##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 September 30, 2005
  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 (FLAG GRAPHIC)
US Airways, Inc.
 
 
 
  þ o
  o þ
  o þ
  þ o




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US Airways, Inc.
Form 10-Q
Quarterly Period Ended September 30, 2005
 Table of Contents
 PagePart I.
    
    Financial InformationItem 1.
    
    Financial StatementsUS Airways, Inc.Condensed Statements of Operations
    
    
    1Condensed Balance Sheets
    
    
    2Condensed Statements of Cash Flows
    
    
    3Notes to Condensed Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 4.
    
    Controls and Procedures
    
    
    37Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    37Item 6.
    
    Exhibits
    
    
    40Signature
    
    
    42Exhibit 31.1Exhibit 31.2Exhibit 32.1




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 
 
 Predecessor CompanyThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating revenuesMainline passenger
    
    $
    1,273
    
    
    $
    1,251
    
    
    $
    3,737
    
    
    $
    3,834Express revenues
    
    
    430
    
    
    
    352
    
    
    
    1,182
    
    
    
    1,046Cargo
    
    
    24
    
    
    
    30
    
    
    
    68
    
    
    
    96Other
    
    
    155
    
    
    
    155
    
    
    
    470
    
    
    
    443Total operating revenues
    
    
    1,882
    
    
    
    1,788
    
    
    
    5,457
    
    
    
    5,419Operating expensesAircraft fuel and related taxes
    
    
    409
    
    
    
    253
    
    
    
    1,111
    
    
    
    709Salaries and related costs
    
    
    331
    
    
    
    583
    
    
    
    1,070
    
    
    
    1,719Express expenses
    
    
    429
    
    
    
    357
    
    
    
    1,228
    
    
    
    1,026Other rent and landing fees
    
    
    92
    
    
    
    100
    
    
    
    280
    
    
    
    297Aircraft rent
    
    
    98
    
    
    
    99
    
    
    
    293
    
    
    
    299Selling expenses
    
    
    77
    
    
    
    93
    
    
    
    257
    
    
    
    284Aircraft maintenance
    
    
    89
    
    
    
    73
    
    
    
    252
    
    
    
    220Depreciation and amortization
    
    
    47
    
    
    
    60
    
    
    
    153
    
    
    
    166Other
    
    
    329
    
    
    
    328
    
    
    
    955
    
    
    
    919Total operating expenses
    
    
    1,901
    
    
    
    1,946
    
    
    
    5,599
    
    
    
    5,639Operating loss
    
    
    (19
    )
    
    
    (158
    )
    
    
    (142
    )
    
    
    (220
    )Nonoperating
income (expense)
Interest income
    
    
    6
    
    
    
    5
    
    
    
    15
    
    
    
    11Interest expense, net
    
    
    (66
    )
    
    
    (52
    )
    
    
    (222
    )
    
    
    (164
    )Reorganization items, net
    
    
    664
    
    
    
    (12
    )
    
    
    636
    
    
    
    (12
    )Other, net
    
    
    (1
    )
    
    
    (2
    )
    
    
    (9
    )
    
    
    20Nonoperating income (expense), net
    
    
    603
    
    
    
    (61
    )
    
    
    420
    
    
    
    (145
    )Income (loss) before income taxes
    
    
    584
    
    
    
    (219
    )
    
    
    278
    
    
    
    (365
    )Income tax benefit
    
    
    
    
    
    
    5
    
    
    
    2
    
    
    
    6Net income (loss)
    
    $
    584
    
    
    $
    (214
    )
    
    $
    280
    
    
    $
    (359
    )
  1




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##### Table of Contents



Successor
    
    
    
    PredecessorCompany
    
    
    
    CompanySeptember 30,
    
    
    
    December 31,2005
    
    
    
    2004ASSETSCurrent assetsCash and cash equivalents
    
    $
    376
    
    
    
    $
    734Restricted cash
    
    
    87
    
    
    
    
    99Accounts receivable, net
    
    
    293
    
    
    
    
    247Materials and supplies, net
    
    
    105
    
    
    
    
    147Prepaid expenses and other
    
    
    161
    
    
    
    
    136Total current assets
    
    
    1,022
    
    
    
    
    1,363Property and equipmentFlight equipment
    
    
    2,059
    
    
    
    
    3,084Ground property and equipment
    
    
    203
    
    
    
    
    348Less accumulated depreciation and amortization
    
    
    
    
    
    
    
    (283
    )2,262
    
    
    
    
    3,149Purchase deposits for flight equipment
    
    
    32
    
    
    
    
    138Net property and equipment
    
    
    2,294
    
    
    
    
    3,287Other assetsGoodwill
    
    
    584
    
    
    
    
    2,490Other intangibles, net
    
    
    549
    
    
    
    
    494Restricted cash
    
    
    608
    
    
    
    
    527Other assets, net
    
    
    193
    
    
    
    
    89Total other assets
    
    
    1,934
    
    
    
    
    3,600Total assets
    
    $
    5,250
    
    
    
    $
    8,250LIABILITIES & STOCKHOLDERS DEFICITCurrent liabilitiesCurrent maturities of debt and capital leases
    
    $
    143
    
    
    
    $
    721Accounts payable
    
    
    316
    
    
    
    
    261Payables to related parties, net
    
    
    368
    
    
    
    
    68Air traffic liability
    
    
    635
    
    
    
    
    615Accrued compensation and vacation
    
    
    156
    
    
    
    
    154Accrued taxes
    
    
    144
    
    
    
    
    127Other accrued expenses
    
    
    639
    
    
    
    
    453Total current liabilities
    
    
    2,401
    
    
    
    
    2,399Noncurrent liabilities and deferred creditsLong-term debt and capital leases, net of current maturities
    
    
    2,070
    
    
    
    
    Deferred gains and credits
    
    
    178
    
    
    
    
    44Postretirement benefits other than pensions
    
    
    209
    
    
    
    
    Employee benefit liabilities and other
    
    
    405
    
    
    
    
    230Total noncurrent liabilities and deferred credits
    
    
    2,862
    
    
    
    
    274Liabilities subject to compromise
    
    
    
    
    
    
    
    6,078Commitments and contingenciesStockholders deficitCommon stock
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    1
    
    
    
    
    349Accumulated deficit
    
    
    (14
    )
    
    
    
    (738
    )Deferred compensation
    
    
    
    
    
    
    
    (14
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    
    (98
    )Total stockholders deficit
    
    
    (13
    )
    
    
    
    (501
    )Total liabilities and stockholders deficit
    
    $
    5,250
    
    
    
    $
    8,250




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Predecessor CompanyNine Months EndedSeptember 30,2005
    
    
    2004Net cash provided by (used for) operating activities
before reorganization items, net
    
    $
    (277
    )
    
    $
    41Reorganization items, net
    
    
    (85
    )
    
    
    (10
    )Net cash provided by (used for) operating activities
    
    
    (362
    )
    
    
    31Cash flows from investing activitiesCapital expenditures and equipment deposits, net
    
    
    (47
    )
    
    
    (67
    )Proceeds from dispositions of property
    
    
    88
    
    
    
    16Decrease in short-term investments
    
    
    
    
    
    
    278Increase in restricted cash
    
    
    (69
    )
    
    
    (180
    )Other
    
    
    
    
    
    
    3Net cash provided by (used for) investing activities
    
    
    (28
    )
    
    
    50Cash flows from financing activitiesProceeds from issuance of debt
    
    
    140
    
    
    
    64Proceeds from debtor in possession financings
    
    
    125
    
    
    
    Principal payments on debt and capital lease obligations
    
    
    (233
    )
    
    
    (396
    )Net cash provided by (used for) financing activities
    
    
    32
    
    
    
    (332
    )Net decrease in cash and cash equivalents
    
    
    (358
    )
    
    
    (251
    )Cash and cash equivalents at beginning of period
    
    
    734
    
    
    
    923Cash and cash equivalents at end of period
    
    $
    376
    
    
    $
    672Noncash investing and financing activitiesReduction in
debt and interest related to sale leaseback transactions
    
    $
    633
    
    
    $
    Reduction in flight equipment related to sale leaseback transactions
    
    
    517
    
    
    
    Reduction in debt related to sale of flight equipment
    
    
    167
    
    
    
    Flight equipment acquired through issuance of debt
    
    
    53
    
    
    
    477Payment of bridge facility by America West Airlines, Inc.
    
    
    57
    
    
    
    Issuance of note to settle bankruptcy claim
    
    
    10
    
    
    
    Conversion of DIP financing into equity of US Airways Group
    
    
    125
    
    
    
    Supplemental InformationInterest paid during the period
    
    $
    230
    
    
    $
    152Income taxes refunded during the period
    
    
    
    
    
    
    9
  3




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




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Airbus MOU
 
    
    On September 27, 2005, US Airways and AWA entered into two loan
agreements with Airbus Financial Services (AFS), as Initial Lender
and Loan Agent, Wells Fargo Bank Northwest, National Association,
as Collateral Agent, and US Airways Group, as guarantor, with
commitments in initial aggregate amounts of up to $161 million and
up to $89 million (the Airbus $161 Million Loan and the Airbus $89
Million Loan and, collectively, the Airbus Loans). The Airbus Loans
bear interest at a rate of LIBOR plus a margin, subject to
adjustment, and have been recorded as an obligation of US Airways
Group. The outstanding principal amount of the Airbus $89 Million
Loan will be forgiven in writing on December 31, 2010, or an
earlier date, if on that date the outstanding principal amount of,
accrued interest on, and all other amounts due under the Airbus
$161 Million Loan have been paid in full.
    
    Airbus has rescheduled US Airways Groups A320-family and A330-200
delivery commitments and has agreed to provide backstop financing
for a substantial number of aircraft, subject to certain terms and
conditions, on an order of 20 A350 aircraft. US Airways Groups
A320-family aircraft are now scheduled for delivery in 2009 and
2010. US Airways Groups A330-200 aircraft are scheduled for
delivery in 2009 and 2010 and A350 aircraft deliveries are
currently scheduled to occur beginning in 2011. The Airbus MOU also
eliminates cancellation penalties on US Airways Groups orders for
the ten A330-200 aircraft, provided that US Airways Group has met
certain predelivery payment obligations under the A350 order. In
connection with the restructuring of aircraft firm orders, US Airways and America West Holdings were required to pay an aggregate
non-refundable restructuring fee which was paid by means of set-off
against existing equipment purchase deposits of US Airways Group
and America West Holdings held by Airbus. The US Airways
restructuring fee of $39 million has been recorded as a
reorganization expense in the accompanying Statement of Operations.
AWAs restructuring fee was $50 million.
 Restructuring of the ATSB Loan Guarantees
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
    
    90% of the US Airways ATSB Loan (Tranche A), the guaranteed portion of the loan, was funded
through a participating lenders commercial paper conduit program and bears interest at a rate
equal to the conduit providers weighted average cost related to the issuance of certain
commercial paper notes and other short term borrowings plus 0.30%, provided that portions of
Tranche A that are held by the ATSB or by an assignee and are no longer subject to such
commercial paper conduit program bear interest at LIBOR plus 40 basis points, and portions of
Tranche A that are under certain circumstances assigned free of the ATSB guarantee bear
interest at LIBOR plus 6.0%; and
    
    10% of the US Airways ATSB Loan (Tranche B) bears interest at the greater of the Tranche A
interest rate plus 6.0% and LIBOR plus 6.0% from a current rate of LIBOR plus 4.0%.
     New Convertible Notes
 Restructuring of Affinity Credit Card Partner Agreement
 6




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Restructuring of Credit Card Processing Agreement
    Asset Based Financings 
 7




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2. Emergence from Bankruptcy and Basis of Presentation
 Emergence and Claims Resolution
    PBGC Claim 
 8




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Agreements with ALPA 
  Basis of Presentation
 Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code
 9




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Consolidation of Variable Interest Entities,
 10




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3. Fresh-start Reporting and Purchase Accounting
 Business
Combinations,
 Fair value of common shares issued to US Airways Groups unsecured
creditors
    
    $
    96Estimated merger costs
    
    
    21Total purchase price
    
    $
    117
  Current assets
    
    $
    922Property and equipment
    
    
    2,294Other assets
    
    
    1,349Goodwill
    
    
    584Liabilities assumed
    
    
    (5,148
    )$
    1
 11




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12




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4. Reorganization Items
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Gain related to curtailment of postretirement benefits (a)
    
    $
    1,237
    
    
    $
    
    
    
    $
    1,420
    
    
    $
    Gain related to termination of pension plans, net (b)
    
    
    868
    
    
    
    
    
    
    
    801
    
    
    
    Discharge of other liabilities, net (c)
    
    
    75
    
    
    
    
    
    
    
    75
    
    
    
    Reversal of aircraft order penalties, net (d)
    
    
    32
    
    
    
    
    
    
    
    30
    
    
    
    Interest on accumulated cash
    
    
    2
    
    
    
    
    
    
    
    7
    
    
    
    Damage and deficiency claims (e)
    
    
    16
    
    
    
    
    
    
    
    2
    
    
    
    Revaluation of assets and liabilities, net (f)
    
    
    (1,498
    )
    
    
    
    
    
    
    (1,498
    )
    
    
    Severance including benefits (g)
    
    
    4
    
    
    
    
    
    
    
    (96
    )
    
    
    Professional fees
    
    
    (23
    )
    
    
    (12
    )
    
    
    (57
    )
    
    
    (12
    )Airbus equipment deposits and credits, net (h)
    
    
    (38
    )
    
    
    
    
    
    
    (35
    )
    
    
    Aircraft sales and restructured leases, net (i)
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )
    
    
    Write off of deferred compensation
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )
    
    
    Other
    
    
    (2
    )
    
    
    
    
    
    
    (4
    )
    
    
    Reorganization items, net
    
    $
    664
    
    
    $
    (12
    )
    
    $
    636
    
    
    $
    (12
    )
 
 (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 IAM and TWU, to begin the significant curtailment of
postretirement medical benefits. The Company recognized a gain of $183 million in
connection with this curtailment in the first quarter of 2005. Upon the emergence from
bankruptcy and effectiveness of the Plan of Reorganization, an additional gain of $1.24
billion was recognized as the liability associated with the postretirement medical benefits
was reduced to fair market value. See also Note 7 Employee Benefit Plans.(b)
    
    Also in January 2005, US Airways terminated its three mainline defined benefit plans.
The Company recognized a curtailment gain of $24 million and a $91 million minimum pension
liability adjustment in connection with the terminations in the first quarter of 2005. Upon
the effective date of the Plan of Reorganization and in connection with the settlement with
the PBGC, the remaining liabilities associated with these plans, including the $91 million
recorded as an adjustment to the minimum pension liability in the first quarter, were
written off, net of settlement amounts. See also Note 2, Emergence from Bankruptcy and
Basis of Presentation.(c)
    
    Reflects the discharge of trade accounts payable and other liabilities upon emergence
from bankruptcy. Most of these obligations were only entitled to receive such distributions
of cash and common stock as provided for under the Plan of Reorganization.(d)
    
    In 2003, the Company recorded a charge in connection with its intention not to take
delivery of certain aircraft scheduled for future delivery. In connection with the Airbus
MOU, $33 million of penalties have been reversed (see also Note 1, Chapter 11
Reorganization and Merger Agreement.) As a result of the Companys bankruptcy filing in
September 2004, the Company was not 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. The Company recorded an additional $1 million in
penalties in the third quarter of 2005 until delivery of these aircraft was made to a US Airways Express affiliate in August 2005.(e)
    
    Damage and deficiency claims arose as a result of the Companys election to restructure,
abandon or reject aircraft debt and leases during the bankruptcy proceedings. The Company
recorded $2 million and $14 million in damages and deficiency claims in the fourth quarter
of 2004 and in the first six months of 2005, respectively. 13




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As a result of the confirmation of the Plan of Reorganization and the effectiveness of the
merger, these claims were withdrawn and the accruals reversed.(f)
    
    As of September 30, 2005, the Company recorded $1.46 billion of adjustments to reflect
assets and liabilities at fair value, including a net write-down of
goodwill of $1.82
billion. Goodwill of $584 million was recorded to reflect the excess of the estimated fair
value of liabilities and equity over identifiable assets.(g)
    
    Since filing for bankruptcy on September 12, 2004, US Airways achieved cost-savings
agreements with its principal collective bargaining groups. In connection with the new labor
agreements, approximately 5,000 employees across several of the Companys labor groups were
involuntarily terminated or participated in voluntary furlough and termination programs.(h)
    
    In connection with the Airbus MOU, the Company was required to pay a restructuring fee of
$39 million, which was paid by means of offset against existing equipment deposits held by
Airbus. The Company also received credits from Airbus totaling $3 million throughout 2005,
primarily related to equipment deposits. See also Note 1, Chapter 11 Reorganization and
Merger Agreement.(i)
    
    The GE Merger MOU provided for the continued use of certain leased Airbus, Boeing and
regional jet aircraft and the modification of monthly lease rates and the return of certain
other leased Airbus and Boeing aircraft. The GE Merger MOU also provided for the
sale-leaseback of assets securing various GE obligations. In connection with these
transactions, the Company recorded a net loss of $5 million. See also Note 1, Chapter 11
Reorganization and Merger Agreement.
 5. Debt, Including Capital Lease Obligations
  September 30,
    
    
    December 31,2005
    
    
    2004(in millions)SecuredEquipment notes payable, variable interest rates of 5.7% to 9.01%,
averaging 8.37% as of September 30, 2005, notes retired September 2005
    
    $
    1,640
    
    
    $
    1,948US Airways ATSB loan, variable interest rate of 3.89% , installments due
2007 through 2010 (a)
    
    
    583
    
    
    
    718Slot Financing, installments due through 2015(b)
    
    
    51
    
    
    
    Capital Lease Obligations, installments due through 2023 (c)
    
    
    46
    
    
    
    49GECC
Facility, variable interest rate of 8.32%, installments due 2006
to 2010(d)
    
    
    28
    
    
    
    354GECC Liquidity Facility(d)
    
    
    
    
    
    
    158GE Bridge Facility(d)
    
    
    
    
    
    
    202,348
    
    
    
    3,247UnsecuredNote payable to PBGC, interest rate of 6%, interest only payments until
due 2012 (e)
    
    
    10
    
    
    
    Total long-term debt and capital lease obligations
    
    
    2,358
    
    
    
    3,247Less: Unamortized discount on debt
    
    
    (145
    )
    
    
    (126
    )Obligations classified as subject to compromise
    
    
    
    
    
    
    (2,400
    )Current maturities
    
    
    (143
    )
    
    
    (721
    )$
    2,070
    
    
    $
    
 
 (a)
    
    In connection with the consummation of the merger, on September 27, 2005, US Airways, as borrower, entered into an Amended and Restated Loan Agreement (the US Airways ATSB Loan) with the ATSB. Also on September 27, 2005,
AWA entered into an
Amended and Restated Loan Agreement (the AWA ATSB Loan). The ATSB Loans amend and
restate the previously outstanding loans of both US Airways and AWA, each guaranteed in
part by the ATSB.As of September 30, 2005, $583 million was outstanding under the US Airways ATSB Loan,
of which $525 million is guaranteed by the ATSB under the Air Transportation Safety and
System Stabilization Act. The US Airways ATSB Loan bears interest as follows:
 14




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
    
    90% of the US Airways ATSB Loan (Tranche A), the guaranteed portion of the loan,
was funded through a participating lenders commercial paper conduit program and
bears interest at a rate equal to the conduit providers weighted average cost
related to the issuance of certain commercial paper notes and other short term
borrowings plus 0.30%, provided that portions of Tranche A that are held by the
ATSB or by an assignee and no longer subject to such commercial paper conduit
program bear interest at LIBOR plus 40 basis points, and portions of Tranche A that
are under certain circumstances assigned free of the ATSB guarantee bear interest
at LIBOR plus 6.0%; and
    
    10% of the US Airways ATSB Loan (Tranche B) bears interest at the greater of the
Tranche A interest rate plus 6.0% and LIBOR plus 6.0%, as compared with the
previous rate of LIBOR plus 4.0%.
   
    
    $525 million through March 2006;
    
    $500 million through September 2006;
    
    $475 million through March 2007;
    
    $450 million through September 2007;
    
    $400 million through March 2008;
    
    $350 million through September 2008; and
    
    $300 million through September 2010.
   (b)
    
    In September 2005, US Airways entered into an Agreement to sell and leaseback
certain of its commuter slots at Ronald Reagan Washington National Airport and New York
LaGuardia Airport. US Airways continues to hold the right to repurchase the slots
anytime after the second anniversary of the slot sale/leaseback transaction. These
transactions were accounted for as secured financings. Installments are
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due monthly
through 2015.(c)
    
    Capital lease obligations consist principally of certain airport maintenance and
facility leases which expire in 2018 and 2023.(d)
    
    General Electric and its affiliates (collectively, GE), is the Companys largest
aircraft creditor, having financed or leased a substantial portion of the Companys
aircraft prior to the most recent Chapter 11 filing. In addition, in November 2001, the
Company obtained a $404 million credit facility from GE (the 2001 GE Credit Facility),
which was secured by collateral including 11 A320-family aircraft and 28 spare engines.
In connection with the first bankruptcy in 2002 (the 2002 Bankruptcy), the Company
reached a settlement with GE that resolved substantially all aircraft, aircraft engine
and loan-related issues, and provided the Company with additional financing from GE in
the form of a liquidity facility of up to $360 million that bears interest at the rate
of LIBOR plus 4.25% (the 2003 GE Liquidity Facility). Most obligations of the Company
to GE are cross-defaulted to the 2001 GE Credit Facility, the 2003 GE Liquidity
Facility, the GE regional jet leases and the GE regional jet mortgage financings.In November 2004, the Company reached a comprehensive agreement with GE and its
affiliates, as described in a Master Memorandum of Understanding (GE Master MOU), that
was approved by the Bankruptcy Court on December 16, 2004. The GE Master MOU, together
with the transactions contemplated by the term sheets attached to the GE Master MOU,
provide the Company with short-term liquidity, reduced debt, lower aircraft ownership
costs, enhanced engine maintenance services and operating leases for new regional jets,
while preserving the vast majority of the Companys mainline fleet owned or otherwise
financed by GE. In connection with the merger, the Company and America West Holdings
have renegotiated certain of their respective existing agreements, and entered into new
agreements, with GE. These agreements are set forth in a comprehensive agreement with GE
and certain of its affiliates in a Master Merger Memorandum of Understanding, referred
to as the GE Merger MOU, that was approved by the Bankruptcy Court in June 2005. In
part, the GE Merger MOU modified and supplemented the agreements reached between US Airways Group and GE in the GE Master MOU, which was further amended by an amendment
dated September 9, 2005. The amendment provided that, in lieu of the issuance to an
affiliate of GE of a convertible note in the amount of $125 million, the Company would
pay cash in the amount of $125 million. The $125 million was paid to GE before
September 30, 2005.The bridge facility entered into between the Company and GE pursuant to the GE Master
MOU on December 20, 2004 continued in effect during the pendency of the Chapter 11
cases. The bridge facility provided for a loan in the amount of up to approximately $56
million, which was drawn down by the Company in 2004 and 2005. The bridge facility bore
interest at the rate of LIBOR plus 4.25% and matured on the date US Airways Group
emerged from the Chapter 11 cases, and was settled in cash by US Airways Group by
September 30, 2005 in connection with the $125 million payment.In June 2005, GE purchased the assets securing the 2001 Credit Facility in a
sale-leaseback transaction. The sale proceeds realized from the sale-leaseback
transaction were applied to repay the 2003 GE Liquidity Facility, the mortgage financing
associated with the CRJ aircraft and a portion of the 2001 GE Credit Facility. The
balance of the 2001 Credit Facility was amended to allow additional borrowings of $21
million in July 2005, which resulted in a total principal balance outstanding thereunder
of approximately $28 million. The operating leases are cross-defaulted with all other GE
obligations, other than excepted obligations, and are subject to agreed upon return
conditions.(e)
    
    In connection with US Airways Groups emergence from bankruptcy in September 2005,
it reached a settlement with the PBGC related to the termination of three of its
defined benefit pension plans which included the issuance of a $10 million note which
matures in 2012 and bears interest at 6% payable annually in arrears.
 16




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##### Table of Contents



2005
    
    
    82006
    
    
    1412007
    
    
    2092008
    
    
    2232009
    
    
    270Thereafter
    
    
    1,507$
    2,358
  6. Income Taxes
   7. Employee Benefit Plans
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    
    
    
    $
    10
    
    
    $
    1
    
    
    $
    30Interest cost
    
    
    2
    
    
    
    39
    
    
    
    8
    
    
    
    115Expected return on plan assets
    
    
    
    
    
    
    (32
    )
    
    
    (5
    )
    
    
    (96
    )Net periodic cost
    
    
    2
    
    
    
    17
    
    
    
    4
    
    
    
    49Curtailment gain
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    Settlement gain
    
    
    (868
    )
    
    
    
    
    
    
    (868
    )
    
    
    Total periodic cost (benefit)
    
    $
    (866
    )
    
    $
    17
    
    
    $
    (888
    )
    
    $
    49
 17




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##### Table of Contents



Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    1
    
    
    $
    9
    
    
    $
    8
    
    
    $
    30Interest cost
    
    
    4
    
    
    
    21
    
    
    
    22
    
    
    
    67Amortization of:Prior service benefit
    
    
    (32
    )
    
    
    (3
    )
    
    
    (76
    )
    
    
    (9
    )Actuarial gain
    
    
    (4
    )
    
    
    (3
    )
    
    
    (11
    )
    
    
    (6
    )Net periodic cost (benefit)
    
    
    (31
    )
    
    
    24
    
    
    
    (57
    )
    
    
    82Curtailment gain
    
    
    
    
    
    
    
    
    
    
    (183
    )
    
    
    Fresh start gain
    
    
    (1,237
    )
    
    
    
    
    
    
    (1,237
    )
    
    
    Total periodic cost (benefit)
    
    $
    (1,268
    )
    
    $
    24
    
    
    $
    (1,477
    )
    
    $
    82
    18




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##### Table of Contents



8. Comprehensive Income (Loss)
  9. Advances To Parent Company and Affiliate
   10. Recent accounting pronouncements
 Accounting for Share-Based Payment Accounting for Stock-Based Compensation, Accounting for Stock Issued to Employees,
 Accounting Changes and Error Corrections  A
replacement of APB Opinion No. 20 and FASB Statement No. 3
 19




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11. Legal Proceedings
     20




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21




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22




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 General Information
   Background
  23




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Emergence and Merger Transactions
  The New Equity Investments
 Public stock offering 
 GE Merger MOU
 
    
    The GE Merger MOU provided for continued use by US Airways Group
of certain leased Airbus, Boeing and regional jet aircraft, the
modification of monthly lease rates, and the return to GECC of
certain other leased Airbus and Boeing aircraft.
    
    GECC provided a bridge facility of approximately $56 million for
use by US Airways Group during the pendency of the Chapter 11
proceedings. US Airways paid an affiliate of General Electric (GE)
$125 million in cash on September 30, 2005 in exchange for
retirement of the bridge facility, forgiveness and release of US Airways from certain prepetition obligations, deferral of certain
payment obligations, and amendments to maintenance agreements.
    
    In June 2005, GECC purchased and immediately leased back to US Airways Group: (a) the assets securing the 2001 GE Credit Facility
and the 2003 GE Liquidity Facility, and other GE obligations,
consisting of 11 Airbus aircraft and 28 spare engines and engine
stands; and (b) ten regional jet aircraft previously debt financed
by GECC. The proceeds from the sale leaseback transaction of
approximately $633 million were used to pay down balances due to
GE by US Airways Group under the 2003 GE Liquidity Facility in
full, the GECC mortgage-debt financed CRJ aircraft in full, and a
portion of the 2001 GE Credit Facility. The 2001 GE Credit
Facility was amended to allow certain additional borrowings up to
$28 million.
 24




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##### Table of Contents



Airbus MOU
 
    
    On September 27, 2005, US Airways and AWA entered into two loan
agreements with Airbus Financial Services (AFS), as Initial Lender
and Loan Agent, Wells Fargo Bank Northwest, National Association,
as Collateral Agent, and US Airways Group, as guarantor, with
commitments in initial aggregate amounts of up to $161 million and
up to $89 million (the Airbus $161 Million Loan and the Airbus $89
Million Loan and, collectively, the Airbus Loans). The Airbus
Loans bear interest at a rate of LIBOR plus a margin, subject to
adjustment, and have been recorded as an obligation of US Airways
Group. The outstanding principal amount of the Airbus $89 Million
Loan will be forgiven in writing on December 31, 2010, or an
earlier date, if on that date the outstanding principal amount of,
accrued interest on, and all other amounts due under the Airbus
$161 Million Loan have been paid in full.
    
    Airbus has rescheduled US Airways Groups A320-family and A330-200
delivery commitments and has agreed to provide backstop financing
for a substantial number of aircraft, subject to certain terms and
conditions, on an order of 20 A350 aircraft. US Airways Groups
A320-family aircraft are now scheduled for delivery in 2009 and
2010. US Airways Groups A330-200 aircraft are scheduled for
delivery in 2009 and 2010 and A350 aircraft deliveries are
currently scheduled to occur beginning in 2011. The Airbus MOU
also eliminates cancellation penalties on US Airways Groups
orders for the ten A330-200 aircraft, provided that US Airways
Group has met certain predelivery payment obligations under the
A350 order. In connection with the restructuring of aircraft firm
orders, US Airways and America West Holdings were required to pay
an aggregate non-refundable restructuring fee which was paid by
means of set-off against existing equipment purchase deposits of
US Airways Group and America West Holdings held by Airbus. The US Airways restructuring fee of $39 million has been recorded as a
reorganization expense in the accompanying Statement of
Operations. AWAs restructuring fee was $50 million.
 Restructuring of the ATSB Loan Guarantees
  New Convertible Notes -
 25




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Restructuring of Affinity Credit Card Partner Agreement
     Restructuring of Credit Card Processing Agreement
   26




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Claims Resolution
  PBGC Claim 
 Agreements with ALPA 
 27




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28




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Results of Operations
  Three Months Ended September 30, 2005
Compared with the
Three Months Ended September 30, 2004
 Operating Revenues Mainline passenger Express revenue Cargo Other
 Operating Expenses Aircraft fuel and related costs Salaries and related costs Express expenses Other rent and landing fees Aircraft rent .
Selling expenses Aircraft maintenance Depreciation and amortization Other
 Nonoperating income (expense) Interest expense, net Reorganization items, net . Other, net
 Provision for Income Taxes
 29




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Nine Months Ended September 30, 2005
Compared with the
Nine Months Ended September 30, 2004
 Operating Revenues Mainline passenger Express revenue Cargo Other
 Operating Expenses Aircraft fuel and related costs Salaries and related costs Express expenses Other rent and landing fees Aircraft rent elling expenses Aircraft maintenance Depreciation and
amortization Other
 Nonoperating income (expense) Interest expense, net Reorganization items, net . Other, net
 30




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Selected Operating and Financial Statistics
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004MainlineRevenue passenger miles (RPM) (millions) (a)
    
    
    10,255
    
    
    
    10,666
    
    
    
    30,629
    
    
    
    30,455Available seat miles (ASM) (millions) (b)
    
    
    13,225
    
    
    
    13,715
    
    
    
    40,228
    
    
    
    40,224Passenger load factor (c)
    
    
    77.5
    %
    
    
    77.8
    %
    
    
    76.1
    %
    
    
    75.7
    %Yield (d)
    
    
    12.41
    ¢
    
    
    11.73
    ¢
    
    
    12.20
    ¢
    
    
    12.59
    ¢Passenger revenue per available seat mile
    
    
    9.62
    ¢
    
    
    9.12
    ¢
    
    
    9.29
    ¢
    
    
    9.53
    ¢Total revenue per available seat mile
    
    
    10.98
    ¢
    
    
    10.47
    ¢
    
    
    10.63
    ¢
    
    
    10.87
    ¢Passenger enplanements (in thousands)
    
    
    10,110
    
    
    
    10,443
    
    
    
    31,465
    
    
    
    31,366No. of aircraft in operating fleet at period end
    
    
    251
    
    
    
    282
    
    
    
    251
    
    
    
    282Fuel consumption (gallons in millions)
    
    
    219
    
    
    
    227
    
    
    
    663
    
    
    
    668Average fuel price with related taxes
    
    $
    1.88
    
    
    $
    1.11
    
    
    $
    1.68
    
    
    $
    1.06Average
number of full-time equivalent employees
    
    
    20,828
    
    
    
    26,942
    
    
    
    22,309
    
    
    
    26,858Operating cost per available seat mile
    
    
    11.13
    ¢
    
    
    11.59
    ¢
    
    
    10.87
    ¢
    
    
    11.47
    ¢Operating cost per available seat mile excluding fuel
    
    
    8.04
    ¢
    
    
    9.74
    ¢
    
    
    8.10
    ¢
    
    
    9.71
    ¢Express (e)Revenue passenger miles (RPM) (millions) (a)
    
    
    1,744
    
    
    
    1,379
    
    
    
    4,949
    
    
    
    3,685Available seat miles (ASM) (millions) (b)
    
    
    2,694
    
    
    
    2,108
    
    
    
    7,708
    
    
    
    5,900Passenger load factor (c)
    
    
    64.7
    %
    
    
    65.4
    %
    
    
    64.2
    %
    
    
    62.5
    %Total revenue per available seat mile
    
    
    15.96
    ¢
    
    
    16.70
    ¢
    
    
    15.33
    ¢
    
    
    17.73
    ¢Operating cost per available seat mile
    
    
    15.92
    ¢
    
    
    16.94
    ¢
    
    
    15.93
    ¢
    
    
    17.39
    ¢Total  Mainline and ExpressRevenue passenger miles (millions)
    
    
    11,999
    
    
    
    12,045
    
    
    
    35,578
    
    
    
    34,140Available seat miles (millions)
    
    
    15,919
    
    
    
    15,823
    
    
    
    47,936
    
    
    
    46,124Passenger load factor
    
    
    75.4
    %
    
    
    76.1
    %
    
    
    74.2
    %
    
    
    74.0
    %Total revenue per available seat mile
    
    
    11.82
    ¢
    
    
    11.30
    ¢
    
    
    11.38
    ¢
    
    
    11.75
    ¢Operating cost per available seat mile
    
    
    11.94
    ¢
    
    
    12.30
    ¢
    
    
    11.68
    ¢
    
    
    12.23
    ¢
 
 (a)
    
    Revenue passenger mile (RPM)  A basic measure of sales volume representing one passenger flown one mile.(b)
    
    Available seat mile (ASM)  A basic measure of capacity representing is one seat flown one mile.(c)
    
    Passenger load factor  The percentage of aircraft seating that is actually utilized (RPMs / ASMs).(d)
    
    Yield  A measure of airline revenue derived by dividing passenger revenue by revenue passenger miles.(e)
    
    Express statistics encompass all wholly owned regional airline subsidiaries of US Airways
Group, including Piedmont Airlines, PSA Airlines and Allegheny Airlines (through June 2004)
and US Airways regional jet division, MidAtlantic Airways, as well as operating and
financial results from capacity purchase agreements with Mesa Airlines, Chautauqua Airlines,
Trans States Airlines, Air Wisconsin and Republic Airways. 31




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##### Table of Contents



Liquidity and Capital Resources
    ATSB Loans
   
    
    90% of the US Airways ATSB Loan (Tranche A), the guaranteed portion of the loan, was funded
through a participating lenders commercial paper conduit program and bears interest at a rate
equal to the conduit providers weighted average cost related to the issuance of certain
commercial paper notes and other short term borrowings plus 0.30%, provided that portions of
Tranche A that are held by the ATSB or by an assignee and are no longer subject to such
commercial paper conduit program bear interest at LIBOR plus 40 basis points, and portions of
Tranche A that are under certain circumstances assigned free of the ATSB guarantee bear
interest at LIBOR plus 6.0%; and
    
    10% of the US Airways ATSB Loan (Tranche B) bears interest at the greater of the Tranche A
interest rate plus 6.0% and LIBOR plus 6.0% from a current rate of LIBOR plus 4.0%.
 32




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##### Table of Contents




    
    $525 million through March 2006;
    
    $500 million through September 2006;
    
    $475 million through March 2007;
    
    $450 million through September 2007;
    
    $400 million through March 2008;
    
    $350 million through September 2008; and
    
    $300 million through September 2010.
   Airbus Term Loans
   33




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Airbus Purchase Commitments
     Asset Based Financings
  34




---



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Statement of Cash Flows Narrative
     35




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk Sensitive Instruments
  
    
    the impact of political instability on crude production, especially in Russia and OPEC countries;
    
    unexpected changes to the availability of petroleum products due to disruptions in distribution systems or refineries as
evidenced in the third quarter of 2005 when Hurricane Katrina and Hurricane Rita caused widespread disruption to oil
production, refinery operations and pipeline capacity along certain portions of the U.S. Gulf Coast. As a result of
these disruptions, the price of jet fuel increased significantly and the availability of jet fuel supplies was
diminished;
    
    unpredicted increases to oil demand due to weather or the pace of economic growth;
    
    inventory levels of crude, refined products and natural gas; and
    
    other factors, such as the relative fluctuation between the U.S. dollar and other major currencies and influence of
speculative positions on the futures exchanges.
    36




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  Changes in internal control over financial reporting.
  Limitation on the effectiveness of controls.
  
 Part II. Other Information
 
 Item 1. Legal Proceedings
   37




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38




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39




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Item 6. Exhibits
 Exhibit No.
    
    Description2.1
    
    Letter Agreement, dated as of July 7, 2005, by and among US Airways Group, Inc., America West Holdings Corporation,
Barbell Acquisition Corp., ACE Aviation Holdings, inc.,
Eastshore Aviation, LLC, Par Investment Partners, L.P.,
Peninsula Investment Partners, L.P. and Wellington
Management Company, LLP (incorporated by reference to
Exhibit 2.2 to Amendment No. 1 to US Airways Groups
Registration Statement on Form S-4 filed on August 8, 2005)4.1
    
    Indenture, dated as of September 30, 2005, between US Airways Group, Inc., the guarantors listed therein and U.S.
Bank National Association, as trustee (incorporated by
reference to Exhibit 4.1 to US Airways Groups Form 8-K
filed on October 3, 2005)4.2
    
    Registration Rights Agreement, dated as of September 30,
2005, between US Airways Group, Inc., America West
Airlines, Inc. and US Airways, Inc., as guarantors, and the
initial purchaser named therein (incorporated by reference
to Exhibit 4.2 to US Airways Groups Form 8-K filed on
October 3, 2005)10.1
    
    Amended and Restated Loan Agreement, dated as of September
27, 2005, by and among US Airways, Inc., US Airways Group,
Inc., the affiliates of US Airways, Inc. party thereto, the
lenders from time to time party thereto, Citibank, N.A., as
Agent, Citicorp North America, Inc., as Govco
Administrative Agent, Wilmington Trust Company, as
Collateral Agent, and the Air Transportation Stabilization
Board (incorporated by reference to Exhibit 10.1 of US Airways Groups Form 10-Q for the quarter ended September
30, 2005)
 40




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##### Table of Contents



Exhibit No.
    
    Description10.2*
    
    Loan Agreement, dated as of September 27, 2005, by and
among US Airways, Inc., America West Airlines, Inc., US Airways Group, Inc., as guarantor, Airbus Financial
Services, as Initial Lender and Loan Agent, and Wells Fargo
Bank Northwest, National Association, as Collateral Agent,
with commitments in an initial aggregate amount of
$161,000,000 (incorporated by reference to Exhibit 10.3 of
US Airways Groups Form 10-Q for the quarter ended
September 30, 2005)10.3*
    
    Loan Agreement, dated as of September 27, 2005, by and
among US Airways, Inc., America West Airlines, Inc., US Airways Group, Inc., as guarantor, Airbus Financial
Services, as Initial Lender and Loan Agent, and Wells Fargo
Bank Northwest, National Association, as Collateral Agent,
with commitments in an initial aggregate amount of
$89,000,000 (incorporated by reference to Exhibit 10.4 of
US Airways Groups Form 10-Q for the quarter ended
September 30, 2005)10.4*
    
    Airbus A350 Purchase Agreement, dated as of September 27,
2005, by and among AVSA, S.A.R.L. and US Airways, Inc.,
America West Airlines, Inc. and US Airways Group, Inc.
(incorporated by reference to Exhibit 10.5 of US Airways
Groups Form 10-Q for the quarter ended September 30, 2005)10.5*
    
    Amendment No. 16, dated as of September 27, 2005, to the
Airbus A319/A320/A321 Purchase Agreement, dated as of
October 31, 1997, between US Airways Group, Inc. and AVSA,
S.A.R.L. (incorporated by reference to Exhibit 10.6 of US Airways Groups Form 10-Q for the quarter ended September
30, 2005)10.6*
    
    Amendment No. 10, dated as of September 27, 2005, to the
Airbus A330/A340 Purchase Agreement, dated as of November
24, 1998, between US Airways Group, Inc. and AVSA, S.A.R.L.
(incorporated by reference to Exhibit 10.7 of US Airways
Groups Form 10-Q for the quarter ended September 30, 2005)10.7
    
    Investment Agreement, dated as of July 7, 2005, by and
among US Airways Group, Inc., America West Holdings
Corporation, Tudor Proprietary Trading, L.L.C. and certain
investors listed on Schedule I thereto for which Tudor
Investment Corp. acts as investment Advisor (incorporated
by reference to Exhibit 10.1 to America West Holdings Form
8-K filed on July 13, 2005)10.8*
    
    Assignment and First Amendment to America West Co-Branded
Card Agreement, dated as of August 8, 2005, by and among US Airways Group, Inc., America West Airlines, Inc. and
Juniper Bank (incorporated by reference to Exhibit 10.110
to Amendment No. 2 to the Registration Statement on Form
S-4 filed by US Airways Group on August 10, 2005)10.9*
    
    First Amendment to Merchant Services Bankcard Agreement,
dated as of August 8, 2005, by and among America West
Airlines, Inc., JPMorgan Chase Bank, N.A. and Chase
Merchant Services, L.L.C. (incorporated by reference to
Exhibit 10.111 to Amendment No. 2 to the Registration
Statement on Form S-4 filed by US Airways Group on August
10, 2005)10.10
    
    Letter Agreement dated September 16, 2005 by and among US Airways Group, Inc., America West Holdings Corporation,
Barbell Acquisition Corp., ACE Aviation Holdings, inc.,
Eastshore Aviation, LLC, Par Investment Partners, L.P.,
Peninsula Investment Partners, L.P. and Wellington
Management Company, LLP (incorporated by reference to
Exhibit 10.11 of US Airways Groups Form 10-Q for the
quarter ended September 30, 2005)10.11+
    
    Form of Indemnity Agreement (incorporated by reference to
Exhibit 10.1 to US Airways Groups Form 8-K filed on
October 6, 2005)
 41




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##### Table of Contents



Exhibit No.
    
    Description31.1
    
    Certification of US Airways Inc.s Chief Executive Officer
pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934, as amended31.2
    
    Certification of US Airways, Inc.s Chief Financial Officer
pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934, as amended32.1
    
    Certification of US Airways Inc.s Chief Executive Officer
and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 (+)
    
    Represents a management contract or compensatory plan or arrangement.(*)
    
    The Company has sought confidential treatment for portions of the referenced exhibit. 
 Signature
  US Airways, Inc. (Registrant)Date: November 9, 2005
    By:
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial Officer 42




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Exhibit Index
 Exhibit No.
    
    Description31.1
    
    Certification of US Airways Inc.s Chief Executive Officer
pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934, as amended31.2
    
    Certification of US Airways, Inc.s Chief Financial Officer
pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934, as amended32.1
    
    Certification of US Airways Inc.s Chief Executive Officer
and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 43