US Airways Group, Inc.
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 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.
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