchase 1.1 million shares of US Airways Group
common stock. The 1.25 million shares are drawn from
 8




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2. Basis of Presentation
 Business
Combinations,
   9




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Change in Accounting Policy
  3. New Equity Structure and Conversion
   10




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4. Loss per Common Share
    5. Stock Options
 Accounting for Stock Issued to Employees,
 11




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Accounting for
Stock-Based Compensation,
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss, as reported
    
    $
    (87
    )
    
    $
    (29
    )
    
    $
    (40
    )
    
    $
    (20
    )Stock-based compensation expense
    
    
    (7
    )
    
    
    (2
    )
    
    
    (9
    )
    
    
    (4
    )Pro forma net loss
    
    $
    (94
    )
    
    $
    (31
    )
    
    $
    (49
    )
    
    $
    (24
    )Loss per share:Basic  as reported
    
    $
    (5.04
    )
    
    $
    (1.92
    )
    
    $
    (2.51
    )
    
    $
    (1.32
    )Basic  pro forma
    
    $
    (5.44
    )
    
    $
    (2.05
    )
    
    $
    (3.10
    )
    
    $
    (1.64
    )Diluted  as reported
    
    $
    (5.04
    )
    
    $
    (1.92
    )
    
    $
    (2.51
    )
    
    $
    (1.32
    )Diluted  pro forma
    
    $
    (5.44
    )
    
    $
    (2.05
    )
    
    $
    (3.10
    )
    
    $
    (1.64
    )
 6. Change in Method of Reporting for America West Express Results
     12




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Three Months Ended September 30, 2004As Reported
    
    
    Adjustments
    
    
    As ReclassifiedOperating revenues:Mainline passenger
    
    $
    542
    
    
    $
    
    
    
    $
    542Express revenue
    
    
    
    
    
    
    98
    (1)
    
    
    98Cargo and other
    
    
    37
    
    
    
    2
    
    
    
    39Total operating revenues
    
    $
    579
    
    
    $
    100
    
    
    $
    679Operating expenses:Operating expenses
    
    $
    589
    
    
    $
    (1
    )
    
    $
    588Express expenses
    
    
    
    
    
    
    101
    (2)
    
    
    101Total operating expenses
    
    $
    589
    
    
    $
    100
    
    
    $
    689
 Nine Months Ended September 30, 2004As Reported
    
    
    Adjustments
    
    
    As ReclassifiedOperating revenues:Mainline passenger
    
    $
    1,649
    
    
    $
    
    
    
    $
    1,649Express revenue
    
    
    
    
    
    
    260
    (3)
    
    
    260Cargo and other
    
    
    111
    
    
    
    2
    
    
    
    113Total operating revenues
    
    $
    1,760
    
    
    $
    262
    
    
    $
    2,022Operating expenses:Operating expenses
    
    $
    1,729
    
    
    $
    (2
    )
    
    $
    1,727Express expenses
    
    
    
    
    
    
    264
    (4)
    
    
    264Total operating expenses
    
    $
    1,729
    
    
    $
    262
    
    
    $
    1,991
 
 1.
    
    Reclassification of Express revenue from Operating Revenues  Other.2.
    
    Reclassification of $100 million and $1 million of Express operating
expenses from Operating Revenues  Other and Operating Expenses  Other,
respectively.3.
    
    Reclassification of Express revenue from Operating Revenues  Other.4.
    
    Reclassification of $262 million and $2 million of Express operating
expenses from Operating Revenues  Other and Operating Expenses  Other,
respectively.  13




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7. Debt, Including Capital Lease Obligations
  September 30,
    
    
    December 31,2005
    
    
    2004SecuredEquipment notes payable, variable interest rates of 5.71% to 9.01%, averaging
8.37% during quarter ended September 30, 2005
    
    $
    1,640
    
    
    $
    39US Airways ATSB Loan, variable interest rates of 3.89%, installments due
2007 through 2010 (a)
    
    
    583
    
    
    
    AWA ATSB
Loan, variable interest rate of 3.89%, installments due
2005 through 2008 (a)
    
    
    249
    
    
    
    Airbus
Loans, variable interest rates of 9.96%, installments due 2008 to 2010 (b)
    
    
    175
    
    
    
    GECC term loan, variable interest rate of 7.78%, quarterly installments beginning 2006
through 2010 (c)
    
    
    111
    
    
    
    111Slot financing, installments due through 2015(d)
    
    
    51
    
    
    
    Capital lease obligations, installments due through 2023 (e)
    
    
    45
    
    
    
    8Senior secured discount notes, variable interest rate of 7.91%, installments
due 2005 through 2009 (f)
    
    
    36
    
    
    
    36GECC facility, variable interest rate of 8.32%, installments due 2006 to
2010(g)
    
    
    28
    
    
    
    2,918
    
    
    
    194UnsecuredAWA ATSB Loan, variable interest rate of 3.89%, installments due
2005 through 2008 (a)
    
    $
    
    
    
    $
    3437% senior
convertible notes, interest only payments until due in 2020(h)
    
    
    144
    
    
    
    10
3/4 % senior unsecured notes, interest only payments until due in 2005 (i)
    
    
    
    
    
    
    407.5% convertible senior notes, interest only payments until due in 2009 (j)
    
    
    112
    
    
    
    1127.25% senior exchangeable notes, due 2023 with cash interest at 2.49%
payable through 2008 and original issue discount of 7.25% thereafter (k)
    
    
    253
    
    
    
    253Equipment notes payable, interest rates of 90-day LIBOR +1.25%, averaging
4.88%, installments due through 2005
    
    
    12
    
    
    
    16Industrial development bonds, fixed interest rate of 6.3% due 2023 (l)
    
    
    29
    
    
    
    29Note payable to PBGC, interest rate of 6%, interest only payments until due 2012
(m)
    
    
    10
    
    
    
    State loan, variable interest rate of 8.3%, installments due 2005 through 2007
    
    
    1
    
    
    
    1561
    
    
    
    794Total long-term debt and capital lease obligations
    
    
    3,479
    
    
    
    988Less: Unamortized discount on debt
    
    
    (333
    )
    
    
    (193
    )Current maturities
    
    
    (244
    )
    
    
    (155
    )$
    2,902
    
    
    $
    640
 (a)
    
    US Airways ATSB Loan
In connection with the consummation of the merger, on September 27, 2005, US Airways, as
borrower, entered into an Amended and Restated Loan Agreement (the US Airways ATSB Loan)
with the ATSB. Also on September 27, 2005, AWA entered into an Amended and Restated Loan
Agreement (the AWA ATSB Loan). The ATSB Loans amend and restate the previously outstanding
loans of both US Airways and AWA, each guaranteed in part by the ATSB.
  
    
    90% of the US Airways ATSB Loan (Tranche A), the guaranteed portion of the loan, was
funded through participating lenders commercial paper conduit program and bears
interest at a rate equal to the conduit providers weighted average cost related to the
issuance of certain commercial paper notes and other short term borrowings plus 0.30%,
provided that portions of Tranche A that are held by the ATSB or by an assignee and no
longer subject to such commercial paper conduit program bear interest at LIBOR plus 40
basis points, and portions of Tranche A that are under certain circumstances assigned
free of the ATSB guarantee bear interest at LIBOR plus 6.0%; and
 14




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##### Table of Contents




    
    10% of the US Airways ATSB Loan (Tranche B) bears interest at the greater of the
Tranche A interest rate plus 6.0% and LIBOR plus 6.0%, as compared with the previous
rate of LIBOR plus 4.0%.
  AWA ATSB Loan
 General information regarding ATSB Loans
 
    
    $525 million through March 2006;
    
    $500 million through September 2006;
    
    $475 million through March 2007;
    
    $450 million through September 2007;
    
    $400 million through March 2008;
    
    $350 million through September 2008; and
    
    $300 million through September 2010.
   (b)
    
    On September 27, 2005, US Airways and AWA entered into two loan agreements with Airbus
Financial Services (AFS), as Initial Lender and Loan Agent, Wells Fargo Bank Northwest,
National Association, as Collateral Agent, and US Airways Group, as guarantor, with
commitments in initial aggregate amounts of up to $161 million and up to $89 million (the
Airbus $161 Million Loan and the Airbus $89 Million Loan and, collectively, the Airbus
Loans). The Airbus Loans bear interest at a rate of LIBOR plus a margin, subject to
adjustment, and have been
 15




---



##### Table of Contents



recorded as an obligation of US Airways Group.
   (c)
    
    On September 10, 2004, AWA entered into a term loan financing with GECC providing for
loans in an aggregate amount of $111 million. AWA used approximately $77 million of the
proceeds from this financing to repay in full its term loan with Mizuho Corporate Bank,
Ltd. and certain other lenders and to pay certain costs associated with this transaction.
AWA used the remaining proceeds for general corporate purposes. The term loan financing
consists of two secured term loan facilities: a $76 million term loan facility secured
primarily by spare parts, rotables and appliances (the Spare Parts Facility); and a $35
million term loan facility secured primarily by aircraft engines and parts installed in
such engines (the Engine Facility).
    (d)
    
    In September 2005, US Airways entered into an agreement to sell and leaseback certain
of its commuter slots at Ronald Reagan Washington National Airport and New York LaGuardia
Airport. US Airways continues to hold the right to repurchase the slots anytime after the
second anniversary of the slot sale/leaseback transaction. Installments are due monthly
through 2015.(e)
    
    Capital lease obligations consist principally of certain airport maintenance and facility
leases which expire in 2018 and 2023.(f)
    
    On December 27, 2004, AWA raised additional capital by financing its Phoenix
maintenance facility and flight training center. The flight training center was previously
unencumbered, and the maintenance facility became unencumbered earlier in 2004 when AWA
refinanced its term loan. Using its leasehold interest in these two facilities as
collateral, AWA, through a wholly owned subsidiary named FTCHP LLC, raised $31 million
 16




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##### Table of Contents



through the issuance of a senior secured discount notes. The notes were issued by FTCHP at
a discount pursuant to the terms of a senior secured term loan agreement among AWA, FTCHP,
Heritage Bank SSB, as administrative agent, Citibank, N.A., as the initial lender, and the
other lenders from time to time party thereto. Citibank, N.A. subsequently assigned all of
its interests in the notes to third party lenders.
    3 4
 (g)
    
    The GECC facility bears interest at LIBOR plus 4.25% and is payable quarterly in
arrears. Principal payments are due quarterly commencing in September 2006 through 2010.
 (h)
    
    On September 30, 2005, US Airways Group issued $144 million aggregate principal
amount of 7% Senior Convertible Notes due 2020 (the 7% Senior Convertible Notes) for
proceeds, net of expenses, of approximately $139 million. The 7% Senior Convertible Notes
are US Airways Groups senior unsecured obligations and rank equally in right of payment
to its other senior unsecured and unsubordinated indebtedness and are effectively
subordinated to its secured indebtedness to the extent of the value of assets securing
such indebtedness. The 7% Senior Convertible Notes are fully and unconditionally
guaranteed, jointly and severally and on a senior unsecured basis, by US Airways Groups
two major operating subsidiaries, US Airways and AWA. The guarantees are the guarantors
unsecured obligations and rank equally in right of payment to the other senior unsecured
and unsubordinated indebtedness of the guarantors and are effectively subordinated to the
guarantors secured indebtedness to the extent of the value of assets securing such
indebtedness.
   17




---



##### Table of Contents



(i)
    
    In August 1995, AWA issued $75 million principal amount of 10 3/4% senior unsecured notes
due 2005, of which $40 million remained outstanding at December 31, 2004. Interest on the
10 3/4% senior unsecured notes was payable semiannually in arrears on March 1 and September 1
of each year. On December 27, 2004, AWA called for the redemption on January 26, 2005 of
all of the senior unsecured notes at a redemption price of 100% of the principal amount
thereof plus accrued and unpaid interest through the redemption date. In addition, AWA
irrevocably deposited the $31 million raised through the maintenance facility and flight
training center financing discussed in note (f) above, together with an additional $11
million from its operating cash flow, with the trustee for the senior unsecured notes. The
senior notes were subsequently redeemed on January 26, 2005.
 (j)
    
    In January 2002, in connection with the closing of the original AWA ATSB Loan and the
related transactions in 2002, America West Holdings issued $105 million of 7.5% convertible
senior notes due 2009, of which approximately $112 million remained outstanding at September
30, 2005 (including $22 million of interest paid through December 31, 2004 as a deemed loan
added to the initial principal thereof). Beginning January 18, 2005, these notes became
convertible into shares of common stock, at the option of the holders, at an initial
conversion price of $29.09 per share or a conversion ratio of approximately 34.376 shares
per $1,000 principal amount of such notes, subject to standard anti-dilution adjustments.
Interest on the 7.5% convertible senior notes is payable semiannually in arrears on June 1
and December 1 of each year. At America West Holdings option, the first six interest
payments were payable in the form of a deemed loan added to the principal amount of these
notes. The 7.5% convertible senior notes mature on January 18, 2009 unless earlier
converted or redeemed. The payment of principal, premium and interest on the 7.5%
convertible senior notes is fully and unconditionally guaranteed by AWA and US Airways
Group.
 (k)
    
    In July and August of 2003, AWA completed a private placement of approximately $87
million issue price of 7.25% Senior Exchangeable Notes due 2023. The notes bear cash
interest at 2.49% per year until July 30, 2008. Thereafter, the notes will cease bearing
cash interest and begin accruing original issue discount daily at a rate of 7.25% per year
until maturity. Each note was issued at a price of $343.61 and is exchangeable for common
stock at an exchange ratio of 13.216 shares per $1,000 principal amount at maturity of the
notes (subject to adjustment in certain circumstances). This represents an equivalent
conversion price of approximately $26.00 per share. The aggregate amount due at maturity,
including accrued original issue discount from July 31, 2008, will be approximately $253
million. The notes are unconditionally guaranteed on a senior unsecured basis by America
West Holdings and US Airways Group.
  18




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On or before July 30, 2018, a holder also may exchange notes for shares of common
stock at any time after a ten consecutive trading-day period in which the average of the
trading prices for the notes for that ten trading-day period was less than 103% of the
average exchange value for the notes during that period. Exchange value is equal to the
product of the closing sale price for the shares of common stock on a given day multiplied
by the then current exchange rate, which is the number of shares of common stock for which
each note is then exchangeable.In addition, the holders may exchange the notes if the
notes have been called for redemption, if the Company declares certain dividends or
distributions or if certain specified corporate transactions have occurred.Holders of the notes may require AWA to repurchase the notes at a price equal to the
original issue price plus accrued cash interest and original issue discount, if any, on July
30, 2008, 2013 and 2018. The purchase price of such notes may be paid in cash or common
stock, subject to certain restrictions. In addition, each holder may require AWA to
purchase all or a portion of such holders notes upon the occurrence of certain change of
control events concerning AWA or America West Holdings. AWA may redeem the notes, in whole
or in part, on or after July 30, 2008 at a price equal to the original issue price plus
accrued cash interest and original issue discount, if any.Completion of the merger constituted a change of control under AWAs 7.25% senior
exchangeable notes due 2023 and required AWA to make an offer to purchase those notes within
30 days after the effective time of the merger at a purchase price of $343.61 per $1,000
principal amount at maturity. Under the terms of the notes and the related guarantee and
exchange agreement, US Airways Group could satisfy AWAs obligation to purchase those notes
by delivery of shares of US Airways Group common stock having a fair market value of not
less than $343.61 per $1,000 principal amount at maturity for a total of $87 million plus
accrued but unpaid interest. For this purpose fair market value means 95% of the average
market price of the US Airways Group common stock calculated over the five business days
ending on the third business day before the purchase date of October 24, 2005. On October
24, 2005, the Company issued a total of 4,156,411 shares of its common stock in exchange for
approximately 99% of the outstanding notes. See also Note 13, Subsequent Events.(l)
    
    The industrial development revenue bonds are due April 2023. Interest at 6.3% is
payable semiannually (April 1 and October 1). The bonds are subject to optional redemption
prior to the maturity date on or after April 1, 2008, in whole or in part, on any interest
payment date at the following redemption prices: 102% on April 1 or October 1, 2008; 101%
on April 1 or October 1, 2009; and 100% on April 1, 2010 and thereafter.(m)
    
    In connection with US Airways Groups emergence from bankruptcy in September 2005 and
the settlement with the PBGC related to the termination of three of US Airways defined
benefit pension plans, US Airways issued a $10 million note which matures in 2012 and
bears interest at 6.00% payable annually in arrears.
   2005
    
    $
    152006
    
    
    2382007
    
    
    2992008
    
    
    3652009
    
    
    469Thereafter
    
    
    2,093$
    3,479
  19




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##### Table of Contents



8. Income Taxes
  9. Special Charges
    10. Related Party Transactions
     20




---



##### Table of Contents



Consolidation of Variable Interest Entities,
 11. Merger Accounting and Pro Forma Information
 Purchase price allocation
  Fair value of common shares issued to US Airways Groups
unsecured creditors
    
    $
    96Estimated merger costs
    
    
    21Total purchase price
    
    $
    117
  Current assets
    
    $
    1,188Property and equipment
    
    
    2,390Other assets
    
    
    1,394Goodwill
    
    
    584Liabilities assumed
    
    
    (5,439
    )Total purchase price
    
    $
    117
  21




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##### Table of Contents



Pro Forma Information
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating revenues
    
    $
    2,721
    
    
    $
    2,483
    
    
    $
    7,861
    
    
    $
    7,496Operating expenses
    
    
    2,811
    
    
    
    2,673
    
    
    
    8,027
    
    
    
    7,704Operating loss
    
    
    (90
    )
    
    
    (190
    )
    
    
    (166
    )
    
    
    (208
    )Net loss
    
    $
    (158
    )
    
    $
    (252
    )
    
    $
    (405
    )
    
    $
    (388
    )Basic and fully diluted
loss per share
    
    $
    (9.15
    )
    
    $
    (16.92
    )
    
    $
    (25.74
    )
    
    
    (26.14
    )Basic and diluted shares
    
    
    17,262
    
    
    
    14,896
    
    
    
    15,737
    
    
    
    14,845
 12. Recent Accounting Pronouncements
 Accounting for Share-Based
Payment
 Accounting Changes and Error Corrections  A
replacement of APB Opinion No. 20 and FASB Statement No. 3
 22




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##### Table of Contents



13. Subsequent Events
 ATSB Warrant Repurchase
  Sale of ATSB Loan
  Exchange of Common Stock for AWAs 7.25 Percent Senior Exchangeable Notes
   14. Legal Proceedings
  23




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24




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25




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26




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Item 1B. Condensed Consolidated Financial Statements of America West Airlines, Inc.
   
  
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating revenuesMainline passenger
    
    $
    653
    
    
    $
    542
    
    
    $
    1,884
    
    
    $
    1,649Express revenue
    
    
    137
    
    
    
    98
    
    
    
    371
    
    
    
    260Cargo
    
    
    7
    
    
    
    6
    
    
    
    24
    
    
    
    20Other
    
    
    49
    
    
    
    32
    
    
    
    123
    
    
    
    93Total operating revenues
    
    
    846
    
    
    
    678
    
    
    
    2,402
    
    
    
    2,022Operating expensesAircraft fuel and related taxes
    
    
    225
    
    
    
    153
    
    
    
    584
    
    
    
    416Gains on fuel hedging instruments, net
    
    
    (56
    )
    
    
    (26
    )
    
    
    (124
    )
    
    
    (36
    )Salaries and related costs
    
    
    178
    
    
    
    165
    
    
    
    526
    
    
    
    492Express expenses
    
    
    149
    
    
    
    101
    
    
    
    395
    
    
    
    264Aircraft rent
    
    
    85
    
    
    
    76
    
    
    
    243
    
    
    
    227Aircraft maintenance
    
    
    60
    
    
    
    54
    
    
    
    158
    
    
    
    157Other rent and landing fees
    
    
    43
    
    
    
    43
    
    
    
    130
    
    
    
    127Selling
expenses
    
    
    45
    
    
    
    38
    
    
    
    126
    
    
    
    117Special charges, net
    
    
    84
    
    
    
    2
    
    
    
    85
    
    
    
    1Depreciation and amortization
    
    
    14
    
    
    
    13
    
    
    
    37
    
    
    
    40Other
    
    
    77
    
    
    
    68
    
    
    
    217
    
    
    
    183Total operating expenses
    
    
    904
    
    
    
    687
    
    
    
    2,377
    
    
    
    1,988Operating income(loss)
    
    
    (58
    )
    
    
    (9
    )
    
    
    25
    
    
    
    34Nonoperating income (expenses):Interest income
    
    
    5
    
    
    
    4
    
    
    
    12
    
    
    
    10Interest expense, net
    
    
    (20
    )
    
    
    (22
    )
    
    
    (62
    )
    
    
    (64
    )Other, net
    
    
    2
    
    
    
    (1
    )
    
    
    3
    
    
    
    3Total nonoperating expenses, net
    
    
    (13
    )
    
    
    (19
    )
    
    
    (47
    )
    
    
    (51
    )Loss before income taxes
    
    
    (71
    )
    
    
    (28
    )
    
    
    (22
    )
    
    
    (17
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (71
    )
    
    $
    (28
    )
    
    $
    (22
    )
    
    $
    (17
    )
  27




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##### Table of Contents



September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    589
    
    
    $
    128Short-term investments
    
    
    168
    
    
    
    127Restricted cash
    
    
    
    
    
    
    41Accounts receivable, net
    
    
    126
    
    
    
    109Materials and supplies, net
    
    
    70
    
    
    
    58Prepaid expenses and other
    
    
    187
    
    
    
    141Total current assets
    
    
    1,140
    
    
    
    604Property and equipmentFlight equipment
    
    
    752
    
    
    
    927Other property and equipment
    
    
    302
    
    
    
    289Less accumulated depreciation and amortization
    
    
    (545
    )
    
    
    (624
    )509
    
    
    
    592Equipment deposits
    
    
    20
    
    
    
    64Net property and equipment
    
    
    529
    
    
    
    656Other assetsRestricted cash
    
    
    94
    
    
    
    72Advances to parent company, net
    
    
    261
    
    
    
    259Other assets, net
    
    
    162
    
    
    
    120Total other assets
    
    
    517
    
    
    
    451$
    2,186
    
    
    $
    1,711LIABILITIES & STOCKHOLDERS EQUITYCurrent liabilitiesCurrent maturities of debt and capital leases
    
    $
    101
    
    
    $
    154Accounts payable
    
    
    189
    
    
    
    173Payable to affiliate, net
    
    
    541
    
    
    
    Air traffic liability
    
    
    263
    
    
    
    195Accrued compensation and vacation
    
    
    52
    
    
    
    43Accrued taxes
    
    
    42
    
    
    
    21Other accrued expenses
    
    
    67
    
    
    
    66Total current liabilities
    
    
    1,255
    
    
    
    652Long-term debt and capital leases, net of current maturities
    
    
    513
    
    
    
    640Deferred gains and other liabilities
    
    
    153
    
    
    
    132Commitments and contingenciesStockholders equityCommon stock, $0.01 par, 1,000 shares authorized, issued
and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    555
    
    
    
    555Accumulated deficit
    
    
    (290
    )
    
    
    (268
    )Total stockholders equity
    
    
    265
    
    
    
    287$
    2,186
    
    
    $
    1,711
  28




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##### Table of Contents



Nine Months EndedSeptember 30,2005
    
    
    2004Net cash
provided by operating activities(1)
    
    $
    754
    
    
    $
    90Cash flows from investing activities:Purchases of property and equipment
    
    
    (148
    )
    
    
    (126
    )Purchases of short-term investments
    
    
    (316
    )
    
    
    (435
    )Sales of short-term investments
    
    
    304
    
    
    
    468Purchases of investments in debt securities
    
    
    
    
    
    
    (35
    )Sales of investments in debt securities
    
    
    
    
    
    
    15Increase in restricted cash
    
    
    (22
    )
    
    
    (2
    )Proceeds from disposition of assets
    
    
    74
    
    
    
    3Net cash used in investing activities
    
    
    (108
    )
    
    
    (112
    )Cash flows from financing activities:Repayment of debt
    
    
    (181
    )
    
    
    (174
    )Proceeds from issuance of debt, net
    
    
    
    
    
    
    109Other
    
    
    (4
    )
    
    
    Net cash used in financing activities
    
    
    (185
    )
    
    
    (65
    )Net increase (decrease) in cash and cash equivalents
    
    
    461
    
    
    
    (87
    )Cash and cash equivalents at beginning of period
    
    
    128
    
    
    
    134Cash and cash equivalents at end of period
    
    $
    589
    
    
    $
    47Cash paid for:Interest, net of amounts capitalized
    
    $
    28
    
    
    $
    18Income taxes
    
    $
    
    
    
    $
    Non-cash investing and financing activities:Reclassification of investments in debt securities to
short-term investments
    
    $
    30
    
    
    $
    16Notes payable cancelled under the aircraft purchase agreement
    
    $
    12
    
    
    $
    Notes payable issued under the aircraft purchase agreement
    
    $
    9
    
    
    $
    7Payment in kind notes issued
    
    $
    
    
    
    $
    5
  (1) Included in
net cash provided by operating activities is net advances to parent
company of $261 million and a net payable to affiliate of
$541 million (see Note 3). 29




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America West Airlines, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 1. Basis of Presentation
     2. Stock Options
 Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in millions)Net loss, as reported
    
    $
    (71
    )
    
    $
    (28
    )
    
    $
    (22
    )
    
    $
    (17
    )Stock-based compensation expense
    
    
    (7
    )
    
    
    (2
    )
    
    
    (9
    )
    
    
    (4
    )Pro forma net loss
    
    $
    (78
    )
    
    $
    (30
    )
    
    $
    (31
    )
    
    $
    (21
    )
 30




---



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3. Advances To Parent Company and Affiliate
   4. Change In Method Of Reporting For Express Results
      31




---



##### Table of Contents



Three Months Ended September 30, 2004As Reported
    
    
    Adjustments
    
    
    As Reclassified(in millions)Operating revenues:Mainline passenger
    
    $
    542
    
    
    $
    
    
    
    $
    542Express revenue
    
    
    
    
    
    
    98
    (1)
    
    
    98Cargo and other
    
    
    36
    
    
    
    2
    
    
    
    38Total operating revenues
    
    $
    578
    
    
    $
    100
    
    
    $
    678Operating expenses:Operating expenses
    
    $
    587
    
    
    $
    (1
    )
    
    $
    586Express expenses
    
    
    
    
    
    
    101
    (2)
    
    
    101Total operating expenses
    
    $
    587
    
    
    $
    100
    
    
    $
    687
 Nine Months Ended September 30, 2004As Reported
    
    
    Adjustments
    
    
    As Reclassified(in millions)Operating revenues:Mainline passenger
    
    $
    1,649
    
    
    $
    
    
    
    $
    1,649Express revenue
    
    
    
    
    
    
    260
    (3)
    
    
    260Cargo and other
    
    
    111
    
    
    
    2
    
    
    
    113Total operating revenues
    
    $
    1,760
    
    
    $
    262
    
    
    $
    2,022Operating expenses:Operating expenses
    
    $
    1,726
    
    
    $
    (2
    )
    
    $
    1,724Express expenses
    
    
    
    
    
    
    264
    (4)
    
    
    264Total operating expenses
    
    $
    1,726
    
    
    $
    262
    
    
    $
    1,988
 
 1.
    
    Reclassification of Express revenue from Operating Revenues  Other.2.
    
    Reclassification of $100 million and $1 million of Express operating
expenses from Operating Revenues  Other and Operating Expenses  Other,
respectively.3.
    
    Reclassification of Express operating expenses from Operating Revenues  Other.4.
    
    Reclassification of $262 million and $2 million of Express operating
expenses from Operating Revenues  Other and Operating Expenses  Other,
respectively.  32




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5. Debt, Including Capital Lease Obligations
  September 30,
    
    
    December 31,2005
    
    
    2004(in millions)SecuredATSB loan,
variable interest rate of 3.89%, installments due
2005 through 2008
(a)
    
    $
    249
    
    
    $
    Equipment notes payable, variable interest rates of 3.94% to 4.72%, averaging
4.07% during quarter ended June 30, 2005, notes retired September, 2005
    
    
    
    
    
    
    39Capital
lease obligations, installments due until 2006
    
    
    
    
    
    
    8GECC term loan, variable interest rate of 7.78%, quarterly installments beginning 2006
through 2010 (b)
    
    
    111
    
    
    
    111Senior secured discount notes, variable interest rate of 7.91%, installments
due 2005 through 2009
(c)
    
    
    36
    
    
    
    36396
    
    
    
    194UnsecuredATSB loan,
variable interest rate of 3.89%, installments due
2005 through 2008 (c)
    
    
    
    
    
    
    34310
3/4
% senior unsecured notes, interest only payments until due in 2005
(d)
    
    
    
    
    
    
    407.5%
convertible senior notes, interest only payments until due in 2009
(e)
    
    
    112
    
    
    
    1127.25% senior exchangeable notes, due 2023 with cash interest at 2.49%
payable through 2008 and original issue discount of 7.25% thereafter
(f)
    
    
    253
    
    
    
    253Equipment notes payable, interest rates of 90-day LIBOR +1.25%, averaging
4.88%, installments due through 2005
    
    
    12
    
    
    
    16Industrial development bonds, fixed interest rate of 6.3% due 2023 (g)
    
    
    29
    
    
    
    29State loan, variable interest rate of 8.3%, installments due 2005 through 2007
    
    
    1
    
    
    
    1407
    
    
    
    794Total long-term debt
    
    
    803
    
    
    
    988Less: Unamortized discount on debt
    
    
    (189
    )
    
    
    (194
    )Current maturities
    
    
    (101
    )
    
    
    (154
    )$
    513
    
    
    $
    640
 
 (a)
    
    In January 2002, AWA closed a $429 million loan backed by a $380 million
federal loan guarantee provided by the Air Transportation Stabilization Board (the
ATSB). Certain third-party counter-guarantors have fully and unconditionally
guaranteed the payment of an aggregate of $45 million of the outstanding principal
amount under the government guaranteed loan plus accrued and unpaid interest
thereon. In addition, America West Holdings fully and unconditionally guaranteed
the payment of all principal, premium, interest and other obligations outstanding
under the government guaranteed loan and pledged the stock of AWA to secure its
obligations under such guarantee. Principal amounts under this loan become due in
ten installments of $42 million on each March 31 and September 30, commencing on
March 31, 2004 and ending on September 30, 2008. In addition, AWA was charged an
annual guarantee fee in respect of the ATSB guarantee equal to 8.0% of the
guaranteed amount. On September 27, 2005, AWA made a voluntary prepayment of $9
million in principal thus reducing the remaining semi-annual installments due to
$42 million. Principal amounts outstanding under the government guaranteed loan
bear interest at a rate per annum equal to LIBOR plus 40 basis points.Completion of the merger with US Airways Group on September 27, 2005 revised certain
requirements and restrictions under this loan. See Note 7, Debt, Including Capital
Lease Obligations, to US Airways Group, Incs condensed consolidated financial
statements.(b)
    
    On September 10, 2004, AWA entered into a term loan financing with GECC
providing for loans in an aggregate amount of $111 million. AWA used
approximately $77 million of the proceeds from this financing to repay in full its
term loan with Mizuho Corporate Bank, Ltd. and certain other lenders and to pay
certain costs associated with this transaction. AWA used the remaining proceeds
for general corporate purposes. The new term loan financing consists of two
secured term loan facilities: a $76 million term loan facility secured primarily
by spare parts, rotables and appliances (the Spare Parts Facility); and a $35
million term loan facility secured primarily by aircraft engines and parts
installed in such engines (the Engine Facility).The facilities are cross-collateralized on a subordinated basis and the collateral
securing the facilities also secures on a subordinated basis certain of AWAs other
existing debt and lease obligations to GECC and its affiliates.The loans under the Spare Parts Facility are payable in full at maturity on
September 10, 2010. The loans under the Engine Facility are payable in equal
quarterly installments of approximately $1 million beginning on March 10, 2006
through June 10, 2010 with the remaining loan amount of $12 million payable at
maturity on September 10, 2010. The loans under each facility may be prepaid in an
amount not less than $5 million at any time after the 30th monthly anniversary of
the funding date under such facility. If AWA fails to maintain a certain ratio of
rotables to loans under the Spare Parts Facility, it may be required to pledge
additional rotables or cash as collateral, provide a letter of credit or prepay
some or all of the loans under the Spare Parts Facility. In addition, the loans
under the Engine Facility are subject to mandatory prepayment upon the occurrence
of certain events of loss applicable to, or certain dispositions of, aircraft
engines securing the facility.Principal amounts outstanding under the loans bear interest at a rate per annum
based on three-month LIBOR 33




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##### Table of Contents



plus a margin. Both facilities contain customary events of default, including
payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency
defaults and judgment defaults.(c)
    
    On December 27, 2004, AWA raised additional capital by financing its Phoenix
maintenance facility and flight training center. The flight training center was
previously unencumbered, and the maintenance facility became unencumbered earlier
this year when AWA refinanced its term loan. Using its leasehold
interest in these
two facilities as collateral, AWA, through a wholly owned subsidiary named FTCHP
LLC, raised $31 million through the issuance of a senior secured discount notes.
The notes were issued by FTCHP at a discount pursuant to the terms of a senior
secured term loan agreement among the Company, FTCHP, Heritage Bank SSB, as
administrative agent, Citibank, N.A., as the initial lender, and the other lenders
from time to time party thereto. Citibank, N.A. subsequently assigned all of its
interests in the notes to third party lenders.AWA has fully and unconditionally guaranteed the payment and performance of FTCHPs
obligations under the notes and the loan agreement. The notes require aggregate
principal payments of $36 million with principal payments of $2 million due on each
of the first two anniversary dates and the remaining principal amount due on the
fifth anniversary date. The notes may be prepaid in full at any time (subject to
customary LIBOR breakage costs) and in partial amounts of $2 million on the third
and fourth anniversary dates. The unpaid principal amount of the notes bears
interest based on LIBOR plus a margin subject to adjustment based on a loan to
collateral value ratio.The loan agreement contains customary covenants applicable to loans of this type,
including obligations relating to the preservation of the collateral and
restrictions on the activities of FTCHP. In addition, the loan agreement contains
events of default, including payment defaults, cross-defaults to other debt of
FTCHP, if any, breach of covenants, bankruptcy and insolvency defaults and judgment
defaults.In connection with this financing, AWA sold all of its leasehold interests in the
maintenance facility and flight training center to FTCHP and entered into subleases
for the facilities with FTCHP at lease rates expected to approximate the interest
payments due under the notes. In addition, AWA agreed to make future capital
contributions to FTCHP in amounts sufficient to cover principal payments and other
amounts owing pursuant to the notes and the loan agreement.The proceeds from this financing, together with $11 million from operating cash
flow, were irrevocably deposited with the trustee for AWAs 10 3/4% senior unsecured
notes due 2005, and the notes were subsequently redeemed on January 26, 2005. 34




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(d)
    
    In August 1995, AWA issued $75 million principal amount of 10 3/4% senior
unsecured notes due 2005 of which $40 million remained outstanding at December 31,
2004. Interest on the 10
3/4%
senior unsecured notes was payable semi-annually in
arrears on March 1 and September 1 of each year. On December 27, 2004, AWA called
for the redemption on January 26, 2005 of all of the senior unsecured notes at a
redemption price of 100% of the principal amount thereof plus accrued and unpaid
interest through the redemption date. In addition, AWA irrevocably deposited the
$31 million raised through the maintenance facility and flight training center
financing, as discussed in note (b) above, together with an additional $11 million
from its operating cash flow, with the trustee for the senior unsecured notes. The
senior notes were subsequently redeemed on January 26, 2005.(e)
    
    In January, 2002 in connection with the closing of the original AWA ATSB loan
and the related transactions, America West Holdings issued $105 million of 7.5%
convertible senior notes due 2009, of which approximately $112 million remained
outstanding at September 30, 2005 (including $22 million of interest paid through
December 31, 2004 as a deemed loan added to the initial principal thereof).
Beginning January 18, 2005, these notes are convertible into shares of common
stock, at the option of the holders, at an initial conversion price of $29.09 per
share or a conversion ratio of approximately 34.376 shares per $1,000 principal
amount of such notes, subject to standard anti-dilution adjustments. Interest on
the 7.5% convertible senior notes is payable semiannually in arrears on June 1 and
December 1 of each year. At America West Holdings option, the first six interest
payments were payable in the form of a deemed loan added to the principal amount of
these notes. The 7.5% convertible senior notes will mature on January 18, 2009
unless earlier converted or redeemed. The payment of principal, premium and
interest on the 7.5% convertible senior notes is fully and unconditionally
guaranteed by AWA and US Airways Group. For financial reporting purposes, America West Holdings recorded the convertible senior notes at their fair market
value on the date of issuance. The balance at September 30, 2005 is net of an
unamortized discount of $19 million.(f)
    
    In July and August of 2003, AWA completed a private placement of
approximately $87 million issue price of 7.25% Senior Exchangeable Notes due 2023.
The notes bear cash interest at 2.49% per year until July 30, 2008. Thereafter,
the notes will cease bearing cash interest and begin accruing original issue
discount daily at a rate of 7.25% per year until maturity. Each note was issued
at a price of $343.61 and is exchangeable for common stock at an exchange ratio of
13.216 shares of US Airways Group common stock per $1,000 principal amount at
maturity of the notes (subject to adjustment in certain circumstances). This
represents an equivalent conversion price of approximately $26.00 per share. The
aggregate amount due at maturity, including accrued original issue discount from
July 31, 2008, will be $253 million. The notes are unconditionally guaranteed on
a senior unsecured basis by America West Holdings and US Airways Group.Holders have the right to exchange their notes for the shares of common stock in
any fiscal quarter commencing after September 30, 2003, if, as of the last day of
the preceding fiscal quarter, the closing sale price of US Airways Group common
stock for at least 20 trading days in a period of 30 consecutive trading days
ending on the last trading day of such preceding fiscal quarter is more than 110%
of the accreted exchange price per share of common stock on the last day of such
preceding fiscal quarter. If the foregoing condition is satisfied, then the notes
will be exchangeable at any time at the option of the holder through maturity. The
accreted exchange price per share as of any day will equal the issue price of a
note plus accrued original issue discount to that day divided by 13.216, subject to
any adjustments to the exchange rate through that day.On or before July 30, 2018, a holder also may exchange its notes for shares of
common stock at any time after a 10 consecutive trading-day period in which the
average of the trading prices for the notes for that 10 trading-day period was less
than 103% of the average exchange value for the notes during that period. Exchange
value is equal to the product of the closing sale price for the shares of common
stock on a given day multiplied by the then current exchange rate, which is the
number of shares of common stock for which each note is then exchangeable.In addition, the holders may exchange the notes if the notes have been called for
redemption, if US Airways Group declares certain dividends or distinctions or if
certain specified corporate transactions have occurred.Holders of the notes may require AWA to repurchase the notes at a price equal to
the original issue price plus 35




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##### Table of Contents



accrued cash interest and original issue discount, if any, on July 30, 2008, 2013
and 2018. The purchase price of such notes may be paid in cash or common stock,
subject to certain restrictions. In addition, each holder may require AWA to
purchase all or a portion of such holders notes upon the occurrence of certain
change of control events concerning AWA or America West Holdings. AWA may redeem
the notes, in whole or in part, on or after July 30, 2008 at a price equal to the
original issue price plus accrued cash interest and original issue discount, if
any.Completion of the merger with US Airways Group constituted a change of control
under AWAs 7.25% senior exchangeable notes due 2023 and required AWA to make an
offer to purchase those notes within 30 days after the effective time of the merger
at a purchase price of $343.61 per $1,000 principal amount at maturity. Under the
terms of the notes and the related guarantee and exchange agreement, the US Airways
Group could satisfy AWAs obligation to purchase those notes by delivery of shares
of new US Airways Group common stock having a fair market value of not less than
$343.61 per $1,000 principal amount at maturity for a total of $87 million plus
accrued but unpaid interest. For this purpose fair market value means 95% of the
average market price of the new US Airways Group common stock calculated over the 5
business days ending on the third business day before the purchase date of October
24, 2005. On October 24, 2005, the US Airways Group issued a total of 4,156,411
shares of its common stock in exchange for approximately 99% of the outstanding
notes. See also Note 7, Subsequent Events.(g)
    
    The industrial development revenue bonds are due April 2023. Interest at 6.3%
is payable semiannually (April 1 and October 1). The bonds are subject to optional
redemption prior to the maturity date on or after April 1, 2008, in whole or in
part, on any interest payment date at the following redemption prices: 102% on
April 1 or October 1, 2008; 101% on April 1 or October 1, 2009; and 100% on April
1, 2010 and thereafter.  6. Special Charges
  36




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7. Subsequent Events
 Sale of ATSB Loan
  Exchange of Common Stock for America West Airlines 7.25 Percent Senior Exchangeable Notes
   37




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations of US Airways Group and America West Airlines, Inc.
    Background
  38




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39




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##### Table of Contents



Emergence and Merger Transactions
  The New Equity Investments
 Public stock offering 
 GE Merger MOU
 
    
    The GE Merger MOU provided for continued use by US Airways Group
of certain leased Airbus, Boeing and regional jet aircraft, the
modification of monthly lease rates, and the return to GECC of
certain other leased Airbus and Boeing aircraft.
    
    GECC provided a bridge facility of approximately $56 million for
use by US Airways Group during the pendency of the Chapter 11
proceedings. US Airways paid an affiliate of General Electric
(GE) $125 million in cash on September 30, 2005 in exchange for
retirement of the bridge facility, forgiveness and release of US Airways from certain prepetition obligations, deferral of certain
payment obligations, and amendments to maintenance agreements.
    
    In June 2005, GECC purchased and immediately leased back to US Airways Group: (a) the assets securing the credit facility
obtained from GE in 2001 (the 2001 GE Credit Facility) and the
liquidity facility obtained from GE in 2003 in connection with US Airways Groups emergence from the first bankruptcy (the 2003 GE
Liquidity Facility), and other GE obligations, consisting of 11
Airbus aircraft and 28 spare engines and engine stands, and (b)
ten regional jet aircraft previously debt financed by GECC. The
proceeds from the sale leaseback transaction of approximately
$633 million were used to pay down balances due to GE by US Airways Group under the 2003 GE Liquidity Facility in full, the
GECC mortgage-debt financed CRJ aircraft in full, and a portion
of the 2001 GE Credit Facility. The 2001 GE Credit Facility was
amended to allow certain additional borrowings of up to $28
million.
 Airbus MOU
 
    
    On September 27, 2005, US Airways and AWA entered into two loan
agreements with Airbus Financial Services (AFS), as Initial
Lender and Loan Agent, Wells Fargo Bank Northwest, National
Association, as Collateral Agent, and US Airways Group, as
guarantor, with commitments in initial aggregate amounts of up to
$161 million and up to $89 million (the Airbus $161 Million Loan
and the Airbus $89 Million Loan and, collectively, the Airbus
Loans). The Airbus Loans bear interest at a rate of LIBOR plus a
margin, subject to adjustment and have been recorded as an
obligation of US Airways Group.
    
    Airbus has rescheduled US Airways Groups A320-family and
A330-200 delivery commitments and has agreed to provide backstop
financing for a substantial number of aircraft, subject to
certain terms
 40




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##### Table of Contents



and conditions, on an order of 20 A350 aircraft. US Airways Groups A320-family aircraft are now
scheduled for delivery in 2009 and 2010. US Airways Groups A330-200 aircraft are scheduled for
delivery in 2009 and 2010 and A350 aircraft deliveries are currently scheduled to occur
beginning in 2011. The Airbus MOU also eliminates cancellation penalties on US Airways Groups
orders for the ten A330-200 aircraft, provided that US Airways Group has met certain predelivery
payment obligations under the A350 order. In connection with the restructuring of aircraft firm
orders, US Airways Group and America West Holdings were required to pay an aggregate
non-refundable restructuring fee which was paid by means of set-off against existing equipment
purchase deposits of US Airways Group and America West Holdings held by Airbus. The US Airways
Group restructuring fee of $39 million was recorded as a reduction in the assets acquired by
America West Holdings in purchase accounting. The America West Holdings restructuring fee of $50
million has been recorded as a special charge in the accompanying consolidated statement of
operations, along with $7 million in related capitalized interest.
 Restructuring of the ATSB Loan Guarantees
   
    
    90% of the US Airways ATSB Loan (Tranche A), the guaranteed portion of the loan, was funded
through a participating lenders commercial paper conduit program and bears interest at a rate
equal to the conduit providers weighted average cost related to the issuance of certain
commercial paper notes and other short-term borrowings plus 0.30%, provided that portions of
Tranche A that are held by the ATSB or by an assignee and are no longer subject to such
commercial paper conduit program bear interest at LIBOR plus 40 basis points, and portions of
Tranche A that are under certain circumstances assigned free of the ATSB guarantee bear
interest at LIBOR plus 6.0%; and
    
    10% of the US Airways ATSB Loan (Tranche B) bears interest at the greater of the Tranche A
interest rate plus 6.0% and LIBOR plus 6.0% from a current rate of LIBOR plus 4.0%.
  41




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##### Table of Contents



New Convertible Notes -
 Restructuring of Affinity Credit Card Partner Agreement
   42




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##### Table of Contents



Restructuring of Credit Card Processing Agreement
    US Airways Groups Emergence from Bankruptcy 
 43




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##### Table of Contents




    
    PBGC ClaimOn November 12, 2004, US Airways filed a motion
requesting a determination from the Bankruptcy Court that US Airways satisfied the financial requirements for a distress
termination of the Retirement Plan for Flight Attendants in the
Service of US Airways, Inc. (AFA Plan), the Pension Plan for
Employees of US Airways, Inc. Who Are Represented by the
International Association of Machinists and Aerospace Workers
(IAM Plan), and the Retirement Plan for Certain Employees of US Airways, Inc. (CE Plan) under section 4041(c)(2)(B)(ii)(IV) of
the Employee Retirement Security Act of 1974, as amended (ERISA),
and approval of each such plans termination. These plans were
projected to have benefit obligations and plan assets aggregating
$2.7 billion and $1.7 billion, respectively, as of September 30,
2004, the most recent valuation date. On January 6, 2005, the
bankruptcy court entered an order (i) finding that the financial
requirements under section 4041(c)(2)(B)(ii)(IV) of ERISA for a
distress termination of the plans had been met and (ii) approving
termination of the plans. The AFA Plan and the IAM Plan were
terminated effective January 10, 2005, by agreement between the
Pension Benefit Guaranty Corporation (PBGC) and US Airways. The
CE Plan was terminated effective January 17, 2005, by agreement
between the PBGC and US Airways. Effective February 1, 2005, the
PBGC was appointed trustee for each of the three plans. As a
result of these terminations, the PBGC filed claims against the
Company for the unfunded portion of each of the Plans. Under the
plan of reorganization, the PBGC received, as treatment for its
claims: (i) cash in the amount of $13,500,000; (ii) an unsecured
promissory note in the principal amount of $10,000,000 issued by
US Airways and guaranteed by US Airways Group, bearing interest
at a rate of 6.00% per annum payable annually in arrears, with
such promissory note to be payable in a single installment on the
seventh anniversary of the effective date of the plan of
reorganization; and (iii) 70 percent, or 4,873,485 shares, of
common stock of US Airways Group issued to the unsecured
creditors, net of the shares allocated to the Air Line Pilots
Association (ALPA).
    
    Agreements with ALPAOn September 14, 2005, US Airways Group,
US Airways, America West Holdings and AWA reached agreement with
the two ALPA-represented pilot groups at the separate airlines on
a comprehensive agreement (the Transition Agreement) that will
govern many merger-related aspects of the parties relationships
until there is a single collective bargaining agreement covering
all pilots. US Airways Group and US Airways entered into a
letter of agreement which provides that US Airways pilots
designated by ALPA will receive 1.25 million shares of US Airways
Group common stock and options to purchase 1.1 million shares of
US Airways Group common stock. The 1.25 million shares are drawn
from the 8.21 million shares initially allocated to unsecured
creditors in the plan of reorganization. ALPA will notify US Airways of the allocations to pilots designated to receive shares
and options no later than 60 days after September 27, 2005.
Shares will be issued to those pilots no later than 30 days after
ALPAs notification. The options will be issued according to the
following schedule: the first tranche of 500,000 options will be
issued on January 31, 2006, a second tranche of 300,000 options
will be issued on January 31, 2007, and the third tranche of
300,000 options will be issued on January 31, 2008. The options
will have a term of five years from date of issuance. The
exercise price for each tranche of options will be the average of
the closing price per share of US Airways common stock as
reflected on the New York Stock Exchange for the 20 business day
period prior to the applicable option issuance date. The letter
of agreement also includes provisions restricting transfer of the
options and governing anti-dilution. In connection with the
negotiation of the Transition Agreement and the letter of
agreement, US Airways also agreed with ALPA to eliminate an
existing 1% pay reduction that would apply to all pilots as a
result of a lump sum payment due to pilots recalled from furlough
and agreed to pay $500,000 to resolve an outstanding grievance
over pay credits for pilots assigned by US Airways to travel to
and from certain duty assignments.
  44




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##### Table of Contents



Overview
  Three months ended September 30, 2005Consolidated
    
    
    4 DaysUS Airways
    
    
    US Airways
    
    
    America WestGroup
    
    
    Group, Inc.
    
    
    HoldingsOperating revenues
    
    $
    926
    
    
    $
    79
    
    
    $
    847Operating expenses
    
    
    997
    
    
    
    91
    
    
    
    906Operating loss
    
    
    (71
    )
    
    
    (12
    )
    
    
    (59
    )Nonoperating
expense, net
    
    
    (16
    )
    
    
    (2
    )
    
    
    (14
    )Net loss
    
    $
    (87
    )
    
    $
    (14
    )
    
    $
    (73
    )
 Nine months ended September 30, 2005Consolidated
    
    
    4 DaysUS Airways
    
    
    US Airways
    
    
    America WestGroup
    
    
    Group, Inc.
    
    
    HoldingsOperating revenues
    
    $
    2,482
    
    
    $
    79
    
    
    $
    2,403Operating expenses
    
    
    2,473
    
    
    
    91
    
    
    
    2,382Operating income (loss)
    
    
    9
    
    
    
    (12
    )
    
    
    21Nonoperating expense, net
    
    
    (49
    )
    
    
    (2
    )
    
    
    (47
    )Net loss
    
    $
    (40
    )
    
    $
    (14
    )
    
    $
    (26
    )
  45




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##### Table of Contents



Accounting for Derivative
Instruments and Hedging Activities.
   US Airways Groups Results of Operations
  46




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##### Table of Contents



Three Months Ended September 30, 2005
Compared with the
Three Months Ended September 30, 2004
     Three Months EndedSeptember 30,2005
    
    
    2004(in millions)Operating expenses:Aircraft fuel and related taxes
    
    $
    252
    
    
    $
    153Gains on fuel hedging instruments, net
    
    
    (56
    )
    
    
    (26
    )Salaries and related costs
    
    
    193
    
    
    
    165Express expenses
    
    
    168
    
    
    
    101Aircraft rent
    
    
    90
    
    
    
    77Aircraft maintenance
    
    
    64
    
    
    
    54Other rent and landing fees
    
    
    48
    
    
    
    43Selling expenses
    
    
    48
    
    
    
    38Special charges, net
    
    
    84
    
    
    
    2Depreciation and amortization
    
    
    16
    
    
    
    13Other
    
    
    90
    
    
    
    69Total operating expenses
    
    $
    997
    
    
    $
    689
  
    
    Aircraft fuel and related tax expense, excluding the impact of fuel hedges, increased
47.1% at AWA, primarily due to a 45.5% increase in the average price per gallon of fuel to
$1.92 in the third
 47




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##### Table of Contents



quarter of 2005 from $1.32 in the comparable 2004 quarter. Aircraft fuel and related tax
expense for the four days of US Airways Group was $27 million.
    
    Salaries and related costs increased $28 million, of which $15 million relates to the
four days of US Airways Group. The increase of $13 million at AWA is primarily due to an
increase in the accrual for employee performance bonuses ($8 million) and a net increase in
benefit related expenses including defined contribution plan payments which our
pilots became eligible for on January 1, 2005 ($3 million). While capacity, as measured by
ASMs, at AWA increased 3.0%, average full-time equivalent employees (FTEs) for AWA only
increased 1.4%.
    
    Express expenses increased 66.3% in the third quarter of 2005 to $168 million from $101
million in the third quarter of 2004. Express expenses consisted of $149 million of AWA
related Express expenses, an increase of $48 million as compared to 2004, and $19 million in
Express expenses for the four days of US Airways Group. Aircraft operating expense for
Express at AWA for the quarter was $96 million, which accounted for $22 million of the
period-over-period increase in Express operating expenses. In addition, aircraft fuel
expense was $53 million, which accounted for $26 million of the period-over-period increase.
    
    Aircraft rent expense increased $13 million, of which $5 million relates to the four days
of US Airways Group. The increase in aircraft rent at AWA was principally due
to aircraft mix as previously owned and leased Boeing 737-200 aircraft were retired or
returned to aircraft lessors and replaced with leased Airbus A320 and A319 aircraft at
higher monthly lease rates.
    
    Selling expenses increased $10 million, of which $3 million relates to the four days of
US Airways Group. Increases at AWA were primarily due to higher advertising expenses
and credit card fees.
    
    Aircraft maintenance expense increased $10 million, of which $4 million relates to the
four days of US Airways Group. The increase in aircraft
maintenance expense at AWA is primarily due to an $8
million increase in capitalized maintenance amortization expense,
offset in part by a $1 million
decrease in airframe maintenance expenses.
    
    AWA recorded $84 million of special charges in the third quarter of 2005. In connection
with the merger and the Airbus MOU executed between Airbus, US Airways Group, US Airways and
AWA, certain aircraft firm orders were restructured. In connection
with that restructuring, US Airways Group and America West Holdings were required to pay non-refundable restructuring
fees. AWAs restructuring fee of $50 million has been
classified as a special charge in the three
month period ended September 30, 2005, along with
$7 million in associated capitalized interest. The
restructuring fee was paid by means of set-off against existing
equipment deposits of AWA held by Airbus. Special charges also includes a loss of $27 million related to the sale and
leaseback of six 737-300 aircraft and two 757 aircraft.
    
    Other operating expenses increased by $21 million, with $11 million in other operating
expenses from four days of US Airways Group. The increase in other operating expenses at
AWA of $10 million relates to the financial statement
presentation change discussed above and increases in property taxes
and postage expenses associated with merger related communications to
Frequent Flyers. The increases were
offset in part by a decrease in legal fees.
  48




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##### Table of Contents



Nine Months Ended September 30, 2005
Compared with the
Nine Months Ended September 30, 2004
     Nine Months EndedSeptember 30,2005
    
    
    2004(in millions)Operating expenses:Aircraft fuel and related taxes
    
    $
    611
    
    
    $
    416Gains on fuel hedging instruments, net
    
    
    (124
    )
    
    
    (36
    )Salaries and related costs
    
    
    542
    
    
    
    493Express expenses
    
    
    414
    
    
    
    264Aircraft rent
    
    
    248
    
    
    
    227Aircraft maintenance
    
    
    162
    
    
    
    157Other rent and landing fees
    
    
    135
    
    
    
    127Selling expenses
    
    
    129
    
    
    
    117Special charges, net
    
    
    85
    
    
    
    1Depreciation and amortization
    
    
    39
    
    
    
    40Other
    
    
    232
    
    
    
    185Total operating expenses
    
    $
    2,473
    
    
    $
    1,991
  49




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##### Table of Contents




    
    Aircraft fuel and related tax expense, excluding the impact of fuel hedges, increased
40.4% at AWA, primarily due to a 39.8% increase in the average price per gallon of fuel to
$1.72 in the third quarter of 2005 from $1.23 in the comparable 2004 period. Aircraft fuel
and related tax expense for the four days of US Airways Group
was $27 million.
    
    Salaries and related costs increased $49 million, of which $15 million relates to the
four days of US Airways Group. The increase of $34 million at AWA is primarily due to due
to a $20 million increase in benefit related expenses including $10 million in defined
contribution plan payments which our pilots became eligible for on January 1, 2005, an
accrual for employee performance bonuses of $8 million, self-funded disability requirements
of $3 million, increases in medical insurance costs of $3 million and a $1 million increase
in workers compensation claim coverage.
    
    Express expenses increased 56.8% in the nine months ended 2005 to $414 million from $264
million in the third quarter of 2004. Express expenses consisted of $395 million of AWA
related Express expenses, an increase of $131 million as compared to 2004, and $19 million
in Express expenses for the four days of US Airways Group. Aircraft operating expense for
Express at AWA for the quarter was $266 million, which accounted for $70 million of the
period-over-period increase in Express operating expenses. In addition, aircraft fuel
expense was $129 million, which accounted for $61 million of the period-over-period
increase.
    
    Aircraft rent expense increased $21 million, of which $5 million relates to the four days
of US Airways Group. The increase in aircraft rent at AWA was
principally due to aircraft mix
as previously owned and leased Boeing 737-200 aircraft were retired or returned to aircraft
lessors and replaced with leased Airbus A320 and A319 aircraft at higher monthly lease
rates.
    
    Selling expenses increased $12 million, including $3 million relates to the four days of
US Airways Group. Selling expenses at AWA increased
$9 million, primarily due to higher advertising expenses and credit card fees.
    
    Aircraft maintenance expense increased $5 million, of which $4 million relates to the
four days of US Airways Group. Aircraft maintenance expense for
AWA was relatively flat as an increase in capitalized maintenance
amortization of $11 million was offset by decreases in
aircraft C-Check of $6 million, airframe maintenance of $3 million, and engine overhaul and
other maintenance related expenses of $2 million. The decrease in other maintenance related
expenses resulted from a reduction in the rates charged for the repair of certain rotable
equipment under a power-by-the-hour agreement.
    
    AWA recorded $85 million of special charges in the nine months ended September 30, 2005.
In connection with the merger and the Airbus MOU executed between Airbus, US Airways Group,
US Airways and AWA, certain aircraft firm orders were
restructured. In connection with that restructuring, US Airways Group and America West Holdings were required to pay
non-refundable restructuring fees. AWAs restructuring fee of
$50 million has been classified as
a special charge in the three month period ended September 30, 2005, along with $7 million
in associated capitalized interest. The restructuring fee was paid by means of set-off against
existing equipment deposits AWA held by Airbus. Special charges also includes a loss of $27 million related to the sale and
leaseback of six 737-300 aircraft and two 757 aircraft.
 50




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##### Table of Contents




    
    Depreciation and amortization expense was flat despite the inclusion of $2 million in
depreciation
and amortization related to the four days of
US Airways
 Group. Depreciation at AWA
decreased due principally to lower amortization expense related to computer hardware and
software as a result of AWAs cash conservation program, which reduced capital expenditures.
    
    Other operating expenses increased by $47 million, of
which $11 million is other operating
expenses from four days of US Airways
 Group. The increase in other operating expenses at AWA
of $36 million relates primarily to an $8 million
aggregate loss associated with two aircraft sale-leaseback
transactions and increases in property taxes ($4 million),
ground handling services ($4 million), airport guard services
($3 million) and crew per diem ($2 million). These
increases were offset in part by lower legal fees. The first nine
months of 2004 included a $2 million gain resulting from the
settlement of a lawsuit related to certain computer hardware and
software that had previously been written off and a $2 million
reduction in bad debt expense due to a recovery of a previously
reserved debt. A $4 million gain resulting from the settlement
of a claim in bankruptcy for amounts earned under an executory
contract and a $1 million volume incentive earned due to certain
Affinity Card sales levels meeting certain contract thresholds in the
2004 period also contributed to the increase.
 US Airways .
 AWAs Results of Operations
     Three Months Ended
    
    
    Percent
    
    
    Nine Months Ended
    
    
    PercentSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2005
    
    
    2004
    
    
    2005-2004
    
    
    2005
    
    
    2004
    
    
    2005-2004Revenue passenger miles (in millions) (a)
    
    
    6,333
    
    
    
    6,227
    
    
    
    1.7
    
    
    
    18,390
    
    
    
    17,448
    
    
    
    5.4Available seat miles (in millions) (b)
    
    
    7,875
    
    
    
    7,646
    
    
    
    3.0
    
    
    
    22,932
    
    
    
    22,550
    
    
    
    1.7Passenger load factor (percent) (c)
    
    
    80.4
    
    
    
    81.4
    
    
    
    (1.0
    ) pts
    
    
    80.2
    
    
    
    77.4
    
    
    
    2.8
    ptsYield (cents) (d)
    
    
    10.31
    
    
    
    8.71
    
    
    
    18.4
    
    
    
    10.24
    
    
    
    9.45
    
    
    
    8.4Passenger revenue per available seat mile (cents) (e)
    
    
    8.29
    
    
    
    7.09
    
    
    
    16.9
    
    
    
    8.21
    
    
    
    7.31
    
    
    
    12.3Total revenue per available seat mile (cents) (f)
    
    
    9.01
    
    
    
    7.60
    
    
    
    18.6
    
    
    
    8.85
    
    
    
    7.81
    
    
    
    13.3
 51




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Three Months Ended
    
    
    Percent
    
    
    Nine Months Ended
    
    
    PercentSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2005
    
    
    2004
    
    
    2005-2004
    
    
    2005
    
    
    2004
    
    
    2005-2004Passenger enplanements (in thousands) (g)
    
    
    5,802
    
    
    
    5,556
    
    
    
    4.4
    
    
    
    16,725
    
    
    
    15,796
    
    
    
    5.9Aircraft (end of period)
    
    
    142
    
    
    
    139
    
    
    
    2.2
    
    
    
    142
    
    
    
    139
    
    
    
    2.2Average daily aircraft utilization (hours) (h)
    
    
    10.9
    
    
    
    10.9
    
    
    
    
    
    
    
    11.0
    
    
    
    10.9
    
    
    
    0.9Block hours (i)
    
    
    144,332
    
    
    
    140,076
    
    
    
    3.0
    
    
    
    424,194
    
    
    
    415,956
    
    
    
    2.0Average stage length (miles) (j)
    
    
    1,030
    
    
    
    1,067
    
    
    
    (3.5
    )
    
    
    1,030
    
    
    
    1,054
    
    
    
    (2.3
    )Average passenger journey (miles) (k)
    
    
    1,733
    
    
    
    1,771
    
    
    
    (2.1
    )
    
    
    1,680
    
    
    
    1,688
    
    
    
    (0.5
    )Fuel consumption (gallons in millions)
    
    
    117.0
    
    
    
    115.5
    
    
    
    1.3
    
    
    
    338.6
    
    
    
    337.9
    
    
    
    0.2Average fuel price including tax (dollars per gallon)
    
    
    1.92
    
    
    
    1.32
    
    
    
    45.5
    
    
    
    1.72
    
    
    
    1.23
    
    
    
    39.8Average number of full-time equivalent employees
    
    
    12,179
    
    
    
    11,936
    
    
    
    2.0
    
    
    
    12,178
    
    
    
    11,924
    
    
    
    2.1
 
 (a)
    
    Revenue passenger mile (RPM)  A basic measure of sales volume. It is one passenger
flown one mile.(b)
    
    Available seat mile (ASM)  A basic measure of production. It is one seat flown one mile.(c)
    
    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 (RASM)  Total passenger revenues divided by
total available seat miles.(f)
    
    Total revenue per available seat mile  Total operating revenues divided by total
available seat miles.(g)
    
    Passenger enplanements  The number of passengers on board an aircraft including local,
connecting and through passengers.(h)
    
    Average daily aircraft utilization  The average number of block hours per day for all
aircraft in service.(i)
    
    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.(j)
    
    Average stage length  The average of the distances flown on each segment of every route.(k)
    
    Average passenger journey  The average one-way trip measured in miles for one passenger
origination. Three Months Ended September 30, 2005
Compared with the
Three Months Ended September 30, 2004
     Three Months EndedSeptember 30,2005
    
    
    2004(in millions)Operating expenses:Aircraft fuel and related taxes
    
    $
    225
    
    
    $
    153Gains on fuel hedging instruments, net
    
    
    (56
    )
    
    
    (26
    )Salaries and related costs
    
    
    178
    
    
    
    165Aircraft rent
    
    
    85
    
    
    
    76Aircraft maintenance
    
    
    60
    
    
    
    54Other rent and landing fees
    
    
    43
    
    
    
    43Special charges, net
    
    
    84
    
    
    
    2Selling expenses
    
    
    45
    
    
    
    38Depreciation and amortization
    
    
    14
    
    
    
    13Other
    
    
    77
    
    
    
    68Total mainline operating expenses
    
    
    755
    
    
    
    586Express expenses
    
    
    149
    
    
    
    101Total operating expenses
    
    $
    904
    
    
    $
    687
 52




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##### Table of Contents



Three Months EndedSeptember 30,
    
    
    Percent Change2005
    
    
    2004
    
    
    2005-2004(in cents)Aircraft fuel and related taxes
    
    
    2.85
    
    
    
    1.99
    
    
    
    42.8Realized and unrealized gains on fuel hedging
instruments, net
    
    
    (0.71
    )
    
    
    (0.34
    )
    
    
    Salaries and related costs
    
    
    2.26
    
    
    
    2.16
    
    
    
    4.8Aircraft rent
    
    
    1.08
    
    
    
    1.00
    
    
    
    8.4Aircraft maintenance
    
    
    0.77
    
    
    
    0.71
    
    
    
    7.6Other rent and landing fees
    
    
    0.55
    
    
    
    0.57
    
    
    
    (2.8
    )Selling expenses
    
    
    0.57
    
    
    
    0.50
    
    
    
    14.1Special charges, net
    
    
    1.07
    
    
    
    0.02
    
    
    
    Depreciation and amortization
    
    
    0.18
    
    
    
    0.17
    
    
    
    1.5Other
    
    
    0.98
    
    
    
    0.90
    
    
    
    10.29.60
    
    
    
    7.68
    
    
    
    25.1
  
    
    Aircraft fuel and related tax expense per ASM increased 42.8% primarily due to a 45.5%
increase in the average price per gallon of fuel to $1.92 in the third quarter of 2005 from
$1.32 in the comparable 2004 quarter.
    
    Salaries and related costs per ASM increased 4.8% primarily due to an increase in the
accrual for employee performance bonuses ($8 million) and a net increase in
benefit related expenses including $3 million in defined contribution plan payments which
our pilots became eligible for on January 1, 2005. While capacity, as measured by ASMs,
increased 3.0%, average FTEs only increased 1.4%.
    
    Aircraft rent expense per ASM increased 8.4% due principally to aircraft mix as
previously owned and leased Boeing 737-200 aircraft were retired or returned to aircraft
lessors and replaced with leased Airbus A320 and A319 aircraft at higher monthly lease
rates.
    
    Selling expenses per ASM increased 14.1% primarily due to
higher advertising
expenses of
 53




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##### Table of Contents



$2 million and credit card fee expense of $4 million.
    
    Aircraft maintenance materials and repairs expense per ASM increased 7.6% primarily due
to an $8 million increase in capitalized maintenance
amortization expense, offset in part by a $1
million decrease in airframe maintenance expenses.
    
    AWA recorded $84 million of special charges in the third quarter of 2005. In connection
with the merger and the Airbus MOU executed between Airbus, US Airways Group, US Airways and
AWA, certain aircraft firm orders were restructured. In connection
with that restructuring, US Airways Group and America West Holdings were required to pay non-refundable restructuring
fees. AWAs restructuring fee of $50 million has been
classified as a special charge in the three
month period ended September 30, 2005, along with
$7 million in associated capitalized interest. The
restructuring fees was paid by means of set-off against existing
equipment deposits of AWA held by Airbus. Special charges also includes a loss of $27 million related to the sale and
leaseback of six 737-300 aircraft and two 757 aircraft.
    
    Other operating expenses increased by $21 million, with
$11 million in other operating expenses from four days of US
Airways Group. The increase in other operating expenses at AWA of
$10 million relates to the financial statement presentation
change discussed above and increases in property taxes and postage
expenses associated with merger related communications to frequent
flyers. Those increases were offset in part by a decrease in legal
fees.
   Nine Months Ended September 30, 2005
Compared with the
Nine Months Ended September 30, 2004
   54




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##### Table of Contents



Nine Months EndedSeptember 30,2005
    
    
    2004(in millions)Operating expenses:Aircraft fuel and related taxes
    
    $
    584
    
    
    $
    416Realized and unrealized gains on fuel hedging instruments, net
    
    
    (124
    )
    
    
    (36
    )Salaries and related costs
    
    
    526
    
    
    
    492Aircraft rent
    
    
    243
    
    
    
    227Aircraft maintenance
    
    
    158
    
    
    
    157Other rent and landing fees
    
    
    130
    
    
    
    127Selling expenses
    
    
    126
    
    
    
    117Special charges, net
    
    
    85
    
    
    
    1Depreciation and amortization
    
    
    37
    
    
    
    40Other
    
    
    217
    
    
    
    183Total mainline operating expenses
    
    
    1,982
    
    
    
    1,724Express expenses
    
    
    395
    
    
    
    264Total operating expenses
    
    $
    2,377
    
    
    $
    1,988
   Nine Months Ended
    
    
    PercentSeptember 30,
    
    
    Change(in cents)
    
    2005
    
    
    2004
    
    
    2005-2004Aircraft fuel and related taxes
    
    
    2.54
    
    
    
    1.84
    
    
    
    38.1Realized and unrealized gains on fuel hedging instruments, net
    
    
    (0.54
    )
    
    
    (0.16
    )
    
    
    Salaries and related costs
    
    
    2.30
    
    
    
    2.18
    
    
    
    5.1Aircraft rent
    
    
    1.06
    
    
    
    1.01
    
    
    
    5.2Aircraft maintenance
    
    
    0.69
    
    
    
    0.69
    
    
    
    (1.1
    )Other rent and landing fees
    
    
    0.57
    
    
    
    0.56
    
    
    
    1.5Selling expenses
    
    
    0.54
    
    
    
    0.52
    
    
    
    5.5Special charges
    
    
    0.37
    
    
    
    0.01
    
    
    
    Depreciation and amortization
    
    
    0.16
    
    
    
    0.17
    
    
    
    (7.4
    )Other
    
    
    0.95
    
    
    
    0.83
    
    
    
    16.58.64
    
    
    
    7.65
    
    
    
    13.1
  
    
    Aircraft fuel and related tax expense per ASM increased 38.1% primarily due to a 39.8%
increase in the average price per gallon of fuel to $1.72 in the first nine months of 2005
from $1.23 in the comparable 2004 period.
 55




---



##### Table of Contents




    
    Salaries and related costs per ASM increased 5.1% primarily
due to a $19 million increase
in benefit related expenses including $10 million in defined contribution plan payments
which our pilots became eligible for on January 1, 2005, an $8 million accrual for employee
performance bonuses, an increase of $3 million related to self-funded disability
requirements, higher medical insurance costs of $3 million and $1 million increase in
workers compensation claim coverage.
    
    Aircraft rent expense per ASM increased 5.2% due principally to aircraft mix as
previously owned and leased Boeing 737-200 aircraft were retired or returned to aircraft
lessors and replaced with leased Airbus A320 and A319 aircraft at higher monthly lease
rates.
    
    Aircraft maintenance materials and repairs expense per ASM decreased 1.1% primarily due
to a decrease of $6 million in aircraft C-Check expense, a $3 million reduction in
airframe maintenance, and a $2 million decrease in engine overhaul and other maintenance
related expenses. The decrease in other maintenance related expenses resulted from a
reduction in the rates charged for the repair of certain rotable equipment under a
power-by-the-hour agreement. These decreases were offset in part by an $11 million increase in
capitalized maintenance amortization.
    
    AWA recorded $84 million of special charges in the third quarter of 2005. In connection
with the merger and the Airbus MOU executed between Airbus, US Airways Group, US Airways and
AWA, certain aircraft firm orders were restructured. In connection
with that restructuring, US Airways Group and America West Holdings were required to pay non-refundable restructuring
fees. AWAs restructuring fee of $50 million has been
classified as a special charge in the three
month period ended September 30, 2005, along with
$7 million in associated capitalized interest. The
restructuring fee was paid by means of set-off against existing
equipment deposits of AWA held by Airbus. Special charges also includes a loss of $27 million related to the sale and
leaseback of six 737-300 aircraft and two 757 aircraft.
    
    Selling expenses per ASM increased 5.5% primarily due to
higher advertising
expenses of $3 million and credit card fee expenses of $7 million.
    
    Depreciation and amortization expense per ASM decreased 7.4% due principally to a $2
million decrease in amortization expense related to computer hardware and software as a
result of AWAs cash conservation program, which reduced capital expenditures.
    
    Other operating expenses per ASM increased 16.5% due primarily to an $8 million aggregate
loss associated with two aircraft sale-leaseback transactions and
increases in property taxes ($4 million), ground handling
services ($4 million), airport guard services ($3 million)
and crew per diem ($2 million). These increases were offset in
part by lower legal fees. The first nine months of 2004
included a $2 million gain resulting from the settlement of a lawsuit related to certain
computer hardware and software that had previously been written off and a $2 million
reduction in bad debt expense due to a recovery of a previously reserved debt. A $4 million
gain resulting from the settlement of a claim in bankruptcy for amounts earned under an
executory contract and a $1 million volume incentive earned due to certain Affinity Card
sales levels meeting certain contract thresholds in the 2004 period also contributed to the
increase.
  56




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##### Table of Contents



Liquidity and Capital Resources
   New Convertible Notes
   57




---



##### Table of Contents



GE
  Airbus Term Loans
    58




---



##### Table of Contents



ATSB Loans
   
    
    90% of the US Airways ATSB Loan (Tranche A), the guaranteed portion of the loan, was funded
through participating lenders commercial paper conduit program and bears interest at a rate
equal to the conduit providers weighted average cost related to the issuance of certain
commercial paper notes and other short term borrowings plus 0.30%, provided that portions of
Tranche A that are held by the ATSB or by an assignee and no longer subject to such commercial
paper conduit program bear interest at LIBOR plus 40 basis points, and portions of Tranche A
that are under certain circumstances assigned free of the ATSB guarantee bear interest at
LIBOR plus 6.0%; and
    
    10% of the US Airways ATSB Loan (Tranche B) bears interest at the greater of the Tranche A
interest rate plus 6.0% and LIBOR plus 6.0% from a current rate of LIBOR plus 4.0%.
     59




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##### Table of Contents




    
    $525 million through March 2006;
    
    $500 million through September 2006;
    
    $475 million through March 2007;
    
    $450 million through September 2007;
    
    $400 million through March 2008;
    
    $350 million through September 2008; and
    
    $300 million through September 2010.
  Restructuring of Affinity Credit Card Partner Agreement
      60




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##### Table of Contents



Exchange of Common Stock for AWAs 7.25 Percent Senior Exchangeable Notes
   Restructuring of Credit Card Processing Agreement
    Asset Based Financings
  Airbus Purchase Commitments
  61




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##### Table of Contents



Covenants and Credit Rating
 Risk Factors Relating to the Company and Industry Related Risks  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.
  62




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##### Table of Contents



Statement of Cash Flows Narrative
     Related Party Transactions
  Risk Factors
 Risk Factors Relating to US Airways Group and Industry Related Risks
  Our business is dependent on the price and availability of aircraft fuel. Continued periods of historically high fuel costs, significant disruptions in the supply of aircraft fuel or
significant further increases in fuel costs could have a significant negative impact on our operating results.
  63




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##### Table of Contents



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.
   We may not perform as well financially as we expect following the merger.
   64




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##### Table of Contents



The integration of US Airways Group and America West Holdings following the merger will present significant challenges.
   US Airways Group continues to experience significant operating losses.
    Union disputes, employee strikes and other labor-related disruptions may adversely affect our operations.
   65




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##### Table of Contents



Fluctuations in interest rates could adversely affect our liquidity, operating expenses and results.
  We rely heavily on automated systems to operate our business and any failure of these systems, or the failure to integrate them successfully following the merger, could harm our
business.
  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.
  66




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##### Table of Contents



The travel industry, materially adversely affected by the September 11, 2001 terrorist attacks, continues to face on-going security concerns and cost burdens associated with
security.
  Increases in insurance costs or reductions in insurance coverage may adversely impact our operations and financial results.
  Changes in government regulation could increase our operating costs and limit our ability to conduct our business.
  The use of America West Holdings and US Airways Groups respective pre-merger NOLs and certain other tax attributes may be limited following the merger.
  67




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The airline industry is intensely competitive.
  Certain US Airways Group liabilities were not fully extinguished as a result of confirmation of the plan of reorganization.
  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.
  Our business is subject to weather factors and seasonal variations in airline travel, which cause our results to fluctuate.
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Employee benefit plans represent significant continuing costs to the sponsoring employers.
   Risks Related to Our Common Stock
 Our common stock has no trading history and its market price may be volatile.
  
    
    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;
    
    movements in fuel prices;
    
    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 following this
offering; and general market conditions.
 Substantial sales of our common stock after the merger could cause our stock price to fall.
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Conversion of our convertible notes will dilute the ownership interest of existing shareholders and could adversely affect the market price of our common stock.
  A small number of shareholders beneficially own a substantial amount of our common stock.
  Certain provisions of the amended and restated certificate of incorporation and amended and restated bylaws of US Airways Group will make it difficult for stockholders to change
the composition of our board of directors and may discourage takeover attempts that some of our stockholders may 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;
    
    requiring the approval of holders of at least 80% of the voting power of the shares
entitled to vote in the election of directors for the stockholders to amend 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.
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Our charter documents include provisions limiting voting and ownership by foreign owners.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk Sensitive Instruments
  (a)
    
    Commodity Price Risk
  
    
    the impact of global political instability on crude production;
    
    unexpected changes to the availability of petroleum products due to disruptions in
distribution systems or refineries as evidenced in the third quarter of 2005 when Hurricane Katrina
and Hurricane Rita caused widespread disruption to oil production, refinery operations and pipeline
capacity along certain portions of the U.S. Gulf Coast. As a result of these disruptions, the
price of jet fuel increased significantly and the availability of jet fuel supplies was diminished;
    
    unpredicted increases to oil demand due to weather or the pace of economic growth;
    
    inventory levels of crude, refined products and natural gas; and
    
    other factors, such as the relative fluctuation between the U.S. dollar and other major
currencies and influence of speculative positions on the futures exchanges.
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(b)
    
    Interest Rate Risk
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  Changes in internal control over financial reporting.
  Limitation on the effectiveness of controls.
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Part II. Other Information
 
 Item 1. Legal Proceedings
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75




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  (c) Total
    
    (d) MaximumNumber of
    
    Number (orShares
    
    Approximate(a) Total
    
    
    
    
    
    Purchased as
    
    Dollar Value) ofNumber of
    
    (b)
    
    Part of Publicly
    
    Shares that MayShares
    
    Average
    
    Announced
    
    Yet be PurchasedPurchased
    
    Price Paid
    
    Plans or
    
    Under the PlansPeriod
    
    (1)
    
    per Share
    
    Programs
    
    or ProgramsJuly 1, 2005  July 31, 2005
    
    
    5,196
    
    
    
    14.52
    
    
    
    
    August 1, 2005  August 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    September 1, 2005  September 26, 2005
    
    
    8,209
    
    
    
    17.21
    
    
    
    
    
   (1)
    
    Amounts consist of shares of our common stock purchased on the open market by the America West
Holdings Corporation Future Care 401(k) Plan. (shares are post
conversion) 
 Item 4. Submission of Matters to a Vote of Security Holders
  For
    
    
    58,928,513Against
    
    
    822,193Abstain
    
    
    1,948,448
 
 Item 6. Exhibits
 Exhibit No.
    
    Description2.1
    
    Letter Agreement, dated as of July 7, 2005, by and among
US Airways Group, Inc., America West Holdings Corporation,
Barbell Acquisition Corp., ACE Aviation Holdings, inc.,
Eastshore Aviation, LLC, Par Investment Partners, L.P.,
Peninsula Investment Partners, L.P. and Wellington
Management Company, LLP (incorporated by reference to
Exhibit 2.2 to Amendment No. 1 to US Airways Groups
Registration Statement on Form S-4 filed on August 8,
2005).3.1
    
    Amended and Restated Certificate of Incorporation of US Airways Group, Inc., effective as of September 27, 2005
(incorporated by reference to Exhibit 3.1 to US Airways
Groups Form 8-K filed on October 3, 2005).3.2
    
    Amended and Restated Bylaws of US Airways Group, Inc.,
effective as of September 27, 2005 (incorporated by
reference to Exhibit 3.2 to US Airways Groups Form 8-K
filed on October 3, 2005).4.1
    
    Indenture, dated as of September 30, 2005, between US Airways Group, Inc., the guarantors listed therein and
U.S. Bank National Association, as trustee (incorporated
by reference to
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Exhibit No.
    
    DescriptionExhibit 4.1 to US Airways Groups Form 8-K
filed on October 3, 2005).4.2
    
    Registration Rights Agreement, dated as of September 30,
2005, between US Airways Group, Inc., America West
Airlines, Inc. and US Airways, Inc., as guarantors, and
the initial purchaser named therein (incorporated by
reference to Exhibit 4.2 to US Airways Groups Form 8-K
filed on October 3, 2005).4.3
    
    Supplemental Indenture No. 1, dated as of September 27,
2005, among America West Holdings Corporation, US Airways
Group, Inc. and Wilmington Trust Company (incorporated by
reference to Exhibit 10.1 to US Airways Groups Form 8-K
filed on October 3, 2005).4.4
    
    Guarantee and Exchange Agreement Supplement No. 1, dated
as of September 27, 2005, among America West Holdings
Corporation, US Airways Group, Inc. and U.S. Bank National
Association (incorporated by reference to Exhibit 10.2 to
US Airways Groups Form 8-K filed on October 3, 2005).4.5
    
    US Airways Group, Inc. Warrant to Purchase Common Stock,
dated September 27, 2005, issued to AFS Cayman Limited
(incorporated by reference to Exhibit 10.2 to US Airways
Groups Form 8-K filed on October 3, 2005).10.1
    
    Amended and Restated Loan Agreement, dated as of September
27, 2005, by and among US Airways, Inc., US Airways Group,
Inc., the affiliates of US Airways, Inc. party thereto,
the lenders from time to time party thereto, Citibank,
N.A., as Agent, Citicorp North America, Inc., as Govco
Administrative Agent, Wilmington Trust Company, as
Collateral Agent, and the Air Transportation Stabilization
Board.10.2
    
    Amended and Restated Loan Agreement, dated as of September
27, 2005, by and among America West Airlines, Inc., US Airways Group, Inc., the other affiliates of America West
Airlines, Inc. party thereto, the several lenders from
time to time party thereto, Citibank, N.A., as Agent,
Wilmington Trust Company, as Collateral Agent, and the Air
Transportation Stabilization Board.10.3*
    
    Loan Agreement, dated as of September 27, 2005, by and
among US Airways, Inc., America West Airlines, Inc., US Airways Group, Inc., as guarantor, Airbus Financial
Services, as Initial Lender and Loan Agent, and Wells
Fargo Bank Northwest, National Association, as Collateral
Agent, with commitments in an initial aggregate amount of
$161,000,000.10.4*
    
    Loan Agreement, dated as of September 27, 2005, by and
among US Airways, Inc., America West Airlines, Inc., US Airways Group, Inc., as guarantor, Airbus Financial
Services, as Initial Lender and Loan Agent, and Wells
Fargo Bank Northwest, National Association, as Collateral
Agent, with commitments in an initial aggregate amount of
$89,000,000.10.5*
    
    Airbus A350 Purchase Agreement, dated as of September 27,
2005, by and among AVSA, S.A.R.L. and US Airways, Inc.,
America West Airlines, Inc. and US Airways Group, Inc.10.6*
    
    Amendment No. 16, dated as of September 27, 2005, to the
Airbus A319/A320/A321 Purchase Agreement, dated as of
October 31, 1997, between US Airways Group, Inc. and AVSA,
S.A.R.L.10.7*
    
    Amendment No. 10, dated as of September 27, 2005, to the
Airbus A330/A340 Purchase Agreement, dated as of November
24, 1998, between US Airways Group, Inc. and AVSA,
S.A.R.L.10.8*
    
    Amendment No. 9, dated as of September 27, 2005, to the
Airbus A320/319 Purchase Agreement, dated as of September
12, 1997, between America West Airlines, Inc. and AVSA
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Exhibit No.
    
    DescriptionS.A.R.L.10.9*
    
    Amendment No. 10, dated as of September 27, 2005, to the
Airbus A320/319 Purchase Agreement, dated as of September
12, 1997, between America West Airlines, Inc. and AVSA
S.A.R.L.10.10
    
    Investment Agreement, dated as of July 7, 2005, by and
among US Airways Group, Inc., America West Holdings
Corporation, Tudor Proprietary Trading, L.L.C. and certain
investors listed on Schedule I thereto for which Tudor
Investment Corp. acts as investment Advisor (incorporated
by reference to Exhibit 10.1 to America West Holdings
Form 8-K filed on July 13, 2005).10.11
    
    Letter Agreement dated September 16, 2005 by and among US Airways Group, Inc., America West Holdings Corporation,
Barbell Acquisition Corp., ACE Aviation Holdings, inc.,
Eastshore Aviation, LLC, Par Investment Partners, L.P.,
Peninsula Investment Partners, L.P. and Wellington
Management Company, LLP10.12
    
    Amended and Restated Participation Agreement, dated as of
July 7, 2005, between America West Holdings Corporation
and Par Investment Partners, L.P. (incorporated by
reference to Exhibit 10.1 to America West Holdings Form
8-K filed on July 13, 2005).10.13
    
    Amended and Restated Participation Agreement, dated as of
July 7, 2005, between America West Holdings Corporation
and Peninsula Investment Partners, L.P. (incorporated by
reference to Exhibit 10.1 to America West Holdings Form
8-K filed on July 13, 2005).10.14*
    
    Assignment and First Amendment to America West Co-Branded
Card Agreement, dated as of August 8, 2005, by and among
US Airways Group, Inc., America West Airlines, Inc. and
Juniper Bank (incorporated by reference to Exhibit 10.110
to Amendment No. 2 to the Registration Statement on Form
S-4 filed by US Airways Group on August 10, 2005).10.15*
    
    First Amendment to Merchant Services Bankcard Agreement,
dated as of August 8, 2005, by and among America West
Airlines, Inc., JPMorgan Chase Bank, N.A. and Chase
Merchant Services, L.L.C. (incorporated by reference to
Exhibit 10.111 to Amendment No. 2 to the Registration
Statement on Form S-4 filed by US Airways Group on August
10, 2005).10.16
    
    Purchase Agreement, dated as of September 27, 2005,
between US Airways Group, Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (incorporated by reference to
Exhibit 10.1 to US Airways Groups Form 8-K filed on
October 3, 2005).10.17
    
    Stockholders Agreement, dated as of September 27, 2005,
among US Airways Group, Inc. and ACE Aviation Holdings
Inc. (incorporated by reference to Exhibit 10.1 to US Airways Groups Form 8-K filed on October 3, 2005).10.18
    
    Stockholders Agreement, dated as of September 27, 2005,
among US Airways Group, Inc. and Eastshore Aviation LLC
(incorporated by reference to Exhibit 10.2 to US Airways
Groups Form 8-K filed on October 3, 2005).10.19
    
    Stockholders Agreement, dated as of September 27, 2005,
among US Airways Group, Inc. and Par Investment Partners,
L.P. (incorporated by reference to Exhibit 10.3 to US Airways Groups Form 8-K filed on October 3, 2005).10.20
    
    Stockholders Agreement, dated as of September 27, 2005,
among US Airways Group, Inc. and Peninsula Investment
Partners, L.P. (incorporated by reference to Exhibit 10.4
to US Airways Groups Form 8-K filed on October 3, 2005).
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Exhibit No.
    
    Description10.21
    
    Stockholders Agreement, dated as of September 27, 2005,
among US Airways Group, Inc. and the group of investors
named therein under the management of Wellington
Management Company, LLP (incorporated by reference to
Exhibit 10.5 to US Airways Groups Form 8-K filed on
October 3, 2005).10.22
    
    Stockholders Agreement, dated as of September 27, 2005,
among US Airways Group, Inc., Tudor Proprietary Trading
L.L.C. and the group of investors named therein for which
Tudor Investment Corp. acts as investment advisor
(incorporated by reference to Exhibit 10.6 to US Airways
Groups Form 8-K filed on October 3, 2005).10.23+
    
    US Airways Group, Inc. 2005 Equity Incentive Plan
(incorporated by reference to Exhibit 10.1 to US Airways
Groups Form 8-K filed on October 3, 2005).10.24+
    
    Letter Agreement, dated as of September 27, 2005, between
US Airways Group, Inc. and Bruce R. Lakefield
(incorporated by reference to Exhibit 10.2 to US Airways
Groups Form 8-K filed on October 3, 2005).10.25+
    
    Employment Agreement, dated as of September 27, 2005,
between US Airways Group, Inc. and Alan W. Crellin
(incorporated by reference to Exhibit 10.3 to US Airways
Groups Form 8-K filed on October 3, 2005).10.26+
    
    Employment Agreement, dated as of September 27, 2005,
between US Airways Group, Inc. and Jerrold A. Glass
(incorporated by reference to Exhibit 10.4 to US Airways
Groups Form 8-K filed on October 3, 2005).10.27+
    
    Employment Agreement, dated as of September 27, 2005,
between US Airways Group, Inc. and Elizabeth K. Lanier
(incorporated by reference to Exhibit 10.5 to US Airways
Groups Form 8-K filed on October 3, 2005).10.28+
    
    Stock Unit Award Agreement, dated as of September 27,
2005, between US Airways Group, Inc. and W. Douglas Parker
(incorporated by reference to Exhibit 10.6 to US Airways
Groups Form 8-K filed on October 3, 2005).10.29+
    
    Form of Stock Unit Agreement under US Airways Group,
Inc.s 2005 Equity Incentive Plan (incorporated by
reference to Exhibit 10.7 to US Airways Groups Form 8-K
filed on October 3, 2005).10.30+
    
    Form of Stock Appreciation Rights Award Agreement under US Airways Group, Inc.s 2005 Equity Incentive Plan
(incorporated by reference to Exhibit 10.8 to US Airways
Groups Form 8-K filed on October 3, 2005).10.31+
    
    Form of Indemnity Agreement (incorporated by reference to
Exhibit 10.1 to US Airways Groups Form 8-K filed on
October 6, 2005).31.1
    
    Certification of US Airways Group, Inc.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, Inc.s Chief Financial
Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as amended.31.3
    
    Certification of America West Airlines, Inc.s Chief
Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.31.4
    
    Certification of America West Airlines, Inc.s Chief
Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.
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Exhibit No.
    
    Description32.1
    
    Certification of US Airways Group, Inc.s Chief Executive
Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of America West Airlines, Inc.s Chief
Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (+)
    
    Represents a management contract or compensatory plan or arrangement.(*)
    
    The Company has sought confidential treatment for portions of the referenced exhibit. 
 Signatures
  US Airways Group, Inc. (Registrant)Date: November 9, 2005
    By:
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial OfficerAmerica West Airlines, Inc. (Registrant)Date: November 9, 2005
    By:
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial Officer 80




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Exhibit Index
 ExhibitNumber
    
    Description10.1*
    
    Amended and Restated Loan Agreement, dated as of September 27,
2005, by and among US Airways, Inc., US Airways Group, Inc.,
the affiliates of US Airways, Inc. party thereto, the lenders
from time to time party thereto, Citibank, N.A., as Agent,
Citicorp North America, Inc., as Govco Administrative Agent,
Wilmington Trust Company, as Collateral Agent, and the Air
Transportation Stabilization Board.10.2*
    
    Amended and Restated Loan Agreement, dated as of September 27,
2005, by and among America West Airlines, Inc., US Airways
Group, Inc., the other affiliates of America West Airlines,
Inc. party thereto, the several lenders from time to time
party thereto, Citibank, N.A., as Agent, Wilmington Trust
Company, as Collateral Agent, and the Air Transportation
Stabilization Board.10.3*
    
    Loan Agreement, dated as of September 27, 2005, by and among
US Airways, Inc., America West Airlines, Inc., US Airways
Group, Inc., as guarantor, Airbus Financial Services, as
Initial Lender and Loan Agent, and Wells Fargo Bank Northwest,
National Association, as Collateral Agent, with commitments in
an initial aggregate amount of $161,000,000.10.4*
    
    Loan Agreement, dated as of September 27, 2005, by and among
US Airways, Inc., America West Airlines, Inc., US Airways
Group, Inc., as guarantor, Airbus Financial Services, as
Initial Lender and Loan Agent, and Wells Fargo Bank Northwest,
National Association, as Collateral Agent, with commitments in
an initial aggregate amount of $89,000,000.10.5*
    
    Airbus A350 Purchase Agreement, dated as of September 27,
2005, by and among AVSA, S.A.R.L. and US Airways, Inc.,
America West Airlines, Inc. and US Airways Group, Inc.10.6*
    
    Amendment No. 16, dated as of September 27, 2005, to the
Airbus A319/A320/A321 Purchase Agreement, dated as of October
31, 1997, between US Airways Group, Inc. and AVSA, S.A.R.L.10.7*
    
    Amendment No. 10, dated as of September 27, 2005, to the
Airbus A330/A340 Purchase Agreement, dated as of November 24,
1998, between US Airways Group, Inc. and AVSA, S.A.R.L.10.8*
    
    Amendment No. 9, dated as of September 27, 2005, to the Airbus
A320/319 Purchase Agreement, dated as of September 12, 1997,
between America West Airlines, Inc. and AVSA S.A.R.L.10.9*
    
    Amendment No. 10, dated as of September 27, 2005, to the
Airbus A320/319 Purchase Agreement, dated as of September 12,
1997, between America West Airlines, Inc. and AVSA S.A.R.L.10.11
    
    Letter Agreement dated September 16, 2005 by and among US Airways Group, Inc., America West Holdings Corporation,
Barbell Acquisition Corp., ACE Aviation Holdings, inc.,
Eastshore Aviation, LLC, Par Investment Partners, L.P.,
Peninsula Investment Partners, L.P. and Wellington Management
Company, LLP31.1
    
    Certification of US Airways Group, Inc.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, Inc.s Chief Financial
Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as amended.31.3
    
    Certification of America West Airlines, Inc.s Chief Executive
Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as amended.31.4
    
    Certification of America West Airlines, Inc.s 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, Inc.s Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of America West Airlines, Inc.s Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 (+)
    
    Represents a management contract or compensatory plan or arrangement.(*)
    
    The Company has sought confidential treatment for portions of the referenced exhibit.