##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2006
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 
 US Airways Group, Inc.
    
 America West Airlines, Inc.
 
 US Airways, Inc.
 
 
 
  þ o
  US Airways Group, Inc.
    
    Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer oAmerica West Airlines, Inc.
    
    Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þUS Airways, Inc.
    
    Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  US Airways Group, Inc.
    
    Yes £
    
    No RAmerica West Airlines, Inc.
    
    Yes £
    
    No RUS Airways, Inc.
    
    Yes £
    
    No R
  US Airways Group, Inc.
    
    Yes R
    
    No £US Airways, Inc.
    
    Yes R
    
    No £




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##### Table of Contents



US Airways Group, Inc.
Form 10-Q
Quarterly Period Ended March 31, 2006
 Table of Contents
 PagePart I.
    
    Financial InformationItem 1A.
    
    Condensed Consolidated Financial Statements of US Airways Group, Inc.Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Balance Sheets
    
    
    5Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to the Condensed Consolidated Financial Statements
    
    
    7Item 1B.
    
    Condensed Consolidated Financial Statements of America West Airlines, Inc.Condensed Consolidated Statements of Operations
    
    
    17Condensed Consolidated Balance Sheets
    
    
    18Condensed Consolidated Statements of Cash Flows
    
    
    19Notes to the Condensed Consolidated Financial Statements
    
    
    20Item 1C.
    
    Condensed Financial Statements of US Airways, Inc.Condensed Statements of Operations
    
    
    28Condensed Balance Sheets
    
    
    29Condensed Statements of Cash Flows
    
    
    30Notes to the Condensed Financial Statements
    
    
    31Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    41Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    63Item 4.
    
    Controls and Procedures
    
    
    63Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    64Item 1A.
    
    Risk Factors
    
    
    67Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    67Item 6.
    
    Exhibits
    
    
    68Signatures
    
    
    
    
    69Exhibit 10.1Exhibit 10.5Exhibit 31.1Exhibit 31.2Exhibit 31.3Exhibit 31.4Exhibit 31.5Exhibit 31.6Exhibit 32.1Exhibit 32.2Exhibit 32.3
 1




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##### Table of Contents



Note Concerning Forward-Looking Statements
  
    
    the impact of significant disruptions in the supply of aircraft fuel and historically
high fuel prices;
    
    our high level of fixed obligations;
    
    our ability to integrate the management, operations and labor groups of US Airways
Group and America West Holdings;
    
    our ability to achieve the synergies anticipated as a result of the merger and to
achieve those synergies in a timely manner;
    
    the impact of continued significant operating losses;
    
    labor costs and relations with unionized employees generally and the impact and outcome
of labor negotiations;
    
    changes in prevailing interest rates;
    
    reliance on automated systems and the impact of any failure of these systems;
    
    our ability to obtain and maintain normal terms with vendors and service providers;
    
    security-related and insurance costs;
    
    the impact of global instability including the continuing impact of the military
presence in Iraq and Afghanistan and the terrorist attacks of September 11, 2001 and the
potential impact of future hostilities, terrorist attacks, infectious disease outbreaks or
other global events;
    
    changes in government legislation and regulation;
    
    our ability to use pre-merger NOLs and certain other tax attributes;
    
    competitive practices in the industry, including significant fare restructuring
activities, capacity reductions and in court or out of court restructuring by major
airlines;
    
    continued existence of prepetition liabilities;
 2




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##### Table of Contents




    
    weather conditions;
    
    our ability to obtain and maintain any necessary financing for operations and other purposes;
    
    our ability to maintain adequate liquidity;
    
    our ability to maintain contracts that are critical to our operations;
    
    our ability to operate pursuant to the terms of our financing facilities (particularly
the financial covenants);
    
    our ability to attract and retain customers;
    
    the cyclical nature of the airline industry;
    
    our ability to attract and retain qualified personnel;
    
    economic conditions; and
    
    other risks and uncertainties listed from time to time in our reports to the Securities
and Exchange Commission.
  
 Part I. Financial Information
  3




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##### Table of Contents



2006
    
    
    2005Operating revenuesMainline passenger
    
    $
    1,811
    
    
    $
    577Express passenger
    
    
    611
    
    
    
    103Cargo
    
    
    37
    
    
    
    9Other
    
    
    189
    
    
    
    44Total operating revenues
    
    
    2,648
    
    
    
    733Operating expensesAircraft fuel and related taxes
    
    
    555
    
    
    
    160Gain on fuel hedging instruments, net
    
    
    (28
    )
    
    
    (60
    )Salaries and related costs
    
    
    503
    
    
    
    175Express expenses
    
    
    615
    
    
    
    111Aircraft rent
    
    
    185
    
    
    
    77Aircraft maintenance
    
    
    141
    
    
    
    53Other rent and landing fees
    
    
    129
    
    
    
    42Selling expenses
    
    
    107
    
    
    
    36Special items, net
    
    
    (44
    )
    
    
    1Depreciation and amortization
    
    
    45
    
    
    
    12Other
    
    
    315
    
    
    
    81Total operating expenses
    
    
    2,523
    
    
    
    688Operating income
    
    
    125
    
    
    
    45Nonoperating income (expense)Interest income
    
    
    26
    
    
    
    2Interest expense, net
    
    
    (75
    )
    
    
    (19
    )Other, net
    
    
    (12
    )
    
    
    Nonoperating expense, net
    
    
    (61
    )
    
    
    (17
    )Income before income taxes and cumulative effect of change in
accounting principle
    
    
    64
    
    
    
    28Income tax provision
    
    
    
    
    
    
    Income before cumulative effect of change in accounting principle
    
    
    64
    
    
    
    28Cumulative effect of change in accounting principle, net
    
    
    1
    
    
    
    (202
    )Net income (loss)
    
    $
    65
    
    
    $
    (174
    )Unaudited pro forma net income assuming change in method of
accounting was applied retroactively (Note 1)
    
    $
    64
    
    
    $
    28Earnings (loss) per common share:Basic:Before cumulative effect of change in accounting principle
    
    $
    0.79
    
    
    $
    1.90Cumulative effect of change in accounting principle
    
    
    0.01
    
    
    
    (13.60
    )Net income (loss) per common share
    
    
    0.80
    
    
    
    (11.70
    )Diluted:Before cumulative effect of change in accounting principle
    
    $
    0.75
    
    
    $
    1.29Cumulative effect of change in accounting principle
    
    
    0.01
    
    
    
    (7.87
    )Net income (loss) per common share
    
    
    0.76
    
    
    
    (6.58
    )Shares used for computation (in thousands):Basic
    
    
    81,679
    
    
    
    14,849Diluted
    
    
    93,362
    
    
    
    25,666
  4




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##### Table of Contents



March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    987
    
    
    $
    1,125Short-term investments
    
    
    611
    
    
    
    452Restricted cash
    
    
    5
    
    
    
    8Accounts receivable, net
    
    
    495
    
    
    
    353Materials and supplies, net
    
    
    223
    
    
    
    229Prepaid expenses and other
    
    
    477
    
    
    
    392Total current assets
    
    
    2,798
    
    
    
    2,559Property and equipmentFlight equipment
    
    
    1,991
    
    
    
    1,920Ground property and equipment
    
    
    539
    
    
    
    532Less accumulated depreciation and amortization
    
    
    (467
    )
    
    
    (431
    )2,063
    
    
    
    2,021Equipment purchase deposits
    
    
    40
    
    
    
    43Total property and equipment
    
    
    2,103
    
    
    
    2,064Other assetsGoodwill
    
    
    702
    
    
    
    732Other intangibles, net
    
    
    575
    
    
    
    583Restricted cash
    
    
    1,007
    
    
    
    792Other assets, net
    
    
    235
    
    
    
    234Total other assets
    
    
    2,519
    
    
    
    2,341Total assets
    
    $
    7,420
    
    
    $
    6,964LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent maturities of debt and capital leases
    
    $
    124
    
    
    $
    211Accounts payable
    
    
    535
    
    
    
    530Air traffic liability
    
    
    1,243
    
    
    
    788Accrued compensation and vacation
    
    
    178
    
    
    
    209Accrued taxes
    
    
    240
    
    
    
    171Other accrued expenses
    
    
    664
    
    
    
    750Total current liabilities
    
    
    2,984
    
    
    
    2,659Noncurrent liabilities and deferred creditsLong-term debt and capital leases, net of current maturities
    
    
    2,843
    
    
    
    2,749Deferred gains and credits
    
    
    227
    
    
    
    254Employee benefit liabilities and other
    
    
    869
    
    
    
    882Total noncurrent liabilities and deferred credits
    
    
    3,939
    
    
    
    3,885Commitments and contingenciesStockholders equityPreferred stock, $0.01 par value; 48,800,000 shares authorized, no shares issued
    
    
    
    
    
    
    Common stock, $0.01 par value; 200,000,000 shares authorized, 81,720,892 shares
outstanding at March 31, 2006; 81,668,989 shares outstanding at December 31, 2005
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    1,270
    
    
    
    1,258Accumulated deficit
    
    
    (761
    )
    
    
    (826
    )Treasury stock, common stock, 413,993 shares at March 31, 2006 and December 31, 2005
    
    
    (13
    )
    
    
    (13
    )Total stockholders equity
    
    
    497
    
    
    
    420Total liabilities and stockholders equity
    
    $
    7,420
    
    
    $
    6,964
  5




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##### Table of Contents



2006
    
    
    2005Net cash provided by operating activities
    
    $
    211
    
    
    $
    113Cash flows from investing activitiesPurchases of property and equipment
    
    
    (86
    )
    
    
    (57
    )Purchase of short-term investments
    
    
    (256
    )
    
    
    (100
    )Sales of short-term investments
    
    
    97
    
    
    
    132Increase in long-term restricted cash
    
    
    (215
    )
    
    
    (19
    )Proceeds from disposition of assets
    
    
    1
    
    
    
    1Net cash used for investing activities
    
    
    (459
    )
    
    
    (43
    )Cash flows from financing activitiesRepayment of debt
    
    
    (1,116
    )
    
    
    (86
    )Proceeds from issuance of debt
    
    
    1,225
    
    
    
    Other
    
    
    1
    
    
    
    (4
    )Net cash provided by (used for) financing activities
    
    
    110
    
    
    
    (90
    )Net decrease in cash and cash equivalents
    
    
    (138
    )
    
    
    (20
    )Cash and cash equivalents at beginning of period
    
    
    1,125
    
    
    
    149Cash and cash equivalents at end of period
    
    $
    987
    
    
    $
    129Non-cash investing and financing activityReclassification of investments in debt securities to
short-term investments
    
    $
    
    
    
    $
    10Notes payable issued under the aircraft purchase agreement
    
    
    
    
    
    
    5Notes payable cancelled under the aircraft purchase agreement
    
    
    (4
    )
    
    
    (4
    )Supplemental informationCash paid for interest, net of amounts capitalized
    
    $
    68
    
    
    $
    5
  6




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##### Table of Contents



US Airways Group, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 1. Basis of presentation
      7




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##### Table of Contents



2. Special items
  2006
    
    
    2005Airbus restructuring (a)
    
    $
    (90
    )
    
    $
    Merger related transition expenses (b)
    
    
    46
    
    
    
    Other
    
    
    
    
    
    
    1Special items, net
    
    $
    (44
    )
    
    $
    1
 
 (a)
    
    In connection with the merger and the Airbus Memorandum of
Understanding (Airbus MOU) executed between 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 restructuring fees totaling $89
million by means of set-off against existing equipment deposits of
US Airways and AWA held by Airbus of $39 million and $50 million,
respectively. Also in connection with the Airbus MOU, US Airways
and AWA entered into two loan agreements with commitments of up to
$161 million and $89 million. As described in further detail in
Note 5, on March 31, 2006, the outstanding principal and accrued
interest on the $89 million loan was forgiven upon repayment in full
of the $161 million loan in accordance with the terms of the Airbus
Loans. As a result, the Company recognized a gain associated with
the return of these equipment deposits upon forgiveness of the loan
totaling $90 million, consisting of the $89 million in equipment
deposits and accrued interest of $1 million.(b)
    
    In connection with the merger, the Company incurred $46 million of
transition and merger integration costs in the first quarter of
2006. These items included $21 million in personnel costs primarily
for severance, retention payments and stock awards, $7 million in
merger related aircraft lease return expenses, $6 million of
aircraft livery costs, $4 million in professional and technical
fees, $3 million in continuing professional fees associated with US
Airways bankruptcy proceedings, $3 million in employee moving
expenses, $1 million of transition-related sales and marketing
program expenses and $1 million in other expenses. 3. Earnings (loss) per share
  2006
    
    
    2005Basic earnings (loss) per share:Income before cumulative effect of change in accounting principle
    
    $
    64
    
    
    $
    28Cumulative effect of change in accounting principle
    
    
    1
    
    
    
    (202
    )Net income (loss)
    
    $
    65
    
    
    $
    (174
    )Weighted average common shares outstanding (in thousands)
    
    
    81,679
    
    
    
    14,849Basic earnings (loss) per share:Earnings before cumulative effect of change in accounting principle
    
    $
    0.79
    
    
    $
    1.90Cumulative effect of change in accounting principle
    
    
    0.01
    
    
    
    (13.60
    )Net earnings (loss) per share
    
    $
    0.80
    
    
    $
    (11.70
    )
 8




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##### Table of Contents



2006
    
    
    2005Diluted earnings (loss) per share:Income before cumulative effect of change in accounting principle
    
    $
    64
    
    
    $
    28Cumulative effect of change in accounting principle
    
    
    1
    
    
    
    (202
    )Net income (loss)
    
    
    65
    
    
    
    (174
    )Interest expense on 7.5% convertible senior notes
    
    
    3
    
    
    
    3Interest expense on 7.25% convertible senior notes
    
    
    
    
    
    
    2Interest expense on 7.0% senior convertible notes
    
    
    3
    
    
    
    Income (loss) for purposes of computing diluted net income (loss)
per share
    
    $
    71
    
    
    $
    (169
    )Share computation (in thousands):Weighted average common shares outstanding
    
    
    81,679
    
    
    
    14,849Dilutive effect of stock awards and warrants
    
    
    1,863
    
    
    
    3,617Assumed conversion of 7.5% convertible senior notes
    
    
    3,860
    
    
    
    3,860Assumed conversion of 7.25% convertible senior notes
    
    
    
    
    
    
    3,340Assumed conversion of 7.0% senior convertible notes
    
    
    5,960
    
    
    
    Weighted average common shares outstanding as adjusted
    
    
    93,362
    
    
    
    25,666Diluted earnings (loss) per share:Earnings before cumulative effect of change in accounting principle
    
    $
    0.75
    
    
    $
    1.29Cumulative effect of change in accounting principle
    
    
    0.01
    
    
    
    (7.87
    )Earnings (loss) per share
    
    $
    0.76
    
    
    $
    (6.58
    )
   4. Stock options (Adoption of SFAS 123R)
   9




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##### Table of Contents



Net loss as reported
    
    $
    (174
    )Stock-based compensation determined under the fair-value based method
    
    
    (1
    )Pro forma net loss
    
    $
    (175
    )Loss per common shareBasic  as reported
    
    $
    (11.70
    )Basic  pro forma
    
    $
    (11.76
    )Diluted  as reported
    
    $
    (6.58
    )Diluted  pro forma
    
    $
    (6.62
    )
 Restricted Stock Unit Awards 
  Weightedaverage grant-2005 Equity Incentive Plan
    
    Number of shares
    
    
    date fair valueNonvested balances at January 1, 2006
    
    
    687
    
    
    $
    26.17Granted
    
    
    3
    
    
    
    31.81Vested
    
    
    
    
    
    
    Forfeited
    
    
    (7
    )
    
    
    27.55Nonvested balance at March 31, 2006
    
    
    683
    
    
    $
    26.18
  Stock Options and Stock Appreciation Rights 
 10




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##### Table of Contents



WeightedaverageStock
    
    
    Weighted
    
    
    remaining
    
    
    Aggregateoptions
    
    
    average
    
    
    contractual term
    
    
    intrinsic valueand SARs
    
    
    exercise price
    
    
    (years)
    
    
    (in millions)1994 Incentive Equity PlanBalance at January 1, 2006
    
    
    1,267
    
    
    $
    38.28Granted
    
    
    
    
    
    
    Exercised
    
    
    (4
    )
    
    
    25.26Forfeited
    
    
    
    
    
    
    Expired
    
    
    (40
    )
    
    
    50.86Balance at March 31, 2006
    
    
    1,223
    
    
    $
    37.91
    
    
    
    3.43
    
    
    
    9Exercisable at March 31,
2006
    
    
    1,223
    
    
    $
    37.91
    
    
    
    3.43
    
    
    
    92002 Incentive Equity PlanBalance at January 1, 2006
    
    
    2,048
    
    
    $
    16.98Granted
    
    
    
    
    
    
    Exercised
    
    
    (25
    )
    
    
    15.02Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Balance at March 31, 2006
    
    
    2,023
    
    
    $
    17.00
    
    
    
    7.52
    
    
    
    47Exercisable at March 31,
2006
    
    
    1,816
    
    
    $
    16.55
    
    
    
    7.31
    
    
    
    432005 Equity Incentive PlanBalance at January 1, 2006
    
    
    1,973
    
    
    $
    23.15Granted
    
    
    88
    
    
    
    31.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (18
    )
    
    
    27.55Expired
    
    
    
    
    
    
    Balance at March 31, 2006
    
    
    2,043
    
    
    $
    23.45
    
    
    
    9.55
    
    
    
    34Exercisable at March 31,
2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
   2006
    
    2005Risk free interest rate
    
    
    4.6
    %
    
    
    3.4
    %Expected dividend yield
    
    
    
    %
    
    
    
    %Expected life
    
    

    3.0 years
    

    
    

    4.0 yearsVolatility
    
    
    54
    %
    
    
    54
    %
 11




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##### Table of Contents



Agreements with ALPA 
  Risk free interest rate
    
    
    4.4
    %Expected dividend yield
    
    
    
    %Contractual term
    
    
    5.0 yearsVolatility
    
    
    69.8
    %
  12




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##### Table of Contents



5. Debt
  March 31,
    
    
    December 31,2006
    
    
    2005SecuredGeneral Electric Capital Corporation loan, variable interest rate of 8.33%,
interest only payments until due on March 31, 2011
    
    $
    1,100
    
    
    $
    AWA Citibank Loan (former AWA ATSB Loan)
    
    
    
    
    
    
    250GECC term loan
    
    
    
    
    
    
    111Senior secured discount notes, variable interest rate of 8.42%, installments
due 2005 through 2009
    
    
    34
    
    
    
    34Airbus Loans
    
    
    
    
    
    
    186Equipment notes payable, variable interest rates of 6.89% to 9.82%
    
    
    1,251
    
    
    
    1,240US Airways Citibank Loan (formerly US Airways ATSB Loan)
    
    
    
    
    
    
    551Slot Financing, interest rate of 8%, installments due through 2015
    
    
    50
    
    
    
    50Capital lease obligations, interest rate of 8%, installments due through 2021
    
    
    44
    
    
    
    46GE Credit Facility, variable interest rate of 8.78%, installments due 2006 to
2010
    
    
    26
    
    
    
    282,505
    
    
    
    2,496Unsecured7% senior convertible notes, interest only payments until due in 2020
    
    
    144
    
    
    
    1447.5% convertible senior notes, interest only payments until due in 2009
    
    
    112
    
    
    
    112Equipment notes payable
    
    
    
    
    
    
    4Industrial development bonds, fixed interest rate of 6.3% due 2023
    
    
    29
    
    
    
    29State loan, variable interest rate of 9.38%, installments due 2005 through 2007
    
    
    1
    
    
    
    1Juniper prepaid miles, variable interest rate of 9.38%, interest only payments
until due in 2010
    
    
    325
    
    
    
    325Note payable to Pension Benefit Guaranty Corporation, interest rate of 6%,
interest only payments until due 2012
    
    
    10
    
    
    
    10621
    
    
    
    625Total long-term debt and capital lease obligations
    
    
    3,126
    
    
    
    3,121Less: Unamortized discount on debt
    
    
    (159
    )
    
    
    (161
    )Current maturities
    
    
    (124
    )
    
    
    (211
    )Long-term debt and capital lease obligations, net of current maturities
    
    $
    2,843
    
    
    $
    2,749
 Refinancing Transaction 
  13




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##### Table of Contents




    
    The amended and restated US Airways and AWA loans entered into on September 27, 2005
that had previously been guaranteed by the Air Transportation Stabilization Board (the
ATSB). On October 19, 2005, $777 million of the loans, of which $752 million had been
guaranteed by the ATSB, was sold by the lenders by order of the ATSB to 13 fixed income
investors, removing the ATSB guarantee. At the time of repayment of these loans on March
31, 2006, the total outstanding balance of the loans was $801 million, of which $551
million was outstanding under the US Airways loan and $250 million was outstanding under
the AWA loan. Proceeds were also used to pay $15 million of accrued interest and fees on
the US Airways loan, and $8 million of accrued interest and $5 million of prepayment
penalty on the AWA loan.
    
    The $161 million loan entered into as of September 27, 2005 between US Airways and AWA
and Airbus Financial Services, for which US Airways Group was the guarantor. At the time
of repayment on March 31, 2006, the outstanding balance of the loan was $161 million. US
Airways and AWA also had an $89 million loan from Airbus Financial Services entered into as
of September 27, 2005. In accordance with the terms of the loan agreements, the
outstanding principal amount of the $89 million loan was to be forgiven in writing on the
earlier of December 31, 2010 or the date that the outstanding principal amount of, accrued
interest on, and all other amounts due under the Airbus $161 million loan were paid in
full, provided that the Company complies with the delivery schedule for certain Airbus
aircraft. As a result of the prepayment of the $161 million loan on March 31, 2006, the
$89 million loan agreement was terminated and the $89 million loan, of which $89 million
was outstanding, was forgiven along with $1 million in accrued interest.
    
    Two loans provided by GECC to AWA pursuant to loan agreements entered into as of
September 3, 2004 referred to as the Spare Parts Facility and the Engines Facility. At the
time of repayment, the principal amounts outstanding under the Spare Parts Facility and the
Engines Facility were $76 million and $34 million, respectively. Proceeds were also used to
pay $1 million of accrued interest and $1 million of prepayment penalties on these two GECC
loans.
  Redemption of 7.5% Convertible Senior Notes due 2009 
 14




---



##### Table of Contents



6. Purchase accounting
 (a) Purchase price allocation
   Goodwill reported as of December 31, 2005
    
    $
    732Non-current employee benefits and other
    
    
    (19
    )Long-term debt
    
    
    (10
    )Materials and supplies, net
    
    
    9Other assets
    
    
    (7
    )Accrued compensation and vacation
    
    
    (4
    )Other accrued expenses
    
    
    1Goodwill reported as of March 31, 2006
    
    $
    702
  (b) Pro forma information
  15




---



##### Table of Contents



Operating revenues
    
    $
    2,360Operating expenses
    
    
    2,506Operating loss
    
    
    (146
    )Net loss
    
    $
    (440
    )Basic and diluted loss per share
    
    $
    (6.55
    )Basic and diluted shares (in thousands)
    
    
    67,167
 7. Employee benefit plans
   Defined
    
    
    Otherbenefit
    
    
    postretirementpension plans
    
    
    benefitsService cost
    
    $
    
    
    
    $
    1Interest cost
    
    
    1
    
    
    
    3Expected return on plan assets
    
    
    (1
    )
    
    
    Total periodic cost
    
    $
    
    
    
    $
    4
 8. Express expenses
  2006
    
    
    2005Aircraft fuel and related taxes
    
    $
    104
    
    
    $
    32Salaries and related costs
    
    
    62
    
    
    
    Capacity purchases
    
    
    337
    
    
    
    69Aircraft rent
    
    
    20
    
    
    
    2Aircraft maintenance
    
    
    19
    
    
    
    Other rent and landing fees
    
    
    9
    
    
    
    7Selling expenses
    
    
    21
    
    
    
    Depreciation and amortization
    
    
    6
    
    
    
    Other expenses
    
    
    37
    
    
    
    1Express expenses
    
    $
    615
    
    
    $
    111
 16




---



##### Table of Contents



2006
    
    
    2005Operating revenuesMainline passenger
    
    $
    652
    
    
    $
    577Express passenger
    
    
    153
    
    
    
    103Cargo
    
    
    9
    
    
    
    9Other
    
    
    45
    
    
    
    44Total operating revenues
    
    
    859
    
    
    
    733Operating expensesAircraft fuel and related taxes
    
    
    205
    
    
    
    160Gain on fuel hedging instruments, net
    
    
    (28
    )
    
    
    (60
    )Salaries and related costs
    
    
    174
    
    
    
    175Express expenses
    
    
    145
    
    
    
    111Aircraft rent
    
    
    86
    
    
    
    77Aircraft maintenance
    
    
    52
    
    
    
    53Other rent and landing fees
    
    
    45
    
    
    
    42Selling expenses
    
    
    39
    
    
    
    36Special items, net
    
    
    (30
    )
    
    
    1Depreciation and amortization
    
    
    11
    
    
    
    12Other
    
    
    77
    
    
    
    80Total operating expenses
    
    
    776
    
    
    
    687Operating income
    
    
    83
    
    
    
    46Nonoperating income (expense)Interest income
    
    
    13
    
    
    
    3Interest expense, net
    
    
    (28
    )
    
    
    (21
    )Other, net
    
    
    (11
    )
    
    
    1Nonoperating expense, net
    
    
    (26
    )
    
    
    (17
    )Income before income taxes and cumulative effect of change of
accounting principle
    
    
    57
    
    
    
    29Income tax provision
    
    
    
    
    
    
    Income before cumulative effect of change in accounting principle
    
    
    57
    
    
    
    29Cumulative effect of change in accounting principle, net
    
    
    1
    
    
    
    (202
    )Net income (loss)
    
    $
    58
    
    
    $
    (173
    )Unaudited pro forma net income assuming change in method of accounting was applied retroactively (Note 1)
    
    $
    57

    
    
    $
    29
  17




---



##### Table of Contents



March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    472
    
    
    $
    632Short-term investments
    
    
    390
    
    
    
    319Accounts receivable, net
    
    
    138
    
    
    
    119Materials and supplies, net
    
    
    88
    
    
    
    87Prepaid expenses and other
    
    
    259
    
    
    
    169Total current assets
    
    
    1,347
    
    
    
    1,326Property and equipmentFlight equipment
    
    
    349
    
    
    
    348Ground property and equipment
    
    
    316
    
    
    
    309Less accumulated depreciation and amortization
    
    
    (405
    )
    
    
    (399
    )260
    
    
    
    258Equipment purchase deposits
    
    
    8
    
    
    
    11Total property and equipment
    
    
    268
    
    
    
    269Other assetsRestricted cash
    
    
    231
    
    
    
    229Advances to parent company
    
    
    261
    
    
    
    261Other assets, net
    
    
    93
    
    
    
    107Total other assets
    
    
    585
    
    
    
    597Total assets
    
    $
    2,200
    
    
    $
    2,192LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    2
    
    
    $
    94Accounts payable
    
    
    230
    
    
    
    216Payable to related parties, net
    
    
    864
    
    
    
    443Air traffic liability
    
    
    289
    
    
    
    218Accrued compensation and vacation
    
    
    47
    
    
    
    59Accrued taxes
    
    
    22
    
    
    
    25Other accrued expenses
    
    
    71
    
    
    
    59Total current liabilities
    
    
    1,525
    
    
    
    1,114Noncurrent liabilities and deferred creditsLong-term debt, net of current maturities
    
    
    479
    
    
    
    936Deferred credits
    
    
    248
    
    
    
    252Total noncurrent liabilities and deferred credits
    
    
    727
    
    
    
    1,188Commitments and contingenciesStockholders deficitCommon stock, $0.01 par value; 1,000 shares authorized and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    555
    
    
    
    555Accumulated deficit
    
    
    (607
    )
    
    
    (665
    )Total stockholders deficit
    
    
    (52
    )
    
    
    (110
    )Total liabilities and stockholders deficit
    
    $
    2,200
    
    
    $
    2,192
  18




---



##### Table of Contents



2006
    
    
    2005Net cash provided by (used for) operating activities
    
    $
    (3
    )
    
    $
    113Cash flows from investing activitiesPurchases of property and equipment
    
    
    (14
    )
    
    
    (57
    )Purchase of short-term investments
    
    
    (166
    )
    
    
    (100
    )Sales of short-term investments
    
    
    97
    
    
    
    132Increase in long-term restricted cash
    
    
    (2
    )
    
    
    (19
    )Other
    
    
    1
    
    
    
    1Net cash used for investing activities
    
    
    (84
    )
    
    
    (43
    )Cash flows from financing activitiesRepayments of debt
    
    
    (1
    )
    
    
    (86
    )Net change in payable to related parties
    
    
    (72
    )
    
    
    Other
    
    
    
    
    
    
    (4
    )Net cash used for financing activities
    
    
    (73
    )
    
    
    (90
    )Net decrease in cash and cash equivalents
    
    
    (160
    )
    
    
    (20
    )Cash and cash equivalents at beginning of period
    
    
    632
    
    
    
    128Cash and cash equivalents at end of period
    
    $
    472
    
    
    $
    108Non-cash investing and financing activitiesRepayment of ATSB, Airbus, and GECC loans by parent
    
    $
    520
    
    
    $
    Reclassification of investments in debt securities
to short-term investments
    
    
    
    
    
    
    10Notes payable issued under the aircraft purchase agreement
    
    
    
    
    
    
    5Notes payable cancelled under the aircraft purchase agreement
    
    
    (4
    )
    
    
    (4
    )Loan proceeds received by parent
    
    
    64
    
    
    
    Supplemental informationCash paid for interest, net of amounts capitalized
    
    $
    10
    
    
    $
    5
  19




---



##### Table of Contents



America West Airlines, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 1. Basis of presentation
     2. Special items
  2006
    
    
    2005Airbus restructuring (a)
    
    $
    (51
    )
    
    $
    Merger related transition expenses (b)
    
    
    21
    
    
    
    Other
    
    
    
    
    
    
    1Special items, net
    
    $
    (30
    )
    
    $
    1
 20




---



##### Table of Contents



(a)
    
    In connection with the merger and the Airbus Memorandum of
Understanding (Airbus MOU) executed between US Airways Group, US
Airways, Inc. (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
restructuring fees totaling $89 million by means of set-off against
existing equipment deposits of US Airways and AWA held by Airbus of
$39 million and $50 million, respectively. Also in connection with
the Airbus MOU, US Airways and AWA entered into two loan agreements
with commitments of up to $161 million and $89 million. As
described in further detail in Note 4, on March 31, 2006, the
outstanding principal and accrued interest on the $89 million loan
was forgiven upon repayment in full of the $161 million loan in
accordance with the terms of the Airbus Loans. As a result, AWA
recognized a gain associated with the return of these equipment
deposits upon forgiveness of the loan totaling $51 million,
consisting of the $50 million in equipment deposits and accrued
interest of $1 million.(b)
    
    In connection with the merger with US Airways Group, AWA incurred
$21 million of transition and merger integration costs in the first
quarter of 2006. These items included $7 million in merger related
aircraft lease return expenses, $5 million of aircraft livery costs,
$4 million in personnel costs primarily for severance, moving
expenses and stock awards, $3 million in professional and technical
fees, $1 million of transition-related sales and marketing program
expenses and $1 million in other expenses. 3. Stock options (Adoption of SFAS 123R)
    21




---



##### Table of Contents



Net loss as reported
    
    $
    (173
    )Stock-based compensation determined under the fair-value based method
    
    
    (1
    )Pro forma net loss
    
    $
    (174
    )
 Restricted Stock Unit Awards 
  WeightedNumber of
    
    
    average grant-2005 Equity Incentive Plan
    
    shares
    
    
    date fair valueNonvested balances at January 1, 2006
    
    
    687
    
    
    $
    26.17Granted
    
    
    3
    
    
    
    31.81Vested
    
    
    
    
    
    
    Forfeited
    
    
    (7
    )
    
    
    27.55Nonvested balance at March 31, 2006
    
    
    683
    
    
    $
    26.18
  Stock Options and Stock Appreciation Rights 
  WeightedaverageStock
    
    
    Weighted
    
    
    remaining
    
    
    Aggregateoptions
    
    
    average
    
    
    contractual term
    
    
    intrinsic valueand SARs
    
    
    exercise price
    
    
    (years)
    
    
    (in millions)1994 Incentive Equity PlanBalance at January 1, 2006
    
    
    1,267
    
    
    $
    38.28Granted
    
    
    
    
    
    
    Exercised
    
    
    (4
    )
    
    
    25.26Forfeited
    
    
    
    
    
    
    Expired
    
    
    (40
    )
    
    
    50.86Balance at March 31, 2006
    
    
    1,223
    
    
    $
    37.91
    
    
    
    3.43
    
    
    
    9Exercisable at March 31,
2006
    
    
    1,223
    
    
    $
    37.91
    
    
    
    3.43
    
    
    
    9
 22




---



##### Table of Contents



WeightedaverageStock
    
    
    Weighted
    
    
    remaining
    
    
    Aggregateoptions
    
    
    average
    
    
    contractual term
    
    
    intrinsic valueand SARs
    
    
    exercise price
    
    
    (years)
    
    
    (in millions)2002
Incentive Equity PlanBalance at January 1, 2006
    
    
    2,048
    
    
    $
    16.98Granted
    
    
    
    
    
    
    Exercised
    
    
    (25
    )
    
    
    15.02Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Balance at March 31, 2006
    
    
    2,023
    
    
    $
    17.00
    
    
    
    7.52
    
    
    
    47Exercisable at March 31,
2006
    
    
    1,816
    
    
    $
    16.55
    
    
    
    7.31
    
    
    
    432005 Equity Incentive PlanBalance at January 1, 2006
    
    
    1,973
    
    
    $
    23.15Granted
    
    
    88
    
    
    
    31.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (18
    )
    
    
    27.55Expired
    
    
    
    
    
    
    Balance at March 31, 2006
    
    
    2,043
    
    
    $
    23.45
    
    
    
    9.55
    
    
    
    34Exercisable at March 31,
2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
   2006
    
    2005Risk free interest rate
    
    
    4.6
    %
    
    
    3.4
    %Expected dividend yield
    
    
    
    %
    
    
    
    %Expected life
    
    3.0 years
    
    
    4.0 yearsVolatility
    
    
    54
    %
    
    
    54
    %
   Agreements with ALPA 
 23




---



##### Table of Contents



Risk free interest rate
    
    
    4.4
    %Expected dividend yield
    
    
    
    %Contractual term
    
    5.0 yearsVolatility
    
    
    69.8
    %
  4. Debt
  March 31,
    
    
    December 31,2006
    
    
    2005SecuredAWA Citibank Loan (former ATSB loan)
    
    $
    
    
    
    $
    250GECC term loan
    
    
    
    
    
    
    111Senior secured discount notes, variable interest rate of 8.42%,
installments due 2005 through 2009
    
    
    34
    
    
    
    34Airbus Loans
    
    
    
    
    
    
    18634
    
    
    
    581Unsecured7.5% convertible senior notes, interest only payments until due in 2009
    
    
    112
    
    
    
    112Equipment notes payable
    
    
    
    
    
    
    4Industrial development bonds, fixed interest rate of 6.3% due 2023
    
    
    29
    
    
    
    29State loan, variable interest rate of 9.38%, installments due 2005 through 2007
    
    
    1
    
    
    
    1Juniper prepaid miles, variable interest rate of 9.38%, interest only payments
until due in 2010
    
    
    325
    
    
    
    325467
    
    
    
    471Total long-term debt and capital lease obligations
    
    
    501
    
    
    
    1,052Less: Unamortized discount on debt
    
    
    (20
    )
    
    
    (22
    )Current maturities
    
    
    (2
    )
    
    
    (94
    )Long-term debt and capital lease obligations, net of current maturities
    
    $
    479
    
    
    $
    936
 Refinancing Transaction 
  24




---



##### Table of Contents




    
    The amended and restated US Airways and AWA loans entered into on September 27, 2005
that had previously been guaranteed by the Air Transportation Stabilization Board (the
ATSB). On October 19, 2005, $777 million of the loans, of which $752 million had been
guaranteed by the ATSB, was sold by the lenders by order of the ATSB to 13 fixed income
investors, removing the ATSB guarantee. At the time of repayment of these loans on March
31, 2006, the total outstanding balance of the loans was $801 million, of which $551
million was outstanding under the US Airways loan and $250 million was outstanding under
the AWA loan. Proceeds were also used to pay $15 million of accrued interest and fees on
the US Airways loan, and $8 million of accrued interest and $5 million of prepayment
penalty on the AWA loan.
    
    The $161 million loan entered into as of September 27, 2005 between US Airways and AWA
and Airbus Financial Services, for which US Airways Group was the guarantor. At the time
of repayment on March 31, 2006, the outstanding balance of the loan was $161 million. US
Airways and AWA also had an $89 million loan from Airbus Financial Services entered into as
of September 27, 2005. In accordance with the terms of the loan agreements, the
outstanding principal amount of the $89 million loan was to be forgiven in writing on the
earlier of December 31, 2010 or the date that the outstanding principal amount of, accrued
interest on, and all other amounts due under the Airbus $161 million loan were paid in
full, provided that US Airways Group complies with the delivery schedule for certain Airbus
aircraft. As a result of the prepayment of the $161 million loan on March 31, 2006, the
$89 million loan agreement was terminated and the $89 million loan, of which $89 million
was outstanding, was forgiven along with $1 million in accrued interest.
    
    Two loans provided by GECC to AWA pursuant to loan agreements entered into as of
September 3, 2004 referred to as the Spare Parts Facility and the Engines Facility. At the
time of repayment, the principal amounts outstanding under the Spare Parts Facility and the
Engines Facility were $76 million and $34 million, respectively. Proceeds were also used to
pay $1 million of accrued interest and $1 million of prepayment penalties on these two GECC
loans.
  Redemption of 7.5% Convertible Senior Notes due 2009 
 25




---



##### Table of Contents



5. Related party transactions
     26




---



##### Table of Contents



6. Express expenses
  2006
    
    
    2005Aircraft fuel and related taxes
    
    $
    46
    
    
    $
    32Capacity purchases
    
    
    85
    
    
    
    69Other rent and landing fees
    
    
    3
    
    
    
    2Selling expenses
    
    
    10
    
    
    
    7Other expenses
    
    
    1
    
    
    
    1Express expenses
    
    $
    145
    
    
    $
    111
 27




---



##### Table of Contents



Successor
    
    
    
    PredecessorCompany
    
    
    
    Company2006
    
    
    
    2005Operating revenuesMainline passenger
    
    $
    1,159
    
    
    
    $
    1,133Express passenger
    
    
    458
    
    
    
    
    314Cargo
    
    
    29
    
    
    
    
    21Other
    
    
    158
    
    
    
    
    154Total operating revenues
    
    
    1,804
    
    
    
    
    1,622Operating expensesAircraft fuel and related taxes
    
    
    349
    
    
    
    
    321Salaries and related costs
    
    
    329
    
    
    
    
    408Express expenses
    
    
    499
    
    
    
    
    419Aircraft rent
    
    
    99
    
    
    
    
    98Aircraft maintenance
    
    
    90
    
    
    
    
    72Other rent and landing fees
    
    
    84
    
    
    
    
    89Selling expenses
    
    
    67
    
    
    
    
    93Special items, net
    
    
    (15
    )
    
    
    
    Depreciation and amortization
    
    
    36
    
    
    
    
    50Other
    
    
    223
    
    
    
    
    254Total operating expenses
    
    
    1,761
    
    
    
    
    1,804Operating income (loss)
    
    
    43
    
    
    
    
    (182
    )Nonoperating income (expense)Interest income
    
    
    14
    
    
    
    
    3Interest expense, net
    
    
    (55
    )
    
    
    
    (75
    )Reorganization items, net
    
    
    
    
    
    
    
    (2
    )Other, net
    
    
    (2
    )
    
    
    
    (3
    )Nonoperating expense, net
    
    
    (43
    )
    
    
    
    (77
    )Income (loss) before income taxes
    
    
    
    
    
    
    
    (259
    )Income tax provision
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    
    
    
    
    $
    (259
    )
  28




---



##### Table of Contents



March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    490
    
    
    $
    462Short-term investments
    
    
    221
    
    
    
    132Restricted cash
    
    
    5
    
    
    
    8Accounts receivable, net
    
    
    351
    
    
    
    227Materials and supplies, net
    
    
    109
    
    
    
    109Prepaid expenses and other
    
    
    208
    
    
    
    213Total current assets
    
    
    1,384
    
    
    
    1,151Property and equipmentFlight equipment
    
    
    1,557
    
    
    
    1,492Ground property and equipment
    
    
    205
    
    
    
    205Less accumulated depreciation and amortization
    
    
    (55
    )
    
    
    (28
    )1,707
    
    
    
    1,669Equipment purchase deposits
    
    
    32
    
    
    
    32Total property and equipment
    
    
    1,739
    
    
    
    1,701Other assetsGoodwill
    
    
    702
    
    
    
    732Other intangibles, net
    
    
    533
    
    
    
    541Restricted cash
    
    
    776
    
    
    
    563Other assets, net
    
    
    116
    
    
    
    120Total other assets
    
    
    2,127
    
    
    
    1,956Total assets
    
    $
    5,250
    
    
    $
    4,808LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilitiesCurrent maturities of debt and capital leases
    
    $
    122
    
    
    $
    117Accounts payable
    
    
    270
    
    
    
    276Payables to related parties, net
    
    
    1,211
    
    
    
    336Air traffic liability
    
    
    956
    
    
    
    570Accrued compensation and vacation
    
    
    125
    
    
    
    144Accrued taxes
    
    
    205
    
    
    
    133Other accrued expenses
    
    
    557
    
    
    
    657Total current liabilities
    
    
    3,446
    
    
    
    2,233Noncurrent liabilities and deferred creditsLong-term debt and capital leases, net of current maturities
    
    
    1,120
    
    
    
    1,855Deferred gains and credits
    
    
    204
    
    
    
    215Postretirement benefits other than pensions
    
    
    190
    
    
    
    189Employee benefit liabilities and other
    
    
    423
    
    
    
    449Total noncurrent liabilities and deferred credits
    
    
    1,937
    
    
    
    2,708Commitments and contingenciesStockholders
deficitCommon stock, $1 par, 1,000 shares issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    1
    
    
    
    1Accumulated deficit
    
    
    (134
    )
    
    
    (134
    )Total stockholders deficit
    
    
    (133
    )
    
    
    (133
    )Total liabilities and stockholders deficit
    
    $
    5,250
    
    
    $
    4,808
  29




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##### Table of Contents



Successor
    
    
    
    PredecessorCompany
    
    
    
    Company2006
    
    
    
    2005Net cash provided by (used for) operating activities
before reorganization items
    
    $
    222
    
    
    
    $
    (97
    )Reorganization items, net
    
    
    
    
    
    
    
    (11
    )Net cash provided by (used for) operating activities
    
    
    222
    
    
    
    
    (108
    )Cash flows from investing activitiesPurchases of property and equipment
    
    
    (68
    )
    
    
    
    (38
    )Proceeds from disposition of assets
    
    
    
    
    
    
    
    3Purchase of short-term investments
    
    
    (89
    )
    
    
    
    Increase in long-term restricted cash
    
    
    (213
    )
    
    
    
    (139
    )Net cash used for investing activities
    
    
    (370
    )
    
    
    
    (174
    )Cash flows from financing activitiesNet increase in payable to related parties
    
    
    172
    
    
    
    
    Proceeds from issuance of debt
    
    
    48
    
    
    
    
    55Proceeds from issuance of debtor-in-possession financings
    
    
    
    
    
    
    
    75Repayments of debt and capital lease obligations
    
    
    (44
    )
    
    
    
    (72
    )Net cash provided by financing activities
    
    
    176
    
    
    
    
    58Net increase (decrease) in cash and cash equivalents
    
    
    28
    
    
    
    
    (224
    )Cash and cash equivalents at beginning of period
    
    
    462
    
    
    
    
    734Cash and cash equivalents at end of period
    
    $
    490
    
    
    
    $
    510Non-cash investing and financing activitiesRepayment of ATSB and Airbus loans by parent
    
    $
    712
    
    
    
    $
    Property and equipment financed with debt and capital leases
    
    
    
    
    
    
    
    53Loan proceeds received by parent
    
    
    64
    
    
    
    
    Supplemental informationCash paid for interest, net of amounts capitalized
    
    $
    58
    
    
    
    $
    76
  30




---



##### Table of Contents



US Airways, Inc.
 
 Notes to Condensed Financial Statements
 (Unaudited)
 1. Basis of presentation
     31




---



##### Table of Contents



2. Special items
  Airbus restructuring (a)
    
    $
    (40
    )Merger related transition expenses (b)
    
    
    25Special items, net
    
    $
    (15
    )
 
 (a)
    
    In connection with the merger and the Airbus Memorandum of
Understanding (Airbus MOU) executed between US Airways
Group, US Airways and America West Airlines, Inc. (AWA),
certain aircraft firm orders were restructured. In connection
with that restructuring, US Airways Group and America West
Holdings were required to pay restructuring fees totaling $89
million by means of set-off against existing equipment
deposits of US Airways and AWA held by Airbus of $39 million
and $50 million, respectively. Also in connection with the
Airbus MOU, US Airways and AWA entered into two loan
agreements with commitments of up to $161 million and $89
million. As described in further detail in Note 4, on March
31, 2006, the outstanding principal and accrued interest on
the $89 million loan was forgiven upon repayment in full of
the $161 million loan in accordance with terms of the Airbus
Loans. As a result, US Airways recognized a gain associated
with the return of these equipment deposits upon forgiveness
of the loan totaling $40 million, consisting of the $39
million in equipment deposits and accrued interest of $1
million.(b)
    
    In connection with the merger with America West Holdings, US
Airways incurred $25 million of transition and merger
integration costs in the first quarter of 2006. These items
included $17 million in personnel costs for severance,
retention payments and stock awards, $3 million in continuing
professional fees associated with US Airways bankruptcy
proceedings, $3 million in employee moving expenses, $1
million of aircraft livery costs and $1 million of programming
service expense. 3. Stock options (Adoption of SFAS 123R)
   32




---



##### Table of Contents



Restricted Stock Unit Awards 
  WeightedNumber of
    
    
    average grant-2005 Equity Incentive Plan
    
    shares
    
    
    date fair valueNonvested balances at January 1, 2006
    
    
    687
    
    
    $
    26.17Granted
    
    
    3
    
    
    
    31.81Vested
    
    
    
    
    
    
    Forfeited
    
    
    (7
    )
    
    
    27.55Nonvested balance at March 31, 2006
    
    
    683
    
    
    $
    26.18
  Stock Options and Stock Appreciation Rights 
  33




---



##### Table of Contents



WeightedaverageStock
    
    
    Weighted
    
    
    remaining
    
    
    Aggregateoptions
    
    
    average
    
    
    contractual term
    
    
    intrinsic valueand SARs
    
    
    exercise price
    
    
    (years)
    
    
    (in millions)1994 Incentive Equity PlanBalance at January 1, 2006
    
    
    1,267
    
    
    $
    38.28Granted
    
    
    
    
    
    
    Exercised
    
    
    (4
    )
    
    
    25.26Forfeited
    
    
    
    
    
    
    Expired
    
    
    (40
    )
    
    
    50.86Balance at March 31, 2006
    
    
    1,223
    
    
    $
    37.91
    
    
    
    3.43
    
    
    
    9Exercisable at March 31,
2006
    
    
    1,223
    
    
    $
    37.91
    
    
    
    3.43
    
    
    
    92002 Incentive Equity PlanBalance at January 1, 2006
    
    
    2,048
    
    
    $
    16.98Granted
    
    
    
    
    
    
    Exercised
    
    
    (25
    )
    
    
    15.02Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Balance at March 31, 2006
    
    
    2,023
    
    
    $
    17.00
    
    
    
    7.52
    
    
    
    47Exercisable at March 31,
2006
    
    
    1,816
    
    
    $
    16.55
    
    
    
    7.31
    
    
    
    432005 Equity Incentive PlanBalance at January 1, 2006
    
    
    1,973
    
    
    $
    23.15Granted
    
    
    88
    
    
    
    31.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (18
    )
    
    
    27.55Expired
    
    
    
    
    
    
    Balance at March 31, 2006
    
    
    2,043
    
    
    $
    23.45
    
    
    
    9.55
    
    
    
    34Exercisable at March 31,
2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
   2006
    
    2005Risk free interest rate
    
    
    4.6
    %
    
    
    3.4
    %Expected dividend yield
    
    
    
    %
    
    
    
    %Expected life
    
    3.0 years
    
    
    4.0 yearsVolatility
    
    
    54
    %
    
    
    54
    %
   34




---



##### Table of Contents



Agreements with ALPA 
  Risk free interest rate
    
    
    4.4
    %Expected dividend yield
    
    
    
    %Contractual term
    
    5.0 yearsVolatility
    
    
    69.8
    %
  4. Debt
  March 31,
    
    
    December 31,2006
    
    
    2005SecuredEquipment notes payable, variable interest rates of 6.89% to 9.82%
    
    $
    1,251
    
    
    $
    1,240US Airways East Citibank Loan (former ATSB loan)
    
    
    
    
    
    
    551Slot financing, interest rate of 8%, installments due through 2015
    
    
    50
    
    
    
    50Capital lease obligations, interest rate of 8%, installments due through 2021
    
    
    44
    
    
    
    46GE Credit Facility, variable interest rate of 8.78%, installments due 2006 to 2010
    
    
    26
    
    
    
    28Airbus Loans
    
    
    
    
    
    
    1861,371
    
    
    
    2,101UnsecuredNote payable to Pension Benefit Guaranty Corporation, interest rate of 6%,
interest only payments until due 2012
    
    
    10
    
    
    
    1010
    
    
    
    10Total long-term debt and capital lease obligations
    
    
    1,381
    
    
    
    2,111Less: Unamortized discount on debt
    
    
    (139
    )
    
    
    (139
    )Current maturities
    
    
    (122
    )
    
    
    (117
    )Long-term debt and capital lease obligations, net of current maturities
    
    $
    1,120
    
    
    $
    1,855
 Refinancing Transaction 
 35




---



##### Table of Contents




    
    The amended and restated US Airways and AWA loans entered into on September 27, 2005
that had previously been guaranteed by the Air Transportation Stabilization Board (the
ATSB). On October 19, 2005, $777 million of the loans, of which $752 million had been
guaranteed by the ATSB, was sold by the lenders by order of the ATSB to 13 fixed income
investors, removing the ATSB guarantee. At the time of repayment of these loans on March
31, 2006, the total outstanding balance of the loans was $801 million, of which $551
million was outstanding under the US Airways loan and $250 million was outstanding under
the AWA loan. Proceeds were also used to pay $15 million of accrued interest and fees on
the US Airways loan, and $8 million of accrued interest and $5 million of prepayment
penalty on the AWA loan.
    
    The $161 million loan entered into as of September 27, 2005 between US Airways and AWA
and Airbus Financial Services, for which US Airways Group was the guarantor. At the time
of repayment on March 31, 2006, the outstanding balance of the loan was $161 million. US
Airways and AWA also had an $89 million loan from Airbus Financial Services entered into as
of September 27, 2005. In accordance with the terms of the loan agreements, the
outstanding principal amount of the $89 million loan was to be forgiven in writing on the
earlier of December 31, 2010 or the date that the outstanding principal amount of, accrued
interest on, and all other amounts due under the Airbus $161 million loan were paid in
full, provided that US Airways Group complies with the delivery
schedule for certain Airbus aircraft. As a result of the prepayment of the $161 million
loan on March 31, 2006, the $89 million loan agreement was terminated and the $89 million
loan, of which $89 million was outstanding, was forgiven along with $1 million in accrued
interest.
    
    Two loans provided by GECC to AWA pursuant to loan agreements entered into as of
September 3, 2004 referred to as the Spare Parts Facility and the Engines Facility. At the
time of repayment, the principal amounts outstanding under the Spare Parts Facility and the
Engines Facility were $76
 36




---



##### Table of Contents



million and $34 million, respectively. Proceeds were also used to
pay $1 million of accrued interest and $1 million of prepayment penalties on these two GECC
loans.
  5. Emergence from bankruptcy and merger
 (a) Claims resolution
  (b) Fresh-start reporting and purchase accounting updates
    Goodwill reported as of December 31, 2005
    
    $
    732Non-current employee benefits and other
    
    
    (19
    )Long-term debt
    
    
    (10
    )Payables to related parties
    
    
    8Other assets
    
    
    (7
    )Accrued compensation and vacation
    
    
    (4
    )Other accrued expenses
    
    
    1Materials and supplies, net
    
    
    1Goodwill reported as of March 31, 2006
    
    $
    702
  37




---



##### Table of Contents



(c) Reorganization items
  Gain related to curtailment of postretirement benefits (a)
    
    $
    183Gain related to curtailment of pension plans (a)
    
    
    24Interest on accumulated cash
    
    
    2Severance including benefits (b)
    
    
    (95
    )Minimum pension liability adjustment (a)
    
    
    (91
    )Professional fees
    
    
    (15
    )Damage and deficiency claims (c)
    
    
    (8
    )Aircraft order penalties (d)
    
    
    (2
    )Reorganization items, net
    
    $
    (2
    )
 
 (a)
    
    In January 2005, the Bankruptcy Court approved settlement agreements between
US Airways and its unions and the court-appointed Section 1114 Committee,
representing retirees other than those represented by the International
Association of Machinists and Aerospace Workers and Transport Workers Union,
to begin the significant curtailment of postretirement medical benefits. US
Airways recognized a gain of $183 million in connection with this
curtailment. Also in January 2005, US Airways terminated its three mainline
defined benefit plans. US Airways recognized a curtailment gain of $24
million and a $91 million minimum pension liability adjustment in connection
with the terminations. See also note 7.(b)
    
    In connection with the labor agreements reached during the bankruptcy,
approximately 4,600 employees across several of US Airways labor groups
were involuntarily terminated or participated in voluntary furlough and
termination programs.(c)
    
    Damage and deficiency claims arise as a result of the election to
restructure, abandon or reject aircraft debt and leases during the
bankruptcy proceedings.(d)
    
    As a result of the bankruptcy filing in September 2004, US Airways did not
expect to be able to secure the financing necessary to take on-time delivery
of three scheduled regional jet aircraft and therefore accrued penalties of
$2 million in the first quarter of 2005. 6. Related party transactions
 (a) Parent company
  (b) Airline subsidiaries of US Airways Group
  38




---



##### Table of Contents



7. Employee benefit plans
  OtherpostretirementPension benefits
    
    
    benefits2005
    
    
    2006
    
    
    2005Service cost
    
    $
    1
    
    
    $
    1
    
    
    $
    6Interest cost
    
    
    6
    
    
    
    3
    
    
    
    15Expected return on plan
assets
    
    
    (5
    )
    
    
    
    
    
    
    Amortization of:Prior service benefit
    
    
    
    
    
    
    
    
    
    
    (13
    )Actuarial gain
    
    
    
    
    
    
    
    
    
    
    (3
    )Net periodic cost
    
    
    2
    
    
    
    4
    
    
    
    5Curtailment gain
    
    
    (24
    )
    
    
    
    
    
    
    (183
    )Total (income) cost
    
    $
    (22
    )
    
    $
    4
    
    
    $
    (178
    )
    39




---



##### Table of Contents



8. Express expenses
  2006
    
    
    2005Aircraft fuel and related taxes
    
    $
    12
    
    
    $
    14Salaries and related costs
    
    
    6
    
    
    
    9Capacity purchases
    
    
    418
    
    
    
    327Other rent and landing fees
    
    
    1
    
    
    
    1Aircraft rent
    
    
    7
    
    
    
    7Selling expenses
    
    
    2
    
    
    
    2Aircraft maintenance
    
    
    3
    
    
    
    3Depreciation and amortization
    
    
    
    
    
    
    2Other expenses
    
    
    50
    
    
    
    54Express expenses
    
    $
    499
    
    
    $
    419
 40




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
      41




---



##### Table of Contents



Recent Developments
 Refinancing Transaction 
    
    
    The amended and restated US Airways and AWA loans entered into on September 27, 2005
that had previously been guaranteed by the Air Transportation Stabilization Board (the
ATSB). On October 19, 2005, $777 million of the loans, of which $752 million had
been guaranteed by the ATSB, was sold by the lenders by order of the ATSB to 13 fixed
income investors, removing the ATSB guarantee. At the time of repayment of these loans
on March 31, 2006, the total outstanding balance of the loans was $801 million, of
which $551 million was outstanding under the US Airways loan and $250 million was
outstanding under the AWA loan.
 42




---



##### Table of Contents




    
    The $161 million loan entered into as of September 27, 2005 between US Airways and
AWA and Airbus Financial Services, for which US Airways Group was the guarantor. At
the time of repayment on March 31, 2006, the outstanding balance of the loan was $161
million. US Airways and AWA also had an $89 million loan from Airbus Financial
Services entered into as of September 27, 2005. In accordance with the terms of the
loan agreements, the outstanding principal amount of the $89 million loan was to be
forgiven in writing on the earlier of December 31, 2010 or the date that the
outstanding principal amount of, accrued interest on, and all other amounts due under
the Airbus $161 million loan were paid in full, provided that the Company complies with
the delivery schedule for certain Airbus aircraft. As a result of the prepayment of
the $161 million loan on March 31, 2006, the $89 million loan agreement was terminated
and the $89 million loan, of which $89 million was outstanding, was forgiven.
    
    Two loans provided by GECC to AWA pursuant to loan agreements entered into as of
September 3, 2004 referred to as the Spare Parts Facility and the Engines Facility. At
the time of repayment, the principal amounts outstanding under the Spare Parts Facility
and the Engines Facility were $76 million and $34 million, respectively. Proceeds were
also used to pay $1 million of accrued interest and $1 million of prepayment penalties
on these two GECC loans.
  Redemption of 7.5% Convertible Senior Notes due 2009 
 US Airways Groups Emergence from Bankruptcy
 43




---



##### Table of Contents



44




---



##### Table of Contents



US Airways Groups Results of Operations
  US Airways Group
Consolidated Statement of Operations
Three months ended March 31, 2006 and 2005
(in millions)
 2006
    
    
    2005Operating revenues:Mainline passenger
    
    $
    1,811
    
    
    $
    577Express passenger
    
    
    611
    
    
    
    103Cargo
    
    
    37
    
    
    
    9Other
    
    
    189
    
    
    
    44Total operating revenues
    
    
    2,648
    
    
    
    733Operating expenses:Aircraft fuel and related taxes
    
    
    555
    
    
    
    160Gain on fuel hedging instruments, net
    
    
    (28
    )
    
    
    (60
    )Salaries and related costs
    
    
    503
    
    
    
    175Express expenses
    
    
    615
    
    
    
    111Aircraft rent
    
    
    185
    
    
    
    77Aircraft maintenance
    
    
    141
    
    
    
    53Other rent and landing fees
    
    
    129
    
    
    
    42Selling expenses
    
    
    107
    
    
    
    36Special items, net
    
    
    (44
    )
    
    
    1Depreciation and amortization
    
    
    45
    
    
    
    12Other
    
    
    315
    
    
    
    81Total operating expenses
    
    
    2,523
    
    
    
    688Operating income
    
    
    125
    
    
    
    45Nonoperating income (expense)Interest income
    
    
    25
    
    
    
    2Interest expense, net
    
    
    (75
    )
    
    
    (19
    )Other, net
    
    
    (11
    )
    
    
    Nonoperating expense, net
    
    
    (61
    )
    
    
    (17
    )Income before taxes and cumulative effect of change in
accounting principle
    
    
    64
    
    
    
    28Income tax provision
    
    
    
    
    
    
    Income before cumulative effect of change in accounting principle
    
    
    64
    
    
    
    28Cumulative effect of change in accounting principle
    
    
    1
    
    
    
    (202
    )Net income (loss)
    
    $
    65
    
    
    $
    (174
    )
  45




---



##### Table of Contents



Accounting for Income Taxes
     Three Months Ended March 31, 2006
Compared with the
Three Months Ended March 31, 2005
    46




---



##### Table of Contents



AWAs Results of Operations
   Percent2006
    
    2005
    
    ChangeRevenue passenger miles (millions) (a)
    
    
    5,660
    
    
    
    5,671
    
    
    
    (0.2
    )Available seat miles (millions) (b)
    
    
    7,199
    
    
    
    7,301
    
    
    
    (1.4
    )Load factor (c)
    
    
    78.6
    %
    
    
    77.7
    %
    
    

    0.9
    ptsYield (d)
    
    
    11.52
    ¢
    
    
    10.18
    ¢
    
    
    13.2Passenger revenue per available seat mile (e)
    
    
    9.05
    ¢
    
    
    7.90
    ¢
    
    
    14.6Cost per available seat mile (f)
    
    
    8.76
    ¢
    
    
    7.88
    ¢
    
    
    11.2Passenger enplanements (thousands) (g)
    
    
    5,091
    
    
    
    5,172
    
    
    
    (1.6
    )Aircraft at end of period
    
    
    143
    
    
    
    138
    
    
    
    3.6Block hours (h)
    
    
    133,970
    
    
    
    136,497
    
    
    
    (1.9
    )Average stage length (miles) (i)
    
    
    1,027
    
    
    
    1,022
    
    
    
    0.5Average passenger journey (miles) (j)
    
    
    1,578
    
    
    
    1,624
    
    
    
    (2.8
    )Gallons of aircraft fuel consumed (millions)
    
    
    105.2
    
    
    
    107.2
    
    
    
    (1.9
    )Average aircraft fuel price including tax (per
gallon)
    
    $
    1.95
    
    
    $
    1.42
    
    
    
    37.3Full-time equivalent employees at end of period
    
    
    12,828
    
    
    
    12,417
    
    
    
    3.3
 
 (a)
    
    Revenue passenger mile (RPM)  A basic measure of sales volume. A RPM represents one
passenger flown one mile.(b)
    
    Available seat mile (ASM)  A basic measure of production. An ASM represents one seat flown
one mile.(c)
    
    Load factor  The percentage of available seats that are filled with revenue passengers.(d)
    
    Yield  A measure of airline revenue derived by dividing passenger revenue by revenue
passenger miles and expressed in cents per mile.(e)
    
    Passenger revenue per available seat mile (PRASM)  Total passenger revenues divided by
total available seat miles.(f)
    
    Cost per available seat mile (CASM)  Total mainline operating expenses divided by total
available seat miles.(g)
    
    Passenger enplanements The number of passengers on board an aircraft including local,
connecting and through passengers.(h)
    
    Block hours  The hours measured from the moment an aircraft first moves under its own power,
including taxi time, for the purposes of flight until the aircraft is docked at the next point
of landing and its power is shut down.(i)
    
    Average stage length  The average of the distances flown on each segment of every route.(j)
    
    Average passenger journey  The average one-way trip measured in miles for one passenger
origination. 47




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##### Table of Contents



Three Months Ended March 31, 2006
Compared with the
Three Months Ended March 31, 2005
     2006
    
    
    2005Operating expenses:Aircraft fuel and related taxes
    
    $
    205
    
    
    $
    160Gains on fuel hedging instruments, net
    
    
    (28
    )
    
    
    (60
    )Salaries and related costs
    
    
    174
    
    
    
    175Aircraft rent
    
    
    86
    
    
    
    77Aircraft maintenance
    
    
    52
    
    
    
    53Other rent and landing fees
    
    
    45
    
    
    
    42Special items, net
    
    
    (30
    )
    
    
    1Selling expenses
    
    
    39
    
    
    
    36Depreciation and amortization
    
    
    11
    
    
    
    12Other
    
    
    77
    
    
    
    80Total mainline operating expenses
    
    
    631
    
    
    
    576Express expenses
    
    
    145
    
    
    
    111Total operating expenses
    
    $
    776
    
    
    $
    687
  48




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##### Table of Contents



Percent2006
    
    
    2005
    
    
    changeAircraft fuel and related taxes
    
    
    2.85
    
    
    
    2.20
    
    
    
    29.5Realized and unrealized gains
on fuel hedging instruments,
net
    
    
    (0.38
    )
    
    
    (0.83
    )
    
    
    (54.2
    )Salaries and related costs
    
    
    2.42
    
    
    
    2.39
    
    
    
    1.3Aircraft rent
    
    
    1.19
    
    
    
    1.05
    
    
    
    13.3Aircraft maintenance
    
    
    0.72
    
    
    
    0.73
    
    
    
    (1.4
    )Other rent and landing fees
    
    
    0.62
    
    
    
    0.57
    
    
    
    8.8Selling expenses
    
    
    0.54
    
    
    
    0.50
    
    
    
    8.0Special items, net
    
    
    (0.42
    )
    
    
    0.01
    
    
    
    Depreciation and amortization
    
    
    0.15
    
    
    
    0.16
    
    
    
    (6.3
    )Other
    
    
    1.07
    
    
    
    1.10
    
    
    
    (2.7
    )8.76
    
    
    
    7.88
    
    
    
    11.2
  
    
    Aircraft fuel and related tax expense per ASM increased 29.5% primarily due to
a 37.3% increase in the average price per gallon of fuel to $1.95 in the first quarter
of 2006 from $1.42 in the comparable 2005 quarter.
    
    Aircraft rent expense per ASM increased 13.3% due principally to aircraft mix,
as previously leased Boeing 737-300 and Airbus A320 aircraft were returned to aircraft
lessors and replaced with leased Airbus A320 and A319 aircraft at higher monthly lease
rates.
    
    Other rent and landing fees per ASM increased 8.8% mainly due to increases in
airport rent expense of $2 million and engine rent expense of $2 million.
    
    Selling expenses per ASM increased 8.0% primarily due to higher reservation
system booking fees of $3 million.
    
    Other operating expenses per ASM decreased 2.7% due primarily to a $2 million
decrease in ground handling services and $1 million decrease in legal fees in the first
quarter of 2005. A $4 million loss related to an aircraft sale-leaseback transaction
also contributed to the decrease.
   49




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US Airways Results of Operations
    Percent2006
    
    2005
    
    changeRevenue passenger miles (millions)
    
    
    8,296
    
    
    
    9,646
    
    
    
    (14.0
    )Available seat miles (millions)
    
    
    11,031
    
    
    
    13,186
    
    
    
    (16.3
    )Load factor
    
    
    75.2
    %
    
    
    73.2
    %
    
    
    2.0
    ptsYield
    
    
    13.97
    ¢
    
    
    11.74
    ¢
    
    
    19.0Passenger revenue per ASM
    
    
    10.50
    ¢
    
    
    8.59
    ¢
    
    
    22.2Cost per available seat mile
    
    
    11.44
    ¢
    
    
    10.51
    ¢
    
    
    8.8Passenger enplanements (thousands)
    
    
    8,500
    
    
    
    10,253
    
    
    
    (17.1
    )Aircraft at end of period
    
    
    224
    
    
    
    279
    
    
    
    (19.7
    )Block hours
    
    
    192,921
    
    
    
    247,053
    
    
    
    (21.9
    )Average stage length (miles)
    
    
    827
    
    
    
    780
    
    
    
    6.0Average passenger journey (miles)
    
    
    976
    
    
    
    941
    
    
    
    3.7Gallons of aircraft fuel consumed (millions)
    
    
    182.3
    
    
    
    218.2
    
    
    
    (16.5
    )Average aircraft fuel price including tax (per
gallon)
    
    $
    1.92
    
    
    $
    1.47
    
    
    
    30.6Full-time equivalent employees at end of period
    
    
    19,255
    
    
    
    23,696
    
    
    
    (18.7
    )
 Three Months Ended March 31, 2006
Compared with the
Three Months Ended March 31, 2005
   50




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##### Table of Contents



2006
    
    
    2005Operating expenses:Aircraft fuel and related taxes
    
    $
    349
    
    
    $
    321Salaries and related costs
    
    
    329
    
    
    
    408Aircraft rent
    
    
    99
    
    
    
    98Aircraft maintenance
    
    
    90
    
    
    
    72Other rent and landing fees
    
    
    84
    
    
    
    89Selling expenses
    
    
    67
    
    
    
    93Special items, net
    
    
    (15
    )
    
    
    Depreciation and amortization
    
    
    36
    
    
    
    50Other
    
    
    223
    
    
    
    254Total mainline operating expenses
    
    
    1,262
    
    
    
    1,385Express expenses
    
    
    499
    
    
    
    419Total operating expenses
    
    $
    1,761
    
    
    $
    1,804
   2006
    
    
    2005
    
    
    Percent changeAircraft fuel and related taxes
    
    
    3.17
    
    
    
    2.44
    
    
    
    29.9Salaries and related costs
    
    
    2.98
    
    
    
    3.10
    
    
    
    (3.9
    )Aircraft rent
    
    
    0.90
    
    
    
    0.75
    
    
    
    20.0Aircraft maintenance
    
    
    0.81
    
    
    
    0.55
    
    
    
    47.3Other rent and landing fees
    
    
    0.76
    
    
    
    0.67
    
    
    
    13.4Selling expenses
    
    
    0.61
    
    
    
    0.71
    
    
    
    (14.1
    )Special items, net
    
    
    (0.14
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    0.33
    
    
    
    0.38
    
    
    
    (13.2
    )Other
    
    
    2.02
    
    
    
    1.91
    
    
    
    5.811.44
    
    
    
    10.51
    
    
    
    8.8
  
    
    Aircraft fuel and related tax expense per ASM increased 29.9% primarily due to
a 30.6% increase in the average price per gallon of fuel from $1.47 in the first
quarter of 2005 to $1.92 in the first quarter of 2006.
    
    Salaries and related costs per ASM decreased 3.9% primarily due to a reduction
in certain benefit related expenses including medical and pilots long-term disability
expense, as well as lower headcount in the first quarter of 2006 as compared to the
same period in 2005.
 51




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
    
    Aircraft rent expense per ASM increased 20.0% reflecting a shift in the mix of
leased to owned aircraft as a result of the sale-leaseback transactions in the second,
third and fourth quarters of 2005.
    
    Aircraft maintenance per ASM increased 47.3% reflecting the shift to outside
vendors to perform scheduled maintenance, partially offsetting the decrease in salaries
and related costs described above.
    
    Other rent and landing fees per ASM increased 13.4% reflecting fixed costs
associated with space rent while ASMs decreased 16.3% as compared to the prior year.
    
    Selling expenses per ASM decreased 14.1% primarily due to decreases in credit
card and computer reservation system expenses and the termination of certain marketing
contracts and reductions in advertising programs as a result of the bankruptcy and
merger.
    
    US Airways recorded a net credit of $15 million related to special items in the
first quarter of 2006, consisting of a $40 million credit related to the Airbus
restructuring and $25 million of merger related transition costs. See note 2 to US
Airways condensed financial statements for additional information.
    
    Depreciation and amortization decreased 13.2% per ASM as a result of fewer
owned aircraft in the operating fleet (see aircraft rent expense per ASM above) and
lower book values on the continuing fleet as a result of the application of fresh-start
reporting.
    
    Other operating expenses increased 5.8% per ASM primarily as a result of
increases in costs associated with outsourced aircraft cleaning and ground handling
services and increases to utilities and de-icing expense. These increases were
partially offset by decreases in insurance expense, outsourced technology services and
expenses associated with the redemption of Dividend Miles on partner airlines and
future travel on US Airways.
   52




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Liquidity and Capital Resources
 Sources and Uses of Cash
 US Airways Group
    AWA
    53




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US Airways
    Commitments
  Refinancing Transaction
   54




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
    
    requires certain mandatory prepayments upon certain asset sales, including
sale-leasebacks, subject to US Airways Groups right to reinvest net sales proceeds in
qualified assets;
    
    provides for mandatory prepayments upon a change in control or collateral value
deficiencies;
    
    establishes certain financial covenants, subject to adjustment, including minimum
cash requirements (as described in more detail below), minimum ratios of earnings
before interest, taxes, depreciation, amortization and aircraft rent to fixed charges
(except during a covenant suspension period), and minimum ratios of collateral value to
outstanding principal;
    
    contains customary affirmative covenants and negative covenants (some of which are
eased during a covenant suspension period), including restrictions on liens,
investments, restricted payments, asset sales, acquisitions, changes in fiscal year,
sale and leasebacks, transactions with affiliates, conduct of business, mergers or
consolidations, and amendments to other indebtedness and certain other documents; and
    
    contains customary events of default, including payment defaults, cross-defaults,
breach of covenants, bankruptcy and insolvency defaults, judgment defaults and business
discontinuations (i.e., voluntary suspension of substantially all flights for two
days).
   
    
    The amended and restated US Airways and AWA loans entered into on September 27, 2005
that had previously been guaranteed by the ATSB. On October 19, 2005, $777 million of
the loans, of which $752 million had been guaranteed by the ATSB, was sold by the
lenders by order of the ATSB to 13 fixed income investors, removing the ATSB guarantee.
At the time of repayment of these loans on March 31, 2006, the total outstanding
balance of the loans was $801 million, of which $551 million was outstanding under the
US Airways loan and $250 million was outstanding under the AWA loan.
    
    The $161 million loan entered into as of September 27, 2005 between US Airways and
AWA and Airbus Financial Services, for which US Airways Group was the guarantor. At
the time of repayment on March 31, 2006, the outstanding balance of the loan was $161
million. US Airways and AWA also had an $89 million loan from Airbus Financial
Services entered into as of September 27, 2005. In accordance with the terms of the
loan agreements, the outstanding principal amount of the $89 million loan was to be
forgiven in writing on the earlier of December 31, 2010 or the date that the
outstanding principal amount of, accrued interest on, and all other amounts due under
the Airbus $161 million loan were paid in full, provided that the Company complies with
the delivery schedule for certain Airbus aircraft. As a result of the prepayment of
the $161 million loan on March 31, 2006, the $89 million loan agreement was terminated
and the $89 million loan, of which $89 million was outstanding, was forgiven.
 55




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##### Table of Contents




    
    Two loans provided by GECC to AWA pursuant to loan agreements entered into as of
September 3, 2004 referred to as the Spare Parts Facility and the Engines Facility. At
the time of repayment, the principal amounts outstanding under the Spare Parts Facility
and the Engines Facility were $76 million and $34 million, respectively.
  Redemption of 7.5% Convertible Senior Notes due 2009
   7% Senior Convertible Notes
   56




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General Electric
  Airbus Term Loans
  57




---



##### Table of Contents



ATSB Loans
  
    
    90% of the US Airways loan (Tranche A), bore 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 were held by the ATSB or by an assignee and no longer subject to such commercial
paper conduit program bore interest at LIBOR plus 40 basis points, and portions of
Tranche A that were under certain circumstances assigned free of the ATSB guarantee
bore interest at LIBOR plus 6.0%; and
    
    10% of the US Airways loan (Tranche B) bore interest at the greater of the Tranche A
interest rate plus 6.0% and LIBOR plus 6.0%.
     Restructuring of Affinity Credit Card Partner Agreement
  58




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Restructuring of Credit Card Processing Agreement
  59




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Asset Based Financings
  Embraer Purchase Commitments
  60




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Bombardier Purchase Commitments
  Covenants and Credit Rating
   Off-Balance Sheet Arrangements
   61




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Other Indebtedness and Obligations
  Payments Due by Period2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    TotalUS Airways Group (1)Debt (2)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,244
    
    
    $
    1,244Aircraft related and other commitments
    
    
    27
    
    
    
    36
    
    
    
    36
    
    
    
    34
    
    
    
    48
    
    
    
    1,668
    
    
    
    1,849US Airways (3)Debt and capital lease obligations
    
    
    98
    
    
    
    80
    
    
    
    77
    
    
    
    70
    
    
    
    75
    
    
    
    981
    
    
    
    1,381Aircraft purchase and operating lease
commitments
    
    
    583
    
    
    
    907
    
    
    
    1,101
    
    
    
    862
    
    
    
    1,144
    
    
    
    3,712
    
    
    
    8,309Regional capacity purchase agreements
    
    
    455
    
    
    
    604
    
    
    
    616
    
    
    
    628
    
    
    
    641
    
    
    
    2,917
    
    
    
    5,861AWA (3)Debt and capital lease obligations
    
    
    2
    
    
    
    29
    
    
    
    110
    
    
    
    250
    
    
    
    81
    
    
    
    29
    
    
    
    501Aircraft purchase and operating lease
commitments
    
    
    248
    
    
    
    392
    
    
    
    368
    
    
    
    661
    
    
    
    251
    
    
    
    1,701
    
    
    
    3,621Regional capacity purchase agreements
    
    
    433
    
    
    
    580
    
    
    
    592
    
    
    
    603
    
    
    
    616
    
    
    
    945
    
    
    
    3,769Other US Airways Group subsidiaries (4)
    
    
    7
    
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Total
    
    $
    1,853
    
    
    $
    2,630
    
    
    $
    2,901
    
    
    $
    3,108
    
    
    $
    2,856
    
    
    $
    13,197
    
    
    $
    26,545
 
 (1)
    
    These commitments represent those specifically entered into by US Airways Group or joint
commitments entered into by US Airways Group, AWA and US Airways under which each entity is
jointly and severally liable.(2)
    
    Includes $144 million aggregate principal amount of 7% Senior Convertible Notes due 2020
issued by US Airways Group and the $1.10 billion GE Loan due March 31, 2011. On April 7,
2006, US Airways Group entered into an amended and restated loan agreement, which increased
the principal amount of the loan to $1.25 billion.(3)
    
    Commitments listed separately under US Airways or AWA represent commitments under agreements
entered into separately by those companies.(4)
    
    Represents operating lease commitments entered into by US Airways Groups other airline
subsidiaries Piedmont and PSA.   Critical Accounting Policies and Estimates
  62




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk Sensitive Instruments
  Commodity price risk
    Interest rate risk
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  Changes in internal control over financial reporting.
  63




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Part II. Other Information
 
 Item 1. Legal Proceedings
    64




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65




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66




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Item 1A. Risk Factors
  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.
   
 Item 4. Submission of Matters to a Vote of Security Holders
  67




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Item 6. Exhibits
 Exhibit No.
    
    Description10.1
    
    Settlement and Assumption Term Sheet, dated February 9, 2006, between US
Airways Group and Embraer-Empresa Brasileira de Aeronautica S.A.*10.2
    
    Loan Agreement, dated March 31, 2006, among US Airways Group, Inc., General
Electric Capital Corporation, as Administrative Agent, the lenders party to the
agreement from time to time, GE Capital Markets, Inc., as Joint Lead Arranger
and Sole Bookrunner, Morgan Stanley Senior Funding, Inc., as Joint Lead
Arranger, and certain subsidiaries of US Airways Group party to the agreement
from time to time (incorporated by reference to Exhibit 4.1 to US Airways
Groups Current Report on Form 8-K dated March 31, 2006, filed on April 6,
2006).10.3
    
    Amended and Restated Loan Agreement, dated as of April 7, 2006, among US
Airways Group, Inc., General Electric Capital Corporation, as Administrative
Agent, the lenders party to the agreement from time to time, and certain
subsidiaries of US Airways Group party to the agreement from time to time
(incorporated by reference to Exhibit 4.1 to US Airways Groups Current Report
on Form 8-K dated April 7, 2006, filed on April 10, 2006).10.4
    
    Amendment dated as of April 4, 2006 to Employment Agreement, dated as of
September 27, 2005, between US Airways Group, Inc. and Alan W. Crellin
(incorporated by reference to Exhibit 10.2 to US Airways Groups Current Report
on Form 8-K dated April 4, 2006, filed on April 10, 2006).10.5
    
    Form of Nonstatutory Stock Option Award Agreement under US Airways Groups 2005
Equity Incentive Plan.31.1
    
    Certification of US Airways Groups Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of US Airways Groups Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended.31.3
    
    Certification of AWAs Chief Executive Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as amended.31.4
    
    Certification of AWAs Chief Financial Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as amended.31.5
    
    Certification of US Airways Chief Executive Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.31.6
    
    Certification of US Airways Chief Financial Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.32.1
    
    Certification of US Airways Groups Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of AWAs Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.3
    
    Certification of US Airways Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Portions of this exhibit have been omitted under a request for confidential treatment and
filed separately with the United States Securities and Exchange Commission. 68




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##### Table of Contents



Signatures
  US Airways Group, Inc. (Registrant)Date: May 9, 2006
    
    By:
    
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial OfficerAmerica West Airlines, Inc. (Registrant)Date: May 9, 2006
    
    By:
    
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial OfficerUS Airways, Inc. (Registrant)Date: May 9, 2006
    
    By:
    
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial Officer
 69




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description10.1
    
    Settlement and Assumption Term Sheet, dated February 9, 2006, between US
Airways Group and Embraer-Empresa Brasileira de Aeronautica S.A.*10.2
    
    Loan Agreement, dated March 31, 2006, among US Airways Group, Inc., General
Electric Capital Corporation, as Administrative Agent, the lenders party to the
agreement from time to time, GE Capital Markets, Inc., as Joint Lead Arranger
and Sole Bookrunner, Morgan Stanley Senior Funding, Inc., as Joint Lead
Arranger, and certain subsidiaries of US Airways Group party to the agreement
from time to time (incorporated by reference to Exhibit 4.1 to US Airways
Groups Current Report on Form 8-K dated March 31, 2006, filed on April 6,
2006).10.3
    
    Amended and Restated Loan Agreement, dated as of April 7, 2006, among US
Airways Group, Inc., General Electric Capital Corporation, as Administrative
Agent, the lenders party to the agreement from time to time, and certain
subsidiaries of US Airways Group party to the agreement from time to time
(incorporated by reference to Exhibit 4.1 to US Airways Groups Current Report
on Form 8-K dated April 7, 2006, filed on April 10, 2006).10.4
    
    Amendment dated as of April 4, 2006 to Employment Agreement, dated as of
September 27, 2005, between US Airways Group, Inc. and Alan W. Crellin
(incorporated by reference to Exhibit 10.2 to US Airways Groups Current Report
on Form 8-K dated April 4, 2006, filed on April 10, 2006).10.5
    
    Form of Nonstatutory Stock Option Award Agreement under US Airways Groups 2005
Equity Incentive Plan.31.1
    
    Certification of US Airways Groups Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of US Airways Groups Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended.31.3
    
    Certification of AWAs Chief Executive Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as amended.31.4
    
    Certification of AWAs Chief Financial Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as amended.31.5
    
    Certification of US Airways Chief Executive Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.31.6
    
    Certification of US Airways Chief Financial Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.32.1
    
    Certification of US Airways Groups Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of AWAs Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.3
    
    Certification of US Airways Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Portions of this exhibit have been omitted under a request for confidential treatment and
filed separately with the United States Securities and Exchange Commission. 70