New terms will help the airline lowest costs and reduce debt, but there are strings attached

US Airways Group Inc., GE Capital Aviation Services, and GE Engine Services have reached a comprehensive agreement on aircraft leasing and financing, and engine services, which will provide the airline with short-term liquidity, reduce debt, lower aircraft ownership costs, enhanced engine maintenance services and leases for new regional jets, while preserving the vast majority of US Airways’ mainline fleet owned by GECAS.

If approved by the U.S. Bankruptcy Court and all conditions are met, the transaction will provide US Airways with $140 million in interim liquidity through a new bridge facility and the deferral of aircraft debt and lease payments coming due over the next six months. In total, US Airways expects the agreement to provide over $80 million in annual cash savings and aircraft ownership and engine maintenance costs. In addition, GECAS will lease up to 31 new 70- and 90-seat regional jet aircraft to US Airways over the next three years, and US Airways would return 25 of its 281 mainline aircraft over the same time period. The agreement calls for the return of 10 Airbus 319s in 2005, and 15 Boeing 737-300s in 2006 and 2007.

In exchange for these significant commitments by GECAS and GEES, upon successful emergence from Chapter 11, US Airways would issue to GECAS a 15-year convertible note for between $125 and $216 million, depending on future lease options selected by US Airways.

The agreement was filed with the U.S. Bankruptcy Court of the Eastern District of Virginia today and requires court approval by December 17. In addition to court approval, the agreement requires that by January 14, 2005, the company achieve a series of cost reductions and restructuring milestones, and it must complete its judicial restructuring and exit Chapter 11 by June 30, 2005.

“The fact that GECAS remains committed to working with us is an enormous boost for our restructuring efforts and the implementation of our Transformation Plan,” said Bruce R. Lakefield, US Airways president and chief executive officer. “We still have a lot of work to do, beginning with the completion of labor negotiations with those remaining unions that still do not have cost-savings agreements in place.

“In the short term, we can return the 10 Airbus aircraft in 2005 on a schedule that will not impact our customers and will be consistent with our plans to increase aircraft utilization and point-to-point flying next year. The gradual return of 15 older 737-300s over the next three years, coupled with the regional jet financing agreement, will allow us to return to a path of moderate regional jet growth, enabling us to effectively serve smaller routes or develop new markets,” said Lakefield.

FMI: www.usairways.com, www.gecas.com, www.geae.com/services