Edgar Filing: UAL CORP /DE/

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


Commission File Number	Exact Name of Registrant as Specified in its Charter, Principal Office Address and Telephone Number	State of Incorporation	I.R.S. Employer Identification No
001-06033	UAL Corporation	Delaware	36-2675207
001-11355	United Air Lines, Inc. 77 W. Wacker Drive Chicago, Illinois 60601 (312) 997-8000	Delaware	36-2675206

Securities registered pursuant to Section 12(b) of the Act:


	Title of Each Class	Name of Each Exchange on Which Registered
UAL Corporation	Common Stock, $.01 par value	NASDAQ Global Select Market
United Air Lines, Inc.	None	None

Securities registered pursuant to Section 12 (g) of the Act:


UAL Corporation		None		United Air Lines, Inc.		None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


UAL Corporation		Yes x No ¨		United Air Lines, Inc.		Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.


UAL Corporation		Yes ¨ No x		United Air Lines, Inc.		Yes ¨ No x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


UAL Corporation		Yes x No ¨		United Air Lines, Inc.		Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


UAL Corporation		Yes ¨ No ¨		United Air Lines, Inc.		Yes ¨ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.


UAL Corporation		x		United Air Lines, Inc.		x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


UAL Corporation	Large accelerated filer ¨	Accelerated filer x	Non-accelerated filer ¨	Smaller reporting company ¨
United Air Lines, Inc.	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).


UAL Corporation		Yes ¨ No x		United Air Lines, Inc.		Yes ¨ No x

The aggregate market value of voting stock held by non-affiliates of UAL Corporation was $459,832,798 as of June 30, 2009. There is no market for United Air Lines, Inc. common stock.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.


UAL Corporation		Yes x No ¨		United Air Lines, Inc.		Yes x No ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of February 15, 2010.


UAL Corporation		167,453,840 shares of common stock ($0.01 par value)
United Air Lines, Inc.		205 (100% owned by UAL Corporation)

OMISSION OF CERTAIN INFORMATION

United Air Lines, Inc. meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.

DOCUMENTS INCORPORATED BY REFERENCE

Information required by Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K are incorporated by reference for UAL Corporation from its definitive proxy statement for its 2010 Annual Meeting of Stockholders to be held on June 10, 2010.

UAL Corporation and Subsidiary Companies and

United Air Lines, Inc. and Subsidiary Companies

Report on Form 10-K

For the Year Ended December 31, 2009


		Page
	PART I
Item 1.	Business	3
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	27
Item 2.	Properties	27
Item 3.	Legal Proceedings	29
Item 4.	Submission of Matters to a Vote of Security Holders	31
	Executive Officers of UAL	31

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	32
Item 6.	Selected Financial Data	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	69
Item 8.	Financial Statements and Supplementary Data	72
	UAL Corporation and United Air Lines, Inc. Combined Notes to Financial Statements	84
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	133
Item 9A.	Controls and Procedures	133
Item 9B.	Other Information	137

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	137
Item 11.	Executive Compensation	137
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	137
Item 13.	Certain Relationships, Related Transactions and Director Independence	137
Item 14.	Principal Accountant Fees and Services	137

	PART IV
Item 15.	Exhibits, Financial Statements and Schedules	139

This Form 10-K contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent the Company’s expectations and beliefs concerning future events, based on information available to the Company on the date of the filing of this Form 10-K, and are subject to various risks and uncertainties. Factors that could cause actual results to differ materially from those referenced in the forward-looking statements are listed in Item 1A, Risk Factors and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company disclaims any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.

PART I

ITEM 1. BUSINESS.

Overview

UAL Corporation (together with its consolidated subsidiaries, “UAL”), a holding company whose principal subsidiary is United Air Lines, Inc. (together with its primary subsidiaries, “United”), was incorporated under the laws of the State of Delaware on December 30, 1968. We sometimes use the words “we,” “our,” “us,” and the “Company” in this Form 10-K for disclosures that relate to both UAL and United. Our world headquarters is located at 77 W. Wacker Drive, Chicago, Illinois 60601. The mailing address is P.O. Box 66919, Chicago, Illinois 60666 (telephone number (312) 997-8000).

This Annual Report on Form 10-K is a combined report of UAL and United including their respective consolidated financial statements (the “Financial Statements”). As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted, and are included within the Combined Notes to Consolidated Financial Statements (the “Footnotes”). Most of UAL’s revenue and expenses in 2009 were from United’s airline operations. United transports people and cargo through its Mainline operations, which utilize full-sized jet aircraft exceeding 70 seats in size, and its regional operations, which utilize smaller aircraft not exceeding 70 seats in size that are operated under contract by United Express^® carriers.

The Company’s web address is www.united.com. The information contained on or connected to the Company’s web address is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the U.S. Securities and Exchange Commission (“SEC”). Through this website, the Company’s filings with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are accessible without charge as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

United operates approximately 3,300 flights a day on United Mainline and United Express to more than 230 U.S. domestic and international destinations from its hubs at Chicago O’Hare International Airport (“O’Hare”), Denver International Airport (“Denver”), Los Angeles International Airport (“LAX”), San Francisco International Airport (“SFO”) and Washington Dulles International Airport (“Washington Dulles”), based on its annual flight schedule as of January 1, 2010. With key global air rights in the Pacific region, Europe and Latin America, United is one of the largest international carriers based in the United States. United also is a founding member of Star Alliance, the world’s largest airline network, which provides connections for its customers to approximately 1,100 destinations in 175 countries worldwide. United offers a unique set of services to target distinct customer groups. This strategy of market and product segmentation is intended to optimize margins and costs, and is focused on delivering an improved experience for all customers and a best-in-class experience for premium customers. These services include:

•

United Mainline, including United First^®, United Business^® and Economy Plus^®, the last providing three to five inches of extra legroom on all United Mainline and explus^SM United Express flights;

•

A new international premium travel experience featuring 180-degree, lie-flat beds in first and business class. The Company has completed first and business class equipment upgrades on 45 international aircraft that have been refitted with new premium seats, entertainment systems and other product enhancements. The Company expects to complete the remaining aircraft upgrades between 2010 and 2012;

•

p.s.^SM—a premium transcontinental service connecting New York with both Los Angeles and San Francisco; and

•

United Express, with a total fleet of 292 aircraft operated by regional airline partners, including approximately 150 aircraft that offer explus^SM service, United’s premium regional service providing both United First and Economy Plus seating.

The Company also generates revenue through its Mileage Plus^® Frequent Flyer Program (“Mileage Plus”), United Cargo ^SM and United Services. Mileage Plus, which helps the Company attract and retain high-value customers, contributed approximately $774 million to passenger and other revenue in 2009. United Cargo generated $536 million in freight and mail revenue in 2009. United Services generated $134 million in revenue in 2009 by utilizing downtime of otherwise under-utilized aircraft maintenance resources through providing third-party maintenance services.

The Company characterizes its business approach as “Focus on Five,” which refers to a comprehensive set of priorities that focuses on the fundamentals of running a good airline: one that runs on time, with clean planes and courteous employees, delivers industry-leading revenues and competitive costs, and does so safely. The goal of this approach is to enable United to achieve best-in-class safety performance, exceptional customer satisfaction and experience and industry-leading margin and cash flow. Building on this foundation, United aims to regain its position in key metrics reported by the U.S. Department of Transportation (“DOT”) as well as higher revenue driven by services, schedules and routes that are valued by the Company’s customers.

Operations

Segments. The Company operates its businesses through two reporting segments: Mainline and Regional Affiliates (United Express operations). The Company manages its business as an integrated network with assets deployed across its Mainline and regional carrier networks. This focus seeks to maximize the profitability of the overall airline network. Financial information on the Company’s reporting segments and operating revenues by geographic regions, as reported to the DOT, can be found in Note 9, “Segment Information,” in the Footnotes.

Mainline. The Company’s Mainline operating revenues were $13.3 billion, $17.1 billion and $17.0 billion in 2009, 2008 and 2007, respectively. As of December 31, 2009, Mainline domestic operations served approximately 80 destinations primarily throughout the U.S. and Canada and operated hubs at O’Hare, Denver, LAX, SFO and Washington Dulles. Mainline international operations serve the Pacific, Atlantic and Latin America regions. The Pacific region includes non-stop service to Beijing, Hong Kong, Osaka, Seoul, Shanghai, Sydney and Tokyo and direct service to Bangkok, Beijing (seasonal), Seoul, Singapore and Taipei via Tokyo; direct service to Ho Chi Minh City and Singapore via Hong Kong and to Melbourne via Sydney. The Atlantic region includes non-stop service to Amsterdam, Brussels, Dubai, Frankfurt, Geneva, Kuwait City, London, Moscow, Munich, Paris, Rome and Zurich and, commencing in April 2010, direct service to Bahrain through Kuwait City. The Latin American region offers non-stop service to Buenos Aires, Rio de Janeiro (seasonal) and Sao Paulo and direct service to Rio de Janeiro via Sao Paulo. The Latin American region also serves various Mexico destinations including Cancun, Cozumel (seasonal), Mexico City, Puerto Vallarta and San Jose del Cabo; various Caribbean points including Aruba and seasonal service to Montego Bay, Punta Cana, and St. Maarten; and Central America including Liberia, Costa Rica (seasonal). United will fly to the African continent commencing in the second quarter of 2010, serving Accra, Ghana, and plans to add service to Lagos, Nigeria, pending governmental approvals.

UAL’s operating revenues attributed to Mainline domestic operations were $7.7 billion, $9.7 billion and $10.9 billion in 2009, 2008 and 2007, respectively. Operating revenues attributed to Mainline international operations were $5.6 billion, $7.4 billion and $6.1 billion in 2009, 2008 and 2007, respectively. For purposes of the Company’s geographic revenue reporting, the Company considers destinations in Mexico and the Caribbean to be part of the Latin America region as opposed to the Domestic region.

The Mainline segment operated 360 aircraft as of December 31, 2009, and produced 122.7 billion available seat miles (“ASMs”) and 100.5 billion revenue passenger miles (“RPMs”) during 2009; in 2008, the Mainline segment produced 135.8 billion ASMs and 110.1 billion RPMs.

Regional Affiliates. Regional Affiliates operating revenues were approximately $3.1 billion in years 2009, 2008 and 2007. United has contractual relationships with various regional carriers to provide regional jet and turboprop service branded as United Express. United Express is an extension of the United Mainline network. Atlantic Southeast Airlines, Colgan Airlines, ExpressJet, GoJet Airlines, Mesa Airlines (“Mesa”), Shuttle America, SkyWest Airlines (“SkyWest”) and Trans States Airlines are all regional carriers, most of which operate under capacity purchase agreements with United. Under these agreements, United pays the regional carriers contractually-agreed fees (carrier-controlled costs) for operating these flights plus a variable reimbursement (incentive payment) based on agreed performance metrics. The carrier-controlled costs are based on specific rates for various operating expenses of the regional carriers, such as crew expenses, maintenance and aircraft ownership, some of which are multiplied by specific operating statistics (e.g., block hours, departures) while others are fixed monthly amounts. The incentive payment is a markup applied to the carrier-controlled costs for superior operational performance. Under these capacity purchase agreements, United is responsible for all fuel costs incurred as well as landing fees, facilities rent and deicing costs, which are passed through without any markup. In return, the regional carriers operate this capacity on schedules determined by United. United also determines pricing, revenues and inventory levels and assumes the inventory and distribution risk for the available seats. In January 2010, Mesa filed for Chapter 11 bankruptcy reorganization. The Company does not expect this filing to have any material effect on its Regional Affiliates flight operations, financial position or results of operations.

The capacity purchase agreements between the regional carriers and United do not include the provision of ground handling services. As a result, Regional Affiliates obtain ground handling services from a variety of third-party providers in addition to utilizing internal United resources in some cases. Regional Affiliates carriers operated 292 aircraft under capacity purchase agreements as of December 31, 2009, and produced 18.0 billion ASMs and 13.8 billion RPMs during 2009, while producing 16.2 billion ASMs and 12.1 billion RPMs in 2008.

While the regional carriers operating under capacity purchase agreements comprise more than 95% of Regional Affiliates flights, the Company also has limited prorate agreements with Colgan Airlines, SkyWest and Trans States Airlines. Under these prorate agreements, United and its prorate partners agree to divide revenue collected from each passenger according to a formula, while both United and the prorate partners are individually responsible for their own costs of operations. United also collects a program fee from Colgan Airlines to cover certain marketing and distribution costs such as credit card transaction fees, global distribution systems (“GDS”) transaction fees and frequent flyer costs. Unlike capacity purchase agreements, these prorate agreements require the regional carrier to retain the control and risk of scheduling, market selection, seat pricing and inventory for its flights.

United Cargo. United Cargo offers both domestic and international shipping through a variety of services including United Small Package Delivery, Express and General cargo services. Freight shipments comprise approximately 88% of United Cargo’s volumes, with mail shipments comprising the remainder. During 2009, United Cargo accounted for approximately 3% of the Company’s operating revenues by generating $536 million in freight and mail revenue, a 37% decrease versus 2008.

United Services. United Services is a global airline support business offering customers comprehensive aircraft maintenance, repair and overhaul services which include engine, line and global emergency maintenance

services. United Services brings nearly 80 years of experience to serve over 100 airline customer contracts worldwide. During 2009 and 2008, United Services generated approximately $134 million and $167 million, respectively, in third-party revenue.

Fuel. The price and availability of jet fuel significantly affects the Company’s results of operations. Fuel has been one of the Company’s largest operating expenses for the last several years. The Company has a risk management strategy to hedge a portion of its price risk related to projected jet fuel requirements. The Company’s hedging strategy currently utilizes purchased calls and swaps. If fuel prices rise above the fixed swap price, the Company’s counterparties are required to make settlement payments to the Company, while if fuel prices fall below the fixed swap price, the Company is required to make settlement payments to its fuel hedge counterparties. In addition, the Company has been, and may in the future be, required to provide counterparties with cash collateral prior to settlement of the hedge positions.

Fuel prices were extremely volatile during the three year period ended December 31, 2009, as shown in the table below. In 2009, the Company benefited from a lower average purchase price as compared to the two prior years due to lower market prices for jet fuel. The Company’s operating results in 2008 were adversely impacted by the unprecedented increase in the price of crude oil to a peak of approximately $145 per barrel in July 2008, followed by a decrease of more than $100 per barrel to approximately $45 per barrel in December 2008. This volatility resulted in the Company reporting total fuel hedge losses of approximately $1.1 billion in 2008. A significant portion of these losses was unrealized as of December 31, 2008 and the related contracts were settled in 2009, as shown in the table below. Fuel prices were somewhat less volatile in 2009 and 2007, as compared to 2008, resulting in less significant hedge impacts in these years. Total fuel hedge gains of $135 million and $83 million were reported in 2009 and 2007, respectively. The Company’s results of operations benefit from lower fuel prices on its unhedged fuel consumption and its liquidity is subject to fluctuations based on cash settlements and collateral that may be required.

The Company accounts for the majority of its fuel derivative contracts as economic hedges, which are marked-to-market with gains and losses classified as fuel expense. Remaining fuel derivative contracts which do not qualify for economic hedge accounting are marked-to-market with gains and losses classified as nonoperating expense. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk and Note 12, “Fair Value Measurements and Derivative Instruments,” in the Footnotes for additional details regarding gains and losses from settled and open positions, cash settlements, unrealized amounts at the end of the period and hedge collateral. Derivative gains and losses from contracts qualifying for economic hedge accounting are recorded in Mainline fuel expense and are not allocated to Regional Affiliates fuel expense.


	$								Average price per gallon (in cents)
(In millions, except per gallon)	2009			2008		2007			2009		2008	2007
Mainline fuel purchase cost	$	3,509		$	7,114	$	5,086		180.7		326.0	221.9
Non-cash fuel hedge (gains) losses in Mainline fuel		(586	)		568		(20	)	(30.2	)	26.0	(0.9	)
Cash fuel hedge (gains) losses in Mainline fuel		482			40		(63	)	24.8		1.9	(2.7	)

Total Mainline fuel expense		3,405			7,722		5,003		175.3		353.9	218.3
Regional Affiliates fuel expense (a)		799			1,257		915		201.8		338.8	242.7

UAL system operating fuel expense	$	4,204		$	8,979	$	5,918		179.8		351.7	221.7

Non-cash fuel hedge (gains) losses in nonoperating income (expense)	$	(279	)	$	279	$	—
Cash fuel hedge losses in nonoperating income (expense)		248			249		—
Mainline fuel consumption (gallons)		1,942			2,182		2,292
Regional Affiliates fuel consumption (gallons)		396			371		377

Total fuel consumption (gallons)		2,338			2,553		2,669

(a)	Regional Affiliates fuel costs are classified as part of Regional Affiliates expense.

To ensure adequate supplies of fuel and to obtain a measure of control over fuel costs, the Company arranges to have fuel shipped on major pipelines and stored close to its major hub locations. Although the Company currently does not anticipate a significant reduction in the availability of jet fuel, a number of factors make predicting fuel prices and fuel availability uncertain, including changes in world energy demand, geopolitical uncertainties affecting energy supplies from oil-producing nations, industrial accidents, threats of terrorism directed at oil supply infrastructure, extreme weather conditions causing temporary shutdowns of production and refining capacity, as well as changes in relative demand for other petroleum products that may impact the quantity and price of jet fuel produced from period to period.

Alliances. United has a number of bilateral and multilateral alliances with other airlines, which enhance travel options for customers seeking access to markets that United does not serve directly. These marketing alliances typically include one or more of the following features: joint frequent flyer program participation; codesharing of flight operations (whereby seats on one carrier’s selected flights can be marketed under the brand name of another carrier); coordination of reservations, ticketing, passenger check-in, baggage handling and flight schedules; and other resource-sharing activities.

The most significant of the Company’s alliances is the Star Alliance, a global integrated airline network co-founded by United in 1997 and the most comprehensive airline alliance in the world. As of January 1, 2010, Star Alliance carriers serve approximately 1,100 destinations in 175 countries with over 19,700 daily flights. Current Star Alliance partners, in addition to United, are Adria Airways, Air Canada, Air China, Air New Zealand, All Nippon Airways, Asiana Airlines, the Austrian Airlines Group, Blue1, bmi, Brussels Airlines, Continental Airlines (“Continental”), Croatia Airlines, EgyptAir, LOT Polish Airlines, Lufthansa, Scandinavian Airlines, Shanghai Airlines, Singapore Airlines, South African Airways, Spanair, Swiss International Air Lines, TAP Portugal, THAI, Turkish Airlines and US Airways. Aegean Airlines, Air India and TAM Airlines have been announced as future Star Alliance members.

During 2009, Continental joined United and its 24 other partners in the Star Alliance. The alliance partnership between United and Continental allows the two airlines to link their networks and services worldwide to the benefit of customers, employees and shareholders, creating new revenue opportunities, cost savings and other efficiencies. Continental’s and United’s route networks are highly complementary, with little overlap, so they add value to each other and to customers who are planning domestic and international travel. Under codesharing, customers benefit from a coordinated process for reservations/ticketing, check-in, flight connections and baggage transfer. Frequent flyer reciprocity allows members of Continental’s OnePass program and United’s Mileage Plus program to earn miles in their accounts when flying on either partner airline and redeem awards on both carriers. With Continental as a partner, United has added more than 60 new destinations to its alliance network and dramatically enhanced its market presence in New York and Latin America. United and Continental are exploring opportunities to capture important cost savings in the areas of information technology, frequent flyer programs, airport operations, lounges, procurement and sales and marketing.

In addition, pursuant to antitrust immunity approval by the DOT, United, Air Canada, Continental and Lufthansa are implementing a joint venture covering transatlantic routes that will deliver highly competitive flight schedules, fares and service. The European Commission is conducting a review of the anticipated competitive impact of the joint venture operations. In December 2009, United and Continental applied jointly with All Nippon Airways to the DOT for approval of, and immunity from U.S. antitrust laws for, a series of alliance agreements between and among the carriers, including a transpacific joint venture agreement. A grant of antitrust immunity will enable the three carriers to integrate the services they operate between the United States and Japan, and other destinations in Asia, to derive potentially significant benefits from coordinated scheduling, pricing, sales and inventory management. The integration of services will also allow the three carriers to offer passengers highly competitive flight schedules, fares and services. The approval of the agreements and the DOT’s grant of antitrust immunity, which is currently pending, is a condition precedent to Japan bringing into force the recently announced open skies agreement between Japan and the United States. See Industry Regulation, below.

United also has independent marketing agreements with other air carriers including Aer Lingus, Great Lakes Aviation, Gulfstream International, Hawaiian, Island Air, Qatar Airways, TACA Group and TAM Airlines.

Mileage Plus. Mileage Plus builds customer loyalty by offering awards and services to frequent travelers. Mileage Plus members can earn mileage credit for flights on United, United Express, members of the Star Alliance and certain other airlines that participate in the program. Miles can also be earned by purchasing the goods and services of our non-airline partners, such as hotels, car rental companies and credit card issuers. Mileage credits can be redeemed for free, discounted or upgraded travel and non-travel awards. There are more than 56 million members enrolled in Mileage Plus. In 2009, 2.1 million Mileage Plus travel awards were used on United, as compared to 2.3 million and 2.2 million in 2008 and 2007, respectively. These amounts represent the number of awards for which travel was provided and not the number of available seats that were allocated to award travel. These awards represented 8.3%, 9.1% and 8.0% of United’s total revenue passenger miles in 2009, 2008 and 2007, respectively. In addition, Mileage Plus members redeemed miles for approximately 885,000 non-United travel awards in 2009 as compared to 613,000 in 2008. Non-United travel awards include Red Carpet club memberships, car and hotel awards, merchandise and travel solely on another air carrier, among others. The increase in the number of non-United travel awards redeemed was due to the expansion of the merchandise programs, and the launch of a new car and hotel award program in the fourth quarter of 2009. Total miles redeemed for travel on United in 2009, including class-of-service upgrades, represented 86% of the total miles redeemed (for both completed and future travel). For a detailed description of the accounting treatment of Mileage Plus program activity, see Critical Accounting Policies in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Distribution Channels. The majority of United’s airline seat inventory continues to be distributed through the traditional channels of travel agencies and GDS, such as Sabre and Galileo. The growing use of alternative distribution systems, including www.united.com and GDS new entrants, provides United with an opportunity to lower its ticket distribution costs. To encourage customer use of lower-cost channels and capitalize on these cost-saving opportunities, the Company will continue to expand the capabilities of its website.

Industry Conditions

Seasonality. The air travel business is subject to seasonal fluctuations. Historically, revenues are better in the second and third quarters, which reflect higher travel demand, than the first and fourth quarter revenues, which reflect lower travel demand.

Economic Conditions. The Company’s costs and revenues are highly correlated to the economic health and growth of the United States and the global markets it serves. The global recession experienced over the past two years has resulted in declines in industry passenger demand, accompanied by a reduction in fare levels. The drop in demand has been higher among business and premium cabin travelers, as corporations have significantly reduced their spending on business travel. As discussed further in Item 1A, Risk Factors, and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, the current economic conditions have had, and may continue to have, negative impacts on passenger demand, revenues, the level of credit card sales activity and our cargo operations. In response to these economic conditions, United and other carriers in the industry implemented significant reductions in domestic and international capacity during 2008 and 2009.

Domestic Competition. The domestic airline industry is highly competitive and dynamic. In domestic markets, new and existing U.S. carriers are generally free to initiate service between any two points within the United States. United’s competitors consist primarily of other airlines, and, to a lesser extent, other forms of transportation and emerging technological substitutes such as videoconferencing. Competition can be direct in the form of another carrier flying the exact non-stop route or indirect where a carrier serves the same two cities non-stop from an alternative airport in that city, or via an itinerary requiring a connection at another airport.

United’s actual and forecasted capacity increases (decreases) for 2009 and 2010, respectively, as compared to the year-ago periods, are summarized in the following table:


		Mainline		Regional Affiliates
	Consolidated	Domestic	International	Regional Affiliates
Fourth Quarter 2009	(3.4)%	(4.8)%	(7.7)%	17.2%
Full-year 2009	(7.4)%	(10.4)%	(8.7)%	11.2%
First Quarter 2010	(2.5)% to (1.5)%	(5.75)% to (4.75)%	(4.0)% to (3.0)%	15.9% to 16.9%
Full-year 2010	(0.5)% to 0.5%	(5.3)% to (4.3)%	3.4% to 4.4%	6.3% to 7.3%

Carriers that operate as low cost carriers or that have lower cost structures achieved through reorganization may be more competitive with the rest of the industry, resulting in lower fares for such carriers’ passengers with a potential negative impact on the Company’s revenues. In addition, future airline mergers or acquisitions similar to Delta Airlines’ acquisition of Northwest Airlines in late 2008 may enable airlines to improve their revenue and cost performance relative to peers and thus enhance their competitive position within the industry.

Domestic pricing decisions are largely affected by the need to be competitive with other U.S. airlines. Fare discounting by competitors has historically had a negative effect on the Company’s financial results because United often finds it necessary to match competitors’ fares to maintain passenger traffic. Attempts by United and other airlines to raise fares often fail due to a lack of competitive matching.

International Competition. In United’s international networks, the Company competes not only with U.S. airlines, but also with foreign carriers. Competition on specified international routes is subject to varying degrees of governmental regulations. The United States and European Union (“EU”) agreement in 2008 to reduce restrictions on flight operations between the two regions has increased competition for United’s transatlantic network from both U.S. and European airlines. In our Pacific operations, competition is expected to increase as the governments of the United States and China recently approved additional U.S. and Chinese airlines to fly new routes between the two countries, although the commencement of some new services to China has been postponed due to the weak global economy. Competition in the Pacific may likely increase when the recently announced open skies agreement between the United States and Japan becomes effective, which is currently expected to be in the fall of 2010, subject to certain conditions precedent being met. See Industry Regulation, below. Competition in the Pacific may also increase if Japan Airlines, which filed for bankruptcy in January 2010, emerges from restructuring as a stronger competitor in the region. Part of United’s ability to successfully compete with non-U.S. carriers on international routes is its ability to generate traffic from and to the entire U.S. via its integrated domestic route network. Foreign carriers are currently prohibited by U.S. law from carrying local passengers between two points in the U.S. and United experiences comparable restrictions in many foreign countries. In addition, U.S. carriers are often constrained from carrying passengers to points beyond designated international gateway cities due to limitations in air service agreements and restrictions imposed unilaterally by foreign governments. To compensate for these structural limitations, U.S. and foreign carriers have entered into alliances and marketing arrangements that allow these carriers to exchange traffic between each other’s flights and route networks. See Alliances, above, for further information.

Insurance. United carries hull and liability insurance of a type customary in the air transportation industry, in amounts that the Company deems appropriate, covering passenger liability, public liability and damage to United’s aircraft and other physical property. United also maintains other types of insurance such as property, directors and officers, cargo, workers’ compensation, automobile and the like, with limits and deductibles that are standard within the industry. Losses that materially exceed these limits could have a significant impact on the Company. After the September 11, 2001 terrorist attacks, the Company’s insurance premiums increased significantly but have since been reduced reflecting the market’s changing perception of risk, as well as the Company’s ongoing capacity reductions. Additionally, after September 11, 2001, commercial insurers canceled United’s liability insurance for losses resulting from war and associated perils (terrorism, sabotage, hijacking and other similar events). The U.S. government subsequently agreed to provide commercial war-risk insurance for

U.S. airlines and has renewed this coverage on a periodic basis. The current war-risk policy is effective until August 31, 2010 and covers losses to employees, passengers, third parties and aircraft. If the U.S. government does not extend this coverage beyond August 31, 2010, obtaining comparable coverage from commercial underwriters could result in substantially higher premiums and more restrictive terms, if it is available at all. See “Increases in insurance costs or reductions in insurance coverage may adversely impact the Company’s operations and financial results” in Item 1A, Risk Factors, below.

Industry Regulation

Domestic Regulation.

General. All carriers engaged in air transportation in the U.S. are subject to regulation by the DOT. Among its responsibilities, the DOT issues certificates of public convenience and necessity for domestic air transportation (no air carrier, unless exempted, may provide air transportation without a DOT certificate of public convenience and necessity), grants international route authorities, approves international codeshare agreements, regulates methods of competition and enforces certain consumer protection regulations, such as those dealing with advertising, denied boarding compensation and baggage liability.

Airlines also are regulated by the Federal Aviation Administration (“FAA”), a division of the DOT, primarily in the areas of flight operations, maintenance and other safety and technical matters. The FAA has authority to issue air carrier operating certificates and aircraft airworthiness certificates, prescribe maintenance procedures and regulate pilot and other employee training, among other responsibilities. From time to time, the FAA issues rules that require air carriers to take certain actions, such as the inspection or modification of aircraft and other equipment, that may cause the Company to incur substantial, unplanned expenses. The airline industry is also subject to various other federal laws and regulations. The U.S. Department of Homeland Security (“DHS”) has jurisdiction over virtually all aspects of civil aviation security. See Legislation, below. The U.S. Department of Justice (“DOJ”) has jurisdiction over certain airline competition matters. The U.S. Postal Service has authority over certain aspects of the transportation of mail. Labor relations in the airline industry are generally governed by the Railway Labor Act (“RLA”). The Company is also subject to inquiries by the DOT, FAA and other U.S. and international regulatory bodies.

Airport Access. Access to landing and take-off rights, or “slots,” at several major U.S. airports and many foreign airports served by United are, or recently have been, subject to government regulation. Domestic slot restrictions currently apply at Reagan National Airport in Washington D.C. (“Washington Reagan”), John F. Kennedy International Airport and LaGuardia Airport (“LaGuardia”), both in New York, and Newark Liberty International Airport in New Jersey.

In December 2009, the DOT issued a new rule intended to enhance air passenger protections. The new rule, which goes into effect in April 2010, creates new areas of regulation in passenger protection, including a requirement that certain carriers, including United, adopt contingency plans for lengthy tarmac delays at most U.S. airports. A carrier’s failure to meet certain service performance criteria under the rule could subject it to substantial civil penalties.

Legislation. The airline industry is also subject to legislative activity that may have an impact on operations and costs. Specifically, the law that authorizes federal excise taxes and fees assessed on airline tickets expired in September 2007 but has been extended multiple times and has most recently been extended until March 31, 2010. In addition to federal, state and local taxes and fees that the Company is currently subject to, proposed taxes and fees are currently pending that may increase the Company’s operating costs if imposed on the Company. Congress is currently attempting to pass comprehensive reauthorization legislation to impose a new funding structure and make other changes to FAA operations. Past aviation reauthorization bills have affected a wide range of areas of interest to the industry, including air traffic control operations, capacity control issues, airline competition issues, aircraft and airport technology requirements, safety issues, taxes, fees and other funding sources. Congress may also pass other legislation that could increase labor and operating costs. Climate change

legislation, which would regulate greenhouse gas emissions, is also likely to be a significant area of legislative and regulatory focus and could adversely impact fuel costs. See Environmental Regulation, below.

Customer service issues have remained active areas for both Congress and DOT regulators during 2009. In addition to DOT customer service regulations discussed above, additional regulations or legislation imposing more specific customer service requirements are likely to be approved in 2010, though what those requirements might be is unclear at this time. The DOT has also proceeded with other regulatory changes in this area, including proposals regarding treatment of and payments to passengers involuntarily denied boarding, domestic baggage liability and airline scheduling practices. Additionally, since September 11, 2001, aviation security has been and continues to be a subject of frequent legislative and regulatory action, requiring changes to the Company’s security processes and frequently increasing the cost of its security procedures.

International Regulation.

General. International air transportation is subject to extensive government regulation. In connection with United’s international services, the Company is regulated by both the U.S. government and the governments of the foreign countries United serves. In addition, the availability of international routes to U.S. carriers is regulated by aviation agreements between the U.S. and foreign governments, and in some cases, fares and schedules require the approval of the DOT and/or the relevant foreign governments.

Airport Access. Historically, access to foreign markets has been tightly controlled through bilateral agreements between the U.S. and each foreign country involved. These agreements regulate the markets served, the number of carriers allowed to serve each market and the frequency of carriers’ flights. Since the early 1990s, the U.S. has pursued a policy of “open skies” (meaning all carriers have access to the destination), under which the U.S. government has negotiated a number of bilateral agreements allowing unrestricted access between U.S. and foreign markets. Currently, there are more than 90 open skies agreements in effect. Additionally, all of the airports that United serves in Europe and Asia maintain slot controls, and many of these are restrictive due to congestion at these airports. London Heathrow, Frankfurt and Tokyo Narita are among the most restrictive airports due to capacity limitations. United has significant operations at these locations.

United’s ability to serve some foreign markets and expand into certain others is limited by the absence altogether of aviation agreements between the U.S. government and the relevant governments. Shifts in U.S. or foreign government aviation policies may lead to the alteration or termination of air service agreements. Depending on the nature of any such change, the value of United’s international route authorities and slot rights may be materially enhanced or diminished.

The U.S./EU open skies agreement became effective in 2008. This agreement replaced the bilateral arrangements between the U.S. government and the 27 EU member states. Based on the U.S. open skies model, it provides U.S. and EU carriers with expansive rights that have increased competition in transatlantic markets. For example, U.S. and EU carriers now have the right to operate between any point in the United States and the EU. The agreement has no direct impact on airport slot rights nor does it provide for a reallocation of existing slots, including those at London Heathrow. London Heathrow currently remains subject to both slot and facility constraints. The agreement provides United with additional commercial opportunities since it triggered the effectiveness of the DOT’s grant of anti-trust immunity to United and British carrier bmi, creating increased cooperation between the two carriers in the transatlantic market. Because of the diverse nature of potential impacts on United’s business, however, the overall future impact of the U.S./EU agreement on United’s business cannot be predicted with certainty.

Also in 2008, the EU adopted interpretive guidance and legislation that impacts the Company. The Commission officially sanctioned secondary slot trading, a current practice among carriers that involves the sale, purchase or lease of slots. This action resolves disputes about the legality of slot exchanges at EU airports including London Heathrow.

In December 2009, the United States and Japan reached agreement on the text of an open skies agreement to replace the 1952 bilateral agreement on air service between the United States and Japan. The open skies agreement is expected to enter into force in the fall of 2010, subject to the satisfaction of certain conditions precedent. Pursuant to the agreement, any U.S. or Japanese carrier will be able to fly between any point in the United States and any point in Japan and, in the case of U.S. carriers, beyond Japan to points in other countries the carrier is authorized to serve. The agreement will also eliminate the restrictions on the number of frequencies carriers can operate, and require governments in both the United States and Japan to concur before taking action to regulate a carrier’s fares or rates.

Also in December 2009, United and Continental applied jointly with All Nippon Airways to the DOT for approval of, and immunity from U.S. antitrust laws for, a series of alliance agreements between and among the carriers, including a transpacific joint venture agreement. This application is currently pending. See Alliances, above, for additional information.

Environmental Regulation.

The airline industry is subject to increasingly stringent federal, state, local and foreign environmental laws and regulations concerning emissions to the air, discharges to surface and subsurface waters, safe drinking water and the management of hazardous substances, oils and waste materials. New regulations surrounding the emission of greenhouse gases (such as carbon dioxide) have been adopted and are otherwise being considered for promulgation both internationally and within the United States (which is discussed further below). United is carefully evaluating the impact of such new and proposed regulations. Other areas of developing and/or new regulations include the State of California rule-makings regarding air emissions from ground support equipment and federal rule-makings concerning the discharge of deicing fluid and the regulation of aircraft drinking water supplies.

Future environmental regulatory developments, such as in regard to climate change, in the United States and abroad, could adversely affect operations and increase operating costs in the airline industry. Some climate change laws and regulations that have gone into effect apply to United, including environmental taxes for certain international flights (including the United Kingdom’s Air Passenger Duty), limited greenhouse gas reporting requirements and land-based planning laws which could apply to airports and could affect airlines in certain circumstances. In addition, a 2009 EU Directive required EU member countries to enact legislation that would include aviation within the EU’s existing carbon emissions trading scheme, effective in 2012. The legality of applying such a scheme to non-EU airlines has been widely questioned. In December 2009, the Air Transportation Association, joined by United, Continental and American Airlines, filed a lawsuit in the United Kingdom challenging regulations that transpose into UK law the EU emissions trading scheme as applied to U.S. carriers. In addition, non-EU countries are considering filing a formal challenge before the United Nations’ International Civil Aviation Organization with respect to the EU’s inclusion of non-EU carriers. It is not clear whether the trading scheme will withstand such challenges. If the scheme is found to be valid, however, it could significantly increase the cost of carriers operating in the EU (by requiring the purchase of carbon credits), although the precise cost to United is difficult to calculate with certainty due to a number of variables and will depend, among other things, on United’s carbon emissions from flights to and from the EU and the price of carbon credits. The precise nature of any such requirements and their applicability to United are difficult to predict, but the impact to the Company and the aviation industry would likely be adverse and could be significant, including the potential for increased fuel costs, carbon taxes or fees, or a requirement to purchase carbon credits.

The airline industry is also subject to other environmental laws and regulations, including those that require the Company to remediate soil or groundwater to meet certain objectives. Compliance with all environmental laws and regulations can require significant expenditures. Under the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as “Superfund,” and similar environmental cleanup laws, generators of waste materials and owners or operators of facilities, can be subject to liability for

investigation and remediation costs at locations that have been identified as requiring response actions. The Company also conducts voluntary environmental assessment and remediation actions. Environmental cleanup obligations can arise from, among other circumstances, the operation of aircraft fueling facilities and primarily involve airport sites. Future costs associated with these activities are currently not expected to have a material adverse affect on the Company’s business.

Employees

As of December 31, 2009, the Company and its subsidiaries had approximately 47,000 active employees, of whom approximately 82% were represented by various U.S. labor organizations. The employee groups, number of employees and labor organization for each of United’s collective bargaining groups were as follows:


Employee Group	Number of Employees	Union (a)	Contract Open for Amendment
Public Contact/Ramp & Stores/Food Service Employees/Security Officers/Maintenance Instructors/Fleet Technical Instructors	14,811	IAM	January 1, 2010
Flight Attendants	12,892	AFA	January 8, 2010
Pilots	5,632	ALPA	January 1, 2010
Mechanics & Related	4,678	Teamsters	January 1, 2010
Engineers	218	IFPTE	January 1, 2010
Dispatchers	164	PAFCA	January 1, 2010

(a)

International Association of Machinists and Aerospace Workers, Association of Flight Attendants—Communication Workers of America, Air Line Pilots Association, International Brotherhood of Teamsters, International Federation of Professional and Technical Engineers and Professional Airline Flight Control Association.

Collective bargaining agreements are negotiated under the RLA, which governs labor relations in the air transportation industry, and such agreements typically do not contain an expiration date. Instead, they specify an amendable date, upon which the contract is considered “open for amendment.” Contracts remain in effect while new agreements are negotiated. During the negotiation period, both the Company and the negotiating union are required to maintain the status quo.

During the second quarter of 2009, the Company began negotiations with its labor unions as all of United’s domestic labor contracts became amendable during January 2010. Consistent with its contractual commitments, United served “Section 6” notices to all six of its labor unions in April 2009 to commence the collective bargaining process. In August 2009, United filed for mediation assistance in conjunction with three of its six unions–the Air Line Pilots Association (“ALPA”), Association of Flight Attendants–Communication Workers of America (“AFA”) and the International Association of Machinists and Aerospace Workers (“IAM”). In January 2010, the Company also filed for mediation assistance in conjunction with another of its unions, Professional Airline Flight Control Association (“PAFCA”). These filings were consistent with commitments contained in current labor contracts which provided that the parties would jointly invoke the mediation services of the National Mediation Board (“NMB”) in the event agreements had not been reached by August 1, 2009. While the labor contract with the International Brotherhood of Teamsters (the “Teamsters”) also contemplates filing for mediation, the parties have agreed to continue in direct negotiations. The current contract with the International Federation of Professional and Technical Engineers (“IFPTE”) does not contemplate filing for mediation. The outcome of these negotiations may materially impact the Company’s future financial results. However, it is too early in the process to assess the timing or magnitude of the impact, if any.

ITEM 1A.

RISK FACTORS.

The following risk factors should be read carefully when evaluating the Company’s business and the forward-looking statements contained in this report and other statements the Company or its representatives make from time to time. Any of the following risks could materially adversely affect the Company’s business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made in this report.

Risks Related to the Company’s Business

The Amended Credit Facility and the indentures governing the Senior Notes impose certain operating and financial restrictions on the Company and its subsidiaries. The Company may be unable to continue to comply with the covenants in these and other agreements, which, if not complied with, could accelerate repayment under the Amended Credit Facility or the indentures governing the Senior Notes, as applicable, thereby materially and adversely affecting the Company’s liquidity.

The Company’s Amended and Restated Revolving Credit, Term Loan and Guaranty Agreement, dated as of February 2, 2007 (the “Amended Credit Facility”), and the Company’s indentures governing the 9.875% Senior Secured Notes due 2013 and 12.0% Senior Second Lien Notes due 2013 (together, the “Senior Notes”) impose certain operating and financial covenants on the Company and its subsidiaries.

Among other covenants, the terms of the Amended Credit Facility require the Company to maintain:

•

a minimum unrestricted cash balance (as defined in the Amended Credit Facility) of $1.0 billion at any time;

•

a minimum ratio of collateral value to debt obligations, as of certain reference periods, subject to certain exceptions; and

•

a minimum fixed charge coverage ratio, as determined below.


Number of Preceding Months Covered	Period Ending	Required Fixed Charge Coverage Ratio
Nine	December 31, 2009	1.2 to 1.0
Twelve	March 31, 2010	1.3 to 1.0
Twelve	June 30, 2010	1.4 to 1.0
Twelve	September 30, 2010 and each quarter ending thereafter.	1.5 to 1.0

The Amended Credit Facility fixed charge coverage ratio is calculated as EBITDAR to the sum of the following fixed charges for such period: (a) cash interest expense and (b) cash aircraft operating rental expense. EBITDAR represents earnings before interest expense net of interest income, income taxes, depreciation, amortization, aircraft rent and certain cash and non-cash charges as further defined by the Amended Credit Facility. The other adjustments to EBITDAR include items such as foreign currency transaction losses, increases in our deferred revenue obligation, share-based compensation expense, non-recurring or unusual losses, any non-cash non-recurring charge or non-cash restructuring charge, a limited amount of cash restructuring charges, certain cash transaction costs incurred with financing activities and the cumulative effect of a change in accounting principle.

Among other covenants, the indentures governing the Senior Notes contain covenants related to the collateral, including covenants requiring United, subject to certain exceptions, to maintain ownership of the collateral and to calculate the priority lien debt value ratio or secured debt value ratio, as applicable, and to maintain a minimum priority lien debt value ratio or minimum secured debt value ratio, as applicable, as of

certain reference periods. If the value of the Company’s collateral underlying the Senior Notes declines, the Company may be required to provide the debtholders with additional collateral in order to avoid a default and a subsequent acceleration of the applicable debt obligations.

The Company’s ability to comply with the covenants in the Amended Credit Facility or the indentures governing the Senior Notes may be affected by events beyond its control, including the overall industry revenue environment and the level of fuel costs, and it may be required to seek waivers or amendments of covenants or alternative sources of financing. The Company cannot provide assurance that such waivers, amendments or alternative financing could be obtained or, if obtained, would be on terms acceptable to the Company.

A breach of certain of the covenants or restrictions contained in the Company’s Amended Credit Facility or indentures governing the Senior Notes could result in a default. The Amended Credit Facility and the indentures governing the Senior Notes contain a cross-default provision with respect to final judgments that exceed $50 million and $70 million, respectively. In addition, the indentures governing the Senior Notes contain a cross-default provision where a default resulting in the acceleration of indebtedness under the Amended Credit Facility could result in a default under the indentures. A default under the agreements could allow the Company’s debtholders to accelerate repayment of the obligations in these agreements and/or to declare all borrowings outstanding thereunder to be due and payable. If the Company’s debt is accelerated, its assets may not be sufficient to repay the obligations in the Amended Credit Facility and the Senior Notes.

The Company may be unable to continue to comply with certain covenants in agreements with financial institutions that process customer credit card transactions, which, if not complied with, could materially and adversely affect the Company’s liquidity.

The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain of the Company’s card processing agreements, the financial institutions either require, or have the right to require, that United maintain a reserve equal to a portion of advance ticket sales that have been processed by that financial institution, but for which the Company has not yet provided the air transportation (referred to as “relevant advance ticket sales”). As of December 31, 2009, the Company had total advance ticket sales of approximately $1.5 billion, of which approximately 80% related to credit card sales.

The Company’s credit card processing agreement with Paymentech and JPMorgan Chase Bank, N.A. contains a cash reserve requirement. In addition to certain other risk protections provided to the processor, the amount of any such cash reserve will be determined based on the amount of unrestricted cash held by the Company as defined under the Amended Credit Facility. If the Company’s unrestricted cash balance is at or more than $2.5 billion as of any calendar month-end measurement date, its required reserve will remain at $25 million. However, if the Company’s unrestricted cash is less than $2.5 billion, its required reserve will increase to a percentage of relevant advance ticket sales as summarized in the following table:


Total Unrestricted Cash Balance (a)	Required % of Relevant Advance Ticket Sales
Less than $2.5 billion	15	%
Less than $2.0 billion	25	%
Less than $1.0 billion	50	%

(a)	Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by the agreement.

Based on the Company’s December 31, 2009 unrestricted cash balance, the Company was not required to provide cash collateral above the current $25 million reserve balance.

United entered into a new agreement with American Express on March 1, 2009 with an initial five year term. Under the agreement, in addition to certain other risk protections provided to American Express, the Company will be required to provide reserves based primarily on its unrestricted cash balance and net current exposure as of any calendar month-end measurement date, as summarized in the following table:


Total Unrestricted Cash Balance (a)	Required % of Net Current Exposure (b)
Less than $2.4 billion	15	%
Less than $2.0 billion	25	%
Less than $1.35 billion	50	%
Less than $1.2 billion	100	%

(a)	Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by the agreement.

(b)	Net current exposure equals relevant advance ticket sales less certain exclusions, and as adjusted for specified amounts payable between United and the processor, as further defined by the agreement.

The agreement with American Express permits the Company to provide certain replacement collateral in lieu of cash collateral, as long as the Company’s unrestricted cash is above $1.35 billion. Such replacement collateral may be pledged for any amount of the required reserve up to the full amount thereof, with the stated value of such collateral determined according to the agreement. Replacement collateral may be comprised of aircraft, slots and routes, real estate or other collateral as agreed between the parties. Based on the Company’s unrestricted cash balance at December 31, 2009, the Company was not required to provide any reserves under this agreement.

An increase in the future reserve requirements as provided by the terms of either, or both, of the Company’s material card processing agreements could materially reduce the Company’s liquidity.

The Company may not be able to maintain adequate liquidity.

While the Company’s cash flows from operations and its available capital have been sufficient to meet its current operating expenses, lease obligations and debt service requirements to date, the Company’s future liquidity could be negatively impacted by many factors including, but not limited to, substantial volatility in the price of fuel, declines in passenger and cargo demand associated with the global recession and deterioration of global financial systems, and any of our future commitments for the purchase of aircraft. During 2008 and 2009, the Company experienced reduced demand for its services due to the weak global economy. Decreases in passenger and cargo demand resulting from a weak global economy resulted in both lower passenger volumes and lower ticket fares, which adversely impacted our liquidity and may continue to adversely impact our results of operations and liquidity in 2010. In addition, the Company’s capacity cuts completed in 2008 and 2009 may not be sufficient to address lower demand due to the weak global economy. See the risk factor entitled “Economic and industry conditions constantly change and continued or worsening negative economic conditions in the United States and elsewhere may have a material adverse effect on our business and results of operations,” below, for further discussion of the adverse impacts of the weak economy on our operations.

In addition, fuel prices continue to be extremely volatile which may negatively impact the Company’s liquidity in the future. Certain of the Company’s fuel hedges require that it post cash collateral with applicable counterparties if crude oil prices fall below certain prices. The Company provided cash collateral of $10 million to its fuel derivative counterparties as of December 31, 2009. See Note 12, “Fair Value Measurements and Derivative Instruments,” in the Footnotes.

The Company’s plans to address increased and volatile fuel prices and the weak global economy may not be successful in improving its results of operations and liquidity. In addition, the implementation of certain of these

plans requires the use of cash for such items as severance payments, lease termination fees and facility closure costs, among others. These cash requirements will reduce the Company’s available cash for its ongoing operations.

As described above, the Company is required to comply with certain financial covenants under its Amended Credit Facility, the indentures governing the Senior Notes and certain of its credit card processing agreements. The factors noted above, among other things, may impair the Company’s ability to comply with these covenants or could allow certain of our credit card processors to increase the required reserves on our advance ticket sales, which could have an adverse impact on the Company’s financial position and liquidity, depending on its ability to obtain a waiver of, or otherwise mitigate, the impact of the default. If a default occurs under our Amended Credit Facility and the indentures governing the Senior Notes, the cost to cure any such default may adversely impact our financial position and liquidity.

In addition, the Company’s indebtedness at December 31, 2009 was secured by collateral with a net carrying value of $8.0 billion. As a result, we may have limited remaining assets available as collateral for loans or other indebtedness, which may make it difficult to raise additional capital to meet our liquidity needs. Our level of indebtedness, non-investment grade credit rating and the current market conditions may also make it difficult for us to raise capital to meet liquidity needs and may increase our cost of borrowing. A higher cost of capital could negatively impact our results of operations, financial position and liquidity.

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further information regarding the Company’s liquidity.

Economic and industry conditions constantly change and continued or worsening negative economic conditions in the United States and elsewhere may have a material adverse effect on our business and results of operations.

Our business and results of operations are significantly impacted by general economic and industry conditions. Industry-wide passenger air travel varies from year to year. Robust demand for our air transportation services depends largely on favorable general economic conditions, including the strength of the global and local economies, low unemployment levels, strong consumer confidence levels and the availability of consumer and business credit. For leisure travelers, air transportation is often a discretionary purchase that those consumers can eliminate from their spending in difficult economic times. In addition, during periods of poor economic conditions, businesses usually reduce the volume of their business travel, either due to cost-savings initiatives or as a result of decreased business activity requiring travel. The overall demand for air transportation in the United States has decreased due to adverse changes and continued deterioration of the U.S. and global economies, which has negatively impacted our results of operations for the years ended December 31, 2009 and 2008, and may continue to have a significant negative impact on our future results of operations for an extended period of time. While some economic indicators like the GDP are beginning to exhibit growth, other economic indicators that affect air travel such as unemployment have not yet begun to recover and may not do so for an extended period of time. In addition, decreases in cargo revenues due to lower demand have a disproportionate impact on our operating results as our cargo revenues generally have higher margins as compared to our passenger revenues. Continuation or worsening of the current global recession may lead the Company and other carriers to further reduce domestic or international capacity and may have a material adverse effect on the Company’s revenues, results of operations and liquidity.

Continued periods of historically high fuel costs or significant disruptions in the supply of aircraft fuel could have a material adverse impact on the Company’s operating results.

The Company’s operating results have been, and could continue to be, significantly impacted by changes in the supply or price of aircraft fuel, both of which are impossible to predict. The record-high fuel prices each year from 2005 through 2007 increased further in 2008 to new record highs with the crude oil spot price reaching approximately $145 per barrel in July 2008. At times, United has not been able to increase its fares when fuel

prices have risen due to the highly competitive nature of the airline industry. United may not be able to increase its fares if fuel prices rise in the future and any such increases may not be sustainable in the highly competitive environment. In addition, fare increases may not totally offset the fuel price increase and may also reduce demand for air travel. From time to time, the Company enters into hedging arrangements to protect against rising fuel costs. The Company’s hedging programs may use significant amounts of cash due to posting of cash collateral in some circumstances, may not be successful in controlling fuel costs and may be limited due to market conditions and other factors. See Note 12, “Fair Value Measurements and Derivative Instruments,” in the Footnotes for additional information on the Company’s hedging programs.

Additional terrorist attacks or the fear of such attacks, even if not made directly on the airline industry, could negatively affect the Company and the airline industry.

The terrorist attacks of September 11, 2001 involving commercial aircraft severely and adversely impacted the Company’s financial condition and results of operations, as well as prospects for the airline industry. Among the effects experienced from the September 11, 2001 terrorist attacks were substantial flight disruption costs caused by the FAA-imposed temporary grounding of the U.S. airline industry’s fleet, significantly increased security costs and associated passenger inconvenience, increased insurance costs, substantially higher ticket refunds and significantly decreased traffic and passenger revenue per revenue passenger mile (“yield”).

Additional terrorist attacks, even if not made directly on the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated national threat warnings or selective cancellation or redirection of flights) could materially and adversely affect the Company and the airline industry. The wars in Iraq and Afghanistan and additional international hostilities, including heightened terrorist activity, could also have a material adverse impact on the Company’s financial condition, liquidity and results of operations. The Company’s financial resources might not be sufficient to absorb the adverse effects of any further terrorist attacks or other international hostilities involving the United States or U.S. interests.

The airline industry is highly competitive, susceptible to price discounting and may undergo further bankruptcy restructuring or industry consolidation.

The U.S. airline industry is characterized by substantial price competition. Some of our competitors have substantially greater financial resources or lower cost structures than United does, or both. In recent years, the market share held by low-cost carriers has increased significantly. Large network carriers, like United, have often had a lack of pricing power within domestic markets.

In addition, a number of carriers have filed for bankruptcy protection in recent years. Other domestic and international carriers could restructure in bankruptcy or threaten to do so to reduce their costs. Carriers operating under bankruptcy protection can operate in a manner that could be adverse to the Company and could emerge from bankruptcy as more vigorous competitors.

During 2008, the U.S. airline industry underwent consolidation with the merger of Delta Airlines and Northwest Airlines. In 2009, regional mainline carriers Midwest Airlines and Frontier Airlines were acquired by Republic Airways, and Frontier Airlines remains a direct competitor of United at its Denver hub. In early 2010, foreign carrier Japan Airlines filed for bankruptcy and began restructuring its business.

There is ongoing speculation that further airline industry consolidation could occur in the future. United routinely monitors changes in the competitive landscape and engages in analysis and discussions regarding its strategic position, including alliances, asset acquisitions and divestitures and business combinations. The Company’s strategic alliance with Continental Airlines will not realize all of the benefits of a merger. The Company may have future discussions with other airlines regarding mergers and/or other strategic alternatives. If other airlines participate in merger activity, and United does not, those airlines may significantly improve their cost structures or revenue generation capabilities, thereby potentially making them stronger competitors of United.

United and certain of its competitors implemented significant capacity reductions in 2008 and 2009. The Company’s unit revenues may not be favorably impacted by the capacity reductions and its unit costs may be adversely impacted. Further, certain of the Company’s competitors may not reduce capacity or may increase capacity, thereby diminishing the expected benefit to the Company from capacity reductions.

Additional security requirements may increase the Company’s costs and decrease its revenues and traffic.

Since September 11, 2001, the DHS and the Transportation Security Administration have implemented numerous security measures that affect airline operations and costs and are likely to implement additional measures in the future. In addition, foreign governments have also instituted additional security measures at foreign airports United serves. A substantial portion of the costs of these security measures is borne by the airlines and their passengers, increasing the Company’s costs and/or reducing its revenue and traffic. Additional measures taken to enhance either passenger or cargo security procedures and/or to recover associated costs in the future may result in similar adverse effects on United’s results of operations.

Extensive government regulation could increase the Company’s operating costs and restrict its ability to conduct its business.

Airlines are subject to extensive regulatory and legal compliance requirements that result in significant costs. In addition to the enactment of the Aviation and Transportation Security Act, laws, regulations, taxes and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce airline revenue. The FAA from time to time also issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures by United. The Company expects to continue incurring material expenses to comply with the regulations of the FAA and other agencies.

United operates under a certificate of public convenience and necessity issued by the DOT. If the DOT altered, amended, modified, suspended or revoked our certificate, it could have a material adverse effect on the Company’s business. The FAA can also limit United’s airport access by limiting the number of departure and arrival slots at high density traffic airports and local airport authorities may have the ability to control access to certain facilities or the cost of access to such facilities, which could have an adverse effect on the Company’s business.

In addition, access to landing and take-off rights, or “slots,” at several major U.S. airports and many foreign airports served by United are, or recently have been, subject to government regulation. As passenger travel has continued to increase in recent years, many U.S. and foreign airports have become increasingly congested. Certain of United’s major hubs are among the more congested airports in the United States and have been or could be the subject of regulatory action that might limit the number of flights and/or increase costs of operations at certain times or throughout the day.

In addition, the Company’s operations may be adversely impacted due to the existing outdated air traffic control (“ATC”) system utilized by the U.S. government. During peak travel periods in certain markets the current ATC system’s inability to handle existing travel demand has led to short-term capacity constraints imposed by government agencies, as discussed above, and has also resulted in delays and disruptions of air traffic. In addition, the current system will not be able to effectively handle projected future air traffic growth. Therefore, imposition of these ATC constraints on a long-term basis may have a material adverse effect on our results of operations. Failure to update the ATC system in a timely manner, and the substantial funding requirements of a modernized ATC system that may be imposed on carriers like United, may have an adverse impact on the Company’s financial condition or results of operations.

The Company has been subject to federal, state and local taxes and fees that increase the cost of the Company’s operations. In addition to taxes and fees that the Company is currently subject to, proposed taxes and fees are currently pending. If any of these additional taxes and fees were to be imposed on the Company, they would increase the Company’s operating expenses.

Many aspects of United’s operations are also subject to increasingly stringent federal, state and local laws protecting the environment. Future environmental regulatory developments, such as in regard to climate change, in the United States and abroad could adversely affect operations and increase operating costs in the airline industry. Some climate change laws and regulations that have gone into effect apply to United, including environmental taxes for certain international flights (including the United Kingdom’s Air Passenger Duty), limited greenhouse gas reporting requirements and land-based planning laws which could apply to airports and could affect airlines in certain circumstances. Other areas of developing regulations include the State of California rule-making regarding air emissions from ground support equipment and federal rule-makings concerning the discharge of deicing fluid and the regulation of aircraft drinking water supplies. In addition, a 2009 EU Directive required EU member countries to enact legislation that would include aviation within the EU’s existing carbon emissions trading scheme, effective in 2012. The legality of applying such a scheme to non-EU airlines has been widely questioned. In December 2009, the Air Transportation Association, joined by United, Continental and American Airlines, filed a lawsuit in the United Kingdom challenging regulations that transpose into UK law the EU emissions trading scheme as applied to U.S. carriers. In addition, non-EU countries are considering filing a formal challenge before the United Nations’ International Civil Aviation Organization with respect to the EU’s inclusion of non-EU carriers. It is not clear whether the trading scheme would withstand such challenges. If the scheme is found to be valid, however, it could significantly increase the costs of carriers operating in the EU (by requiring the purchase of carbon credits), although the precise cost to United is difficult to calculate with any certainty due to a number of variables, and will depend, among other things, on United’s carbon emissions from flights to and from the EU, and the price of carbon credits. Actions also may be taken in the future by the U.S. government, state governments within the United States, foreign governments, the International Civil Aviation Organization, or by signatory countries through a new global climate change treaty to regulate the emission of greenhouse gases by the aviation industry. The precise nature of any such requirements and their applicability to United are difficult to predict, but the impact to the Company and the aviation industry would likely be adverse and could be significant, including the potential for increased fuel costs, carbon taxes or fees, or a requirement to purchase carbon credits.

The ability of U.S. carriers to operate international routes is subject to change because the applicable arrangements between the United States and foreign governments may be amended from time to time, or because appropriate slots or facilities may not be made available. United currently operates on a number of international routes under government arrangements that limit the number of carriers, capacity or the number of carriers allowed access to particular airports. If an open skies policy were to be adopted for any of these routes, such an event could have a material adverse impact on the Company’s financial position and results of operations and could result in the impairment of material amounts of related tangible and intangible assets. In December 2009, the United States and Japan entered into an open skies agreement, which is currently expected to become effective in the fall of 2010, subject to certain conditions precedent being met. To the extent the open skies agreement results in excess capacity relative to demand, it could negatively impact the value of United’s U.S.-Japan business. For example, as competing carriers will be able to obtain open route rights from United States and Japanese government authorities under the agreement, the value of the Company’s current routes from the United States to Japan and beyond and slots related to these routes could be impaired. In addition, the value of the Company’s business could be negatively impacted if a Japanese air carrier enters into a revenue sharing joint venture alliance agreement with any of our principal competitors in the U.S.-Japan market, which is possible under the open skies agreement.

The Company’s plans to enter into or expand antitrust immunized joint ventures for various international regions, involving Continental, United and other members of the Star Alliance are subject to receipt of approvals from applicable federal authorities or otherwise satisfying applicable regulatory requirements, and there can be no assurances that such approvals will be granted or applicable regulatory requirements will be satisfied. In December 2009, the Company and Continental applied jointly with All Nippon Airways to the DOT for immunity from U.S. antitrust laws for a series of alliance agreements between and among the carriers, including a transpacific joint venture, which is currently pending approval from the DOT. Other air carriers are also seeking to initiate or expand antitrust immunity for joint ventures which, if approved, may adversely affect the Company’s financial position and results of operations.

Further, the Company’s operations in foreign countries are subject to a variety of laws and regulations in those countries. The Company cannot provide any assurance that current laws and regulations, or laws or regulations enacted in the future, will not adversely affect its financial condition or results of operations.

The Company’s results of operations fluctuate due to seasonality and other factors associated with the airline industry.

Due to greater demand for air travel during the spring and summer months, revenues in the airline industry in the second and third quarters of the year are generally stronger than revenues in the first and fourth quarters of the year. The Company’s results of operations generally reflect this seasonality, but have also been impacted by numerous other factors that are not necessarily seasonal including, among others, the imposition of excise and similar taxes, extreme or severe weather, air traffic control congestion, changes in the competitive environment due to industry consolidation and other factors and general economic conditions. As a result, the Company’s quarterly operating results are not necessarily indicative of operating results for an entire year and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results.

The Company may never realize the full value of its intangible assets or our long-lived assets causing it to record impairments that may negatively affect its results of operations.

In accordance with applicable accounting standards, the Company is required to test its indefinite-lived intangible assets for impairment on an annual basis on October 1 of each year, or more frequently if conditions indicate that an impairment may have occurred. In addition, the Company is required to test certain of its other assets for impairment if conditions indicate that an impairment may have occurred.

During the years ended December 31, 2009 and 2008, the Company performed impairment tests of certain intangible assets and certain long-lived assets (principally aircraft, related spare engines and spare parts). The interim impairment tests were due to events and changes in circumstances that indicated an impairment might have occurred. The primary factors deemed by management to have collectively constituted a potential impairment triggering event was, in 2009, a significant decrease in actual and forecasted revenues, and in 2008, record high fuel prices, significant losses, a softening U.S. economy, analyst downgrade of UAL common stock, rating agency changes in outlook for the Company’s debt instruments from stable to negative, the announcement of the planned removal from UAL’s fleet of 100 aircraft and a significant decrease in the fair value of the UAL’s outstanding equity and debt securities, including a decline in UAL’s market capitalization to significantly below book value.

As a result of the impairment testing described above, the Company recorded goodwill and tangible and intangible asset impairment charges of approximately $243 million and $2.6 billion during the years ended December 31, 2009 and 2008, respectively. The Company determined that goodwill was completely impaired in 2008. However, as of December 31, 2009, the Company had approximately $9.8 billion of operating property and equipment and $2.5 billion of intangible assets that could be subject to future impairment charges. The Company may be required to recognize additional impairments in the future due to, among other factors, extreme fuel price volatility, tight credit markets, a decline in the fair value of certain tangible or intangible assets, unfavorable trends in historical or forecasted results of operations and cash flows and the uncertain economic environment, as well as other uncertainties. The Company can provide no assurance that a material impairment charge of tangible or intangible assets will not occur in a future period. The value of our aircraft could be impacted in future periods by changes in supply and demand for these aircraft. Such changes in supply and demand for certain aircraft types could result from grounding of aircraft by the Company or other carriers. An impairment charge could have a material adverse effect on the Company’s financial position and results of operations.

The Company’s initiatives to improve the delivery of its services to its customers, reduce costs, increase its revenues and increase shareholder value, including the operational plans recently implemented by the Company, may not be adequate or successful.

The Company continues to identify and implement improvement programs to enhance the delivery of its services to its customers, reduce its costs and increase its revenues. In response to the unprecedented increase in fuel prices during 2008 and the weakened U.S. and global economies, the Company has been implementing certain operational plans in line with its “Focus on Five” operating agenda. The Company’s efforts are focused on cost savings in areas such as telecommunications, airport services, catering, maintenance materials, aircraft ground handling and Regional Affiliates expenses, among others. In addition, the Company significantly reduced Mainline domestic and consolidated capacity and removed 100 aircraft from its Mainline fleet, including its entire B737 fleet of 94 aircraft and six B747 aircraft. United eliminated its Ted product and reconfigured that fleet’s 56 A320s to include United First class seats. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information regarding the Company’s capacity reductions. The Company will continue to review the deployment of all of our aircraft in various markets and the overall composition of our fleet to ensure that we are using our assets appropriately to provide the best available return. In connection with the capacity reductions, the Company streamlined its operations and corporate functions in order to match the size of its workforce to the reduced size of its operations. The Company reduced its workforce by approximately 9,000 positions during 2008 and 2009, through a combination of furloughs and furlough-mitigation plans, such as early-out options. There can be no assurance that the Company’s initiatives to reduce costs and increase revenues will be successful.

The Company is taking additional actions beyond the operational plans discussed above, including increased cost reductions, new revenue sources and other actions. The Company is also reviewing strategic alternatives to maximize the value of its assets and its businesses, which may include a possible sale of all, or part of, these assets or operations. There can be no assurance that any transactions with respect to these assets or operations will occur, nor are there any assurances with respect to the form or timing of any such transactions or their actual effect on shareholder value. A number of the Company’s ongoing initiatives involve significant changes to the Company’s business that it may be unable to implement successfully. In addition, revenue and other initiatives may not be successful due to the competitive landscape of the industry and the reaction of our competitors to certain of our initiatives. The adequacy and ultimate success of the Company’s programs and initiatives to improve the delivery of its products and services to its customers, reduce its costs and increase both its revenues and shareholder value cannot be assured.

Union disputes, employee strikes and other labor-related disruptions may adversely affect the Company’s operations and impair its financial performance.

Approximately 82% of the employees of UAL are represented for collective bargaining purposes by U.S. labor unions. These employees are organized into six labor groups represented by six different unions.

Relations between air carriers and labor unions in the United States are governed by the RLA. Under the RLA, a carrier must maintain the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining processes overseen by the NMB. This process continues until either the parties have reached agreement on a new collective bargaining agreement or the parties are released to “self-help” by the NMB. Although in most circumstances the RLA prohibits strikes, shortly after release by the NMB, carriers and unions are free to engage in self-help measures such as strikes and lock-outs. All six of the Company’s U.S. labor agreements became amendable in January 2010 and negotiations between the Company and all labor unions commenced in April 2009. The Company has filed for mediation assistance with respect to the negotiations with four of its six unions and all four unions are now in active mediation. The Company anticipates that the mediation process and the other two ongoing negotiations will continue in 2010. The Company can provide no assurance that a successful or timely resolution of labor negotiations for all amendable agreements will be achieved. There is also a risk that dissatisfied employees, either with or without union involvement, could engage in illegal slow-downs, work stoppages, partial work stoppages, sick-outs or

other actions short of a full strike that could individually or collectively harm the operation of the airline and materially impair its financial performance.

Increases in insurance costs or reductions in insurance coverage may adversely impact the Company’s operations and financial results.

The terrorist attacks of September 11, 2001 led to a significant increase in insurance premiums and a decrease in the insurance coverage available to commercial airlines. Accordingly, the Company’s insurance costs increased significantly and its ability to continue to obtain certain types of insurance remains uncertain. The Company has obtained third-party war risk (terrorism) insurance through a special program administered by the FAA, resulting in lower premiums than if it had obtained this insurance in the commercial insurance market. Should the government discontinue this coverage, obtaining comparable coverage from commercial underwriters could result in substantially higher premiums and more restrictive terms, if it is available at all. If the Company is unable to obtain adequate war risk insurance, its business could be materially and adversely affected.

If any of United’s aircraft were to be involved in an accident, the Company could be exposed to significant liability. The insurance it carries to cover damages arising from any future accidents may be inadequate. If the Company’s insurance (including, but not limited to, aviation, hull and liability insurance and property insurance) is inadequate, it may be forced to bear substantial losses from an accident.

The Company relies heavily on automated systems to operate its business and any significant failure of these systems could harm its business.

The Company depends on automated systems to operate its business, including its computerized airline reservation systems, flight operations systems, telecommunication systems and commercial websites, including www.united.com. United’s website and reservation systems must be able to accommodate a high volume of traffic and deliver important flight and schedule information, as well as process critical financial transactions. Substantial or repeated website, reservations systems or telecommunication systems failures could reduce the attractiveness of United’s services versus its competitors and materially impair its ability to market its services and operate its flights.

The Company’s business relies extensively on third-party providers. Failure of these parties to perform as expected, or unexpected interruptions in the Company’s relationships with these providers or their provision of services to the Company, could have an adverse effect on the Company’s financial position and results of operations.

The Company has engaged a growing number of third-party service providers to perform a large number of functions that are integral to its business, such as operation of United Express flights, operation of customer service call centers, provision of information technology infrastructure and services, provision of aircraft maintenance and repairs, provision of various utilities and performance of aircraft fueling operations, among other vital functions and services. The Company does not directly control these third-party providers, although it does enter into agreements with many of them that define expected service performance. Any of these third-party providers, however, may materially fail to meet their service performance commitments to the Company. The failure of these providers to adequately perform their service obligations, or other unexpected interruptions of services, may reduce the Company’s revenues and increase its expenses or prevent United from operating its flights and providing other services to its customers. In addition, the Company’s business and financial performance could be materially harmed if its customers believe that its services are unreliable or unsatisfactory.

The Company’s high level of fixed obligations could limit its ability to fund general corporate requirements and obtain additional financing, could limit its flexibility in responding to competitive developments and could increase its vulnerability to adverse economic and industry conditions.

The Company has a significant amount of financial leverage from fixed obligations, including its Amended Credit Facility, aircraft lease and debt financings, leases of airport property and other facilities, and other

material cash obligations. In addition, as of December 31, 2009, the Company had pledged a substantial amount of its assets as collateral to secure its various fixed obligations. The Company’s high level of fixed obligations, a downgrade in the Company’s credit ratings, poor credit market conditions and the Company’s limited amount of unencumbered assets available as collateral for loans or other indebtedness could impair the Company’s ability to obtain additional financing, if needed, and reduce its flexibility to conduct its business. Certain of the Company’s existing indebtedness also require it to meet covenants and financial tests to maintain ongoing access to those borrowings. See Note 11, “Debt Obligations and Card Processing Agreements,” and Note 21, “Subsequent Events,” in the Footnotes for further details related to the Company’s credit agreements and assets pledged as collateral, as well as additional debt issued during early 2010. A failure to timely pay its debts or other material uncured breaches of its contractual obligations could result in a variety of adverse consequences, including the acceleration of the Company’s indebtedness, the withholding of credit card sale proceeds by its credit card service providers and the exercise of other remedies by its creditors and equipment lessors that could result in material adverse effects on the Company’s financial position and results of operations. In such a situation, it is unlikely that the Company would be able to fulfill its obligations to repay the accelerated indebtedness, make required lease payments, or otherwise cover its fixed costs.

The Company’s net operating loss carry forward may be limited or possibly eliminated.

As of December 31, 2009, the Company had a net operating loss (“NOL”) carry forward tax benefit of approximately $2.7 billion for federal and state income tax purposes which will expire over a five to twenty year period. This tax benefit is mostly attributable to federal pre-tax NOL carry forwards of $7.3 billion. If the Company were to have a change of ownership within the meaning of Section 382 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), under certain conditions, its annual federal NOL utilization could be limited to an amount equal to its market capitalization at the time of the ownership change multiplied by the federal long-term tax exempt rate, adjusted for certain built-in gains or losses. A change of ownership under Section 382 of the Code is defined as a cumulative change of more than 50 percentage points or more in the ownership positions of certain stockholders owning 5% or more of UAL’s common stock over a three year rolling period.

To reduce the risk of a potential adverse effect on the Company’s ability to utilize its NOL carry forwards for federal income tax purposes, UAL’s amended and restated certificate of incorporation contains a 5% ownership limitation (the “5% Ownership Limitation”), applicable to all stockholders except the Pension Benefit Guaranty Corporation (“PBGC”). The 5% Ownership Limitation remains effective until February 1, 2011, subject to further extension by the UAL Board of Directors (the “Board of Directors”) and shareholders. The 5% Ownership Limitation prohibits (i) the acquisition by a single stockholder of shares representing 5% or more of the common stock of UAL and (ii) any acquisition or disposition of common stock by a stockholder that already owns 5% or more of UAL’s common stock, unless prior written approval is granted by the Board of Directors. The percentage ownership of a single stockholder can be computed by dividing the number of shares of common stock held by the stockholder by the sum of the shares of common stock issued and outstanding plus the number of shares of common stock still held in reserve for payment to unsecured creditors under the Debtors’ Second Amended Joint Plan of Reorganization pursuant to Chapter 11 of the U.S. Bankruptcy Code (the “Plan of Reorganization”). For additional information regarding the 5% Ownership Limitation, please refer to UAL’s restated certificate of incorporation available on its website.

While the purpose of these transfer restrictions is to prevent a change of ownership from occurring within the meaning of Section 382 of the Code (which ownership change might materially and adversely affect the Company’s ability to utilize its NOL carry forward or other tax attributes), no assurance can be given that such an ownership change will not occur, in which case the availability of the Company’s substantial NOL carry forward and other federal income tax attributes might be significantly limited or possibly eliminated. Any transfers of common stock that are made in violation of the restrictions set forth above will be void and, pursuant to UAL’s restated certificate of incorporation, will be treated as if such transfer never occurred. This provision may prevent a sale of common stock by a stockholder and adversely affect the price at which a stockholder can

sell common stock. In addition, this limitation may have the effect of delaying or preventing a change in control of UAL, creating a perception that a change in control cannot occur or otherwise discouraging takeover attempts that some stockholders may consider beneficial, which could also adversely affect the prevailing market price of the common stock. UAL cannot predict the effect that this provision in the UAL amended and restated certificate of incorporation may have on the market price of the common stock.

In addition, under the terms of the Company’s 4.5% Senior Limited-Subordination Convertible Notes due 2021 (the “4.5% Notes”), 5% Senior Convertible Notes due 2021 (the “5% Notes”) and 6% Senior Convertible Notes due 2029 (the “6% Senior Convertible Notes”) (collectively, the “Notes”), noteholders have the option to require UAL to repurchase the Notes on certain dates. UAL may pay the repurchase price in cash, shares of UAL common stock, or a combination thereof. If UAL is required to repurchase such Notes and elects to use shares of common stock rather than cash, a change in ownership within the meaning of Section 382 of the Code could occur depending on the number of Notes repurchased and the number of shares of UAL common stock required to repurchase the Notes. Further, under the terms of the 4.5% Notes, 5% Notes and 6% Senior Convertible Notes, noteholders have the option to convert the Notes into shares of UAL’s common stock at a fixed conversion rate at any time prior to maturity. The conversion of a significant number of the Notes into UAL common stock could, in combination with the shares (if any) used to repurchase the Notes or other transactions, cause a change in ownership within the meaning of Section 382 of the Code to occur.

The Company is subject to economic and political instability and other risks of doing business globally.

The Company is a global business with operations outside of the United States from which it derives approximately one-third of its operating revenues, as measured and reported to the DOT. The Company’s operations in Asia, Latin America, the Middle East and Europe are a vital part of its worldwide airline network. Volatile economic, political and market conditions in these international regions may have a negative impact on the Company’s operating results and its ability to achieve its business objectives. In addition, significant or volatile changes in exchange rates between the U.S. dollar and other currencies, and the imposition of exchange controls or other currency restrictions, may have a material adverse impact upon the Company’s liquidity, revenues, costs and operating results.

The Company could be adversely affected by an outbreak of a disease that affects travel behavior.

An outbreak of a disease that affects travel demand or travel behavior, such as Severe Acute Respiratory Syndrome, avian flu or H1N1 virus, or other illness, could have a material adverse impact on the Company’s business, financial condition and results of operations.

Certain provisions of UAL’s Governance Documents could discourage or delay changes of control or changes to the Board of Directors.

Certain provisions of the restated certificate of incorporation and amended and restated bylaws of UAL (together, the “Governance Documents”) may make it difficult for stockholders to change the composition of the Board of Directors and may discourage takeover attempts that some of its stockholders may consider beneficial.

Certain provisions of the Governance Documents may have the effect of delaying or preventing changes in control if the Board of Directors determines that such changes in control are not in the best interests of UAL and its stockholders.

These provisions of the Governance Documents are not intended to prevent a takeover, but are intended to protect and maximize the value of UAL’s stockholders’ interests. While these provisions have the effect of encouraging persons seeking to acquire control of UAL to negotiate with the Board of Directors, they could enable the Board of Directors to prevent a transaction that some, or a majority, of its stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors.

The issuance of UAL’s contingent senior unsecured notes could adversely impact results of operations, liquidity and financial position and could cause dilution to the interests of its existing stockholders.

In connection with the Company’s Plan of Reorganization, UAL is obligated under an indenture to issue to the PBGC 8% Contingent Senior Notes (the “8% Notes”) with an aggregate principal amount of up to $500 million in up to eight equal tranches of $62.5 million (with no more than two tranches issued as a result of each issuance trigger event) upon the occurrence of certain financial triggering events. An issuance trigger event occurs when, among other things, the Company’s EBITDAR (as defined in the PBGC indenture) exceeds $3.5 billion over the prior twelve months ending June 30 or December 31 of any applicable fiscal year, beginning with the fiscal year ended December 31, 2009 and ending with the fiscal year ending December 31, 2017. However, if the issuance of a tranche would cause a default under any other securities then existing, UAL may satisfy its obligations with respect to such tranche by issuing UAL common stock having a market value equal to $62.5 million. The issuance of the 8% Notes could adversely impact the Company’s results of operations because of increased interest expense related to the notes and adversely impact its financial position or liquidity due to increased cash required to meet interest and principal payments. Any common stock issued in lieu of debt will cause additional dilution to existing UAL stockholders.

Risks Related to UAL Common Stock

The issuance of additional shares of UAL common stock, including upon conversion of its convertible notes, could cause dilution to the interests of its existing stockholders.

During 2009, UAL issued $345 million aggregate principal amount of 6% Senior Convertible Notes. Previously, UAL issued $726 million of 4.5% Notes and $150 million of 5% Notes in connection with the Company’s Plan of Reorganization. Holders of these securities may convert them into shares of UAL’s common stock according to their terms. See Note 11, “Debt Obligations and Card Processing Agreements,” in the Footnotes for further information regarding these instruments.

The UAL restated certificate of incorporation authorizes up to one billion shares of common stock. In certain circumstances, UAL can issue shares of common stock without stockholder approval. In 2008, the Board of Directors approved the issuance of $200 million of UAL common stock as part of an ongoing equity offering by the Company. The Company completed this equity offering during 2009, which produced aggregate net proceeds of approximately $196 million after deducting related expenses. In October 2009, UAL sold an additional 19.0 million shares of UAL common stock in a separate underwritten, public offering generating net proceeds of $132 million. In addition, the Board of Directors is authorized to issue up to 250 million shares of preferred stock without any action on the part of UAL’s stockholders. The Board of Directors also has the power, without stockholder approval, to set the terms of any series of shares of preferred stock that may be issued, including voting rights, conversion rights, dividend rights, preferences over UAL’s common stock with respect to dividends or if UAL liquidates, dissolves or winds up its business and other terms. If UAL issues preferred stock in the future that has a preference over its common stock with respect to the payment of dividends or upon its liquidation, dissolution or winding up, or if UAL issues preferred stock with voting rights that dilute the voting power of its common stock, the rights of holders of its common stock or the market price of its common stock could be adversely affected. UAL is also authorized to issue, without stockholder approval, other securities convertible into either preferred stock or, in certain circumstances, common stock. In the future UAL may decide to raise additional capital through offerings of its common stock, securities convertible into its common stock, or rights to acquire these securities or its common stock. The issuance of additional shares of common stock or securities convertible into common stock could result in dilution of existing stockholders’ equity interests in UAL. Issuances of substantial amounts of its common stock, or the perception that such issuances could occur, may adversely affect prevailing market prices for UAL’s common stock and UAL cannot predict the effect this dilution may have on the price of its common stock.

The issuance of UAL common stock upon a noteholder’s exercise of its option to require UAL to repurchase convertible notes could cause dilution to the interests of existing stockholders.

Under the terms of the Company’s 4.5% Notes, 5% Notes and 6% Senior Convertible Notes, holders of such notes may require UAL to purchase all or a portion of such notes at a repurchase price equal to 100% of the principal amount of such notes, plus accrued and unpaid interest, on June 30, 2011 and June 30, 2016 in the case of the 4.5% Notes, February 1, 2011 and February 1, 2016 in the case of the 5% Notes and October 15, 2014, October 15, 2019 and October 15, 2024 in the case of the 6% Senior Convertible Notes. If a noteholder exercises such option, UAL may elect to pay the repurchase price in cash, shares of its common stock or a combination thereof. If UAL elects to pay the repurchase price in shares of its common stock, UAL is obligated to deliver a number of shares of common stock equal to the repurchase price divided by an average price of UAL common stock for a 20-consecutive trading day period. The number of shares issued could be significant. If UAL determines to pay the repurchase price in shares of its common stock, such an issuance could cause significant dilution to the interests of its existing stockholders. In addition, if UAL elects to pay the repurchase price in cash, its liquidity could be adversely affected.

UAL’s certificate of incorporation limits voting rights of certain foreign persons.

UAL’s restated certificate of incorporation limits the total number of shares of equity securities held by persons who are not “citizens of the United States,” as defined in Section 40102(a)(15) of Title 49 United States Code, to no more than 24.9% of the aggregate votes of all equity securities outstanding. This restriction is applied pro rata among all holders of equity securities who fail to qualify as “citizens of the United States,” based on the number of votes the underlying securities are entitled to.

ITEM

1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM

2. PROPERTIES.

Flight Equipment

As of December 31, 2009, the Company’s operational plans to significantly reduce its operating fleet and capacity were substantially complete as the Company’s entire fleet of 94 B737 aircraft and five B747 aircraft had been removed from service. The last planned early aircraft retirement of a B747 aircraft occurred in January 2010. See Note 2, “Company Operational Plans,” in the Footnotes for additional information.

Details of UAL and United’s Mainline operating fleet as of December 31, 2009 are provided in the following table:


Aircraft Type	Average Number of Seats	Owned	Leased	Total	Average Age (Years)
UAL total operating fleet at December 31, 2008		209	200	409	13

A319—100	120	32	23	55	10
A320—200	146	38	59	97	12
B747—400	368	16	9	25	15
B757—200	172	23	73	96	18
B767—300	207	17	18	35	15
B777—200	267	45	7	52	11

Total operating fleet at December 31, 2009		171	189	360	13

UAL nonoperating B737s at December 31, 2009 (a)		42	28	70	20

UAL nonoperating B747s at December 31, 2009		5	—	5	13

(a)	United leases one nonoperating aircraft from UAL and therefore had one less owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet.

Details of the Regional Affiliates operating fleet that are operated under capacity purchase lease agreements as of December 31, 2009, are provided in the following table:


Aircraft Type	Average No. of Seats	Total
Bombardier CRJ200	50	91
Bombardier CRJ700	66	108
De Havilland Dash 8	37	7
Embraer EMB 120	30	12
Embraer ERJ 145	50	36
Embraer EMB170	70	38

Total Operating Fleet		292

All of the Bombardier CRJ700 and Embraer EMB170 aircraft are equipped with explus^SM seating. For additional information on aircraft leases, see Note 14, “Lease Obligations,” in the Footnotes.

Ground Facilities

United is a party to various leases relating to its use of airport landing areas, gates, hangar sites, terminal buildings and other airport facilities in most of the municipalities it serves. Major terminal facility leases expire at SFO in 2011 and 2013, Washington Dulles in 2014, O’Hare in 2018, LAX in 2019 and Denver in 2025. The Company also leases approximately 250,000 square feet of office space through 2022 for its corporate headquarters in downtown Chicago.

The Company also owns a 66.5-acre complex in suburban Chicago consisting of more than 1 million square feet of office space for its operations center, a computer operations facility and a training center (collectively the “Current Operations Center”). During 2009, the Company conducted an extensive review of multiple sites in the Chicago area and selected the Willis Tower (formerly the Sears Tower) as the new location of the Current Operations Center, offering much improved workspaces, technology and other resources. United expects to occupy approximately 460,000 square feet within the Willis Tower by 2011. The Company’s rental obligations and initial possession of a portion of the premises are expected to commence in late 2010. The lease has an initial 15-year term with renewal options. The Company plans to sell the Current Operations Center as part of the Willis Tower relocation plan.

United also owns a flight training center in Denver which accommodates 36 flight simulators and more than 90 computer-based training stations, as well as a crew hotel in Honolulu which is mortgaged.

During 2009, the Company entered into an amendment to its O’Hare cargo building site lease with the City of Chicago. The Company agreed to vacate its current cargo facility at O’Hare to allow the land to be used for the development of a future runway. The Company received approximately $160 million from the City of Chicago in accordance with the terms of the lease amendment. In addition, under the lease amendment the City of Chicago will provide the Company with another site at O’Hare upon which a replacement cargo facility could be constructed.

The Company’s maintenance operation center at SFO occupies 130 acres of land, 2.9 million square feet of floor space and nine aircraft hangar bays under a lease expiring in 2013. The Company has options to renew the lease through 2023.

United continues to lease and operate a number of administrative, reservations, sales and other support facilities worldwide. United continuously evaluates opportunities to reduce or modify facilities occupied at its airports and off-airport locations.

A substantial amount of the Company’s assets have been pledged as collateral as discussed in Note 11, “Debt Obligations and Card Processing Agreements,” in the Footnotes.

ITEM 3. LEGAL PROCEEDINGS.

In re: UAL Corporation, et. al.

On December 9, 2002, UAL, United and 26 direct and indirect wholly-owned subsidiaries filed voluntary petitions to reorganize their businesses under Chapter 11 of the Bankruptcy Code. On January 20, 2006, the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”) confirmed the Company’s Plan of Reorganization. The Plan of Reorganization became effective and the Company emerged from bankruptcy protection on February 1, 2006. During the course of its Chapter 11 proceedings, the Company successfully reached settlements with most of its creditors and resolved all claims pending in the bankruptcy case. On December 8, 2009, the Bankruptcy Court issued a final decree closing all bankruptcy cases against the Company, effective as of that date.

Air Cargo/Passenger Surcharge Investigations

In February 2006, the European Commission (the “Commission”) and the DOJ commenced an international investigation into what government officials described as a possible price fixing conspiracy relating to certain surcharges included in tariffs for carrying air cargo. The DOJ issued a grand jury subpoena to United and the Commission conducted an inspection at the Company’s offices in Frankfurt. In June 2006, United received a second subpoena from the DOJ requesting information related to certain passenger pricing practices and surcharges applicable to international passenger routes. We are cooperating fully. United is considered a source of information for the DOJ investigation, not a target.

Separately, United has received information requests regarding cargo pricing matters from the competition authorities in Australia, Brazil, Japan, Korea and Switzerland. On December 18, 2007, the Commission issued a Statement of Objections to 26 companies, including United. The Statement of Objections presented evidence related to the utilization of fuel and security surcharges and the exchange of pricing information that the Commission views as supporting the conclusion that an illegal price-fixing cartel had been in operation in the air cargo transportation industry. United has provided written and oral responses vigorously disputing the Commission’s allegations against the Company. On July 31, 2008, state prosecutors in Sao Paulo, Brazil, commenced criminal proceedings against eight individuals, including United’s cargo manager, for allegedly participating in cartel activity. The Company is actively participating in the defense of those allegations. On January 4, 2010, the Economic Law Secretariat of Brazil issued its opinion recommending that civil penalties be assessed against all parties being investigated, including United, to the Administrative Counsel of Economic Defense (“CADE”), which will make a determination on the matter. United will vigorously defend itself before the CADE. On December 15, 2008, the New Zealand Commerce Commission issued Notices of Proceeding and Statements of Claim to 13 airlines, including United. The Company is currently preparing its response to these proceedings. On October 28, 2009, the Korean Fair Trade Commission issued an examiner’s report which omitted the Company from its investigation, thereby removing the Company as a target of its cargo pricing investigation.

In addition to the government investigations, United and other air cargo carriers were named as defendants in over ninety class action lawsuits alleging civil damages as a result of the purported air cargo pricing conspiracy. Those lawsuits were consolidated for pretrial activities in the United States Federal Court for the Eastern District of New York on June 20, 2006. United entered into an agreement with the majority of the private plaintiffs to dismiss United from the class action lawsuits in return for an agreement to cooperate with the plaintiffs’ factual investigation and United is no longer named as a defendant in the consolidated civil lawsuit. The Company is reviewing whether its receipt of a Statement of Objections from the Commission will impact the civil litigation.

Multiple putative class actions were also filed alleging violations of the antitrust laws with respect to the passenger pricing practices which were the subject of the DOJ subpoena. Those lawsuits were consolidated for pretrial activities in the United States Federal Court for the Northern District of California. United was dismissed from the case on October 3, 2008.

The Company is currently cooperating with all ongoing investigations and analyzing whether any potential liability may result from any of the investigating bodies. Based on its evaluation of all information currently available, the Company has determined that no reserve for potential liability is required and will continue to defend itself against all allegations that it was aware of or participated in cartel activities. However, penalties for violation of competition laws can be substantial and an ultimate finding that the Company engaged in improper activity could have a material adverse impact on our consolidated financial position and results of operations.

United Injunction Against ALPA and Four Individual Defendants for Unlawful Slowdown Activity under the Railway Labor Act

On July 30, 2008, United filed a lawsuit in federal court for the Northern District of Illinois (the “Court”) seeking a preliminary injunction against ALPA and four individual pilot employees also named as defendants for unlawful concerted activity which was disrupting the Company’s operations. The Court granted the preliminary injunction to United in November 2008 which was upheld by the Seventh Circuit. ALPA and the Company reached an agreement to discontinue the ongoing litigation over United’s motion for a permanent injunction and, instead, the preliminary injunction will remain in effect until the conclusion of the ongoing bargaining process for an amended collective bargaining agreement that began on April 9, 2009. By reaching this agreement, the parties are able to focus their efforts on the negotiations for the collective bargaining agreement. Nothing in this agreement precludes either party from reopening the permanent injunction litigation upon 30 days notice or from seeking enforcement of the preliminary injunction itself.

EEOC Claim Under the Americans with Disabilities Act

On June 5, 2009, the U.S. Equal Employment Opportunity Commission (“EEOC”) filed a lawsuit on behalf of five named individuals and other similarly situated employees alleging that United’s reasonable accommodation policy for employees with medical restrictions does not comply with the requirements of the Americans with Disabilities Act. The Company is investigating this matter and cannot assess its possible exposure at this time. Although the Company intends to vigorously defend itself in connection with this lawsuit, the law in this area is unsettled and, as a result, there can be no assurances as to the ultimate result of this action.

Litigation Associated with September 11, 2001 Terrorism

Families of 94 victims of the September 11 terrorist attacks filed lawsuits asserting a variety of claims against the airline industry. United and American Airlines (the “aviation defendants”), as the two carriers whose flights were hijacked, are the central focus of the litigation, but a variety of additional parties have been sued on a number of legal theories ranging from collective responsibility for airport screening and security systems that allegedly failed to prevent the attacks to faulty design and construction of the World Trade Center towers. In excess of 97% of the families of the deceased victims received awards from the September 11^th Victims Compensation Fund of 2001, which was established by the federal government, and consequently are now barred from making further claims against the aviation defendants. World Trade Center Properties, Inc., as lessee, has filed claims against the aviation defendants and The Port Authority of New York and New Jersey (the “Port Authority”), the owner of the World Trade Center. The Port Authority has also filed cross-claims against the aviation defendants in both the wrongful death litigation and for property damage sustained in the attacks. The insurers of various tenants at the World Trade Center have filed subrogation claims for damages as well. In the aggregate, September 11^th claims are estimated to be well in excess of $10 billion. By statute, these matters were consolidated in the U.S. District Court for the Southern District of New York and the aviation defendants’ exposure was capped at the limit of the liability coverage maintained by each carrier at the time of the attacks. In the personal injury and wrongful death matters, settlement discussions continue and the parties have reached settlement agreements for the majority of the remaining claims. The Company anticipates that any liability it may face arising from the events of September 11, 2001 could be significant, but by statute will be limited to the amount of its insurance coverage.

Other Legal Proceedings

UAL and United are involved in various other claims and legal actions involving passengers, customers, suppliers, employees and government agencies arising in the ordinary course of business. Additionally, from time to time, the Company becomes aware of potential non-compliance with applicable environmental regulations, which have either been identified by the Company (through internal compliance programs such as its environmental compliance audits) or through notice from a governmental entity. In some instances, these matters could potentially become the subject of an administrative or judicial proceeding and could potentially involve monetary sanctions. After considering a number of factors, including (but not limited to) the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, management believes that the ultimate disposition of these contingencies will not materially affect its consolidated financial position or results of operations.

ITEM

4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

EXECUTIVE OFFICERS OF UAL

The executive officers of UAL are listed below, along with their ages, tenure as officer and business background for at least the last five years.

Graham W. Atkinson. Age 58. Mr. Atkinson has been Executive Vice President and President of Mileage Plus since October 2008. From September 2006 to September 2008, Mr. Atkinson served as Executive Vice President—Chief Customer Officer of UAL and United. From January 2004 to September 2006, Mr. Atkinson served as Senior Vice President—Worldwide Sales and Alliances of United.

Peter D. McDonald. Age 58. Mr. McDonald has been Executive Vice President and Chief Administrative Officer of UAL and United since May 2008. From May 2004 to May 2008, Mr. McDonald served as Executive Vice President and Chief Operating Officer of UAL and United. From September 2002 to May 2004, Mr. McDonald served as Executive Vice President—Operations of UAL and United.

Kathryn A. Mikells. Age 44. Ms. Mikells has been Executive Vice President and Chief Financial Officer of UAL and United since July 2009. From November 2008 to July 2009, Ms. Mikells served as Senior Vice President and Chief Financial Officer of both companies. From August 2007 to October 2008, Ms. Mikells served as Vice President of Investor Relations of United. From August 2006 to July 2007, she served as Vice President of Financial Planning and Analysis of United and from January 2005 to August 2006, Ms. Mikells served as Vice President and Treasurer of United.

John P. Tague. Age 47. Mr. Tague has been President of United and Executive Vice President of UAL since July 2009. From May 2008 to July 2009, Mr. Tague served as Executive Vice President and Chief Operating Officer of both companies. From April 2006 to May 2008, Mr. Tague served as Executive Vice President and Chief Revenue Officer of UAL and United. From May 2004 to April 2006, he served as Executive Vice President—Marketing, Sales and Revenue of both companies.

Glenn F. Tilton. Age 61. Mr. Tilton has been Chairman, President and Chief Executive Officer of UAL and Chairman and Chief Executive Officer of United since September 2002.

There are no family relationships among the executive officers or the directors of UAL. The executive officers are elected by the Board of Directors each year and hold office until the organization meeting of the respective Board of Directors in the next subsequent year and until his or her successor is chosen or until his or her earlier death, resignation or removal.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The following table sets forth the ranges of high and low sales prices per share of UAL common stock, which trades on a NASDAQ market under the symbol “UAUA,” during the last two completed fiscal years.


	2009				2008
	High		Low		High		Low
1st quarter	$	12.88	$	3.45	$	41.47	$	19.71
2nd quarter		6.90		3.08		24.87		5.22
3rd quarter		9.77		3.07		15.84		2.80
4th quarter		13.33		6.23		16.73		4.55

There is no trading market for the common stock of United. UAL and United did not pay any dividends in 2009. In December 2007, UAL’s Board of Directors approved a special distribution of $2.15 per common share, or approximately $257 million, which was paid on January 23, 2008 to holders of record of UAL common stock as of January 9, 2008 and is characterized as a return of capital for tax purposes. Under the provisions of the Amended Credit Facility and the terms of certain of our other debt agreements, the Company’s ability to pay distributions on or repurchase UAL common stock is restricted. However, the Company may undertake an additional $243 million in shareholder initiatives without any additional prepayment of the Amended Credit Facility, provided that all covenants within the Amended Credit Facility are met. In addition, the agreement provides that the Company can carry out further shareholder initiatives in an amount equal to future term loan prepayments, provided the covenants are met. See Note 11, “Debt Obligations and Card Processing Agreements,” in the Footnotes for more information related to dividend restrictions under the Amended Credit Facility. Any future determination regarding dividend or distribution payments will be at the discretion of the Board of Directors, subject to applicable limitations under Delaware law.

Based on reports by the Company’s transfer agent for UAL common stock, there were approximately 1,426 record holders of its UAL common stock as of February 15, 2010.

The following graph shows the cumulative total shareholder return for UAL common stock during the period from February 2, 2006 to December 31, 2009. Five year historical data is not presented since the financial results of the Successor UAL are not comparable with the results of the Predecessor UAL, as discussed in Item 6, Selected Financial Data. The graph also shows the cumulative returns of the Standard and Poors (“S&P”) 500 Index and the AMEX Airline Index (“AAI”) of 12 investor-owned airlines. The comparison assumes $100 was invested on February 2, 2006 (the date UAUA began trading on NASDAQ) in UAL common stock and in each of the indices shown and assumes that all dividends paid, including UAL’s January 2008 $2.15 per share distribution, were reinvested.

LOGO

Note: The stock price performance shown in the graph above should not be considered indicative of potential future stock price performance.

The following table presents repurchases of UAL common stock made in the fourth quarter of fiscal year 2009:


Period	Total number of shares purchased (a)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares (or approximate dollar value) of shares that may yet be purchased under the plans or programs
10/01/09 – 10/31/09	2,354	$	6.92	—	(b	)
11/01/09 – 11/30/09	2,431		6.63	—	(b	)
12/01/09 – 12/31/09	—		—	—	(b	)

Total	4,785		6.77	—	(b	)

(a)	Shares withheld from employees to satisfy certain tax obligations due upon the vesting of restricted stock.

(b)	Withholding of shares to satisfy tax obligations due upon the vesting of restricted stock in accordance with the Company’s share-based compensation plan. The plan does not specify a maximum number of shares that may be repurchased.

PART II

ITEM 6.

SELECTED FINANCIAL DATA.

In connection with its emergence from Chapter 11 bankruptcy protection, UAL adopted fresh-start reporting, effective February 1, 2006, in accordance with accounting principles related to reorganizations. As a result of the adoption of fresh-start reporting, the financial statements prior to February 1, 2006 are not comparable with the financial statements after February 1, 2006. References to “Successor Company” refer to UAL on or after February 1, 2006, after giving effect to the adoption of fresh-start reporting. References to “Predecessor Company” refer to UAL prior to February 1, 2006. Certain income statement and balance sheet amounts presented in the table below for the 2008, 2007 and 2006 Successor periods include the impact from the Company’s 2009 retrospective adoption of the new accounting principles related to accounting for convertible debt instruments that may be settled in cash upon conversion and determining whether instruments granted in share-based payment transactions are participating securities for purposes of calculating earnings per share. See Note 1 (p), “Summary of Significant Accounting Policies—New Accounting Pronouncements,” in the Footnotes for additional information.


(In millions, except rates)	Successor												Predecessor
	Year Ended December 31,
	2009			2008			2007			Period from February 1 to December 31, 2006			Period from January 1 to January 31, 2006			Year Ended December 31, 2005
Income Statement Data:
Operating revenues	$	16,335		$	20,194		$	20,143		$	17,882		$	1,458		$	17,379
Operating expenses		16,496			24,632			19,106			17,383			1,510			17,598
Mainline fuel purchase cost		3,509			7,114			5,086			4,436			362			4,032
Non-cash fuel hedge (gains) losses		(586	)		568			(20	)		2			—			—
Cash fuel hedge (gains) losses		482			40			(63	)		24			—			—

Total Mainline fuel expense		3,405			7,722			5,003			4,462			362			4,032

Nonoperating non-cash fuel hedge (gains) losses		(279	)		279			—			—			—			—
Nonoperating cash fuel hedge (gains) losses		248			249			—			—			—			—
Goodwill impairment		—			2,277			—			—			—			—
Other impairments and special operating items		374			339			(44	)		(36	)		—			18
Reorganization (income) expense		—			—			—			—			(22,934	)		20,601
Net income (loss) (a)		(651	)		(5,396	)		360			7			22,851			(21,176	)
Basic earnings (loss) per share		(4.32	)		(42.59	)		2.94			(0.02	)		196.61			(182.29	)
Diluted earnings (loss) per share		(4.32	)		(42.59	)		2.65			(0.02	)		196.61			(182.29	)
Cash distribution declared per common share (b)		—			—			2.15			—			—			—

Balance Sheet Data at period-end:
Total assets	$	18,684		$	19,465		$	24,223		$	25,372		$	19,555		$	19,342
Long-term debt and capital lease obligations, including current portion		8,543			8,004			8,255			10,364			1,432			1,433
Liabilities subject to compromise		—			—			—			—			36,336			35,016


(In millions, except rates)	Successor								Predecessor
	Year Ended December 31,
	2009		2008		2007		Period from February 1 to December 31, 2006		Period from January 1 to January 31, 2006		Year Ended December 31, 2005

Mainline Operating Statistics (c):
Revenue passengers	56		63		68		69		(c	)	67
Revenue passenger miles (“RPMs”) (d)	100,475		110,061		117,399		117,470		(c	)	114,272
Available seat miles (“ASMs”) (e)	122,737		135,861		141,890		143,095		(c	)	140,300
Passenger load factor (f)	81.9	%	81.0	%	82.7	%	82.1	%	(c	)	81.4	%
Yield (g)	11.81	¢	13.89	¢	12.99	¢	12.19	¢	(c	)	11.25	¢
Passenger revenue per ASM (“PRASM”) (h)	9.70	¢	11.29	¢	10.78	¢	10.04	¢	(c	)	9.20	¢
Operating revenue per ASM (“RASM”) (i)	10.81	¢	12.58	¢	12.03	¢	11.49	¢	(c	)	10.66	¢
Operating expense per ASM (“CASM”) (j)	11.05	¢	15.74	¢	11.39	¢	11.23	¢	(c	)	10.59	¢
Fuel gallons consumed	1,942		2,182		2,292		2,290		(c	)	2,250
Average price per gallon of jet fuel, including tax and hedge impact	175.3	¢	353.9	¢	218.3	¢	210.7	¢	(c	)	179.2	¢

(a)	Net income (loss) was significantly impacted in the Predecessor periods due to reorganization items related to the bankruptcy restructuring.

(b)	Paid in January 2008.

(c)	Mainline operations exclude the operations of independent regional carriers operating as United Express. Statistics included in the 2006 Successor period were calculated using the combined results of the Successor period from February 1 to December 31, 2006 and the Predecessor January 2006 period.

(d)	RPMs are the number of scheduled miles flown by revenue passengers.

(e)	ASMs are the number of seats available for passengers multiplied by the number of miles those seats are flown.

(f)	Passenger load factor is derived by dividing RPMs by ASMs.

(g)	Yield is a measure of average price paid per passenger mile, which is calculated by dividing passenger revenues by RPMs.

(h)	PRASM is Mainline passenger revenue per ASM.

(i)	RASM is operating revenues excluding Regional Affiliates passenger revenue per ASM.

(j)	CASM is operating expenses excluding Regional Affiliates operating expenses per ASM.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

This Annual Report on Form 10-K is a combined report of UAL and United including their respective consolidated financial statements. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United’s operating revenues and operating expenses comprise nearly 100% of UAL’s revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL’s assets, liabilities and operating cash flows. Therefore, the following qualitative discussion is applicable to both UAL and United, unless otherwise noted. Any significant differences between UAL and United results are separately disclosed and explained. United meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format allowed under that general instruction.

As discussed above under Item 1, Business, the Company derives virtually all of its revenues from airline related activities. The most significant source of airline revenues is passenger revenues; however, Mileage Plus, United Cargo and United Services are also major sources of operating revenues. The airline industry is highly competitive and is characterized by intense price competition. Fare discounting by United’s competitors has historically had a negative effect on the Company’s financial results because United has generally been required to match competitors’ fares to maintain passenger traffic. Future competitive fare adjustments may negatively impact the Company’s future financial results. One of the Company’s most significant operating expenses is jet fuel. Jet fuel prices are extremely volatile and are largely uncontrollable by the Company. The Company’s historical and future earnings have been, and will continue to be, significantly impacted by jet fuel prices.

The Company continues to implement its “Focus on Five” business approach, a comprehensive set of priorities that focuses on the fundamentals of running a good airline: one that runs on time, with clean planes and courteous employees, delivers industry-leading revenues and competitive costs, and does so safely. The goal of this approach is to enable United to achieve best-in-class safety performance, exceptional customer satisfaction and experience, and industry-leading margin and cash flow. During 2009, United’s positions with respect to certain key metrics reported by the DOT improved significantly. In addition to improvements in overall customer satisfaction scores, United ranked number one in on-time performance for domestic scheduled flights for 2009 among the five largest global U.S. based carriers, as measured by the DOT and as published in the Air Travel Consumer Report for 2009. The Company also reduced unit costs through cost control initiatives and successfully completed a number of financing initiatives during 2009 to strengthen its liquidity and considerably reduce its near-term scheduled debt payments.

Recent Developments. The global recession created an extremely challenging environment for the Company. For most of 2008 and 2009, the airline industry experienced decreased demand for air travel which put pressure on the Company’s operating cash reserves, as well as its operating revenues. Despite challenging revenue conditions, the Company significantly reduced its year-over-year operating expenses. In addition to fuel price declines and reduced capacity, the Company’s commitment to cost reduction was a contributing factor to this reduction in operating expenses, as presented in the table below. The following table presents the unit cost of various components of total operating expenses and related year-over-year changes.


(In millions, except unit costs)	2009		2009 expense per ASM (in cents)	2008		2008 expense per ASM (in cents)	% change per ASM
Mainline ASMs		122,737			135,861
Mainline fuel expense	$	3,405	2.78	$	7,722	5.68	(51.1	)
Impairments, special items and other charges (a)		409	0.33		2,807	2.07	(84.1	)
Other operating expenses		9,743	7.94		10,855	7.99	(0.6	)

Total mainline operating expense		13,557	11.05		21,384	15.74	(29.8	)
Regional affiliate expense		2,939			3,248

Consolidated operating expense	$	16,496		$	24,632

(a)	Amounts are summarized in the Summary Results of Operations table in Financial Results, below.

In addition, to mitigate the negative impact of the global recession, the Company focused on implementing strategies during 2009 related to, among other things, capacity reductions, fleet optimization, revenue generation and airline alliances as discussed below.

Some of these actions include the following:

•

The Company reduced its Mainline domestic and international capacity by 5% and 8%, respectively, during the fourth quarter of 2009, as compared to the prior year. Mainline domestic capacity decreased 10% while international capacity decreased 9% for the full year of 2009, as compared to 2008.

Consolidated capacity was approximately 3% and 7% lower in the fourth quarter and the full year of 2009, respectively, as compared to the prior year;

•

The Company permanently removed 100 aircraft from its fleet, including its entire fleet of 94 B737 aircraft and six B747 aircraft in order to eliminate unprofitable capacity and divest the Company of assets that did not provide an acceptable return. The Company also streamlined its operations and corporate functions in order to match the size of its workforce to the size of its reduced capacity, resulting in a workforce reduction of approximately 9,000 positions during 2008 and 2009. The workforce reduction was completed through a combination of furloughs and furlough-mitigation programs, such as voluntary early-out options, to reduce the required involuntary furloughs. Of the total represented workforce reduction, approximately 45% was accomplished through voluntary furloughs;

•

The Company reconfigured its entire Ted fleet of 56 all-economy Airbus aircraft to include United First, Economy Plus and economy seating and continues to refit its widebody international aircraft with new first and business class premium seats, entertainment systems and other product enhancements. During 2009, the Company completed its upgrade of all of its B767 and B747 aircraft, which are used for international flights, and commenced the reconfiguration of its international B777 fleet in February 2010;

•

The Company created new revenue streams through unbundling its flight services and various other new service offerings. The new revenue initiatives include fees for checked bags on domestic and international flights, express airport check-in and boarding through Premier Travel^SM and Premier Travel Plus^SM, and an annual subscription for two checked bags at no additional cost for United and Regional Affiliates-operated flights through Premier Baggage;

•

In October 2009, Continental joined United and its 24 partners in the Star Alliance linking the airlines’ networks and services worldwide and creating new revenue opportunities, cost savings and other efficiencies;

•

In December 2009, United filed an application jointly with All Nippon Airways and Continental to the DOT for antitrust immunity for a series of alliance agreements between and among the carriers, including a transpacific joint venture agreement; and

•

In December 2009, the Company announced its intention to place an aircraft order for 25 Boeing 787-8 Dreamliner aircraft and 25 Airbus A350 XWB aircraft, with future purchase rights for an additional 50 planes of each aircraft type. The 25 Boeing aircraft and 25 Airbus aircraft are to replace the Company’s international Boeing 747s and 767s. The Company estimates that it will reduce its fuel costs and carbon emissions from the 25 Boeing aircraft and 25 Airbus aircraft combined by approximately 33% compared with the aircraft they will replace, lower average lifetime maintenance costs for the 25 Boeing aircraft and 25 Airbus aircraft combined by approximately 40% per available seat mile compared with the aircraft they will replace, and enable service to a broader range of international destinations while providing customers with state-of-the-art cabin comfort. The Boeing aircraft order is pursuant to a purchase agreement entered into by the Company and The Boeing Company in February 2010 and the Airbus aircraft order is subject to the execution of a definitive written agreement that is expected to be finalized in the first quarter of 2010.

The Company also took certain actions to enhance its liquidity and minimize its financing costs during this challenging economic environment. In 2009, the Company’s liquidity initiatives generated unrestricted cash of more than $1.5 billion primarily from the issuance of UAL common stock, proceeds from new debt issuances and aircraft asset sale-leaseback transactions. See Liquidity and Capital Resources—Financing Activities, below, for additional information related to these transactions.

The Company also made the following significant changes to its international route network:

•

The Company commenced new daily service from Washington Dulles to Moscow and Geneva in March and April 2009, respectively;

•

The Company will commence its first-ever service to Africa, with one daily, same-plane service from Washington Dulles to Accra, Ghana during the second quarter of 2010. In addition, United plans to add service to Lagos, Nigeria, pending government approvals;

•

The Company will offer a new non-stop flight between O’Hare and Brussels, Belgium and will extend its existing daily Washington Dulles-Kuwait flight to include a direct flight to Bahrain, starting in March and April 2010, respectively; and

•

The Company entered into a joint venture to offer service from Washington Dulles to Madrid beginning March 2010.

Financial Results. The air travel business is subject to seasonal fluctuations. Historically, the Company’s revenues are better in the second and third quarters as compared to the first and fourth quarters of each year, since its first and fourth quarter results normally reflect weaker travel demand. In addition, the Company’s results of operations may be impacted by adverse weather, air traffic control delays, fuel price volatility and other factors in any period.

The table below presents certain financial statement items to provide an overview of the Company’s financial performance for the three years ended December 31, 2009, 2008 and 2007. The most significant contributors to the Company’s net losses in 2009 and 2008 were the negative impact of the economic recession on revenues in 2009 and increased fuel prices and asset impairments in 2008. The table below also highlights that the Company, through its past and on-going cost reduction initiatives, was able to effectively manage costs in non-fuel and other areas, although the benefits of these cost savings initiatives were not sufficient to offset, in 2009, lower revenues due to the global recession, and, in 2008, the dramatic increase in fuel cost.

SUMMARY RESULTS OF OPERATIONS



(In millions)	2009			2008			2007
UAL information
Revenues	$	16,335		$	20,194		$	19,852
Special revenue items (a)		—			—			45
Revenues due to Mileage Plus policy change (a)		—			—			246

Total revenues		16,335			20,194			20,143
Mainline fuel purchase cost		3,509			7,114			5,086
Operating non-cash fuel hedge (gain)/loss		(586	)		568			(20	)
Operating cash fuel hedge (gain)/loss		482			40			(63	)
Regional Affiliates fuel expense (b)		799			1,257			915
Goodwill impairment (c)		—			2,277			—
Other impairments and special items (c)		374			339			(44	)
Other charges (see table below)		35			191			—

Total impairments, special items and other charges		409			2,807			(44	)

Other operating expenses		11,883			12,846			13,232
Nonoperating non-cash fuel hedge (gain)/loss		(279	)		279			—
Nonoperating cash fuel hedge (gain)/loss		248			249			—
Other nonoperating expense (d)		538			455			380
Income tax expense (benefit)		(17	)		(25	)		297

Net income (loss)	$	(651	)	$	(5,396	)	$	360

United net income (loss)	$	(628	)	$	(5,354	)	$	359

(a)	These significant items affecting the Company’s results of operations are discussed in Results of Operations, below.

(b)	Regional Affiliates’ fuel expense is classified as part of Regional Affiliates expense in the Company’s Financial Statements.

(c)	As described in Results of Operations below, asset impairment charges were recorded as a result of interim testing performed in 2009 and 2008.

(d)

Includes non-cash interest expense of $55 million, $48 million and $43 million in 2009, 2008 and 2007, respectively, related to accounting for convertible debt instruments that may be settled in cash upon conversion. See Note 1(p), “Summary of Significant Accounting Policies—New Accounting Pronouncements,” in the Footnotes for additional information. Also includes equity in earnings of affiliates.

UAL recorded the following impairment and other charges, as further discussed below, during the year ended December 31, 2009 and 2008:


	Year Ended December 31,
(In millions)	2009			2008			Income statement classification
Goodwill impairment	$	—		$	2,277		Goodwill impairment
Intangible asset impairments		150			64
Aircraft and related deposit impairments		93			250

Total other impairments		243			314
LAX municipal bond litigation		27			—
Lease termination and other charges		104			25

Total other impairments and special items		374			339		Other impairments and special items
Severance		33			106		Salaries and related costs
Employee benefit obligation adjustment		(35	)		57		Salaries and related costs
Litigation-related settlement gain		—			(29	)	Other operating expenses
Charges related to terminated/deferred projects		—			26		Purchased services
Net gain on asset sales		(11	)		(3	)	Other operating expenses
Accelerated depreciation from early asset retirements		48			34		Depreciation and amortization

Total other charges		35			191

Total of impairments, special items and other charges		409			2,807
Operating non-cash fuel hedge (gain) loss		(586	)		568		Aircraft fuel
Nonoperating non-cash fuel hedge (gain) loss		(279	)		279		Miscellaneous, net
Tax benefit on intangible asset impairments and asset sales		(21	)		(31	)	Income tax benefit

Total impairments and other charges	$	(477	)	$	3,623

The income tax benefit in 2009 is related to the impairment and sale of certain indefinite-lived intangible assets, partially offset by the income tax effects of items recorded in other comprehensive income. The income tax benefit in 2008 is related to the impairment and sale of certain indefinite-lived intangible assets, partially offset by the impact of an increase in state tax rates.

Liquidity. The following table provides a summary of the Company’s total cash and cash equivalents and restricted cash at December 31, 2009 and 2008.


	As of December 31,
(In millions)	2009		2008
Cash and cash equivalents	$	3,042	$	2,039
Restricted cash		341		272

Total cash and cash equivalents and restricted cash	$	3,383	$	2,311

The increase in the Company’s cash and cash equivalents and restricted cash balances was primarily due to a $2.2 billion improvement in cash flows from operations in 2009, as compared to 2008, and the significant liquidity initiatives described in Recent Developments, above. UAL’s variation in cash flows from operations in the 2009 period, as compared to the prior year, was relatively consistent with its results of operations as further described below under Results of Operations. Lower cash expenditures for fuel purchases were offset by lower cash receipts from the sale of passenger and cargo transportation in 2009, as compared to 2008. In 2009, the Company received $160 million related to the future relocation of its O’Hare cargo operations. This cash receipt was classified as an operating cash inflow. The Company also received $35 million from LAX as part of an agreement to vacate certain facilities. Decreases in the Company’s fuel hedge collateral requirements also provided operating cash of approximately $955 million. This benefit was substantially offset by approximately $730 million of net cash paid to counterparties for fuel derivative contract settlements and premiums during 2009.

The Company expects its cash flows from operations and its available capital to be sufficient to meet its future operating expenses, lease obligations and debt service requirements in the next twelve months; however, the Company’s future liquidity could be impacted by increases or decreases in fuel prices, fuel hedge collateral requirements, inability to adequately increase revenues to offset high fuel prices, softening revenues resulting from reduced demand, failure to meet future debt covenants and other factors. See Liquidity and Capital Resources and Item 7A, Quantitative and Qualitative Disclosures about Market Risk, below, for a discussion of these factors and the Company’s significant operating, investing and financing cash flows.

Capital Commitments. The Company’s capital purchase commitments of $622 million are for the purchase of property and equipment, including commitments related to its international premium cabin enhancement program. As of December 31, 2009, the Company had remaining capital commitments to complete international enhancements on 46 aircraft. In addition, the Company has an option to purchase 42 A319 and A320 aircraft for $2.3 billion.

Contingencies. United has guaranteed $270 million of the City and County of Denver, Colorado Special Facilities Airport Revenue Bonds (United Air Lines Project) Series 2007A (the “Denver Bonds”). This guarantee replaces our prior guarantee of $261 million of bonds issued by the City and County of Denver, Colorado in 1992. These bonds are callable by United. The outstanding bonds and related guarantee are not recorded in the Company’s Financial Statements. However, the related lease agreement is accounted for on a straight-line basis resulting in a ratable accrual of the final $270 million payment over the lease term.

Bankruptcy Matters. On December 9, 2002, UAL, United and 26 direct and indirect wholly-owned subsidiaries filed voluntary petitions to reorganize its business under Chapter 11 of the Bankruptcy Code. The Company emerged from bankruptcy on February 1, 2006, under the Plan of Reorganization that was approved by the Bankruptcy Court. During the course of its Chapter 11 proceedings, the Company successfully reached settlements with most of its creditors and resolved all claims pending in the bankruptcy case. On December 8, 2009, the Bankruptcy Court issued a final decree closing all bankruptcy cases against the Company, effective as of that date. See Note 13, “Commitments, Contingent Liabilities and Uncertainties,” in the Footnotes for further information regarding bankruptcy matters.

Legal and Environmental. The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business. Management believes, after considering a number of factors,

including (but not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of the litigation and claims will not materially affect the Company’s consolidated financial position or results of operations. When appropriate, the Company accrues for these matters based on its assessments of the likely outcomes of their eventual disposition. The amounts of these liabilities could increase or decrease in the near term, based on revisions to estimates relating to the various claims.

The Company anticipates that if ultimately found liable, its damages from claims arising from the events of September 11, 2001, could be significant; however, the Company believes that, under the Air Transportation Safety and System Stabilization Act of 2001, its liability will be limited to its insurance coverage.

The Company continues to analyze whether any potential liability may result from air cargo/passenger surcharge cartel investigations following the receipt of a Statement of Objections that the Commission issued to 26 companies on December 18, 2007. The Statement of Objections sets out evidence related to the utilization of fuel and security surcharges and exchange of pricing information that the Commission views as supporting the conclusion that an illegal price-fixing cartel had been in operation in the air cargo transportation industry. United has provided written and oral responses vigorously disputing the Commission’s allegations against the Company. Nevertheless, United will continue to cooperate with the Commission’s ongoing investigation. Based on its evaluation of all information currently available, the Company has determined that no reserve for potential liability is required and will continue to defend itself against all allegations that it was aware of or participated in cartel activities. However, penalties for violation of European competition laws can be substantial and a finding that the Company engaged in improper activity could have a material adverse impact on its consolidated financial position and results of operations.

Many aspects of United’s operations are subject to increasingly stringent federal, state and local laws protecting the environment. Future environmental regulatory developments, such as in regard to climate change in the U.S. and abroad, could adversely affect operations and increase operating costs in the airline industry. Some climate change laws and regulations that have gone into effect apply to United, including environmental taxes for certain international flights (including the United Kingdom’s Air Passenger Duty), limited greenhouse gas reporting requirements and land-based planning laws which could apply to airports and could affect airlines in certain circumstances. Other areas of developing regulations include the State of California rule-makings regarding air emissions from ground support equipment and federal rule-makings concerning the discharge of deicing fluid and the regulation of aircraft drinking water supplies. In addition, a 2009 EU Directive required EU member countries to enact legislation that would include aviation within the EU’s existing carbon emissions trading scheme, effective in 2012. The legality of applying such a scheme to non-EU airlines has been widely questioned. In December 2009, the Air Transportation Association, joined by United, Continental and American Airlines, filed a lawsuit in the United Kingdom challenging regulations that transpose into UK law the EU emissions trading scheme as applied to U.S. carriers. In addition, non-EU countries are considering filing a formal challenge before the United Nations’ International Civil Aviation Organization with respect to the EU’s inclusion of non-EU carriers. It is not clear whether the emissions trading scheme will withstand such challenges. If the scheme is found to be valid, however, it could significantly increase the costs of carriers operating in the EU (by requiring the purchase of carbon credits), although the precise cost to United is difficult to calculate with any certainty due to a number of variables, and will depend, among other things, on United’s carbon emissions from flights to and from the EU and the price of carbon credits. Actions may be taken in the future by the U.S. government, state governments within the U.S., foreign governments, the International Civil Aviation Organization, or by signatory countries through a new global climate change treaty to regulate the emission of greenhouse gases by the aviation industry. The precise nature of any such requirements and their applicability to United are difficult to predict, but the impact to the Company and the aviation industry would likely be adverse and could be significant, including the potential for increased fuel costs, carbon taxes or fees, or a requirement to purchase carbon credits.

See Note 13, “Commitments, Contingent Liabilities and Uncertainties,” in the Footnotes for further discussion of the above contingencies.

Results of Operations

Operating Revenues.

2009 compared to 2008

The table below illustrates the year-over-year percentage change in UAL and United operating revenues.


	Year Ended December 31,				$ Change			% Change
(In millions)	2009		2008		$ Change			% Change
Passenger—United Airlines	$	11,910	$	15,337		(3,427	)	(22.3	)
Passenger—Regional Affiliates		3,064		3,098		(34	)	(1.1	)
Cargo		536		854		(318	)	(37.2	)
Other operating revenues		825		905		(80	)	(8.8	)

UAL total	$	16,335	$	20,194	$	(3,859	)	(19.1	)

United total	$	16,359	$	20,237	$	(3,878	)	(19.2	)

The table below presents UAL and United passenger revenues and selected operating data from our Mainline segment, broken out by geographic region, and from our Regional Affiliates segment, expressed as year-over-year changes.


	Domestic			Pacific			Atlantic			Latin			Mainline			Regional Affiliates			Consolidated
Increase (decrease) from 2008:
Passenger revenues (in millions)	$	(1,908	)	$	(916	)	$	(407	)	$	(196	)	$	(3,427	)	$	(34	)	$	(3,461	)
Passenger revenues		(21.2	)%		(28.9	)%		(15.5	)%		(36.3	)%		(22.3	)%		(1.1	)%		(18.8	)%
Available seat miles (“ASMs”)		(10.4	)%		(11.5	)%		(2.6	)%		(18.5	)%		(9.7	)%		11.2	%		(7.4	)%
Revenue passenger miles (“RPMs”)		(9.2	)%		(10.6	)%		(2.5	)%		(19.2	)%		(8.7	)%		13.3	%		(6.5	)%
Passenger revenues per ASM (“PRASM”)		(12.0	)%		(19.7	)%		(13.2	)%		(21.8	)%		(14.1	)%		(11.1	)%		(12.3	)%
Yield (a)		(15.4	)%		(17.2	)%		(10.1	)%		(16.6	)%		(15.0	)%		(12.7	)%		(13.2	)%
Passenger load factor (points)		1.1	pts.		0.8	pts.		0.1	pts.		(0.7	)pts.		0.9	pts.		1.4	pts.		0.8	pts.

(a)	Yields for geographic regions exclude charter revenue, industry reduced fares, and passenger charges, and related RPMs.

Consistent with the rest of the airline industry, the Company’s decline in PRASM was driven by a precipitous decline in worldwide travel demand as a result of the severe global recession. Two factors had a distinct impact on United’s revenue during 2009.

First, network composition played a role in overall unit revenue decline. International markets, in particular the Pacific region, experienced more significant unit revenue declines as compared to the other regions. Given United’s strong international network and its historic relative contribution to revenues, the Company’s revenues were disproportionately impacted by the contraction in travel demand in the Pacific.

Second, while demand declined across all geographic regions, premium and business demand declined more significantly than leisure demand. As United’s business model is strongly aligned to serve premium and business travelers, both internationally and domestically, the decrease in travel by business travelers and the buy-down from premium class to economy class by some business travelers caused a significant negative impact on our results of operations. However, in the fourth quarter of 2009, the Company began to see signs of improvement, as discussed below.

In light of the current poor economic environment, these two factors—network composition and decline of premium and business demand—have had, and may continue to have, a negative impact on our results of operations.

In 2009, revenues for both Mainline and Regional Affiliates were negatively impacted by yield decreases of 15% and 13%, respectively, as compared to 2008. The yield decreases were a result of the weak economic environment in 2009 and the economic factors discussed above. Mainline revenues were also negatively impacted by lower RPMs, which were largely driven by the Company’s capacity reductions and by the severe global recession. Partially offsetting Regional Affiliates’ decrease in yield was a 13% increase in RPMs, driven by an 11% increase in capacity. Regional Affiliates capacity increased as we adjusted the size of our aircraft and capacity across United’s total network to conform to market demand and fulfill prior contractual commitments.

Although the impact of the global recession on the Company’s international network, as well as business and premium travel, during late 2008 and 2009 was severe, the Company saw indicators of economic recovery during the fourth quarter of 2009, which accelerated as the quarter progressed. While fourth quarter 2009 consolidated passenger unit revenues were down 5.2% year-over-year, this performance was a vast improvement from the double digit declines in prior quarters. Most importantly, there was a much needed sequential progress during the quarter, ending with modest growth in December. Signs of recovery were evident internationally, as well as in premium cabin booking and corporate revenues.

In 2009, Mainline and Regional Affiliate revenues benefited from an increase in ancillary revenues, which includes bag fees and other unbundled services, of approximately $141 million, compared to 2008. For the full year of 2009, ancillary revenues totaled approximately $1.1 billion.

Mainline and Regional Affiliate revenues were favorably impacted in 2009 by an adjustment of approximately $36 million related to certain tax accruals that were previously recorded as a reduction of revenue. This adjustment was recorded as a result of new information received by the Company related to these tax matters.

Cargo revenues declined by $318 million, or 37%, in 2009 as compared to 2008, due to four key factors. First, United took significant steps to rationalize its capacity, with reduced international capacity affecting a number of key cargo markets. Second, as noted by industry statistical releases during 2009, virtually all carriers in the industry, including United, were sharply impacted by reduced air freight and mail volumes driven by lower recessionary demand, with the resulting oversupply of cargo capacity putting pressure on industry pricing in nearly all markets. Some of the largest industry demand reductions occurred in the Pacific cargo market, where United has a greater cargo capacity as compared to the Atlantic, Latin and Domestic air cargo markets. Third, lower fuel costs in 2009 also reduced cargo revenues through lower fuel surcharges on cargo shipments as compared to 2008 when historically high fuel prices occurred. Finally United, historically one of the largest carriers of U.S. international mail, was impacted by lower mail volumes and pricing beginning in third quarter of 2009 arising from U.S. international mail deregulation. The deregulation moved pricing from regulated rates set by the DOT to market-based pricing as a result of a competitive bidding process. Towards the end of 2009, the Company began to experience significant market stabilization and improvement in cargo industry demand and yields.

2008 compared to 2007

The table below illustrates the year-over-year percentage change in UAL and United operating revenues.


	Year Ended December 31,				$ Change			% Change
(In millions)	2008		2007		$ Change			% Change
Passenger—United Airlines	$	15,337	$	15,254	$	83		0.5
Passenger—Regional Affiliates		3,098		3,063		35		1.1
Cargo		854		770		84		10.9
Special operating items		—		45		(45	)	(100.0	)
Other operating revenues		905		1,011		(106	)	(10.5	)

UAL total	$	20,194	$	20,143	$	51		0.3

United total	$	20,237	$	20,131	$	106		0.5

The 2007 special item of $45 million relates to an adjustment of the estimated obligation associated with certain bankruptcy administrative claims, of which $37 million and $8 million relates to the Mainline and Regional Affiliates segments, respectively. The table below presents selected UAL and United passenger revenues and selected operating data from our Mainline segment, broken out by geographic region with an associated allocation of the special revenue item, and from our Regional Affiliates segment, expressed as year-over-year changes.


	Domestic			Pacific			Atlantic			Latin			Mainline			Regional Affiliates			Consolidated
Increase (decrease) from 2007:
Passenger revenues (in millions)	$	(156	)	$	(91	)	$	263		$	30		$	46		$	27		$	73
Passenger revenues		(1.7	)%		(2.8	)%		11.1	%		6.0	%		0.3	%		0.9	%		0.4	%
Available seat miles (“ASMs”)		(7.8	)%		(4.8	)%		11.0	%		(2.8	)%		(4.2	)%		(0.8	)%		(3.9	)%
Revenue passenger miles (“RPMs”)		(8.5	)%		(9.4	)%		7.9	%		(5.5	)%		(6.3	)%		(3.9	)%		(6.0	)%
Passenger revenues per ASM (“PRASM”)		6.7	%		2.1	%		0.1	%		9.0	%		4.7	%		1.8	%		4.5	%
Yield (a)		7.4	%		7.2	%		2.2	%		12.7	%		6.9	%		5.0	%		6.8	%
Passenger load factor (points)		(0.6	) pts.		(3.9	) pts.		(2.3	) pts.		(2.2	) pts.		(1.7	) pts.		(2.4	) pts.		(1.8	) pts.

(a)	Yields for geographic regions exclude charter revenue, industry reduced fares, and passenger charges, and related RPMs.

In 2008, revenues for both Mainline and Regional Affiliates benefited from yield increases of 7% and 5%, respectively, as compared to 2007. The yield increases are due to industry capacity reductions and fare increases, including fuel surcharges plus incremental revenues derived from ancillary revenue, such as checked bag services. However, the benefit of higher yields was partially offset by 6% and 4% decreases in traffic for the Mainline and Regional Affiliates segments, respectively. Consolidated passenger revenues in 2008 included an unfavorable variance compared to 2007 that was partly due to the change in the Mileage Plus expiration policy for inactive accounts from 36 months to 18 months that provided a consolidated estimated annual benefit of $246 million in 2007. In addition, the weak economic environment negatively impacted demand and passenger revenues, particularly in the fourth quarter of 2008.

International PRASM was up 2% year-over-year with a related capacity increase of 1%. While Latin American PRASM growth was strong at 9% year-over-year, it is not a significant part of United’s international network. Atlantic performance was driven by lower than average revenue growth in our London and Germany markets, largely due to industry capacity growth of approximately 13% in the U.S. to London Heathrow route

and United’s 15% growth in Germany. These markets account for approximately 75% of our Atlantic capacity. The Pacific region was impacted by 7% industry capacity growth between the U.S. and China/Hong Kong, which account for approximately 45% of United’s Pacific capacity.

Cargo revenues increased by $84 million, or 11%, in 2008 as compared to 2007, primarily due to higher fuel surcharges and improved fleet utilization. In addition, revenues were higher due to increased volume associated with the U.S. domestic mail contract, which commenced in late April 2007, as well as filling new capacity in international markets. A weaker dollar also benefited cargo revenues in 2008 as a significant portion of cargo services are contracted in foreign currencies. However, the Company experienced a significant decline in cargo revenues in the fourth quarter of 2008 due to rationalization of international capacity, falling demand for domestic and international air cargo as the global economy softened, and lower fuel costs driving lower fuel surcharges. Decreased cargo revenues resulting from lower demand have a disproportionate impact on our operating results because cargo revenues typically generate higher margins as compared to passenger revenues.

Other revenues decreased approximately 11% in 2008 as compared to 2007. This decrease was primarily due to lower jet fuel sales to third parties. The decrease in third party fuel sales had a negligible impact on our operating margin because the associated cost of sales decreased by a similar amount in 2008 as compared to 2007.

Operating Expenses.

2009 compared to 2008

As discussed in Operating Revenues, above, the Company (decreased) increased Mainline and Regional Affiliates capacity by (10%) and 11%, respectively, in 2009 as compared to 2008. The Mainline capacity reductions had a significantly favorable impact on certain of the Company’s Mainline operating expenses, as further described below. Other significant fluctuations in the Company’s operating expenses are also discussed below. The table below includes data related to UAL and United operating expenses.


	Year Ended December 31,				$ Change			% Change
(In millions)	2009		2008		$ Change			% Change
Salaries and related costs	$	3,773	$	4,311	$	(538	)	(12.5	)
Aircraft fuel		3,405		7,722		(4,317	)	(55.9	)
Regional Affiliates		2,939		3,248		(309	)	(9.5	)
Purchased services		1,167		1,375		(208	)	(15.1	)
Aircraft maintenance materials and outside repairs		965		1,096		(131	)	(12.0	)
Landing fees and other rent		905		862		43		5.0
Depreciation and amortization		902		932		(30	)	(3.2	)
Distribution expenses		534		710		(176	)	(24.8	)
Aircraft rent		346		409		(63	)	(15.4	)
Cost of third party sales		230		272		(42	)	(15.4	)
Goodwill impairment		—		2,277		(2,277	)	(100.0	)
Other impairment and special items		374		339		35		10.3
Other operating expenses		956		1,079		(123	)	(11.4	)

UAL total	$	16,496	$	24,632	$	(8,136	)	(33.0	)

United total	$	16,496	$	24,630	$	(8,134	)	(33.0	)

Salaries and related costs decreased $538 million, or 13%, in 2009 as compared to 2008. The decrease was primarily due to the Company’s reduced workforce in 2009 compared to 2008. The Company had approximately 43,700 average full-time equivalent employees for the year ended December 31, 2009 as compared to 49,600 in the prior year. A $73 million decrease in severance expense related to the Company’s operational plans and a $92 million year-over-year benefit due to changes in employee benefits expenses also contributed to the decrease

in Salaries and related costs. Salaries and related costs also decreased by $46 million due to the Company’s Success Sharing Program. The Company did not record any expense for this plan in 2009. Partially offsetting these benefits were the impacts of average wage and benefit cost increases and a $38 million increase related to on-time performance bonuses paid to operations employee groups during 2009, which were not paid in 2008.

The decrease in jet fuel expense and Regional Affiliates expense was primarily attributable to decreased market prices for jet fuel, as shown in the table below which presents the significant changes in Mainline and Regional Affiliate jet fuel cost per gallon in 2009 as compared to 2008. Lower Mainline fuel consumption due to the capacity reductions also benefited Mainline fuel expense in 2009 as compared to the prior year. See Note 12, “Fair Value Measurements and Derivative Instruments,” in the Footnotes for additional details regarding gains/losses from settled positions and unrealized gains and losses at the end of the period. Derivative gains/losses are not allocated to Regional Affiliate fuel expense.


								Average price per gallon (in cents)
	Year Ended December 31,
(In millions, except per gallon)	2009			2008		% Change		2009		2008	% Change
Mainline fuel purchase cost	$	3,509		$	7,114	(50.7	)	180.7		326.0	(44.6	)
Non-cash fuel hedge (gains) losses in Mainline fuel		(586	)		568	—		(30.2	)	26.0	—
Cash fuel hedge (gains) losses in Mainline fuel		482			40	NM		24.8		1.9	NM

Total Mainline fuel expense		3,405			7,722	(55.9	)	175.3		353.9	(50.5	)
Regional Affiliates fuel expense (a)		799			1,257	(36.4	)	201.8		338.8	(40.4	)

UAL system operating fuel expense	$	4,204		$	8,979	(53.2	)	179.8		351.7	(48.9	)

Non-cash fuel hedge (gains) losses in nonoperating income (loss)		(279	)	$	279	—
Cash fuel hedge (gains) losses in nonoperating income (loss)		248			249	(0.4	)
Mainline fuel consumption (gallons)		1,942			2,182	(11.0	)
Regional Affiliates fuel consumption (gallons)		396			371	6.7

Total fuel consumption (gallons)		2,338			2,553	(8.4	)

(a)	Regional Affiliates fuel costs are classified as part of Regional Affiliates expense.

NM Not meaningful.

Regional Affiliates expense decreased $309 million, or 10%, during 2009 as compared to 2008 primarily due to a $458 million decrease in Regional Affiliates fuel cost. The decrease in Regional Affiliates fuel cost was primarily due to a lower average price per gallon of Regional Affiliates jet fuel in 2009, as presented in the table above, and was partially offset by increased fuel consumption as a result of the increase in Regional Affiliates capacity. Increased capacity agreement payments to Regional Affiliates as a result of increased capacity, partially offset the net fuel benefit. The Regional Affiliates operating income was $125 million in the 2009 period, as compared to a loss of $150 million in the 2008 period. Regional Affiliates operating results improved significantly on a year-over-year basis as the benefits of increased traffic and lower fuel cost offset the yield decrease.

Purchased services decreased $208 million, or 15%, in 2009 as compared to 2008 primarily due to the Company’s operating cost savings programs and lower variable costs associated with lower Mainline capacity.

During 2009, aircraft maintenance materials and outside repairs decreased by $131 million, or 12%, as compared to the prior year primarily due to a lower volume of engine and airframe maintenance expense as a result of the Company’s early retirement of 100 aircraft from its operating fleet and the timing of maintenance on other fleet types.

Landing fees and other rent increased $43 million, or 5%, in 2009 as compared to 2008 primarily due to higher rates.

Distribution expenses decreased $176 million, or 25%, in 2009 primarily due to lower passenger revenues on lower traffic and yields driving reductions in commissions, credit card fees and GDS fees as compared to 2008. The Company has also implemented several operating cost savings programs for both commissions and GDS fees which produced realized savings in the current year.

Aircraft rent expense decreased by $63 million, or 15%, primarily as a result of the Company’s operational plans to retire its entire fleet of B737 aircraft, some of which were financed through operating leases.

Cost of third party sales decreased by $42 million, or 15%, primarily due to reduced sales of engine maintenance services.

Asset Impairments and Special Items.

In 2009, the Company recorded special charges of $27 million related to the final settlement of the LAX municipal bond litigation, $104 million primarily related to B737 aircraft lease terminations and $93 million related to the impairment of regional aircraft and nonoperating B737 and B747 aircraft. In addition, the Company recorded a $150 million intangible asset impairment to decrease the value of United tradenames. A significant factor resulting in the lower fair value of the tradenames was a decrease in estimated future revenues due to the weak economic environment and the Company’s capacity reductions, among other factors. In 2008, the Company incurred asset impairment charges of $2.6 billion, as shown in the table below. All special charges and impairments relate to the Mainline segment and the non-goodwill impairment charges are classified within “Other impairments and special items” in the Company’s Financial Statements. See Note 3, “Asset Impairments and Intangible Assets” and Note 12, “Fair Value Measurements and Derivative Instruments,” and in the Footnotes for additional information.


(In millions)	2009		2008
Goodwill impairment	$	—	$	2,277
Indefinite-lived intangible assets:
Codeshare agreements		—		44
Tradenames		150		20

Intangible asset impairments		150		64

Tangible assets:
Pre-delivery advance deposits including related capitalized interest		—		105
Nonoperating aircraft, spare engines and parts and other		93		145

Tangible asset impairments		93		250

Total impairments		243		2,591
LAX municipal bond litigation		27		—
Lease termination and other charges		104		25

Total impairments and special items	$	374	$	2,616

In 2009, other operating expenses decreased by $123 million, or 11%, as compared to 2008 due to the Company’s cost savings initiatives and lower variable expenses due to reduced capacity in the 2009 period as compared to 2008. UAL recorded a gain of $29 million for a litigation settlement resulting in a reduction of other operating expenses during 2008.

2008 compared to 2007

The table below includes data related to UAL and United operating expenses. Significant fluctuations are discussed below.


	Year Ended December 31,					$ Change			% Change
(In millions)	2008		2007			$ Change			% Change
Aircraft fuel	$	7,722	$	5,003		$	2,719		54.3
Salaries and related costs		4,311		4,261			50		1.2
Regional Affiliates		3,248		2,941			307		10.4
Purchased services		1,375		1,346			29		2.2
Aircraft maintenance materials and outside repairs		1,096		1,166			(70	)	(6.0	)
Depreciation and amortization		932		925			7		0.8
Landing fees and other rent		862		876			(14	)	(1.6	)
Distribution expenses		710		779			(69	)	(8.9	)
Aircraft rent		409		406			3		0.7
Cost of third party sales		272		316			(44	)	(13.9	)
Goodwill impairment		2,277		—			2,277		—
Other impairment and special items		339		(44	)		383		—
Other operating expenses		1,079		1,131			(52	)	(4.6	)

UAL total	$	24,632	$	19,106		$	5,526		28.9

United total	$	24,630	$	19,099		$	5,531		29.0

The increase in aircraft fuel expense and Regional Affiliates expense was primarily attributable to increased market prices for crude oil and related fuel products as shown in table below, which presents several key variances for Mainline and Regional Affiliate aircraft fuel expense in 2008 as compared to 2007.


								Average price per gallon (in cents)
	Year Ended December 31,
(In millions, except per gallon)	2008		2007			% Change		2008	2007		% Change
Mainline fuel purchase cost	$	7,114	$	5,086		39.9		326.0	221.9		46.9
Non-cash fuel hedge (gains) losses in mainline fuel		568		(20	)	—		26.0	(0.9	)	—
Cash fuel hedge (gains) losses in mainline fuel		40		(63	)	—		1.9	(2.7	)	—

Total Mainline fuel expense		7,722		5,003		54.3		353.9	218.3		62.1
Regional Affiliates fuel expense (a)		1,257		915		37.4		338.8	242.7		39.6

UAL system operating fuel expense	$	8,979	$	5,918		51.7		351.7	221.7		58.6

Non-cash fuel hedge (gains) losses in nonoperating income (loss)	$	279	$	—		—
Cash fuel hedge (gains) losses in nonoperating income (loss)		249		—		—
Mainline fuel consumption (gallons)		2,182		2,292		(4.8	)
Regional Affiliates fuel consumption (gallons)		371		377		(1.6	)

Total fuel consumption (gallons)		2,553		2,669		(4.3	)

(a)	Regional Affiliates fuel costs are classified as part of Regional Affiliates expense.

Salaries and related costs increased $50 million in 2008. The Company’s costs in 2008 include increases in average wages and benefits expense, as well as severance expense of $106 million due to the implementation of

the Company’s operating plans, as more fully described in Note 2, “Company Operational Plans,” in the Footnotes. In addition, the Company recorded $87 million of expense in 2008 from certain benefit obligation adjustments, which were primarily due to discount rate changes. These negative impacts were partially offset by lower combined profit and success sharing expense in the 2008 period as compared to the year-ago period due to the unfavorable financial results in 2008 as compared to 2007. In addition, 2008 salaries and related costs benefited from the workforce reductions completed during the year.

Regional Affiliates expense increased $307 million, or 10%, in 2008 as compared to 2007. Regional Affiliates expense increased primarily due to a $342 million, or 37%, increase in Regional Affiliates fuel that was driven by an increase in market price for fuel as highlighted in the fuel table above. The Regional Affiliates operating loss was $150 million in 2008 period, as compared to income of $122 million in 2007, due to the aforementioned fuel impacts, which could not be fully offset by higher ticket prices, as Regional Affiliates revenues were only 1% higher in 2008.

The Company’s purchased services increased $29 million, or 2%, in 2008 as compared to 2007. In 2008, purchased services included a charge of $26 million related to certain projects and transactions being terminated or indefinitely postponed. In 2008, other areas of purchased services did not change significantly as compared to 2007.

Aircraft maintenance materials and outside repairs decreased 6% in 2008 as compared to 2007, primarily due to a decrease in engine and airframe maintenance associated with the retirement of the Company’s B737 fleet and more favorable engine maintenance contract rates.

Depreciation expense in 2008 was adversely impacted by $34 million of accelerated depreciation primarily related to the retirement of certain B737 and B747 aircraft and related parts and a $20 million charge to increase the inventory obsolescence reserve. This adverse impact was partially offset by reduced amortization expense in 2008 related to certain intangible assets that were fully amortized in 2007.

UAL landing fees and other rent decreased 2% in 2008 due to a reduction in the amount of facilities rented associated with ongoing efforts to optimize our rented facilities consistent with our operational needs.

Distribution expenses decreased 9% in 2008 as compared to 2007 largely due to the Company’s reduction of some of its travel agency commission programs in 2008, resulting in an average commission rate reduction. In addition, the Company’s lower passenger revenues, due to its capacity reductions in 2008, contributed to the decrease in related distribution expenses.

Cost of third party sales decreased 14% year-over-year primarily due to a reduction in the cost of jet fuel sales as a result of a reduction in sales to third parties.

Other operating expenses decreased 5% in 2008 as compared to 2007. This decrease was partly due to a $29 million litigation-settlement gain, which was recorded in other operating expenses, and decreases in several other expense categories which resulted from the Company’s cost reduction program.

Asset Impairments and Special Items.

As described in the Footnotes, as of May 31, 2008, the Company performed an interim impairment test of its goodwill, all intangible assets and certain of its long-lived assets (principally aircraft pre-delivery deposits, aircraft and related spare engines and spare parts) due to events and changes in circumstances during the first five months of 2008 that indicated an impairment might have occurred. In addition, the Company also performed an impairment test of certain aircraft fleet types as of December 31, 2008, because unfavorable market conditions for aircraft indicated potential impairment of value. The Company also performed annual indefinite-lived intangible asset impairment testing at October 1, 2008. As a result of all of its 2008 impairment testing, the

Company recorded asset impairment charges of $2.6 billion as presented in the table above under 2009 compared to 2008. See Critical Accounting Policies and Note 3, “Asset Impairments and Intangible Assets,” in the Footnotes for additional information, including factors considered by management in concluding that triggering events, which indicated potential impairment, had occurred and additional details of assets impaired.

In addition, lease termination and other charges of $25 million were recorded during 2008 which primarily relate to the accrual of future rents for the B737 leased aircraft that were removed from service and charges associated with the return of certain of these aircraft to their lessors.

The Company recorded special operating expense credits of $44 million in 2007. These items have been classified as special because they are directly related to the resolution of bankruptcy administrative claims and are not indicative of the Company’s ongoing financial performance. Special items in the year ended December 31, 2007 included a $30 million benefit due to the reduction in recorded accruals for bankruptcy litigation related to our SFO and LAX municipal bond obligations and a $14 million benefit due to the Company’s ongoing efforts to resolve certain other bankruptcy pre-confirmation contingencies. The 2007 special items resulted from revised estimates of the probable amount to be settled by the Bankruptcy Court. See Note 13, “Commitments, Contingent Liabilities and Uncertainties” and Note 18, “Special Items,” in the Footnotes for further information on these special items and bankruptcy matters.

Other Income (Expense).

2009 compared to 2008

The following table illustrates the year-over-year dollar and percentage changes in UAL and United other income (expense).


	Year Ended December 31,						Favorable/ (Unfavorable) Change
(In millions)	2009			2008			$			%
Interest expense	$	(577	)	$	(571	)	$	(6	)	(1.1	)
Interest income		19			112			(93	)	(83.0	)
Interest capitalized		10			20			(10	)	(50.0	)
Miscellaneous, net:
Non-cash fuel hedge gains (losses)		279			(279	)		558		—
Cash fuel hedge gains (losses)		(248	)		(249	)		1		0.4
Other miscellaneous, net		6			(22	)		28		—

UAL total	$	(511	)	$	(989	)	$	478		48.3

United total	$	(511	)	$	(989	)	$	478		48.3

UAL interest expense increased $6 million, or 1%, in 2009 as compared to 2008 primarily due to increased borrowing, partially offset by lower interest rates on the Company’s variable-rate borrowings. The decrease in interest expense was more than offset by a $93 million decrease in interest income primarily due to reduced investment yields resulting from lower market rates.

The hedge losses included in Miscellaneous, net in the 2008 period were due to significant fuel price declines below the contractual prices in the Company’s fuel hedge portfolio that existed during and at the end of 2008. The Company’s fuel derivative gain in 2009 was less significant because the Company did not have any significant derivative activity for hedges that are classified in Miscellaneous, net, in 2009, other than settlement of contracts that existed at December 31, 2008. As of December 31, 2009, the Company had no unsettled fuel derivative trades that are classified within Miscellaneous, net. See Note 12, “Fair Value Measurements and Derivative Instruments,” in the Footnotes for further information related to fuel hedges.

2008 compared to 2007

The following table illustrates the year-over-year dollar and percentage changes in UAL and United other income (expense).


	Year Ended December 31,						Favorable/ (Unfavorable) Change
(In millions)	2008			2007			$			%
Interest expense	$	(571	)	$	(704	)	$	133		18.9
Interest income		112			257			(145	)	(56.4	)
Interest capitalized		20			19			1		5.3
Gain on sale of investment		—			41			(41	)	(100.0	)
Miscellaneous, net:
Non-cash fuel hedge gains (losses)		(279	)		—			(279	)	—
Cash fuel hedge gains (losses)		(249	)		—			(249	)	—
Other miscellaneous, net		(22	)		2			(24	)	—

UAL total	$	(989	)	$	(385	)	$	(604	)	(156.9	)

United total	$	(989	)	$	(382	)	$	(607	)	(158.9	)

UAL interest expense decreased $133 million, or 19%, in 2008 as compared to 2007. The 2008 period was favorably impacted by $1.5 billion of total credit facility prepayments and the February 2007 credit facility amendment, which lowered United’s interest rate on these obligations. Scheduled debt obligation repayments throughout 2008 and 2007 also reduced interest expense in 2008 as compared to 2007. Lower benchmark interest rates on the Company’s variable-rate borrowings also reduced the Company’s interest expense in 2008 as compared to 2007. Interest expense in 2007 included the write-off of $17 million of previously capitalized debt issuance costs associated with the February 2007 Amended Credit Facility partial prepayment, $6 million of financing costs associated with the February 2007 amendment and a gain of $22 million from a debt extinguishment. The benefit of lower interest expense in 2008 was offset by a $145 million decrease in interest income due to lower average cash and short-term investment balances and lower investment yields. Interest expense for the years ended December 31, 2008 and 2007 includes $48 million and $43 million, respectively, of non-cash interest expense related to the Company’s retrospective adoption of new accounting principles related to convertible debt instruments that may be settled in cash upon conversion. See Liquidity and Capital Resources below, for further details related to financing activities.

Nonoperating fuel hedge gains/losses relate to hedging instruments that are not classified as economic hedges. These net hedge gains/losses are presented separately in the table above for purposes of additional analysis. These hedging gains/losses are due to favorable/unfavorable movements in crude oil prices relative to the fuel hedge instrument terms. See Item 7A, Quantitative and Qualitative Disclosures about Market Risk and Note 12, “Fair Value Measurements and Derivative Instruments,” in the Footnotes for further discussion of these hedges.

There were no significant investment gains or losses in 2008 as compared to 2007 during which the Company recorded a $41 million gain on sale of an investment. This gain resulted from the Company’s sale of its 21.1% interest in Aeronautical Radio, Inc. during 2007.

The $24 million variance in Miscellaneous, net is primarily due to unfavorable foreign exchange rate fluctuations in 2008.

Income Taxes.

In 2009, UAL and United recorded a tax benefit of $17 million and $16 million, respectively, primarily due to the impairment of indefinite-lived intangible assets, partially offset by income tax effects of items recorded in

other comprehensive income. The tax benefit recorded in 2008 is related to the impairment and sale of certain indefinite-lived intangible assets, partially offset by the impact of an increase in state tax rates. UAL recorded income tax expense of $297 million for the year ended December 31, 2007 (an effective tax rate of 45.5%). See Note 7, “Income Taxes,” in the Footnotes for additional information.

Liquidity and Capital Resources

As of the date of this Form 10-K, the Company believes it has sufficient liquidity to fund its operations for the next twelve months, including liquidity for scheduled repayments of debt and capital lease obligations, capital expenditures, cash deposits required under fuel hedge contracts and other contractual obligations. We expect to meet our liquidity needs in 2010 primarily from cash flows from operations, cash and cash equivalents on hand and proceeds from the 2010 financing arrangements described below. In addition, the Company may be able to generate a limited amount of liquidity from other sources, including proceeds from aircraft sales and sales of other assets, and potentially, new financing arrangements. While the Company expects to meet its future cash requirements in 2010, our ability to do so could be impacted by many factors including, but not limited to, the following:

•

The global recession has had, and may in the future continue to have, a significant adverse impact on travel demand which has resulted in decreased revenues and may adversely affect revenues in future periods. In addition, the Company’s current operational plans to address the weak global economy may not be successful in improving its results of operations and liquidity. Further, certain of the Company’s competitors may increase capacity, thereby potentially negatively impacting the Company’s unit revenue. The Company may also not achieve expected revenue improvements from merchandising and fee enhancement initiatives;

•

Higher jet fuel prices, and the cost and effectiveness of hedging jet fuel prices, may require the use of significant liquidity in future periods. Crude oil prices have been extremely volatile and unpredictable in recent years and likely will remain volatile in future periods. As of December 31, 2009, the Company was hedged using purchased call options and swaps. The Company has been, and may in the future be, required to make significant payments at the settlement dates of the hedge contracts if the settlement price is below the fixed swap price. Additionally, the Company has been, and may in the future be, required to provide counterparties with additional cash collateral prior to derivative settlement dates. While the Company’s results of operations benefit from lower fuel prices on its unhedged fuel consumption, the Company may not realize the full benefit of lower fuel prices due to unfavorable fuel hedge cash settlements. In addition, the Company may not be able to increase its revenues in response to higher fuel prices. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk, and Note 12, “Fair Value Measurements and Derivative Instruments” in the Footnotes for further information regarding the Company’s fuel derivative instruments;

•

The Company has limited remaining assets available as collateral for loans and other indebtedness, which may make it difficult to raise capital to meet its liquidity needs. Our level of indebtedness, non-investment grade credit rating, and credit market conditions may also make it difficult for us to raise capital to meet liquidity needs and may increase our cost of borrowing. A higher cost of capital could negatively impact our results of operations, financial position and liquidity;

•

Due to the factors above, and other factors, the Company may be unable to comply with its Amended Credit Facility covenants that currently require the Company to maintain an unrestricted cash balance of $1.0 billion and a minimum ratio of EBITDAR to fixed charges. If the Company does not comply with these covenants, the lenders may accelerate repayment of these debt obligations, which would have a material adverse impact on the Company’s financial position and liquidity; and

•

If a default occurs under our Amended Credit Facility or other debt obligations, the cost to cure any such default may materially and adversely impact our financial position and liquidity, and no assurance can be provided that such a default will be mitigated or cured.

Although the factors described above may adversely impact the Company’s liquidity, the Company believes it has an adequate available cash position, together with other sources of cash, to fund current operations. UAL’s unrestricted and restricted cash balances were $3.0 billion and $341 million, respectively, at December 31, 2009. In addition, the Company has recently taken actions to improve its liquidity and reduce near-term obligations and believes it may access additional capital in the future, as described below.

•

During 2009, the Company’s liquidity initiatives generated unrestricted cash of more than $1.5 billion primarily from the issuance of UAL common stock, proceeds from debt obligations and aircraft asset sale-leasebacks. Additional proceeds of approximately $900 million from financings have either been, or will be, received in 2010 as discussed below. Certain of these initiatives were used to refinance existing debt obligations, significantly reducing the Company’s 2010 and 2011 debt obligations;

•

The Company has a limited amount of unencumbered aircraft and other assets may be sold or otherwise used as collateral to obtain additional financing. In addition, in 2010 and 2011, additional aircraft will become unencumbered as various debt and lease obligations mature. These aircraft may be used to obtain new financings; and

•

During 2009 and 2008, the Company took aggressive actions to right-size its business including significant capacity reductions, disposition of underperforming assets and a workforce reduction, among others.

Cash Position and Liquidity. As of December 31, 2009, approximately 25% of the Company’s cash and cash equivalents were invested in money market funds that primarily invest in U.S. treasury securities and the remainder was invested in AAA-rated money market funds. There are no withdrawal restrictions at the present time on any of the money market funds in which the Company has invested. We believe credit risk is limited with respect to our money market fund investments. The following table provides a summary of UAL’s net cash provided (used) by operating, investing and financing activities for the years ended December 31, 2009, 2008 and 2007 and total cash position as of December 31, 2009 and 2008.


	Year Ended December 31,
(In millions)	2009			2008			2007
Net cash provided (used) by operating activities	$	966		$	(1,239	)	$	2,134
Net cash provided (used) by investing activities		(80	)		2,721			(2,560	)
Net cash provided (used) by financing activities		117			(702	)		(2,147	)


	As of December 31,
	2009		2008
Cash and cash equivalents	$	3,042	$	2,039
Restricted cash		341		272

Total cash and cash equivalents and restricted cash	$	3,383	$	2,311

The Company’s cash position represents an important source of liquidity. The change in cash from 2007 to 2009 is explained below. Restricted cash primarily represents cash collateral to secure workers’ compensation obligations, cash collateral received from fuel derivative counterparties to secure their obligations, security deposits for airport leases and reserves with institutions that process our credit card ticket sales. We may be required to post significant additional cash collateral to meet such obligations in the future. The Company has a $255 million revolving commitment under its Amended Credit Facility, of which $254 million had been used for letters of credit as of both December 31, 2009 and 2008. In addition, under a separate agreement, the Company had $20 million of letters of credit issued as of December 31, 2009.

Cash Flows from Operating Activities.

2009 compared to 2008

UAL’s cash from operations increased by $2.2 billion in 2009 as compared to the prior year. This improvement was partly due to decreased cash required for aircraft fuel purchases as consolidated fuel purchase

costs decreased by $4.1 billion in 2009, as compared to 2008. Decreases in the Company’s fuel hedge collateral requirements also provided operating cash of approximately $955 million in 2009, as compared to a use of cash of $965 million in 2008. In addition, the Company received $160 million during 2009 related to the future relocation of its O’Hare cargo facility as further discussed in Note 14, “Lease Obligations,” in the Footnotes.

These operating cash flow benefits were partially offset by a decrease in operating cash flow due to lower sales, which decreased by $3.9 billion in 2009, as discussed in Results of Operations, above, and approximately $730 million of payments to counterparties for fuel derivative contract settlements and premiums. In addition, the Company did not have a significant advance sale of miles in 2009 resulting in an unfavorable variance as compared to 2008, during which the Company received $600 million from the Company’s advanced sale of miles and license agreement with its co-branded credit card partner, as discussed below.

In 2009, the Company contributed approximately $245 million and $18 million to its defined contribution plans and non-U.S. pension plans, respectively, as compared to contributions of $240 million and $22 million, respectively, in 2008.

2008 compared to 2007

UAL’s cash from operations decreased by $3.4 billion in 2008 as compared to 2007. This decrease was primarily due to the increased cash required for fuel purchases and operating and nonoperating cash fuel hedge losses. Mainline and Regional Affiliates fuel costs increased $3.1 billion in 2008, over 2007, and nonoperating expenses also increased over the same period largely due to cash and non-cash fuel hedge losses. In addition, certain counterparties to our fuel hedge instruments required the Company to provide cash collateral deposits of approximately $965 million in 2008, which negatively impacted our cash flows during 2008 as compared to 2007, when no similar deposits were required. A decrease in advance ticket sales also negatively impacted operating cash flow in 2008. Partially offsetting the negative impacts were $500 million of proceeds from the advanced purchase of miles by our co-branded credit card partner as part of the amendment of our marketing agreement and $100 million of proceeds from the extension of the license previously granted to our co-branded credit card partner to be the exclusive issuer of Mileage Plus Visa cards through 2017. In 2008, the Company contributed approximately $240 million and $22 million to its defined contribution plans and non-U.S. pension plans, respectively, as compared to contributions of $236 million and $14 million, respectively, in 2007 for these plans.

Cash Flows from Investing Activities.

2009 compared to 2008

The sale of $2.3 billion of short-term investments throughout 2008 generated significant investing cash flows in 2008 as compared to 2009. As discussed below, these investments were sold as part of the Company’s shift to invest available cash into money market funds. UAL’s capital expenditures, which included capitalized interest, were $317 million and $475 million in 2009 and 2008, respectively. Capital expenditures decreased significantly in the 2009 period as compared to 2008 because the Company only acquired one aircraft in 2009, as compared to ten aircraft acquired during 2008. In addition, the Company limited its spending in 2009 by focusing its capital resources only on its highest-value projects. The 2009 and 2008 aircraft acquisitions were completed pursuant to existing lease terms using pre-funded lease deposits, as described below in Cash Flows from Financing Activities.

In 2009, the Company received $175 million from three sale-leaseback agreements. These transactions were accounted for as capital leases, resulting in an increase to capital lease assets and capital lease obligations during 2009. The 2008 period included proceeds of $274 million from one sale-leaseback transaction. Other asset sales, including airport slot sales, generated proceeds of $78 million and $94 million during 2009 and 2008, respectively.

2008 compared to 2007

Net sales of short-term investments provided cash of $2.3 billion for UAL in 2008, as compared to cash used for net purchases of short-term investments of $2.0 billion in 2007. In 2008, the Company invested most of its excess cash in money market funds, whereas in 2007, excess cash was largely invested in short-term investments such as commercial paper. During 2008, the Company also received $357 million of cash that was previously restricted cash held by the Company’s largest credit card processor and was released as a part of an amendment to the Company’s agreement with this processor. See Credit Card Processing Agreements, below, for further discussion of the amended agreement and future cash reserve requirements.

In 2008, cash expenditures for property, equipment and software totaled approximately $475 million. Additions to property in 2008 included $20 million of capitalized interest. In 2007, cash expenditures for property and equipment, software and capitalized interest were $639 million, $65 million and $19 million, respectively. This year-over-year decrease is primarily due to the Company’s efforts to optimize its available cash and a reduction in cash used to acquire aircraft as the 2007 capital expenditures included cash used to acquire six aircraft that were previously financed as operating leases.

During 2008, the Company generated $94 million from various asset sales including the sale of five B737 aircraft, spare parts, engines and slots. Investing cash of $274 million was generated from aircraft sold under sale-leaseback financing agreements. In 2008, United entered into a $125 million sale-leaseback involving nine previously unencumbered aircraft and a $149 million sale-leaseback involving 15 aircraft. See Note 14, “Lease Obligations” and Note 15, “Statement of Consolidated Cash Flows—Supplemental Disclosures,” in the Footnotes for additional information related to these transactions. In addition, the Company’s investing cash flows benefited from $41 million of cash proceeds from a litigation settlement that resulted in the recognition of a $29 million gain during 2008. The litigation settlement related to pre-delivery advance aircraft deposits.

Cash Flows from Financing Activities.

2009 Activity

In 2009, the Company generated gross proceeds of approximately $900 million from the following debt issuances:

•

$158 million from the issuance of $175 million aggregate principal amount of 12.75% Senior Secured Notes due 2012 secured by certain aircraft spare parts;

•

$134 million from a mortgage financing secured by certain of the Company’s spare engines;

•

$30 million from an aircraft mortgage financing secured by one B777 aircraft;

•

$345 million from the issuance of 6% Senior Convertible Notes due 2029 (the “6% Senior Convertible Notes”);

•

$129 million from a financing with one of the Company’s regional flying partners, consisting of an $80 million secured note and a $49 million deferral of future obligations under an amendment to the Company’s capacity agreement;

•

$47 million from the issuance of equipment notes relating to the issuance of $659 million aggregate face amount of enhanced equipment trust certificates (“EETCs”), Series 2009-1; and

•

$114 million from the issuance of equipment notes relating to the issuance of $810 million aggregate face amount of EETCs, Series 2009-2. See EETC Financing, below, for further information related to the Series 2009-1 and 2009-2 financings.

In addition, in 2009, the Company generated net proceeds of $222 million from the following equity issuances:

•

$90 million from the completion of the Company’s equity offering program that began in 2008, resulting in aggregate gross proceeds under the program of approximately $200 million; and

•

$132 million, net of fees, from the issuance of 19.0 million shares of UAL common stock in an underwritten, public offering for a price of $7.24 per share.

The proceeds from these transactions were partially offset by $984 million used for scheduled long-term debt and capital lease payments during 2009, as well as $49 million used for payment of various costs associated with the financing activities discussed above.

2008 Activity

UAL used $253 million for its special distribution to common stockholders (United issued a $257 million dividend to UAL for this distribution) and $919 million for scheduled long-term debt and capital lease payments. United used cash of $109 million in connection with an amendment to its Amended Credit Facility, as further discussed below. In 2008, the Company acquired ten aircraft that were being operated under existing leases. These aircraft were acquired pursuant to existing lease terms. Aircraft lease deposits of $155 million provided financing cash that was primarily utilized by the Company to make the final payments due under these lease obligations.

United completed a $241 million credit agreement secured by 26 of the Company’s currently owned and mortgaged A319 and A320 aircraft. Borrowings under the agreement were at a variable interest rate based on LIBOR plus a margin. The agreement requires periodic principal and interest payments through its final maturity in June 2019. The Company may not prepay the loan prior to July 2012. This agreement did not change the number of the Company’s unencumbered aircraft as the Company used available equity in these previously owned and mortgaged aircraft as collateral for this financing.

United also entered into an $84 million loan agreement secured by three aircraft, including two Airbus A320 and one Boeing B777. Borrowings under the agreement were at a variable interest rate based on LIBOR plus a margin. The loan requires principal and interest payments every three months and has a final maturity in June 2015.

The Company issued 11.2 million shares of UAL common stock as part of a $200 million equity offering during 2008. As of December 31, 2008, the Company had generated net proceeds of $107 million from this offering.

See Cash Flows from Investing Activities, above, for a discussion of the Company’s 2008 sale-leaseback transactions.

2007 Activity

In 2007, the Company made a $1.0 billion prepayment on its Amended Credit Facility and made $1.1 billion of additional debt payments, which included $590 million related to the early retirement of debt. The Company prepaid an additional $500 million of the Amended Credit Facility in December 2007. In addition, the Company completed a $694 million debt issuance, which effectively refinanced the aforementioned early debt retirement and refinanced three aircraft that had been previously financed through operating lease agreements.

In 2007, the Company completed financing transactions totaling approximately $964 million which included $694 million related to the EETC secured financing and $270 million of Denver Bonds. A portion of the proceeds of the $694 million EETC transaction was used to repay $590 million of debt obligations that were secured by ten previously mortgaged, owned aircraft and to finance three previously unencumbered owned aircraft. The proceeds from the Denver Bonds were used to refinance the former $261 million of Denver Series 1992A bonds.

In 2007, cash from aircraft lease deposits increased $80 million primarily due to the use of the deposits to purchase the three previously leased assets described above in Cash Flows from Investing Activities. This was reported as a financing cash inflow as the prepayment of the initial deposits were recorded as a financing cash outflow.

Other Financing Matters

Secured Notes Offering. In January 2010, the Company issued $500 million aggregate principal amount of 9.875% Senior Secured Notes due 2013 (the “Senior Secured Notes”) and $200 million aggregate principal amount of 12.0% Senior Second Lien Notes due 2013 (the “Senior Second Lien Notes”). The Senior Secured Notes and Senior Second Lien Notes are secured by United’s route authority to operate between the United States and Japan and beyond Japan to points in other countries, certain airport takeoff and landing slots and airport gate leaseholds utilized in connection with these routes. Among other covenants, the indentures governing the Senior Secured Notes and the Senior Second Lien Notes contain covenants related to the collateral, including covenants requiring United, subject to certain exceptions, to maintain ownership of the collateral and to calculate the priority lien debt value ratio or secured debt value ratio, as applicable, and to maintain a minimum priority lien debt value ratio or minimum secured debt value ratio, as applicable, as of certain reference periods.

EETC Financing. In January 2010, the Company issued the remaining principal amount of the equipment notes relating to the Series 2009-1 and 2009-2 EETCs, as discussed in 2009 Activity, above. Issuance proceeds of approximately $1.1 billion were used to repay the Series 2000-2 and 2000-1 EETCs and for general corporate purposes. The issuance of the 2009 EETCs resulted in a reduction in the Company’s 2010 and 2011 debt obligations of approximately $440 million and $275 million, respectively. These financing activities resulted in approximately $250 million of incremental liquidity in 2010.

Encumbered Assets. As of December 31, 2009 and 2008, a substantial portion of the Company’s assets, principally aircraft, spare engines, aircraft spare parts, route authorities and Mileage Plus intangible assets were pledged under various loan and other agreements. In January 2010, the Company completed a debt offering secured by United’s route authorities to operate between the United States and Japan and beyond Japan to points in other countries, certain airport takeoff and landing slots and airport gate leaseholds utilized in connection with these routes. As a part of the offering, United requested that these assets, currently encumbered under the Amended Credit Facility, be released and substituted by replacement collateral consisting of aircraft, spare engines, primary slots at LaGuardia and Washington Reagan and flight simulators with an appraised value of approximately $830 million. After the assets are released from the Amended Credit Facility in April 2010, a balance of approximately $200 million in unencumbered assets will remain. In addition, the Amended Credit Facility will include approximately $300 million of excess collateral that can be used for financing if needed, subject to approval from the Amended Credit Facility lenders. See Note 11, “Debt Obligations and Card Processing Agreements,” in the Footnotes for additional information on assets provided as collateral by the Company.

Future Financing. Subject to the restrictions of its Amended Credit Facility and the Notes, the Company could raise additional capital by issuing unsecured debt, equity or equity-like securities, monetizing or borrowing against certain assets or refinancing existing obligations to generate net cash proceeds. However, the availability and capacity of these funding sources cannot be assured or predicted. General economic conditions, poor credit market conditions, the limited amount of unencumbered assets available as collateral for loans or other indebtedness and any adverse changes in the Company’s credit ratings could adversely impact the Company’s ability to raise capital, if needed, and could increase the Company’s cost of capital.

Credit Ratings. As of December 31, 2009, the Company had a corporate credit rating of B- (outlook negative) from S&P and a corporate family rating of “Caa1” from Moody’s Investor Services. During 2009, Fitch lowered UAL’s issuer default rating to “CCC” from “B-.” These credit ratings are below investment grade levels. Downgrades from these rating levels, among other things, could restrict the availability and/or increase the cost of future financing for the Company.

Other Matters. The Company may, from time to time, make open market purchases of certain of its debt securities or other financing instruments depending on, among other factors, favorable market conditions and the Company’s liquidity position.

Amended Credit Facility Covenants. The Company’s Amended Credit Facility requires compliance with certain covenants. The Company was in compliance with all of its Amended Credit Facility covenants as of December 31, 2009 and 2008. In May 2008, the Company amended the terms of certain financial covenants of the Amended Credit Facility. A summary of financial covenants, after the May amendment, is included below.

The Company must maintain a specified minimum ratio of EBITDAR to the sum of the following fixed charges for all applicable periods: (a) cash interest expense and (b) cash aircraft operating rental expense. EBITDAR represents earnings before interest expense net of interest income, income taxes, depreciation, amortization, aircraft rent and certain other cash and non-cash credits and charges as further defined by the Amended Credit Facility. The other adjustments to EBITDAR include items such as foreign currency transaction losses, increases in our deferred revenue obligation, share-based compensation expense, non-recurring or unusual losses, any non-cash non-recurring charge or non-cash restructuring charge, a limited amount of cash restructuring charges, certain cash transaction costs incurred with financing activities and the cumulative effect of a change in accounting principle.

The Amended Credit Facility also requires compliance with the following financial covenants: (i) a minimum unrestricted cash balance (as defined by the Amended Credit Facility) of $1.0 billion, and (ii) a minimum collateral ratio of 150% at any time, or 200% at any time following the release of the Pacific (Narita, China and Hong Kong) and Atlantic (London Heathrow) routes (together, the “Primary Routes”) having an appraised value in excess of $1 billion on the aggregate, unless the Primary Routes are the only collateral then pledged, in which case a minimum collateral ratio of 150% is required. The minimum collateral ratio is calculated as the market value of collateral to the sum of (a) the aggregate outstanding amount of the loans, plus (b) the undrawn amount of outstanding letters of credit, plus (c) the unreimbursed amount of drawings under such letters of credit and (d) the termination value of certain interest rate protection and hedging agreements with the Amended Credit Facility lenders and their affiliates.

As discussed above, in connection with the issuance of the Senior Secured Notes and the Senior Second Lien Notes in January 2010, certain assets currently encumbered under the Amended Credit Facility are expected to be released and substituted by replacement collateral consisting of aircraft, spare engines, primary slots at LaGuardia and Washington Reagan and flight simulators with an appraised value of approximately $830 million. The assets expected to be released consist of route authorities to operate between the United States and Japan, and beyond Japan to points in other countries, certain airport takeoff and landing slots and airport gate leaseholds utilized in connection with these routes, and were used as collateral for the January 2010 offering.

The Company’s requirement to meet the fixed charge coverage ratio is determined as set forth below:


Number of Preceding Months Covered	Period Ending	Required Fixed Charge Coverage Ratio
Nine	December 31, 2009	1.2 to 1.0
Twelve	March 31, 2010	1.3 to 1.0
Twelve	June 30, 2010	1.4 to 1.0
Twelve	September 30, 2010 and each quarter ending thereafter	1.5 to 1.0

The Amended Credit Facility contains a cross default provision with respect to final judgments that exceed $50 million. Although the Company was in compliance with all required financial covenants as of December 31, 2009, continued compliance depends on many factors, some of which are beyond the Company’s control, including the overall industry revenue environment and the level of fuel costs. There are no assurances that the Company will continue to comply with its debt covenants. Failure to comply with applicable covenants in any reporting period would result in a default under the Amended Credit Facility, which could have a material adverse impact on the Company depending on the Company’s ability to obtain a waiver or amendment of such covenants, or otherwise mitigate the impact of the default.

Credit Card Processing Agreements. The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain of the Company’s card processing agreements, the financial institutions either require, or have the right to require, that United maintain a reserve equal to a portion of advance ticket sales that have been processed by that financial institution, but for which the Company has not yet provided the air transportation (referred to as “relevant advance ticket sales”). As of December 31, 2009, the Company had total advance ticket sales of approximately $1.5 billion of which approximately 80% related to credit card sales.

The Company’s credit card processing agreement with Paymentech and JPMorgan Chase Bank, N.A. contains a cash reserve requirement. In addition to certain other risk protections provided to the processor, the amount of cash collateral reserve will be determined based on the amount of unrestricted cash held by the Company as defined under the Amended Credit Facility. If the Company’s unrestricted cash balance is at or more than $2.5 billion as of any calendar month-end measurement date, its required reserve will remain at $25 million. However, if the Company’s unrestricted cash is less than $2.5 billion, its required reserve will increase to a percentage of relevant advance ticket sales as summarized in the following table:


Total Unrestricted Cash Balance (a)	Required % of Relevant Advance Ticket Sales
Less than $2.5 billion	15	%
Less than $2.0 billion	25	%
Less than $1.0 billion	50	%

(a)	Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by the agreement.

Based on the Company’s December 31, 2009 unrestricted cash balance, the Company was not required to provide cash collateral above the current $25 million reserve balance.

United entered into a new agreement with American Express on March 1, 2009 which has an initial five year term. Under the agreement, in addition to certain other risk protections provided to American Express, the Company will be required to provide reserves based primarily on its unrestricted cash balance and net current exposure as of any calendar month-end measurement date, as summarized in the following table:


Total Unrestricted Cash Balance(a)	Required % of Net Current Exposure (b)
Less than $2.4 billion	15	%
Less than $2.0 billion	25	%
Less than $1.35 billion	50	%
Less than $1.2 billion	100	%

(a)	Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by the agreement.

(b)	Net current exposure equals relevant advance ticket sales less certain exclusions, and as adjusted for specified amounts payable between United and the processor, as further defined by the agreement.

An increase in the future reserve requirements as provided by the terms of either, or both, of the Company’s material credit card processing agreements, could materially reduce the Company’s liquidity.

Capital Commitments and Off-Balance Sheet Arrangements. The Company’s business is very capital intensive, requiring significant amounts of capital to fund the acquisition of assets, particularly aircraft. In the past, the Company has funded the acquisition of aircraft through outright purchase, by issuing debt, by entering into capital or operating leases, or through vendor financings. The Company also often enters into long-term lease commitments with airports to ensure access to terminal, cargo, maintenance and other required facilities.

The table below provides a summary of UAL’s material contractual obligations as of December 31, 2009.


(In millions)	2010			2011			2012			2013			2014			After 2014			Total
Long-term debt, including current portion (a)	$	994		$	915		$	637		$	315		$	1,547		$	2,862		$	7,270
Capital lease obligations—principal portion
Mainline (b)		409			298			106			99			101			336			1,349
Regional Affiliates aircraft (b)		17			19			19			21			15			180			271

Total debt and capital lease obligations		1,420			1,232			762			435			1,663			3,378			8,890
Interest on debt and capital lease obligations (c)		537			415			343			303			217			1,283			3,098
Aircraft operating lease obligations
Mainline		330			331			321			293			291			363			1,929
Regional Affiliates (d)		410			416			396			374			331			878			2,805
Other operating lease obligations		623			557			503			465			417			2,798			5,363
Postretirement obligations (e)		142			142			139			137			139			733			1,432
Capital purchase obligations (f)		200			201			99			43			40			39			622

Total contractual obligations		3,662			3,294			2,563			2,050			3,098			9,472			24,139
Less: lease deposits—principal portion (g)		(246	)		(17	)		—			(1	)		(1	)		(6	)		(271	)
Less: lease deposits—interest portion (g)		(47	)		(8	)		—			—			—			—			(55	)
Less: non-cash debt obligations (h)		(8	)		(9	)		(9	)		(9	)		(9	)		(65	)		(109	)

Total contractual obligations, net	$	3,361		$	3,260		$	2,554		$	2,040		$	3,088		$	9,401		$	23,704

Total debt and capital leases, net of deposits and non-cash debt (summarized from table above)	$	1,166		$	1,206		$	753		$	425		$	1,653		$	3,307		$	8,510
Pro-forma debt and capital leases, net (after giving effect to January 2010 financings) (i)		717			918			811			1,317			1,830			3,865			9,458

(a)

Long-term debt presented in the Company’s Financial Statements is net of a $347 million debt discount which is being amortized over the debt terms. Contractual payments are not net of the debt discount. United’s contractual principal payments are approximately $345 million lower than UAL’s due to the UAL 6% Senior Convertible Notes.

(b)	Mainline includes non-aircraft capital lease payments aggregating approximately $22 million in years 2010 through 2013.

(c)

Includes interest portion of Mainline and Regional Affiliates capital lease obligations of $178 million in 2010, $106 million in 2011, $86 million in 2012, $80 million in 2013, $70 million in 2014 and $155 million thereafter. Future interest payments on variable rate debt are estimated using estimated future variable rates based on a yield curve.

(d)	Amounts represent operating lease payments that are made by United under capacity purchase agreements with the regional carriers who operate these aircraft on United’s behalf.

(e)

Amounts represent postretirement benefit payments, net of subsidy receipts, through 2019. Benefit payments approximate plan contributions as plans are substantially unfunded. Not included in the table above are contributions related to the Company’s foreign pension plans. The Company does not have any significant contributions required by government regulations. The Company’s expected foreign pension plan contributions for 2010 are $12 million.

(f)

Amounts exclude aircraft orders of $2.3 billion for the purchase of, in the aggregate, 42 A319 and A320 aircraft. Amounts are excluded because these orders are not legally binding purchase orders. The Company may cancel its orders, which would result in forfeiture of its deposits. Amounts in the table include commitments to upgrade international aircraft with our premium cabin product.

(g)	Lease deposits of $326 million are recorded in the Company’s Financial Statements and will be applied to future aircraft lease obligations. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for additional information.

(h)	Contractual long-term debt includes $109 million of non-cash obligations as these debt payments are made directly to the creditor by a company that leases three aircraft from United. The creditor’s only recourse to United is repossession of the aircraft.

(i)

The Company’s current and long-term portions of debt presented in its December 31, 2009 Financial Statements reflects the reclassification of $449 million of current obligations, which were refinanced in 2010, to long-term obligations. See Note 11, “Debt Obligations and Card Processing Agreements,” for pro-forma adjustments from contractual maturities at December 31, 2009 to the pro-forma amounts, which reflect the aforementioned reclassification and incremental debt issued.

See Note 1(i), “Summary of Significant Accounting Policies—Regional Affiliates,” Note 8, “Retirement and Postretirement Plans,” Note 11, “Debt Obligations and Card Processing Agreements” and Note 14, “Lease Obligations,” in the Footnotes for additional discussion of the items included in the table above.

Off-Balance Sheet Arrangements. An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company. The Company’s off-balance sheet arrangements include operating leases, which are summarized in the contractual obligations table above, and certain municipal bond obligations, as discussed below, and letters of credit, of which $274 million were outstanding at December 31, 2009.

Certain municipalities have issued municipal bonds on behalf of United to finance the construction of improvements at airport-related facilities. The Company also leases facilities at airports where municipal bonds funded at least some of the construction of airport-related projects. At December 31, 2009, the Company guaranteed interest and principal payments on $270 million in principal of Denver Bonds that were originally issued in 1992, subsequently refinanced in 2007, and are due in 2032 unless the Company elects not to extend its lease in which case the bonds are due in 2023. The outstanding bonds and related guarantee are not recorded in the Company’s Financial Statements because the related lease agreement is accounted for as an operating lease with the associated rent expense recorded on a straight-line basis over the expected lease term through 2032. The annual lease payments through 2023 and the final payment for the principal amount of the Denver Bonds are included in the operating lease payments in the contractual obligations table above. For further details, see Note 13, “Commitments, Contingent Liabilities and Uncertainties—Guarantees and Off-Balance Sheet Financing,” in the Footnotes.

Fuel Consortia. The Company participates in numerous fuel consortia with other carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The consortia (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax-exempt bonds (either special facilities lease revenue bonds or general airport revenue bonds), issued by various local municipalities. In general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2009, approximately $1.2 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines have provided indirect guarantees of the debt. United’s exposure is approximately $214 million principal amount of such bonds based on its recent consortia participation. The Company’s exposure could increase if the participation of other carriers decreases. The guarantees will expire when the tax-exempt bonds are paid in full, which ranges from 2010 to 2040. The Company did not record a liability at the time these indirect guarantees were made.

Other Information

Foreign Operations. The Company’s Financial Statements reflect material amounts of intangible assets related to the Company’s Pacific and Latin American route authorities and its operations at London Heathrow. Because operating authorities in international markets are governed by bilateral aviation agreements between the U.S. and foreign countries, changes in U.S. or foreign government aviation policies can lead to the alteration or termination of existing air service agreements that could adversely impact, and significantly impair, the value of our international route authorities and other assets. Significant changes in such policies could also have a material impact on the Company’s operating revenues and expenses and results of operations. For further information, see Item 1, Business—International Regulation, Item 7A, Quantitative and Qualitative Disclosures About Market Risk and Note 3, “Asset Impairments and Intangible Assets” in the Footnotes, for further information on the Company’s foreign currency risks associated with its foreign operations.

Critical Accounting Policies

Critical accounting policies are defined as those that are affected by significant judgments and uncertainties which potentially could result in materially different accounting under different assumptions and conditions. The Company has prepared the Financial Statements in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts in the Financial Statements and the Footnotes. Actual results could differ from those estimates under different assumptions or conditions. The Company has identified the following critical accounting policies that impact the preparation of the Financial Statements.

Passenger Revenue Recognition. The value of unused passenger tickets and miscellaneous charge orders (“MCOs”) is included in current liabilities as advance ticket sales. United records passenger ticket sales and tickets sold by other airlines for use on United as operating revenues when the transportation is provided or when the ticket expires. Tickets sold by other airlines are recorded at the estimated values to be billed to the other airlines. Non-refundable tickets generally expire on the date of the intended flight, unless the date is extended by notification from the customer on or before the intended flight date. Fees charged in association with changes or extensions to non-refundable tickets are recorded as passenger revenue at the time the fee is collected. Change fees related to non-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the Company’s additional service to modify a previous reservation. Therefore, the pricing of the change fee and the initial customer reservation are separately determined and represent distinct earnings processes. Refundable tickets expire after one year. MCOs can be either exchanged for a passenger ticket or refunded after issuance. United records an estimate of tickets that have been used, but not recorded as revenue due to system processing errors, as revenue in the month of sale based on historical results. United also records an estimate of MCOs that will not be exchanged or refunded as revenue ratably over the redemption period based on historical results. Due to complex industry pricing structures, refund and exchange policies and interline agreements with other airlines, certain amounts are recognized as revenue using estimates both as to the timing of recognition and the amount of revenue to be recognized. These estimates are based on the evaluation of actual historical results.

Accounting for Frequent Flyer Program Miles Sold to Third Parties and the Advanced Purchase of Miles. The Company has an agreement with its co-branded credit card partner that requires its partner to purchase miles in advance of when miles will be awarded to the co-branded partner’s cardholders (referred to as “pre-purchased miles”). The pre-purchased miles are deferred when received by United in our Financial Statements as “Advanced purchase of miles.” The Company amended its agreement with its co-branded credit card partner in 2008. See Note 16, “Advanced Purchase of Miles,” in the Footnotes for a description of this agreement and its 2008 amendment. Subsequently, when the Company’s credit card partner awards pre-purchased miles to its cardholders, the Company transfers the related air transportation element for the awarded miles from “Advanced purchase of miles” to “Mileage Plus deferred revenue” at estimated fair value and records the residual marketing element as “Other operating revenue.” The deferred revenue portion is then subsequently recognized as passenger revenue when transportation is provided in exchange for the miles awarded.

Other Frequent Flyer Accounting Policies.

The Company has adopted a deferred revenue measurement method to record the fair value of its frequent flyer obligation. This method allocates an equivalent weighted-average ticket value to each outstanding mile, based upon projected redemption patterns for available award choices when such miles are consumed. For miles sold to third parties, the Company recognizes revenue related to the air transportation and marketing-related elements as follows:

Air Transportation Element. The Company defers the portion of the sales proceeds that represents estimated fair value of the air transportation and recognizes that amount as revenue when transportation is provided. The fair value of the air transportation component is determined based upon the equivalent ticket value of similar fares on United and amounts paid to other airlines for miles. The initial revenue deferral is presented as “Mileage Plus deferred revenue” in the Financial Statements. When recognized, the revenue related to the air transportation component is classified as “Passenger revenues” in the Financial Statements.

Marketing-related Element. The amount of revenue from the marketing-related element is determined by subtracting the fair value of the air transportation from the total sales proceeds. The residual portion of the sales proceeds related to marketing activities is recognized when miles are awarded. This portion is recognized as “Other operating revenues” in the Financial Statements.

The value of the deferred revenue is estimated assuming redemptions on both United and other participating carriers in the Mileage Plus program and by estimating the relative proportions of awards to be redeemed by class of service within broad geographic regions of the Company’s operations, including Domestic, Atlantic, Pacific and Latin America. The estimation of the fair value of each award mile requires the use of several significant assumptions, for which significant management judgment is required. For example, management must estimate how many miles are projected to be redeemed on United, versus on other airline partners. Since the equivalent ticket value of miles redeemed on United and on other carriers can vary greatly, this assumption can materially affect the calculation of the weighted-average ticket value from period to period.

Management must also estimate the expected redemption patterns of Mileage Plus customers, who have a number of different award choices when redeeming their miles, each of which can have materially different estimated fair values. Such choices include different classes of service (first, business and several coach award levels), as well as different flight itineraries, such as domestic and international routings and varied itineraries within domestic and international regions of United’s and other participating carriers’ route networks. Customer redemption patterns may also be influenced by program changes, which occur from time to time and introduce new award choices, or make material changes to the terms of existing award choices. Management must often estimate the probable impact of such program changes on future customer behavior. Management uses historical customer redemption patterns as the best single indicator of future redemption behavior in making its estimates, but changes in customer mileage redemption behavior to patterns which are not consistent with historical behavior can result in material changes to deferred revenue balances and to recognized revenue.

The Company measures its deferred revenue obligation using all awarded and outstanding miles, regardless of whether or not the customer has accumulated enough miles to redeem an award. Eventually these customers accumulate enough miles to redeem awards, or their accounts deactivate after a period of inactivity, in which case the Company recognizes the related revenue through its revenue recognition policy for expired miles.

The Company recognizes revenue related to expected expired miles over the estimated redemption period. Based on analysis of mileage redemption and expiration patterns, the Company estimates that 24% of earned miles will expire or go unredeemed. As of December 31, 2009 and 2008, the Company’s outstanding number of miles was approximately 457.6 billion and 478.2 billion, respectively. The Company estimates that approximately 349.1 billion of the outstanding miles at December 31, 2009 will ultimately be redeemed based on assumptions as of December 31, 2009. At December 31, 2009, a hypothetical 1% change in the Company’s outstanding number of miles or the weighted-average ticket value has approximately a $41 million effect on the

liability. The Company’s estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance, as well as recognized revenues from the program.

Asset Impairments.

The Company recorded impairment charges during the years ended December 31, 2009 and 2008, as presented in the table below. All of these impairment charges are within the Mainline segment. All of the impairments, other than the goodwill impairment which is separately identified, are classified within “Other impairments and special items” in the Financial Statements.


	Year Ended December 31,
(In millions)	2009		2008
Goodwill impairment	$	—	$	2,277

Indefinite-lived intangible assets:
Codeshare agreements		—		44
Tradenames		150		20

Intangible asset impairments		150		64

Tangible assets:
Pre-delivery advance deposits including related capitalized interest		—		105
Nonoperating aircraft, spare engines and parts and other		93		145

Tangible asset impairments		93		250

Total impairments	$	243	$	2,591

During 2009, the Company performed interim and annual impairment tests of its intangible assets and certain of its long-lived assets, principally aircraft and related spare engines and spare parts, due to events and changes in circumstances that indicated an impairment might have occurred. The primary factors deemed by management to have constituted a potential impairment triggering event were a significant decline in unit revenues experienced in early 2009 and decreases in forecasted revenues. The Company performed a second interim impairment test of certain aircraft fleet types in 2009 due to an additional decrease in market prices, as further discussed below.

Similarly during 2008, the Company performed an interim impairment test of its goodwill, all intangible assets and certain of its long-lived assets, principally aircraft and related spare engines and spare parts, as of May 31, 2008 due to events and changes in circumstances during the first and second quarters of 2008 that indicated an impairment might have occurred. Factors deemed by management to have collectively constituted an impairment triggering event included record high fuel prices, significant losses in the first and second quarters of 2008, a softening U.S. economy, analyst downgrade of UAL common stock, rating agency changes in outlook for the Company’s debt instruments from stable to negative, the planned removal from UAL’s fleet of 100 aircraft and a significant decrease in the fair value of the Company’s outstanding equity and debt securities, including a decline in UAL’s market capitalization to significantly below book value.

Discussed below is the methodology used for each type of asset impairment shown in the table above.

Aircraft and Definite-lived Intangible Asset Impairments

2009 Impairment Testing

The Company tested certain of its definite-lived intangible assets at February 28, 2009 and determined that the carrying value of its definite-lived intangible assets was fully recoverable because their carrying amount

exceeded the sum of the undiscounted cash flows attributable to their use. As of February 28, 2009, the Company also tested its aircraft for impairment. For all but two fleet types, the Company determined that the fleet types were not impaired as estimated cash flows exceeded carrying value. For the two fleet types which had estimated undiscounted cash flows less than carrying value, the Company estimated the fair value of these fleet types and determined that the aircraft were not impaired as the estimated fair value exceeded the carrying value. For purposes of testing impairment of aircraft, the estimated undiscounted cash flows were dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices) and other relevant assumptions. If estimates of fair value were required, fair value was estimated using the market approach. Asset appraisals, published aircraft pricing guides and recent transactions for similar aircraft were considered by the Company in its market value determination.

In the fourth quarter of 2009, the Company tested five of its owned regional jets, which are leased to a third party, for impairment due to a weak market for these aircraft and a remaining lease term of approximately one year. As a result of this testing, the Company recorded impairment charges of $19 million to record the regional aircraft at estimated fair value as of December 31, 2009.

On a quarterly basis in 2009, the Company reviewed the carrying values of its nonoperating B737 and five B747 aircraft, which are being marketed for sale, to assess whether the carrying values were recoverable. As a result of this testing, the carrying value of the nonoperating B737s and five nonoperating B747 aircraft was reduced to a lower estimated fair value resulting in charges of $19 million and $55 million in the third and fourth quarters of 2009, respectively.

2008 Impairment Testing

The Company tested all aircraft for impairment as of May 31, 2008 for the reasons discussed above. Based on the results of these tests, the Company determined that an impairment of $38 million existed which was attributable to the Company’s fleet of owned B737 aircraft and related spare parts. In addition, as of December 31, 2008, the Company performed an impairment test of its B737 aircraft. Based on this analysis, the Company recorded an additional charge of $107 million to reduce the carrying value of the B737 aircraft. As described in Note 2, “Company Operational Plans,” in the Footnotes, the Company retired its entire B737 fleet earlier than originally planned.

Due to the unfavorable economic and industry factors described above, the Company also determined in the second quarter of 2008 that it was required to perform an impairment test of its $105 million of pre-delivery aircraft deposits and related capitalized interest. The Company determined that these aircraft deposits were completely impaired and wrote off their full carrying value. The Company believes that it is highly unlikely that it will take these future aircraft deliveries and, therefore, the Company will be required to forfeit the deposits, which are not transferable based on existing contract terms.

As a result of the 2008 impairment testing described above, the Company’s goodwill and certain of its indefinite-lived intangible assets and tangible assets were recorded at fair value. The Company was not required to apply certain new fair value accounting principles to the determination of the fair value of these assets in 2008 as the new principles were not effective for nonfinancial assets and liabilities. However, the provisions of this standard were applied to the determination of the fair value of financial assets and financial liabilities that were part of the Step Two goodwill fair value determination.

Due to extreme fuel price volatility, tight credit markets, the uncertain economic environment, as well as other uncertainties, the Company can provide no assurance that a material impairment charge will not occur in a future period. The Company will continue to monitor circumstances and events in future periods to determine whether additional asset impairment testing is warranted.

Indefinite-lived Intangible Assets

2009 Interim Impairment Test

As of February 28, 2009, the Company performed an interim impairment test of all indefinite-lived intangible assets due to events and changes in circumstances during the first quarter of 2009 that indicated an impairment might have occurred, as discussed above.

Indefinite-lived intangible assets tested for impairment included tradenames, international route authorities, London Heathrow slots and codesharing agreements. The Company utilized appropriate valuation techniques to separately estimate the fair values of all of its indefinite-lived intangible assets as of February 28, 2009, and compared those estimates to related carrying values. The methods used to test these assets were primarily income methodologies, which were based on estimated future cash flows, except for the valuation of the London Heathrow slots, for which fair value was estimated using the market approach. As of February 28, 2009, the only impairment of indefinite-lived intangible assets was related to the carrying value of United’s tradenames in the amount $40 million. In addition, the Company performed a second interim impairment test of only tradenames as of May 31, 2009, which resulted in an additional impairment of $110 million. As a result of both of the impairment tests, the Company recorded impairment charges of $150 million to decrease the carrying value of the tradenames to estimated fair value as of May 31, 2009.

2008 Interim Impairment Test

The Company utilized appropriate valuation techniques to separately estimate the fair values of all of its indefinite-lived intangible assets as of May 31, 2008 and compared those estimates to related carrying values. Tested assets included tradenames, international route authorities, London Heathrow slots and codesharing agreements. The Company used a market or income valuation approach, as described above, to estimate fair values. Based on the results of this testing, the Company recorded a $64 million impairment charge to indefinite-lived intangible assets for the year ended December 31, 2008.

Annual Impairment Tests

United performed annual impairment reviews of its indefinite-lived intangible assets as of October 1, 2009 and 2008 and determined that no impairment was indicated.

Goodwill.

For purposes of testing goodwill in 2008, the Company estimated the fair value of the Mainline reporting unit (to which all goodwill is allocated) utilizing several fair value measurement techniques, including two market estimates and one income estimate and using relevant data available through, and as of, May 31, 2008. The market approach is a valuation technique in which fair value is estimated based on observed prices in actual transactions and on asking prices for similar assets. The valuation process is essentially that of comparison and correlation between the subject asset and other similar assets. The income approach is a technique in which fair value is estimated based on the cash flows that an asset could be expected to generate over its useful life, including residual value cash flows. These cash flows are discounted to their present value equivalents using a rate of return that accounts for the relative risk of not realizing the estimated annual cash flows and for the time value of money.

Under the market approaches, the fair value of the Mainline reporting unit was estimated based upon the fair value of invested capital for UAL, as well as a separate comparison to revenue and EBITDAR multiples for similar publicly traded companies in the airline industry. The fair value estimates using both market approaches included a control premium similar to those observed for historical airline and transportation company market transactions.

Under the income approach, the fair value of the Mainline reporting unit was estimated based upon the present value of estimated future cash flows for UAL. The income approach is dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices), appropriate discount rates and other relevant assumptions. The Company estimated its future fuel-related cash flows for the income approach based on the five-year forward curve for crude oil as of May 31, 2008. The impacts of the Company’s aircraft and other tangible and intangible asset impairments were considered in the fair value estimation of the Mainline reporting unit.

Taking into consideration an equal weighting of the two market estimates and the income estimate, which has been the Company’s practice when performing annual goodwill impairment tests, the indicated fair value of the Mainline reporting unit was less than its carrying value, and therefore, the Company was required to perform additional goodwill impairment testing. For this testing, the Company determined the implied fair value of goodwill of the Mainline reporting unit by allocating the fair value of the reporting unit to all the assets and liabilities of the Mainline reporting unit, including any recognized and unrecognized intangible assets, as if the Mainline reporting unit had been acquired in a business combination and the fair value of the Mainline reporting unit was the acquisition price. As a result of this testing, the Company determined that goodwill was completely impaired and therefore recorded an impairment charge during the second quarter of 2008 to write-off the full value of goodwill.

Accounting for Long-Lived Assets. The net book value of operating property and equipment for UAL was $9.8 billion and $10.3 billion at December 31, 2009 and 2008, respectively. In addition to the original cost of these assets, as adjusted by fresh-start reporting as of February 1, 2006, their recorded value is impacted by a number of accounting policy elections, including the estimation of useful lives and residual values and, when necessary, the recognition of asset impairment charges.

The Company records assets acquired, including aircraft, at acquisition cost. Depreciable life is determined through economic analysis, such as reviewing existing fleet plans, obtaining appraisals and comparing estimated lives to other airlines that operate similar fleets. Older generation aircraft are assigned lives that are generally consistent with the experience of United and the practice of other airlines. As aircraft technology has improved, useful life has increased and the Company has generally estimated the lives of those aircraft to be 30 years. Residual values are estimated based on historical experience with regard to the sale of both aircraft and spare parts and are established in conjunction with the estimated useful lives of the related fleets. Residual values are based on current dollars when the aircraft are acquired and typically reflect asset values that have not reached the end of their physical life. Both depreciable lives and residual values are revised periodically to recognize changes in the Company’s fleet plan and other relevant information. A one year increase in the average depreciable life of our flight equipment would reduce annual depreciation expense on flight equipment by approximately $17 million.

Other Postretirement Benefit Accounting. The Company accounts for other postretirement benefits by recognizing the difference between plan assets and obligations, or the plan’s funded status, in its Financial Statements. Under GAAP, other postretirement benefit expense is recognized on an accrual basis over employees’ approximate service periods and is generally calculated independently of funding decisions or requirements. The Company has not been required to pre-fund its current and future plan obligations, which has resulted in a significant net obligation, as discussed below.

The fair value of plan assets at December 31, 2009 and 2008 was $58 million and $57 million, respectively, for the other postretirement benefit plans. The benefit obligation was $2.0 billion for the other postretirement benefit plans at both December 31, 2009 and 2008. The difference between the plan assets and obligations has been recorded in the Financial Statements. Detailed information regarding the Company’s other postretirement plans, including key assumptions, is included in Note 8, “Retirement and Postretirement Plans,” in the Footnotes.

The following provides a summary of the methodology used to determine the assumptions disclosed in Note 8, “Retirement and Postretirement Plans,” in the Footnotes. The calculation of other postretirement benefit

expense and obligations requires the use of a number of assumptions, including the assumed discount rate for measuring future payment obligations and the expected return on plan assets. The discount rates were based on the construction of theoretical corporate bond portfolios, adjusted according to the timing of expected cash flows for the payment of the Company’s future postretirement obligations. A yield curve was developed based on a subset of these bonds (those with yields between the 10^th and 90^th percentiles). The projected cash flows were matched to this yield curve and a present value developed, which was then calibrated to develop a single equivalent risk-adjusted discount rate.

Actuarial gains or losses are triggered by changes in assumptions or experience that differ from the original assumptions. Under the applicable accounting standards, those gains and losses are not required to be recognized currently as other postretirement expense, but instead may be deferred as part of accumulated other comprehensive income and amortized into expense over the average remaining service life of the covered active employees. The Company’s accounting policy is to not apply the corridor approach available under applicable GAAP with respect to amortization of amounts included in accumulated other comprehensive income. Under the corridor approach, amortization of any gain or loss in accumulated other comprehensive income is only required if, at the beginning of the year, the accumulated gain or loss exceeds 10% of the greater of the benefit obligation or the fair value of assets. If amortization is required, the minimum amount outside the corridor divided by the average remaining service period of active employees is recognized as expense. The corridor approach is intended to reduce volatility of amounts recorded in pension expense each year. Since the Company has elected not to apply the corridor approach, all gains and losses in accumulated other comprehensive income are amortized to expense over the remaining years of service. At December 31, 2009 and 2008, the Company had unrecognized actuarial gains of $155 million and $286 million, respectively, recorded in accumulated other comprehensive income for its other postretirement benefit plans.

Valuation Allowance for Deferred Tax Assets. At December 31, 2009, UAL and United had valuation allowances applied to its deferred tax assets of approximately $3.1 billion and $3.0 billion, respectively. In accordance with accounting principles related to income taxes, a valuation allowance is required to be recorded when it is more likely than not that deferred tax assets will not be realized. Future realization depends on the existence of sufficient taxable income within the carry forward period available under the tax law. Sources of future taxable income include future reversals of taxable temporary differences, future taxable income exclusive of reversing taxable differences, taxable income in carry back years and tax planning strategies. These sources of positive evidence of realizability must be weighed against negative evidence, such as cumulative losses in recent years. A recent history of losses would make difficult a determination that a valuation allowance is not needed.

In forming a judgment about the future realization of our deferred tax assets, management considered both the positive and negative evidence of realizability and gave significant weight to the negative evidence from our cumulative losses for recent years. Management will continue to assess the valuation allowance and make appropriate adjustments based on the positive and negative evidence existing at that time. The Company is currently unable to forecast when there will be sufficient positive evidence for it to reverse the remainder of the valuation allowances that are recorded. Any reversals of valuation allowance would reduce income tax expense. See Note 7, “Income Taxes,” in the Footnotes for additional information.

Forward-Looking Information

Certain statements throughout Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report are forward-looking and thus reflect the Company’s current expectations and beliefs with respect to certain current and future events and financial performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to United’s operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as “expects,” “will,” “plans,” “anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “outlook” and similar expressions are intended to identify forward-looking statements.

Additionally, forward-looking statements include statements which do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise.

The Company’s actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: its ability to comply with the terms of its Amended Credit Facility and other financing arrangements; the costs and availability of financing; its ability to maintain adequate liquidity; its ability to execute its operational plans; its ability to control its costs, including realizing benefits from its resource optimization efforts, cost reduction initiatives and fleet replacement programs; its ability to utilize its net operating losses; its ability to attract and retain customers; demand for transportation in the markets in which it operates; an outbreak of a disease that affects travel demand or travel behavior; demand for travel and the impact the economic recession has on customer travel patterns; the increasing reliance on enhanced video-conferencing and other technology as a means of conducting virtual meetings; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aviation fuel and energy refining capacity in relevant markets); its ability to cost-effectively hedge against increases in the price of aviation fuel; any potential realized or unrealized gains or losses related to fuel or currency hedging programs; the effects of any hostilities, act of war or terrorist attack; the ability of other air carriers with whom the Company has alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the costs and availability of aircraft insurance; the costs associated with security measures and practices; industry consolidation; competitive pressures on pricing and on demand; capacity decisions of United and/or its competitors; U.S. or foreign governmental legislation, regulation and other actions (including open skies agreements); labor costs; its ability to maintain satisfactory labor relations and the results of the collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by its labor groups; weather conditions; and other risks and uncertainties set forth under Item 1A, Risk Factors of this Form 10-K, as well as other risks and uncertainties set forth from time to time in the reports the Company files with the SEC. Consequently, forward-looking statements should not be regarded as representations or warranties by the Company that such matters will be realized.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate and Foreign Currency Exchange Rate Risks. United’s exposure to market risk associated with changes in interest rates relates primarily to its debt obligations. The Company does not use derivative financial instruments in its investment portfolio. United’s policy is to manage interest rate risk through a combination of fixed and variable rate debt and by entering into swap agreements, depending upon market conditions. A portion of United’s aircraft lease obligations and related accrued interest ($295 million in equivalent U.S. dollars at December 31, 2009) is denominated in foreign currencies that expose the Company to risks associated with changes in foreign exchange rates. To hedge against this risk, United has placed foreign currency deposits ($295 million in equivalent U.S. dollars at December 31, 2009), primarily for euros, to meet foreign currency lease obligations denominated in that respective currency. Since unrealized mark-to-market gains or losses on the foreign currency deposits are offset by the losses or gains on the foreign currency obligations, United has hedged its overall exposure to foreign currency exchange rate volatility with respect to its foreign lease deposits and obligations. The fair value of these deposits is determined based on the present value of future cash flows using an appropriate foreign currency swap rate. The fair value of long-term debt is predominantly based on the present value of future cash flows using a U.S. treasury rate that matches the remaining life of the instrument, adjusted by a credit spread and, to a lesser extent, on the quoted market prices for the same or similar instruments. The table below presents information as of December 31, 2009 about certain of the Company’s financial instruments that are sensitive to changes in interest and exchange rates. Amounts shown below are the same for both UAL and United, except as noted.


(Dollars in millions)	Expected Maturity Date																		2009					2008
	2010			2011			2012			2013			2014			Thereafter			Total			Fair Value		Total			Fair Value
UAL ASSETS
Cash equivalents
Fixed rate (a)	$	3,042		$	—		$	—		$	—		$	—		$	—		$	3,042		$	3,042	$	2,039		$	2,039
Avg. interest rate		0.07	%		—			—			—			—			—			0.07	%				1.02	%
Lease deposits
Fixed rate—EUR deposits	$	235		$	15		$	—		$	—		$	—		$	—		$	250		$	309	$	264		$	330
Accrued interest		37			8			—			—			—			—			45					42
Avg. interest rate		6.86	%		4.41	%		—			—			—			—			6.45	%				6.45	%
Fixed rate—USD deposits	$	11		$	2		$	—		$	1		$	1		$	6		$	21		$	31	$	11		$	21
Accrued interest		10			—			—			—			—			—			10					9
Avg. interest rate		6.49	%		—			—			—			—			—			6.49	%				6.49	%
UAL LONG—TERM DEBT (a)
U. S. Dollar denominated
Variable rate debt	$	282		$	205		$	204		$	222		$	1,386		$	286		$	2,585		$	2,236	$	2,640		$	1,524
Avg. interest rate		2.04	%		2.42	%		2.42	%		2.33	%		2.72	%		2.19	%		2.51	%				3.24	%
Fixed rate debt	$	712		$	710		$	433		$	93		$	161		$	2,576		$	4,685		$	4,062	$	4,388		$	2,668
Avg. interest rate		7.04	%		7.09	%		9.65	%		8.97	%		7.37	%		5.93	%		6.73	%				6.09	%

(a)

Amounts also represent United except that in 2009, United’s carrying value and fair value of its cash equivalents are approximately $6 million lower than the reported UAL amounts, and in 2009, its carrying value and fair value of total long-term debt are approximately $346 million and $553 million lower than the reported UAL amounts. In 2008, United’s carrying value and fair value of its cash equivalents and debt obligations are approximately $6 million and $2 million, respectively, lower than the reported UAL amounts. The difference in 2009 debt obligations is attributable to the UAL $345 million principal amount of 6% Senior Convertible Notes issued in October 2009, which is not a United debt obligation.

In addition to the cash equivalents included in the table above, both UAL and United have $128 million of short-term restricted cash and $213 million and $212 million, respectively, of long-term restricted cash. As discussed in Note 1(d), “Summary of Significant Accounting Policies—Cash and Cash Equivalents and Restricted Cash,” in the Footnotes, restricted cash primarily includes cash collateral to secure workers’ compensation obligations, reserves for institutions that process credit card ticket sales and, in 2009, cash collateral received from fuel hedge counterparties. Due to the short term nature of these cash balances, their carrying values approximate their fair values. The Company’s interest income is exposed to changes in interest rates on these cash balances. During 2007, the Company also repurchased certain of its own debt instruments, which remain outstanding and have a fair value and carrying value of $51 million at December 31, 2009. The Company recognizes changes in fair value of these securities through other comprehensive income; however, on a net basis, the Company is not exposed to market risk due to the existence of offsetting changes in the fair value of the Company’s related debt obligations.

The material changes in the amounts reported in the table above for 2009 as compared to 2008 include the following: (1) cash and short-term investments increased by approximately $1.0 billion primarily due to cash provided by operating and financing activities, as discussed in Liquidity above; and (2) debt obligations increased by $242 million primarily due to new debt issuances in 2009, partially offset by scheduled debt repayments in 2009. The interest rate on the Company’s cash and variable rate debt decreased in 2009, as compared to 2008, primarily due to a decrease in market interest rates.

Commodity Price Risk (Jet Fuel). Our results of operations and liquidity have been, and may continue to be, materially impacted by changes in the price of aircraft fuel and other oil-related commodities and related derivative instruments. United may use swaps, purchased call options or other derivative instruments to reduce its price risk exposure to jet fuel. The Company’s derivative positions are typically comprised of crude oil, heating oil and jet fuel derivatives. The derivative instruments are designed to provide protection against increases in the price of aircraft fuel. Some derivative instruments may result in hedging losses if the underlying commodity prices drop below specified floors or swap prices; however, the negative impact of these losses may

be offset by the benefit of lower jet fuel acquisition cost since the Company typically does not hedge all of its fuel consumption, and only uses swaps or sold puts on a portion of the fuel volumes that it does hedge. United may adjust its hedging program based on changes in market conditions. At December 31, 2009, the fair value of United’s fuel-related derivatives was a payable of $5 million and a receivable of $138 million, as compared to a payable of $727 million at December 31, 2008. The primary reasons for this change were the dramatic decrease in fuel prices in the latter part of 2008, subsequent fuel price increases in 2009 and turnover of the Company’s hedge portfolio to instruments with a lower average strike price. At December 31, 2009, the Company also had $15 million of additional fuel derivative payables related to pending settlements for purchased call options and expired contracts.

As of December 31, 2009, the Company had hedged approximately 36% of its 2010 consolidated fuel consumption primarily with a combination of swaps and purchased call options. The Company’s hedge position at December 31, 2009 consists of a notional amount of 9.7 million barrels with purchased call options at a weighted-average crude oil equivalent strike price of $76 per barrel and 9.9 million barrels with swaps at an average price of $77 per barrel. All of these derivative instruments mature within 12 months of December 31, 2009. As of December 31, 2008, the Company had hedged 34% of its 2009 consolidated fuel consumption, primarily with collar structures. The Company had significant losses on its 2008 hedge position as certain of the collar structures required payments by United to its counterparties for decreases in the price of crude oil below approximately $100 per barrel.

The above derivative positions are subject to potential counterparty cash collateral requirements in some circumstances. The Company provided counterparties with cash collateral of $10 million as of December 31, 2009.

Foreign Currency. United generates revenues and incurs expenses in numerous foreign currencies. Such expenses include fuel, aircraft leases, commissions, catering, personnel expense, advertising and distribution costs, customer service expenses and aircraft maintenance. Changes in foreign currency exchange rates impact the Company’s results of operations through changes in the dollar value of foreign currency-denominated operating revenues and expenses.

Despite the adverse effects a strengthening foreign currency may have on demand for U.S.-originating traffic, a strengthening of foreign currencies tends to increase reported revenue and operating income because the Company’s foreign currency-denominated operating revenue generally exceeds its foreign currency-denominated operating expense for each currency. Likewise, despite the favorable effects a weakening foreign currency may have on demand for U.S.-originating traffic, a weakening of foreign currencies tends to decrease reported revenue and operating income.

The Company’s most significant net foreign currency exposures in 2009, based on exchange rates in effect at December 31, 2009, are presented in the table below:


(In millions)	Operating revenue net of operating expense
Currency	Foreign Currency Value	USD Value
Canadian dollar	284	$	269
Chinese renminbi	1,686		247
European euro	60		86
South Korean Won	70,725		61
Australian dollar	57		51

The Company may use foreign currency forward contracts to hedge a portion of its exposure to changes in foreign currency exchange rates. As of December 31, 2009, the Company did not have any derivative positions to hedge foreign currency cash flows. As of December 31, 2008, the Company hedged a portion of its expected foreign currency cash flows in the Australian dollar, Canadian dollar and European euro. As of December 31, 2008, the notional amount of these foreign currencies hedged with the forward contracts in U.S. dollars terms was approximately $62 million, based on contractual forward rates. These contracts had a fair value of $10 million at December 31, 2008.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

UAL Corporation

Chicago, Illinois

We have audited the accompanying statements of consolidated financial position of UAL Corporation and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related statements of consolidated operations, consolidated stockholders’ equity (deficit), and consolidated cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of UAL Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, on January 1, 2009, the Company changed its accounting for convertible debt and participating securities.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009, based on the criteria established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.


/s/ Deloitte & Touche LLP
Chicago, Illinois
February 25, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of

United Air Lines, Inc.

Chicago, Illinois

We have audited the accompanying statements of consolidated financial position of United Air Lines, Inc. and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related statements of consolidated operations, consolidated stockholder’s equity (deficit), and consolidated cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of United Air Lines, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, on January 1, 2009, the Company changed its accounting for convertible debt.

/s/ Deloitte & Touche LLP

Chicago, Illinois

February 25, 2010

UAL Corporation and Subsidiary Companies

Statements of Consolidated Operations

(In millions, except per share amounts)


	Year Ended December 31,
	2009			2008		2007
Operating revenues:
Passenger—United Airlines	$	11,910		$	15,337	$	15,254
Passenger—Regional Affiliates		3,064			3,098		3,063
Cargo		536			854		770
Special operating items (Note 18)		—			—		45
Other operating revenues		825			905		1,011

		16,335			20,194		20,143

Operating expenses:
Salaries and related costs		3,773			4,311		4,261
Aircraft fuel		3,405			7,722		5,003
Regional Affiliates		2,939			3,248		2,941
Purchased services		1,167			1,375		1,346
Aircraft maintenance materials and outside repairs		965			1,096		1,166
Landing fees and other rent		905			862		876
Depreciation and amortization		902			932		925
Distribution expenses		534			710		779
Aircraft rent		346			409		406
Cost of third party sales		230			272		316
Goodwill impairment (Note 3)		—			2,277		—
Other impairments and special items (Notes 3 and 18)		374			339		(44	)
Other operating expenses		956			1,079		1,131

		16,496			24,632		19,106

Earnings (loss) from operations		(161	)