================================================================= US AIRWAYS BANKRUPTCY NEWS Issue Number 3 ----------------------------------------------------------------- Copyright 2002 (ISSN XXXX-XXXX) August 19, 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 GROUP BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00025] US TRUSTEE APPOINTS UNSECURED CREDITORS' COMMITTEE [00026] DEBTORS' MOTION TO OBTAIN $500,000,000 DIP FINANCING PACT [00027] DEBTORS' MOTION FOR INVESTMENT PROPOSALS & PLAN SPONSOR [00028] DEBTORS' MOTION TO RESTRICT CLAIM TRADING & PRESERVE NOLs [00029] DEBTORS' APPLICATION TO EMPLOY KPMG AS TAX ADVISORS [00030] DEBTORS' APPLICATION TO HIRE PwC AS ADVISOR & ACCOUNTANT [00031] DEBTORS' MOTION FOR ORDER TO MAINTAIN CONFIDENTIALITY [00032] DEBTORS' APPLICATION TO EMPLOY MCGUIREWOODS AS CO-COUNSEL [00033] DEBTORS' APPLICATION TO EMPLOY SEABURY AS ADVISORS [00034] DEBTORS' MOTION TO CONTINUE FUEL SUPPLY ARRANGEMENTS [00035] DEBTORS' MOTION TO PAY PREPETITION CRITICAL VENDOR CLAIMS [00036] DETBORS' MOTION TO PAY PREPETITION FOREIGN VENDOR CLAIMS [00037] DEBTORS' MOTION TO PAY PREPETITION MAINTENANCE CLAIMS [00038] DEBTORS' MOTION TO ASSUME INTERLINE AGREEMENTS [00039] DEBTORS' MOTION TO CONTINUE HONORING SERVICE AGREEMENTS [00040] DEBTORS' MOTION TO PAY PREPETITION EMPLOYEE OBLIGATIONS [00041] DEBTORS' MOTION TO HONOR PREPETITION CUSTOMER OBLIGATIONS [00042] USAIR EXTENDS SHUTTLE GUARANTEE PROGRAM & TRIPLE-MILES [00043] USAIR CEO & CFO FILE SWORN STATEMENTS WITH SEC [00044] USAIR RELEASES SECOND QUARTER OPERATING RESULTS 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 12/31/02 Deadline Under DIP Facility to File a Chapter 11 Plan 03/15/03 Deadline Under DIP Pact to Approve Disclosure Statement 02/07/04 Expiration of Debtors' Exclusive Solicitation Period 08/10/04 Deadline for Debtors' Commencement of Avoidance Actions Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [00025] US TRUSTEE APPOINTS UNSECURED CREDITORS' COMMITTEE ----------------------------------------------------------------- W. Clarkson McDow, Jr., the United States Trustee for Region IV, convened an organizational meeting on Friday in Arlington, Virginia. Mr. McDow reminded creditors that this is not the first official meeting of creditors required under 11 U.S.C. Sec. 341(a). That meeting will be scheduled at a later date and all known creditors will be advised by mail of the time, date and place for that meeting at which a corporate officer will be required give testimony under oath about the company's financial affairs. Scores of creditors indicated their willingness to serve on one or more official committees to represent creditors', shareholders' and other stakeholders' interests. Pursuant to 11 U.S.C. Sec. Section 1102(a) and 1102(b), Mr. McDow announced that he will appoint one committee to represent the interests of USAir's unsecured creditors. The U.S. Trustee appoints these 13 creditors to serve on the Official Committee of Unsecured Creditors of US Airways Group: 1. Airbus North America Holdings Inc., 2. Air Line Pilots Association, 3. Charles E. Smith Commercial Realty, 4. Electronic Data Systems Corp., 5. First Union National Bank, 6. J.P. Morgan Trust Co., 7. LSG Sky Chefs, 8. Pension Benefit Guarantee Corp., 9. Rolls Royce North America Inc., 10. State Street Bank & Trust Co., 11. Wilmington Trust Co., 12. Honeywell International Inc., and 13. International Association of Machinists and Aerospace Workers. ----------------------------------------------------------------- [00026] DEBTORS' MOTION TO OBTAIN $500,000,000 DIP FINANCING PACT ----------------------------------------------------------------- See prior entry at [00010]. The Debtors present the Court with a term sheet outlining the $500,000,000 DIP Facility's material terms and conditions: PARTIES & CAPACITIES US Airways Group, Inc., is the Borrower. Each of the Borrower's existing and future direct and indirect subsidiaries (other than Airways Assurance Limited and any controlled foreign corporation as defined in 26 U.S.C. Sec. 957) guarantee repayment of the Borrower's obligations. Credit Suisse First Boston serves as the Administrative Agent for Texas Pacific Group, as the Initial Lender, and other banks and financial institutions that may become Lenders under the DIP Facility. Bank of America, N.A., serves as the Syndication Agent and the Collateral Agent. AVAILABILITY & BORROWING BASE The amount outstanding will equal the lesser of: -- $500,000,000 or -- the Borrowing Base. The Borrowing Base is defined as the sum of the values of these unemcumbered assets of US Airways Group: a) 60% of the fair market value of its slots; plus b) 50% of the fair market value of the aircraft; plus c) 50% of the fair market value of the flight simulators; plus d) 50% of the current market value of the parts; plus e) 25% of the fair market value of the ground equipment; plus f) 25% of the fair market value of the real estate; plus g) 80% of the amount of eligible receivables; plus h) 50% of the fair market value of the engines; minus the sum of: a) reserves for accrued but unpaid interest on the DIP Facility; plus b) all other reserves the Administrative Agent and the Collateral Agent deem necessary in their credit judgment based on Debtors' financial condition and the competing claims against Debtors' assets and collateral. USE OF DIP LOAN PROCEEDS US Airways Group may use a portion of the loan availability under the Revolving Credit Facility to open one or more documentary letters of credit and standby letters of credit, but not over $50,000,000. The terms will not exceed the earlier of: -- 1 year or 180 days in the case of documentary letters of credit, or -- 30 business days prior to the expiration of the DIP Facilities. MILESTONE AVAILABILITY The first $75,000,000 has been made available. The next $175,000,000 in the form of a term loan facility will be available after: (i) entry of a final order by the Court; (ii) execution of collective bargaining agreements with the Air Line Pilots Association International, Association of Flight Attendants AFL-CIO, and International Association of Machinists and Aerospace Workers unions; (iii) the entry of the Bidding Procedures Order; (iv) investment terms have been finalized with Texas Pacific Group; (v) banks and other financial institutions have committed to at least $100,000,000 of the loan to be guaranteed by the Air Transportation Stabilization Board; (vi) the Debtors' submission of supplemental materials regarding its application to the ATSB; (vii) the Administrative Agent's satisfaction of the application by the Federal Aviation Administration of Section 93.227 of the Code of Federal Regulations, Title 14 in the context of the DIP Facilities; (viii) the Administrative Agent's satisfaction of the regarding the pledge and assignability of Debtors' interest in airport gates at LaGuardia Airport, Logan Airport and Ronald Reagan Washington National Airport in the context of the DIP Facilities; and (ix) the Debtors reaching agreements with NPC, ARC, and American Express limiting the amount of cash collateral holdbacks to an amount satisfactory to the Administrative Agent. Another $50,000,000 will be available in the form of a revolving credit facility when collective bargaining agreements are struck with the CWA and all other unions, or the Court has appointed interim relief under Sections 1113 and 1114 of the Code. An additional $200,000,000 will be available in the form of a revolving credit facility when: (i) the US Department of Transportation's review period for the alliance with United Airlines has expired and no material objection has been raised; and (ii) written confirmation from ATSB that it has conditionally approved its loan guarantee. MATURITY DATE The DIP Facilities will terminate and the amounts outstanding will be due on the earlier of: -- the effective date of a Chapter 11 Plan, or -- September 30, 2003. US Airways will pay interest at either: -- the prime rate plus 2.5%, or -- LIBOR plus 3.5%. INTEREST, FEES & EXPENSES Interest will be paid monthly. If a default occurs, all outstanding obligations will bear interest at the applicable interest rate plus 2%. The Debtors will pay all reasonable costs and expenses of the Agents and each Lender. The Debtors will pay a commitment fee of 50 basis points on the undrawn amount. Until the Term Loan Facility is utilized in full, the Debtors will pay a commitment fee based on: (a) if less than or equal to 1/3 of the Maximum Loan Amount is drawn, 100 basis points on the undrawn amount; (b) if less than 2/3 but more than 1/3 of the Maximum Loan Amount is drawn, 75 basis points on the undrawn amount; and (c) if more than 2/3 of the Maximum Loan Amount is utilized, 50 basis points on the undrawn amount. After the Term Loan Facility is utilized in full, based on the Revolving Credit Facility, the Debtors will pay a commitment fee based on: (a) if less than or equal to 1/3 of the Revolving Credit Facility is drawn, 100 basis points on the undrawn amount; (b) if less than or equal to 2/3 but more than 1/3 of the Revolving Credit Facility is drawn, 75 basis points on the undrawn amount; (c) if more than 2/3 of the Revolving Credit Facility is utilized, 50 basis points on the undrawn amount. FINANCIAL COVENANTS US Airways covenants with the Lenders that, to avoid triggering a default under the DIP Facility, it will comply with three financial tests: (1) US Airways covenants that EBITDAR (defined as gross revenues less operating expenses plus depreciation and rental expenses included in the calculation of operating expenses) will not fall below: For the Period from Mimimum EBITDAR ------------------- --------------- August 1, 2002 to August 31, 2002 ($25,800,000) August 1, 2002 to September 30, 2002 ($73,700,000) August 1, 2002 to October 31, 2002 ($128,100,000) August 1, 2002 to November 30, 2002 ($126,100,000) August 1, 2002 to December 31, 2002 ($160,900,000) August 1, 2002 to January 31, 2003 ($170,700,000) September 1, 2002 to February 28, 2003 ($139,800,000) October 1, 2002 to March 31, 2003 ($36,900,000) November 1, 2002 to April 30, 2003 $112,000,000 December 1, 2002 to May 31, 2003 $153,900,000 January 1, 2003 to June 30, 2003 $264,800,000 February 1, 2003 to July 31, 2003 $348,600,000 March 1, 2003 to August 31, 2003 $384,800,000 April 1, 2003 to September 30, 2003 $391,900,000 (2) US Airways covenants that Total Cash Receipts will be no less than: For the Month Ending Total Cash Receipts -------------------- ------------------- August 31, 2002 $519,800,000 September 30, 2002 506,500,000 October 31, 2002 517,000,000 November 30, 2002 451,200,000 December 31, 2002 367,600,000 January 31, 2003 518,800,000 February 28, 2003 505,900,000 March 31, 2003 551,200,000 April 30, 2003 570,500,000 May 31, 2003 599,800,000 June 30, 2003 589,400,000 July 31, 2003 547,600,000 August 31, 2003 582,000,000 September 30, 2003 624,000,000 (3) US Airways covenants that its Liquidity (defined as availability under the DIP Facility plus unrestricted cash) will at all times be greater than: For the Month Ending Minimum Liquidity -------------------- ----------------- August 31, 2002 $250,000,000 September 30, 2002 250,000,000 October 31, 2002 250,000,000 November 30, 2002 225,000,000 December 31, 2002 200,000,000 January 31, 2003 200,000,000 February 28, 2003 200,000,000 March 31, 2003 200,000,000 April 30, 2003 200,000,000 May 31, 2003 200,000,000 June 30, 2003 225,000,000 July 31, 2003 250,000,000 August 31, 2003 250,000,000 September 30, 2003 250,000,000 October 31, 2003 250,000,000 November 30, 2003 250,000,000 December 31, 2003 250,000,000 COLLATERAL & LIENS The Debtors will be permitted to deposit up to $35,000,000 in accounts not controlled or approved by the Administrative Agent, provided they are disclosed. The Debtors can maintain trust accounts in accordance with current practices. The Debtors can hold accounts with NPC, ARC and American Express as long as they are intended to cash collateralize holdback obligations. The Debtors can maintain cash accounts with the Letter of Credit issuer as long as the amounts: -- don't exceed 100% of the maximum available, and -- is intended to collateralize obligations connected with the Letter of Credit. All loans and other obligations will be secured by valid, perfected and enforceable first and best priority liens and security interests in all unencumbered present and future assets of the Debtors other than any asset described in Section 1110(a)(3) of the Bankruptcy Code to the extent the underlying lease, security agreement, mortgage, trust agreement or other applicable instrument would prohibit the Debtors' granting of a lien to the Collateral Agent. Mandatory prepayments, first to the Term Loan Facility and then to the Revolving Credit Facility, are outlined as: (a) 100% of all cash proceeds from sales of property and assets and receipt of extraordinary items -- tax refunds, insurance proceeds, etc.; (b) issuance of additional debt in connection with a restructuring; (c) issuance of additional equity interests; and (d) receipt of funds previously withheld by American Express, ARC or NPC. TPC will be mandatorily prepaid: (a) if a third party is designated the Winning Plan Sponsor; (b) if the Debtors breach any material commitments set forth with TPG; and (c) based on due diligence. The superpriority claim status and liens granted under the DIP Facilities are subject to a Carveout for (x) payment of fees pursuant to 28 U.S.C. Section 1930, (y) allowed fees and expenses of professionals not to exceed $5,000,000 for services rendered after an Event of Default, and (z) unpaid fees of professionals for services prior to a Carveout Trigger Event. ----------------------------------------------------------------- [00027] DEBTORS' MOTION FOR INVESTMENT PROPOSALS & PLAN SPONSOR ----------------------------------------------------------------- US Airways' overriding objective has been to restructure its obligations and operations to maximize the asset value for all parties-in-interest. To do so, the Debtors have been pursuing, and continue to pursue, all potential options available. After consideration of all alternatives, the Debtors determined that the liquidity provided by an equity investment, combined with Exit Financing supported by the federal loan guaranty, would provide the basis for a plan or reorganization. This course would maximize value for the Debtors, their estates, their creditors, and all other parties-in-interest. It would also best position the Debtors to emerge from Chapter 11 as a financially strong and competitive business. John Butler, Esq., at Skadden, Arps, Meagher & Flom, tells Judge Mitchell that the best way to obtain the highest and best offer for an equity investment is to procure a "stalking horse" bid that would be subject to a Court supervised bidding process. Based on a review of potential equity sponsors, Texas Pacific Group emerged as the most likely candidate to act as a stalking horse bidder because of its ability and interest in a large equity investment in US Airways. TPG was also willing to participate in the Debtors' debtor-in-possession credit facility. After intense arms' length negotiations, US Airways Group and TPG entered into the Memorandum of Understanding, offered by TPG under which: (i) TPG agreed to participate as a lender under the DIP Facility with a $100,000,000 commitment; and (ii) the parties would agree to seek Court approval of bidding procedures and bid protections designed to obtain the highest and best bid for an equity investment in the reorganized Debtors. This investment, along with the Exit Financing, would form the basis of a Plan, and allow the Debtors to quickly emerge from Chapter 11 while maximizing value for their estates, their creditors, and all other parties-in-interest. To properly balance the Debtors need to obtain the highest and best offer for an equity investment while encouraging TPG to act as a stalking horse and participate in the DIP Facility, the parties agreed on a bidding process. TPG may terminate its investment obligations as a result of its due diligence no later than the earlier of: (a) September 25, 2002, and (b) 3 days prior to the hearing to consider the Bidding Procedures Order. If the obligations are met, TPG will serve as the initial bid under the Bidding Procedures pursuant to the terms of an Investment Agreement. The proposed Bidding Procedures provide: A. Eligibility to Make Competing Investment Proposals Any person other than TPG who desires to make a competing proposal to fund a plan of reorganization for the Debtors must satisfy all requirements set forth and will be referred to as a "Qualified Competing Plan Sponsor". Neither the Debtors nor this Court will consider a proposal from a person who is not a Qualified Competing Plan Sponsor. (1) Any Competing Plan Sponsor must execute a confidentiality agreement; (2) Any Competing Plan Sponsor must disclose to the Debtors in its proposal: -- the identity of all participants providing funding for the proposal, -- the specific amount, source, and type of funding to be provided by each participant, -- the identity of any person or entity who will participate in the proposal without providing funding, and the nature of participation, and -- the principals of each entity participating in the Competing Plan Sponsor's proposal; (3) Any Competing Plan Sponsor must either: (a) make a cash deposit at the time of submission of its proposal equal to the greater of: -- $20,000,000, or -- 10% of its total proposed investment, which will be held in an escrow account at a financial institution designated by the Debtors and subject to an escrow agreement in form and substance satisfactory to the Debtors, or (b) provide an irrevocable letter of credit for the benefit of the Debtors in the Deposit Amount, in a form and from a bank acceptable to the Debtors. Any such deposit will be subject to the jurisdiction of this Court; and (4) Any Competing Plan Sponsor must demonstrate, to the Debtors' sole satisfaction, its financial capacity, legal capacity, and managerial capacity, to complete the transaction it proposes -- including without limitation the TPG DIP Refinancing -- within the time frame established by the Debtors. B. Access to Information The Debtors will provide TPG and its representatives and any potential plan sponsor that satisfies the requirements, with reasonable access during normal business hours to the Debtors' books, records, facilities, key personnel, officers, independent accountants and legal counsel for due diligence investigations deemed necessary by TPG and any potential plan sponsor, and will cooperate with TPG and any plan sponsor in connection with its due diligence; provided, that the Debtors will not be required to provide confidential or proprietary information to a competitor if they believe that the information would be detrimental to its interests and operations. The Debtors will cooperate in good faith to resolve disclosure disputes using protocols that are customary. Any information provided by or on behalf of the Debtors or their estates to other potential plan sponsors -- regardless of whether they have made a Qualified Competing Proposal -- will also be provided, at the same time, to TPG if such information has not already been provided. The Debtors may satisfy this requirement by maintaining a data room, which is available to TPG and providing any information that is not in the data room but is provided to other potential plan sponsors. C. Requirements for Any Competing Investment Proposal The Debtors and the Court will only consider proposals that satisfy all of these requirements and is referred to as a "Qualified Competing Plan Proposal": (i) The proposal must be submitted by a Qualified Competing Plan Sponsor; (ii) The proposal and any related materials must: (a) be in writing, (b) contain all material terms of the proposed investment, (c) contain a marked copy of the Investment Agreement and the plan term sheet attached, and (d) be submitted to the Debtors -- with a simultaneous copy to the Official Committee of Unsecured Creditors, to TPG and to Credit Suisse First Boston -- so as to be received no later than 45 days after the entry of the Order; (iii) The proposal must provide for the refinancing of the debtor-in-possession financing provided by TPG -- and evidence of the proponent's financial capacity to fund the refinancing -- and for the replacement of any guaranty or other credit enhancement provided by TPG within 3 business days after entry of an order approving designation of the proponent as the Winning Plan Sponsor, which will also constitute an order approving the TPG DIP Refinancing. At the option of the proponent of the proposal, the refinancing may be structured as a cash purchase of all amounts due and payable to TPG under the debtor-in-possession financing or as a new loan to US Airways Group. The proceeds will be used to repay all amounts due and payable to TPG; (iv) The proposal will not contain any material conditions other than those that are also conditions in the Investment Agreement submitted by TPG; (v) The proposal must provide funding and a mechanism that will facilitate confirmation and consummation of a Chapter 11 Plan for the Debtors. No asset sale proposals under Section 363 of the Bankruptcy Code will be entertained, provided that a plan proposal may contemplate the sale of certain non-core assets to third-parties in connection with consummation of the plan -- but the proposal must, in this event: -- identify the non-core assets to be sold, -- state who will purchase such assets and the terms of the sale, -- provide credible evidence demonstrating the capacity of the purchaser to close the transaction, and -- provide credible evidence that the sale will close if the plan is confirmed, so that the sale of these non-core assets is not a contingency to the proposal; (vi) The proposal will not require the payment of any breakup fee, termination fee, or similar fee to the proponent; (vii) The proposal must include a written, binding commitment by the proponent to make a cash investment of no less than $200,000,000; (viii) The proposal must include evidence to demonstrate the feasibility of the proposal including the capacity of the proponent to consummate the TPG DIP Refinancing within 3 business days of being selected as the Winning Plan Sponsor and a substantial likelihood that proposal will obtain antitrust and other required regulatory approvals without material delay; and (ix) The proposal must be on terms so that net cash available to the Debtors, after payment of all closing costs, fees and expenses, is no less than under the TPG Investment Proposal. D. Selection of Highest and Best Investment Proposal The investment proposal that will serve as the basis for the Debtors' plan of reorganization will be determined in accordance with these procedures: (i) If there are no timely-submitted Qualified Competing Plan Proposals, then TPG will be the Winning Plan Sponsor; (ii) If any timely Qualified Competing Plan Proposals are received, the Debtors may allow parties to submit their best and final investment proposal. Any Best and Final Qualified Bids will: -- be submitted only by TPG or a person who submitted a Qualified Competing Plan Proposal, and -- if submitted by a person other than TPG, satisfy all requirements to be a Qualified Competing Plan Proposal. (iii) If there are any Qualified Competing Plan Proposals, the US Airways Board of Directors will determine which proponent is the Winning Plan Sponsor based on all factors it deems relevant -- which may include, the structure of the proposed transaction, the reputation and credibility of the proponent, the strategic value of the transaction, financial capacity of the proponent to consummate the transaction, timing of the closing, impact on the DIP financing, antitrust considerations, and the value of the transaction to each constituency. In determining the Winning Plan Sponsor, the Debtors will take into account the breakup fee that would be payable to TPG and any refinancing fees and costs that would be incurred; and (iv) The Debtors will seek this Court's approval of its selection of the Winning Plan Proposal promptly. E. Incorporation of Winning Plan Sponsor's Proposal into Plan of Reorganization After TPG or another investor is designated as the Winning Plan Sponsor, the Debtors will incorporate the proposal into a plan of reorganization. If TPG is designated as the Winning Plan Sponsor, the plan of reorganization will contain the terms described in the Investment Agreement. If another investor is designated as the Winning Plan Sponsor, the plan of reorganization will contain terms and provisions consistent with the Winning Plan Sponsor's investment proposal. F. Breakup Fee, Expense Reimbursement, and DIP Refinancing If TPG is not the Winning Plan Sponsor and TPG has not committed a material breach of the Investment Agreement and the Debtors emerge from Chapter 11 plan or the Business is sold, merged, combined, consolidated or otherwise disposed of in a single transaction or a series of Related Transactions, TPG will be entitled to receive: (x) a $7,000,000 Breakup Fee within 5 business days, and (y) any actual out-of-pocket expenses -- including attorneys' and other professionals' fees and disbursements -- incurred by TPG which have not already been advanced or reimbursed by the Debtors, with both (x) and (y) to be treated as an administrative priority expense. The TPG DIP Refinancing -- whether structured as a new loan or a purchase of TPG's participation in the DIP financing facility -- will take place within 3 business days after entry of an order approving the designation of an entity other than TPG as the Winning Plan Sponsor, which will also constitute an order approving the TPG DIP Refinancing. G. Notice Upon entry of the Order, the Debtors are authorized and directed to: (i) mail the Notice of Opportunity to Submit Competing Offers to Fund a Plan of Reorganization for the Debtors, and a copy of the Order to potential bidders identified by the Debtors and all persons or entities on the Master Service List within 5 days from the date on which the Order is entered, and (ii) publish the Procedures Notice one time in the Wall Street Journal (National Edition) and in other publications. The Debtors believe that the proposed Bidding Procedures, the establishment of the Breakup Fee and the payment of un-reimbursed Expenses will be beneficial to their estates, their creditors, and all other parties-in-interest, because: 1. the proposed Bidding Procedures are a condition to TPG's initial bid for an investment in the Company and participation in the DIP Facility; 2. they will discourage bidding strategies that hold back competitive bids until later in the bidding process; 3. they will assist the Debtors in obtaining an initial bid or bids that may be the highest bid earlier in the process; and 4. they will establish a high floor early in the bidding process. The Debtors will indemnify and hold TPG and its directors, officers, employees and agents harmless from all acts arising out of or related to the Memorandum of Understanding, except those arising out of the indemnified parties gross negligence or willful misconduct. The Debtors have also agreed to reimburse TPG for all reasonable expenses incurred in connection with negotiating, preparing, execution and delivery of all related documents. The Debtors believe that the Bidding Procedures and Bid Protections are fair and reasonable in view of: (a) the intensive analysis, due diligence investigation, and negotiation likely to be undertaken by TPG, and (b) the fact that TPG will have likely increased the chances that the Debtors will receive the highest and best offer, to the benefit of the Debtors, their estates, their creditors, and all other parties-in-interest. Mr. Butler assures the Court that the proposed Bid Protections under the Bidding Procedures are standard, well-accepted types of protection offered to stalking horse bidders in large, complex transactions. TPG will not enter the stalking horse bid without the Debtors offering these types of protections. Accordingly, the Debtors contend that the ability to offer the proposed Bid Protections will enhance this process to the benefit of all parties-in-interest. According to Mr. Butler, TPG's commitment to enter into the Investment Agreement is subject to several conditions, including: -- due diligence on TPG's part, -- the approval of the Bidding Procedures and Bid Protections governing the consideration of competing offers, and -- the assumption of the Memorandum of Understanding. Should the Company and TPG satisfy these conditions, pursuant to the Plan currently contemplated, the Company will issue: (i) 56.1 million shares of common stock of the reorganized Company, 51.1 million will be class A shares and 5 million of which will be class B shares; (ii) 24.25 million warrants, each exercisable into one Class A Share, 20.25 million are exercisable at an exercise price of $8 per Class A Share, 4 million are exercisable at an exercise price of $20 per Class A Share; and (iii) 50 million shares of non-convertible, redeemable, preferred stock. The Company will issue to TPG: -- 25 million shares of Common Stock, 20 million of which will be Class A Shares and 5 million of which will be Class B Shares, and -- 5 million Class A $8 Warrants. The nominal value of each share of Preferred Stock is $1. It will have a maturity of 10 years. Upon maturity, the Debtors will redeem the preferred stock for minimal value plus any accrued and unpaid dividends. The Debtors will pay cumulative dividends on the Preferred Stock on a quarterly basis. Prior to the 3rd anniversary, dividends will be paid either in kind at a rate of 6% annually or in cash at 4% annually. Thereafter, dividends will be paid in cash. After the 3rd anniversary, the Debtors may redeem the Preferred Stock for 102.5% of the nominal value, declining ratably to par after the 9th anniversary. In exchange, TPG will pay $200,000,000 in cash, toward which TPG may elect to credit the then-current balance of the debt obligation under its financing commitment pursuant to the Company's DIP Facility. The Company will issue to the Constituents: -- 27.35 million Class A Shares, -- 11.5 million Class A $8 Warrants, -- 4 million Class A $20 Warrants, and -- 50 million shares of Preferred Stock. Constituents include: (i) employees of the Company that are subject to certain collective bargaining agreements that have been amended to facilitate the consummation of the Plan, (ii) the Air Transportation Stabilization Board, as guarantor, and other participants, lenders and counter-guarantors in the $1,000,000,000 loan to the Company, (iii) entities providing aircraft financing pursuant to the Plan, and (iv) the holders of other allowed claims of the Company. The Company will issue 3.75 million restricted Class A Shares to members of senior management of the Company and will adopt a customary option program for Management, which will authorize the issuance of up to 3.75 million options, exercisable at an exercise price of not less than $8 per option. The Class A Shares and the Class B Shares will be identical in all respects except with respect to voting rights. Each Class A Share will be entitled to one vote while each Class B Share will be entitled to twenty votes. Holders of Class A Shares and holders of Class B Shares will vote together as a single class except as provided by law. Class B Shares will be freely convertible into an equal number of Class A Shares at the option of the holder. Additionally, the Company's charter and bylaws will be amended as necessary to provide that: (a) the Company will not issue additional Class B Shares without the consent of 2/3 of the holders of Class B Shares; (b) the Company will not issue additional Class A Shares in an amount exceeding 5% per annum of the then-outstanding Class A Shares without the consent of a majority of the holders of Common Stock -- voting together as a single class; (c) no amendment will be made to the articles or by-laws of the Company that would materially and adversely affect the rights of the Class B Shares without the consent of 2/3 of the Class B Shares; and (d) no amendment will be made to the articles or by-laws of the Company that would materially and adversely affect the rights of the Class A Shares without the consent of 2/3 of the Class A Shares. The Warrants may be exercised anytime prior to the 7th anniversary of the Closing Date. The exercise price may be paid in cash or by delivery of shares of Preferred Stock -- each valued at its Redemption Price, or Warrants -- each valued at the market value of the Class A Shares into which such Warrant is exercisable less its exercise price, or a combination of the two. The holders of the Warrants will be entitled to vote on an exercised basis on all matters subject to a shareholder vote. In the event of a consolidation, merger or other business combination, recapitalization or stock split involving the Company which results in the holders of any class of stock of the Company receiving stock or securities of another company or a different number or type of shares or securities of the Company, all terms applicable to the Warrants will be adjusted to take into account the transaction. The terms of the Warrants will provide for customary anti-dilution protection. The TPG deal contemplates that Reorganized USAir's Board of Directors will consist of 11 members: (a) 4 members of the Board will be designated by TPG; (b) 2 members of the Board will be designated by the Creditors' Committee, with sunset provisions; (c) 1 Board member will be designated by the ALPA with sunset provisions; (d) 1 Board Member will be designated by the collective decision of the other labor groups with sunset provisions; (e) 1 Board Member will be the Debtors' CEO; and (f) 2 Members of the Board will be independent directors. On the Closing Date, the Debtors will pay TPG a $3,750,000 transaction fee. ----------------------------------------------------------------- [00028] DEBTORS' MOTION TO RESTRICT CLAIM TRADING & PRESERVE NOLs ----------------------------------------------------------------- US Airways Group seeks to establish notice and hearing procedures for trading of claims against, and equity securities in, the Debtors. John Butler, Esq., tells the Court that, as a result of past losses, the Debtors presently have estimated net operating losses at $1,500,000,000. This figure is likely to be substantially higher when the Debtors emerge from Chapter 11. The NOLs would translate into potential future tax savings for the Debtors over $525,000,000, based on a 35% corporate federal income tax rate. Section 172 of the Internal Revenue Code permits corporations to carry forward NOLs to offset future income, reducing federal income tax liability on future income. The Debtors' NOLs are a valuable asset of the estates, and their availability will facilitate the Debtors' successful reorganization. Mr. Butler warns that the Debtors' ability to use their NOLs could be limited under Section 382 of the IRC as a result of the trading and accumulation of claims against, and equity securities in, the Debtors prior to consummation of the plan of reorganization. Mr. Butler asserts that trading of claims and equity securities could adversely affect the Debtors' Net Operating Loss Carryforwards if: (i) too many 5% or greater blocks of equity securities are created, or too many shares are added or sold from the blocks, so that together with previous trading by 5% shareholders during the preceding three year period, an ownership change within the meaning of Section 382 of the Internal Revenue Code of 1986, is triggered prior to consummation, and outside the context, of a confirmed Chapter 11 plan; or (ii) the beneficial ownership of claims against the Debtors currently held by "qualified creditors" under the applicable tax regulations is transferred, prior to consummation of the plan, and those claims -- either alone or when accumulated with other claims currently held by nonqualified creditors -- would be converted under a plan of reorganization into a 5% or greater block of the stock of the reorganized Debtors. The Debtors want the flexibility to craft a plan that maximizes the use of its NOLs. Accordingly, the Debtors want to closely monitor transfers of claims and equity securities, so as to be in a position to act expeditiously to prevent transfers, if necessary, to preserve the NOLs. By establishing procedures for continuously monitoring claims trading and equity-securities trading, the Debtors can preserve their ability to seek substantive relief at the appropriate time if it appears that additional trading may jeopardize the use of their NOLs. Thus, the Debtors ask the Court to establish these procedures: 1. Procedure for Trading in Equity Securities (a) Any person or entity who currently is or becomes a Substantial Equity Holder will file with the Court, and serve upon the Debtors and its counsel, a notice of status; (b) Prior to any transfer of equity securities -- including options to acquire stock -- which would result in an increase of common stock of US Airways Group beneficially owned by a Substantial Equity Holder, or would result in a person or entity becoming a Substantial Equity Holder, the Substantial Equity Holder will file with the Court, and serve on the Debtors and its counsel, advance notice of the transfer of equity securities; (c) Prior to any transfer of equity securities -- including options to acquire stock -- which would result in a decrease in the amount of common stock of Group beneficially owned by a Substantial Equity Holder or would result in a person or entity ceasing to be a Substantial Equity Holder, the substantial Equity Holder will file with the Court, and serve on the Debtors and counsel to the Debtors, advance notice of the transfer of equity securities; (d) The Debtors will have 30 calendar days after receipt of a Notice of Proposed Transfer to file with the Court and serve on the Substantial Equity Holder an objection to a proposed transfer of equity securities described in the Notice on the grounds that it may adversely affect the Debtors' ability to utilize their NOLs. If the Debtors file an objection, the transaction will not be effective unless approved by a final and nonappealable order of this Court. If the Debtors do not object within a 30-day period, the transaction may proceed as set forth in the Notice of Proposed Transfer. Further transactions within the scope of this paragraph must be the subject of additional notices with an additional 30-day waiting period; (e) For purposes of this Motion and the Order: 1. a "Substantial Equity Holder" is any person or entity that beneficially owns at least 3,000,000 shares -- representing 4.5% of all issued and outstanding shares -- of the common stock of Group; 2. "Beneficial Ownership" of equity securities includes direct and indirect ownership -- e.g., a holding company would be considered to beneficially own all shares owned or acquired by its subsidiaries -- by the holder's family members and persons acting in concert with the holder to make a coordinated acquisition of stock, and ownership of shares which such holder has an option to acquire; and 3. an "Option" to acquire stock includes any contingent purchase, warrant, convertible debt, put, stock subject to risk of forfeiture, contract to acquire stock or similar interest, regardless of whether it is contingent or otherwise not currently exercisable. 2. Procedure for Trading in Claims (a) Any person or entity who currently is or becomes a Substantial Claimholder will file with the Court, and serve upon the Debtors and its counsel, a notice of this status; (b) Prior to effectuating any transfer of claims which would result in an increase in the amount of aggregate principal claims beneficially owned by a Substantial Claimholder or would result in a person or entity becoming a Substantial Claimholder, such Substantial Claimholder will file with the Court, and serve on the Debtors and counsel to the Debtors, advance written notice of the intended transfer of claims, regardless of whether such transfer would be subject to the filing, notice and hearing requirements of Bankruptcy Rule 3001; (c) Prior to effectuating any transfer of claims which would result in a decrease in the amount of aggregate principal claims beneficially owned by a Substantial Claimholder or would result in a person or entity ceasing to be a Substantial Claimholder, such Substantial Claimholder will file with the Court, and serve on the Debtors and counsel to the Debtors, advance written notice of the intended transfer of claims, regardless of whether the transfer would be subject to the filing, notice and hearing requirements of Bankruptcy Rule 3001; (d) The Debtors will have 30 calendar days after receipt of a Notice of Proposed Transfer to file with the Court and serve on the Substantial Claimholder an objection to any proposed transfer of claims described in a Notice of Proposed Transfer on the grounds that such transfer may adversely affect the Debtors' ability to utilize their NOLs. If the Debtors file an objection, the transaction will not be effective unless approved by a final and nonappealable order of this Court. If the Debtors do not object within the 30-day period, the transaction may proceed as set forth in the Notice of Proposed Transfer. Further transactions are the subject of additional notices with a 30-day waiting period; and (e) For purposes of this Motion and the Order: 1. a "Substantial Claimholder" is any person or entity that beneficially owns: -- an aggregate principal amount of claims against the debtors equal to or exceeding $50,000,000 or any controlled entity through which a substantial Claimholder beneficially owns an indirect interest in claims against the Debtors, or -- a lease or leases under which one or more of the Debtors are lessees and pursuant to which payments of $50,000,000 or more, in the aggregate, are or will become due; 2. "Beneficial ownership" of claims includes direct and indirect ownership -- e.g., a holding company would be considered to beneficially own all claims owned or acquired by its subsidiaries -- ownership by family members and any group of persons acting pursuant to a formal or informal understanding to make a coordinated acquisition of claims, and ownership of claims which such holder has an option to acquire; and 3. an "Option" to acquire claims includes any contingent purchase, put, contract to acquire a claim(s) or similar interest, regardless of whether it is contingent or otherwise not currently exercisable. IRC Section 382 limits the amount of taxable income that can be offset by the corporation's net operating loss carryforwards in any taxable year following an ownership change. Based on the Debtors' current and projected financial condition, Mr. Butler notes it is likely that a plan of reorganization will distribute a majority of the common stock of the reorganized Debtors to a new equity investor and to employees, lessors, and other creditors of the Debtors in exchange for all or part of their claims. Under any realistic plan scenario, Mr. Butler says, the Debtors will likely experience an "ownership change" for purposes of IRC Section 382 because the percentage of stock that will be owned by a new equity investor, employees, lessors, and other creditors will have increased by more than 50 points over the lowest percentage of the stock of Group held by the people during the 3-year testing period. The Debtors intend to avail themselves of one of the special relief provisions applicable to an ownership change resulting from a confirmed Chapter 11 plan. Pursuant to these provisions, the Debtors anticipate that: -- they will be exempt from the limitation set forth in IRC Section 382 or, alternatively, -- they will benefit from a favorable valuation rule that will cause the amount of their annual limitation under IRC Section 382(b) to reflect the expected increase in the Debtors' value resulting from any surrender or cancellation of creditors claims in exchange for stock pursuant to the plan. "The problem facing the Debtors, and the reason for this motion, is that if too many equity holders or creditors transfer their equity securities or debt claims prior to the effective date of a plan of reorganization, the transfers may trigger an ownership change that would not fall within the ambit of these special bankruptcy provisions," Mr. Butler explains. The Debtors need the ability to monitor and possibly object to changes in ownership of claims against and equity securities to preserve flexibility in crafting a plan of reorganization that qualifies for relief under one of the special bankruptcy provisions and, thus, maximizes the Debtors' ability to use their NOLs to reduce Federal income taxes on their income earned after reorganization. Once an NOL is limited under IRC Section 382, its use is limited forever. Once a claim or equity interest is transferred, it cannot be undone. Mr. Butler clarifies that the requested relief does not bar all claims and stock trading. ----------------------------------------------------------------- [00029] DEBTORS' APPLICATION TO EMPLOY KPMG AS TAX ADVISORS ----------------------------------------------------------------- Pursuant to Section 327(a) of the Bankruptcy Code, US Airways Group seeks the Court's permission to employ KPMG LLP as its auditors and tax advisors. KPMG's extensive experience and knowledge in the field of accounting, particularly in the context of complex Chapter 11 reorganizations, makes it well qualified to provide auditing services to the Debtors. Robert A. Fenimore, CPA and KPMG partner, tells the Court that for several years, KPMG has served as the independent accountant, auditor, and tax advisors to the Debtors. By virtue of its prior engagement, KPMG is familiar with the books, records, financial information and other data maintained by the Debtors and is well qualified to continue to provide continued services. The Debtors anticipate that KPMG will: (a) audit and review examinations of the financial statements of the Debtors as may be required from time to time; (b) analyze accounting issues and advise the Debtors' management regarding the proper accounting treatment of events; (c) assist in the preparation and filing of the Debtors' financial statements and disclosure documents required by the Securities and Exchange Commission; (d) assist in the preparation and filing of the Debtors' registration statements required by the Securities and Exchange Commission in relation to debt and equity offerings; (e) review and assist in the preparation and filing of tax returns; (f) advise and assist the Debtors regarding tax planning issues, including assistance in estimating net operating loss carryforwards, international taxes, and state and local taxes; (g) assist regarding transaction taxes, state and local sales and use taxes; (h) assist regarding tax matters related to the Debtors' pension plans; (i) assist regarding real and personal property tax matters, including review of real and personal property tax records, negotiation of values with appraisal authorities, preparation and presentation of appeals to local taxing jurisdictions and assistance in litigation of property tax appeals; (j) assist regarding any existing or future Internal Revenue Service, state and/or local tax examinations; (k) provide other consulting, advice, research, planning or analysis regarding tax issues as may be requested; (l) advise and assist on the tax consequences of proposed plans of reorganization, including assistance in the preparation of IRS ruling requests regarding the future tax consequences of alternative reorganization structures; and (m) perform other related accounting and tax services for the Debtors as may be necessary or desirable. Mr. Fenimore relates that KPMG searched its client database from 1998 and forward to identify any connection or relationship with these entities: (a) The Debtors and their affiliates; (b) The Debtors' officers and directors; (c) The equity shareholders with more than 20% of common stock; (d) The Debtors' major secured creditors; (e) The Debtors' largest unsecured creditors; (f) The Debtors' counsel and Investment Banker; and (g) Financial advisors and counsel to other parties-in-interest. Mr. Fenimore is confident that KPMG does not hold or represent an interest adverse to the estates that would impair its ability to objectively perform professional services for the Debtors, in accordance with Section 327 of the Bankruptcy Code. KPMG received $1,031,981 from the Debtors within 90 days of the bankruptcy filings. KPMG believes that these payments are not preferences. KPMG is a "disinterested person" as defined in Section 101(14) of the Bankruptcy Code and modified by Section 1107(b), Mr. Fenimore asserts. According to Mr. Fenimore, KPMG has in the past been retained by, and presently and likely in the future will provide services for, the Debtors' creditors, other parties-in-interest and their respective attorneys and accountants in matters unrelated to the parties' claims against the Debtors or interests in these Chapter 11 cases. KPMG's compensation for professional services rendered to the Debtors will be based on the hours expended by each assigned staff member at the corresponding hourly billing rate. The Debtors have agreed to compensate KPMG for professional services rendered at its normal and customary hourly rates. In the normal course of business, KPMG revises its hourly rates on October 1 of each year. The current customary hourly rates for accounting and tax services by KPMG are: Accounting and Audit Services: Hourly Rate ------------------------------ ----------- Partners/Principals $500 - 650 Managing Directors/Directors 500 - 600 Senior Managers/Managers 325 - 600 Senior/Staff Consultants 225 - 325 Associates 175 - 200 Paraprofessionals 100 - 110 Tax Advisory Services: ---------------------- Partners/Principals/Directors $500 - 750 Senior Managers/Managers 375 - 675 Senior/Staff Consultants 175 - 350 Tax Compliance Services: ------------------------ Partners/Principals/Directors $500 - 600 Senior Managers/Managers 375 - 500 Senior/Staff Consultants 175 - 350 David N. Siegel, Chief Executive Officer of US Airways Group, believe that KPMG's fees are fair and reasonable in light of: -- industry practice, -- market rates both in and out of Chapter 11 proceedings, -- KPMG's experience in reorganizations, and -- KPMG's importance to these cases. KPMG has not received a prepetition retainer from the Debtors. Before the Petition Date, KPMG was not owed any amounts for services rendered to the Debtors. KPMG will also seek reimbursement for necessary expenses incurred, which include travel, photocopying, delivery service, postage, vendor charges and other out-of-pocket expenses incurred in providing professional services. KPMG intends to apply to the Court for compensation and reimbursement of expenses in accordance with Bankruptcy Code Section 330(a), the Federal Rules of Bankruptcy Procedure. ----------------------------------------------------------------- [00030] DEBTORS' APPLICATION TO HIRE PwC AS ADVISOR & ACCOUNTANT ----------------------------------------------------------------- US Airways Group wants to employ PricewaterhouseCoopers as its restructuring advisors and accountants during these Chapter 11 proceedings. Specifically, PwC will: -- assist the Debtors in the preparation of financial related disclosures required by the Court, including the Schedules of Assets and Liabilities, the Statement of Financial Affairs and Monthly Operating Reports; -- assist in developing accounting and operating procedures to segregate prepetition and postpetition business transactions; -- provide assistance with implementation of court orders; -- assist with the identification of executory contracts and leases and performance of cost/benefit evaluations with respect to the affirmation or rejection of each; -- assist in the preparation of financial information for distribution to creditors and others, including, cash receipts and disbursement analysis, analysis of various asset and liability accounts, and analysis of proposed transactions for which Court approval is sought; -- participate in meetings and provide support to the Company and its other professional advisors in negotiations with potential investors, banks and other secured lenders, the Creditors' Committee appointed in these Chapter 11 cases, the U.S. Trustee, other parties-in-interest and professionals hired, as requested; -- assist the Debtors in responding to and tracking calls received from suppliers in a Vendor Communication Room, including the production of various management reports reflecting call center activity; -- assist the Debtors in claims processing, analysis and reporting including Plan classification modeling and claim estimation; -- assist the Debtors in responding and tracking reclamation claims; -- analyze creditor claims by type, entity and individual claim, including assistance with development of a database to track the claims; -- assist the Debtors with plan distribution activities; -- assist in the preparation of information and analysis necessary for the confirmation of a Plan of Reorganization in these chapter 11 cases; -- assist in the evaluation and analysis of avoidance actions, including fraudulent conveyances and preferential transfers; -- provide testimony on various matters, as requested; -- provide assistance with tax planning and compliance issues with respect to any proposed plans of reorganization, as well as any and all other tax assistance as may be requested from time to time. -- provide such other restructuring advisory, accounting and claims management services consistent with PricewaterhouseCoopers' role in this matter as may be required or requested by the Debtors or their counsel; and -- render other general business consulting or other assistance as Debtors' management or counsel may deem necessary that are not duplicative of services provided by other professionals. According to US Airways CEO David N. Siegel, PwC will work closely with Seabury to ensure that the services provided by each firm are complementary and not duplicative and create a synergy between Seabury's vast airline expertise and PricewaterhouseCoopers' vast accounting and financial restructuring experience. Mr. Siegel relates that the Debtors are familiar with the professional standing and reputation of PricewaterhouseCoopers. PricewaterhouseCoopers has a wealth of experience providing restructuring advisory and accounting services in restructurings and reorganizations and enjoys an excellent reputation in large and complex Chapter 11 cases, on behalf of debtors and creditors. Prior to the Petition Date, PricewaterhouseCoopers provided restructuring advisory and accounting services to the Debtors. During this engagement, PricewaterhouseCoopers has developed a great deal of institutional knowledge of US Airways' operations, finances and systems. "This experience and knowledge will be valuable to the Debtors' reorganization efforts," Mr. Siegel says. Randall S. Eisenberg, on behalf of PricewaterhouseCoopers, tells the Court that PwC: (i) has no connection with the Debtors, its creditors or other parties-in-interest in these cases, (ii) does not hold any interest adverse to the Debtors' estates; and (iii) is a "disinterested person" as defined in Section 101(14) of the Bankruptcy Code, and is eligible to be retained under Section 327(a) of the Bankruptcy Code. PricewaterhouseCoopers is not owed any amounts with respect to its prepetition fees and expenses. In connection with the Vendor Communication Room Process, Mr. Siegel says, PwCs' professionals providing assistance will be performing repetitive tasks responding to numerous vendor calls, including answering incoming calls, communicating relevant factual information regarding the proceedings and assisting with updating the Vendor Communication Room Database to reflect the outcome of calls received. While the Vendor Communication Room Process is directly related to the proceedings, given the nature of these tasks and the expected volume of supplier calls, it would not be practical and would provide little monitoring insight to the various parties-in-interest to these proceedings for the professionals to maintain detailed time records for these. Therefore, the Debtors ask the Court to allow the PwC Vendor Communication Room professionals to submit only summary documentation that provide hours incurred by level and descriptions of the categories of tasks that were completed during the applicable time period in lieu of providing detailed time records. PricewaterhouseCoopers intends to apply to the Court for allowances of compensation and reimbursement of expenses for restructuring advisory and accounting services. The customary hourly rates for restructuring advisory and accounting services to be rendered by PricewaterhouseCoopers are: Partners/Managing Director $525 - 595 Manager/Directors 370 - 525 Associates/Senior Associates 185 - 345 Administrative/Paraprofessional 75 - 150 Mr. Siegel maintains that PwC should be employed under a general retainer because of the level and complexity of the services that will be required during these proceedings. ----------------------------------------------------------------- [00031] DEBTORS' MOTION FOR ORDER TO MAINTAIN CONFIDENTIALITY ----------------------------------------------------------------- John Butler, Esq., at Skadden, Arps, Slate, Meagher & Flom, relates that US Airways has been in negotiations with its unions in an attempt to obtain modifications to collective bargaining agreements, since May 2002. US Airways has collective bargaining agreements with five unions: 1) Air Line Pilots Association International; 2) Association of Flight Attendants, AFL-CIO; 3) Communications Workers of America; 4) International Association of Machinists and Aerospace Workers; 5) Transport Workers of America, AFL-CIO. In compliance with Section 1113(b)(1), the Debtors expect to provide the unions with proposals for modifications to the collective bargaining agreements. The proposals will contain some information that the Debtors would like to remain confidential. Section 1113 of the Bankruptcy Code governs the rejection or modification of a collective bargaining agreement by a Chapter 11 trustee or debtor in possession. Section 1113 contains detailed substantive and procedural requirements with which a debtor must comply in order to reject a CBA. Specifically, subsection (b)(1) requires that after filing a bankruptcy petition, but before filing an application to reject a CBA, a debtor must: 1) make a proposal to an authorized union representative "based on the most complete and reliable information available at the time of such proposal, which provides for those necessary modifications in the employees benefits and protections that are necessary to permit the reorganization of the debtor and assures that all creditors, the debtor and all of the affected parties are treated fairly and equitably," and 2) "provide, subject to subsection (d)(3), the representative of the employees with such relevant information as is necessary to evaluate the proposal." Mr. Butler explains that the relevant information necessary to evaluate the US Airways proposals include confidential, commercial, proprietary and non-public information. "Disclosure of this information could compromise the competitive position of the Debtors in its industry," Mr. Butler says. Accordingly, the Debtors sought and obtained a protective order to maintain the confidentiality of relevant information disclosed during Section 1113 matters. The parties who may have access to information deemed confidential include: * US Airways Group; * Skadden, Arps, Slate, Meagher & Flom; * O'Melveny & Myers; * McGuireWoods; * Association of Air Line Pilots International; * Association of Flight Attendants; * Communications Workers of America; * International Association of Machinists & Aerospace Workers, District 141 and 141M; and * Transport Workers of America, AFL-CIO, Locals 545, 546 and 547. ----------------------------------------------------------------- [00032] DEBTORS' APPLICATION TO EMPLOY MCGUIREWOODS AS CO-COUNSEL ----------------------------------------------------------------- US Airways Group seeks the Court's authority to employ McGuireWoods of McLean, Virginia, as restructuring and bankruptcy co-counsel. Prior to the Petition Date, the Debtors sought McGuireWoods' services for the preparation of the Chapter 11 proceedings. Lawrence E. Rifken, Esq., at McGuireWoods, tells the Court that the Debtors and the firm are parties to an engagement agreement dated July 18, 2002. According to Mr. Rifken, McGuireWoods' continued representation is critical to the Debtors' efforts to restructure their business because McGuireWoods has achieved a high level of familiarity with its business, legal and financial affairs. McGuireWoods also has experience with the local practice before the Eastern District of Virginia Bankruptcy Court with respect to large chapter 11 cases. For example, McGuireWoods served as debtor's counsel in In re Best Products Co, Inc., In re Heilig Meyers Co., et al., In re AMF Bowling Worldwide, Inc., et al., and In re Motient Corporation, et al. In addition, the Debtors selected McGuireWoods as attorneys because of the firm's experience and knowledge in the field of debtors' and creditors' rights. Because of the extensive legal services that will be required, the Debtors desire to employ McGuireWoods under a general retainer. Skadden, Arps, Slate, Meagher & Flom has been retained as lead counsel in these proceedings. Both firms have assured Debtors that they will use their best efforts to avoid duplication of services. McGuireWoods is expected to: (a) advise the Debtors with on 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 with any contemplated sales of assets or business combinations, including 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 with the closing of such sales; (d) advise the Debtors with postpetition financing and cash collateral arrangements, and negotiate and draft related documents, provide advice and counsel with r 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 relating; (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, labor, 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, if any, 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 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 these matters; (k) appear before this Court, any appellate courts, and the U.S. Trustee, and protect the interests of the Debtors' estates before such 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. Rifken asserts that the members, counsel and associates of McGuireWoods: -- do 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, and -- are "disinterested persons," as that term is defined in Section 101(14) of the Bankruptcy Code. According to Mr. Rifken, McGuireWoods previously rendered legal services to the Debtors for which it was compensated. Certain McGuireWoods attorneys may own common stock of US Airways Group, either directly or indirectly. McGuireWoods attorneys may also hold US Air common stock in managed accounts over which they have no control. In addition, many McGuireWoods attorneys are participants -- with open balances -- in the Debtors' Dividend Miles. The Engagement Agreement provided for a $200,000 retainer program, which the Debtors have funded, for professional services rendered previously and in the future. According to McGuireWoods' books and records, for the period July 11, 2002 to August 11, 2002, the total amount of services billed to the Debtors in connection with contingency planning was $128,816.10 with an additional $4,581.15 in costs and expenses. McGuireWoods' books and records also indicate that on August 9, 2002, the firm received $133,397.25 from the Debtors, exclusive of the Retainer. McGuireWoods' total fees were $143,129.00, less a 10% discount of $14,312.90, which brought the total adjusted fees to $128,816.10. Pursuant to the Engagement Agreement, McGuireWoods provides the Debtors with periodic statements for services rendered and costs and expenses incurred. During the reorganization cases, the periodic statements will constitute a request for an interim payment. For professional services, McGuireWoods' fees are based on its standard hourly rates, which are periodically adjusted. The firm will provide professional services to the Debtors under its standard rate schedules and, therefore, McGuireWoods will not be seeking to be separately compensated for staff, clerical and resource charges. McGuireWoods' hourly rates range from: $270 - 575 partners 155 - 325 associates 100 - 190 legal assistants and support staff. McGuireWoods has agreed to give the Debtors a 10% discount on all of the Firm's fees. This discount does not apply to costs and expenses incurred by McGuireWoods. The hourly rates are subject to periodic increases in the normal course of McGuireWoods' business, often due to the increased experience of a particular professional. Mr. Rifken relates that the firm intends to apply to the Court for allowance of compensation for professional services rendered and reimbursement of charges and disbursements incurred. It is McGuireWoods' policy to charge its clients in all areas of practice for all include photocopying, witness fees, travel expenses, secretarial and other overtime expenses, filing and recording fees, long distance telephone calls, postage, express mail and messenger charges, computerized legal research charges and other computer services, expenses for working meals and telecopier charges. ----------------------------------------------------------------- [00033] DEBTORS' APPLICATION TO EMPLOY SEABURY AS ADVISORS ----------------------------------------------------------------- See prior entry at [00009]. Application approved. ----------------------------------------------------------------- [00034] DEBTORS' MOTION TO CONTINUE FUEL SUPPLY ARRANGEMENTS ----------------------------------------------------------------- See prior entry at [00011]. Motion granted. ----------------------------------------------------------------- [00035] DEBTORS' MOTION TO PAY PREPETITION CRITICAL VENDOR CLAIMS ----------------------------------------------------------------- See prior entry at [00012]. Motion granted. ----------------------------------------------------------------- [00036] DETBORS' MOTION TO PAY PREPETITION FOREIGN VENDOR CLAIMS ----------------------------------------------------------------- See prior entry at [00013]. Motion granted. ----------------------------------------------------------------- [00037] DEBTORS' MOTION TO PAY PREPETITION MAINTENANCE CLAIMS ----------------------------------------------------------------- See prior entry at [00017]. Motion granted. ----------------------------------------------------------------- [00038] DEBTORS' MOTION TO ASSUME INTERLINE AGREEMENTS ----------------------------------------------------------------- See prior entry at [00018]. Motion granted. ----------------------------------------------------------------- [00039] DEBTORS' MOTION TO CONTINUE HONORING SERVICE AGREEMENTS ----------------------------------------------------------------- See prior entry at [00019]. Motion granted. ----------------------------------------------------------------- [00040] DEBTORS' MOTION TO PAY PREPETITION EMPLOYEE OBLIGATIONS ----------------------------------------------------------------- See prior entry at [00020]. Motion granted. ----------------------------------------------------------------- [00041] DEBTORS' MOTION TO HONOR PREPETITION CUSTOMER OBLIGATIONS ----------------------------------------------------------------- See prior entry at [00021]. Motion granted. ----------------------------------------------------------------- [00042] USAIR EXTENDS SHUTTLE GUARANTEE PROGRAM & TRIPLE-MILES ----------------------------------------------------------------- ARLINGTON, Virginia -- August 16, 2002 -- US Airways has renewed its commitment to a convenient and hassle-free Shuttle travel experience by extending its guarantee and mileage bonus programs. US Airways Shuttle customers will continue to be eligible for a $200 voucher toward future travel on US Airways, US Airways Express or US Airways Shuttle, if, on any Monday through Friday, they are unable to make it to their boarding gate within 20 minutes of checking in at the US Airways Shuttle ticket counter or electronic ticket kiosks to make their scheduled departure to their ticketed destination. Dividend Miles members traveling the Shuttle also will continue to earn Triple Dividend Miles through Dec. 31, 2002, and the bonus miles count toward Dividend Miles Preferred Status. "The US Airways Shuttle is the quickest and most convenient means of travel between these important Northeast corridor business and vacation centers," said US Airways Vice President of Marketing and Revenue Management Stephen M. Usery. The US Airways Shuttle is the only Shuttle to offer hourly departures every business day between New York LaGuardia, Boston and Ronald Reagan Washington National airports, with 16 roundtrips between LaGuardia and Boston, 15 roundtrips between LaGuardia and Reagan National, and 14 roundtrips between Boston and Reagan National. Shuttle customers can fly comfortably on US Airways' modern Airbus A320 family of aircraft, which are used on all Shuttle flights. These aircraft have the widest cabins, aisles and seats of any Shuttle and also feature a generous seat pitch of 34 inches, drop-down video monitors every three rows and more standard overhead luggage space. With an in-seat power supply at every seat onboard and a Verizon Airfone located in each row, US Airways Shuttle customers can remain productive throughout the flight -- or they can simply recline their seats and relax in the comfort of these state-of-the-art aircraft. US Airways Shuttle flights depart either on the hour or on the half-hour, depending on the route. To qualify for the 20- Minute Guarantee, customers must complete check-in at the dedicated Shuttle ticket counter or at an electronic-ticket kiosk at least 25 minutes before scheduled departure -- and not be able to arrive at the gate in time for final boarding at five minutes before departure. This offer does not apply during irregular operations, such as weather, government-mandated security actions, or other circumstances out of US Airways' control. This offer only applies to customers booked in Y, B, or U class service, excluding U class youth fares (fare basis: UOPKY24) and U class senior fares (fare basis: UOPKSR62), and it applies only to customers who originate their travel on US Airways Shuttle. The $200 voucher towards a US Airways ticket is valid systemwide and will be provided upon the customer's request at the Shuttle gate check-in only on the scheduled date of departure after not making the scheduled departure to their ticketed destination. This voucher program is the exclusive remedy under the 20-Minute Guarantee. In no event shall US Airways' liability exceed the award amount of the voucher. The voucher amount of $200 applies toward the base fare and federal excise tax of 7.5 percent only and applies only to the future purchase of airline tickets on US Airways. The purchase of the ticket must occur within one year of the voucher's issuance. Other terms and conditions for the voucher apply as stated on the voucher. Registration for Triple Miles is required before departure by calling 1-800-872-4738 and entering Bonus Request Number 5236, or online at http://www.usairways.com/dm/5236 Retroactive mileage credit will not be posted for travel prior to registration. All Dividend Miles terms and conditions apply. The Triple Miles offer is valid with the purchase of published adult fares for travel on US Airways Shuttle. For additional information on US Airways Shuttle schedules and fares, visit US Airways online at http://www.usairways.com or call US Airways Reservations at 1-800-428-4322. ----------------------------------------------------------------- [00043] USAIR CEO & CFO FILE SWORN STATEMENTS WITH SEC ----------------------------------------------------------------- Neal S. Cohen, Principal Financial Officer, and David N. Siegel, Principal Executive Officer of US Airways Group, Inc., assure the Securities and Exchange Commission that: 1. Based upon a review of the covered reports of US Airways Group, Inc., and, except as corrected or supplemented in a subsequent covered report: a) no covered report contained an untrue statement of a material fact as of the end of the period covered by such report -- or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed; and b) no covered report omitted to state a material fact necessary to make the statements in the covered report, in light of the circumstances under which they were made, not misleading as of the end of the period covered by such report -- or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed; 2. They have reviewed the contents of this statement with the Company's audit committee; and 3. Each of the following, if filed on or before August 16, 2002, is a "covered report": -- 2001 Annual Report on Form 10-K of US Airways Group, Inc. -- all reports on Form 10-Q and all reports on Form 8-K and all definitive proxy materials of US Airways Group, Inc., filed with the Commission subsequent to the filing of the Form 10-K; and -- any amendments to any of the foregoing. SEC Order No. 4-460, which was issued on June 27, 2002, ordered CEOs and CFOs of large companies to file sworn statements attesting to the accuracy of their employer's financial statements pursuant to Section 21(a)(1) of the Securities Exchange Act of 1934. The Order requires the principal financial officer and the principal executive officer of the Companies to: (a) file a written statement, under oath, including a statement declaring whether or not the contents of that statement have been reviewed with the company's audit committee, or (b) file a written statement, under oath, describing the facts and circumstances that would make such a statement incorrect and declaring whether or not the contents of that statement have been reviewed with the company's audit committee. The Order requires that corporate officers must personally attest that the Companies' most recent periodic reports are materially truthful and complete or explain why a statement would not be correct. ----------------------------------------------------------------- [00044] USAIR RELEASES SECOND QUARTER OPERATING RESULTS ----------------------------------------------------------------- A full-text copy of US Airways Group, Inc.'s Form 10-Q for the period ending June 30, 2002, is available at no charge at: http://www.sec.gov/Archives/edgar/data/701345/000095017202001808/ny73795.txt and a full-text copy of US Airways, Inc.'s Form 10-Q for the period ending June 30, 2002, is available at no charge at: http://www.sec.gov/Archives/edgar/data/714560/000095017202001809/ny73798.txt US Airways Group, Inc. (Debtor and Debtor-In-Possession as of August 11, 2002) Condensed Consolidated Balance Sheets June 30, 2002 (unaudited) and December 31, 2001 (in millions) June 30, December 31, ASSETS 2002 2001 ------------ ----------- Current Assets Cash and cash equivalents $ 532 $ 593 Short-term investments 70 485 Receivables, net 347 281 Materials and supplies, net 202 209 Prepaid expenses and other 305 207 ------- ------- Total Current Assets 1,456 1,775 Property and Equipment Flight equipment 6,308 7,472 Ground property and equipment 1,183 1,211 Less accumulated depreciation and amortization (2,862) (4,075) ------- ------- 4,629 4,608 Purchase deposits for flight equipment 58 85 ------- ------- Total Property and Equipment 4,687 4,693 Other Assets Goodwill 531 531 Pension Assets 407 411 Other intangibles, net 316 343 Other assets, net 308 272 ------- ------- Total Other Assets 1,562 1,557 ------- ------- $ 7,705 $ 8,025 ======= ======= LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Current maturities of long-term debt $ 358 $ 159 Accounts payable 458 625 Traffic balances payable and unused tickets 983 817 Accrued aircraft rent 217 257 Accrued salaries, wages and vacation 331 372 Other accrued expenses 630 796 ------- ------- Total Current Liabilities 2,977 3,026 Noncurrent Liabilities Long-term debt, net of current maturities 3,474 3,515 Accrued aircraft rent 265 293 Deferred gains, net 565 589 Postretirement benefits other than pensions 1,518 1,474 Employee benefit liabilities and other 2,009 1,743 ------- ------- Total Noncurrent Liabilities 7,831 7,614 Commitments and Contingencies Stockholders' Equity (Deficit) Common stock 101 101 Paid-in capital 2,149 2,185 Retained earnings (deficit) (3,454) (2,937) Common stock held in treasury, at cost (1,712) (1,749) Deferred compensation (60) (62) Accumulated other comprehensive income (loss), net of income tax effect (127) (153) ------- ------- Total Stockholders' Equity (Deficit) (3,103) (2,615) ------- ------- $ 7,705 $ 8,025 ======= ======= US Airways Group, Inc. (Debtor and Debtor-In-Possession as of August 11, 2002) Condensed Consolidated Statements of Operations Three Months and Six Months Ended June 30, 2002 and 2001 (unaudited) (in millions, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, -------------------------------- ----------------------------- 2002 2001 2002 2001 ---- ---- ---- ---- Operating Revenues Passenger transportation $ 1,599 $ 2,183 $ 3,034 $ 4,147 Cargo and freight 37 44 70 90 Other 267 266 508 497 -------- -------- -------- -------- Total Operating Revenues 1,903 2,493 3,612 4,734 Operating Expenses Personnel costs 878 959 1,762 1,892 Aviation fuel 189 311 369 622 Aircraft rent 135 145 269 283 Other rent and landing fees 107 119 213 238 Aircraft maintenance 105 143 202 281 Other selling expenses 83 106 175 217 Depreciation and amortization 75 101 153 197 Commissions 26 80 78 167 Asset impairments -- -- -- 22 Other 480 509 936 1,023 -------- -------- -------- -------- Total Operating Expenses 2,078 2,473 4,157 4,942 -------- -------- -------- -------- Operating Income (Loss) (175) 20 (545) (208) Other Income (Expense) Interest income 6 18 13 36 Interest expense (84) (76) (166) (145) Interest capitalized 2 4 5 11 Other, net (8) 4 (1) 7 -------- -------- -------- -------- Other Income (Expense), Net (84) (50) (149) (91) -------- -------- -------- -------- Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change (259) (30) (694) (299) Provision (Credit) for Income Taxes (11) (6) (160) (97) -------- -------- -------- -------- Income (Loss) Before Cumulative Effect of Accounting Change (248) (24) (534) (202) Cumulative Effect of Accounting Change, Net of Applicable Income Taxes -- -- 17 7 -------- -------- -------- -------- Net Income (Loss) $ (248) $ (24) $ (517) $ (195) ======== ======== ======== ======== Earnings (Loss) per Common Share Basic Before Cumulative Effect of Accounting Change $ (3.64) $ (0.36) $ (7.86) $ (3.01) Cumulative Effect of Accounting Change $ -- $ -- $ 0.26 $ 0.11 -------- -------- -------- -------- Net Earnings (Loss) per Common Share $ (3.64) $ (0.36) $ (7.60) $ (2.90) ======== ======== ======== ======== Diluted Before Cumulative Effect of Accounting Change $ (3.64) $ (0.36) $ (7.86) $ (3.01) Cumulative Effect of Accounting Change $ -- $ -- $ 0.26 $ 0.11 -------- -------- -------- -------- Net Earnings (Loss) per Common Share $ (3.64) $ (0.36) $ (7.60) $ (2.90) ======== ======== ======== ======== Shares Used for Computation (000) Basic 68,135 67,082 67,975 67,058 Diluted 68,135 67,082 67,975 67,058 US Airways Group, Inc. (Debtor and Debtor-In-Possession as of August 11, 2002) Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 2002 and 2001 (unaudited) (in millions) 2002 2001 ---- ---- Net cash provided by (used for) operating activities $(305) $ 226 Cash flows from investing activities Capital expenditures (123) (958) Proceeds from dispositions of property 81 6 Decrease (increase) in short-term investments 409 38 Decrease (increase) in restricted cash and investments (207) (1) Other 2 3 ----- ----- Net cash provided by (used for) investing activities 162 (912) Cash flows from financing activities Proceeds from the sale-leaseback of aircraft -- 344 Proceeds from issuance of long-term debt 149 538 Principal payments on long-term debt and capital lease obligations (67) (225) Sales of treasury stock -- 3 ----- ----- Net cash provided by (used for) financing activities 82 660 ----- ----- Net increase (decrease) in cash and cash equivalents (61) (26) ----- ----- Cash and cash equivalents at beginning of period 593 543 ----- ----- Cash and cash equivalents at end of period $ 532 $ 517 ===== ===== Noncash investing and financing activities Flight equipment acquired through issuance of debt $ 77 $ -- Capital lease obligation incurred $ -- $ 28 Supplemental Information Interest paid during the period, net of amount capitalized $ 154 $ 129 Income taxes paid (received) during the period $(171) $ (50) *** End of Issue No. 3 *** ------------------------------------------------------------------------- Peter A. 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