US Airways POR Q&A

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US Airways Plan of Reorganization Q & A - December 20, 2002


What is the significance of the company’s Disclosure Statement and Plan of Reorganization?

This filing is essentially the blueprint for the steps we need to complete to emerge from Chapter 11 protection, and how the company will be restructured. The filing begins the formal emergence process from Chapter 11 which will include a hearing on the adequacy of the Disclosure Statement on Jan. 16, 2003, solicitation of votes from creditors beginning in late January and continuing until early March, and a confirmation hearing on the Plan in late March followed by emergence from Chapter 11 upon consummation of the Plan.
Why did US Airways file a reorganization plan without ratified agreements by all labor groups for the additional cost savings the company says it needs to obtain final approval of the ATSB loan guarantee?
The reorganization process requires various disclosures and approvals, and the company is adhering to a timeline that will permit emergence from Chapter 11 as early as the end of March 2003. The Plan assumes that the additional cost savings will be realized. ALPA has ratified its agreement. The AFA, CWA, IAM and TWU have all approved tentative agreements and will now conduct expedited ratification so that their membership can approve the agreements prior to the Jan. 16 hearing on the adequacy of the Disclosure Statement.

What happens if any of the tentative agreements are not ratified?

The ultimate success of the Plan of Reorganization filed with the Bankruptcy Court on Dec. 20 depends on:
Obtaining final approval of the federal loan guarantee from the ATSB and funding of the $1 billion ATSB exit financing package Closing on the investment agreement with RSA and funding of its $240 million investment.

Obtaining ratification of the tentative agreements with our union groups and implementing the additional labor cost savings in those agreements. Resolving our pension situation so that the pension funding requirements with respect to our employee defined benefit pension plans are consistent with the business plan.
Just like labor, management has stepped up with additional cost savings. Quick ratification of the tentative agreements reached with the CWA, TWU, IAM and AFA is critical to our successful reorganization.

How much is the company's pension liability and how does this affect US Airways' ability to obtain final approval?

The company has an unfunded liability estimated at $3.1 billion over the next seven years and must resolve this issue to satisfy the requirements of the ATSB. The company continues to explore options to lower its pension expense. Resolution of our pension situation is a condition to the completion of our Plan of Reorganization because the business plan submitted to the ATSB and RSA assumes a solution to the pension liability issue.
What about the liquidation analysis included in the Plan? Does this mean the company is going to liquidate?

The Plan lays out a clear vision for emergence from Chapter 11 protection. The filing includes a detailed liquidation analysis – which is a required element of the Disclosure Statement under the Bankruptcy Code – to demonstrate that the airline’s creditors and the overall value of the company’s estate would be better served if US Airways completes a successful restructuring and remains an on-going enterprise, rather than liquidate.
What are the next steps in the recovery plan? What will happen at the Jan. 16 hearing? Is the company still on track to emerge by the end of March 2003?
At a hearing on Jan. 16, 2003, the court will rule on the adequacy of the Disclosure Statement, which sets out the terms of the company's Plan of Reorganization. Once the court determines that the Disclosure Statement is adequate, it will be mailed to US Airways’ creditors along with a ballot. When the plan is approved by our creditors and confirmed by the bankruptcy court, that will clear the way for US Airways to emerge from Chapter 11 protection.

How many board seats will there be and how will they be allocated?

Upon confirmation of the Plan of Reorganization, a newly reconstituted 15-member board of directors will be appointed to include eight nominees selected by RSA, four representatives of US Airways' union groups (ALPA, IAM, AFA/TWU, and CWA), President and CEO Dave Siegel, and two nominees by the company in consultation with the Committee of Unsecured Creditors.
Who will be chairman and how will that person be selected?

Once the new Board is in place, the members will elect a chair. The new board assumes its duties on the effective date of the Plan, which will be determined by the Bankruptcy Court.


Will current shareholders receive any value for their stock?
Under the terms of the Plan, the existing US Airways stock will be cancelled, without any distribution of new stock to existing holders. Therefore, investment in US Airways stock is highly speculative and we urge investors to use caution in existing and future investments. If investors have further questions, we suggest they speak to a financial advisor or their own legal counsel.

Why doesn’t the plan provide anything for current shareholders?
In a Chapter 11 case, creditors take precedent over equity holders. The focus of the U.S. Bankruptcy Code is to protect stakeholders according to an absolute priority rule which requires that secured and unsecured creditors would have to be made whole before any new stock could be distributed to existing stockholders. In this case, the plan does not provide for 100 percent recovery by creditors.
How much new stock will there be and how will it be allocated?
New common stock will be issued in two classes. There are 51.1 million shares of Class A common stock and 5.0 million shares of Class B common stock. The allocation is as follows:
Retirement Systems of Alabama, which will invest $240 million in US Airways upon its emergence from Chapter 11, will hold 36.6 percent of the Class A shares and all of the Class B shares
Unsecured creditors: 10.5 percent of the Class A shares

The ATSB: 10.0 percent of the Class A shares
General Electric: 5.0 percent of the Class A shares
Members of the Air Line Pilots Association: 19.3 percent of the Class A shares
Other employees: 10.8 percent of the Class A shares

Management: 7.8 percent of the Class A shares

What will unsecured creditors receive as payment for their claims?
Holders of allowed general unsecured claims (including vendors and bondholders) will receive Class A common stock and Class A-1 warrants in the reorganized company, but the amount of stock for each creditor, and the overall percentage of repayment for each claim is still to be determined. It is estimated that the recovery for general unsecured creditors will be from 1.6 to 2.0 percent of the allowed claim. Holders of allowed secured and priority claims are expected to receive the full amount of their claims.

Customer Issues

Should customers be concerned about their tickets or Dividend Miles?
The filing does not affect our day-to-day business and operations – in fact, the filing lays the groundwork for normal operations after emergence from Chapter 11. Just as they have throughout this process, customers will continue to book flights, travel and accrue and redeem Dividend Miles as usual. We firmly believe that the professionalism of our employees and our industry-leading customer service standards have demonstrated our company-wide commitment to our successful restructuring.
How does United's bankruptcy filing affect your plans for code-sharing?

Our marketing partnership with United is moving forward as planned and our first code-share flights are already being sold for flights in early January.

Does the plan project further mainline capacity cut backs or route reductions?
The company has committed to maintaining its mainline fleet at the current 279 aircraft. We do not plan to shrink the airline further, and, in fact, with the addition of several hundred regional jets over the next several years, we will be looking at how we can upgrade or expand service.
Do you still plan on joining the Star Alliance?

Yes. Our agreement with United provides for support in joining the Star Alliance, and we intend to seek membership in 2003.

Regional Jets

What is your plan for financing and deploying more regional jets?
In the short-term, we have agreements with Chautauqua, Mesa and Midway to expand regional jet flying in 2003 as US Airways Express carriers. Once we emerge from Chapter 11 protection, we will be in a position to take delivery of regional jets at MidAtlantic Airways, as well as our wholly-owned regional carriers. The elimination of the entire turbo-prop fleet of the Express carriers is to be completed by the end of 2008.

What is the status of MidAtlantic Airways and when will it begin flying?
MidAtlantic will now be a division of US Airways based on the new agreements reached with labor groups in December. As before, furloughed employees from all work groups will be offered positions at MidAtlantic, but by making it a division, rather than a subsidiary, the company is solidifying its commitment to the venture. We expect to start taking delivery of aircraft in the latter half of 2003.
Are the wholly owned US Airways Express carriers included in the plan? Will they also emerge from Chapter 11 in March?
The planned emergence of some or all of the company's subsidiaries is not necessarily tied to the planned March 2003 emergence of US Airways. Prior to emerging, the wholly-owned regional air carriers must reach agreements with their respective labor unions on competitive contracts that will allow for the transition to an all-regional jet fleet at each of the subsidiaries.
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