================================================================= US AIRWAYS BANKRUPTCY NEWS Issue Number 2 ----------------------------------------------------------------- Copyright 2002 (ISSN XXXX-XXXX) August 15, 2002 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 609-392-0900 FAX 609-392-0040 ----------------------------------------------------------------- US AIRWAYS BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtor's cases. New issues are prepared by Geoff J. Bailey, Frauline Sinson-Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of US AIRWAYS BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00007] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [00008] DEBTORS' APPLICATION TO HIRE SKADDEN ARPS AS LEAD COUNSEL [00009] DEBTORS' APPLICATION TO EMPLOY SEABURY AS ADVISORS [00010] DEBTORS' MOTION TO OBTAIN $500,000,000 DIP FINANCING PACT [00011] DEBTORS' MOTION TO CONTINUE FUEL SUPPLY ARRANGEMENTS [00012] DEBTORS' MOTION TO PAY PREPETITION CRITICAL VENDOR CLAIMS [00013] DETBORS' MOTION TO PAY PREPETITION FOREIGN VENDOR CLAIMS [00014] DEBTORS' MOTION TO CONTINUE USING CASH MANAGEMENT SYSTEM [00015] DEBTORS' MOTION TO CONTINUE USING EXISTING BUSINESS FORMS [00016] DEBTORS' MOTION TO WAIVE INVESTMENT & DEPOSIT GUIDELINES [00017] DEBTORS' MOTION TO PAY PREPETITION MAINTENANCE CLAIMS [00018] DEBTORS' MOTION TO ASSUME INTERLINE AGREEMENTS [00019] DEBTORS' MOTION TO CONTINUE HONORING SERVICE AGREEMENTS [00020] DEBTORS' MOTION TO PAY PREPETITION EMPLOYEE OBLIGATIONS [00021] DEBTORS' MOTION TO HONOR PREPETITION CUSTOMER OBLIGATIONS [00022] US AIRWAYS REPORTS NEAR FLAWLESS FIRST DAY OPERATIONS [00023] US AIRWAYS' SEC FORM 10-Q WILL BE FILED LATE [00024] NYSE SUSPENDS TRADING IN US AIRWAYS GROUP KEY DATE CALENDAR ----------------- 08/11/02 Voluntary Petition Date 08/26/02 Deadline for filing Schedules of Assets and Liabilities 08/26/02 Deadline for filing Statement of Financial Affairs 08/26/02 Deadline for filing Lists of Leases and Contracts 08/31/02 Deadline to provide Utilities with adequate assurance 10/10/02 Deadline to make decisions about lease dispositions 11/09/02 Deadline to remove actions pursuant to F.R.B.P. 9027 12/09/02 Expiration of Debtors' Exclusive Plan Proposal Period 09/30/03 Maturity Date for $500,000,000 CSFB-Led DIP Facility 02/07/04 Expiration of Debtors' Exclusive Solicitation Period 08/10/04 Deadline for Debtors' Commencement of Avoidance Actions Organizational Meeting with UST to form Committees Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [00007] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES ----------------------------------------------------------------- US Airways Group has seven subsidiaries: -- US Airways, Inc., -- Allegheny Airlines, Inc., -- PSA Airlines, Inc., -- Piedmont Airlines, Inc., -- MidAtlantic Airways, Inc., -- US Airways Leasing and Sales, Inc., and -- Material Services Company, Inc. The eight USAir Debtors ask the Court to allow their separate Chapter 11 cases to be jointly administered -- for procedural purposes only -- as one chapter 11 case. Rule 1015(b) of the Federal Rules of Bankruptcy Procedure provides that if two or more petitions are pending in the same court by or against a debtor and an affiliate, the court may order joint administration of the estates of the debtor and affiliates. According to John Wm. Butler, Esq., at Skadden, Arps, Slate, Meagher & Flom, joint administration of the Debtors' Chapter 11 cases will permit the Clerk of the Court to use a single general docket for each of the Debtors' cases and combine notices to creditors and other parties-in-interest of the Debtors' respective estates. It is anticipated that numerous notices, applications, motions, other pleadings, hearings and orders in these cases will affect several of the Debtors. Joint administration will save time and money, and avoid duplicative and potentially confusing filings by permitting counsel for all parties-in-interest to: (a) use a single caption on the numerous documents that will be served and filed; and (b) file the papers in one case rather than in multiple cases. Mr. Butler adds that joint administration will also protect parties-in-interest by ensuring that parties in each of the Debtors' respective Chapter 11 cases will be apprised of the various matters before the Court. Mr. Butler assures the Court that the rights of the respective creditors of each of the Debtors will not be adversely affected by joint administration of these cases since the relief sought is purely procedural and is not intended to affect substantive rights. Each creditor and other party-in-interest will maintain the rights it has against the particular estate in which it allegedly has a claim or right. Accordingly, the Court rules that the Debtors' Chapter 11 cases be consolidated for procedural purposes and be jointly administered. The Court further directs that all pleadings and papers filed in these cases be captioned: IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA ALEXANDRIA DIVISION In re: ) ) Case No. 02-83984-SSM ) Jointly Administered US AIRWAYS GROUP, INC., et al., ) Chapter 11 ) Hon. Stephen S. Mitchell ) Debtors. ) Mr. Butler explains that this simplified caption, without reference to respective states of incorporation and tax identification numbers, will eliminate cumbersome and confusing procedures and ensure uniformity of pleading identification. Judge Robert G. Mayer makes it clear that nothing in his order contemplates nor precludes any party-in-interest from requesting or opposing a substantive consolidation of any of the Debtors' estates. ----------------------------------------------------------------- [00008] DEBTORS' APPLICATION TO HIRE SKADDEN ARPS AS LEAD COUNSEL ----------------------------------------------------------------- US Airways Group seeks the Court's authority to employ and retain Skadden, Arps, Slate, Meagher & Flom as its restructuring and bankruptcy counsel for the filing and prosecution of these Chapter 11 cases. According to US Airways Chief Executive Officer and President David N. Siegel, Skadden, Arps has performed legal work for the Debtors in connection with corporate, financing, litigation, restructuring, securities, tax and other significant matters since 1994. Prior to the Petition Date, the Debtors sought the Skadden, Arps' services for advice about restructuring matters in general, as well as the potential commencement and prosecution of these Chapter 11 cases pursuant to an Engagement Agreement dated April 16, 2002. The Debtors believe that continued representation of Skadden, Arps is critical to their restructuring efforts because the firm is familiar with the Debtors' business, legal and financial affairs. Accordingly, Skadden, Arps is well suited to guide the Debtors through the Chapter 11 process. Skadden, Arps has extensive experience in the field of debtors' and creditors' rights and business reorganizations under Chapter 11 of the Bankruptcy Code. As Restructuring and Bankruptcy Counsel, Skadden, Arps is expected to: (a) advise the Debtors with respect to their powers and duties as debtors and debtors-in-possession in the continued management and operation of their business and properties; (b) attend meetings and negotiate with representatives of creditors and other parties in interest and advise and consult on the conduct of the case, including all of the legal and administrative requirements of operating in Chapter 11; (c) advise the Debtors in connection with any contemplated asset sales or business combinations, including the negotiation of asset, stock purchase, merger or joint venture agreements, formulate and implement bidding procedures, evaluate competing offers, draft appropriate corporate documents with respect to the proposed sales, and counsel the Debtors in connection with the closing of such sales; (d) advise the Debtors in connection with postpetition financing and cash collateral arrangements and negotiating and drafting related documents, provide advice and counsel with respect to prepetition financing arrangements, and provide advice to the Debtors in connection with the emergence financing and capital structure, and negotiate and draft related documents; (e) advise the Debtors on matters relating to the evaluation of the assumption, rejection or assignment of unexpired leases and executory contracts; (f) provide advice to the Debtors with respect to legal issues arising in or relating to the Debtors' ordinary course of business including attendance at senior management meetings, meetings with the Debtors' financial and turnaround advisors and meetings of the board of directors, and advice on employee, workers' compensation, employee benefits, executive compensation, tax, environmental, banking, insurance, securities, corporate, business operation, contracts, joint ventures, real property, press/public affairs and regulatory matters and advise the Debtors with respect to continuing disclosure and reporting obligations under securities laws; (g) take all necessary action to protect and preserve the Debtors' estates, including the prosecution of actions on their behalf, the defense of any actions commenced against those estates, negotiations concerning all litigation in which the Debtors may be involved and objections to claims filed against the estates; (h) prepare on behalf of the Debtors all motions, applications, answers, orders, reports and papers necessary to the administration of the estates; (i) negotiate and prepare on the Debtors' behalf plan(s) of reorganization, disclosure statement(s) and all related agreements and/or documents and take any necessary action on behalf of the Debtors to obtain confirmation of such plan(s); (j) attend meetings with third parties and participate in negotiations with respect to the above matters; (k) appear before this Court, any appellate courts, and the U.S. Trustee, and protect the interests of the Debtors' estates before courts and the U.S. Trustee; and (l) perform all other necessary legal services and provide all other necessary legal advice to the Debtors in connection with these chapter 11 cases. Mr. Siegel relates that the Engagement Agreement provides for a retainer program under which the Debtors paid an initial retainer of $750,000 for professional services rendered and to be rendered as well as charges and disbursements to be incurred by Skadden, Arps. Thereafter, Skadden, Arps periodically invoiced the Debtors and drew down the Initial Retainer in payment of the invoices and was paid supplemental amounts in order to replenish the Initial Retainer. Skadden, Arps received a filing retainer of $750,000 to be utilized in accordance with the Engagement Agreement to cover a portion of the projected fees, charges and disbursements to be incurred during the reorganization cases. Skadden, Arps will apply the Retainer to pay any fees, charges and disbursements that remain unpaid as of the Petition Date. The firm will retain the remainder of the Retainer to be applied to any fees, charges and disbursements, which remain unpaid at the end of the reorganization cases. As of August 11, 2002, after application of all prepetition fees, charges and disbursements incurred and posted as of that date, the amount of the Retainer was $903,059. According to Skadden, Arps' books and records, for the period August 12, 2001 through August 11, 2002, the total amount of services billed to the Debtors in connection with contingency planning was $2,334,123 with an additional $286,676 in charges and disbursements. During the same period, the total amount of all services billed was $8,911,861 plus charges and disbursements for $961,744. Skadden, Arps' books and records reflect that for the period May 12, 2002 through August 11, 2002, it received $8,655,408 from the Debtors, including payments received for services rendered prior to the Petition Date and the $903,059 Retainer balance. The aggregate amount applied to fees, charges and disbursements for the same period was $7,752,981, exclusive of the $903,059 Retainer balance. Any portion of the prepetition amounts received by Skadden, Arps that has not yet been applied to prepetition fees and expenses will be applied when amounts are identified. "Should any balance remain after the application, the remainder will be held as a retainer for and applied against postpetition fees and expenses that are allowed by the Court," Mr. Siegel explains. Skadden, Arps provides the Debtors with periodic -- no less frequently than monthly -- statements for services rendered and charges and disbursements incurred. During the course of the reorganization cases, the issuance of periodic statements will constitute a request for an interim payment against the reasonable fee to be determined at the conclusion of the representation. For professional services, Skadden, Arps' fees are based in part on its customary hourly rates, which are periodically adjusted. Skadden, Arps will be providing professional services to the Debtors under its bundled rate schedules. Therefore, Skadden, Arps will not be seeking to be separately compensated for certain staff, clerical and resource changes. Presently, the hourly rates under the bundled rate structure range from: $480 - 695 partners 470 counsel and special counsel 265 - 470 associates 80 - 160 legal assistants and support staff The hourly rates are subject to periodic increases in the normal course of the firm's business, often due to the increased experience of a particular professional. Skadden, Arps intends to apply to the Court for allowance of compensation for professional services rendered and reimbursement of charges and disbursements incurred in these chapter 11 cases in accordance with applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules and the orders of this Court. Skadden, Arps will seek compensation for the services of each attorney and paraprofessional acting on behalf of the Debtors in these cases at the then-current bundled rate charged for the services on a non-bankruptcy matter. The hourly rates are set at a level designed to compensate Skadden, Arps fairly for the work of its attorneys and legal assistants and to cover fixed and routine overhead expenses, including those items billed separately to other clients under the firm's standard unbundled rate structure. As part of its overall financial restructuring, the Debtors are asking stakeholders, vendors, service providers and others to make economic concessions in support of their overall goals and objectives. In this regard, Skadden, Arps has agreed to provide periodic fee accommodations with respect to the scope and type of matters regularly worked on for the Debtors in an aggregate amount of up to 10%. Consistent with the firm's policy with respect to its other clients, Skadden, Arps will continue to charge the Debtors for all other services provided and for other charges and disbursements incurred in the rendition of services. These charges and disbursements include, among other things, costs for telephone charges, photocopying -- at $0.10 per page for black and white copies and a higher commensurate charge for color copies, travel, business meals, computerized research, messengers, couriers, postage, witness fees and other fees related to trials and hearings. Skadden, Arps assures the Court that it: (a) does not have any connection with any of the Debtors, their affiliates, their creditors, the U.S. Trustee, any person employed in the office of the U.S. Trustee, or any other party-in-interest, or their respective attorneys and accountants, (b) it is a "disinterested person," as that term is defined in Section 101(14) of the Bankruptcy Code, and (c) does not hold or represent any interest adverse to the estates. * * * Judge Mitchell finds merit in Mr. Siegel's request and approves the application. ----------------------------------------------------------------- [00009] DEBTORS' APPLICATION TO EMPLOY SEABURY AS ADVISORS ----------------------------------------------------------------- The Debtors seek the Court's authority to employ Seabury Advisors LLC, Seabury Securities LLC, Seabury Solutions LLC, and Seabury Airport Advisory Services LLC, as their financial advisors, investment bankers and consultants. According to USAir's Chief Executive Officer, David N. Siegel, Seabury's resources, capabilities and experience are crucial to the Debtors' successful restructuring. Seabury and their current professionals have extensive experience working with financially troubled companies in complex financial restructurings, out-of- court and in Chapter 11 cases and have been involved as advisors with respect to financial restructurings, new capital raising, aircraft advisory services and other advisory assignments to numerous airlines including various Chapter 11 cases. Seabury and their current professionals also have extensive experience in dealing with airport-related and other special purpose tax-exempt bond financings, airport facility planning and other similar work and have advised a number of airlines and airport authorities in matters including the Port Authority of New York and New Jersey and Massport. Mr. Siegel relates that Seabury's worked with the Debtors since March 2002, providing a variety of financial advisory, investment banking and consulting services. Consequently, Seabury is familiar with the Debtors' books, records, and financial affairs. Experienced financial advisors, investment bankers, and consultants like the professionals at Seabury, fulfill a critical service that complements the services provided by the Debtors' other restructuring professionals. Broadly speaking, Mr. Siegel explains, Seabury will concentrate their efforts on formulating strategic alternatives and assisting the Debtors in their efforts with regard to a restructuring and financing or sale if requested to do so by the Debtors. Seabury will perform these services: (i) Restructuring Services. Seabury will provide the Debtors with investment banking services with respect to successfully arranging either an "out-of-court" restructuring of certain of its vendor and aircraft related debt and lease obligations or a restructuring through a judicial proceeding under a Chapter 11 of the Bankruptcy Code. In connection with a Restructuring, Seabury will: (a) provide financial advice to the Debtors in developing and soliciting agreement to a Restructuring plan, which may be a plan under Chapter 11 of the Bankruptcy Code; (b) negotiate modifications to the Debtors' material debt and lease obligations relating to aircraft financings; (c) provide financial advice and assistance to the Debtors in structuring any new securities to be issued under the Plan; (d) assist the Debtors in negotiations with entities or groups affected by the Plan; and (e) in a Chapter 11 proceeding, participate in hearings before the bankruptcy court with respect to the matters upon which Seabury has provided advice. (ii) Financing Services. Seabury will provide the Debtors with investment banking services with respect to a Financing: (a) in connection with an out-of-court restructuring, assisting the Debtors in applying for a U.S. government-guaranteed credit facility under the Air Transportation Stabilization Act; (b) in connection with a Chapter 11 proceeding, assisting the Debtors in arranging and negotiating a debtor-in- possession loan facility; and (c) in connection with successfully reorganizing under the Bankruptcy Code, assisting the Debtors in arranging "Exit Financing" in connection with a Plan of Reorganization, which may include an ATSB Loan Facility, other forms of debt financing or new equity capital from an equity plan sponsor. (iii) Fleet Restructuring/Divestment Activities. Seabury will provide the Debtors with certain financial advisory and consulting services related to: (a) fleet restructuring; (b) restructuring existing agreements with airframe and power plant manufacturers; (c) negotiating with BFE vendors; and (d) sale, divestment or sale/leaseback of the Debtors' flight equipment. (iv) Strategic Advice. If requested by the Debtors, Seabury will provide the Debtors' executive management and their board with strategic advice on its network, business strategies and related matters; (v) Sale Transaction Advisory. If requested by the Debtors, Seabury will provide investment banking advisory services with respect to a sale of the Debtors, its assets, operations, business interests, trademarks, intangible assets or any other assets; (vi) New Aircraft Acquisition & Financing. Seabury will provide the Debtors with certain financial advisory and consulting services related to: (a) assisting in negotiating principal terms and conditions of new aircraft financings; and (b) arranging and closing financing for additional flight equipment delivered to the Debtors. (vii) Airport Advisory Services. Seabury will provide the Debtors with advisory services in connection with assisting the Debtors in: (a) securing concessions from airport authorities; (b) negotiating for the return of surplus gates, ticket counter space and other terminal facilities; (c) evaluating prospective opportunities to re-finance certain airport-related bond issues; and (d) other similar matters as identified by the Debtors. The services will be covered under that certain agreement between the Debtors and Seabury Airport Advisory Services LLC. (viii) Credit Card Agreements. Seabury will assist the Debtors in arranging a new Visa/MasterCard processor including: (a) assessing the Debtors' needs for a processor; (b) assisting the Debtors in preparing a request for proposal; (c) assisting the Debtors in identifying potential credit card processors; and (d) assisting the Debtors in soliciting, securing commitments, negotiating, and closing an agreement with a credit card processor. In connection with work associated with the EDS Contract only Seabury may contract to provide certain of these services with third parties for which the Debtors will agree to reimburse Seabury's direct costs. Third-party retentions must have the prior approval of the Debtors; (ix) Business & Operations Restructuring/Reengineering. If requested by the Debtors, Seabury will provide the Debtors' executive management and its board with advisory services with respect to restructuring and reengineering the Debtors' businesses and operations; (x) IT Consulting; Flight Profitability System Development. Seabury Solutions will build a new flight profitability system for the Debtors as covered under that certain agreement between Seabury Solutions LLC and the Debtors. In addition, Seabury Solutions LLC agrees to assist the Debtors in evaluating the adequacy, cost, and competitiveness of the Debtors' contractual rights and obligations with EDS Corporation. If requested by the Debtors, Seabury Advisors LLC and Seabury Solutions LLC will assist the Debtors in negotiating and structuring a revised agreement with EDS, and, in the alternative, assisting the Debtors in: (a) preparing a request for proposal and soliciting a replacement for EDS; (b) evaluating the alternative bids; and (c) if appropriate, assisting the Debtors in negotiating a service agreement with an alternative provider. In connection with work associated with the EDS Contract only Seabury may contract to provide certain of these services with third parties for which the Debtors will agree to reimburse Seabury's direct costs. Third-party retentions must have the prior approval of the Debtors. Seabury will be paid, through wire transfer, a $250,000 monthly retainer fee. Of this amount, 50% will be creditable to success fees. The Debtors will pay Seabury debt or lease obligation restructuring success fees. However, this amount will be capped at $10,000,000. Seabury will be paid a success fee, based on the aggregate of the Net Present Value cash liquidity improvement over the seven years, following the restructuring of debt, lease or other cash obligations of the Debtors relating to aircraft, spare engines or related flight equipment as: for amounts up to the first $500,000,000 0.75% for the next $500,000,000 0.6250% for the next $500,000,000 0.50% for all amounts beyond $1,000,000,000 0.40% These fees will be capped at $6,500,000. If US Airways Group receives financial assistance from the Air Transportation Stabilization Board, or the Debtors secure alternative credit facilities as a result of the concessions negotiated by Seabury, Seabury will be paid a success fee equal to the greater of $1,750,000 million or 20 basis points of the principal amount of the credit facility. For assisting the Debtors in arranging a DIP Loan Facility, Seabury will be paid, upon execution of the financing commitments, a success fee 0.50% of the commitments. For assisting the Debtors in arranging equity commitments in connection with exit financing, Seabury will be paid a success fee of 1.50% of the Equity Financing. For assisting the Debtors in arranging an M&A Transaction, Seabury will receive success fees 0.50% of the total Transaction Value up to the Net Book Value of the Debtors' assets that are subject to the Transaction and 0.625% of the Transaction Value in excess of the Net Book Value of the Debtors' assets. The fees are capped at $7,500,000. Seabury will receive $50,000 monthly for advising on aircraft financing transactions. The Debtors will pay Seabury advisory fees for debt or lease financing of new aircraft. The amounts are based on the size and cost of each transaction. Seabury will be paid a fixed fee of $1,750,000, with reasonable out-of-pocket expenses, for the development of a Flight Profitability System. The Debtors will also reimburse Seabury for all reasonable actual out-of-pocket expenses in connection with the services. John E. Luth, the President and Chief Executive Officer of Seabury Advisors LLC, Seabury Securities LLC, and Seabury Solutions LLC and a Managing Partner of Seabury Airport Advisory Services LLC, relates that they intend to apply to the Court for compensation, including retainer and success fees, and reimbursement of expenses. The Debtors contend that the fee arrangement, which is similar to fee arrangements which have been authorized in other Chapter 11 cases in which Seabury has rendered services, is reasonable in light of industry practice, market rates both in and out of Chapter 11 proceedings, Seabury's experience in reorganizations, and the scope of work to be performed. The Debtors believe that given the nature of the services to be provided, the fee structure is both fair and reasonable. Furthermore, both parties agree that the Debtors will indemnify Seabury and certain related persons under certain circumstances. Mr. Luth assures the Court that the members, counsel and associates of the firm does not have any connection with the Debtors, their affiliates, their creditors or any other parties in interest in these cases. Accordingly, Mr. Luth asserts that Seabury is a "disinterested person" as the term is defined in the Bankruptcy Code. ----------------------------------------------------------------- [00010] DEBTORS' MOTION TO OBTAIN $500,000,000 DIP FINANCING PACT ----------------------------------------------------------------- USAir does not have a traditional bank facility in place. On August 15, 2001, USAir terminated a $190 million 364-day secured revolving credit facility and a $250 million three-year secured revolving credit facility. At the Petition Date, the Company's primary pre-petition obligations consist of: (a) $3.515 billion (outstanding principal amount as of December 31, 2001) of 8.50% (weighted average) equipment financing agreements with installments due 2002 to 2022. These Equipment Financings are collateralized by aircraft and engines with a net book value of approximately $3.43 billion as of December 31, 2001; (b) $404 million credit facility dated as of November 16, 2001 with General Electric Capital Corporation. The GECC Credit Facility is secured by certain previously unencumbered aircraft; (c) $71 million (original principal amount) of 8.20% Philadelphia Authority for Industrial Development ("PAID") loan due 2003 to 2030 provided July 2000. The PAID Loan is unsecured and was paid to the Company from the proceeds of special facility revenue bonds issued by PAID. The proceeds of the PAID Bonds are restricted to expenditures at the Philadelphia International Airport and the Company is using the amounts provided under the PAID Loan to finance various improvements at the Airport; (d) $35 million (original principal amount) of 8.60% special facility revenue bonds due 2022 issued September 2000. These Facility Bonds were issued by the City of Charlotte and the proceeds were used to pay the cost of the design, acquisition, construction and equipping of certain airport-related facilities to be leased to the Company at the Charlotte/Douglas International Airport; (e) $64 million (outstanding amount as of December 31, 2001) in capital lease obligations. The Capital Leases cover certain aircraft, engines, ground equipment and ground facilities; and (f) As of December 31, 2001, the Debtors have under lease or ownership approximately 340 aircraft in its Mainline fleet: 193 aircraft under leases and 147 owned aircraft, of which 127 were pledged as collateral for various secured financing arrangements. The Debtors' wholly owned regional airline subsidiaries operated 132 turboprop aircraft: 106 under operating leases and 26 owned aircraft. In addition, as of December 31, 2001, the Debtors owned or leased 135 aircraft which were not considered part of the operating fleets. The Debtors currently operate approximately 472 aircraft in its combined Mainline and Express fleet. The Debtors' annual lease payments related to aircraft for 2002 are approximately $891 million for operating leases and $159 million for long-term debt and capital leases. These credit facilities do not provide the Debtors with access to working capital to fund their post-petition obligations. US Airways Group requires postpetition financing to operate their businesses. The Debtors tell the Court that existing cash on hand is insufficient to fund the restructuring process in its entirety. Prior to the Petition Date, US Air's Chief Executive Officer, David N. Siegel, explains, the Debtors approached Credit Suisse First Boston, Cayman Islands Branch and a number of other financial institutions including Bank of America, N.A., Citibank, J.P. Morgan Chase, Wachovia and PNC about providing postpetition financing. The Debtors ultimately determined that CSFB's proposal for the Postpetition Financing was, under the circumstances, the most favorable and addressed the Debtors' post-petition financing needs. Accordingly, the Debtors have entered into a DIP Facility with Credit Suisse First Boston as the Administrative Agent, Bank of America N.A., as the Collateral Agent and Syndication Agent, and Credit Suisse First Boston and Bank of America as Joint Lead Arrangers and Book Managers. The Lenders are Credit Suisse First Boston and Bank of America, with participation by Texas Pacific Group, and other banks, financial institutions and institutional lenders acceptable to the Administrative Agent. The Commitment is a maximum of $500,000,000, consisting of: -- a $250,000,000 Term Loan Facility, and -- a $250,000,000 Revolving Credit Facility with a sublimit of $50,000,000 for Letters of Credit. Concurrently with their search for suitable postpetition financing, the Debtors also began a search for a strategic investor to provide an infusion of capital as part of the Debtors' emergence from chapter 11. Through that process, the Debtors entered into an agreement with Texas Pacific-affiliate TPG Partners III, L.P. and its designated assignees for an infusion of capital in exchange for equity in the reorganized Debtors. As part of the TPG Equity Investment, TPG also agreed to participate in the DIP Facility. TPG is advancing the first $100,000,000. In the event that Texas Pacific's $200 million offer to acquire a 38% stake in USAir is topped by a competing bidder, that bidder must immediately refinance the DIP Facility and cash-out Texas Pacific. In addition to certain rights to purchase common stock and warrants in exchange for its participation, USAir will also pay TPG an arrangement fee of 3.5% of the aggregate amount that TPC makes available. * * * At the First Day Hearing, Judge Robert C. Mayer found that USAir has an immediate need to obtain funds and financial accommodations with which to continue their operations, meet their payroll and other necessary, ordinary course business expenditures, acquire goods and services, and administer and preserve the value of their estates, and maintain adequate cash balances customary and necessary for companies of this size in this industry to maintain customer confidence. The ability of the Debtors to finance their operations requires the availability of additional working capital. If the Court were to deny USAir access to $75,000,000 on an interim basis, the Court finds that the Debtors would be immediately and irreparably harmed. Because the Debtors need the working capital to preserve the confidences of their vendors, suppliers and customers and to preserve the going concern value of their business, Judge Mayer authorized US Airways Group Inc., to borrow up to $75,000,000 immediately. The Court will convene a hearing to consider final approval of the DIP Agreement -- and matters related to the intertwined Texas Pacific deal -- on September 26, 2002 at 9:30 a.m. before Judge Mitchell. Constance A. Fratianni, Esq., and Andrew V. Tenzer, Esq., at Shearman & Sterling in New York represent CSFB. David L. Eades, Esq., and Stephen E. Gruendel, Esq., at Moore & Van Allen, PLLC, represent Bank of America. Texas Pacific Group is represented by Brian P. Leitch, Esq., at Arnold & Porter in Denver and Michael L. Ryan, Esq., and Filip Moerman Esq., at Cleary, Gottlieb, Steen & Hamilton, in New York. ----------------------------------------------------------------- [00011] DEBTORS' MOTION TO CONTINUE FUEL SUPPLY ARRANGEMENTS ----------------------------------------------------------------- Prior to the Petition Date, the Debtors purchased aviation jet fuel from fuel suppliers pursuant to fuel supply contracts or fuel purchase orders. Ninety-seven percent of the Debtors' fuel purchases are made by wire transfer advance payments to 22 fuel suppliers on the day prior to the beginning of the week during which the jet fuel "liftings" will occur. The price is variable on a weekly basis and is normally based upon a moving average of a commonly used pricing index like the Platt's jet fuel quotation for the applicable geographic location, plus a negotiated per-gallon premium, called a "differential." The remaining fuel purchases are made on account and paid to other fuel suppliers in arrears. Pricing terms are generally the same and payments are generally made within a specified time after the Debtors' receipt of an invoice from the other Fuel Supplier. The Debtors utilize regional pipelines and terminal tankage systems to transport fuel from the point of purchase and store the fuel in proximity to several major airport storage systems. The pricing terms for these services include both invoiced and pre-pay arrangements. John Wm. Butler, Esq., at Skadden, Arps, Slate, Meagher & Flom, tells the Court that disruption of these services would be a significant hindrance to the Debtors' operations and would likely result in higher prices for fuel and regional transport and storage. The Debtors have reviewed disbursements during the period from January through June 2002 to the Fuel Suppliers and Pipeline and Terminal Providers. The total average monthly payments during this period were $49,900,000. The Debtors are participants in 33 "Fuel Consortiums". Fuel Consortiums are fuel storage and delivery facilities located at or near airports in which several carriers own or lease into- plane, storage and delivery systems. By using the Fuel Consortiums, the carriers store their fuel in one or more commingled "communal" fuel tanks and are able to withdraw the allotted portion of fuel at any time. The Fuel Consortiums are managed by third-party vendors who maintain and operate the system and also maintain an inventory of the amount of the fuel stored by each carrier. In exchange, the participating carriers pay a fee to the third-party vendors for their services in connection with the Fuel Consortiums. These consortiums are set up, most often on a local or airport level, by airlines to minimize and share the cost of local storage and into-plane services. Some of these consortiums are organized as separate corporations of which the Debtors are an equal-share owner with the other members. The Debtors pay these third-party vendors that operate the consortiums for services, including maintenance and operation of the system and all necessary accounting functions required to allocate costs to individual users. The Debtors' participation in these arrangements leads to significant cost savings that would be unattainable if the Debtors were not able to make all payments as due and generally maintain their existing relationships in the ordinary course of business. The Debtors are also parties to certain into-plane fuel contracts pursuant to which fuel service providers transport the Debtors' fuel from fueling stations or other storage facilities to the Debtors' aircraft. Means of local fuel transport include local pipelines, also known as "hydrant systems", and mobile and stationary vehicles. The Debtors are parties to other arrangements by which services relating to into-aircraft delivery are provided by various third parties. These services are all necessary to the continued operations of the Debtors and it is critical that the Debtors be able to maintain these arrangements in the ordinary course of business. The Debtors have reviewed actual disbursements during the period from January through June 2002 to the Into-Plane Contracts, Fuel Consortiums and Other Fuel Service Arrangements. The total average monthly payments during this period reach $5,000,000. Although it is hard to estimate with precision the obligations outstanding at any given moment, the Debtors estimate that the outstanding prepetition obligations related to the Fuel Suppliers, Pipeline and Terminal Providers, Into-Plane Contracts, Fuel Consortiums and Other Fuel Service Arrangements are between $1,000,000 and $2,000,000 as of the Petition Date. By this motion, the Debtors ask the Court to authorize the Prepaid Fuel Suppliers, Pipeline and Terminal Providers to apply the prepayments or credits to jet fuel liftings occurring and transport services provided postpetition. To the extent that any prepayments may be construed as deposits by any Prepaid Fuelers, the Debtors also ask the Court to authorize a Prepaid Fueler to use those funds to pay any outstanding prepetition obligations and to apply all remaining amounts to postpetition jet fuel liftings or transport services. To the extent required, the Debtors ask the Court to modify the automatic stay to allow for the payments received by the Prepaid Fuelers or credits existing prior to the Petition Date to be applied to fuel liftings and transport services occurring postpetition. The further ask the Court to permit the Prepaid Fuelers to exercise setoff and recoupment rights as may be necessary to ensure the application of fuel prepayments or credits. In addition, the Debtors seek the Court's authority to pay any prepetition obligations outstanding to the Other Fuel Suppliers, as well as Pipeline and Terminal Providers, who are paid by the Debtors in arrears. Moreover, the Debtors seek the Court's authority to continue honoring, performing, and exercising their rights and obligations in accordance with the Into-Plane Contracts; provided, however, that honoring, performing, or exercising of its rights and obligations will not give rise to administrative claims, solely as a result of the entry of an order providing such authorization. The Debtors also want to continue participating in the Fuel Consortiums in accordance with established practice and in the ordinary course of business. The Debtors plan to continue honoring, performing, and exercising their rights and obligations under the Other Fuel Service Arrangements in accordance with established practice in the ordinary course of business; provided, however, that the participation will not give rise to administrative claims solely as a result of the entry of an order providing authorization. ----------------------------------------------------------------- [00012] DEBTORS' MOTION TO PAY PREPETITION CRITICAL VENDOR CLAIMS ----------------------------------------------------------------- US Airways Group seeks the Court's authority to pay, in the ordinary course of business, prepetition claims owed to Critical Vendors that are essential to the uninterrupted functioning of the business operations. These vendors include: (a) aircraft parts suppliers; (b) flight training service providers; (c) food service and catering companies; (d) navigation systems providers; (e) pre-screening and security services; (f) quality control; (g) ticketing services; (h) information service providers; (i) providers of professional and nonprofessional services; (j) crew-related services; (k) government authorities assessing landing fees; and (l) ground handling services. John Butler, Esq., of Skadden, Arps, Slate, Meagher & Flom, tells Judge Mitchell that these Critical Vendors are often the only source from which the Debtors can procure specific goods or services. Failure to pay their Claims would likely result in the termination of the Critical Vendors' provision of goods and services to the Debtors. The Critical Vendors would also be irreparably damaged by the Debtors' failure to pay their prepetition claims, resulting in the Group being forced to try to obtain goods and services elsewhere that may: -- not be available, -- be available at a higher price, at unfavorable terms to the Debtors, -- be incompatible with equipment or systems currently operated by Debtors, or -- not be of the quality required by the Debtors. Some of the specific Critical Vendors provide not only goods but also indispensable infrastructure and support services. The Debtors propose a $10,000,000 cap on the Critical Vendor Claims. In determining this amount, the Debtors carefully reviewed all of their vendors to determine which vendors were sole source vendors without whom the operations could not continue. The Debtors analyzed whether the vendors provided goods and services pursuant to enforceable contracts and, if so, whether the vendors for any reason may terminate the contracts. Based upon this analysis, the Debtors identified the pool of vendors that may refuse to continue to provide critical goods and services if their prepetition claims remain unpaid. The Debtors estimated the amount required to pay these vendors to ensure the continued supply of critical goods and services. The Critical Vendor Claims Cap represents this estimated amount. Mr. Butler emphasizes that the cap does not represent the total amount of the prepetition trade claims of all creditors. Rather, it represents the Debtors' best estimate as to how much must be paid, at a minimum, to those Critical Vendors whose financial condition is precarious and requires payment of claims to ensure that the Debtors continue to receive goods and services, or with whom: (a) the Debtors have no enforceable contracts, or (b) the Debtors have contracts that may be terminable for any reason. The Critical Vendor Claims Cap represents 2.6% of the Debtors' average monthly disbursements to trade vendors from January to June 2002, estimated at $388,800,000. To minimize the amount of payments, the Debtors seek the Court's permission to determine the identity of Critical Vendors in the ordinary course of their businesses. Identifying the Critical Vendors now would likely encourage them to demand payment in full. When determining whether a creditor is a Critical Vendor, the Debtors will consider, among other things: (a) whether the goods or services the creditor provides can be replaced or acquired on better terms; (b) whether failure to pay prepetition trade claims will require the Debtors to incur higher costs for goods or services postpetition; and (c) whether failure to pay prepetition trade claims will cause the Debtors to lose sales or future revenue. The Debtors will only pay Critical Vendor Claims once the receiving parties agree to continue supplying goods and services on the Customary Trade Terms, or those that were provided on a historical basis prior to the Petition Date. The Critical Vendors must also provide other favorable trade practices and programs that are at least as advantageous to the Debtors as those in effect prepetition. The Debtors reserve the right to negotiate new trade terms with any Critical Vendor as a condition of paying any Critical Vendor Claim. To ensure that the Critical Vendors deal with the Debtors on Customary Trade Terms, the Debtors propose that: -- a binding letter be sent to the Critical Vendors along with a copy of the Order granting this Motion, and -- the checks used to pay Critical Vendor Claims contain a specific legend. The Debtors propose that the letter to Critical Vendors will include, but not be limited to, these terms: (a) The amount of the Critical Vendor's estimated Claims, accounting for any setoffs, other credits and discounts as mutually determined in good faith by the Critical Vendor and the Debtors; (b) The Customary Trade Terms between the Critical Vendor and the Debtors, or such other favorable terms as the parties agree, and the Vendor's agreement to provide goods and services in accordance with those terms; (c) The Critical Vendor's agreement not to file or assert against the Debtors any lien regardless of the statute or other legal authority upon which a lien is asserted, related to any remaining prepetition amounts allegedly owed to the Critical Vendor arising from agreements entered prior to the Petition Date; (d) The Critical Vendor's acknowledgment that it has reviewed the terms and provisions of this Order and consents to be bound by it; and (e) The Critical Vendor's agreement that it will not separately seek payment for reclamation claims outside the terms of this Order unless its participation in this program is terminated. This letter, once agreed to and accepted by a Critical Vendor, will be referred to as a "Trade Agreement." However, Mr. Butler tells the Court, there may be limited circumstances in which payment to a Critical Vendor, prior to having entered into a Trade Agreement, is necessary to avoid causing irreparable harm to the Debtors' business operations. In those cases, the Debtors seek the Court's authority to pay these vendors, even if a Trade Agreement has not been reached. If a Critical Vendor refuses to supply goods and services to the Debtors on Customary Trade Terms after receipt of payment on its Claim, or fails to comply with any Trade Agreement entered into, the Debtors want the Court to declare that: (a) any Trade Agreement between the Debtors and the Critical Vendor is terminated, and (b) provisional payments made to Critical Vendors be deemed to have been in payment of then-outstanding postpetition claims. In this scenario, a Critical Vendor will immediately repay any payment made to it on account of its Claims, to the extent that the payments exceed the Vendor's postpetition claims. In sum, the Debtors seek to return the parties to their position prior to entry of the Order approving this Motion. The Debtors reserve the right to later seek Court authority to increase the Critical Vendor Claims Cap. ----------------------------------------------------------------- [00013] DETBORS' MOTION TO PAY PREPETITION FOREIGN VENDOR CLAIMS ----------------------------------------------------------------- The Debtors provide international flight service to Canada, Mexico, the Caribbean and Europe. The Debtors' international service is critical to their future and is conducted under route authority granted by the Department of Transportation. The DOT has the authority to suspend and reallocate routes of air carriers whose operations have been discontinued. As the Debtors' foreign routes are extremely valuable assets of the Debtors' estates, they must be protected. Accordingly, US Airways Group seeks the Court's authority to pay prepetition claims owed to foreign vendors, service providers, regulatory agencies and governments. The Foreign Entities include: (a) foreign airports; (b) foreign professionals; (c) foreign vendors; and (d) foreign taxing authorities. The Debtors have reviewed disbursements made from January through June 2002 to Foreign Entities. The total average monthly payments to Foreign Entities were $15,000,000 per month. The Debtors believe this amount is representative of the outstanding prepetition obligations to Foreign Entities as of the Petition Date. John Butler, Esq., at Skadden, Arps, Slate, Meagher & Flom, relates that the Debtors usually make payments to the Foreign Entities on a regular basis. If the Foreign Claims are not paid, the Foreign Entities could cause an interruption of service on the Debtors' foreign routes and may take precipitous action based upon an erroneous belief that they are not subject to the jurisdiction of this Court and, thus, not subject to the automatic stay provisions of Section 362(a) of the Bankruptcy Code. Mr. Butler notes that the Foreign Entities could sue in a foreign court and obtain a judgment against the Debtors to collect prepetition amounts owed to them. They could immediately seek to seize the Debtors' foreign assets even prior to obtaining a judgment. Foreign suppliers could refuse to do business with the Debtors, grounding the Debtors' foreign operations. Foreign governmental authorities could also revoke the Debtors' landing rights. "This would strand the Debtors' customers overseas, create operational chaos, and could also lead to the suspension of the Debtors' route authority by the DOT," Mr. Butler says. This would severely damage the Debtors goodwill amongst the flying public and jeopardize the Debtors' reorganization prospects. Thus, it is important to satisfy the Foreign Claims. "It is absolutely critical to maintain the confidence of the flying public in the Debtors' operations," Mr. Butler asserts. In addition, Mr. Butler continues, the Debtors' route authorizations are valuable assets of their estates and must be preserved from forfeiture. Some of the Foreign Claims may be priority claims under Section 507(a)(8) of the Bankruptcy Code. However, irrespective of the possible application of Section 507(a)(8), Mr. Butler notes that the risks associated with non-payment of Foreign Entities justifies the payment of the Foreign Claims in the ordinary course of business. The Debtors ask the Court to require banks to honor any prepetition checks drawn or fund transfer requests made for payment of claims owing to Foreign Entities. In addition, the Debtors seek the Court's authority to issue postpetition checks and to make postpetition fund transfer requests to replace any prepetition checks and prepetition transfers to Foreign Entities that may be dishonored by the banks. ----------------------------------------------------------------- [00014] DEBTORS' MOTION TO CONTINUE USING CASH MANAGEMENT SYSTEM ----------------------------------------------------------------- In the ordinary course of business, the Debtors utilize an integrated, centralized cash management system under which funds collected by the Debtors from local banks around the country are transferred to concentration accounts and used to pay operating expenses. The Debtors' cash management system is managed primarily by financial personnel at the corporate headquarters in Arlington, Virginia. Through its utilization of the cash management system, the Debtors are able to facilitate cash forecasting and reporting, monitor collection and disbursement of funds, and maintain control over the administration of the bank accounts required to effect the collection, disbursement, and movement of cash. US Airways, Inc., which operates the Debtors' mainline airline fleet, utilizes PNC Bank, N.A. to collect, transfer and disburse funds generated from operations on a daily basis. PNC records collections, transfers and disbursements. Credit card sales represent a substantial source of the Debtors' revenues. For example, during 2001, the Debtors generated $7,400,000,000 in cash receipts based on purchases made by credit card. In the first three months of 2002, cash receipts based on credit card purchases were $1,700,000,000. Wire transfer receipts, automated clearinghouse receipts and electronic data interchange collections are deposited into a Master Concentration Account at PNC. Wire transfer payments in connection with operations are initiated on a daily basis out of the PNC Master Concentration Account. Check receipts are collected and deposited into various PNC Lockbox Accounts. From the PNC Lockbox Accounts, these checks are transferred to the PNC Master Concentration Account on a daily basis. At the conclusion of each business day, USAI invests any excess cash in various money market funds. Any residual balances remaining in the PNC Master Concentration Account are swept into a money market fund maintained by PNC and made available for operational use the following day. The PNC Master Concentration Account is the focal point of USAI's cash management system. This account is used to process wire transfers made in connection with: (a) debt and lease payments, (b) fuel payments, (c) intercompany payments, (d) insurance payments, (e) overnight money market fund investments, and (f) other miscellaneous obligations. On a daily basis, a portion of the balance remaining in the PNC Master Concentration Account is swept into a money fund for overnight investment purposes and then returned to the account, as needed the following day. USAI maintains six to eight PNC Lockbox Accounts, which are used to collect payments from customers. Customers remit payments to the appropriate addresses established by USAI. PNC then collects those payments several times throughout each business day, processes them and then deposits them into the appropriate PNC Lockbox Accounts. The receipts are ultimately swept into the PNC Master Concentration Account on a daily basis under a zero balance arrangement. USAI maintains 12 Controlled Disbursement Accounts at PNC, organized according to business line, through which it makes payments via check for operating expenses and other obligations. The PNC Controlled Disbursement Accounts are funded as needed on a daily basis from the PNC Master Concentration Account. Each of the PNC Controlled Disbursement Accounts has a zero balance arrangement with the PNC Master Concentration Account. Stand-Alone Accounts at PNC have been established primarily to fund payroll obligations and ACH disbursements. The PNC Stand- Alone Account used in connection with general direct deposit payroll obligations is funded two days in advance of the actual payroll date via wire transfer from the PNC Master Concentration Account. On the actual payroll date, that PNC Stand-Alone Account is then debited in the amount of the payroll run. The PNC Stand-Alone Account used in connection with executive payroll direct deposit obligations functions in a manner similar to that used in connection with general payroll obligations, except that only USAI executives are paid from this account. The PNC Stand- Alone Account used in connection with ACH obligations is funded one day in advance of the ACH settlement date. Like the payroll accounts, this account also is funded via wire transfer from the PNC Master Concentration Account. On the settlement date, the PNC Stand-Alone Account used to fund the ACH obligations is debited for the total amount of the ACH file. Other stand-alone accounts are used for special purposes like funding retiree medical expenses and for emergency response. USAI utilizes JP Morgan Chase Bank to efficiently collect, transfer and disburse funds generated on a daily basis through the operations of its five wholly-owned subsidiaries, Piedmont Airlines, Inc., PSA Airlines, Inc., Allegheny Airlines, Inc., MidAtlantic Airways, Inc. and Material Services Company, Inc., which together operate or support the Debtors' regional jet operations, commonly known as "Express." The Debtors maintain one primary account to centralize cash management in connection with the Express Subsidiaries. This JP Morgan Master Account is used primarily to fund concentration accounts associated with the Express Subsidiaries. Funding for the JP Morgan Master Account comes from the PNC Master Concentration Account via wire transfer. The JP Morgan Master Account has an automatic dollar transfer arrangement with each of the JP Morgan Concentration Accounts, whereby daily funding occurs automatically. The JP Morgan Master Account also has a zero balance arrangement with two JP Morgan General Disbursement Accounts to process outside payments. A $2,000,000 balance is maintained in the JP Morgan Master Account. The balance from the JP Morgan Master Account is swept nightly into a money market fund maintained at JP Morgan Chase and is available for use the following morning. The Debtors maintain the JP Morgan Concentration Accounts to process and collect wire transfers to and from customers of the Express Subsidiaries. Wire payments are made in connection with: (i) debt and lease payments, (ii) fuel payments, (iii) intercompany payments, (iv) insurance payments, (v) ACH payroll, and (vi) other miscellaneous wire transfers. The JP Morgan Concentration Accounts also have a zero balance arrangement with the JP Morgan General Disbursement Accounts and three JP Morgan Payroll Disbursement Accounts associated with the Express Subsidiaries. The Debtors maintain JP Morgan General Disbursement Accounts to make payments in connection with the general operating expenses of the Express Subsidiaries. The JP Morgan General Disbursement Accounts have a zero balance arrangement with each of the JP Morgan Concentration Accounts whereby any remaining funds are swept into the corresponding JP Morgan Concentration Account. The Debtors maintain the JP Morgan Payroll Disbursement Accounts for Piedmont, PSA and Allegheny. The funds in these accounts are used to make payroll payments to employees of Piedmont, PSA and Allegheny who are not paid via ACH. The JP Morgan Payroll Disbursement Accounts have a zero balance arrangement with the corresponding JP Morgan Concentration Accounts, whereby any remaining funds are swept therein. The Debtors use ABN AMRO Bank, N.A. and other Foreign Banks, to efficiently collect, transfer and disburse funds generated on a daily basis through the operations of its European stations. Each country maintains one or more accounts with ABN AMRO in addition to other accounts at local banks, which handle minor station activity. John Butler, Esq., at Skadden, Arps, Slate, Meagher & Flom, notes that the Office of the United States Trustee has established certain operating guidelines for debtors-in-possession in order to supervise the administration of chapter 11 cases. These guidelines require chapter 11 debtors to, among other things: (a) close all existing bank accounts and open new debtor-in- possession bank accounts; (b) establish one debtor-in-possession account for all estate monies required for the payment of taxes, including payroll taxes; (c) maintain a separate debtor-in-possession account for cash collateral; and (d) obtain checks for all debtor-in-possession accounts which bear the designation "Debtor-In-Possession," the bankruptcy case number, and the type of accounts. Accordingly, the Debtors sought and obtained the Court's authority to waive these requirements. Closing old bank accounts and opening new ones would cause enormous disruption in the Debtors' business and would impair the efforts to pursue alternatives to maximize the value of their estates. Mr. Butler points out that the Debtors' bank accounts comprise an established cash management system that the Debtors need to maintain in order to ensure smooth collections and disbursements in the ordinary course. Requiring the Debtors to adopt new, segmented cash management systems at this early and critical stage of this case would also be expensive, would create unnecessary administrative problems, and would be much more disruptive than productive. Any disruption could have a severe and adverse impact upon the Debtors' ability to reorganize. Moreover, because of the Debtors' complex corporate and financial structure, it would not be possible to establish a new system of accounts and a new cash management and disbursement system without substantial additional costs and expenses to the Debtors' bankruptcy estates and a significant disruption of the Debtors' business operations. ----------------------------------------------------------------- [00015] DEBTORS' MOTION TO CONTINUE USING EXISTING BUSINESS FORMS ----------------------------------------------------------------- To minimize expenses to their estates, the Debtors sought and obtained the Court's authority to continue using all correspondence, business forms -- including, but not limited to, letterheads, purchase orders, and invoices -- and checks existing immediately prior to the Petition Date without reference to their status as debtors-in-possession. John Butler, Esq., at Skadden, Arps, Slate, Meagher & Flom, convinced Judge Mitchell that parties doing business with the Debtors undoubtedly will be aware of the Debtors' status as debtors-in-possession as a result of the size and notoriety of these cases, the press releases issued by the Debtors, and any other press coverage. Moreover, Mr. Butler says, each of the Debtors' vendors will receive direct notice of the commencement of these cases. "Changing correspondence and business forms would be expensive, unnecessary, and burdensome to the Debtors' estates and disruptive to the Debtors' business operations and would not confer any benefit upon those dealing with the Debtors," Mr. Butler notes. ----------------------------------------------------------------- [00016] DEBTORS' MOTION TO WAIVE INVESTMENT & DEPOSIT GUIDELINES ----------------------------------------------------------------- The Debtors' assets consist of, among other things, cash, cash equivalents, short-term investments and deposit accounts. Prior to the Petition Date, the Debtors' invested cash in accordance with conservative guidelines and with the primary goal of protecting principal and the secondary goals of maximizing yield and liquidity. Section 345(a) of the Bankruptcy Code authorizes deposits or investments of money of a bankruptcy estate like cash, in a manner that will "yield the maximum reasonable net return on such money, taking into account the safety of such deposit or investment." For deposits or investments that are not "insured or guaranteed by the United States or by a department, agent or instrumentality of the United States or backed by the full faith and credit of the United States," Section 345(b) of the Bankruptcy Code provides that the estate must require from the entity with which the money is deposited or invested a bond in favor of the United States secured by the undertaking of an adequate corporate surety. John Butler, Esq., at Skadden, Arps, Slate, Meagher & Flom, notes that a court may relieve a debtor-in-possession of the restrictions that Section 345(b) imposes for "cause". The Debtors believe that "cause" exists to waive the investment and deposit restrictions under Section 345(b) to the extent that the Debtors' cash management deposits and investments do not comply. The Debtors believe that the banks at which they maintain their accounts are financially stable banking institutions and, in the United States, are FDIC insured -- up to an applicable unit per account. All the deposits and investments are prudent and designed to yield the maximum reasonable net return on the funds invested, taking into account the safety of the deposits and investments. The Debtors will invest their cash in their sole discretion in these short-term investment vehicles: (a) U.S. dollar denominated fixed income securities -- including taxable and tax-exempt securities; and (b) money market funds or money market preferred instruments, each with a minimum credit rating of BBB/Baa2 by Standard & Poor's Corporation and Moody's Investors Service, Inc. In view of the magnitude of cash that is or will be held by them, the Debtors contend that investment in strict compliance with the requirements of Section 45(b) is inconsistent with Section 345(a). The Court agrees and permits the Debtors to deviate from the approved investment practices. The Debtors are allowed to invest and deposit funds in a safe and prudent manner in accordance with their existing cash management system and investment guidelines. ----------------------------------------------------------------- [00017] DEBTORS' MOTION TO PAY PREPETITION MAINTENANCE CLAIMS ----------------------------------------------------------------- US Airways Group is required to perform significant maintenance and overhaul work to maintain its fleet of aircraft properly and safely and in accordance with the regulations of the Federal Aviation Administration. Although the Debtors perform a large part of their aircraft maintenance and repair work with their own personnel, they also rely on Outside Maintenance Providers to perform a material part of their aircraft, engine and other equipment maintenance and repair work. Most of the Outside Maintenance Providers perform maintenance and repair work pursuant to ongoing maintenance and service contracts, or on a credit basis and deliver invoices to the Debtors. Some of the Outside Maintenance Providers offer "on-call" maintenance and repair services at various destinations, which enable the Debtors to avoid maintaining complete repair facilities and employee mechanics at every destination city. As part of their maintenance and repair work, the Outside Maintenance Providers also supply and sell aircraft component parts. The Debtors have developed strong long-standing relationships with their Outside Maintenance Providers over the course of several years that has allowed them to negotiate favorable pricing and trade credit terms. The Debtors fear that their failure to honor their prepetition obligations to the Outside Maintenance Providers would jeopardize these relationships. Because the universe of qualified Outside Maintenance Providers is limited, the Debtors believe that it would be difficult to replace the majority of these providers on economically viable terms. Additionally, many of the Outside Maintenance Providers are currently in the possession of aircraft, engines and other equipment that are vital to the Debtors' operations and may assert possessory liens refusing to redeliver these properties to the Debtors until they are paid the prepetition amounts. The Debtors use domestic and foreign commercial common carriers, movers, shippers, freight forwarders/consolidators, delivery services, customs brokers, shipping auditing services, and certain other third-party services providers to ship, transport, store, move through customs, and deliver goods through established national and international distribution networks in their maintenance and repair operation. The Debtors rely extensively on these Shippers to transport parts to and from their Outside Maintenance Providers. The services are critical to the Debtors' day-to-day operations. At any given time, there are numerous shipments en route to or from the Outside Maintenance Providers. Therefore, some Shippers are currently in possession of engines and other equipment that is vital to the Debtors' operations. They may refuse to deliver or release these to the Debtors until they are paid prepetition amounts. The Debtors have reviewed disbursements made during the period from January through June 2002 to Outside Maintenance Providers and Shippers. The average total monthly payments were $25,000,000 for the Outside Maintenance Providers, and $800,000 for the Shippers. The Debtors estimate that outstanding prepetition obligations owed to the Outside Maintenance Providers are between $10,000,000 to $11,000,000, and to Shippers between $500,000 and $1,000,000, as of the Petition Date. Accordingly, the Debtors seek the Court's authority to pay the Outside Maintenance Providers and Shippers. The Debtors also rely on Contractors, subcontractors and professional service firms to perform construction, maintenance and repairs at their facilities. To the extent these or other similar parties could have a valid statutory or possessory lien on the Debtors' assets, the Debtors seek the Court's authority to pay these parties. The average monthly expenditure for these Contractors is estimated to be $800,000 per month. The Debtors estimate that the amount of outstanding prepetition obligations owed to the Contractors is between $500,000 and $1,000,000, as of the Petition Date. In some instances, the Debtors oversee construction projects where they manage and monitor the construction process and act as a conduit for the remittance of payments to Contractors called Pass Through Projects. The construction of the new terminal at the Philadelphia International Airport, where the Debtors are overseeing its construction on behalf of The Philadelphia Authority for Industrial Development and the City of Philadelphia is an example. As part of their management responsibilities, the Debtors review and verify whether or not invoiced work has been performed or goods and services have been provided. The Debtors verify and submit invoices to the bond trustee who is responsible for processing the invoices and remitting payments to the Contractors and other parties. As the Debtors' duties and responsibilities do not implicate assets of the Debtors' estates, the Debtors also seek the Court's permission to continue managing and monitoring the Pass Through Projects. ----------------------------------------------------------------- [00018] DEBTORS' MOTION TO ASSUME INTERLINE AGREEMENTS ----------------------------------------------------------------- By this motion, US Airways Group seek the Court's authority to assume: -- the Interline Agreements, -- the Clearinghouse Agreements, -- the ARC Agreements, and -- the Alliance Agreements; According to John Butler, Esq., at Skadden, Arps, Slate, Meagher & Flom, maintaining public confidence in the Debtors' ability to provide reliable transportation services is crucial to the reorganization efforts. The airline business is an interdependent industry based upon a network of agreements that govern numerous aspects of air travel and airline operations. Without agreements for coordination between airlines and airline services, efficient service by the airline industry would be almost impossible. These agreements facilitate cooperation in making reservations and transferring passengers, packages, baggage and mail between airlines. Some services under these agreements are essentially industry-wide "utility" services for which there are no readily available alternatives. A. Interline Agreements Because of the tremendous operating efficiencies provided, all major air carriers participate in some form of interline agreement with other air carriers. In an interline agreement, airlines accept each other's tickets for transportation over the other carrier's system. These agreements enable carriers and travel agents to issue a single ticket with flight coupons for travel on more than one airline. Interline agreements provide customers with the comfort that if they miss a flight or if their flight is late or canceled, they can use their ticket with another carrier for a substitute flight. Interline agreements also facilitate the purchase of tickets via travel agents. Interline agreements allow travel agents and airlines to write tickets with itineraries that involve more than one carrier. If an interline agreement is not in place, a traveler buying a ticket directly from a carrier will be issued a ticket only for those segments involving that carrier, even though the desired itinerary might necessitate the use of a second carrier. Similarly, if the traveler seeks to buy a ticket from a travel agent and no interline agreement is in place, the travel agent will be required to write two tickets, thus making it less convenient for the travel agent to book flights on a carrier not part of the interline system. Interline agreements are also the mechanism by which luggage is transferred from one airline to another. If there was no interline agreement in place, a US Airways passenger connecting to a United Airlines flight in Chicago, would have to retrieve his luggage at the US Airways terminal there, bring it to United Airline's terminal and check it in. This would be an inefficient and time-consuming process for passengers. Interline agreements permit the airlines to transfer luggage without unduly burdening passengers. Airlines also agree to provide ground handling, cargo services, special maintenance and skycap services for each other pursuant to interline agreements. The reciprocal exchange of the services is efficient because airlines do not have to provide ground handling and special maintenance personnel and facilities at each airport to which the carrier flies. All payments related to interline agreements are reconciled through clearinghouses -- the International Air Transport Association Clearinghouse and Airlines Clearing House. The ACH serves as a settlement bank for domestic carriers while the ICH serves as a settlement bank for international carriers. ACH and ICH are parties to an interclearance agreement through which settlements are made between members of ACH and ICH. The Debtors' business relies on participation in and compliance with the ACH and ICH Clearinghouse Agreements. Interline agreements take two principal forms -- bilateral and multilateral. Under bilateral agreements, two carriers contract directly for interline and other services and provide for regular periodic settlement of their accounts, either directly or through a clearinghouse. Under the bilateral agreements, each party is authorized to issue tickets for transportation of passengers and baggage over the lines of the other party. The bilateral agreements are normally in effect for one calendar month at a time, unless affirmatively renewed for an additional calendar month or longer periods as may be mutually agreed upon pursuant to written notifications exchanged by the parties. Ordinarily, bilateral agreements are renewed as a matter of course, especially for an established carrier such as US Airways. Agreements with the International Air Transport Association and the Air Transport Association of America link the Debtors to the interline network. The Debtors have also entered into numerous interline agreements with carriers on an individual basis. B. Clearinghouse Agreements On a month-to-month basis, the Clearinghouses aggregate invoices from other carriers to the Debtors, and from the Debtors to other carriers, and calculates a net balance. Invoices for any given month must be submitted to the Clearinghouses during the subsequent month. Once the net balance is calculated, the Clearinghouses notify the Debtors of the result. Settlement with ACH occurs on the 28th calendar day of the following month. IATA notifies the Debtors of the net payable or receivable amount for any given month 5 business days after the 28th calendar day of the following month. Settlement with IATA occurs 7 calendar days following invoicing. Settlements are subject to audit, rejection and rebilling by the carriers. In addition, the Debtors have interline relationships with a small number of carriers that do not settle accounts through the Clearinghouses. The Debtors directly bill these airlines each month. In 2001, the Debtors made net settlement interline payments for $320,000,000 to ACH and received net settlement interline payments from ICH for $12,000,000. The Debtors' Interline Agreements and Clearinghouse Agreements are critical to the Debtors' business operations. The Debtors' inability to preserve the agreements would make it impossible to serve ticketed passengers on other carriers where the trip was comprised of one or more segments not flown by the Debtors. Other carriers would be unable to ticket passengers on a segment flown only by the Debtors. It is essential to the Debtors' operations that they are assured of uninterrupted participation under the Interline and Clearinghouse Agreements. The Debtors are not in default under any of the Interline or Clearinghouse Agreements. C. ARC Agreements The Debtors are parties to agreements with the Airline Reporting Corporation. The ARC is an aggregation of two types of contractual agreements as amended by a letter agreement dated July 26, 2002. The first is the Carrier Services Agreement, which is an agreement between the ARC and a participating carrier. The second is the Agent Reporting Agreement, which is an agreement between the ARC, the parties to the CSA and the travel agents. The Debtors are parties to both the CSA and the ARA. The ARC is essentially a clearinghouse. It remits funds owed from travel agencies to carriers, which are offset for any refund claims the travel agency is owed. Also, the ARC remits to travel agencies refund claims they are owed and bills credit card transactions on behalf of the carriers. The majority of travel agents located in the United States are members of the ARC. The ARC Agreements are the mechanism through which travel agents and airlines settle accounts for tickets sold, accepted for exchange or refunded. Under the ARC Agreements, all participating agents' obligations to, and claims against, the carriers are netted against one another and the net amounts due to the airlines are paid in lump sums. The Debtors settle with the ARC on a weekly basis and are not in default under either the CSA or the ARA. If the Debtors are not allowed to assume the ARC Agreements, ARC could suspend offsets of prepetition travel agency refund claims that have not been processed before the Petition Date, as was done in the Eastern Air Lines bankruptcy. Permitting these offsets will generate substantial additional travel agency remittances to the Debtors. As evidenced in the first Continental Airlines and Eastern Air Lines bankruptcies, travel agents -- even those who, on the Petition Date, are not owed any refunds -- do not remit the full amount of their receipts from postpetition sales. They do this because they wish, by self-help remedies, to establish a reserve against the possibility that they will subsequently be asked by their customers to make refunds of prepetition tickets. Reinstating the normal prepetition procedures with for travel agent refunds will greatly reduce the incentive to resort to self-help remedies. D. Alliance Agreements Prior to the Petition Date, the Debtors entered into marketing agreements with United Air Lines, Inc., and other subsidiaries and affiliates of UAL Corporation. The Alliance Agreements provide numerous benefits to the Debtors and their customers, including easier access to destinations served solely by United pursuant to the code share arrangement, streamlined ticketing, baggage handling and check-in procedures between the two airlines, the ability for customers of the Debtors and United to earn frequent flyer miles on flights of either airline and reciprocal airport lounge access. In addition, the Debtors expect to become members of the Star Alliance -- a global alliance currently comprised of approximately 14 airlines -- which will further benefit the Debtors and their customers by providing increased access to international destinations. The Alliance Agreements are a critical component of the Debtors' restructuring initiatives. The Alliance Agreements will increase revenues by allowing the Debtors access to more markets and enabling them to offer their customers increased choice and convenience. Historically, the Debtors have been at a competitive disadvantage relative to other airlines due to limited domestic and international scope. However, the Debtors believe that the Alliance Agreements will alleviate these disadvantages by giving their customers access to United's vast network of domestic and international destinations. The Debtors expect that the Alliance Agreements will lead to more passengers, higher load factors and a significant increase in revenues. Historically, similar alliance agreements have had similar beneficial effects for other airlines; indeed, membership in an alliance like the Star Alliance is increasingly important for an airline to compete in the airline industry. ----------------------------------------------------------------- [00019] DEBTORS' MOTION TO CONTINUE HONORING SERVICE AGREEMENTS ----------------------------------------------------------------- John Butler, Esq., at Skadden, Arps, Slate, Meagher & Flom, explains that the Debtors need to take immediate steps to preserve its customer base and relationships with tour operators, cargo agents, travel agents and other airlines it may have relationships with. "An airline is a service business and goodwill is essential to success," Mr. Butler says. Accordingly, the Debtors must take action to ensure that they continue operations in a manner unaffected by these chapter 11 cases. By this motion, the Debtors seek the Court's permission to continue honoring the Service Agreements, the Computer Reservation Systems Agreements, the Travel Agency Agreements, the Online Fulfillment Agreement, the Cargo Agency Agreements, the Dividend Miles Agreements, the UATP Agreement and the ATPCO Agreement. 1. Service Agreements The Debtors have air service agreements with commuter and other airlines, including Air Midwest, Inc., CCAir, Inc., Chautauqua Airlines, Inc., Colgan Air, Inc., Mesa Airlines, Inc., Midway Airlines Corp., Nevis Express Airlines, Shuttle America Corp. and Trans States Airlines, Inc., whereby the airlines offer air transportation of passengers and cargo between certain "feeder" airports and the Debtors' hub airports. In return, the Debtors provide the Affiliate Airlines with marketing, ground support and computer reservations services, which enable the Affiliate Airlines to continue operations. Continuing the Debtors' relationship with the Affiliate Airlines is vital to operations for several reasons. First, many of the Affiliate Airlines utilize the Debtors' service marks and fly under the "US Airways Express" name. In fact, to the traveling public, there is little or no distinction between the Affiliate Airlines and the Debtors. Because any diminution of the Affiliate Airlines' flight operations or schedules would be seen by the general public as a diminution of the Debtors' operations, it is crucial to the restructuring and their public communications efforts to maintain the services of the Affiliate Airlines at or near the prepetition level. The Affiliate Airlines are critical to the Debtors' operations because they enable the traveling public to make convenient connections at the Debtors' hubs for the Debtors' flights. Without the connections, the Debtors would be unable to maintain acceptable levels of passenger and cargo traffic. Affiliate Airline aircraft may be either Regional Jets or Turbo-Prop Planes. Payments to the Affiliate Airlines depend on the aircraft as well as the contract with the Affiliate Airline, which may have either or both Regional Jets and Turbo-Prop Planes. Affiliate Airlines are generally paid a budgeted amount at the beginning of each month for air service by Regional Jet, with a true-up payment following an audit and reconciliation process performed by either or both parties. Payments to Affiliate Airlines for Regional Jet service amount to $33,000,000 per month. Affiliate Airlines' service by Turbo-Prop Planes is paid through ACH and the relationships are similar to the bilateral agreements previously mentioned. The Debtors sell and collect for tickets on behalf of the Affiliate Airlines for Turbo-Prop Plane service and settle with them in the following month via ACH. Clearinghouse payments are net of any fees that the Debtors have paid on behalf of or been assessed for the Affiliate Airlines. Payments to Affiliate Airlines for air service by Turbo-Prop Plane are subject to the same process of invoicing, auditing and re-billing as are payments to other carriers. From July 2001 to June 2002, the Debtors made Clearinghouse payments to the Affiliate Airlines for Turbo-Prop Plane service for $14,000,000 per month. 2. Computer Reservation Systems Agreements The Debtors use multiple computer reservations systems. A CRS is a computer system that operates through terminals located in travel agencies and stores information about available passenger air transportation. The CRS enables the travel agents to accept and record bookings from remote locations. The CRSs also allow travel agents to make and confirm reservations, print and issue tickets automatically and perform the travel agency's internal accounting tasks. The CRSs are used extensively by online travel agencies, such as Travelocity, Expedia and Orbitz, to gather travel and flight information and are a key component to maintaining the Debtors' competitive position in the online travel market. Carriers, including the Debtors, have agreements pursuant to which their flight schedules, fare information and seat availability are included in the CRSs' databases. Sales made through travel agents comprise 65% of the Debtors' air passenger transportation bookings. Over 90% of all travel agents in the United States employ CRSs. The Debtors are parties to CRS Agreements covering many major CRSs, including Abacus, Amadeus Global Travel Distribution, Galileo, INFINI, Official Airline Guides -- Electronic Edition, Sabre, System One, Topas and Worldspan. If an airline does not permit the use of CRSs, travel agents must independently look up or have specific knowledge of the flight, contact the airline, write the ticket manually and complete the related accounting unassisted. The amount of effort involved in completing a reservation makes it unlikely that travel agents would use unlisted airlines. As a result, the continued use of CRSs is essential to the Debtors' business operations. 3. Travel Agency Agreements The continued support of travel agencies, including online travel service providers, which sell the Debtors' services, is essential to the Debtors' successful reorganization. Travel agencies are responsible for more than half of all the Debtors' sales. The Debtors consistently are owed significantly more by travel agencies than they owe to them. The Debtors are parties to numerous agreements related to their travel agency network. Specifically, the Debtors are members of or parties to: (a) the ARC Agreements; (b) Bank Settlement Plans; (c) Backend Performance Agreements; (d) Commission Agreements; (e) Block Seat Agreements; and (f) GSA Agreements. The BSPs, like the ARC, are essentially clearinghouses. They remit funds owed from travel agencies, which are offset for any refund claims the travel agency is owed. In addition, the BSPs remit to travel agencies refund claims they are owed and bill credit card transactions on behalf of the carriers. Consistent with most other airlines, the Debtors sell their tickets directly and through travel agents. During 2001, 65% of the Debtors' bookings were made through travel agents. In the past, the Debtors incentivized travel agents primarily through a commission-based system, whereby a travel agent would receive a payment for each ticket sold based on a percentage of the ticket price up to a pre-set maximum amount. However, the Debtors have attempted to move away from a commission-based incentive structure and toward a system based upon backend performance- based payments. As of April 2002, substantially all travel agents with which the Debtors have agreements have been switched to incentive agreements providing for Backend Performance Agreements. This change is expected to result in significant cost savings to the Debtors. The Debtors maintain International Commission Arrangements with travel agents located in Europe, Mexico and the Caribbean. These agreements are of a similar nature, except they apply to agents working out of international locales. The Debtors incentivize certain travel agencies through unique, soft-dollar arrangements called Agency Dividends. These non- contractual arrangements entitle the incentivized travel agencies to benefits from the Debtors, such as travel certificates, subject to a service charge, or US Airways Club passes. The Debtors estimate that the Agency Dividends will produce incremental revenue of $102,000,000 during 2002, at a cost of $28,000,000. These are non-cash costs. The Debtors have agreements, called Block Seat Agreements where certain travel agencies and other parties have the right to sell blocks of US Airways seats on certain flights. These parties fall into four general categories: (a) cruise line operators; (b) group travel providers; (c) European tour operators; and (d) charter flight groups. The Block Seat Agreements with cruise line operators cover flights to and from locations in Florida, and are generally for flights on Fridays, Saturdays, Sundays and Mondays. During the prime cruise travel season, Block Seat Agreements with cruise line operators account for a significant volume of the seats on the Debtors' flights to and from Florida. Under these Block Seat Agreements, the cruise line operators do not pay up-front and can cancel blocked seats up to 21 days prior to the date of travel without penalty. Therefore, the Debtors carry all of the risk of cancellation until that date. The Debtors also maintain Block Seat Agreements with certain group travel providers. The Agreements with these parties provide the Debtors significantly more rights than those with the cruise line operators. Generally, the Block Seat Agreements require the group travel provider to pay a deposit at the time of the reservation. These deposits are normally $40 per seat for domestic travel and $100 per seat for transatlantic travel. The Debtors' Block Seat Agreements with European tour operators are similar to the Agreements with cruise line operators. A limited number of the Debtors' top European tour operators account for a considerable amount of the passenger volume on certain of the Debtors' transatlantic flights and it is important for the Debtors to be permitted to maintain their current arrangements with these parties. Finally, the Debtors maintain Block Seat Agreements or similar arrangements with parties who desire for the Debtors to provide them with chartered flight services. These arrangements, with parties such as professional sports teams, normally require that the Debtors fly a non-normally scheduled flight solely for the members of the charter group. In exchange, the chartering group is pays a significant non-refundable deposit in advance. 4. General Sales Agent Agreements The Debtors have agreements with persons and entities known as general sales agents, which the Debtors have agreed to specially incentivize for sales in a certain geographic region. The purpose of the GSA Agreements is to allow the Debtors to sell tickets in foreign locations which are not normally serviced by the Debtors. The GSAs normally sell tickets on the Debtors' flights to both travel agents and customers located within their geographic location. The services of the GSAs allow the Debtors to realize ticket sales through the issuance of multi-carrier itineraries. Thus, the GSA Agreements are critical to the Debtors' international marketing efforts. 5. Online Fulfillment Agreement The Debtors have an Online Fulfillment Agreement with TRX, a World Travel Partners Company, whereby TRX provides customer support for the usairways.com Internet Site. Pursuant to the Online Fulfillment Agreement, TRX provides services including, telephone support, refund/reissue support, help desk support, documentation, confirmation and customer communications. Payment to TRX is based upon transactional volume and is $15,000,000 yearly. 6. Cargo Agency Agreements The Debtors have agreements with cargo sales agents, similar to their travel agents, to sell the Debtors' cargo services. These agents are entitled to a commission or similar compensation on account of their services and sales are reported to Cargo Network Services Corp., in the United States and internationally through various Cargo Agency Settlement Systems, situated in a number of foreign countries. The Debtors also have agreements with Air Cargo, Inc., whereby ACI acts as agent for the Debtors and other air carriers for the procurement and administration of ground transportation services for air cargo. ACI's complete air freight system includes pickup and delivery of regular air freight shipments, expedited courier pickup and delivery services, intercity hub service, publishing of Air Freight Directory, air freight telemarketing services and computerized air freight services. ACI also provides a clearinghouse function for these air carriers, including the Debtors, whereby it settles certain charges between the air carriers and the ground transportation service providers. 7. Dividend Miles Agreements The Debtors are parties to and beneficiaries of joint agreements related to their frequent flyer program, Dividend Miles, the frequent flyer programs of other airlines and the loyalty programs of other travel-related and non-travel-related vendors - - Dividend Miles Agreements. The continuation of the Dividend Miles Agreements is important to the passenger transportation component of the Debtors' business operations and critical to the Debtors' continued operations. 8. UATP Agreement The Universal Air Travel Plan is an aggregation of standard contracts among airlines, which permit individuals to pay for tickets purchased from a travel agent or airline using the credit of the airline issuing a UATP card to the purchaser. US Airways Group is an authorized contractor for the UATP card. UATP cards are issued to corporate employees who may purchase air transportation on the Debtors or any other airline who is a ticketor or contractor under the UATP Agreement. Each Signatory Airline is responsible for administering their UATP program -- including subscriber account approval, card issuance, billing, servicing and collection of payments. Information on tickets purchased at travel agencies using UATP cards is processed through the Air Travel Card Acquiring Network. ATCAN electronically gathers sales using the UATP card and consolidates the information for reporting to the respective card-issuing carriers. For most travel agency charges made against UATP accounts, there is a three-day lag between the charge and the transmission of data on that charge electronically to the Debtors' accounting department. For less than 5% of UATP travel agency charges, the process is manual and can take 6 to 8 days for the Debtors to become aware that the charge exists. The Debtors collect funds for all transportation charges made on the UATP cards they issue. The accounts of all Signatory Airlines are settled by netting out charge purchases made on their respective UATP cards. Net trade receivables from UATP sales for the first 4 months of 2002 were $88,500,000. The Company's participation as a Signatory Airline accounts for 6.5% of the Debtors' sales paid for with credit cards. Eighty percent of UATP charges are originated by travel agents. The other 20% are created through the Debtors or other airline in-house sales. 9. ATPCO Agreements Airline Tariff Publishing Company publishes airline tariff filings that are communicated by ATPCO to ticket vendors. Under multiple agreements with ATPCO, the Debtors rely on ATPCO to publish and update vendor databases on pricing issues. This process is crucial to the Debtors' marketing and ticket sale efforts. ----------------------------------------------------------------- [00020] DEBTORS' MOTION TO PAY PREPETITION EMPLOYEE OBLIGATIONS ----------------------------------------------------------------- As of the Petition Date, the Debtors employed 43,000 active Employees that provide a myriad of services around the country. Over 95% of the Employees work full-time, while the remaining Employees work part-time. The Debtors utilize the services of independent contractors, all of who are paid as vendors through the Debtors' normal accounts payable system and not through the normal payroll systems. Ninety-two percent of all Employees, with the exception of Employees of Allegheny Airlines, Inc., Piedmont Airlines, Inc. and PSA Airlines, Inc., are hourly wage earners, while the remaining 8% are salaried personnel. About 35,000 of the Debtors' Employees are covered by collective bargaining agreements. The average monthly payroll for the Debtors' Employees is $215,000,000, including the Debtors' portion of payroll taxes. The Debtors pay certain fees to members of their board of directors. Outside Directors are paid annual retainers, with payments made quarterly, and are also paid per meeting fees of $1,000 per meeting attended, stock options and deferred stock units. The Meeting Fees are paid in cash, stock or equally in each, at the choice of the individual Outside Director. The Meeting Fees paid in cash are available when practicable after each meeting. Meeting Fees paid in stock are paid quarterly after January 1, April 1, July 1 and October 1. As of August 11, 2002, the Debtors estimate that $47,000 in accrued but unpaid Meeting Fees are outstanding, with $10,000 of that amount owed in cash. Of the 10 Outside Directors, four 4 are paid wholly in stock, 4 are paid wholly in cash, and 2 are paid 50% in each. However, all stock compensation for Meeting Fees are paid out of a fund of shares, the balance of which is currently 18,000 shares. Once that fund is depleted, all compensation for Meeting Fees will be paid in cash. The Debtors seek to pay the amounts that exceed the $4,650 cap imposed by section 507(a)(3) of the Bankruptcy Code. The majority of personnel who are owed amounts over the $4,650 cap are pilots and flight attendants, whose services the Debtors rely on in order to conduct their business. Due to the Debtors' method of paying flight employees estimated payments on a semi- monthly basis, as of the Petition Date, there were 27 days of wages accrued and owed. However, the Debtors assert that authority to pay the amounts due to Employees over the $4,650 cap is justified by the critical importance of the Employees to the Debtors' business and the inability of the Debtors to replace them should they terminate employment or otherwise reduce service through slow downs, strict enforcement of work rules and similar actions. The Debtors offer their Employees other forms of compensation, including vacation pay, paid holidays, paid sick time and other earned time off, performance-based bonuses, reimbursement of certain business expenses, and severance expenses. These forms of compensation are usual, customary and necessary if the Debtors are to retain qualified employees to operate their businesses. The Debtors maintain information related to accrued Vacation Time for most Employees of the Mainline Debtors at the corporate level. Information related to Employees of the Express Subsidiaries is maintained by each separate subsidiary. The Debtors estimate that, as of June 2, 2002, $240,000,000 exists in accrued but unpaid Vacation Time for all Employees. Employees accrue sick leave on a monthly basis. Sick Leave accrues at a rate ranging from 4 hours to 1 day per month for regular, full-time Employees, depending on their position. Regular, part-time Employees accrue Sick Leave on a pro-rated basis based on the average weekly number of hours normally worked. Certain Employee groups are subject to a maximum amount of accrued Sick Leave. Those caps vary between 360 hours and 175 days of accrued Sick Leave. Employees who resign or are terminated are normally not entitled to any compensation on behalf of their accrued Sick Leave. The Debtors currently offer bonuses to their Employees through several separate plans. The Bonus Plans are designed to provide incentives to such Employees to achieve results that lead to a more efficient operation of the Debtors' businesses and to encourage the retention of key employees. Pursuant to the Debtors' primary bonus plan, the Debtors' management Employees are paid bonuses based upon the performance of the Debtors on a number of different metrics during 2001 and were granted in April of 2002. The individual amount of each of the Management Bonuses was determined based upon the individual's performance and other criteria contained in the Debtors' Incentive Compensation Plan. Management Bonuses based upon 2001 performance are being paid in 12 equal monthly installments rather than in a single lump sum payment, as has been previous practice. The Employees are not entitled to any remaining amounts owed for outstanding amounts on account of Management Bonuses if they resign or their employment is terminated during the year. The Management Bonuses serve the twin purposes of maintaining Employee morale by paying a bonus and providing an incentive to continue their employment with the Debtors in order to receive the full amount of their Management Bonus. Under the same plan, certain executives and officers are also eligible for bonuses. Bonus levels are determined as a percentage of compensation. Due to the difficult economic and financial conditions faced by the Debtors, the Executive Bonuses were a smaller percentage of the individual's compensation than previously. These awards were made in June 2002 and are payable in 12 equal monthly installments beginning June 30, 2002. In the ordinary course of business, the Debtors withhold $2,400,000 monthly from the paychecks of Employees for payment of dues to unions of which those Employees are members. These withheld amounts are then remitted to the respective unions on a monthly or semi-monthly basis, normally in arrears. Employees are entitled to reimbursement of limited categories of expenses incurred in the ordinary course of business. The Debtors routinely reimburse Employees for certain expenses incurred within the scope of their employment, including expenses for travel, lodging, professional seminars and conventions, ground transportation, meals, supplies, and miscellaneous business expenses. As of the Petition Date, the Debtors offer these severance plans to these groups of Employees: (a) management level Employees of the Debtors residing in Canada; (b) all management level Employees other than those at a "managing director" level; and (c) managing director level Employees. The Debtors provide a number of Employee medical benefits pursuant to several medical plans through multiple health care providers. For instance, the Debtors have medical, prescription drug care, employee assistance program and flexible spending accounts provided by various major medical and health maintenance organization plans. In general, all Employees are eligible for the benefits immediately upon being hired, unless otherwise noted. There are 107,600 persons covered under the US Airways Medical Plans, including 37,800 Employees, 55,100 Employee dependents and 14,700 former Employees and retirees and their dependents. In addition to the US Airways Medical Plan, the Debtors also offer their full-time employees and retirees dental benefits that are self-insured and administered by Metropolitan Life Insurance Company. The Dental Indemnity Plan provides an annual maximum benefit of $1,500; the Managed Care Dental Plan has no annual maximum in-network benefit and an annual maximum out-of-network benefit of $1,000. The Express Subsidiaries offer their Employees similar dental plan options. The Debtors offer life insurance to certain employees pursuant to group policies issued by The Hartford Financial Services Group, Inc. The Debtors maintain four plans for different classifications of Employees. Under all four plans, spousal life insurance coverage is provided at $3,500 and child life insurance coverage is provided at $2,000. The Debtors also provide active full-time and part-time Employees the option of selecting supplemental AD&D insurance coverage through a voluntary group accident plan provided by American International Group, Inc. Employees can elect coverage from $10,000 to $300,000 in $10,000 increments for the Employee, spousal coverage of 75% of the Employee amount and child coverage of 20% of the Employee amount for each eligible child. The Debtors remit an average of approximately $160,000 per month of funds withheld from Employee paychecks to Aon Corporation as broker for the Supplemental AD&D Insurance Plan. Depending on the type of employment, the Debtors offer a variety of long-term disability plans to eligible Mainline Employees. The Debtors offer certain Employees savings and retirement plans through which they can accumulate savings for the future. Specifically, the Debtors offer several 401(k) plans with varying terms and an additional qualified retirement plan for certain Employees. In addition, the Debtors offer other benefit programs to various groups of Employees, including, but not limited to, tuition reimbursement, substance abuse and other counseling services, and discounted Employee and retiree travel. The Debtors believe that these programs are important to maintaining Employee morale and assisting in the retention of the Debtors' workforce. The cost of these programs for the Debtors each month is negligible. The Debtors assert that failing to honor these programs would have an adverse affect on the Debtors' Employees. By this Motion, the Debtors seek the Court's authority to continue these programs in their sole discretion and make payments pursuant to the programs in the ordinary course of business. The Debtors routinely withhold from Employee paychecks amounts that the Debtors are required to transmit to third parties. Examples of the withholding include Social Security, FICA, federal and state income taxes, garnishments, health care payments, union dues, retirement fund withholding and charitable donations. The Debtors believe that these withheld funds, to the extent that they remain in the Debtors' possession, constitute funds held in trust and therefore are not property of the Debtors' bankruptcy estates. Thus, the Debtors believe that their practice of directing these funds to the appropriate parties is in the ordinary course of business. The Debtors utilize the services of several professionals and consultants in the ordinary course of business in order to facilitate the administration and maintenance of their books and records in respect of Employee benefit plans and programs and related trusts. For instance, the Debtors utilize the services of United HealthCare to process and adjudicate all claims related to the US Airways Medical Plans. UHC also handles the administration of all COBRA-related issues. The Debtors pay UHC $670,000 per month for their services. In addition, Towers Perrin provides benefits calculations for all of the Debtors' Defined Benefit Plans, for which the Debtors pay Towers Perrin $120,000 a month, which amount is paid directly from the Defined Benefit Plans. The Debtors pay other third parties for their administrative services related to other benefit programs, like the US Airways Dental Plans and the Debtors' other retiree benefits, and pay certain fees to trustees for the management of trusts related to the Debtors' benefit programs. The Debtors also ask the Court to direct all banks to receive, process, honor and pay any and all checks drawn on the Debtor's payroll and general disbursement accounts related to Prepetition Human Capital Obligations, whether presented before or after the Petition Date, provided that sufficient funds are on deposit in the applicable accounts to cover the payments. ----------------------------------------------------------------- [00021] DEBTORS' MOTION TO HONOR PREPETITION CUSTOMER OBLIGATIONS ----------------------------------------------------------------- By this motion, the Debtors seek the Court's authority to: (i) perform their prepetition obligations related to the Customer Programs as they see fit; and (ii) continue, renew, replace, implement new, and terminate those Customer Programs as they see fit, in the ordinary course of business, without further application to the Court. According to Lawrence E. Rifken, Esq., at McGuire Woods, in McLean, Virginia, the Debtors desire to continue Customer Programs that they believe were beneficial to their business. The Debtors believe that it is necessary to preserve their critical business relationships and goodwill among the flying public for the benefit of their estates. "The total operational and administrative cost to the Debtors in connection with the implementation of the Customer Programs is minor relative to the net revenue that they generate for the Company," Mr. Rifken says. Mr. Rifken explains that Airlines routinely offer travel to the same locations as their competitors. This competition makes retaining loyal customers and attracting new customers crucial in the airline industry. Without loyal customers, the Debtors' business would inevitably fail in a short period of time. "It is integral, therefore, that the Debtors maintain their current customers and position themselves to attract new ones," Mr. Rifken says. Accordingly, the Debtors would like to continue the Customer Programs because they have proven successful business strategies in the past and are directly responsible for having generated valuable goodwill, repeat business and net revenue increases. The Debtors believe that maintaining these benefits throughout these Chapter 11 cases is essential to the continued vitality of their business and, ultimately, to their prospects for a successful reorganization. The Debtors believe, however, that the pall cast by the Chapter 11 filings could negatively influence customers' attitudes and behavior towards their services, unless they can take the measures requested by this Motion to eliminate that shadow. In particular, the Debtors' goodwill and ongoing business relationships may erode if their customers perceive that the Debtors are unable or unwilling to fulfill the prepetition promises they have made through the Customer Programs. The same would be true if customers perceived that the Debtors would no longer be offering the full package of services or quality of services that they demand. The Debtors, therefore, ask the authority to honor all their obligations related to the Customer Programs. According to Mr. Rifken, the Customer Programs generally consist of three separate categories: A. Ticket Holder Claims The Debtors intend to honor tickets that were purchased prepetition but have not yet been used by providing the agreed upon air transportation or other related services. "Customer confidence and goodwill will be harmed severely if the Debtors are prevented from honoring Prepetition Tickets," Mr. Rifken states. Moreover, the Debtors' prepetition ticket holders will likely have priority claims. Thus, to the extent individual claims do not exceed $2,100, paying the claims will not be detrimental to the Debtors' general unsecured creditors. These priority claims would have to be paid in full in any event before the unsecured creditors could receive any distribution. Similarly, the Debtors must be able to honor all prepetition transportation orders, ER11813 and ER11494 travel certificates, miscellaneous charge orders, vouchers, Universal Air Travel Plan credits and other authorizations for travel and other services. These authorizations are, from time to time, issued by the Debtors as: (a) compensation for late, canceled or over-booked flights; or (b) part of the Debtors' promotional programs. The Debtors further seek the Court's permission to issue refunds on tickets purchased prior to the Petition Date. "To remain competitive with other carriers and to retain the goodwill and confidence of their customers and travel agents, it is extremely important that the Debtors continue to issue refunds with respect to those tickets originally sold as refundable," Mr. Rifken explains. The Debtors refunded 4,100,000 ticket coupons totaling $688,000,000 in sales to customers. The average refund value of each coupon refunded was $169. In addition, the Debtors want to continue to exchange those tickets originally sold as non-refundable. The Debtors believe that maintaining the refundability of tickets purchased prepetition will enhance the public's confidence in the continued reliability and operations of the Debtors. In that regard, the Debtors believe that any extra refunds occasioned by these Chapter 11 cases will be more than offset by the revenue from sales made because the ticket refund policy is in place. To the extent the Debtors are unable to continue the Customer Programs, the Debtors risk isolating certain constituencies of customers and possibly encouraging customers to select competing airlines, all to the detriment of the Debtors and their estates. B. Frequent Flier Program The Debtors created a frequent flier program now known as "Dividend Miles." Mr. Rifken relates that frequent flier Most major has adopted programs, like Dividend Miles air carriers and are considered the number one marketing tool for developing brand loyalty among travelers and accumulating demographic data pertaining to business fliers. Frequent flier programs are essential to building and maintaining a loyal customer base, especially among business travelers, who pay higher fares than leisure travelers. In connection with their Dividend Miles program, the Debtors offer a co-branded credit card under a Co-Branded Card Agreement between Bank of America, N.A. USA, and US Airways, Inc. Under the Bank of America Agreement, the Debtors provide Bank of America with access to their list of Dividend Miles members and allows Bank of America to make certain, limited use of the Company's logos, trademarks, trade names and service marks. Bank of America, in turn, agrees to offer credit card products bearing US Airways' Marks, as well as its own. Furthermore, Bank of America agrees to purchase Dividend Miles from the Debtors at an agreed-upon rate and both parties agree to certain marketing requirements and other payments. Holders of the Co-Branded Cards are entitled to earn Dividend Miles at set formulas based on the type of Co-Branded Card that they hold. In addition, certain holders are entitled to additional benefits related to the Debtors' products and services. Honoring Dividend Miles obligations does not involve any appreciable cash expense of the Debtors' estates. Rather, the Dividend Miles participants who redeem mileage credit receive only air transportation from the Debtors on flights that would operate in any event, or other related services from certain other participants in Dividend Miles. The Debtors use the incremental cost method to account for liabilities associated with Dividend Miles. As of December 31, 2001, Dividend Miles participants had accumulated mileage credits for 6,817,000 awards. Because the Debtors expect that some potential awards will never be redeemed, calculations of Dividend Miles-related liabilities are based on 82% of total accumulated mileage credits. The Debtors' customers redeemed 1,100,000 awards for free travel for the year ended December 31, 2001, representing 6% of the Debtors' revenue passenger miles during that same time period. The Debtors seek the Court's authority to provide air transportation postpetition to travelers who attempt to redeem miles earned prepetition in the Dividend Miles program. The Debtors simply cannot compete successfully against other major airlines unless they are able to maintain the integrity of Dividend Miles. Mr. Rifken tells the Court that failure to honor the obligations of Dividend Miles will severely harm the Debtors' competitive position and their reorganization efforts. Likewise, the Bank of America Agreement generates significant revenues for the Debtors and also promotes loyalty among a large group of the Debtors' customers. The vast majority of the costs incurred by the Debtors under the Bank of America Agreement will not be incurred until some point in the future and the Debtors are confident that the revenues generated under the Bank of America Agreement far exceed the eventual cost of the redemption of Dividend Miles earned by holders of the Co-Branded Cards. Therefore, the Debtors assert that continued participation under the Bank of America Agreement -- including honoring any prepetition obligations -- is in the best interest of the Debtors, their estates and their creditors. C. Barter Arrangements The Debtors maintain barter arrangements with a number of organizations that provide varied services and support the Debtors' operations in return for the Debtors providing air transportation. The range of services provided to the Debtors includes exclusive sponsorship of corporate and sporting events, advertising, sales promotion, public relations and other professional consulting services. The Debtors seek authority to continue to honor these Barter Arrangements since this is an important component of their promotional strategy. Conversely, the Debtors believe that the amount of unredeemed air transportation obligations related to Barter Arrangements as of the Petition Date is not substantial. Therefore, honoring the Barter Agreements will enhance the value of the estates at little cost. ----------------------------------------------------------------- [00022] US AIRWAYS REPORTS NEAR FLAWLESS FIRST DAY OPERATIONS ----------------------------------------------------------------- ARLINGTON, Virginia -- August 12, 2002 -- US Airways said today that its first full day in operation since filing Chapter 11 was nearly flawless. As of 5 p.m., Monday, Eastern time, the company reported that it had completed 97 percent of its flights on time, and a 12-percent increase in normal Monday call volume, with no customer calls placed on hold. "We are pleased to report that our operations throughout the U.S. and internationally ran smoothly yesterday and today, without interruption, and our passengers are seeing no difference in the quality of our service," said President and Chief Executive Officer David Siegel. "Today's seamless performance is due in the greatest degree to the hard work and dedication of our employees and the support of our vendors," Siegel said. Meanwhile, the U.S. Bankruptcy Court today took important steps to ensure that normal operations continue, giving its approval to, among other things, pay pre-petition and post- petition employee wages, salaries, workers compensation, health benefits and other employee obligations during its voluntary Chapter 11 case. At today's hearing on first-day motions, the Court also approved the Company's request to honor all existing customer programs, including its Dividend Miles Program. On Sunday evening, the Court had entered a series of eight essential "bridge" orders granting relief with respect to US Airways' employees, customers, fuel suppliers, interline agreements with other airlines, critical trade vendors, foreign vendors and governments and cash management systems. The Court granted further relief on these and other first-day motions at a hearing before the Honorable Robert G. Mayer in Alexandria, Virginia. The Court today also approved interim use of $75 million of debtor-in- possession financing to continue operations, pay employees, and purchase goods and services going forward. In conjunction with the filing, US Airways received commitments for $500 million in DIP financing from a group of financial institutions led by Credit Suisse First Boston and Bank of America Corp., to fund operations during the restructuring. The final hearing on the DIP agreement has been set for Sept. 26, 2002. Also on Sept. 26, the Court will consider the proposal under which Texas Pacific Group will make a $200 million investment in the equity of the airline upon its emergence from Chapter 11. This investment, which remains subject to continuing diligence and final documentation, competing and/or higher offers, and court approval, would result in Texas Pacific Group owning about 38 percent of the airline, post-emergence. Siegel said he was extremely pleased by the first-day orders entered by the Court, as well as the support received at the first-day hearing by the Company's employee labor unions. "While we restructure, our operations continue, and we will continue to purchase and pay for goods and services from our suppliers," he said, noting that US Airways has already contacted a number of its major vendors, who have indicated their support of the Company's restructuring initiatives. "With our first-day motions approved, we can now direct our focus on securing the cost- savings from aircraft lessors and financiers necessary to complete our restructuring initiatives, and concentrate on our key constituencies -- our customers, our employees and our vendors. We will continue our restructuring initiatives aimed at restoring US Airways to profitability with a capital structure able to support today's air travel environment," Siegel said. The Company filed its Chapter 11 petitions on Aug. 11, 2002, in the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria. US Airways continues its exceptional service record, consistently placing near the top in the DOT's monthly statistics for on-time performance, baggage delivery, and customer service throughout 2002. In 2001, US Airways finished first in three of the four DOT quality measurements and was ranked as the top network carrier by the Airline Quality Rating index. The largest air carrier east of the Mississippi where more than 60 percent of the U.S. population resides, US Airways operates the seventh largest airline in the United States and the fourteenth largest airline in the world with approximately 40,000 full-time and part-time employees. US Airways carried approximately 56 million passengers last year with regularly scheduled service to approximately 200 destinations in 38 states across the United States and in Canada, Mexico, the Caribbean and Europe. Operating revenues for the year ended December 31, 2001 were approximately $8.3 billion. ----------------------------------------------------------------- [00023] US AIRWAYS' SECOND QUARTER FORM 10-Q WILL BE FILED LATE ----------------------------------------------------------------- Anita P. Beier, US Airways Group Chief Accounting Officer, notifies the Securities and Exchange Commission that the Company has been unable to complete all work necessary to timely file its Form 10-Q for the period ended June 30, 2002 -- despite its diligent efforts. According to Ms. Beier, among the reasons for the delay is the filing of Chapter 11 petitions and the workload of personnel involved with the filings. US Airways anticipates filing its Form 10-Q shortly. Ms. Beier relates that all other periodic reports required under Section 13 or 15(d) of the Securities Exchange Act of 1934 or Section 30 of the Investment Company Act of 1940 during the preceding 12 months or for the shorter period that the registrant was required to file the report has been filed. Ms. Beier also anticipates that a significant change in results of operations from the corresponding period for the last fiscal year will be reflected by the earnings statements to be included in the report. Specifically, Ms. Beier reports that: -- For the second quarter of 2002, the Company's operating revenues were $1.9 billion, operating loss was $175 million, net loss was $248 million and diluted loss per common share was $3.64. For the comparative period in 2001, operating revenues were $2.5 billion, operating income was $20 million, net loss was $24 million and diluted loss per common share was $0.36. -- For the six months of 2002, the Company's operating revenues were $3.6 billion, operating loss was $545 million, loss before cumulative effect of accounting change was $534 million and diluted loss per common share before cumulative effect of accounting change was $7.86. For the comparative period in 2001, operating revenues were $4.7 billion, operating loss was $208 million, loss before cumulative effect of accounting change was $202 million and diluted loss per common share before cumulative effect of accounting change was $3.01. According to Ms. Beier, lower capacity and lower passenger fares have significantly impacted results for the three and six months ended June 30, 2002. Results for 2001 were also impacted by passenger fare pressures. The lower passenger fares resulted from declines in business traffic -- which has higher yields than leisure traffic -- which began early in 2001 and was exacerbated by the terrorist attacks of September 11th. The airline industry has engaged in heavy price discounting since September 11th to entice customers to fly, and competition from low-fare carriers has intensified. While the Company has taken aggressive actions to reduce its costs since September 11th, including significant reductions in workforce and capacity -- as measured by available seat miles, Ms. Beier says, many of the Company's costs are fixed over the intermediate to longer term, so that the Company is not able to reduce its costs as quickly as it is able to reduce its capacity. In addition, Ms. Beier notes, results for the three and six months ended June 30, 2001 were adversely impacted by relatively high jet fuel prices. ----------------------------------------------------------------- [00024] NYSE SUSPENDS TRADING IN US AIRWAYS GROUP ----------------------------------------------------------------- NEW YORK, New York -- August 14, 2002 -- The New York Stock Exchange announced today that it determined that determined that the common stock of US Airways Group Inc. should be suspended immediately. The Company has a right to a review of this determination by a Committee of the Board of Directors of the Exchange. Application to the Securities and Exchange Commission to delist the issue is pending the completion of applicable procedures, including any appeal by the Company of the NYSE staff's decision. As previously announced, the NYSE did not open trading on Monday, August 12, 2002 as it was evaluating the Company's continued listing status. The NYSE has not determined to suspend trading because of the fact that on August 11, 2002, the Company announced that it and certain of its subsidiaries had filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. Additionally, the Exchange noted that in its announcement, the Company stated that, "[t]he Company presently contemplates that one of the elements of any plan of reorganization may be the cancellation of the Company's existing equity securities without the prospects of any distribution to existing holder. There is no assurance as to what values, if any, will be ascribed in the Chapter 11 cases as to the value of the Company's existing common stock and/or other equity securities. Accordingly, the Company urges that the appropriate caution be exercised with respect to existing and future investments in any of these securities as the value and prospects are highly speculative." The Exchange notes that it may make an appraisal of, and determine on an individual basis, the suitability for continued listing of an issue in light of all pertinent facts whenever it deems such action appropriate, and that the Exchange may, at any time, suspend a security if it believes that continued dealings in the security on the NYSE are not advisable. In light of all the circumstances presented by the Company and its bankruptcy, the Exchange has determined that the Company's securities are no longer suitable for trading on the NYSE. *** End of Issue No. 2 *** ------------------------------------------------------------------------- Peter A. Chapman peter@bankrupt.com http://bankrupt.com ------------------------------------------------------------------------- Recommended Reading: Professor Stuart Gilson's newest title, "Creating Value Through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups." 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