================================================================= US AIRWAYS BANKRUPTCY NEWS Issue Number 63 ----------------------------------------------------------------- Copyright 2004 (ISSN XXXX-XXXX) September 13, 2004 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- US AIRWAYS BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Geoff J. Bailey, Christopher G. Patalinghug, Frauline S. 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 ------------- [01103] HOW TO SUBSCRIBE TO US AIRWAYS BANKRUPTCY NEWS [01104] BACKGROUND ON US AIRWAYS' CHAPTER 22 FILING [01105] US AIRWAYS' TRANSFORMATION PLAN [01106] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 22 FILING [01107] US AIRWAYS II CHAPTER 11 DATABASE [01108] LIST OF US AIRWAYS GROUP'S 5 LARGEST UNSECURED CREDITORS [01109] LIST OF US AIRWAYS, INC.'S 30 LARGEST UNSECURED CREDITORS [01110] LIST OF PSA AIRLINES' 20 LARGEST UNSECURED CREDITORS [01111] LIST OF PIEDMONT AIRLINES' 20 LARGEST UNSECURED CREDITORS [01112] LIST OF MATERIAL SERVICES' 20 LARGEST UNSECURED CREDITORS [01113] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [01114] USAIR GRANTED COURT APPROVAL OF BRIDGE ORDERS [01115] ORGANIZATIONAL MEETING WITH US TRUSTEE TO FORM COMMITTEES [01116] DEBTORS' MOTION FOR AUTHORITY TO USE CASH COLLATERAL KEY DATE CALENDAR ----------------- 08/11/02 USAir I Voluntary Petition Date 11/04/02 USAir I Bar Date for filing Proofs of Claim 03/18/03 USAir I Joint Plan Confirmed 03/31/03 USAir I Emerges from Chapter 11 09/12/04 USAir II Voluntary Petition Date 09/__/04 Organizational Meeting with UST to form Committees 09/27/04 Deadline for filing Schedules of Assets and Liabilities 09/27/04 Deadline for filing Statement of Financial Affairs 09/27/04 Deadline for filing Lists of Leases and Contracts 10/02/04 Deadline to provide Utilities with adequate assurance 11/11/04 Deadline to make decisions about lease dispositions 12/11/04 Deadline to remove actions pursuant to F.R.B.P. 9027 01/10/05 Expiration of USAir II's Exclusive Plan Proposal Period 03/11/05 Expiration of USAir II's Exclusive Solicitation Period 09/11/06 Deadline for USAir II to Commence Avoidance Actions Bar Date for filing Proofs of Claim Against USAir II First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [01103] HOW TO SUBSCRIBE TO US AIRWAYS BANKRUPTCY NEWS ----------------------------------------------------------------- US AIRWAYS BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of US AIRWAYS BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. To continue receiving US AIRWAYS BANKRUPTCY NEWS, please complete the form below and return it by fax or e-mail to: Bankruptcy Creditors' Service, Inc. 572 Fernwood Lane Fairless Hills, PA 19030 Telephone (215) 945-7000 Fax (215) 945-7001 E-mail: peter@bankrupt.com We have published similar newsletters tracking billion-dollar insolvency proceedings since 1990, starting with Federated Department Stores. 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(and its Eddie Bauer and Newport News subsidiaries), Federal- Mogul, Hayes Lemmerz, Exide Technologies, National Century Financial Enterprises, Integrated Health Services, Mariner Post- Acute & Mariner Health, Reliance Group Holdings & Reliance Financial, The FINOVA Group, Inc., Loewen Group, and SK Global. ================================================================= [ ] YES! Please enter my personal subscription to US AIRWAYS BANKRUPTCY NEWS at US$45 per issue until I tell you to cancel my subscription. Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) US AIRWAYS BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtor's cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of US AIRWAYS BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [01104] BACKGROUND ON US AIRWAYS' CHAPTER 22 FILING ----------------------------------------------------------------- US Airways, together with its affiliates, operates the seventh largest airline in the United States. Through its mainline and commuter operations, it employs approximately 34,000 people in 37 states and the District of Columbia and is the second largest air carrier east of the Mississippi, where more than 60% of the U.S. population resides. It provides regularly scheduled airline service to close to 200 destinations across the United States and in Canada, Mexico, the Caribbean and Europe. US Airways carried approximately 54 million passengers during 2003. The Debtors have a fleet that includes approximately 282 mainline jets, as well as a growing regional jet fleet. On March 31, 2003, US Airways' Plan of Reorganization became effective and it emerged from Chapter 11 proceedings. At that time, the Company believed, and industry observers and analysts opined, that US Airways was well positioned to compete in the marketplace as the lowest cost "legacy carrier." Before emerging from Chapter 11, US Airways had examined every phase of its contracts and operations, and had wrung out mainline cost reductions approaching $2 billion per year. It had reduced labor costs by approximately $1.2 billion per year. It had reduced mainline capacity by approximately 10%, and had realigned its network to maximize its yield. It was implementing a business plan to use more (and larger) regional jets, and had the financing in place to acquire these aircraft. It had embarked on a program to expand its alliances with other carriers, including United Airlines, Lufthansa, and more recently, it entered the Star Alliance. Through its Chapter 11 reorganization, US Airways, with the assistance of this Court and all of US Airways' stakeholders, had effectively implemented all the cost reductions and had taken all of the affirmative business steps that it believed were necessary to compete against the other legacy carriers and return to profitability. US Airways' Performance Since Plan Confirmation According to Lawrence E. Rifken, Esq., at McGuireWoods, LLP, in McLean, Virginia, where a debtor is returning to Chapter 11 so soon after emerging under a confirmed plan, it is appropriate to question whether the debtor in fact implemented the elements of the plan, in the manner that it had promised under the plan. "A review of the US Airways' mainline financial projections contained in the plan as of March 2003, compared with the current status of the same data points, provides the answer to that important question." Plan Projections for 2004 Current Status ------------------------- -------------- Fleet Size 279 282 Capacity (available seat miles) 53,700,000 53,600,000 Revenue passenger miles 39,400,000 39,900,000 Cities served 87 86 Labor cost (per available seat mile) $0.042 $0.041 Load factor (mainline) 73.3% 74.4% Total cost (per available seat mile) (excl. fuel) $0.101 $0.100 Total operating expenses (excl. fuel) $5,237,000,000 $5,183,000,000 These facts demonstrate that with respect to the "controllable" aspects of running the airline, US Airways' mainline performance was entirely consistent with its plan. It flew the planned fleet, the planned number of miles, to the planned cities, at slightly under the planned costs (excluding fuel) with slightly more than the planned number of passengers. Why Didn't the Plan Succeed? Yet, Mr. Rifken notes, US Airways is now again before the Court, less than 18 months after it emerged from Chapter 11. "What happened?" Once again, the comparison of plan projections to current performance tells the story: Plan Projections for 2004 Current Status ------------------------- -------------- Fuel price (per gallon) $0.805 $1.105 (net of hedging) Passenger revenue (per available seat mile) $0.104 $0.095 Yield $0.141 $0.128 Total passenger revenue Domestic $4,974,000,000 $4,472,000,000 International $593,000,000 $642,000,000 As is apparent, Mr. Rifken says, there are two reasons why the plan didn't succeed -- higher fuel costs and lower domestic unit revenues. "It is beyond dispute that the timing of this Chapter 11 filing was accelerated by high fuel costs. In the absence of these extraordinarily high fuel costs, US Airways would not have been in potential breach of its key financing agreements, and it would have had enough cash to delay filing for Chapter 11. But high fuel costs do not present a long-term, fundamental competitive disadvantage to US Airways, and are neither the core of the problem nor an opportunity for a solution." US Airways is in the "middle of the pack" among all competitors on fuel issues. With approximately one-third of its fuel needs hedged for 2003 and 2004, it had neither the luxury of Southwest Airlines, which, with its "investment grade" credit rating, was able to hedge fuel costs without posting collateral, nor the full exposure to higher fuel costs of many other legacy carriers. Accordingly, while fuel prices accelerated the day of reckoning, it is the decline in domestic passenger unit revenues, not fuel prices, that is the central problem. The growth of low-cost carriers over the past 18 months, and their increase in pricing power in the domestic market, have had a profound structural impact on the airline industry. US Airways did not accurately anticipate the magnitude of this structural shift. For that matter, neither did its major financial partners, including the ATSB, Bank of America, Retirement Systems of Alabama, GE and the other stakeholders that all carefully vetted US Airways' financial projections. Similarly, all of the other legacy carriers failed to anticipate this shift and have continued to lose money -- none has implemented a business plan that has demonstrated sustainable profitability over this period. All published revenue projections for all legacy carriers, made during the period of US Airways' prior Chapter 11 case, have turned out to be wrong. Industry revenue is down, even though passenger travel is up. There is only one reason -- pricing. Although LCCs currently represent only about 26% of industry capacity, the LCCs have crossed the "tipping point" and have achieved pricing power in the general market as a result of their explosive growth. With their movement into new markets, and the growth of the Internet as a source of fare and scheduling information, they now establish price levels in most of the markets in which legacy carriers fly. The LCC's price fares at levels where they make money and the legacy carriers flying those same routes with higher costs lose money. Moreover, the LCCs are growing, while the legacy carriers are shrinking. If significant barriers to entry to the market existed, Mr. Rifken says, a simple solution would be for the legacy carriers just to charge higher fares for their tickets. In most markets, however, barriers to entry are minimal. If legacy carriers were to charge higher fares, they would merely accelerate the further growth of the LCCs. On June 3, 2004, the House Subcommittee on Aviation, of the Committee on Transportation and Infrastructure, held a hearing on the financial condition of the airline industry. The hearing charter noted that the airline industry has reported staggering losses from 2001 to 2003: From 2001 through 2003, the U.S. airline industry has reported net losses of $23.2 billion dollars, compounded by an additional $1.6 billion in the first quarter of 2004. This $24.8 billion shortfall exceeds the total profits earned over the entire six-year period 1995-2000. . . . The charter goes on to observe that during the 2001-2003 period, low-cost carriers outperformed legacy carriers, and in fact were the only carriers to remain profitable. The GAO reached similar conclusions in its August 11, 2004 report entitled "Legacy Airlines Must Further Reduce Costs to Restore Profitability." "Thus, in a relatively brief period of time, the low-cost carriers have taken pricing power away from the legacy carriers and the industry has been transformed. Now, US Airways must also transform. US Airways filed its Chapter 11 case to continue a process that started before the Chapter 11 filing -- a process to transform US Airways. US Airways continues to hope that it will be able to achieve the transformation on a largely consensual basis. But whether by consent or through judicial resolution, there is no other course available. Under its Transformation Plan, employees and other stakeholders will be asked to make the sacrifices necessary to compete in the new business environment. Transform or fail. It is that simple," Mr. Rifken says. A full-text copy of USAir's Supplemental Brief is available at no extra cost at: http://bankrupt.com/misc/USAir_Supplemental_Brief.pdf ----------------------------------------------------------------- [01105] US AIRWAYS' TRANSFORMATION PLAN ----------------------------------------------------------------- US Airways has a comprehensive plan to transform the airline to compete in the new environment. This model is based on a compilation of precedents from two competitors who have been successful in this environment -- Jet Blue and America West. While neither is perfect, or precisely like US Airways (and US Airways could not precisely emulate either), both competitors provide working examples of models that can succeed, and thus are instructive with respect to the goals of US Airways under the Transformation Plan. There are four elements of the Transformation Plan: (1) competitive pricing, (2) competitive product, (3) competitive scheduling and distribution, and (4) competitive costs. A. Competitive Pricing US Airways plans several changes to make its fares more competitive and more accessible. The starting point is a simplified fare structure, like those of the LCCs, with fewer variations involving advance purchase, peak/off-peak or Saturday night stay restrictions. Simplifying complex fares preserves ticket sales that would otherwise go to LCCs. Simplified fares also reduce many distribution costs, as reservation talk time falls; the sales department is freed from managing complex contracts intended to retain ever- shrinking high fares; airport processing delays and passenger complaints are reduced by eliminating change fees and rules. Customers increasingly trust online sales to get them the lowest fares. The coming changes in US Airways' pricing policy are symbolized by the GoFares(TM) program that the company launched in May in Philadelphia and in June in Washington, D.C., under which round-trip and Saturday night stay requirements were eliminated and the highest fares were reduced by some 40% to 60%. B. Competitive Product As part of the transformation, US Airways must improve the customer experience, investing capital in the product to make it more attractive to consumers. The transformation plan states that Airways will: (i) roll out a new Web site to enhance online ticket purchases and service Dividend Miles customer needs; (ii) add kiosks and gate readers at airports to enhance the efficiency and reduce costs of check-in and departure; (iii) reconfigure seats on aircraft; (iv) install state-of-the art in-flight entertainment systems to enhance the onboard flying experience and to compete more effectively with LCCs that already offer live television in coach class; and (v) refresh facilities at US Airways' Philadelphia terminal. C. Competitive Scheduling and Distribution US Airways plans a new hybrid model that involves: (i) increased point-to-point flying to large and medium- sized cities (including important business markets) from Boston, Washington National and LaGuardia airports; (ii) reorientation of Pittsburgh from a hub-and-spoke to a point-to-point model; (iii) maintaining Charlotte's hub-and-spoke service to smaller communities and to the Caribbean; and (iv) continued operation at Philadelphia as the core of US Airways' network, with both point-to-point domestic and international flights and hub-and-spoke service to smaller cities. The goal is to more efficiently serve the large non-stop markets that account for a significant portion of revenue, while maintaining connecting service to smaller destinations whose residents otherwise may have few flying choices. The schedule framework for the future is intended to focus on several distinct goals: * reducing concentration of operations during peak flying times ("de-peaking" operations) and refocusing on nonstop markets whose yields are higher than connecting flights; * increasing asset and employee productivity (through reduced turn time and increased aircraft utilization) to near LCC standards; * growing Philadelphia-Europe and hub traffic with the benefits of Star Alliance participation, while continuing Charlotte-Caribbean and hub service; * maximizing the value of gate and slot positions in the Northeast; * growing Boston, LaGuardia and Washington National service to important nonstop business markets; * reducing the redundancy of Pittsburgh hub connections with alternative system service; * reducing ticket distribution costs through the simplified fare structure, the point-to-point flying, and the use of the Internet; * growing the airline's mainline operations consistent with macro traffic trends; and * rebuilding US Airways' East Coast market share position to #1. Each of these goals has been further broken down to a specific set of tasks, with measurable and achievable objectives. Most of these tasks can be benchmarked against the standards achieved by US Airways' competitors. D. Competitive Costs Changes to US Airways' network, fare structure and product without other cost changes would cause the Company to lose even more money than it is losing now. The Transformation Plan calls for overall costs to be reduced to levels consistent with profitable carriers, with a goal of achieving CASM consistent with the average performance of America West and JetBlue. The most significant cost reductions must come in the labor area, where US Airways' cost structure is least competitive. The collective approach is for each work group to align itself to industry labor cost "best practices." No employee groups will be forced to subsidize another group's uncompetitiveness. US Airways will implement a pay and benefit scale for salaried and management employees consistent with those of its LCC competitors. For labor groups, restructuring will be necessary in pay, work rules and benefits to be cost competitive. How the Company achieves these labor cost reductions has already been and will be the subject of negotiations. Over six months ago, the Company informed its labor groups of the need to reduce labor costs to meet the LCC competition, then provided them with financial data about the Company, explained in detail its Transformation Plan, and proposed concrete changes to its collective bargaining agreements. The Company has pursued these negotiations with diligence and vigor. But the result, thus far, has been disappointing. Each labor group must achieve cost savings that make delivery of the product competitive with low-cost carriers. Each of these cost savings must be borne on a fair and equitable basis through pay cuts, changes in work rules resulting in increased productivity, and changes in benefits for current employees as well as retirees. In each case, the standard for establishing the amount of cost savings is defined by the competitive market. This is an audacious plan-to transform an old line legacy carrier into a carrier with the cost structure and culture of a modern low-cost carrier. No one else has done it yet, which raises some basic questions: 1. Why does the Company believe it is reasonable to ask for concessions of this magnitude? The competitors' employees are already providing service at these net levels, and they are successful doing so. There is an objective third party benchmark to accompany each element of our "ask," which already works successfully at one or more competitive airlines. If US Airways fails to transform, and if its employees were able to get new jobs with other airlines, their new jobs are likely to be at pay levels below what the Company is offering in its plan. 2. Why does the Company believe these changes are necessary? Quite simply, if these changes are not implemented, US Airways will fail as have Braniff, Eastern, Pan Am, TWA, and over one hundred smaller carriers before it. US Airways believes that it is far better to offer its current employees, as well as its retirees, and all other stakeholders, with some viable opportunity for the future, which they can accept or reject on an individual basis, than to stand by and witness an inevitable liquidation in which stakeholders do not have the choice of continuing to benefit from the airline at any level. 3. What if US Airways would obtain concessions from labor and then become profitable -- who would benefit? As part of the pre-Chapter 11 Transformation Plan, the Company proposed the most generous profit sharing program in the industry, with an unprecedented "first dollar sharing" feature. If US Airways could transform and succeed without another Chapter 11, all employees would share in the success, in the most direct way possible -- through more cash in their pockets. Of course, now that the Company is a Chapter 11 debtor, it does not retain total control over issues such as the division of the future profits, if any, of the enterprise. While US Airways remains committed to generous profit sharing, that aspect of the Transformation Plan now depends on a successful plan of reorganization. Lawrence E. Rifken, Esq., at McGuireWoods, LLP, in McLean, Virginia, observes that the airline marketplace has irreversibly changed. "Price competition from low-cost carriers is a permanent element of the new market, and the low-cost carriers are here to stay. Airlines that do not adjust to this new reality are doomed to fail." According to Mr. Rifken, there is bad news and good news in this story. The bad news is that US Airways' approximately 34,000 loyal and dedicated employees will be required to make substantial additional sacrifices if the carrier is going to survive. Of course, other constituencies will also have to make the sacrifices necessary to bring their costs to a competitive level. US Airways acknowledges and regrets that these changes will impose very real economic and human costs on its employees. Other stakeholders will also be adversely affected. US Airways intends to continue to negotiate constructively with all of its employees and stakeholders to work to find fair and effective solutions to its problems that result in a transformed, competitive airline. If those negotiations are unsuccessful with one or more group, US Airways intends to use the powers contained in the Bankruptcy Code to achieve a transformation to a competitive business. "The good news is that US Airways does not have to become another TWA, or Eastern, Pan Am or Braniff, in which virtually all jobs and benefits were lost. The path to success, while painful, is clear, simple and direct. US Airways has faith that its employees and other key stakeholders will choose to come along this path and participate in a transformed, competitive, successful airline," Mr. Rifken says. Pilots Are Disappointed Bill Pollock, Chairman of the Master Executive Council of the Air Line Pilots Association, relates that the union is very disappointed that US Airways has again filed for reorganization under Chapter 11. "This pilot group has already given more than 5 billion dollars worth of concessions to the Company to support previous restructuring efforts in the hope that US Airways would return to profitability," Mr. Pollock said in a statement posted on the ALPA Web site. After reviewing a proposal on Friday that the Company sent the Negotiating Committee for consideration, the MEC passed a motion redirecting resumed negotiations with the Company. Therefore, ALPA expects Transformation Plan negotiations with management to continue during the Company's reorganization. According to Mr. Pollock, MEC Comm Center will be reactivated Monday, September 13 through at least Wednesday, September 15 of this week. The telephone number is 800 USAIR MEC. Access to the Comm Center is restricted to US Airways pilots only and will be verified by Comm Center staff. The hours of operation are 10:00 a.m. to 4:00 p.m. Eastern Time. Flight Attendants Are Disgusted WASHINGTON, D.C. -- September 12, 2004 -- Flight attendants at US Airways today angrily rejected the company's latest attempt to force its employees to shoulder the full burden of its recovery. "We are not only disappointed with the company's latest proposal -- we are disgusted," said Perry Hayes, president of the Association of Flight Attendants-CWA Master Executive Council at the carrier. "The US Airways AFA MEC only agreed to enter these discussions if the company agreed to make improvements to the sick and reserve systems at the airline. The company's latest proposal shows that it had no intention of honoring that commitment." On September 10, US Airways put forward a number of onerous concessions, yet failed in many instances to provide the union with financial data necessary to evaluate them. Demands included: * An initial 15 percent across-the-board pay reduction. * An increase in flight and duty hours of well over 13 percent. * Draconian changes to work rules. * A profit-sharing program, the implementation of which is subject to unpredictable conditions being met in the future. * The elimination of post-retirement medical coverage, with grandfathering through age 65 (when Medicare is available) for current retirees. Future retirees would have to settle for a cash-out of accrued but unused sick leave at a fraction of its value. * A voluntary leave with no recall, offered in seniority order, for a cash-out payment so low that massive involuntary furloughs would be certain. "The proposal AFA received on Friday is a slap in the face to all the flight attendants at the airline," Hayes said. Flight attendants want US Airways to survive, he noted, but not at the cost of their own survival. More than 46,000 flight attendants, including the 5,200 flight attendants at US Airways, join together to form AFA, the world's largest flight attendant union. AFA is part of the 700,000 member strong Communications Workers of America, AFL-CIO. Visit us at http://www.afanet.org ----------------------------------------------------------------- [01106] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 22 FILING ----------------------------------------------------------------- USAir Seeks Court Protection Will Complete Restructuring & Transformation Plan Flight Schedules & Customer Programs Uninterrupted Focus On Competitive Costs Lower Fares Airline Will Use Cash from ATSB Loan ARLINGTON, Virginia -- September 12, 2004 -- US Airways Group, Inc. (Nasdaq: UAIR) today announced that the Company and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Company said that today's action will provide the nation's seventh-largest airline the opportunity to implement its Transformation Plan built on lower costs, a simplified fare structure, and expanded service in the eastern U.S., the Caribbean, Latin America and Europe. "We have devoted the last six months to building and implementing a Transformation Plan that leverages our strengths and allows us to compete successfully in a changing airline industry," said US Airways President and Chief Executive Officer Bruce R. Lakefield. "Since we still lack the new labor agreements that are needed for the Transformation Plan to succeed, we must preserve the Company's cash resources that are required to implement the Plan. We have made the difficult but necessary decision to complete this process with the help of the Court." Customers should notice no changes to flight operations or customer service programs because of the filing. The company intends to ask the Court to allow it to assume all key agreements related to its Dividend Miles program and the co-branded Bank of America/Dividend Miles credit card. In addition, employees will be paid and their benefits will continue, and the operation of www.usairways.com will be unaffected. Vendors will be paid in ordinary course for goods and services provided going forward. US Airways faced Sept. 30 covenant tests relating to its Air Transportation Stabilization Board (ATSB) loan. Additionally, expiring financing agreements with General Electric, Bombardier and Embraer, among others, required that the key elements of its Transformation Plan - including lower labor costs - be implemented by September 30. With cash obligations quickly coming due and the potential for defaults with some creditors imminent, the Chapter 11 filing became necessary to preserve cash and allow the Court to oversee the Company's continued restructuring, including reaching new labor agreements. Despite efforts undertaken for several months with its major work groups, the company was unable to reach out-of-court negotiated agreements. Lakefield said that US Airways has made tremendous strides since its emergence from Chapter 11 in March 2003, and that the key elements of that original plan, such as lower labor costs, the expansion of RJ flying, participation in the Star Alliance, and lower aircraft lease and vendor costs, all contributed to US Airways successfully securing a federal loan guarantee from the ATSB. The airline had already reduced annual operating expenses by almost $2 billion during its 2002-2003 restructuring, but the dramatic growth of low-cost carriers (LCCs), unabated fuel price increases and the public's demand for lower, simpler fares requires that the Company do more to achieve an even more competitive cost structure that is competitive to LCCs. As a result of these external factors, US Airways' 2004 fuel costs are expected to be approximately $300 million higher than envisioned in the confirmed plan of reorganization, and mainline passenger revenues are expected to be $450 million lower than forecast, as overall industry unit revenue continues to decline. "We are facing the difficult choices and the pressures that every legacy airline is going to be facing over the next several years," said Lakefield. "It is no fun being first, and we take no pleasure in asking our employees to make additional sacrifices. However, we have come too far and accomplished too much to simply stop the process and not succeed. With our strong position on the East Coast and our growing presence in Europe, the Caribbean and Latin America, our dedicated employees, and more than 4 million active Dividend Miles members, a restructured US Airways with low costs and low fares will be a dynamic competitor." The Company filed its petitions on Sunday afternoon in the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria. The Company's petitions listed assets of approximately $8.8 billion, including $2.5 billion of Goodwill, and liabilities of approximately $8.7 billion. The Court has scheduled a hearing on the Company's first day motions for 10:30 a.m. in Courtroom #1 at the Martin Bostetter, Jr. U.S. Courthouse. Information on the filing and related matters can be found at http://www.transformingusairways.com The Company has been operating with cash obtained from a $1 billion loan, $900 million of which was guaranteed by the ATSB. The ATSB and the other lenders (Retirement Systems of Alabama Holdings LLC (RSA) and Bank of America, N.A.) have agreed to authorize US Airways continued use of those funds. Therefore, in lieu of debtor-in-possession (DIP) financing, US Airways will have access to a portion of $750 million in cash - which serves as one component of the collateral supporting the ATSB loan - as working capital. The agreement between US Airways, the ATSB and the other lenders will be presented to the Court at Monday's hearing. In following bankruptcy procedures, a final order on operating cash would then be presented to the Court at a later date. The Company's current cash position is approximately $1.45 billion in cash, cash equivalents and short-term investments. The outstanding portion of the ATSB loan is $717.6 million. "We have made it clear to union leaders and employees that we must have competitive costs," said Lakefield. "Labor cost reductions, including participation by senior management, are no exception. We are committed to reaching new labor agreements consensually because that is always in the best interest of all parties, but if not, we will need to consider the other alternatives provided for under the law." Lakefield added that while the employee sacrifices are difficult, they are necessary in the changing airline industry, where low costs and low fares are proving to be the most successful business formula. "Our employees continue to do an outstanding job for this airline and for our customers," said Lakefield. "We have spent a tremendous amount of time on this Transformation Plan because we want our loyal and dedicated employees to continue to have a company and a career at US Airways. The alternative is to have these jobs exported to a new generation of low-cost airlines, where any employees hired would start at entry-level wages and without seniority," said Lakefield. The Company's Transformation Plan is built on several aspects of proven success in the airline industry, beyond the necessary lower labor costs. Those include: * Lower, simplified pricing and lower distribution costs. US Airways has already taken steps to simplify its fares by introducing its GoFares pricing plan in many markets served from Philadelphia, Washington, D.C., and Fort Lauderdale, and has stated its intent to expand that pricing plan across its system in conjunction with achieving lower costs. A redesigned Web site and more airport technology will also lower distribution costs, enhance customer service and improve airport processing. * Enhanced low-cost product offering. US Airways customers will continue to benefit from many product offerings that are unique among low-cost carriers, including two-class service, international flights to Europe, the Caribbean, Latin America and Canada, service to airports that business travelers prefer, access to a global network via the Star Alliance, a premium frequent flyer program and competitive onboard service. * Network enhancements. Leveraging its strong positions in the major markets of Boston, New York, Philadelphia and Washington, D.C., US Airways intends to use its airport slot and facilities assets to offer nonstop service to more major business and leisure destinations. * Lower operating costs. In conjunction with more point-to- point flying, the airline will fly its fleet more hours per day as it decreases the time aircraft sit on the ground at hubs, waiting for connecting passengers. US Airways is the nation's seventh-largest airline, serving nearly 200 communities in the U.S., Canada, Europe, the Caribbean and Latin America. US Airways, US Airways Shuttle and the US Airways Express partner carriers operate over 3,300 flights per day. For more information on US Airways flight schedules and fares, contact US Airways online at http://www.usairways.com or call US Airways Reservations at 1-800-428-4322. As part of the Company's timetable to emerge from Chapter 11 reorganization, US Airways intends to file its disclosure statement and plan of reorganization by the end of this year. There has been no determination as to whether the Company's existing equity securities will be preserved in any such plan of reorganization, and there can be no assurance at this time as to what values, if any, will be ascribed to 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. Investors and other interested parties can monitor the progress of the reorganization via the Internet at http://www.transformingusairways.com In addition, the investor relations section of the Company's Web site can be accessed under the "about US Airways" section of http://www.usairways.com ----------------------------------------------------------------- [01107] US AIRWAYS II CHAPTER 11 DATABASE ----------------------------------------------------------------- Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- US Airways, Inc. 04-13819 US Airways Group, Inc. 04-13820 PSA Airlines, Inc. 04-13821 Piedmont Airlines, Inc. 04-13822 Material Services Company, Inc. 04-13823 Chapter 11 Petition Date: September 12, 2004 Court: Eastern District of Virginia (Alexandria) Judge: Stephen S. Mitchell Debtors' Counsel: Lawrence E. Rifken, Esq. Douglas M. Foley, Esq. Daniel F. Blanks, Esq. John H. Maddock, III, Esq. Joseph S. Sheerin, Esq. McGuireWoods LLP 1750 Tysons Boulevard, Suite 1800 McLean, VA 22102-3915 Tel: 703-712-5000 Fax: 703-712-5250 - and - Brian P. Leitch, Esq. Daniel M. Lewis, Esq. Michael J. Canning, Esq. Arnold & Porter LLP 370 Seventeenth Street, Suite 4500 Denver, Colorado 80202 Tel: (303) 863-1000 - and - 555 Twelfth Street, NW Washington, D.C. 20004 Tel: (202) 942-5000 - and - 399 Park Avenue New York, New York 10022 Tel: (212) 715-1000 Total Assets Total Debts ------------ ----------- US Airways Group, Inc. $8,805,972,000 $8,702,437,000 US Airways, Inc. $8,606,323,000 $8,600,458,000 PSA Airlines, Inc. $10 M to $50 M $10 M to $50 M Piedmont Airlines, Inc. More than $100 M $50 M to $100 M Material Services Company, Inc. $10 M to $50 M $10 M to $50 M ----------------------------------------------------------------- [01108] LIST OF US AIRWAYS GROUP'S 5 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ Embraer - Empresa Future Aircraft $1,465,218,623 Brasileira De Aeronautica SA Commitments 12 227-901 Sao Jose Dos Campos - SP Brazil Bombardier Inc. Bombardier Future Aircraft $947,998,195 Aerospace Regional Aircraft Commitments 123 Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 AVSA, S.A.R.L. Future Aircraft $88,000,000 2, Rond-Point Maurice Commitments Bellonti 31700 Blagnac, France General Electric Company, Future Aircraft $57,083,950 acting through its Aircraft Commitments Engines Divisions (2) One Neumann Way - F17 Cincinnati, OH 45215-1988 United Technologies Accounts Payable $1,211,353 Corporation Pratt & Whitney Division 400 Main Street E. Hartford, CT 06108 ----------------------------------------------------------------- [01109] LIST OF US AIRWAYS, INC.'S 30 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ GE Capital Corporation Debt $149,754,160 C/O GE Capital Aviation Services 201 High Ridge Road Stanford, CT 06927 GE Engine Services, Inc. Debt and Accounts $129,448,218 1 Neumann Way Payable MD F112 Cincinnati, OH 45215 Electronic Data Accounts Payable $16,411,439 Systems Corporation 5400 Legacy Drive H1-3F-43 Plano, TX 75024 Sabre, Inc. Accounts Payable $6,539,579 3150 Sabre Drive, MD 8311 Southlake, TX 76092 Worldspan Accounts Payable Airline Sales and Marketing $4,111,644 300 Galleria Parkway, NW Suite 400 Atlanta, GA 30339 Philadelphia International Accounts Payable $4,061,362 Airport Terminal E Philadelphia, PA 19153 Amadeus USA Accounts Payable $3,306,715 9250 NW 36th Street Ac53 Miami, FL 33178 Rolls Royce, Inc. Accounts Payable $2,994,369 P. O. Box 31 Derby, DE24 8BJ United Kingdom Charlotte Douglas Accounts Payable $2,832,686 International Airport P.O. Box 19066 Charlotte, NC 28219 Galileo - Cedant Corporation Accounts Payable $2,686,783 9700 West Higgins Road Rosemont, IL 60018 LSG Skychefs Accounts Payable $2,616,713 P.O. Box 7247-6009 Philadelphia, PA 19170-6009 Transportation Security Accounts Payable $2,224,081 Administration 614 Frelinghuysen Avenue Newark, NJ 07114 Eurocontrol (Belgium) Accounts Payable $1,726,315 Rue de la Fusee 96 Bruxelles B1130 Belgium The Port Authority of Accounts Payable $1,542,333 NY & NJ LaGuardia Airport Flushing, NY 11371 American Express Accounts Payable $1,300,000 3 World Financial Center 200 Vessey Street Maildrop 01-42-04 New York, NY 10285 Allegheny County Accounts Payable $1,143,644 Airport County of Allegheny Pittsburgh International Airport Landslide Terminal Suite 4000 P.O. Box 12370 Pittsburgh, PA 15231 Massachusetts Port Accounts Payable $972,685 Authority P.O. Box 5853 Boston, MA 02206 Gate Gourmet Accounts Payable $867,321 Amsterdam BV P.O. Box 7528 Schiphol East 0 1117 ZG Netherlands The Boeing Company, Accounts Payable $828,706 Commercial Aircraft Division P. O. Box 3707 MS 6X UI Seattle, WA 98124 Primeflight Aviation Accounts Payable $826,922 Services, Inc. 7135 Charlotte Park Nashville, TN 37209 Navitaire Inc. Accounts Payable $797,874 901 Marquette Ave Suite 600 Minneapolis, MN 55402-3210 NAAS Accounts Payable $796,000 111 W. Sunrise Hwy Freeport, NY 11520 McCann Relationship Accounts Payable $700,000 (MRM) 622 Third Avenue New York, NY 10017 Metropolitan Accounts Payable $695,748 Washington Airports Authority Washington National Airport Washington, DC 20001 Air General Accounts Payable $600,000 One Intercontinental Way Peabody, MA 01968 Huntleigh USA Corporation Accounts Payable $524,239 1704 Paysphere Circle Chicago, IL 60674 Fleet Business Credit Administrative Claim $487,000 As agent for Loan From Previous Participants Bankruptcy Case c/o Vedder Price Kaufman 222 N. Lasalle St, Ste. 2600 Chicago, IL 60601-1003 Coca Cola USA Accounts Payable $363,050 P.O. Box 75890 Charlotte, NC 28275 Honeywell International Inc. Accounts Payable $326,697 101 Columbia Road Morristown, NJ 07962 Hamilton Sundstrand Accounts Payable $318,023 Headquarter One Hamilton Road Windsor Lock, CT 06096-1010 ----------------------------------------------------------------- [01110] LIST OF PSA AIRLINES' 20 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ Anthem Blue Cross Accounts Payable $215,134 Blue Shield Standard Aero Accounts Payable $175,056 GE Engine Services Accounts Payable $172,516 Distribution, LLC (2) Giliberti, Inc. Accounts Payable $75,075 Composite Specialties, Inc. Accounts Payable $65,888 AAR Aircraft Component Accounts Payable $58,729 Services Aviall, Inc. Accounts Payable $54,642 Tri-Cities Airport Accounts Payable $52,167 Commission Thales Avionics, Inc. Accounts Payable $42,421 Metropolitan Knoxville Accounts Payable $39,797 Airport-Authority Holiday Inn Accounts Payable $39,037 Dayton Airport Hotel Accounts Payable $32,969 Castle Aviation, Inc. Accounts Payable $29,930 Gearbuck Aviation Services Accounts Payable $29,461 Anthony Business Forms Accounts Payable $28,845 Four Points Barcelo Accounts Payable $28,394 Hotel Pittsburgh Ramada Hotel Airport - Accounts Payable $22,563 Montreal Avcraft Aerospace GmbH Accounts Payable $22,430 Jeppesen Sanderson, Inc. Accounts Payable $22,044 Honeywell - NJ Accounts Payable $20,353 ----------------------------------------------------------------- [01111] LIST OF PIEDMONT AIRLINES' 20 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ Pratt & Whitney Canada, Inc. Accounts Payable $1,183,899 1000 Marie-Victorin Longueuil, Quebec J4G1A1 Canada Bombadier Aeorspace, Accounts Payable $511,733 Canadair Ops Center Accts Payable Dept 620 P.O. Box 6087 Station Centre-Ville Montreal, Quebec H3C3G9 Canada Bombadier Services Corp Accounts Payable $450,083 3959 Collections Center Drive Chicago, Illinois 60693 Bombadier Aerospace - Accounts Payable $125,156 West Virginia Air Center WASP, Inc. Accounts Payable $119,651 Honeywell International, Inc. $67,399 Piedmont Aviation Accounts Payable $60,206 Component Services PPG Industries, Inc. Accounts Payable $57,745 Cognisa Security, Inc. Accounts Payable $51,641 Honeywell Inc. Accounts Payable $50,406 Treasurer Monroe County Accounts Payable $48,141 Airport Authority Honeywell International Accounts Payable $42,625 Bortek Industries, Inc. Accounts Payable $39,470 Alleghany County Accounts Payable $37,394 Airport Authority Aviall Accounts Payable $34,377 Ikon Office Solutions Accounts Payable $32,851 City of Syracuse, Accounts Payable $32,495 Department of Aviation Express Catering Inc. Accounts Payable $31,422 Roanoke Regional Accounts Payable $30,924 Airport Commission Inair Aviation Services Accounts Payable $29,065 ----------------------------------------------------------------- [01112] LIST OF MATERIAL SERVICES' 20 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ Stevens Aviation, Inc. Accounts Payable $23,099 FBO Avcenter Accounts Payable $21,893 Jacksonville Flying Accounts Payable $20,088 Services, Inc. Phoenix Metal Products Inc. Accounts Payable $18,672 Asheville Jet Center Accounts Payable $17,130 Penn State University Accounts Payable $12,501 Tac Air Accounts Payable $12,349 First Air Accounts Payable $8,721 Irving Oil Terminals Accounts Payable $8,509 Air Wilmington, Inc. Accounts Payable $8,049 White Crown Aviation Accounts Payable $7,578 FBO Avecenter Accounts Payable $7,492 Montgomery Aviation Accounts Payable $7,293 Sowell Aviation Co., Inc. Accounts Payable $5,509 Mercury Air Center Accounts Payable $5,060 Carolina Air Center Accounts Payable $4,701 Pitt-Greenville Airport Accounts Payable $4,161 Authority Maine Instrument Flight Inc. Accounts Payable $3,858 Tri-City Aviation, Inc. Accounts Payable $3,810 Raytheon Aircraft Accounts Payable $3,024 Services, Inc. ----------------------------------------------------------------- [01113] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES ----------------------------------------------------------------- Brian P. Leitch, Esq., at Arnold & Porter, LLP, in Denver, Colorado, states that US Airways Group is a holding company that owns more than 20 percent of each of the four Affiliate Debtors: -- US Airways, Inc., -- Piedmont Airlines, Inc., -- PSA Airlines, Inc., and -- Material Services Company, Inc. Pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, the five 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. Mr. Leitch asserts that joint administration of the Debtors' estates will be less expensive and more efficient than separate administration. Joint administration will permit the Clerk of the Court to use a single, general docket for the Debtors' cases and to combine notices to creditors and other parties-in- interest. The Debtors anticipate that numerous notices, applications, motions, other pleadings, and orders, as well as hearings and other proceedings, will affect several or all of the Debtors, translating into voluminous paperwork. Mr. Leitch points out that joint administration of the Debtors' estates will 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 filed and served in the Debtors' bankruptcy cases; and (b) file documents in one of the Debtors' bankruptcy cases rather than in multiple cases. However, schedules of assets and liabilities, statements of financial affairs, and proofs of claims will be captioned and filed in each of the Debtors' separate cases. Creditors' rights will not be adversely affected by joint administration of these cases because it will purely be procedural and will not affect any party's substantive rights. Each creditor and party-in-interest will maintain its claims, interests, or other rights against a particular Debtor and that Debtor's estate. The Debtors ask Judge Mitchell to direct 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. 04-23819 US AIRWAYS, INC., et al., ) Jointly Administered ) Chapter 11 ) Debtors. ) Hon. Stephen S. Mitchell ) ) Mr. Leitch asserts that use of this simplified caption, without reference to the Debtors' states of incorporation and tax identification numbers, will eliminate cumbersome and confusing procedures and ensure a uniformity of pleading identification. ----------------------------------------------------------------- [01114] USAIR GRANTED COURT APPROVAL OF EMERGENCY BRIDGE ORDERS ----------------------------------------------------------------- ARLINGTON, Virginia -- September 12, 2004 -- US Airways Group, Inc. (Nasdaq:UAIR) announced that the U.S. Bankruptcy Court entered a series of "bridge" orders on Sunday evening, which will assure routine operations while the Court hears the Company's first day motions on Monday, Sept. 13, 2004. Under the interim relief granted by the Court, US Airways received permission to, among other things: * Pay employee wages and continue benefits, such as medical and dental insurance. * Honor pre-petition obligations to customers and continue customer programs including US Airways' Dividend Miles program. * Pay for fuel under existing fuel supply contracts, and honor existing fuel supply, distribution and storage agreements. * Assume contracts relating to interline agreements with other airlines. * Pay pre-petition obligations to foreign vendors, foreign service providers and foreign governments. * Continue maintenance of existing bank accounts and existing cash management systems. The Company filed its Chapter 11 petitions in the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria. The Honorable Stephen Mitchell has been assigned to the case. A hearing on the Company's first day motions has been scheduled before Judge Mitchell at 10:30 a.m. on Sept. 13, in Courtroom #1 at the Martin V. B. Bostetter, Jr., United States Courthouse in Alexandria. The case number is 04-13819. "We are very pleased that the Court has granted this important relief with respect to our employees, customers and vendors, which ensures the seamless launch of our restructuring under Chapter 11," said Bruce Lakefield, US Airways president and chief executive officer. "We look forward to the Court's timely consideration of our full slate of first-day orders at tomorrow's hearing." Lakefield said customers should notice no changes to flight operations or customer service programs because of the filing. All bookings will be honored, and ticketing policies are unchanged. Existing marketing partnerships with other airlines remain in place. Vendors will be paid in ordinary course for provided goods and services going forward. In the future, if there are any changes to schedules or policies, they will be announced in advance. US Airways is the nation's seventh-largest airline, serving nearly 200 communities in the U.S., Canada, Europe, the Caribbean and Latin America. US Airways, US Airways Shuttle and the US Airways Express partner carriers operate over 3,300 flights per day. For more information on US Airways flight schedules and fares, contact US Airways online at http://www.usairways.com or call US Airways Reservations at 1-800-428-4322. Interested parties can monitor the progress of the reorganization via the Internet at http://www.transformingusairways.com ----------------------------------------------------------------- [01115] ORGANIZATIONAL MEETING WITH US TRUSTEE TO FORM COMMITTEES ----------------------------------------------------------------- The United States Trustee for Region IV will contact each of USAir's largest unsecured creditors at the addresses provided by the Debtors to invite them to an organizational meeting for the purpose of forming one or more official committees of unsecured creditors. Official creditors' committees, constituted under 11 U.S.C. Sec. 1102, ordinarily consist of the seven largest creditors who are willing to serve on a committee. Those committees have the right to employ legal and accounting professionals and financial advisors, at the Debtors' expense. They may investigate the Debtors' business and financial affairs. Importantly, official committees serve as fiduciaries to the general population of creditors they represent. Those committees will also attempt to negotiate the terms of a consensual chapter 11 plan -- almost always subject to the terms of strict confidentiality agreements with the Debtors and other core parties-in-interest. If negotiations break down, the Committee may ask the Bankruptcy Court to replace management with an independent trustee. If the Committee concludes reorganization of the Debtors is impossible, the Committee will urge the Bankruptcy Court to convert the chapter 11 cases to a liquidation proceeding. Typically, the U.S. Trustee convenes the organizational meeting within a week to 10 days following the commencement of a chapter 11 case. Creditors who do not send a representative to the organizational meeting typically are not appointed. Contact the U.S. Trustee at (703) 557-7176 to ascertain the time, date and place of this meeting. Immediately following the U.S. Trustee's determinations about how many official committees will be appointed and who will be appointed to each committee, the newly formed committees convene their initial meeting. The first order of business is to listen to the U.S. Trustee explain the powers and duties of the committee as a whole and members' individual responsibilities. The Committee will generally elect a chairman. Thereafter, the Committee typically conducts beauty pageants to select their legal and financial advisors. ----------------------------------------------------------------- [01116] DEBTORS' MOTION FOR AUTHORITY TO USE CASH COLLATERAL ----------------------------------------------------------------- To finance their first exit from chapter 11, US Airways obtained a $1 billion term loan from a consortium of lenders. Under the Air Transportation Safety and System Stabilization Act, the Air Transportation Stabilization Board guarantees $900 million of that loan. The ATSB Loan is guaranteed by each of the Debtors. The ATSB Loan is also secured by substantially all of USAir's otherwise unencumbered assets. The Original Loan Agreement has been amended four times, on December 18, 2003, March 12, 2004, May 21, 2004, and June 30, 2004. The Debtors owe $717,567,888 under the ATSB Loan. The Tranche A Lenders are owed $645,811,099 and $71,756,789 is owed to the Tranche B Lenders. The Tranche B Lenders are Bank of America, N.A. (which funded $25 million of the Tranche B Loan) and Retirement Systems of Alabama Holdings LLC (which funded $75 million). To continue operating its business in chapter 11, US Airways needs continued working capital financing. Virtually all of the company's cash and cash equivalents are pledged to secure repayment of the prepetition ATSB Loan. The Debtors do not contest the validity of the Lenders' liens. Without Court permission to continue using the Lenders' Cash Collateral, the Debtors will be unable to continue operation of their businesses. The Lenders have given their consent to limited, continued use of the Cash Collateral. BACK Aviation Solutions says that the fair market value of the assets as of December 31, 2003, was: Fair Market Collateral Value ---------- ----------- Airport Slots $355,200,000 Aircraft and Engines 185,000,000 Ground Service Equipment 31,500,000 Spare Parts Inventory 133,700,000 Flight Simulators 36,500,000 Real Property 10,400,000 Airport Gate Leaseholds 97,900,000 ------------ Total $850,200,000 American Appraisal Associates, Inc., values the assets at fair market value and in a distressed scenario, as of September 3, 2004, at: Fair Market Distressed Collateral Value Value ---------- ----------- ---------- Airport Slots $462,200,000 $346,700,000 Aircraft and Engines 160,600,000 121,400,000 Ground Service Equipment 38,200,000 13,600,000 Spare Parts Inventory 154,300,000 61,700,000 Flight Simulators 30,700,000 20,800,000 Real Property 8,500,000 8,000,000 Airport Gate Leaseholds 28,800,000 14,700,000 ------------ ------------ Total $883,300,000 $586,900,000 The Debtors' Cash Collateral consists of: $259,060,000 of high-grade commercial paper issued by domestic corporations with maturities of less than 90 days and by issuers that at the time of acquisition had a Standard & Poor's rating of at least A-1 or a Moody's rating of at least P-1; 329,200,000 of United States Treasury bills with maturities of less than 90 days; 2,622,000 in shares of money market mutual funds registered with the SEC, guaranteeing same-day liquidity and with net assets of over one billion dollars; and 159,471,000 in deposit accounts. ------------ $750,353,000 The Debtors tell Judge Mitchell that under any scenario, the Lenders are overcollateralized and adequately protected. Even to the extent that the Debtors are authorized to use some portion of the Cash Collateral, the Debtors say, a substantial portion of the Cash Collateral will remain unused. The Debtors assure the Court that there is virtually no risk of a decline in value for that portion of the Cash Collateral because it is either cash or highly liquid and secure investments with short-term maturities. To make the Lenders even more comfortable, the Debtors propose to grant the Lenders postpetition replacement liens. The Debtors' use of Cash Collateral is appropriate, Brian P. Leitch, Esq., at Arnold & Porter, LLP, argues, and USAir should be authorized under Section 363(c)(2) of the Bankruptcy Code, which provides that the Debtors may use, sell or lease cash collateral if "(A) each entity that has an interest in such cash collateral consents; or (B) the court, after notice and hearing, authorizes such use, sale, or lease in accordance with the provisions of this section." In order to use cash collateral in accordance with Section 363(2)(B) of the Bankruptcy Code in situations where the collateral holders do not consent, the Debtors are required to provide each party with an interest in the cash collateral, to the extent applicable, adequate protection for such use of cash collateral, as contemplated by Section 361 of the Bankruptcy Code. In these cases, Mr. Leitch stresses, the parties that have an interest in and would be potentially affected by the Debtors' use of Cash Collateral are the Lenders and the ATSB. All of these parties have consented to the financing arrangement. The Debtors sought and obtained overnight authority from Judge Mitchell to use the Lenders' Cash Collateral through the conclusion of a First Day Hearing at 10:30 a.m. on Monday, Sept. 13, 2004. At that First Day Hearing, the Debtors will present Judge Mitchell with an Interim Cash Collateral Order continuing their authority to use the Lenders' cash collateral through October 14, 2004. The Debtors anticipate that these cash collateral orders will carry them into January 2005. The Debtors agree to restrict their use of the Cash Collateral to payments for the ordinary and reasonable expenses of operating their businesses, including, without limitation, payroll and benefit expenses, aircraft and engine debt and lease payments, purchase of fuel and supplies, government security and inspection fees, advertising, utility services, payroll taxes, insurance, supplies and equipment (excluding the purchase or other acquisition of aircraft), vendor and supplier services, and other expenditures as are necessary for operating their businesses, and to make payments required under other typical First Day Orders. Additionally, the Debtors agree to maintain Unrestricted Cash Balances of no less than: At the Close of Business Friday Minimum Cash Balance ------------------------------- -------------------- Week Ended 09/17/04 $600,000,000 Week Ended 09/24/04 $600,000,000 Week Ended 10/01/04 $550,000,000 Week Ended 10/08/04 $575,000,000 Week Ended 10/15/04 $585,000,000 The Lenders are represented in this matter by: Robert Coulter, Esq. Assistant United States Attorney Civil Division - and - U.S. Department of Justice Andrea Horowitz Handel, Esq. Brendan Collins, Esq. U.S. Department of Justice in Washington P. O. Box 875 Ben Franklin Station Washington, D. C. 20044 (202) 307-0358 Steven J. Reisman, Esq. Daniel R. Lenihan, Esq. CURTIS, MALLET-PREVOST, COLT & MOSLE LLP 101 Park Avenue New York, New York 10178-0061 (212) 696-6000 Attorneys for the ATSB as Government Guarantor of the Tranche A Loans David S. Walls, Esq. David L. Eades, Esq. Stephen E. Gruendel, Esq. MOORE & VAN ALLEN, PLLC 100 North Tryon St., 47th Floor Charlotte, N.C. 28202 (704) 331-1000 - and - Monique D. Almy, Esq. Steven Tave, Esq. SWIDLER BERLIN FRIEDMAN, LLP The Washington Harbour 3000 K Street, NW, Suite 300 Washington, DC 20007 (410) 685-1120 Attorneys for the Collateral Agent, the Agent, and Bank of America as a Tranche B Lender Retirement Systems of Alabama Holdings LLC 135 South Union Street Montgomery, Alabama 36104 *** End of Issue No. 63 ***