IN RE US AIRWAYS GROUP, (Bankr.E.D.Va. 2003)


IN RE: US AIRWAYS GROUP, INC., et al., Chapter 11, Debtors.

Case No. 02-83984-SSM Jointly AdministeredUnited States Bankruptcy Court, E.D. Virginia, Alexandria Division
February 21, 2003

John Wm. Butler, Jr. and John K. Lyons, SKADDEN, ARPS, SLATE, MEAGHER FLOM; Douglas M. Foley and Lawrence E. Rifken, McGUIREWOODS LLP, Attorneys for Debtors and Debtors-in-Possession.

W. Rogers Benson, Jr., MILBANK, TWEED, HADLEY McCLOY LLP, Attorneys for Note Holder.

Robert M. Borden, BINGHAM McCUTCHEN LLP, Attorneys for Indenture Trustee.

STIPULATION AND ORDER AUTHORIZING THE DEBTORS TO ENTER INTO AN 1110 AGREEMENT REGARDING SECTION 1110 COMPLIANCE WITH RESPECT TO N112US, N113UW, N114UW, N730US, N732US and N733UW
STEPHEN S. MITCHELL, United States Bankruptcy Judge

US Airways, Inc., a debtor-in-possession in the above-captioned case (the “Debtor”), and the counter parties (the “Aircraft Creditors”; collectively with the Debtor, the “Parties”) to this Stipulation, Agreement and Order (this “1110 Agreement”), stipulate and agree as follows:

1. On August 11, 2002 (the “Petition Date”), the Debtor filed its voluntary petition in this Court for reorganization relief under chapter 11 of the Bankruptcy Code. The Debtor continues to operate its business and manage its properties as debtor-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

2. The Debtor represents that it holds an air carrier operating certificate issued pursuant to chapter 447 of title 49, U.S. Code, for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo, and is engaged in domestic and international scheduled air transportation in North America, the Caribbean and Europe.

3. The Debtor and the Aircraft Creditors are parties to certain aircraft security agreements, as amended by the Parties (collectively, the “Aircraft Agreements”). Pursuant to the Aircraft Agreements, the Debtor has granted a security interest in the aircraft listed on Exhibit A hereto, together with engines, appliances and related parts and equipment (such property, including all technical records and documents relating thereto, the “Aircraft Equipment”). The Aircraft Equipment constitutes “equipment” within the meaning of sections 1110(a)(3)(A)(i) and 1110(a)(3)(B) of the Bankruptcy Code and, together with the Aircraft Agreements, is subject to the provisions of section 1110 of the Bankruptcy Code.

4. The Debtor represents that: (a) the Aircraft Equipment has been in the possession of the Debtor, and the Debtor has continued to use the Aircraft Equipment, since August 11, 2002 in the operation of its business; (b) the Aircraft Equipment is essential to the continued operation and viability of the Debtor; and (c) the Debtor believes that this 1110 Agreement is beneficial to and in the best interests of the Debtor, its creditors and its estate.

5. The Aircraft Creditors are entitled to section 1110 of the Bankruptcy Code protections with respect to the Aircraft Equipment and the Aircraft Agreements. On November 8, 2002, this Court approved an 1110 Agreement and Order Regarding Section 1110 Compliance with Respect to Certain Airbus Aircraft (the “Prior 1110 Agreement”), which was an agreement within the meaning of section 1110(a)(2)(A) of the Bankruptcy Code with respect to, inter alia, the Aircraft Equipment and the Aircraft Agreements.

6. The Parties hereby agree that the Debtor shall make payments and perform other obligations as set forth in the Aircraft Agreements, as amended pursuant to the Omnibus Amendment Agreements attached hereto as Exhibits B-1, B-2, B-3, B-4, B-5 and B-6 (collectively, the “Amendments”; collectively with the Aircraft Agreements, the “Amended Aircraft Agreements”). The Parties further agree that such payment and other performances shall be deemed sufficient (a) to constitute performance of all obligations under the Amended Aircraft Agreements within the meaning of section 1110(a)(2)(A) of the Bankruptcy Code and (b) to cure all defaults under the Amended Aircraft Agreements (other than defaults of the kind specified in section 365(b)(2) of the Bankruptcy Code) within the requirements of section 1110(a)(2)(B) of the Bankruptcy Code (the “Cure Payments”). The Cure Payments will be made in accordance with the terms of the Amendments.

7. The Parties hereby agree that the Debtor shall be permitted to defercertain payments of principal and interest as provided in theAmendments.

8. The Debtor shall not abandon or sell (except for sales permitted by and in accordance with the terms of the Amended Aircraft Agreements) the Aircraft Equipment during the term of the Aircraft Agreements. The Parties hereby agree that in the event that the Debtor abandons or sells (except any sale permitted by and in accordance with the Amended Aircraft Agreements) the Aircraft Equipment, or an Event of Default (as defined in the Amended Aircraft Agreements) has occurred and is continuing that results in the termination of the Amended Aircraft Agreements (except for any abandonment, sale, Event of Default or termination of the Amended Aircraft Agreements resulting from a Termination Trigger (as defined below)) the Aircraft Creditors shall be entitled to a payment from the Debtor (the claim for which shall be an allowed administrative expense priority claim against the Debtor under Sections 503(b) and 507(a)(1) of the Bankruptcy Code) equal to the difference between (i) the sum of (a) the outstanding principal of the Equipment Notes (as defined in the Amended Aircraft Agreements) and accrued unpaid interest thereon due to the Aircraft Creditors under the Amended Aircraft Agreements, and (b) the outstanding Deferred Amounts (as defined in the Amendments) and accrued unpaid interest thereon due to the Aircraft Creditors under the Amendments, and (ii) the proceeds (after deduction of expenses associated with repossession and disposition of such Aircraft Equipment) received (or that would have been received) by the Aircraft Creditors upon a commercially reasonable disposition of the Aircraft Equipment within themeaning of Article 9 of the applicable version of the Uniform CommercialCode.

9. The Parties hereby agree that notwithstanding the provisions of paragraph 8 hereof, if (A) during the Case (i) the Debtor consummates a chapter 11 plan of reorganization under the Bankruptcy Code pursuant to which it (or its successor under the plan) fails to continue to operate as an airline and discontinues flight operations, or (ii) if, prior to, upon or in connection with the consummation of a plan of reorganization, the Debtor consummates a sale or sales of a material portion of its assets (whether pursuant to a plan of reorganization or otherwise) and such sale causes or sales cause the number of jets in the Debtor’s mainline fleet to fall below the threshold of 233 jets (whether through the assumption and assignment of leases or the sale of jets subject to mortgages to a purchaser or through the rejection of leases, abandonment of jets, or other disposition of jets previously used in connection with the sold assets or through a fleet reduction caused by reason of the sale or sales of assets), or (iii) the Case is dismissed or converted to a case under chapter 7 of the Bankruptcy Code, and as a result of such dismissal or conversion the Debtor discontinues flight operations (any such event under clause (i) or (ii) or (iii) above, subject to the following exclusion, a “Termination Trigger”; provided, however, that aTermination Trigger shall not occur if the Debtor sells all or substantially all of its assets to a single purchaser (it being agreed that, for purposes of this provision, entities that are part of the same single consolidated group or that are operating in concert as part of a joint venture or enterprise shall be treated as a single purchaser) that is not prior to entering into the transaction with the Debtor a Certificated Air Carrier or a member of a consolidated group including a Certificated Air Carrier), and (B) any abandonment of the AircraftEquipment, Event of Default or termination of the Amended AircraftAgreements results from such Termination Trigger, the Aircraft Creditors’allowed administrative expense priority claim against the Debtor shall belimited to the aggregate amount equal to the sum of (1) 100% of theunpaid balance of the Deferred Amount (as defined in the Amendments),together with accrued interest thereon at the Deferred Amount InterestRate (as defined in the Amendments) through the date of payment by theDebtor, plus (2) 100% of the accrued unpaid interest on the PrincipalAmount (as defined in the Aircraft Agreements) through the date ofpayment by the Debtor, plus (3) 50% of the installment of the PrincipalAmount (as defined in the Aircraft Agreements) scheduled to be paid asset forth on Schedule II to the Indenture (as defined in the AircraftAgreements) on the first Payment Date (as defined in the AircraftAgreements) following the date of such Termination Trigger, plus (4) 50%of the unpaid interest on the Principal Amount that would have otherwisebeen payable on the Payment Date described in clause (3) above, and suchadministrative expense priority claim shall be the only administrativeclaim allowed against the Debtor with respect to such abandonment, Eventof Default or termination of the Aircraft Agreements, but shall not limitthe Additional Creditors’ rights to assert claims (other thanadministrative expense priority claims or other priority claims) againstthe Debtor. In such event, the Aircraft Equipment shall be returned to the Aircraft Creditor “as is” and “where is”, subject to the following conditions: (a) the Debtor’s Termination Trigger notice shall specify the identity and location of the Aircraft Equipment that are the subject of each notice; (b) the Debtor shall be deemed to have relinquished possession of the Aircraft Equipment to the Aircraft Creditor or other party in actual possession of the Aircraft (but not the Debtor as debtor in possession or debtor, and its agents and representatives (it being understood that Avtel Services Inc. shall not be the Debtor’s agent as of the date with respect to the Aircraft Equipment to be relinquished)); (c) the right to take possession of the Aircraft Equipment (and the documents and records relating thereto) shall be relinquished to the Aircraft Creditor; (d) the automatic stay provided under Section 362 of the Bankruptcy Code shall not apply to (i) such Aircraft Equipment (or the documents and records relating thereto) or (ii) actions or proceedings taken in connection with the enforcement of rights or remedies with respect to such Aircraft Equipment, including the giving of notices of default, acceleration, demand, or disposition of collateral; (e) the Debtor shall make the records and documents relating to the Aircraft Equipment available to the Aircraft Creditor on or before the date that is twenty (20) business days following the date with respect to the Aircraft Equipment is to be relinquished; (f) upon written request from the Aircraft Creditor, the Debtor shall provide the Aircraft Creditor with a bill of sale, as appropriate, to file with the FAA in connection with such Aircraft Equipment; provided, however, that the Aircraft Creditor shall be solely responsible for all costs associated with such bill of sale, if any; and (g) the Debtor further agrees to prepay insurance with respect to the Aircraft Equipment on the Debtor’s FAA-approved maintenance program for the period between the date with respect to the Aircraft Equipment is to be relinquished and the date upon which the Aircraft Creditor retrieves the Aircraft Equipment; provided, however, that such period shall not exceed twenty (20) days; and further provided that such right is without prejudice to the Debtor’s rights to seek to setoff such expenses against any claim or administrative claim that the affected Aircraft Creditor may assert against the Debtor.

10. The Parties hereby agree that the Debtor is obligated to treat the Amended Aircraft Agreements in accordance with section 1124(1) of the Bankruptcy Code under the First Amended Joint Plan of Reorganization of US Airways Group, Inc. and its Affiliated Debtors and Debtors-in-Possession (as such may be further modified or amended from time to time, the “Plan”).

11. Except as provided in paragraphs 8 and 9 hereof, the Parties hereby agree that the claims of the Aircraft Creditors under this 1110 Agreement and the Amended Aircraft Agreements shall be Aircraft Secured Claims (as defined in the Plan) against the Debtor and shall therefore be designated and treated as Class USAI-4 Claims under the Plan.

12. The Parties hereby agree and acknowledge that this 1110 Agreement does not constitute an assumption of the Aircraft Agreements under section 365(a) of the Bankruptcy Code (to the extent such section is applicable) and nothing contained herein shall be construed to constitute such an assumption. The preceding sentence does not otherwise limit or affect the rights, remedies, or claims of the Aircraft Creditors or the Debtor under this 1110 Agreement or section 1110 of the Bankruptcy Code.

13. This 1110 Agreement is an agreement within the meaning of section 1110(a)(2)(A) of the Bankruptcy Code. In the event the Debtor fails to perform any of its obligations under this 1110 Agreement or under the Amended Aircraft Agreements, such failure shall constitute an event of default under this 1110 Agreement and the Amended Aircraft Agreements unless cured in compliance with the terms of the Amended Aircraft Agreements if cure is permitted thereunder. Upon the occurrence of such an event of default, (a) the Aircraft Creditors shall thereupon be permitted to exercise any and all rights, claims, and remedies with respect thereto as they may have under the relevant Amended Aircraft Agreement and the Bankruptcy Code as permitted by section 1110 of the Bankruptcy Code and (b) upon written demand by the Aircraft Creditors, the Debtor shall surrender and return the Aircraft Equipment (including its records and all related equipment) as required by section 1110 of the Bankruptcy Code.

14. The Aircraft Creditors reserve their right to file any proof of claim and to apply to the Court for any order appropriate under the Code, subject to any objection of the Debtor, the Committee or any party-in-interest.

15. This 1110 Agreement shall be binding upon (a) the Debtor, and any trustee or examiner in the pending chapter 11 case, or their respective successors and assigns, (b) the Aircraft Creditors and their respective successors and assigns, (c) the trustee in the event that the above-captioned case is converted to a case under chapter 7 of the Code and (d) all creditors and other parties-in-interest in this case.

16. This 1110 Agreement is subject to the final approval of the Court and, upon such approval, shall be effective as of January 28, 2003. In the event the Court does not provide final approval of this 1110 Agreement on or before February 20, 2003, the Debtor shall make the payments required by, and in accordance with, Section 11(a) of the Amendments, and upon such payments the Amendments and this 1110 Agreement shall be of no further force and effect. The Debtor shall promptly cause this 1110 Agreement to be presented to the Court for approval on or prior February 20, 2003 in accordance with the Amended Order Pursuant to 11 U.S.C. § 102 and 105(a), Bankruptcy Rules 2002(m) and 9007, and Local Bankruptcy Rules 2002-1 and 9013-1 Establishing Omnibus Hearing Dates and Certain Notice, Case Management and Administrative Procedures entered on August 13, 2002. Upon Final Approval by the Court, this Section 1110 Agreement shall supersede and replace the Prior 1110 Agreement.

17. This 1110 Agreement may be executed in one or more counterparts, by facsimile or otherwise, each of which shall be deemed an original, and all of which, when taken together, shall constitute one and the same document.

18. This 1110 Agreement, section 1110 of the Bankruptcy Code, and the Amended Aircraft Agreements together contain the entire agreement between the Aircraft Creditors and the Debtor as to the subject matter hereof, and all previous understandings, agreements and communications prior to the date hereof, whether express or implied, oral or written, relating to the subject matter hereof are fully and completely extinguished and superseded by this 1110 Agreement and the Amended Aircraft Agreements. This 1110 Agreement shall not be altered, amended, modified or otherwise changed, and no right hereunder may be waived, except by a writing duly signed by the Aircraft Creditors and the Debtor. The terms and conditions set forth in the Aircraft Agreements shall continue to be binding upon and performed by the Debtor except as and to the extent otherwise expressly provided in this 1110 Agreement and the Amendments.

19. To the extent non-bankruptcy law governs any provision of this 1110 Agreement, this 1110 Agreement shall be interpreted, and the rights and duties of the Parties hereto shall be determined, in accordance with the laws of the State chosen by the Debtor and the Aircraft Creditor in the Aircraft Agreements.

20. Unless otherwise specifically provided herein, all notices required or permitted by the terms of the Aircraft Agreements, the Amendments or this 1110 Agreement shall be in writing, and any such notice shall become effective upon receipt by the addressee of such notice by certified mail, return receipt requested, overnight courier service or facsimile to the following addresses:

(A) If to the Debtor:

US Airways, Inc. 2345 Crystal Drive Arlington, VA 22227 Telephone: (703) 872-7000 Facsimile: (703) 872-5252 Attn: Howard L. Wu, Esq.

and

Skadden, Arps, Slate, Meagher Flom (Illinois) 333 West Wacker Drive, Suite 2100 Chicago, IL 60606-1285 Telephone: (312) 407-0700 Facsimile: (312) 407-0411 Attn: John K. Lyons, Esq. Ann H. Pollock, Esq.
(B) If to the Aircraft Creditor, then as provided in the Aircraft Agreements and to its counsel filing Notice of Appearance herein.

21. The Parties agree that they shall promptly execute such documents and instruments and take such other actions, including to the extent appropriate, filing of documents as are reasonably necessary or appropriate to amend or supplement the Aircraft Agreements to conform to and to reflect the terms of this 1110 Agreement or the Amendments. However, unless and until amendments or supplements to the Aircraft Agreements are executed or other actions taken, this 1110 Agreement shall be deemed to amend and supplement the Aircraft Agreements.

22. To the extent there is an inconsistency between the terms of this 1110 Agreement and the terms of the Amended Aircraft Agreements, the terms of the Amended Aircraft Agreements shall control.

23. To the extent that there is an inconsistency between the terms of this 1110 Agreement and (a) any provision of the Order Authorizing Entry Into 1110 Agreements and Stipulations Extending Time to Comply With Section 1110 of the Bankruptcy Code, (b) any term of the Debtor’s Motion with respect to the above-referenced Order, or (c) the Prior 1110 Agreement, the terms of this 1110 Agreement shall control.

24. To the extent there is an inconsistency between the terms of this 1110 Agreement or the terms of the Aircraft Agreements, and any term of the Amendments, the terms of the Amendments shall control.

This Court having determined that the approval requested in this Agreement is in the best interests of the Debtor, its estate, and creditors; and it appearing that proper and adequate notice has been given and that no other or further notice is necessary; and upon the record herein; and after due deliberation thereon; and good and sufficient cause appearing therefor,

IT IS HEREBY ORDERED, ADJUDGED, AND DECREED THAT:

25. The 1110 Agreement is APPROVED in its entirety.

26. The Debtor is authorized to perform all obligations under the Aircraft Agreements in accordance with section 1110 of the Bankruptcy Code and to take all actions necessary to effectuate the terms thereof.

EXHIBIT AAIRCRAFT

N112US

N113UW

N114UW

N730US

N732US

N733UW

EXHIBIT B-1

OMNIBUS AMENDMENT AGREEMENT

(N112US)

EXHIBIT B-2

OMNIBUS AMENDMENT AGREEMENT

(N113UW)

EXHIBIT B-3

OMNIBUS AMENDMENT AGREEMENT

(N114UW)

EXHIBIT B-4

OMNIBUS AMENDMENT AGREEMENT

(N730US)

EXHIBIT B-5

OMNIBUS AMENDMENT AGREEMENT

(N732US)

EXHIBIT B-6

OMNIBUS AMENDMENT AGREEMENT

(N733UW)