NOTE 4. DEBT

Pacific Routes Term Loan Facility due 2016

During the March 2011 quarter, we amended our $250 million first lien term loan facility, which is secured by our Pacific route authorities and certain related assets (the “Pacific Routes Term Loan Facility”), to, among other things, (1) reduce the interest rate, (2) extend the maturity date from September 2013 to March 2016 and (3) modify certain negative covenants and default provisions to be substantially similar to those described below under “Senior Secured Credit Facilities due 2016 and 2017.” The Pacific Routes Term Loan Facility bears interest at a variable rate equal to LIBOR, which shall not be less than 1.25%, or another index rate, in each case plus a specified margin. As of June 30, 2011, the Pacific Routes Term Loan Facility had an interest rate of 4.25% per annum.

Certificates

In February 2011, we completed a $100 million offering of Pass Through Certificates, Series 2010-1B (the “2010-1B EETC”), and a $135 million offering of Pass Through Certificates, Series 2010-2B (the “2010-2B EETC”) through pass through trusts. We received $192 million in net proceeds. The remaining $43 million in proceeds from the 2010-2B EETC offering is being held in escrow until we refinance 10 aircraft currently securing the 2001-1 EETC, which matures in September 2011. Accordingly, we reclassified $43 million of principal related to the 2001-1 EETC from current maturities to long-term debt. The 2010-1B EETC, which is secured by 24 aircraft, bears interest at a fixed rate of 6.375% per year and has a final maturity in January 2016. The 2010-2B EETC, which will be secured by 28 aircraft, bears interest at a fixed rate of 6.75% per year and has a final maturity in November 2015.

In April 2011, we completed a $293 million offering of Pass Through Certificates, Series 2011-1A (the “2011-1A EETC”), through a pass through trust. The proceeds are being held in escrow until we refinance 26 aircraft currently securing the 2001-1 EETC, which matures in September 2011. The 2011-1A EETC bears interest at a fixed rate of 5.3% per year and has a final maturity in April 2019. At June 30, 2011, $273 million of the $293 million principal amount of the 2001-1 EETC is classified as long-term debt.

During the six months ended June 30, 2011, we used $51 million in proceeds, which was previously held in escrow under our 2010-2A EETC, to refinance six aircraft. At June 30, 2011, $489 million was held in escrow under the 2010-2A, 2010-2B and 2011-1A EETCs and was not recorded on the Consolidated Balance Sheet. We have no right to these funds until the equipment notes securing the certificates are issued.

We assessed whether the pass through trusts formed for the certificates are variable interest entities required to be consolidated. We do not have a variable interest in and have not consolidated the related trusts because our only obligation with respect to the trusts is to make interest and principal payments on the equipment notes held by the trusts.

Senior Secured Credit Facilities due 2016 and 2017

In April 2011, we entered into senior secured first-lien credit facilities (the “Senior Secured Credit Facilities”) to borrow up to $2.6 billion. The Senior Secured Credit Facilities consist of a $1.2 billion first-lien revolving credit facility, up to $500 million of which may be used for the issuance of letters of credit (the “Revolving Credit Facility”), and a $1.4 billion first-lien term loan facility (the “Term Loan Facility”). At June 30, 2011, the Term Loan Facility was outstanding and the Revolving Credit Facility was undrawn.

In connection with entering into the Senior Secured Credit Facilities, we retired the outstanding loans under our $2.5 billion senior secured exit financing facilities (due April 2012 and April 2014), and terminated those facilities as well as an existing undrawn $100 million revolving credit facility.

Borrowings under the Term Loan Facility must be repaid annually in an amount equal to 1% of the original principal amount (to be paid in equal quarterly installments). All remaining borrowings under the Term Loan Facility are due in April 2017. Borrowings under the Revolving Credit Facility are due in April 2016. The Senior Secured Credit Facilities bear interest at a variable rate equal to LIBOR, which shall not be less than 1.25%, or another index rate, in each case plus a specified margin. As of June 30, 2011, the Term Loan Facility had an interest rate of 5.5% per annum.

Our obligations under the Senior Secured Credit Facilities are guaranteed by substantially all of our domestic subsidiaries (the “Guarantors”). The Senior Secured Credit Facilities and the related guarantees are secured by liens on certain of our and the Guarantors' assets, including accounts receivable, inventory, flight equipment, ground property and equipment, non-Pacific international routes and domestic slots (the “Collateral”).

The Senior Secured Credit Facilities include affirmative, negative and financial covenants that restrict our ability to, among other things, make investments, sell or otherwise dispose of Collateral if we are not in compliance with the collateral coverage ratio tests described below, pay dividends or repurchase stock. These covenants require us to maintain:

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a minimum fixed charge coverage ratio (defined as the ratio of (1) earnings before interest, taxes, depreciation, amortization and aircraft rent, and other adjustments to (2) the sum of gross cash interest expense (including the interest portion of our capitalized lease obligations) and cash aircraft rent expense, for successive trailing 12-month periods ending at each quarter-end date through the last maturity date of the Senior Secured Credit Facilities), which minimum ratio is 1.20:1;


•	not less than $1.0 billion of unrestricted cash, cash equivalents and permitted investments and maintain $2.0 billion of unrestricted cash, cash equivalents and permitted investments plus unused commitments available under the Revolving Credit Facility and any other revolving credit facilities;


•	a minimum total collateral coverage ratio (defined as the ratio of (1) certain of the Collateral that meets specified eligibility standards to (2) the sum of the aggregate outstanding obligations under the Senior Secured Credit Facilities and the aggregate amount of certain hedging obligations then outstanding (the "Total Obligations")) of 1.67:1 at all times; and


•	a minimum non-route collateral coverage ratio (defined as the ratio of (1) certain of the Collateral that meets specified eligibility standards other than non-Pacific international routes to (2) the Total Obligations) of 0.75:1 at all times.

If either of the collateral coverage ratios is not maintained, we must either provide additional collateral to secure our obligations, or we must repay the loans under the Senior Secured Credit Facilities by an amount necessary to maintain compliance with the collateral coverage ratios.

The Senior Secured Credit Facilities contain events of default customary for similar financings, including cross-defaults to other material indebtedness and certain change of control events. The Senior Secured Credit Facilities also include events of default specific to our business, including the suspension of all or substantially all of our flights and operations for more than five consecutive days (other than as a result of a Federal Aviation Administration suspension due to extraordinary events similarly affecting other major U.S. air carriers). Upon the occurrence of an event of default, the outstanding obligations under the Senior Secured Credit Facilities may be accelerated and become due and payable immediately.

Future Maturities

The following table summarizes scheduled maturities of our debt, including current maturities, at June 30, 2011:



Years Ending December 31, (in millions)	Total Secured and Unsecured Debt		Amortization of Debt Discount, net
Six months ending December 31, 2011	$	880	$	(103	)
2012	1,838		(203		)
2013	1,568		(166		)
2014	2,305		(111		)
2015	1,425		(76		)
Thereafter	6,723		(188		)
Total	$	14,739	$	(847	)	$	13,892

Covenants

We were in compliance with all covenants in our financing agreements at June 30, 2011.