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Rating Action:

MOODY'S LOWERS CERTAIN ENHANCED EQUIPMENT TRUST CERTIFICATE RATINGS OF US AIRWAYS, INC.

14 Sep 2004
MOODY'S LOWERS CERTAIN ENHANCED EQUIPMENT TRUST CERTIFICATE RATINGS OF US AIRWAYS, INC.

Approximately $2.5 Billion of Debt Securities Affected.

New York, September 14, 2004 -- Moody's Investors Service downgraded its ratings of selected Enhanced Equipment Trust Certificates ("EETC's") supported by payments from US Airways, Inc. ("US Airways"). The rating outlook for these securities remains negative.

Ratings actions include:

Ratings downgraded:

Series 1998-1 Class A: to Ba2 from Ba1

Class B: to Caa1 from B3

Class C: to C from Caa2

Series 1999-1 Class B: to Caa1 from B3

Class C: to C from Ca

Series 2000-3 Class C: to C from Caa2

Series 2001-1 Class C: to C from Caa3

Ratings confirmed

Series 1999-1 Class A: Confirmed at Ba2

The Aaa ratings for certain of the company's Enhanced Equipment Trust Certificates that are based on the support of insurance policies issued by monoline insurance companies are unaffected by this rating action.

The rating downgrades reflect the company's September 12th filing under Chapter 11 of the US Bankruptcy Code and the increasing potential for losses for EETC holders. The rating agency noted that each of the transactions is supported by a liquidity facility that is designed to service interest payments for a period of 18, and benefits from a perfected security interest in underlying aircraft. Nevertheless, potential exists for a renegotiation of debt and lease payments under the related transactions and/or for the rejection of debt obligations associated with some or all of the aircraft collateralizing the Certificates, which could lead to losses for investors. The rating actions primarily affect the most junior tranches of the EETC's which Moody's believes are most likely to incur losses.

The September 12th filing is the second in 25 months for the company. In the first reorganization, debt and lease payments on some of the aircraft in the 1998 and 1999 transactions were rejected and those aircraft were delivered to debt holders for liquidation, with proceeds applied to reduce the outstanding balances under the transactions. However, debt and lease payments on the remaining aircraft collateralizing those transactions and all of the aircraft collateralizing other rated transactions were affirmed and payments continued throughout that bankruptcy process and after the company emerged from bankruptcy on March 31, 2003. With the second bankruptcy filing, US Airways will again have the opportunity to affirm or reject aircraft debt or lease payments or could seek to renegotiate payment terms with creditors. Although Moody's estimates that current debt and lease payments are reasonably close to current market rates, it is likely that US Airways will take the opportunity presented by the bankruptcy process to renegotiate payment terms. The ratings actions recognize that this course of action could result in junior debt tranches experiencing shortfalls in the ultimate payment of principal amounts due. Although the ratings adjustments reflect increased risk for some senior classes of debt, Moody's expects that these debt holders will ultimately receive full principal repayment due to the moderate loan to value ratios of the senior tranches.

Supporting the ratings are firming values for the aircraft types collateralizing the transactions, the relatively young age of the aircraft and US Airways' need for the assets if it continues to implement its current business plan. All of the aircraft collateralizing the transactions are Airbus models and include A320 family (A319, A320 and A321) and A330 aircraft. The A320 family aircraft are used in domestic service and the larger, longer range A330's are used in the company's international routes.

While it is possible that US Airways could decide to reduce the number of aircraft in its fleet or the number of fleet types, such an action, relatively easy during the last bankruptcy process, would be more difficult at this time. This is particularly the case if the company wishes to continue to execute its current business plan. A reduction of a few aircraft is possible but a large rejection of aircraft will leave the company without the capacity it needs to execute the plan. US Airways could reduce the number of fleet types it operates by exiting its international routes and eliminating its A330 fleet. However, Moody's notes that yields remain much stronger internationally than in the domestic network and revenue from the company's international segment is reported to be ahead of its operating plan while domestic revenue is behind plan.

Full affirmation of debt and lease obligations and a clear and rapid progress toward emergence from bankruptcy protection could result in the stabilization of the outlook. Further ratings downgrades could occur if liquidity facilities do not fund interest payments when due, debt and/or lease payments are renegotiated such that debt holders suffer unexpectedly large losses, and/or meaningful progress toward a decision regarding affirmation or rejection of debt and lease payments is not evident. The ratings would also come under pressure should large numbers of aircraft become available as a result of decisions on the part of US Airways to substantially reduce its fleet size or to liquidate rather than reorganize. Moody's will monitor the progress of US Airway's reorganization and the implications for EETC holders, but stated that if insufficient information is available to monitor the status of EETC transactions it will withdraw the ratings.

US Airways Group, Inc. and its primary operating subsidiary, US Airways, Inc. are headquartered in Arlington, VA.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Richard Bittenbender
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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