CASES Case 2-1 US Airways, Inc. US Airways is a major US, air carrier engaged primarily...

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CASES Case 2-1 US Airways, Inc. US Airways is a major US, air carrier engaged primarily in the business of transporting pas- sengers, property, and mail. US Airways operates predominantly in the Eastern United States, with major connecting hubs at airports in Charlotte, Philadelphia, and Pittsburgh, US Airways also has substantial operations at Boston's Logan International Airport, New York's LaGuardia Airport, and Washington's Ronald Reagan Washington National Airport (Reagan National). US Airways emplaned approximately 56 million passengers during 2001 and was the sixth largest U.S. air carrier, as ranked by revenue passenger miles (RPMs). On September 11, 2001, the Federal Aviation Administration ordered all civilian aircraft operating in US airspace grounded due to terrorist attacks. This grounding lasted nearly three days. Reagan National, where US Airways has substantial operations, remained closed until October 4, 2001, after which operations are being gradually phased in. In the aftermath of September 11, 2001, US Airways implemented several measures aimed at downsizing its oper- ations to better match capacity with decreased air travel demand and conserving financial resources available to fund operations. These measures include the furlough or termination of approximately 11,400 employees; cutting capacity by more than 20% from the pre-September 11 level, including a substantial reduction in point-to-point flying (ie., nonhub fights), which included the elimination of MetroJet; the accelerated retirement of three less efficient fleet types, and the closure of several reservation centers, US Airways Club facilities, and city ticket offices" REQUIRED: 1. Using the Consolidated Balance Sheets for US Airways, Inc. for December 31, 2001 and 2000, prepare a common-size balance sheet 2. Evaluate the asset, debt, and equity structure of US Airways, Inc., as well as trends and changes found on the common-size balance sheet 3. What concerns would investors and creditors have based on only this information? 4. What additional financial and nonfinancial information would investors and creditors need to make investing and lending decisions about US Airways, Inc.? US Airways, Inc. Consolidated Balance Sheets December 31 (dollars in millions, except per share amount) 2001 2000 Assets Current Assets Cash $ 32 $ 31 505 465 Cash equivalents Short-term investments 485 773 Receivables, net 272 328 Receivables from related parties, net 155 Materials and supplies, net 193 228 422 Deferred income taxes Prepaid expenses and other 151 189 "US Airways Group, Inc. 2001 Form 10K. pp. 74-75 80 Chapter 2 The Balance Sheet 2001 7.223 1,167 (3.924) 28 4,494 2000 2,571 6,514 1,114 (2.983) 4,645 44 4,689 2.611 2.608 (2,826) (2,262) (837) (2.262) (153) (2.630) $7,941 (489) $8.986 R88 531 550 Pension assets Other intangibles, net Receivable from parent company Other assets, net 411 401 343 313 43 78 326 384 Total Other Assets 1,654 1.726 $7,941 $8,986 Liabilities and Stockholders' Equity (Deficit) Current Liabilities Assets Total Current Assets Property and Equipment Flight equipment Ground property and equipment Less accumulated depreciation and amortization Purchase deposits for flight equipment Total Property and Equipment Other Assets Goodwill, net Current maturities of long-term debt $159 $284 Accounts payable 506 Traffic balances payable and unused tickets 817 890 Accrued aircraft rent 249 349 Accrued salaries, wages, and vacation 367 319 Other accrued expenses 742 Total Current Liabilities Noncurrent Liabilities 2.932 2,823 Long-term debt, net of current maturities 3,515 2,688 Accrued aircraft rent Deferred gains, net Postretirement benefits other than pensions Employee benefit liabilities and other Total Noncurrent Liabilities Commitments and Contingencies Stockholders' Equity (Delicit) Common stock, par value $1 per share, authorized 1,000 shares, issued and outstanding 1,000 shares Paid-in capital Retained earnings (delic) Receivable from parent company Accumulated other comprehensive income (loss). net of income tax effect Total Stockholders' Equity (Deficit) See accompanying Notes to Consolidated Financial Sams 293 585 604 1,473 1,407 1,773 1,771 7,639 6,652 CASES Case 2-1 US Airways, Inc. US Airways is a major US, air carrier engaged primarily in the business of transporting pas- sengers, property, and mail. US Airways operates predominantly in the Eastern United States, with major connecting hubs at airports in Charlotte, Philadelphia, and Pittsburgh, US Airways also has substantial operations at Boston's Logan International Airport, New York's LaGuardia Airport, and Washington's Ronald Reagan Washington National Airport (Reagan National). US Airways emplaned approximately 56 million passengers during 2001 and was the sixth largest U.S. air carrier, as ranked by revenue passenger miles (RPMs). On September 11, 2001, the Federal Aviation Administration ordered all civilian aircraft operating in US airspace grounded due to terrorist attacks. This grounding lasted nearly three days. Reagan National, where US Airways has substantial operations, remained closed until October 4, 2001, after which operations are being gradually phased in. In the aftermath of September 11, 2001, US Airways implemented several measures aimed at downsizing its oper- ations to better match capacity with decreased air travel demand and conserving financial resources available to fund operations. These measures include the furlough or termination of approximately 11,400 employees; cutting capacity by more than 20% from the pre-September 11 level, including a substantial reduction in point-to-point flying (ie., nonhub fights), which included the elimination of MetroJet; the accelerated retirement of three less efficient fleet types, and the closure of several reservation centers, US Airways Club facilities, and city ticket offices" REQUIRED: 1. Using the Consolidated Balance Sheets for US Airways, Inc. for December 31, 2001 and 2000, prepare a common-size balance sheet 2. Evaluate the asset, debt, and equity structure of US Airways, Inc., as well as trends and changes found on the common-size balance sheet 3. What concerns would investors and creditors have based on only this information? 4. What additional financial and nonfinancial information would investors and creditors need to make investing and lending decisions about US Airways, Inc.? US Airways, Inc. Consolidated Balance Sheets December 31 (dollars in millions, except per share amount) 2001 2000 Assets Current Assets Cash $ 32 $ 31 505 465 Cash equivalents Short-term investments 485 773 Receivables, net 272 328 Receivables from related parties, net 155 Materials and supplies, net 193 228 422 Deferred income taxes Prepaid expenses and other 151 189 "US Airways Group, Inc. 2001 Form 10K. pp. 74-75 80 Chapter 2 The Balance Sheet 2001 7.223 1,167 (3.924) 28 4,494 2000 2,571 6,514 1,114 (2.983) 4,645 44 4,689 2.611 2.608 (2,826) (2,262) (837) (2.262) (153) (2.630) $7,941 (489) $8.986 R88 531 550 Pension assets Other intangibles, net Receivable from parent company Other assets, net 411 401 343 313 43 78 326 384 Total Other Assets 1,654 1.726 $7,941 $8,986 Liabilities and Stockholders' Equity (Deficit) Current Liabilities Assets Total Current Assets Property and Equipment Flight equipment Ground property and equipment Less accumulated depreciation and amortization Purchase deposits for flight equipment Total Property and Equipment Other Assets Goodwill, net Current maturities of long-term debt $159 $284 Accounts payable 506 Traffic balances payable and unused tickets 817 890 Accrued aircraft rent 249 349 Accrued salaries, wages, and vacation 367 319 Other accrued expenses 742 Total Current Liabilities Noncurrent Liabilities 2.932 2,823 Long-term debt, net of current maturities 3,515 2,688 Accrued aircraft rent Deferred gains, net Postretirement benefits other than pensions Employee benefit liabilities and other Total Noncurrent Liabilities Commitments and Contingencies Stockholders' Equity (Delicit) Common stock, par value $1 per share, authorized 1,000 shares, issued and outstanding 1,000 shares Paid-in capital Retained earnings (delic) Receivable from parent company Accumulated other comprehensive income (loss). net of income tax effect Total Stockholders' Equity (Deficit) See accompanying Notes to Consolidated Financial Sams 293 585 604 1,473 1,407 1,773 1,771 7,639 6,652