Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
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
001-06033
001-10323
Exact Name of Registrant as
Specified in its Charter, Principal
Executive
Office Address, Zip Code and
Telephone Number, Including Area Code
United Continental Holdings, Inc.
233 South Wacker Drive
Chicago, Illinois 60606
(872) 825-4000
United Airlines, Inc.
233 South Wacker Drive
Chicago, Illinois 60606
(872) 825-4000
State of
Incorporation
Delaware
I.R.S. Employer
Identification No.
36-2675207
Delaware
74-2099724
United Continental Holdings, Inc.
United Airlines, Inc.
Common Stock, $0.01 par value
None
New York Stock Exchange
None
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Securities registered pursuant to Section 12(g) of the Act:
United Continental Holdings, Inc.
United Airlines, Inc.
None
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
United Continental Holdings, Inc.
United Airlines, Inc.
Yes ☒ No ☐
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act
United Continental Holdings, Inc.
United Airlines, Inc.
Yes ☐ No ☒
Yes ☐ No ☒
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.
United Continental Holdings, Inc.
United Airlines, Inc.
Yes ☒ No ☐
Yes ☒ 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
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
United Continental Holdings, Inc.
United Airlines, Inc.
Yes ☒ No ☐
Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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.
United Continental Holdings, Inc.
United Airlines, Inc.
☒
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
United Continental
Holdings, Inc.
United Airlines, Inc.
Large accelerated filer ☒ Accelerated filer ☐
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☐
Smaller reporting company ☐
Emerging growth company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
United Continental Holdings, Inc.
United Airlines, Inc.
☐
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
United Continental Holdings, Inc.
United Airlines, Inc.
Yes ☐ No ☒
Yes ☐ No ☒
The aggregate market value of common stock held by non-affiliates of United Continental Holdings, Inc. was $21,673,390,018 as of June 30, 2017, based on the closing price of $75.25 on the New York Stock Exchange
reported for that date. There is no market for United Airlines, Inc. common stock.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of February 14, 2018.
United Continental Holdings, Inc.
United Airlines, Inc.
This combined Form 10-K is separately filed by United Continental Holdings, Inc. and United Airlines, Inc.
284,700,547 shares of common stock ($0.01 par value)
1,000 shares of common stock ($0.01 par value) (100% owned by United Continental Holdings, Inc.)
OMISSION OF CERTAIN INFORMATION
United Airlines, 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 and 13 of Part III of this Form 10-K is incorporated by reference for United Continental Holdings, Inc. from its definitive proxy statement for its 2018 Annual Meeting of Stockholders.
Table of Contents
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
United Continental Holdings, Inc. and Subsidiary Companies
United Airlines, Inc. and Subsidiary Companies
Annual Report on Form 10-K
For the Year Ended December 31, 2017
PART I
Page
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Combined Notes to Consolidated Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
3
10
20
21
22
23
24
26
28
45
47
61
102
102
105
105
106
106
107
107
108
132
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
Table of Contents
This Form 10-K contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements represent our
expectations and beliefs concerning future events, based on information available to us 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 Part I, Item 1A, Risk Factors and in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. We
disclaim 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, except as required by applicable law.
ITEM 1.
Overview
BUSINESS.
PART I
United Continental Holdings, Inc. (together with its consolidated subsidiaries, “UAL” or the “Company”) is a holding company and its principal, wholly-
owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, “United”). 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. When appropriate, UAL and United are named specifically for their individual contractual obligations and related
disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use
the words “we,” “our,” “us,” and the “Company” in this report for disclosures that relate to all of UAL and United.
UAL was incorporated under the laws of the State of Delaware on December 30, 1968. Our principal executive office is located at 233 South Wacker Drive,
Chicago, Illinois 60606 (telephone number (872) 825-4000).
The Company’s website is www.united.com. The information contained on or connected to the Company’s website 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, as well as our proxy statement for our annual meeting of stockholders, are accessible without charge, as
soon as reasonably practicable, after such material is electronically filed with or furnished to the SEC. Such filings are also available on the SEC’s website
at www.sec.gov.
Operations
The Company transports people and cargo through its mainline and regional operations. With key global aviation rights in North America, Asia-Pacific,
Europe, Middle East and Latin America, UAL has the world’s most comprehensive global route network. UAL, through United and its regional carriers,
operates more than 4,500 flights a day to 338 airports across five continents, with hubs at Newark Liberty International Airport (“Newark”), Chicago
O’Hare International Airport (“Chicago O’Hare”), Denver International Airport (“Denver”), George Bush Intercontinental Airport (“Houston Bush”), Los
Angeles International Airport (“LAX”), A.B. Won Pat International Airport (“Guam”), San Francisco International Airport (“SFO”) and Washington Dulles
International Airport (“Washington Dulles”).
All of the Company’s domestic hubs are located in large business and population centers, contributing to a large amount of “origin and destination”
traffic. The hub and spoke system allows us to transport passengers between a large number of destinations with substantially more frequent service than if
each route were served directly. The
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hub system also allows us to add service to a new destination from a large number of cities using only one or a limited number of aircraft. As discussed
under Alliances below, United is a member of Star Alliance, the world’s largest alliance network.
Financial information on the Company’s operating revenues by geographic region, as reported to the U.S. Department of Transportation (the “DOT”), can
be found in Note 15 to the financial statements included in Part II, Item 8 of this report.
Regional. The Company has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. These
regional operations are an extension of the Company’s mainline network. This regional service complements our operations by carrying traffic that connects
to our mainline service and allows flights to smaller cities that cannot be provided economically with mainline aircraft. Republic Airlines (“Republic”),
Champlain Enterprises, LLC d/b/a CommutAir (“CommutAir”), ExpressJet Airlines (“ExpressJet”), GoJet Airlines (“GoJet”), Mesa Airlines (“Mesa”),
SkyWest Airlines (“SkyWest”), Air Wisconsin Airlines (“Air Wisconsin”), and Trans States Airlines (“Trans States”) are all regional carriers that operate
with capacity contracted to United under capacity purchase agreements (“CPAs”). Under these CPAs, the Company pays the regional carriers contractually
agreed fees (carrier costs) for operating these flights plus a variable reimbursement (incentive payment for operational performance) based on agreed
performance metrics, subject to annual inflation adjustments. The fees for carrier 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. Under these CPAs, the Company is responsible for all fuel costs incurred, as well as landing
fees and other costs, which are either passed through by the regional carrier to the Company without any markup or directly incurred by the Company. In
return, the regional carriers operate this capacity exclusively for United, on schedules determined by the Company. The Company also determines pricing
and revenue management, assumes the inventory and distribution risk for the available seats and permits mileage accrual and redemption for regional flights
through its MileagePlus ® loyalty program.
Alliances. United is a member of Star Alliance, a global integrated airline network and the largest and most comprehensive airline alliance in the world. As
of January 1, 2018, Star Alliance carriers served 1,300 airports in 191 countries with 18,400 daily departures. Star Alliance members, in addition to United,
are Adria Airways, Aegean Airlines, Air Canada, Air China, Air India, Air New Zealand, All Nippon Airways (“ANA”), Asiana Airlines, Austrian Airlines,
Avianca, Avianca Brasil, Brussels Airlines, Copa Airlines, Croatia Airlines, EGYPTAIR, Ethiopian Airlines, EVA Air, LOT Polish Airlines, Lufthansa,
SAS Scandinavian Airlines, Shenzhen Airlines, Singapore Airlines, South African Airways, SWISS, TAP Air Portugal, THAI Airways International and
Turkish Airlines. In May 2017, Star Alliance added Shanghai-based Juneyao Airlines as an additional connecting partner.
United has a variety of bilateral commercial alliance agreements and obligations with Star Alliance members, addressing, among other things, reciprocal
earning and redemption of frequent flyer miles, access to airport lounges and, with certain Star Alliance members, codesharing of flight operations
(whereby one carrier’s selected flights can be marketed under the brand name of another carrier). In addition to the alliance agreements with Star Alliance
members, United currently maintains independent marketing alliance agreements with other air carriers, including Aeromar, Aer Lingus, Air Dolomiti,
Azul, Cape Air, Eurowings, Great Lakes Airlines, Hawaiian Airlines, and Silver Airways. In addition to the marketing alliance agreements with air partners,
United also offers a train-to-plane codeshare and frequent flyer alliance with Amtrak from Newark on select city pairs in the northeastern United States.
United also participates in three passenger joint ventures, one with Air Canada and the Lufthansa Group (which includes Lufthansa and its affiliates
Austrian Airlines, Brussels Airlines, Eurowings and SWISS) covering transatlantic routes, one with ANA covering certain transpacific routes and one with
Air New Zealand covering certain routes between the United States and New Zealand. These passenger joint ventures enable the participating carriers to
integrate the services they provide in the respective regions, capturing revenue synergies and delivering highly competitive flight schedules, fares and
services. United has also implemented cargo joint
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ventures with ANA for transpacific cargo services and continues to implement a cargo joint venture with Lufthansa for transatlantic cargo services. These
cargo joint ventures offer expanded and more seamless access to cargo space across the carriers’ respective combined networks.
Loyalty Program. United’s MileagePlus program builds customer loyalty by offering awards, benefits and services to program participants. Members in this
program earn miles for flights on United, United Express, Star Alliance members and certain other airlines that participate in the program. Members can
also earn miles by purchasing the goods and services of our network of non-airline partners, such as domestic and international credit card issuers, retail
merchants, hotels and car rental companies. Members can redeem miles for free (other than taxes and government imposed fees), discounted or upgraded
travel and non-travel awards.
United has an agreement with Chase Bank USA, N.A. (“Chase”), pursuant to which members of United’s MileagePlus loyalty program who are residents of
the United States can earn miles for making purchases using a MileagePlus credit card issued by Chase. The agreement also provides for joint marketing
and other support for the MileagePlus credit card and provides Chase with other benefits such as permission to market to the Company’s customer database.
Approximately 5.4 million and 5.2 million MileagePlus flight awards were used on United in 2017 and 2016, respectively. These awards represented 7.5%
and 7.7% of United’s total revenue passenger miles in 2017 and 2016, respectively. Total miles redeemed for flights on United in 2017, including
class-of-service upgrades, represented approximately 85% of the total miles redeemed. In addition, excluding miles redeemed for flights on United,
MileagePlus members redeemed miles for approximately 2.3 million other awards in 2017 as compared to 2.0 million in 2016. These awards include United
Club memberships, car and hotel awards, merchandise and flights on other air carriers.
Aircraft Fuel. The table below summarizes UAL’s aircraft fuel consumption and expense during the last three years.
Year
2017
2016
2015
Gallons
Consumed
(in millions)
3,978
3,904
3,886
Fuel Expense
(in millions)
6,913
$
5,813
$
7,522
$
Average Price
Per Gallon
1.74
1.49
1.94
$
$
$
Percentage of
Total
Operating
Expense
20%
18%
23%
Our operational and financial results can be significantly impacted by changes in the price and availability of aircraft fuel. To provide adequate supplies of
fuel, the Company routinely enters into purchase contracts that are customarily indexed to market prices for aircraft fuel, and the Company generally has
some ability to cover short-term fuel supply and infrastructure disruptions at some major demand locations. The price of aircraft fuel has fluctuated
substantially in the past several years. As of December 31, 2017, the Company did not have any outstanding fuel hedging contracts. The Company’s current
strategy is to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and
other factors.
Third-Party Business. United generates third-party business revenue that includes frequent flyer award non-air redemptions, maintenance services, catering
and ground handling. Third-party business revenue is recorded in Other operating revenue. Expenses associated with third-party business are recorded in
Other operating expenses.
Distribution Channels. The Company’s airline seat inventory and fares are distributed through the Company’s direct channels, traditional travel agencies
and on-line travel agencies. The use of the Company’s direct sales website, www.united.com, the Company’s mobile applications and alternative
distribution systems provides the Company with an opportunity to de-commoditize its services, better present its content, make more targeted offerings,
better retain its customers, enhance its brand and lower its ticket distribution costs. Agency sales are
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primarily sold using global distribution systems (“GDS”). United has developed capabilities to sell certain ancillary products through the GDS channel to
provide an enhanced buying experience for customers who purchase in that channel. To increase the Company’s opportunities to sell its full range of
products and services and lower distribution costs, the Company will continue to develop new selling capabilities in third-party channels and expand the
capabilities of its website and mobile applications.
Industry Conditions
Domestic Competition. The domestic airline industry is highly competitive and dynamic. The Company’s competitors consist primarily of other airlines
and, to a certain extent, other forms of transportation. Currently, any U.S. carrier deemed fit by the DOT is largely free to operate scheduled passenger
service between any two points within the United States. 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. Air carriers’ cost structures are not uniform and there are numerous factors influencing cost structure. Carriers with lower costs may offer lower
fares to passengers, which could have a potential negative impact on the Company’s revenues. Decisions on domestic pricing are based on intense
competitive pressure exerted on the Company by other U.S. airlines. In order to remain competitive and maintain passenger traffic levels, we often find it
necessary to match competitors’ discounted fares. Since we compete in a dynamic marketplace, attempts to generate additional revenue through increased
fares oftentimes fail.
International Competition. Internationally, the Company competes not only with U.S. airlines, but also with foreign carriers. International competition has
increased and may continue to increase in the future as a result of airline mergers and acquisitions, joint ventures, alliances, restructurings, liberalization of
aviation bilateral agreements and new or increased service by competitors, including government subsidized competitors from certain Middle East
countries. Competition on international routes is subject to varying degrees of governmental regulation. The Company’s ability to compete successfully
with non-U.S. carriers on international routes depends in part on its ability to generate traffic to and from the entire United States via its integrated domestic
route network and its ability to overcome business and operational challenges across its network worldwide. Foreign carriers currently are prohibited by
U.S. law from carrying local passengers between two points in the United States and the Company generally experiences comparable restrictions in foreign
countries. Separately, “fifth freedom rights” allow the Company to operate between points in two different foreign countries and foreign carriers may also
have fifth freedom rights between the U.S. and another foreign country. In the absence of fifth freedom rights, or some other extra-bilateral right to conduct
operations between two foreign countries, U.S. carriers are constrained from carrying passengers to points beyond designated international gateway cities.
To compensate partially for these structural limitations, U.S. and foreign carriers have entered into alliances, joint ventures and marketing arrangements that
enable these carriers to exchange traffic between each other’s flights and route networks. See Alliances, above, for additional information.
Seasonality. The air travel business is subject to seasonal fluctuations. Historically, demand for air travel is higher in the second and third quarters, driving
higher revenues, than in the first and fourth quarters, which are periods of lower travel demand.
Industry Regulation
Domestic Regulation
All carriers engaged in air transportation in the United States are subject to regulation by the DOT. Absent an exemption, no air carrier may provide air
transportation of passengers or property without first being issued a DOT certificate of public convenience and necessity. The DOT also grants international
route authority, approves international codeshare arrangements and regulates methods of competition. The DOT regulates consumer protection and
maintains jurisdiction over advertising, denied boarding compensation, tarmac delays, baggage liability and other areas and may add additional expensive
regulatory burdens in the future. The DOT has
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launched investigations or claimed rulemaking authority to regulate commercial agreements among carriers or between carriers and third parties in a wide
variety of contexts.
Airlines are also regulated by the Federal Aviation Administration (the “FAA”), an agency within the DOT, primarily in the areas of flight safety, air carrier
operations and aircraft maintenance and airworthiness. The FAA issues air carrier operating certificates and aircraft airworthiness certificates, prescribes
maintenance procedures, oversees airport operations, and regulates pilot and other employee training. From time to time, the FAA issues directives that
require air carriers to inspect or modify aircraft and other equipment, potentially causing the Company to incur substantial, unplanned expenses. The airline
industry is also subject to numerous other federal laws and regulations. The U.S. Department of Homeland Security (“DHS”) has jurisdiction over virtually
every aspect of civil aviation security. The Antitrust Division of 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 by airlines. Labor relations in the airline industry are
generally governed by the Railway Labor Act (“RLA”), a federal statute. The Company is also subject to investigation inquiries by the DOT, FAA, DOJ,
DHS, the U.S. Food and Drug Administration (“FDA”), the U.S. Department of Agriculture (“USDA”) 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 served by the Company are, or recently have been, subject to
government regulation. Federally-mandated domestic slot restrictions that limit operations and regulate capacity currently apply at three airports: Reagan
National Airport in Washington, D.C. (“Reagan National”), John F. Kennedy International Airport and LaGuardia Airport in the New York City
metropolitan region (“LaGuardia”). Of these three airports, United currently operates at two: Reagan National and LaGuardia. Additional restrictions on
takeoff and landing slots at these and other airports may be implemented in the future and could affect the Company’s rights of ownership and transfer as
well as its operations.
Legislation . The airline industry is subject to legislative activity that may have an impact on operations and costs. In 2018, the U.S. Congress will continue
to consider legislation to reauthorize the FAA, which encompasses all significant aviation tax and policy-related issues. As with previous reauthorization
legislation, the U.S. Congress may consider a range of policy changes that could impact operations and costs. Finally, aviation security continues to be the
subject of legislative and regulatory action, requiring changes to the Company’s security processes, potentially increasing the cost of its security procedures
and affecting its operations.
Catering Operations . The Company owns and operates catering kitchens at airports in Denver, Cleveland, Newark, Houston, and Honolulu, which prepare
ready-to-eat food for United flights, as well as other domestic and international airlines. In addition, the Cleveland flight kitchen produces a small volume of
food products for retail sale. These operations are subject to regulation by the FDA and the USDA, as well as other regulatory agencies. The FDA recently
began implementing the Federal Food Safety Modernization Act which requires all food manufacturers to implement more stringent preventive controls. As
a result, airline catering operations have recently become the focus of enhanced scrutiny by the FDA with inspections and greater enforcement.
International Regulation
International air transportation is subject to extensive government regulation. In connection with the Company’s international services, the Company is
regulated by both the U.S. government and the governments of the foreign countries the Company 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.
Legislation. Foreign countries are increasingly enacting passenger protection laws, rules and regulations that meet or exceed U.S. requirements. In cases
where this activity exceeds U.S. requirements, additional burden and liability may be placed on the Company. Certain countries have regulations requiring
passenger compensation and/or enforcement penalties from the Company in addition to changes in operating procedures due to canceled and delayed
flights.
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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 U.S.-flag 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
100 Open Skies agreements in effect. However, even with Open Skies, many of the airports that the Company serves in Europe, Asia and Latin America
maintain slot controls. A large number of these slot controls exist due to congestion, environmental and noise protection and reduced capacity due to
runway and air traffic control (“ATC”) construction work, among other reasons. London Heathrow International Airport, Frankfurt Rhein-Main Airport,
Shanghai Pudong International Airport, Beijing Capital International Airport, Sao Paulo Guarulhos International Airport and Tokyo Haneda International
Airport are among the most restrictive foreign airports due to slot and capacity limitations.
The Company’s ability to serve some foreign markets and expand into certain others is limited by the absence of aviation agreements between the U.S.
government and the relevant foreign 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 the Company’s international route authorities and slot rights may be
materially enhanced or diminished. Similarly, foreign governments control their airspace and can restrict our ability to overfly their territory, enhancing or
diminishing the value of the Company’s existing international route authorities and slot rights.
Environmental Regulation
The airline industry is subject to increasingly stringent federal, state, local and international environmental requirements, including those regulating
emissions to air, water discharges, safe drinking water and the use and management of hazardous substances and wastes.
Climate Change . There is an increasing global regulatory focus on greenhouse gas (“GHG”) emissions and their potential impacts relating to climate
change. Initiatives to regulate GHG emissions from aviation had previously been adopted by the European Union (“EU”) in 2009, but applicability to flights
arriving or departing from airports outside the EU have been postponed several times. In December 2017, the European Parliament voted to extend
exemptions for extra-EU flights until December 2023 in order to align the extension date with the completion of the pilot phase of the International Civil
Aviation Organization’s (“ICAO”) Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”). CORSIA, which was adopted in
October 2016, is intended to create a single global market-based measure to achieve carbon-neutral growth for international aviation after 2020, which will
be achieved through airline purchases of carbon offset credits. Certain CORSIA program details remain to be developed and could potentially be affected by
political developments in participating countries or the results of the pilot phase of the program, and thus the impact of CORSIA cannot be fully predicted.
However, CORSIA is expected to increase operating costs for airlines that operate internationally. In 2016, ICAO also adopted a carbon dioxide (“CO2”)
emission standard for aircraft. The U.S. Environmental Protection Agency has commenced the procedural steps necessary to adopt its own standard, in
consultation with the ICAO. While the precise timing and final form of these various programs and requirements continue to evolve, the Company is taking
various actions that are expected to help to reduce its CO2 emissions over time such as fleet renewal, aircraft retrofits and the commercialization of aviation
alternative fuels.
Other Regulations . Our operations are subject to a variety of other environmental laws and regulations both in the United States and internationally. These
include noise-related restrictions on aircraft types and operating times and state and local air quality initiatives which have, or could in the future, result in
curtailments in services, increased operating costs, limits on expansion, or further emission reduction requirements. Certain airports and/or governments,
both domestically and internationally, either have or are seeking to establish environmental fees and other requirements applicable to carbon emissions,
local air quality pollutants and/or noise. The implementation of state plans to achieve national standards for ozone is expected to result in restrictions on
mobile sources such as cars, trucks and airport ground support equipment in some locations.
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Certain states may also elect to impose restrictions apart from the revised national standards. Finally, environmental cleanup laws could require the
Company to undertake or subject the Company to liability for investigation and remediation costs at certain owned or leased locations or third party disposal
locations.
Until applicability of new regulations to our specific operations is better defined and/or until pending regulations are finalized, future costs to comply with
such regulations will remain uncertain but are likely to increase our operating costs over time. While we continue to monitor these developments, the
precise nature of future requirements and their applicability to the Company are difficult to predict, but the financial impact to the Company and the aviation
industry could be significant.
Employees
As of December 31, 2017, UAL, including its subsidiaries, had approximately 89,800 employees. Approximately 80% of the Company’s employees were
represented by various U.S. labor organizations.
Collective bargaining agreements between the Company and its represented employee groups are negotiated under the RLA. Such agreements typically do
not contain an expiration date and instead specify an amendable date, upon which the agreement is considered “open for amendment.”
The following table reflects the Company’s represented employee groups, the number of employees per represented group, union representation for each of
United’s employee groups, and the amendable date for each employee group’s collective bargaining agreement as of December 31, 2017:
Employee
Group
Number of
Employees
Union
Flight Attendants
Passenger Service
Fleet Service
Pilots
Technicians and Related & Flight Simulator Technicians
Storekeeper Employees
Dispatchers
Fleet Tech Instructors
Load Planners
Security Officers
Maintenance Instructors
22,676 Association of Flight Attendants (the “AFA”)
International Association of Machinists and Aerospace Workers
(the “IAM”)
13,299
13,187 IAM
11,492 Air Line Pilots Association, International
9,535 International Brotherhood of Teamsters (the “IBT”)
1,000 IAM
402 Professional Airline Flight Control Association
111 IAM
71 IAM
51 IAM
40 IAM
Agreement Open
for Amendment
August 2021
December 2021
December 2021
January 2019
December 2022
December 2021
December 2021
December 2021
December 2021
December 2021
December 2021
UNITE HERE is attempting to organize United’s Catering Operations employees, who are currently unrepresented, and filed an application to do so with
the National Mediation Board on January 24, 2018.
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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 and 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.
Global economic, political and industry conditions constantly change and unfavorable conditions may have a material adverse effect on the Company’s
business and results of operations.
The Company’s business and results of operations are significantly impacted by global economic and industry conditions. The airline industry is highly
cyclical, and the level of demand for air travel is correlated to the strength of the U.S. and global economies. The Company is a global business with
operations outside of the United States from which it derives significant operating revenues. The Company’s international operations 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.
Robust demand for the Company’s air transportation services depends largely on favorable economic conditions, including the strength of the domestic and
foreign economies, low unemployment levels, strong consumer confidence levels and the availability of consumer and business credit. Air transportation is
often a discretionary purchase that leisure travelers may limit or eliminate during difficult economic times. In addition, during periods of unfavorable
economic conditions, business travelers usually reduce the volume of their travel, either due to cost-saving initiatives or as a result of decreased business
activity requiring travel. During such periods, the Company’s business and results of operations may be adversely affected due to significant declines in
industry passenger demand, particularly with respect to the Company’s business and premium cabin travelers, and a reduction in fare levels.
Stagnant or weakening global economic conditions either in the United States or in other geographic regions, and any future volatility in U.S. and global
financial and credit markets may have a material adverse effect on the Company’s revenues, results of operations and liquidity. If such economic conditions
were to disrupt capital markets in the future, the Company may be unable to obtain financing on acceptable terms (or at all) to refinance certain maturing
debt and to satisfy future capital commitments.
In June 2016, United Kingdom (“UK”) voters voted for the UK to exit the EU. The UK parliament voted in favor of allowing the government to commence
negotiations to determine the future terms of the UK’s relationship with the EU, including the terms of trade between the UK and the EU and other nations.
A process of negotiation is now taking place to determine the future terms of the UK’s relationship with the EU. Depending on the outcome of these
negotiations, we could face new challenges in our operations, such as instability in global financial and foreign exchange markets, including volatility in the
value of the British pound and European euro, additional travel restrictions on passengers traveling between the UK and other EU countries and legal
uncertainty and potentially divergent national laws and regulations. These adverse effects in European market conditions could negatively impact the
Company’s business, results of operations and financial condition.
In addition, significant or volatile changes in exchange rates between the U.S. dollar and other currencies may have a material adverse impact upon the
Company’s liquidity, revenues, costs and operating results.
The airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on
the Company.
The U.S. airline industry is characterized by substantial price competition including from low-cost carriers. The significant market presence of low-cost
carriers, which engage in substantial price discounting, may diminish our ability to achieve sustained profitability on domestic and international routes.
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Airlines also compete for market share by increasing or decreasing their capacity, including route systems and the number of markets served. Several of the
Company’s domestic and international competitors have increased their international capacity by including service to some destinations that the Company
currently serves, causing overlap in destinations served and therefore increasing competition for those destinations. This increased competition in both
domestic and international markets may have a material adverse effect on the Company’s results of operations, financial condition or liquidity.
Terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could
negatively affect the Company and the airline industry.
The terrorist attacks on September 11, 2001 involving commercial aircraft severely and adversely impacted the Company’s financial condition and results
of operations, as well as the 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.
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, travel restrictions or selective cancellation or redirection of flights) could materially and adversely affect the Company
and the airline industry. Wars and other international hostilities could also have a material adverse impact on the Company’s financial condition, liquidity
and results of operations. The Company’s financial resources may not be sufficient to absorb the adverse effects of any future terrorist attacks or other
international hostilities.
Increasing privacy and data security obligations or a significant data breach may adversely affect the Company’s business.
The Company is subject to increasing legislative, regulatory and customer focus on privacy issues and data security. Also, a number of the Company’s
commercial partners, including credit card companies, have imposed data security standards that the Company must meet and these standards continue to
evolve. The Company will continue its efforts to meet its privacy and data security obligations; however, it is possible that certain new obligations may be
difficult to meet and could increase the Company’s costs. Additionally, the Company must manage evolving cybersecurity risks. The loss, disclosure,
misappropriation of or access to customers’, employees’ or business partners’ information or the Company’s failure to meet its obligations could result in
legal claims or proceedings, liability or regulatory penalties. A significant data breach or the Company’s failure to meet its obligations may adversely affect
the Company’s reputation, business, results of operations and financial condition.
The Company relies heavily on technology and automated systems to operate its business and any significant failure or disruption of the technology or
these systems could materially harm its business.
The Company depends on automated systems and technology to operate its business, including computerized airline reservation systems, flight operations
systems, revenue management systems, accounting systems, telecommunication systems and commercial websites, including www.united.com. United’s
website and other automated systems must be able to accommodate a high volume of traffic, maintain secure information and deliver important flight and
schedule information, as well as process critical financial transactions. These systems could suffer substantial or repeated disruptions due to various events,
some of which are beyond the Company’s control, including natural disasters, power failures, terrorist attacks, equipment or software failures, computer
viruses or cyber security attacks. Substantial or repeated systems failures or disruptions, including failures or disruptions related to the Company’s complex
integration of systems, could reduce the attractiveness of the Company’s services versus those of its competitors, materially impair its ability to market its
services and operate its flights, result in the unauthorized release of confidential or otherwise protected information, result in increased costs, lost revenue
and the loss or compromise of important data, and may adversely affect the Company’s business, results of operations and financial condition.
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Current or future litigation and regulatory actions, or failure to comply with the terms of any settlement, order or arrangement relating to these actions,
could have a material adverse impact on the Company.
From time to time, we are subject to litigation and other legal and regulatory proceedings relating to our business or investigations or other actions by
governmental agencies, including as described in Part I, Item 3, Legal Proceedings, of this report. No assurances can be given that the results of these or
new matters will be favorable to us. An adverse resolution of lawsuits, arbitrations, investigations or other proceedings or actions could have a material
adverse effect on our financial condition and results of operations, including as a result of non-monetary remedies, and could also result in adverse
publicity. Defending ourselves in these matters may be time-consuming, expensive and disruptive to normal business operations and may result in
significant expense and a diversion of management’s time and attention from the operation of our business, which could impede our ability to achieve our
business objectives. Additionally, any amount that we may be required to pay to satisfy a judgment, settlement, fine or penalty may not be covered by
insurance. If we fail to comply with the terms contained in any settlement, order or agreement with a governmental authority relating to these matters, we
could be subject to criminal or civil penalties, which could have a material adverse impact on the Company. Under our charter and certain indemnification
agreements that we have entered into (and may in the future enter into) with our officers, directors and certain third parties, we could be required to
indemnify and advance expenses to them in connection with their involvement in certain actions, suits, investigations and other proceedings. There can be
no assurance that any of these payments will not be material.
Disruptions to the Company’s regional network and United Express flights provided by third-party regional carriers could adversely affect the
Company’s operations and financial condition.
The Company has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. These regional
operations are an extension of the Company’s mainline network and complement the Company’s operations by carrying traffic that connects to mainline
service and allows flights to smaller cities that cannot be provided economically with mainline aircraft. The Company’s business and operations are
dependent on its regional flight network, with regional capacity accounting for approximately 11% of the Company’s total capacity for the year ended
December 31, 2017.
Although the Company has agreements with its regional carriers that include contractually agreed performance metrics, the Company does not control the
operations of these carriers. A number of factors may impact the Company’s regional network, including weather-related effects and seasonality. In
addition, the decrease in qualified pilots driven by federal regulations has adversely impacted and could continue to affect the Company’s regional flying.
For example, the FAA’s expansion of minimum pilot qualification standards, including a requirement that a pilot have at least 1,500 total flight hours, as
well as the FAA’s revised pilot flight and duty time rules, effective January 2014, have contributed to a smaller supply of pilots available to regional
carriers. The decrease in qualified pilots resulting from the regulations as well as factors including a decreased student pilot population and a shrinking U.S.
military from which to hire qualified pilots, could adversely impact the Company’s operations and financial condition, and also require the Company to
reduce regional carrier flying.
If a significant disruption occurs to the Company’s regional network or flights or if one or more of the regional carriers with which the Company has
relationships is unable to perform their obligations over an extended period of time, there could be a material adverse effect on the Company’s business,
financial condition and operations.
The Company’s business relies extensively on third-party service providers. Failure of these parties to perform as expected, or 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 third-party service providers to perform a large number of functions that are integral to its business, including regional
operations, operation of customer service call centers, distribution and sale of airline seat inventory, provision of information technology infrastructure and
services, transmitting or uploading of data, provision of aircraft maintenance and repairs, provision of various utilities and performance of aircraft
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fueling operations, and catering services, among other vital functions and services. The Company does not directly control these third-party service
providers, although it does enter into agreements with most of them that define expected service performance. Any of these third-party service providers,
however, may materially fail to meet their service performance commitments to the Company, may suffer disruptions to their systems that could impact
their services, or the agreements with such providers may be terminated. For example, flight reservations booked by customers and travel agencies via third-
party GDSs may be adversely affected by disruptions in the business relationships between the Company and GDS operators. Such disruptions, including a
failure to agree upon acceptable contract terms when contracts expire or otherwise become subject to renegotiation, may cause the Company’s flight
information to be limited or unavailable for display, significantly increase fees for both the Company and GDS users and impair the Company’s
relationships with its customers and travel agencies. The failure of any of the Company’s third-party service providers to perform their service obligations
adequately, or other interruptions of services, may reduce the Company’s revenues and increase its expenses, prevent the Company from operating its
flights and providing other services to its customers or result in adverse publicity or harm to its brand. In addition, the Company’s business and financial
performance could be materially harmed if its customers believe that its services are unreliable or unsatisfactory.
Orders for new aircraft typically must be placed years in advance of scheduled deliveries, and changes in the Company’s route network over time may
make aircraft on order less economic for the Company, but any modification or termination of such orders could result in material liability for the
Company.
The Company’s orders for new aircraft are typically made years in advance of actual delivery of such aircraft, and the financial commitment required for
purchases of new aircraft is substantial. At December 31, 2017, the Company had firm commitments to purchase 228 new aircraft from The Boeing
Company (“Boeing”) and Airbus S.A.S (“Airbus”), as well as related agreements with engine manufacturers, maintenance providers and others. At
December 31, 2017, the Company’s commitments relating to the acquisition of aircraft and related spare engines, aircraft improvements and other related
obligations aggregated to a total of $22.2 billion.
Subsequent to the Company placing an order for new aircraft, the Company’s route network may change, such that the aircraft on order become less
economic to operate flights in the Company’s network. As a result, the Company’s preference for a particular aircraft that it has ordered, often years in
advance, may be decreased or eliminated. If the Company were to seek to modify or terminate its existing aircraft order commitments, it may be responsible
for material obligations to its counterparties arising from any such change. However, the Company expects that any such change that it makes would be in
the long-term best economic interest of the Company.
The Company could experience adverse publicity, harm to its brand, reduced travel demand and potential tort liability as a result of an accident,
catastrophe, or incident involving its aircraft or its operations, the aircraft or operations of its regional carriers or the aircraft or operations of its
codeshare partners, which may result in a material adverse effect on the Company’s results of operations or financial position.
An accident, catastrophe, or incident involving an aircraft that the Company operates, or an aircraft that is operated by a codeshare partner or one of the
Company’s regional carriers, or an incident involving the Company’s operations, could have a material adverse effect on the Company if such accident,
catastrophe, or incident created a public perception that the Company’s operations, or the operations of its codeshare partners or regional carriers, are not
safe or reliable, or are less safe or reliable than other airlines. Such public perception could, in turn, result in adverse publicity for the Company, cause harm
to the Company’s brand and reduce travel demand on the Company’s flights, or the flights of its codeshare partners or regional carriers.
In addition, any such accident, catastrophe, or incident could expose the Company to significant tort liability. Although the Company currently maintains
liability insurance in amounts and of the type the Company believes to be consistent with industry practice to cover damages arising from any such accident
or catastrophe, and the Company’s codeshare partners and regional carriers carry similar insurance and generally indemnify the Company for their
operations, if the Company’s liability exceeds the applicable policy limits or the ability of
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another carrier to indemnify it, the Company could incur substantial losses from an accident, catastrophe or incident which may result in a material adverse
effect on the Company’s results of operations or financial position.
If we experience changes in, or are unable to retain, our senior management team or other key employees, our operating results could be adversely
affected.
Much of our future success depends on the continued availability of skilled personnel with industry experience and knowledge, including our senior
management team and other key employees. If we are unable to attract and retain talented, highly qualified senior management and other key employees, or
if we are unable to effectively provide for the succession of senior management, our business may be adversely affected.
High and/or volatile fuel prices or significant disruptions in the supply of aircraft fuel could have a material adverse impact on the Company’s strategic
plans, operating results, financial position and liquidity.
Aircraft fuel is critical to the Company’s operations and is one of its single largest operating expenses. The timely and adequate supply of fuel to meet
operational demand depends on the continued availability of reliable fuel supply sources, as well as related service and delivery infrastructure. Although the
Company has some ability to cover short-term fuel supply and infrastructure disruptions at some major demand locations, it can neither predict nor
guarantee the continued timely availability of aircraft fuel throughout the Company’s system. The Company generally sources fuel at prevailing market
prices.
Aircraft fuel has historically been the Company’s most volatile operating expense due to the highly unpredictable nature of market prices for fuel. Market
prices for aircraft fuel have historically fluctuated substantially in short periods of time and continue to be highly volatile due to a dependence on a
multitude of unpredictable factors beyond the Company’s control. These factors include changes in global crude oil prices, the balance between aircraft fuel
supply and demand, natural disasters, prevailing inventory levels and fuel production and transportation infrastructure. Prices of fuel are also impacted by
indirect factors that may potentially impact fuel supply or demand balance, such as geopolitical events, economic growth indicators, fiscal/monetary
policies, fuel tax policies, environmental concerns and financial investments in energy markets. Both actual changes in these factors, as well as changes in
market expectations of these factors can potentially drive rapid changes in fuel price levels in short periods of time.
Given the highly competitive nature of the airline industry, the Company may not be able to increase its fares and fees sufficiently to offset the full impact
of increases in fuel prices, especially if these increases are significant, rapid and sustained. Further, any such fare and fee increases may not be sustainable,
may reduce the general demand for air travel and may also eventually impact the Company’s strategic growth and investment plans for the future. In
addition, decreases in fuel prices for an extended period of time may result in increased industry capacity, increased competitive actions for market share
and lower fares or surcharges in general. If fuel prices were to then subsequently rise quickly, there may be a lag between the rise in fuel prices and any
improvement of the revenue environment.
To protect against increases in the market prices of fuel, the Company may hedge a portion of its future fuel requirements. However, the Company’s
hedging program may not be successful in mitigating higher fuel costs, and any price protection provided may be limited due to choice of hedging
instruments and market conditions, including breakdown of correlation between hedging instrument and market price of aircraft fuel and failure of hedge
counterparties. To the extent that the Company decides to hedge a portion of its future fuel requirements and uses hedge contracts that have the potential to
create an obligation to pay upon settlement if fuel prices decline significantly, such hedge contracts may limit the Company’s ability to benefit fully from
lower fuel costs in the future. If fuel prices decline significantly from the levels existing at the time the Company enters into a hedge contract, the Company
may be required to post collateral (margin) beyond certain thresholds. There can be no assurance that the Company’s hedging arrangements will provide
any particular level of protection against rises in fuel prices or that its counterparties will be able to perform under the Company’s hedging arrangements.
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Additionally, deterioration in the Company’s financial condition could negatively affect its ability to enter into new hedge contracts in the future.
Union disputes, employee strikes or slowdowns, and other labor-related disruptions could adversely affect the Company’s operations and could result in
increased costs that impair its financial performance.
United is a highly unionized company. As of December 31, 2017, the Company and its subsidiaries had approximately 89,800 active employees, of whom
approximately 80% were represented by various U.S. labor organizations.
There is a risk that unions or individual employees might pursue judicial or arbitral claims arising out of changes implemented as a result of the Company
entering into collective bargaining agreements with its represented employee groups. There is also a possibility that employees or unions could engage in
job actions such as slowdowns, work-to-rule campaigns, sick-outs or other actions designed to disrupt the Company’s normal operations, in an attempt to
pressure the Company in collective bargaining negotiations. Although the RLA makes such actions unlawful until the parties have been lawfully released to
self-help, and the Company can seek injunctive relief against premature self-help, such actions can cause significant harm even if ultimately enjoined. In
addition, collective bargaining agreements with the Company’s represented employee groups increase the Company’s labor costs, which increase could be
material for any applicable reporting period.
An outbreak of a disease or similar public health threat could have a material adverse impact on the Company’s business, financial position and results
of operations.
An outbreak of a disease or similar public health threat that affects travel demand, travel behavior, or travel restrictions could have a material adverse
impact on the Company’s business, financial condition and 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 oversight. Compliance with U.S. and international regulations imposes significant costs and may have
adverse effects on the Company. Laws, regulations, taxes and airport rates and charges, both domestically and internationally, have been proposed from
time to time that could significantly increase the cost of airline operations or reduce airline revenue.
United provides air transportation under certificates of public convenience and necessity issued by the DOT. If the DOT altered, amended, modified,
suspended or revoked these certificates, it could have a material adverse effect on the Company’s business. The FAA regulates the safety of United’s
operations. United operates pursuant to an air carrier operating certificate issued by the FAA. In 2014, the FAA’s more stringent pilot flight and duty time
requirements under Part 117 of the Federal Aviation Regulations took effect, which has increased costs for all carriers. Additionally, minimum
qualifications took effect for air carrier first officers. These regulations will continue to impact the industry and the Company for years to come, as they
have caused mainline airlines to hire regional pilots, while simultaneously significantly reducing the pool of new pilots from which regional carriers
themselves can hire. Although this is an industry issue, it directly affects the Company and requires it to reduce regional partner flying, as several regional
partners have experienced difficulty flying their schedules due to reduced pilot availability. From time to time, the FAA also issues orders, airworthiness
directives and other regulations relating to the maintenance and operation of aircraft that require material expenditures or operational restrictions by the
Company. These FAA orders and directives could include the temporary grounding of an entire aircraft type if the FAA identifies design, manufacturing,
maintenance or other issues requiring immediate corrective action. These FAA directives or requirements could have a material adverse effect on the
Company.
In 2018, the U.S. Congress will continue to consider legislation to reauthorize the FAA, which encompasses all significant aviation tax and policy related
issues. As with previous reauthorization legislation, the U.S. Congress may consider a range of policy changes that could impact the Company’s operations
and costs.
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In addition, the Company’s operations may be adversely impacted due to the existing antiquated ATC system utilized by the U.S. government. During peak
travel periods in certain markets, the current ATC system’s inability to handle ATC demand has led to short-term capacity constraints imposed by
government agencies and 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. Imposition of these ATC constraints on a long-term basis may have a material adverse effect on the Company’s 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 air carriers
may have an adverse impact on the Company’s financial condition or results of operations.
Access to landing and take-off rights, or “slots,” at several major U.S. airports and many foreign airports served by the Company are, or recently have been,
subject to government regulation. Certain of the Company’s major hubs are among the most 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. The FAA
may limit the Company’s airport access by limiting the number of departure and arrival slots at high density traffic airports, which could affect the
Company’s ownership and transfer rights, and local airport authorities may have the ability to control access to certain facilities or the cost of access to their
facilities, which could have an adverse effect on the Company’s business. The FAA historically has taken actions with respect to airlines’ slot holdings that
airlines have challenged; if the FAA were to take actions that adversely affect the Company’s slot holdings, the Company could incur substantial costs to
preserve its slots or may lose slots. If slots are eliminated at an airport, or if the number of hours of operation governed by slots is reduced at an airport, the
lack of controls on takeoffs and landings could result in greater congestion both at the affected airport or in the regional airspace (e.g., the New York City
metropolitan region airspace) and could significantly impact the Company’s operations. Further, the Company’s operating costs at airports, including the
Company’s major hubs, may increase significantly because of capital improvements at such airports that the Company may be required to fund, directly or
indirectly. Such costs could be imposed by the relevant airport authority without the Company’s approval and may have a material adverse effect on the
Company’s financial condition.
Many aspects of the Company’s operations are also subject to increasingly stringent federal, state, local and international laws protecting the environment.
Future environmental regulatory developments, such as climate change regulations in the United States and abroad could adversely affect operations and
increase operating costs in the airline industry. In addition, there is the potential for additional regulatory actions in regard to the emission of GHGs by the
aviation industry. The precise nature of future requirements and their applicability to the Company are difficult to predict, but the financial impact to the
Company and the aviation industry would likely be adverse and could be significant.
See Part I, Item 1, Business—Industry Regulation, of this report for additional information on government regulation impacting the Company.
Extensive government regulation on international routes could restrict the Company’s ability to conduct its business and have a material adverse effect
on the Company’s financial position and results of operations.
The ability of carriers to operate flights on international routes between the United States and other countries may be subject to change. Applicable
arrangements between the United States and foreign governments may be amended from time to time, government policies with respect to airport
operations may be revised, and the availability of appropriate slots or facilities may change. The Company currently operates a number of flights on
international routes under government arrangements, regulations or policies that designate the number of carriers permitted to operate on such routes, the
capacity of the carriers providing services on such routes, the airports at which carriers may operate international flights, or the number of carriers allowed
access to particular airports. Any further limitations, additions or modifications to such arrangements, regulations or policies could have a material adverse
effect on the Company’s financial position and results of operations. Additionally, a change in law, regulation or policy for any of the Company’s
international routes, such as Open Skies, could have a
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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 addition, competition from revenue-sharing joint ventures and other alliance arrangements by and among other airlines
could impair the value of the Company’s business and assets on the Open Skies routes. The Company’s plans to enter into or expand U.S. antitrust
immunized alliances and joint ventures on various international routes are subject to receipt of approvals from applicable U.S. federal authorities and
obtaining other applicable foreign government clearances or satisfying the necessary applicable regulatory requirements. There can be no assurance that
such approvals and clearances will be granted or will continue in effect upon further regulatory review or that changes in regulatory requirements or
standards can be satisfied.
See Part I, Item 1, Business—Industry Regulation, of this report for additional information on government regulation impacting the Company.
The airline industry may undergo further change with respect to alliances and joint ventures or due to consolidations, any of which could have a
material adverse effect on the Company.
The Company faces and may continue to face strong competition from other carriers due to the modification of alliances and formation of new joint
ventures. Carriers may improve their competitive positions through airline alliances, slot swaps and/or joint ventures. Certain types of airline joint ventures
further competition by allowing multiple airlines to coordinate routes, pool revenues and costs, and enjoy other mutual benefits, achieving many of the
benefits of consolidation. “Open Skies” agreements, including the agreements between the United States and the EU and between the United States and
Japan, may also give rise to better integration opportunities among international carriers. Movement of airlines between current global airline alliances
could reduce joint network coverage for members of such alliances while also creating opportunities for joint ventures and bilateral alliances that did not
exist before such realignment. There is ongoing speculation that further airline and airline alliance consolidations or reorganizations could occur in the
future, especially if new “Open Skies” agreements between Brazil and the United States are fully implemented. The Company routinely engages in analysis
and discussions regarding its own strategic position, including current and potential alliances, asset acquisitions and divestitures and may have future
discussions with other airlines regarding strategic activities. If other airlines participate in such activities, those airlines may significantly improve their cost
structures or revenue generation capabilities, thereby potentially making them stronger competitors of the Company and potentially impairing the
Company’s ability to realize expected benefits from its own strategic relationships.
Insufficient liquidity may have a material adverse effect on the Company’s financial position and business.
The Company has a significant amount of financial leverage from fixed obligations, including aircraft lease and debt financings, leases of airport property
and other facilities, and other material cash obligations. In addition, the Company has substantial noncancelable commitments for capital expenditures,
including for the acquisition of new aircraft and related spare engines.
Although the Company’s cash flows from operations and its available capital, including the proceeds from financing transactions, have been sufficient to
meet these obligations and commitments to date, the Company’s future liquidity could be negatively affected by the risk factors discussed in this report,
including, but not limited to, substantial volatility in the price of fuel, adverse economic conditions, disruptions in the global capital markets and
catastrophic external events.
If the Company’s liquidity is materially diminished due to the various risk factors noted in this report, or otherwise, the Company might not be able to
timely pay its leases and debts or comply with certain operating and financial covenants under its financing and credit card processing agreements or with
other material provisions of its contractual obligations. Certain of these covenants require the Company or United, as applicable, to maintain minimum
liquidity and/or minimum collateral coverage ratios. The Company’s or United’s ability to comply with these covenants may be affected by events beyond
its control, including the overall industry revenue environment, the level of fuel costs and the appraised value of the collateral.
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If the Company does not timely pay its leases and debts or comply with such covenants, a variety of adverse consequences could result. These potential
adverse consequences include an increase of required reserves under credit card processing agreements, withholding of credit card sale proceeds by its
credit card service providers, loss of undrawn lines of credit, the occurrence of one or more events of default under the relevant agreements, the acceleration
of the maturity of debt and/or the exercise of other remedies by its creditors and equipment lessors that could result in a material adverse effect on the
Company’s financial position and results of operations. The Company cannot provide assurance that it would have sufficient liquidity to repay or refinance
such debt if it were accelerated. In addition, an event of default or acceleration of debt under certain of its financing agreements could result in one or more
events of default under certain of the Company’s other financing agreements due to cross default and cross acceleration provisions.
Furthermore, insufficient liquidity may limit the Company’s ability to withstand competitive pressures and downturns in the travel business and the
economy in general.
The Company’s substantial level of indebtedness and non-investment grade credit rating, as well as market conditions and the availability of assets as
collateral for loans or other indebtedness, may make it difficult for the Company to raise additional capital if needed to meet its liquidity needs on
acceptable terms, or at all.
See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report for additional information
regarding the Company’s liquidity.
Increases in insurance costs or reductions in insurance coverage may materially and adversely impact the Company’s results of operations and
financial condition.
The Company could be exposed to significant liability or loss if its property or operations were to be affected by a natural catastrophe or other event,
including aircraft accidents. The Company maintains insurance policies, including, but not limited to, terrorism, aviation hull and liability, workers’
compensation and property and business interruption insurance, but we are not fully insured against all potential hazards and risks incident to our business.
If the Company is unable to obtain sufficient insurance with acceptable terms or if the coverage obtained is insufficient relative to actual liability or losses
that the Company experiences, whether due to insurance market conditions, policy limitations and exclusions or otherwise, its results of operations and
financial condition could be materially and adversely affected.
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, which are periods of lower travel demand. 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, ATC congestion, geological events, natural disasters, changes in the competitive
environment due to industry consolidation, general economic conditions and other factors. 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 its long-lived assets causing it to record impairments that may negatively affect
its financial position and 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,
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.
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The Company may be required to recognize 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 an
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 the Company’s 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 ability to use its net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes may be
significantly limited due to various circumstances, including certain possible future transactions involving the sale or issuance of UAL common stock,
or if taxable income does not reach sufficient levels.
As of December 31, 2017, UAL reported consolidated federal net operating loss (“NOL”) carryforwards of approximately $2.4 billion.
The Company’s ability to use its NOL carryforwards may be limited if it experiences an “ownership change” as defined in Section 382 (“Section 382”) of
the Internal Revenue Code of 1986, as amended (the “Code”). An ownership change generally occurs if certain stockholders increase their aggregate
percentage ownership of a corporation’s stock by more than 50 percentage points over their lowest percentage ownership at any time during the testing
period, which is generally the three-year period preceding any potential ownership change.
There is no assurance that the Company will not experience a future ownership change under Section 382 that may significantly limit or possibly eliminate
its ability to use its NOL carryforwards. Potential future transactions involving the sale or issuance of UAL common stock, including the exercise of
conversion options under the terms of any convertible debt that UAL may issue in the future, the repurchase of such debt with UAL common stock, any
issuance of UAL common stock for cash, and the acquisition or disposition of such stock by a stockholder owning 5% or more of UAL common stock, or a
combination of such transactions, may increase the possibility that the Company will experience a future ownership change under Section 382.
Under Section 382, a future ownership change would subject the Company to additional annual limitations that apply to the amount of pre-ownership
change NOLs that may be used to offset post-ownership change taxable income. This limitation is generally determined by multiplying the value of a
corporation’s stock immediately before the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may, subject to
certain limits, be carried over to later years, and the limitation may, under certain circumstances, be increased by built-in gains in the assets held by such
corporation at the time of the ownership change. This limitation could cause the Company’s U.S. federal income taxes to be greater, or to be paid earlier,
than they otherwise would be, and could cause all or a portion of the Company’s NOL carryforwards to expire unused. Similar rules and limitations may
apply for state income tax purposes. The Company’s ability to use its NOL carryforwards will also depend on the amount of taxable income it generates in
future periods. The Company’s NOL carryforwards may expire before it can generate sufficient taxable income to use them in full.
The final impacts of the Tax Cuts and Jobs Act could be materially different from our current estimates.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law (the “Tax Act”). The Tax Act introduced significant changes to the Code. We
continue to examine the impact the Tax Act may have on our business. Notwithstanding the reduction in the federal corporate income tax rate as a result of
Tax Act, the estimated impact of the new law is based on management’s current knowledge and assumptions and recognized impacts could be materially
different from current estimates based upon our further analysis of the new law.
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Our significant investments in airlines in other parts of the world and the commercial relationships that we have with those carriers may not produce
the returns or results we expect.
An important part of our strategy to expand our global network includes making significant investments in airlines in other parts of the world and expanding
our commercial relationships with these carriers. In 2015, we made a $100 million investment in Azul Linhas Aéreas Brasileiras S.A. (“Azul”) and
enhanced our commercial arrangements with Azul. We expect to continue exploring similar non-controlling investments in, and entering into joint ventures,
commercial agreements, loan transactions and strategic alliances with, other carriers as part of our global business strategy. These transactions and
relationships (including our strategic partnership with, and investment in, Azul) involve significant challenges and risks, including that we may not realize a
satisfactory return on our investment, that we may not receive repayment of invested funds, that they may distract management from our operations or that
they may not generate the expected revenue synergies. These events could have a material adverse effect on our operating results or financial condition.
In addition, we are dependent on these other carriers for significant aspects of our network in the regions in which they operate. While we work closely with
these carriers, we do not have control over their operations or business methods. We may be subject to consequences from any improper behavior of joint
venture partners, including for failure to comply with anti-corruption laws such as the U.S. Foreign Corrupt Practices Act. Furthermore, our relationships
with these carriers may be subject to the laws and regulations of non-U.S. jurisdictions in which these carriers are located or conduct business. Any political
or regulatory change in these jurisdictions that negatively impact or prohibit our arrangements with these carriers could have an adverse effect on our results
of operations or financial condition. To the extent that the operations of any of these carriers are disrupted over an extended period of time or their actions
subject us to the consequences of failure to comply with laws and regulations, our results of operations may be adversely affected.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
None.
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ITEM 2.
Fleet
PROPERTIES.
Including aircraft operated by United’s regional carriers, United’s fleet consisted of 1,262 aircraft as of December 31, 2017, the details of which are
presented in the tables below:
Aircraft Type
Total
Owned Leased
Seats in Standard
Configuration
Average Age (In
Years)
Mainline:
777-300ER
777-200ER
777-200
787-9
787-8
767-400ER
767-300ER
757-300
757-200
737-900ER
737-900
737-800
737-700
A320-200
A319-100
Total mainline
Regional:
Embraer E175
Embraer 170
CRJ700
CRJ200
14
55
19
21
12
16
35
21
56
136
12
141
40
99
67
744
14
40
19
21
12
14
22
9
50
136
8
77
20
66
50
558
—
15
—
—
—
2
13
12
6
—
4
64
20
33
17
186
366
267-269
364
252
219
242
183-214
213
142-169
179
179
154-166
118-126
150
128
0.7
17.8
20.5
2.1
4.5
16.3
22.5
15.3
21.7
5.0
16.3
13.8
18.8
19.3
16.7
14.3
Aircraft Type
Capacity
Purchase
Agreement
Total
Owned Leased
Owned or
Leased by
Regional
Carrier
Regional Carrier
Operator and
Number of
Aircraft
Seats in Standard
Configuration
152
38
54
—
—
—
65
—
—
85
—
—
168
7
3
518
1,262
29
—
—
83
641
139
—
3
142
328
65
SkyWest:
Mesa:
98
Republic:
38 Republic:
SkyWest:
GoJet:
Mesa:
SkyWest:
Air Wisconsin:
ExpressJet:
Trans States:
—
CommutAir:
7 CommutAir:
— ExpressJet:
293
293
85
65
59
28
38
20
25
20
55
30
110
36
22
7
3
76
70
70
50
50
37
37
Embraer ERJ 145 (XR/LR/ER)
Q200 (a)
Embraer ERJ 135 (a)
Total regional
Total
(a) United exited service of both the Q200 and ERJ 135 aircraft types in January 2018.
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In addition to the aircraft presented in the tables above, United owns or leases the following aircraft listed below as of December 31, 2017:
•
•
•
One owned Boeing 767-200, which is being subleased to another airline;
12 owned and three leased Boeing 747s, which are permanently grounded; and
11 owned Embraer ERJ 145s, which are temporarily grounded.
Firm Order and Option Aircraft
As of December 31, 2017, United had firm commitments and options to purchase aircraft from Boeing and Airbus presented in the table below:
Aircraft Type
Airbus A350
Boeing 737 MAX
Boeing 777-300ER
Boeing 787
(a) United also has options and purchase rights for additional aircraft.
Number of Firm
Commitments (a)
45
161
4
18
The aircraft listed in the table above are scheduled for delivery from 2018 through 2027. In 2018, United expects to take delivery of 10 Boeing 737 MAX
aircraft, seven Boeing 787 aircraft and four Boeing 777-300ER aircraft. To the extent the Company and the aircraft manufacturers with whom the Company
has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company’s future capital
commitments could change. Additionally, the Company has entered into a contract to purchase three used Boeing 767-300ER aircraft from Hawaiian
Airlines, Inc. with expected delivery dates in the second half of 2018. See Notes 10 and 13 to the financial statements included in Part II, Item 8 of this
report for additional information.
Facilities
United’s principal facilities relate to leases of airport facilities, gates, hangar sites, terminal buildings and other facilities in the municipalities it serves.
United has major terminal facility leases at SFO, Washington Dulles, Chicago O’Hare, LAX, Denver, Newark, Houston Bush, Cleveland Hopkins
International Airport and Guam with expiration dates ranging from 2018 through 2054. Substantially all of these facilities are leased on a net-rental basis,
resulting in the Company’s responsibility for maintenance, insurance and other facility-related expenses and services.
United also maintains administrative offices, catering, cargo, training facilities, maintenance facilities and other facilities to support operations in the cities
served. United also has multiple leases, which expire from 2018 through 2029, for its principal executive office and operations center in downtown Chicago
and administrative offices in downtown Houston.
ITEM 3.
LEGAL PROCEEDINGS.
On June 30, 2015, UAL received a Civil Investigative Demand (“CID”) from the Antitrust Division of the DOJ seeking documents and information from
the Company in connection with a DOJ investigation related to statements and decisions about airline capacity. The Company is working with the DOJ and
has completed its response to the CID. The Company is not able to predict what action, if any, might be taken in the future by the DOJ or other
governmental authorities as a result of the investigation. Beginning on July 1, 2015, subsequent to the announcement of the CID, UAL and United were
named as defendants in multiple class action lawsuits that asserted claims under the Sherman Antitrust Act, which have been consolidated in the United
States District Court for the District of Columbia. The complaints generally allege collusion among U.S. airlines on capacity impacting airfares and seek
treble damages. The Company intends to vigorously defend against the class action lawsuits.
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On October 13, 2015, United received a CID from the Civil Division of the DOJ. The CID requested documents and oral testimony from United in
connection with an industry-wide DOJ investigation related to delivery scan and other data purportedly required for payment for the carriage of mail under
United’s International Commercial Air Contracts with the U.S. Postal Service. The Company has been responding to the DOJ’s request and cooperating in
the investigation since that time. On November 8, 2016, the DOJ Criminal Division met with representatives from the Company and advised they are
conducting an industry-wide investigation into the same matter. The Company is also cooperating with the government in this aspect of their investigation
and, on December 21, 2016, representatives from the Company met with both the Civil and Criminal Divisions to provide additional information. The
Company cannot predict what action, if any, might be taken in the future by the DOJ or other governmental authorities as a result of these investigations.
Other Legal Proceedings
The Company is 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 other
claims and legal actions will not materially affect its consolidated financial position or results of operations. However, the ultimate resolutions of these
matters are inherently unpredictable. As such, the Company’s financial condition and results of operations could be adversely affected in any particular
period by the unfavorable resolution of one or more of these matters.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable.
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PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
UAL’s common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “UAL.” The following table sets forth the ranges of high and
low sales prices per share of UAL common stock during the last two fiscal years, as reported by the NYSE:
UAL
2017
2016
High
Low
High
Low
1st quarter
2nd quarter
3rd quarter
4th quarter
$ 76.75 $ 64.16 $ 61.41 $ 42.17
37.41
37.64
51.34
58.90
54.53
76.80
67.55
57.34
56.51
83.04
81.39
69.62
As of February 14, 2018, there were 7,534 holders of record of UAL common stock.
UAL did not pay any dividends in 2017 or 2016. Under debt agreements and certain indentures, UAL’s ability to pay dividends on or repurchase UAL’s
common stock is subject to limits on the amount of such payments and to certain conditions, including that no default or event of default exists under those
instruments and that after giving effect to the making of any such payments, UAL would be in compliance with a minimum fixed charge coverage
ratio. Any future determination regarding dividend or distribution payments will be at the discretion of the UAL Board of Directors, subject to the foregoing
limits and applicable limitations under Delaware law.
United paid dividends of $1.8 billion and $2.6 billion to UAL in 2017 and 2016, respectively.
The following graph shows the cumulative total stockholder return for UAL’s common stock during the period from December 31, 2012 to December 31,
2017. The graph also shows the cumulative returns of the Standard and Poor’s 500 Index (“SPX”) and the NYSE Arca Airline Index (“XAL”) of 15
investor-owned airlines over the same five-year period. The comparison assumes $100 was invested on December 31, 2012 in UAL common stock, the SPX
and the XAL.
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Note: The stock price performance shown in the graph above should not be considered indicative of potential future stock price performance. The foregoing
performance graph is being furnished as part of this report solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish our stockholders
with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by the Company under the Securities Act
or the Exchange Act.
The following table presents repurchases of UAL common stock made in the fourth quarter of 2017:
Period
October 2017
November 2017
December 2017
Total
Total number of
shares
purchased (a)
(b)
2,852,917
5,342,435
1,084,498
9,279,850
Average price
paid per share (b)
(c)
$
59.59
58.93
63.06
Total number of
shares purchased
as part of publicly
announced plans
or programs (a)
2,852,917
5,342,435
1,084,498
9,279,850
Approximate dollar value
of shares that may yet be
purchased under the
plans or programs (in
millions) (a)
$
383
68
3,000
(a) In 2017, UAL repurchased approximately 28 million shares of UAL common stock for $1.8 billion, completing its July 2016 repurchase authorization. In December 2017, UAL’s
Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL’s common stock. As of December 31, 2017, the Company had approximately $3.0 billion
remaining to purchase shares under its share repurchase program. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated
share repurchase transactions from time to time in accordance with applicable securities laws.
(b) The table does not include shares withheld from employees to satisfy certain tax obligations due upon the vesting of restricted stock units. The United Continental Holdings, Inc.
2017 Incentive Compensation Plan and the United Continental Holdings, Inc. 2008 Incentive Compensation Plan, provide for the withholding of shares to satisfy tax obligations due
upon the vesting of restricted stock units. However, the plans do not specify a maximum number of shares that may be withheld for this purpose. A total of 1,446 shares were withheld
under the plans in the fourth quarter of 2017 at an average price of $64.46 per share. These shares of common stock withheld to satisfy tax withholding obligations may be deemed to be
“issuer purchases” of shares that are required to be disclosed pursuant to this Item.
(c) Average price paid per share is calculated on a settlement basis and excludes commission.
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ITEM 6.
SELECTED FINANCIAL DATA.
UAL’s consolidated financial statements and statistical data are provided in the tables below:
Income Statement Data (in millions, except per share
amounts):
Operating revenue
Operating expense
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Balance Sheet Data at December 31 (in millions):
Unrestricted cash, cash equivalents and short-term
investments
Total assets
Debt and capital lease obligations
2017
2016
Year Ended December 31,
2015
2014
2013
$ 37,736
34,238
3,498
2,131
7.04
7.02
$ 36,556
32,218
4,338
2,263
6.86
6.85
$ 37,864
32,698
5,166
7,340
19.52
19.47
$ 38,901
36,528
2,373
1,132
3.05
2.93
$ 38,279
37,030
1,249
571
1.64
1.53
$
$
3,798
42,326
14,392
$
4,428
40,140
11,705
$
5,196
40,861
11,759
$
4,384
36,595
11,947
5,121
36,021
12,293
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Mainline
Passengers (thousands) (a)
Revenue passenger miles (“RPMs”) (millions) (b)
Available seat miles (“ASMs”) (millions) (c)
Cargo ton miles (millions)
Passenger load factor (d)
Passenger revenue per available seat mile (“PRASM”) (cents)
Total revenue per available seat mile (cents)
Average yield per revenue passenger mile (“Yield”) (cents) (e)
Cost per available seat mile (“CASM”) (cents)
Average price per gallon of fuel, including fuel taxes
Fuel gallons consumed (millions)
Average stage length (miles) (f)
Average daily utilization of each aircraft (hours) (g)
Consolidated
Passengers (thousands) (a)
RPMs (millions) (b)
ASMs (millions) (c)
Passenger load factor (d)
PRASM (cents)
Total revenue per available seat mile (cents)
Yield (cents) (e)
CASM (cents)
Average price per gallon of fuel, including fuel taxes
Fuel gallons consumed (millions)
Average stage length (miles) (f)
(a) The number of revenue passengers measured by each flight segment flown.
(b) The number of scheduled miles flown by revenue passengers.
(c) The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
(d) RPM divided by ASM.
(e) The average passenger revenue received for each revenue passenger mile flown.
(f) Average stage length equals the average distance a flight travels weighted for size of aircraft.
(g) The average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival).
148,067
216,261
262,386
82.4%
12.35
14.38
14.98
13.05
1.74 $
3,978
1,460
$
27
2017
108,017
193,444
234,576
3,316
82.5%
11.32
13.51
13.73
12.59
Year Ended December 31,
2015
96,327
183,642
219,989
2,614
83.5%
11.97
14.19
14.34
12.42
2013
91,329
178,578
213,007
2,213
83.8%
12.20
14.51
14.56
14.31
$ 1.72 $ 1.49 $ 1.96 $ 2.98 $ 3.12
3,204
1,934
10:28
2016
101,007
186,181
224,692
2,805
82.9%
11.31
13.50
13.65
12.22
2014
91,475
179,015
214,105
2,487
83.6%
12.51
14.81
14.96
14.03
3,216
1,922
10:24
3,183
1,958
10:26
3,261
1,859
10:06
3,357
1,806
10:27
143,177
210,309
253,590
82.9%
12.40
14.42
14.96
12.70
1.49 $
3,904
1,473
140,369
208,611
250,003
83.4%
13.11
15.15
15.72
13.08
1.94 $
3,886
1,487
138,029
205,559
246,021
83.6%
13.72
15.81
16.42
14.85
2.99 $
3,905
1,480
139,209
205,167
245,354
83.6%
13.50
15.60
16.14
15.09
3.13
3,947
1,445
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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
United Continental Holdings, Inc. (together with its consolidated subsidiaries, “UAL” or the “Company”) is a holding company and its principal, wholly-
owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, “United”). 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. When appropriate, UAL and United are named specifically for their individual contractual obligations and related
disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use
the words “we,” “our,” “us,” and the “Company” in this report for disclosures that relate to all of UAL and United.
•
•
•
•
2017 Financial Highlights
2017 net income was $2.1 billion, or $7.02 diluted earnings per share.
United’s consolidated PRASM decreased 0.4% in 2017 compared to 2016.
Aircraft fuel cost increased 18.9% year-over-year due mainly to higher fuel prices.
In 2017, UAL repurchased approximately 28 million shares of UAL common stock for $1.8 billion, completing the $2.0 billion share repurchase
program authorized by UAL’s Board of Directors in July 2016. In December 2017, UAL’s Board of Directors authorized a new $3.0 billion share
repurchase program to acquire UAL’s common stock. As of December 31, 2017, the Company had approximately $3.0 billion remaining to
purchase shares under its share repurchase program.
•
UAL ended the year with $5.8 billion in unrestricted liquidity, which consisted of unrestricted cash, cash equivalents, short-term investments and
available capacity under the revolving credit facility.
2017 Operational Highlights
•
•
•
Consolidated RPMs for 2017 increased 2.8% as compared to 2016, and consolidated ASMs increased 3.5% from the prior year, resulting in a
consolidated load factor of 82.4% in 2017 versus 82.9% in 2016.
For 2017 and 2016, the Company recorded a DOT on-time arrival rate of 81.9% and 81.3%, respectively, and a system completion factor of
99.0% for each year.
During 2017, the Company took delivery of three new Boeing 787-9s, four new Boeing 737-800s, 12 new Boeing 777-300ERs, 24 new Embraer
E175s, two used Airbus A320s and six used Airbus A319s and retired 20 Boeing 747-400s.
Outlook
Set forth below is a discussion of the principal matters that we believe could impact our financial and operating performance and cause our results of
operations in future periods to differ materially from our historical operating results and/or from our anticipated results of operations described in the
forward-looking statements in this report. See Part I, Item 1A., Risk Factors, of this report and the factors described under “Forward-Looking Information”
below for additional discussion of these and other factors that could affect us.
In 2017, the Company had its best operational performance in its post-merger history. Operational reliability, service and experience underpin the
Company’s long-term strategy. Our priorities for 2018 are continued top-tier operational reliability while strengthening our domestic network through
growth, driving efficiency and productivity and continued investment in our employees, product and technology.
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Economic Conditions. The aviation industry in 2018 is expected to show continued growth in the demand for air travel. Passenger numbers are expected to
increase. Cargo volumes are also expected to grow, with some recovery in yields. Passenger revenue in all regions are expected to demonstrate improved
performance in 2018.
Capacity. In 2018, the Company expects its consolidated ASMs to grow between 4% and 6% year-over-year. Most of this growth will be concentrated in
our domestic network, especially in our mid-continent hubs. We believe greater scale and connectivity at our hubs reinforces our relevance and value
proposition to our customers. Rebanking at our hubs is expected to drive significant additional connection opportunities. We will also expand flights in
non-peak times of the year to more efficiently use our aircraft and facilities with the objective of driving an increase in profitability.
Fuel. The Company’s average aircraft fuel price per gallon including related taxes was $1.74 in 2017 as compared to $1.49 in 2016. The price of jet fuel has
increased since January 2016 and remains volatile. Based on projected fuel consumption in 2018, a one dollar change in the price of a barrel of crude oil
would change the Company’s annual fuel expense by approximately $96 million.
Results of Operations
In this section, we compare results of operations for the year ended December 31, 2017 with results of operations for the year ended December 31, 2016,
and results of operations for the year ended December 31, 2016 with results of operations for the year ended December 31, 2015.
2017 compared to 2016
Operating Revenue
The table below illustrates the year-over-year percentage change in the Company’s operating revenues for the years ended December 31 (in millions, except
percentage changes):
Passenger—Mainline
Passenger—Regional
Total passenger revenue
Cargo
Other operating revenue
Total operating revenue
2016
$25,414
6,043
31,457
876
4,223
$36,556
Increase
(Decrease)
1,138
$
(191)
947
159
74
1,180
$
% Change
4.5
(3.2)
3.0
18.2
1.8
3.2
2017
$26,552
5,852
32,404
1,035
4,297
$37,736
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The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year-over-year
changes:
Passenger revenue (in millions)
Passenger revenue
Average fare per passenger
Yield
PRASM
Passengers
RPMs (traffic)
ASMs (capacity)
Passenger load factor (points)
Domestic
809
$
4.2 %
0.1 %
(0.4)%
(0.6)%
4.2 %
4.7 %
4.9 %
(0.2)
Atlantic
103
$
1.9%
1.4%
0.9%
1.5%
0.5%
0.9%
0.4%
0.4
Increase (decrease) from 2016 (a):
Total
Consolidated
947
$
3.0 %
(0.4)%
0.1 %
(0.4)%
3.4 %
2.8 %
3.5 %
(0.5)
Latin
$ 163
5.8%
4.1%
4.1%
3.3%
1.7%
1.6%
2.4%
(0.7)
Pacific
$ (128)
(3.1)%
— %
(2.2)%
(5.8)%
(3.1)%
(0.9)%
2.9 %
(3.0)
Mainline
$ 1,138
4.5 %
(2.3)%
0.6 %
0.1 %
6.9 %
3.9 %
4.4 %
(0.4)
Regional
(191)
$
(3.2)%
2.0 %
2.4 %
0.6 %
(5.0)%
(5.4)%
(3.8)%
(1.5)
(a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics.
Consolidated passenger revenue increased $0.9 billion, or 3.0%, in 2017 as compared to 2016 primarily due to a 2.8% increase in traffic. Consolidated
PRASM decreased 0.4% in 2017 as compared to 2016. The decline in PRASM was driven by factors including more aggressive low-cost carrier pricing in
our hub markets, temporary share loss during roll-out of our Basic Economy pricing, and softer demand in China and Guam. Our revenue in 2017 was
negatively impacted by severe storms during the third quarter.
Cargo revenue increased $159 million, or 18.2%, in 2017 as compared to 2016 due to higher year-over-year international freight volume and yield.
Operating Expense
The table below includes data related to the Company’s operating expense for the years ended December 31 (in millions, except percentage changes):
Salaries and related costs
Aircraft fuel
Landing fees and other rent
Regional capacity purchase
Depreciation and amortization
Aircraft maintenance materials and outside repairs
Distribution expenses
Aircraft rent
Special charges
Other operating expenses
Total operating expenses
2017
$ 11,045
6,913
2,240
2,232
2,149
1,856
1,349
621
176
5,657
$34,238
2016
$ 10,275
5,813
2,165
2,197
1,977
1,749
1,303
680
638
5,421
$32,218
Increase
(Decrease)
770
$
1,100
75
35
172
107
46
(59)
(462)
236
2,020
$
% Change
7.5
18.9
3.5
1.6
8.7
6.1
3.5
(8.7)
NM
4.4
6.3
Salaries and related costs increased $770 million, or 7.5%, in 2017 as compared to 2016 primarily due to higher pay rates and benefit expenses driven by
collective bargaining agreements finalized in 2016, and a 2.5% increase
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in average full-time equivalent employees, partially offset by a decrease in profit sharing and other employee incentives.
Aircraft fuel expense increased $1.1 billion, or 18.9%, primarily due to increased fuel prices and a 3.5% increase in capacity. The table below presents the
significant changes in aircraft fuel cost per gallon for the years ended December 31 (in millions, except percentage changes):
(In millions)
Average price per gallon
Total aircraft fuel purchase cost excluding fuel hedge impacts
Hedge losses reported in fuel expense
Fuel expense
Total fuel consumption (gallons)
2017
2016
%
Change
2017 2016
$ 6,911 $ 5,596
23.5 $ 1.74 $ 1.43
2
6,913
3,978
217 NM —
18.9
1.74
1.9
5,813
3,904
%
Change
21.7
0.06 NM
16.8
1.49
Landing fees and other rent increased $75 million, or 3.5%, in 2017 as compared to the year-ago period due to higher rental and landing fee rates.
Regional capacity purchase costs increased $35 million, or 1.6%, in 2017 as compared to the year-ago period despite regional capacity being down 3.8% in
2017 as compared to 2016 due to increases in annual rates, maintenance cycle-related costs and lease return costs.
Depreciation and amortization increased $172 million, or 8.7%, in 2017 as compared to 2016 primarily due to additions of new and used aircraft, aircraft
improvements and increases in information technology infrastructure and application development projects.
Aircraft maintenance materials and outside repairs increased $107 million, or 6.1%, in 2017 as compared to 2016 primarily due to an increase in airframe
and engine maintenance visits and additional repairs to wireless and inflight entertainment equipment.
Aircraft rent decreased $59 million, or 8.7%, in 2017 as compared to 2016 primarily due to the purchase of leased aircraft and lower lease renewal rates.
The table below presents special charges incurred by the Company during the years ended December 31 (in millions):
Severance and benefit costs
Impairment of assets
Cleveland airport lease restructuring
Labor agreement costs
(Gains) losses on sale of assets and other special charges
Total special charges
2017
$116
25
—
—
35
$176
2016
$ 37
412
74
64
51
$638
See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.
Other operating expenses increased $236 million, or 4.4%, in 2017 as compared to 2016 primarily due to increased costs in food, marketing and technology
associated with the Company’s enhanced customer experience initiatives, and due to volume-driven increases in cargo trucking and handling costs.
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Nonoperating Income (Expense)
The following table illustrates the year-over-year dollar and percentage changes in the Company’s nonoperating income (expense) for the years ended
December 31 (in millions, except percentage changes):
Interest expense
Interest capitalized
Interest income
Miscellaneous, net
Total nonoperating expense, net
2016 compared to 2015
Operating Revenue
2017
$(643)
84
57
3
$(499)
2016
$(614)
72
42
(19)
$(519)
Increase
(Decrease)
29
$
12
15
(22)
(20)
$
% Change
4.7
16.7
35.7
NM
(3.9)
The table below illustrates the year-over-year percentage change in the Company’s operating revenues for the years ended December 31 (in millions, except
percentage changes):
Passenger—Mainline
Passenger—Regional
Total passenger revenue
Cargo
Other operating revenue
Total operating revenue
2016
$25,414
6,043
31,457
876
4,223
$36,556
2015
$26,333
6,452
32,785
937
4,142
$37,864
Increase
(Decrease)
(919)
$
(409)
(1,328)
(61)
81
$ (1,308)
% Change
(3.5)
(6.3)
(4.1)
(6.5)
2.0
(3.5)
The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year-over-year
changes:
Increase (decrease) in 2016 from 2015 (a):
Total
Passenger revenue (in millions)
Passenger revenue
Average fare per passenger
Yield
PRASM
Passengers
RPMs (traffic)
ASMs (capacity)
Passenger load factor (points)
Domestic Atlantic Pacific Latin
$
(523) $ (512) $ (215) $ (78) $
(4.9)% (2.7)%
(2.7)%
(5.6)% (7.9)%
(4.7)%
(7.4)% (7.7)%
(3.8)%
(6.7)% (5.5)%
(4.2)%
5.7 %
0.7 %
2.1 %
5.4 %
2.7 %
1.1 %
2.9 %
2.0 %
1.6 %
2.0
0.6
(0.3)
(8.6)%
(5.2)%
(4.6)%
(8.4)%
(3.7)%
(4.3)%
(0.2)%
(3.3)
Consolidated Mainline Regional
(1,328) $ (919) $ (409)
(6.3)%
(2.2)%
(3.1)%
(2.7)%
(4.3)%
(3.4)%
(3.7)%
0.3
(4.1)%
(5.9)%
(4.8)%
(5.4)%
2.0 %
0.8 %
1.4 %
(0.5)
(3.5)%
(8.0)%
(4.8)%
(5.5)%
4.9 %
1.4 %
2.1 %
(0.6)
(a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics.
Consolidated passenger revenue decreased $1.3 billion, or 4.1%, in 2016 as compared to 2015. Consolidated PRASM decreased 5.4% in 2016 as compared
to 2015. The decline in PRASM was driven by factors including a competitive domestic fare environment, lower surcharges, a strong U.S. dollar and
reductions from energy-related corporate travel.
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Cargo revenue decreased $61 million, or 6.5%, in 2016 as compared to 2015 due to lower freight yields and lower mail volumes year-over-year, partially
offset by an increase in freight volumes. Freight yields were negatively impacted as air freighter competitors increased capacity in response to lower fuel
prices. Another contributing factor to the year-over-year decrease was a U.S. West Coast port labor dispute that resulted in an increase in air freight results
in the first quarter of 2015. The labor dispute was resolved during the first quarter of 2015.
Operating Expense
The table below includes data related to the Company’s operating expense for the years ended December 31 (in millions, except percentage changes):
Salaries and related costs
Aircraft fuel
Regional capacity purchase
Landing fees and other rent
Depreciation and amortization
Aircraft maintenance materials and outside repairs
Distribution expenses
Aircraft rent
Special charges
Other operating expenses
Total operating expenses
2016
$10,275
5,813
2,197
2,165
1,977
1,749
1,303
680
638
5,421
$32,218
2015
$ 9,713
7,522
2,290
2,203
1,819
1,651
1,342
754
326
5,078
$32,698
Increase
(Decrease)
562
$
(1,709)
(93)
(38)
158
98
(39)
(74)
312
343
(480)
$
% Change
5.8
(22.7)
(4.1)
(1.7)
8.7
5.9
(2.9)
(9.8)
NM
6.8
(1.5)
Salaries and related costs increased $562 million, or 5.8%, in 2016 as compared to 2015 primarily due to higher pay rates and benefit expenses driven by
new and extended collective bargaining agreements, an increase in employee incentive expenses due to improvements in operational performance and a
2.2% increase in average full-time equivalent employees, partially offset by a reduction in profit sharing expense in 2016 as compared to 2015, a reduction
in medical and dental costs and the results of certain costs savings initiatives in 2016.
The decrease in aircraft fuel expense was primarily attributable to decreased fuel prices and a reduction in fuel hedge losses, partially offset by the impact of
a 1.4% increase in capacity. 2016 fuel expense includes the benefit of a $20 million fuel tax refund. The table below presents the significant changes in
aircraft fuel cost per gallon for the years ended December 31 (in millions, except percentage changes):
(In millions)
Average price per gallon
Total aircraft fuel purchase cost excluding fuel hedge impacts
Hedge losses reported in fuel expense
Fuel expense
Total fuel consumption (gallons)
2016
2015
$ 5,596 $ 6,918
217
%
Change
2016 2015
%
Change
(19.7)
(19.1) $ 1.43 $ 1.78
604 NM 0.06 0.16 NM
(23.2)
(22.7) 1.49 1.94
5,813 7,522
3,904 3,886
0.5
Depreciation and amortization increased $158 million, or 8.7%, in 2016 as compared to 2015 primarily due to additions of new aircraft, conversions of
operating leases to capital leases, aircraft improvements, accelerated depreciation of certain assets related to several fleet types and increases in information
technology assets.
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Aircraft maintenance materials and outside repairs increased $98 million, or 5.9%, in 2016 as compared to 2015 primarily due to a year-over-year increase
in airframe maintenance visits as a result of the cyclical timing of these visits and volume-driven increases in component costs, partially offset by a
reduction in costs due to the timing of maintenance on certain engines.
Aircraft rent decreased $74 million, or 9.8%, in 2016 as compared to 2015 primarily due to lease expirations, the purchase or capital lease conversion of
several operating leased aircraft and lower lease renewal rates for certain aircraft.
The table below presents special charges incurred by the Company during the years ended December 31 (in millions):
Impairment of assets
Cleveland airport lease restructuring
Labor agreement costs
Severance and benefit costs
(Gains) losses on sale of assets and other special charges
Total special charges
2016
$412
74
64
37
51
$638
2015
$ 79
—
18
107
122
$326
See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.
Other operating expenses increased $343 million, or 6.8%, in 2016 as compared to 2015 primarily due to increases in ground handling costs, food and
technology costs associated with the Company’s enhanced customer experience initiatives, rate-driven increases in hotel expenses for crews, increases in
marketing expenses related to the 2016 Summer Olympics and volume-driven increases in cargo costs.
Nonoperating Income (Expense)
The following table illustrates the year-over-year dollar and percentage changes in the Company’s nonoperating income (expense) for the years ended
December 31 (in millions, except percentage changes):
Interest expense
Interest capitalized
Interest income
Miscellaneous, net
Total nonoperating expense, net
2016
$(614)
72
42
(19)
$(519)
2015
$(669)
49
25
(352)
$(947)
Increase
(Decrease)
(55)
$
23
17
(333)
(428)
$
% Change
(8.2)
46.9
68.0
(94.6)
(45.2)
The decrease in interest expense of $55 million, or 8.2%, in 2016 as compared to 2015 was primarily due to the prepayment of certain debt issuances in
2015 and declining balances of other debt, partially offset by interest expense on debt issued for the acquisition of new aircraft, the conversion of certain
operating leases to capital leases and certain constructed airport assets accounted for as capital leases.
In 2015, Miscellaneous, net included losses of $80 million from fuel derivatives not qualifying for hedge accounting. Foreign currency losses were
approximately $43 million and $129 million in 2016 and 2015, respectively. Foreign currency results included $8 million and $61 million of foreign
exchange losses for 2016 and 2015, respectively, related to the Company’s cash holdings in Venezuela. Miscellaneous, net for 2015 also includes a
$134 million special charge related to the write-off of unamortized non-cash debt discounts for the early redemption of the 6% Notes due 2026 (the “2026
Notes”) and the 6% Notes due 2028 (the “2028 Notes”).
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Liquidity and Capital Resources
As of December 31, 2017, the Company had $3.8 billion in unrestricted cash, cash equivalents and short-term investments, a decrease of $0.6 billion from
December 31, 2016. The Company had its entire commitment capacity of $2.0 billion under the revolving credit facility of the Company’s Amended and
Restated Credit and Guaranty Agreement, dated as of March 29, 2017 (as amended by the First Amendment to the Amended and Restated Credit and
Guaranty Agreement, dated as of November 15, 2017, the “2017 Credit Agreement”) available for borrowings as of December 31, 2017. As of
December 31, 2017, the Company had $109 million of restricted cash and cash equivalents, which is primarily collateral for letters of credit and collateral
associated with obligations for facility leases and workers’ compensation. We may be required to post significant additional cash collateral to provide
security for obligations. Restricted cash and cash equivalents at December 31, 2016 totaled $124 million.
We have a significant amount of fixed obligations, including debt, aircraft leases and financings, leases of airport property and other facilities and pension
funding obligations. At December 31, 2017, the Company had approximately $14.4 billion of debt and capital lease obligations, including $1.7 billion that
are due within the next 12 months. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of new
aircraft and related spare engines. As of December 31, 2017, our current liabilities exceeded our current assets by approximately $5.6 billion. However,
approximately $6.1 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue, both of which largely
represent revenue to be recognized for travel in the near future and not cash outlays. The deficit in working capital does not have an adverse impact to our
cash flows, liquidity or operations.
The Company will continue to evaluate opportunities to prepay its debt, including open market repurchases, to reduce its indebtedness and related interest.
For 2018, the Company expects between $3.6 billion and $3.8 billion of gross capital expenditures. See Note 13 to the financial statements included in Part
II, Item 8 of this report for additional information on commitments.
As of December 31, 2017, a substantial portion of the Company’s assets, principally aircraft, route authorities, airport slots and loyalty program intangible
assets, was pledged under various loan and other agreements. We must sustain our profitability and/or access the capital markets to meet our significant
long-term debt and capital lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines.
See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information on assets provided as collateral by the Company.
The following is a discussion of the Company’s sources and uses of cash from 2015 through 2017.
Operating Activities
2017 compared to 2016
Cash flow provided by operations for the year ended December 31, 2017 was $3.4 billion compared to $5.5 billion in the same period in 2016, the decrease
resulting from lower operating income and reduced cash flows from certain changes in working capital items. Excluding the non-cash impairment of the
Newark slots, operating income for 2017 was approximately $1.2 billion lower than 2016. Working capital changes reduced cash flow from operations by
an additional $1.2 billion year-over-year in 2017 as compared to 2016. The following were significant working capital items in 2017:
•
•
$0.9 billion decrease in advanced purchase of miles due to increased utilization of pre-purchased miles.
$0.4 billion increase in prepayments for maintenance contracts.
2016 compared to 2015
Cash flow provided by operations for the year ended December 31, 2016 was $5.5 billion compared to $6.0 billion in the same period in 2015. Working
capital changes reduced cash flow from operations by
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$0.5 billion year-over-year in 2016 as compared to 2015. The following were significant working capital items in 2016:
•
•
•
Frequent flyer and advance purchase of miles decreased $0.6 billion due to increased utilization of pre-purchased miles.
Other assets, including spare parts, increased by $0.3 billion as part of the Company’s efforts to improve fleet reliability.
Accounts payable increased $0.2 billion, driven by the timing of payments.
Investing Activities
2017 compared to 2016
The Company’s capital expenditures were $4.0 billion and $3.2 billion in 2017 and 2016, respectively. The Company’s capital expenditures for both years
were primarily attributable to the purchase of new aircraft, aircraft improvements, facility and fleet-related costs and the purchase of information technology
assets.
2016 compared to 2015
The Company’s capital expenditures were $3.2 billion and $2.7 billion in 2016 and 2015, respectively. The Company’s capital expenditures for both years
were primarily attributable to the purchase of aircraft, facility and fleet-related costs and the purchase of information technology assets.
Financing Activities
Significant financing events in 2017 were as follows:
Share Repurchases
The Company used $1.8 billion of cash to purchase approximately 28 million shares of its common stock during 2017, completing its July 2016
repurchase authorization. In December 2017, UAL’s Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL’s
common stock. As of December 31, 2017, the Company had approximately $3.0 billion remaining to purchase shares under its share repurchase
program.
Debt Issuances
During 2017, United received and recorded $1.8 billion of proceeds as debt related to enhanced equipment trust certificate (“EETC”) offerings created in
2016 and 2017 to finance the purchase of aircraft.
In 2017, UAL issued, and United guaranteed, (i) $400 million aggregate principal amount of unsecured 4.25% Senior Notes due October 1, 2022, and (ii)
$300 million aggregate principal amount of unsecured 5% Senior Notes due February 1, 2024.
In 2017, United and UAL, as borrower and guarantor, respectively, increased the term loan under the 2017 Credit Agreement by approximately
$440 million.
During 2017, United borrowed approximately $497 million aggregate principal amount from various financial institutions to finance the purchase of
several aircraft delivered in 2017.
Debt and Capital Lease Principal Payments
During the year ended December 31, 2017, the Company made debt and capital lease principal payments of $1.0 billion.
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Significant financing events in 2016 were as follows:
Share Repurchases
The Company used $2.6 billion of cash to purchase 50 million shares of its common stock during 2016 under its share repurchase programs.
Debt Issuances
In 2016, United completed two EETC offerings for a total principal amount of $2.0 billion. Of the $2.0 billion, United received and recorded
$708 million of proceeds as debt as of December 31, 2016 to finance the purchase of 17 aircraft.
In 2016, United borrowed approximately $369 million aggregate principal amount from various financial institutions to finance the purchase of several
aircraft delivered in 2016.
Debt and Capital Lease Principal Payments
During the year ended December 31, 2016, the Company made debt and capital lease principal payments of $1.4 billion.
Significant financing events in 2015 were as follows:
Share Repurchases
The Company used $1.2 billion of cash to purchase 21 million shares of its common stock during 2015 under its share repurchase programs.
Debt Issuances
During 2015, United issued $1.4 billion of debt related to EETC offerings to finance aircraft.
In 2015, United borrowed approximately $590 million aggregate principal amount from various financial institutions to finance the purchase of several
aircraft delivered in 2015.
Debt and Capital Lease Principal Payments
During the year ended December 31, 2015, the Company made debt and capital lease principal payments of $2.3 billion, including the following
prepayments:
•
•
•
UAL used cash to repurchase all $321 million par value 2026 Notes.
UAL used cash to repurchase all $311 million par value 2028 Notes.
UAL used cash to prepay, at par, $300 million principal amount of its $500 million term loan due September 2021.
For additional information regarding these Liquidity and Capital Resource matters, see Notes 3, 10, 11 and 12 to the financial statements included in Part II,
Item 8 of this report. For information regarding non-cash investing and financing activities, see the Company’s statements of consolidated cash flows.
Credit Ratings. As of the filing date of this report, UAL and United had the following corporate credit ratings:
UAL
United
*The credit agency does not issue corporate credit ratings for subsidiary entities.
S&P
BB-
BB-
Moody’s
Ba2
*
Fitch
BB
BB
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These credit ratings are below investment grade levels. Downgrades from these rating levels, among other things, could restrict the availability, or increase
the cost, of future financing for the Company.
Other Liquidity Matters
Below is a summary of additional liquidity matters. See the indicated notes to our consolidated financial statements included in Part II, Item 8 of this report
for additional details related to these and other matters affecting our liquidity and commitments.
Pension and other postretirement plans
Long-term debt and debt covenants
Leases and capacity purchase agreements
Commitments and contingencies
Note 8
Note 10
Note 11
Note 13
Contractual Obligations. The Company’s business is 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 the Company’s material contractual obligations as of December 31, 2017 (in billions):
Long-term debt (a)
Capital lease obligations—principal portion
Total debt and capital lease obligations
Interest on debt and capital lease obligations (b)
Aircraft operating lease obligations
Regional CPAs (c)
Other operating lease obligations
Postretirement obligations (d)
Pension obligations (e)
Capital purchase obligations (f)
Total contractual obligations
2018
$1.6
0.1
1.7
0.6
1.0
2.0
1.2
0.1
—
3.2
$9.8
2019
$1.2
0.1
1.3
0.5
0.9
1.8
1.1
0.1
—
2.9
$8.6
2020
$1.2
0.1
1.3
0.5
0.6
1.6
1.2
0.1
—
2.1
$7.4
2021
$1.2
0.1
1.3
0.4
0.5
1.5
0.9
0.1
—
2.4
$7.1
2022
$1.5
0.1
1.6
0.4
0.4
1.4
0.8
0.1
0.1
1.8
$6.6
After
2022
$ 6.9
0.8
7.7
1.0
1.5
3.2
6.1
0.6
0.7
9.8
$30.6
Total
$13.4
1.1
14.5
3.4
4.9
11.5
11.3
1.1
0.8
22.2
$69.7
(a) Long-term debt presented in the Company’s financial statements is net of $163 million of debt discount, premiums and debt issuance costs which are being amortized over the debt
(b)
terms. Contractual payments are not net of the debt discount, premiums and debt issuance costs.
Includes interest portion of capital lease obligations of $72 million in 2018, $63 million in 2019, $59 million in 2020, $56 million in 2021, $52 million in 2022 and $391 million
thereafter. Interest payments on variable interest rate debt were calculated using London interbank offered rates (“LIBOR”) applicable at December 31, 2017.
(c) Represents our estimates of future minimum noncancelable commitments under our CPAs and does not include the portion of the underlying obligations for aircraft and facility
rent that is disclosed as part of aircraft and nonaircraft operating leases. Amounts also exclude a portion of United’s capital lease obligation recorded for certain of its CPAs. See
Note 11 to the financial statements included in Part II, Item 8 of this report for the significant assumptions used to estimate the payments.
(d) Amounts represent postretirement benefit payments, net of subsidy receipts, through 2026. Benefit payments approximate plan contributions as plans are substantially unfunded.
(e) Represents an estimate of the minimum funding requirements as determined by government regulations for United’s U.S. pension plans. Amounts are subject to change based on
numerous assumptions, including the performance of assets in the plans and bond rates. See Critical Accounting Policies , below, for a discussion of our current year assumptions
regarding United’s pension plans.
(f) Represents contractual commitments for firm order aircraft, spare engines and other capital purchase commitments. See Note 13 to the financial statements included in Part II, Item
8 of this report for a discussion of our purchase commitments.
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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, or that engages in leasing, hedging or research and development arrangements. The Company’s
primary off-balance sheet arrangements include operating leases, which are summarized in the contractual obligations table under Contractual Obligations,
above, and certain municipal bond obligations, as discussed below.
As of December 31, 2017, United had cash collateralized $75 million of letters of credit. United also had $362 million of surety bonds securing various
obligations at December 31, 2017. Most of the letters of credit have evergreen clauses and are expected to be renewed on an annual basis. The surety bonds
have expiration dates through 2021.
As of December 31, 2017, United is the guarantor of approximately $1.8 billion in aggregate principal amount of tax-exempt special facilities revenue
bonds and interest thereon. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long-term agreements with the
respective governing bodies. The leasing arrangements associated with a majority of these obligations are accounted for as operating leases. The leasing
arrangements associated with a portion of these obligations are accounted for as capital leases. The annual lease payments for those obligations are included
in the contractual obligations table under Contractual Obligations, above.
As of December 31, 2017, United is the guarantor of $157 million of aircraft mortgage debt issued by one of United’s regional carriers. The aircraft
mortgage debt is subject to increased cost provisions and the Company would potentially be responsible for those costs under the guarantees. The increased
cost provisions in the $157 million of aircraft mortgage debt are similar to those in certain of the Company’s debt agreements. See discussion under
Increased Cost Provisions, below, for additional information on increased cost provisions related to the Company’s debt.
EETCs. As of December 31, 2017, United had $8.6 billion principal amount of equipment notes outstanding issued under EETC financings. Generally, the
structure of these EETC financings consists of pass-through trusts created by United to issue pass-through certificates, which represent fractional undivided
interests in the respective pass-through trusts and are not obligations of United. The proceeds of the issuance of the pass-through certificates are used to
purchase equipment notes which are issued by United and secured by its aircraft. The payment obligations under the equipment notes are those of United.
Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United
issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United
and are not reported as debt on United’s consolidated balance sheet because the proceeds held by the depositary are not United’s assets.
Increased Cost Provisions. In United’s financing transactions that include loans, United typically agrees to reimburse lenders for any reduced returns with
respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on LIBOR, for certain other
increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take
certain limited steps to mitigate the requirement for, or the amount of, such increased costs. At December 31, 2017, the Company had $3.4 billion of
floating rate debt and $60 million of fixed rate debt, with remaining terms of up to 11 years, that are subject to these increased cost provisions. In several
financing transactions involving loans or leases from non-U.S. entities, with remaining terms of up to 11 years and an aggregate balance of $3.3 billion, the
Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-U.S. entities to withholding taxes, subject to
customary exclusions.
Fuel Consortia. United participates in numerous fuel consortia with other air 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
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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, 2017, approximately $1.5 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 has provided indirect guarantees of the
debt. As of December 31, 2017, the Company’s contingent exposure was approximately $244 million principal amount of such bonds based on its recent
consortia participation. The Company’s contingent exposure could increase if the participation of other air carriers decreases. The guarantees will expire
when the tax-exempt bonds are paid in full, which ranges from 2022 to 2049. The Company did not record a liability at the time these indirect guarantees
were made.
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 accounting
principles generally accepted in the United States of America (“GAAP”), which requires management to make estimates and assumptions that affect the
reported amounts in the financial statements. 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.
Revenue Recognition. The Company records passenger ticket sales and tickets sold by other airlines for use on United as passenger revenue when the
transportation is provided or upon estimated breakage. The value of unused passenger tickets is included in current liabilities as Advance ticket sales.
Tickets sold by other airlines are recorded at the estimated values to be billed to the other airlines. Differences between amounts billed and the actual
amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate. When necessary, the Company records
a reserve against its interline billings and payables if historical experience indicates that these amounts are different. 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. Basic Economy tickets
cannot be extended and refunds are not allowed except for ticket cancellations that are within 24 hours of purchase and one week or more prior to the
original scheduled departure flight.
Fees charged in association with changes or extensions to non-refundable tickets are recorded as other revenue at the time the fee is incurred. The fare on
the changed ticket, including any additional collection of fare, is deferred and recognized in accordance with our transportation revenue recognition policy
at the time the transportation is provided. 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 sale. Therefore, the pricing of the change fee and the initial
customer order are separately determined and represent distinct earnings processes.
The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused. These estimates are based on the evaluation of
actual historical results and forecasted trends. Refundable tickets expire after one year from the date of issuance.
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic
606) (“Topic 606”) . Topic 606 prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard impacts the
classification of certain revenue streams and affects the timing of revenue and expense recognition for others. For the Company, the most significant impact
of the standard is the reclassification of certain ancillary fees from other operating revenue into passenger revenue on the statement of consolidated
operations. For 2016 and 2017, the amount to be
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reclassified at adoption of the new standard from other operating revenue into passenger revenue under Topic 606 is approximately $2.0 billion and
$2.1 billion, respectively. These ancillary fees are directly related to passenger travel, such as ticket change fees and baggage fees, and will no longer be
considered distinct performance obligations separate from the passenger travel component. In addition, the ticket change fees, which were previously
recognized when received, will be recognized when transportation is provided. On January 1, 2018, we adopted Topic 606 using the full-retrospective
approach. See Note 1 to the financial statements included in Part II, Item 8 of this report for additional information on recently issued accounting standards.
Frequent Flyer Accounting. United’s MileagePlus program is designed to increase customer loyalty. Program participants earn miles by flying on United
and certain other participating airlines. Program participants can also earn miles through purchases from other non-airline partners that participate in
United’s loyalty program. We sell miles to these partners, which include domestic and international credit card issuers, retail merchants, hotels, car rental
companies and our participating airline partners. Miles can be redeemed for free (other than taxes and government imposed fees), discounted or upgraded
air travel and non-travel awards. The Company records its obligation for future award redemptions using a deferred revenue model.
When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the air transportation occurs and defers a
portion of the ticket sale representing the value of the related miles as a multiple-deliverable revenue arrangement. The Company determines the estimated
selling price of air transportation and miles as if each element is sold on a separate basis. The total consideration from each ticket sale is then allocated to
each of these elements, individually, on a pro rata basis. The miles are recorded in Frequent flyer deferred revenue on the Company’s consolidated balance
sheet and recognized into revenue when the transportation is provided.
The Company’s estimated selling price of miles is based on an equivalent ticket value less fulfillment discount, which incorporates the expected redemption
of miles, as the best estimate of selling price for these miles. The equivalent ticket value is based on the prior 12 months’ weighted average equivalent ticket
value of similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern, cabin class, loyalty status
and geographic region. The estimated selling price of miles is adjusted by a fulfillment discount that considers a number of factors, including redemption
patterns of various customer groups.
United has a significant contract to sell MileagePlus miles to its co-branded credit card partner, Chase. United identified the following significant revenue
elements in its Second Amended and Restated Co-Branded Card Marketing Services Agreement (the “Co-Brand Agreement”): the air transportation
element represented by the value of the mile (generally resulting from its redemption for future air transportation and whose fair value is described above);
use of the United brand and access to MileagePlus member lists; advertising; and other travel related benefits.
The fair value of the elements is determined using management’s estimated selling price of each element. The objective of using the estimated selling price
based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we
determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value,
volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and
volumes over the term of the Co-Brand Agreement in order to determine the allocation of proceeds to each of the multiple elements to be delivered. We also
evaluate volumes on an annual basis, which may result in a change in the allocation of estimated selling price on a prospective basis.
The Company records passenger revenue related to the air transportation element when the transportation is delivered. The other elements are generally
recognized as Other operating revenue when earned.
The Company accounts for miles sold and awarded that will never be redeemed by program members, which we refer to as breakage. The Company reviews
its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. Miles expire after 18 months of
member account
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inactivity. 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 programs.
The following table summarizes information related to the Company’s Frequent flyer deferred revenue liability:
Frequent flyer deferred revenue at December 31, 2017 (in millions)
Percentage of miles earned expected to expire
Impact of 1% change in outstanding miles or weighted average ticket value on deferred revenue (in millions)
$ 4,741
18%
53
$
Long-Lived Assets. The net book value of operating property and equipment for the Company was $26 billion and $23 billion at December 31, 2017 and
2016, respectively. The assets’ 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. The Company has generally estimated
the lives of those aircraft to be between 25 and 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 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 as facts and circumstances arise to recognize changes in the Company’s fleet plan and other relevant information. A one-year increase in the
average depreciable life of the Company’s flight equipment would reduce annual depreciation expense on flight equipment by approximately $76 million.
The Company evaluates the carrying value of long-lived assets and intangible assets subject to amortization whenever events or changes in circumstances
indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of
identifiable cash flows for purposes of testing aircraft for impairment. An impairment charge is recognized when the asset’s carrying value exceeds its net
undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset’s carrying value and fair market
value.
See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.
Indefinite-lived intangible assets. The Company has indefinite-lived intangible assets, including goodwill. Goodwill and indefinite-lived intangible assets
are not amortized but are reviewed for impairment on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. An
impairment occurs when the fair value of an intangible asset is less than its carrying value. In 2017, the Hong Kong routes had a fair value cushion that was
less than 10% of its carrying value. The value of the routes was negatively impacted by the slowdown of the Hong Kong market coupled with industry
oversupply. As a result, this intangible asset is susceptible to impairment risk from adverse changes in this particular market. While management has
implemented strategies to address the shifts in supply and demand dynamics, further adverse changes could reduce the underlying cash flows used to
estimate fair value and could trigger impairment charges of the Hong Kong routes.
See Note 2 to the financial statements included in Part II, Item 8 of this report for additional information.
Defined Benefit Plan Accounting. We sponsor defined benefit pension plans for eligible employees and retirees. The most critical assumptions impacting
our defined benefit pension plan obligations and expenses are the weighted average discount rate and the expected long-term rate of return on the plan
assets.
United’s pension plans’ under-funded status was $1.9 billion at December 31, 2017. Funding requirements for tax-qualified defined benefit pension plans
are determined by government regulations. In 2018, we anticipate
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contributing at least $420 million to our pension plans. The fair value of the plans’ assets was $3.9 billion at December 31, 2017.
When calculating pension expense for 2018, the Company assumed that its plans’ assets would generate a long-term rate of return of approximately 7.3%.
The expected long-term rate of return assumption was developed based on historical experience and input from the trustee managing the plans’ assets. The
expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on a goal of earning the highest rate of return while
maintaining risk at acceptable levels. Our projected long-term rate of return reflects the active management of our plans’ assets. The plans strive to have
assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire
portfolio. Plan fiduciaries regularly review actual asset allocation and the pension plans’ investments are periodically rebalanced to the targeted allocation
when considered appropriate.
The defined benefit pension plans’ assets consist of return generating investments and risk mitigating investments which are held through direct ownership
or through interests in common collective trusts. Return generating investments include primarily equity securities, fixed-income securities and alternative
investments (e.g. private equity and hedge funds). Risk mitigating investments include primarily U.S. government and investment grade corporate fixed-
income securities. The allocation of assets was as follows at December 31, 2017:
Equity securities
Fixed-income securities
Alternatives
Other
Percent of Total
36 %
37
16
11
Expected Long-Term
Rate of Return
9.5 %
5.5
7.3
7.3
Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected long-term rate of return on plan assets by 50 basis
points (from 7.3% to 6.8%) would increase estimated 2018 pension expense by approximately $20 million. Future pension obligations for United’s plans
were discounted using a weighted average rate of 3.65% at December 31, 2017. The Company selected the discount rate for substantially all of its plans by
using a hypothetical portfolio of high quality bonds at December 31, 2017 that would provide the necessary cash flows to match the projected benefit
payments. The pension liability and future pension expense both increase as the discount rate is reduced. Lowering the discount rate by 50 basis points
(from 3.65% to 3.15%) would increase the pension liability at December 31, 2017 by approximately $651 million and increase the estimated 2018 pension
expense by approximately $80 million. Future changes in plan asset returns, plan provisions, assumed discount rates, pension funding law and various other
factors related to the participants in our pension plans will impact our future pension expense and liabilities. We cannot predict with certainty what these
factors will be in the future.
Actuarial gains or losses are triggered by changes in assumptions or experience that differ from the original assumptions. Under the applicable accounting
standards for defined benefit pension plans, those gains and losses are not required to be recognized currently as pension benefit 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. All gains and losses in accumulated other comprehensive income are amortized to expense over the remaining years of service of the covered
active employees. At December 31, 2017 and 2016, the Company had unrecognized actuarial losses for pension benefit plans of $1.6 billion and
$1.5 billion, respectively, recorded in accumulated other comprehensive income.
Other Postretirement Benefit Plan Accounting. United’s postretirement plan provides certain health care benefits, primarily in the United States, to retirees
and eligible dependents, as well as certain life insurance benefits to certain retirees reflected as “Other Benefits.” United also has retiree medical programs
that permit retirees who meet certain age and service requirements to continue medical coverage between retirement and
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Medicare eligibility. Eligible employees are required to pay a portion of the costs of their retiree medical benefits, which in some cases may be offset by
accumulated unused sick time at the time of their retirement. Plan benefits are subject to co-payments, deductibles and other limits as described in the plans.
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. 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. United has not been required to pre-fund its plan obligations, which has resulted in a
significant net obligation, as discussed below. The Company’s benefit obligation was $1.7 billion for the other postretirement benefit plans at December 31,
2017 and 2016.
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 health care cost trend rate. The Company determines the appropriate discount rate for each of the plans based
on current rates on high quality corporate bonds that would generate the cash flow necessary to pay plan benefits when due. The Company’s weighted
average discount rate to determine its benefit obligations as of December 31, 2017 was 3.63%, as compared to 4.07% for December 31, 2016. The health
care cost trend rate assumed for 2017 was 6.50%, declining to 5.0% in 2023, as compared to assumed trend rate for 2018 of 6.25%, declining to 5.0% in
2023. A 1% increase in assumed health care trend rates would increase the Company’s total service and interest cost for the year ended December 31, 2017
by $11 million; whereas, a 1% decrease in assumed health care trend rates would decrease the Company’s total service and interest cost for the year ended
December 31, 2017 by $8 million. A one percentage point decrease in the weighted average discount rate would increase the Company’s postretirement
benefit liability by approximately $185 million and increase the estimated 2017 benefits expense by approximately $8 million.
Actuarial gains or losses are triggered by changes in assumptions or experience that differ from the original assumptions and prior service credits result
from a retroactive reduction in benefits due under the plans. Under the applicable accounting standards for postretirement welfare benefit plans, actuarial
gains and losses and prior service credits are not required to be recognized currently, 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 or the average life expectancy
of inactive participants. At December 31, 2017 and 2016, the Company had unrecognized actuarial gains for postretirement welfare benefit plans of
$301 million and $384 million, respectively, recorded in accumulated other comprehensive income.
Income Taxes. The Tax Act, among other changes, reduces the federal corporate income tax rate to 21% beginning in 2018, requires companies to pay a
one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced
earnings. As of December 31, 2017, we had not completed our analysis of all aspects of the Tax Act. However, we have made a provisional estimate for its
effect on our existing deferred tax balances and the one-time transition tax. We remeasured certain deferred tax assets and liabilities based on the rates at
which they are expected to reverse in the future, which is generally 21%. We are still analyzing certain aspects of the Tax Act and refining our calculations,
which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
Forward-Looking Information
Certain statements throughout Part II, 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
anticipated financial and operating performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to the
Company’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,” “estimates,” “forecast,” “guidance,” “outlook,”
“goals” and similar expressions are intended to identify forward-looking statements.
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Additionally, forward-looking statements include statements that 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 us on the date of this
report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events,
changed circumstances or otherwise, except as required by applicable law.
Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following:
general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of
aircraft fuel and energy refining capacity in relevant markets); economic and political instability and other risks of doing business globally; demand for
travel and the impact that global economic and political conditions have on customer travel patterns; competitive pressures on pricing and on demand;
demand for transportation in the markets in which we operate; our capacity decisions and the capacity decisions of our competitors; the effects of any
hostilities, act of war or terrorist attack; the effects of any technology failures or cybersecurity breaches; the impact of regulatory, investigative and legal
proceedings and legal compliance risks; disruptions to our regional network; the ability of other air carriers with whom we have alliances or partnerships to
provide the services contemplated by the respective arrangements with such carriers; costs associated with any modification or termination of our aircraft
orders; potential reputational or other impact from adverse events in our operations, the operations of our regional carriers or the operations of our code
share partners; our ability to attract and retain customers; our ability to execute our operational plans and revenue-generating initiatives, including
optimizing our revenue; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and
fleet replacement programs; the impact of any management changes; our ability to cost-effectively hedge against increases in the price of aircraft fuel if we
decide to do so; any potential realized or unrealized gains or losses related to any fuel or currency hedging programs; labor costs; our ability to maintain
satisfactory labor relations and the results of any collective bargaining agreement process with our union groups; any disruptions to operations due to any
potential actions by our labor groups; an outbreak of a disease that affects travel demand or travel behavior; U.S. or foreign governmental legislation,
regulation and other actions (including Open Skies agreements and environmental regulations); industry consolidation or changes in airline alliances; our
ability to comply with the terms of our various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; the
costs and availability of aviation and other insurance; weather conditions; our ability to utilize our net operating losses to offset future taxable income; the
impact of changes in tax laws; the success of our investments in airlines in other parts of the world; and other risks and uncertainties set forth under Part I,
Item 1A., Risk Factors, of this report, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rates. Our net income is affected by fluctuations in interest rates (e.g. interest expense on variable rate debt and interest income earned on short-
term investments). The Company’s policy is to manage interest rate risk through a combination of fixed and variable rate debt. The following table
summarizes information related to the Company’s interest rate market risk at December 31 (in millions):
Variable rate debt
Carrying value of variable rate debt at December 31
Impact of 100 basis point increase on projected interest expense for the following year
Fixed rate debt
Carrying value of fixed rate debt at December 31
Fair value of fixed rate debt at December 31
Impact of 100 basis point increase in market rates on fair value
45
2017
2016
$ 3,342
33
$ 2,582
25
9,926
10,349
(403)
8,185
8,469
(340)
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A change in market interest rates would also impact interest income earned on our cash, cash equivalents and short-term investments. Assuming our cash,
cash equivalents and short-term investments remain at their average 2017 levels, a 100 basis point increase in interest rates would result in a corresponding
increase in the Company’s interest income of approximately $45 million during 2018.
Commodity Price Risk (Aircraft Fuel). The price level of aircraft fuel can significantly affect the Company’s operations, results of operations, financial
position and liquidity.
Our operational and financial results can be significantly impacted by changes in the price and availability of aircraft fuel. To provide adequate supplies of
fuel, the Company routinely enters into purchase contracts that are customarily indexed to market prices for aircraft fuel, and the Company generally has
some ability to cover short-term fuel supply and infrastructure disruptions at some major demand locations. The price of aircraft fuel has fluctuated
substantially in the past several years and in order to lower its exposure to unpredictable increases in the market prices of aircraft fuel, the Company has
historically hedged a portion of its planned fuel requirements. The Company’s current strategy is to not enter into transactions to hedge fuel price volatility,
although the Company regularly reviews its policy based on market conditions and other factors. The Company’s 2018 forecasted fuel consumption is
presently approximately four billion gallons, and based on this forecast, a one dollar change in the price of a barrel of crude oil would change the
Company’s annual fuel expense by approximately $96 million.
Foreign Currency. The Company generates revenues and incurs expenses in numerous foreign currencies. 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. Some of
the Company’s more significant foreign currency exposures include the Canadian dollar, Chinese renminbi, European euro, British pound and Japanese yen.
The Company’s current strategy is to not enter into transactions to hedge its foreign currency sales, although the Company regularly reviews its policy
based on market conditions and other factors.
The result of a uniform 10 percent strengthening in the value of the U.S. dollar from December 31, 2017 levels relative to each of the currencies in which
the Company has foreign currency exposure would result in a decrease in pre-tax income of approximately $245 million for the year ending December 31,
2018. This sensitivity analysis was prepared based upon projected 2018 foreign currency-denominated revenues and expenses as of December 31, 2017.
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
United Continental Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of United Continental Holdings, Inc. (the “Company”) as of December 31, 2017 and 2016,
the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for each of the three years in the
period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2018, expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2009.
Chicago, Illinois
February 22, 2018
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of
United Airlines, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of United Airlines, Inc. (the “Company”) as of December 31, 2017 and 2016, and the
related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholder’s equity, for each of the three years in the period
ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform an audit of the Company’s internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2009.
Chicago, Illinois
February 22, 2018
48
Table of Contents
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
(In millions, except per share amounts)
Operating revenue:
Passenger—Mainline
Passenger—Regional
Total passenger revenue
Cargo
Other operating revenue
Total operating revenue
Operating expense:
Salaries and related costs
Aircraft fuel
Landing fees and other rent
Regional capacity purchase
Depreciation and amortization
Aircraft maintenance materials and outside repairs
Distribution expenses
Aircraft rent
Special charges (Note 14)
Other operating expenses
Total operating expenses
Operating income
Nonoperating income (expense):
Interest expense
Interest capitalized
Interest income
Miscellaneous, net (Note 14)
Total nonoperating expense, net
Income before income taxes
Income tax expense (benefit) (Note 14)
Net income
Earnings per share, basic
Earnings per share, diluted
2017
Year Ended December 31,
2016
2015
$
$
$
$
26,552
5,852
32,404
1,035
4,297
37,736
11,045
6,913
2,240
2,232
2,149
1,856
1,349
621
176
5,657
34,238
3,498
(643)
84
57
3
(499)
2,999
868
2,131
7.04
7.02
$
$
$
$
25,414
6,043
31,457
876
4,223
36,556
10,275
5,813
2,165
2,197
1,977
1,749
1,303
680
638
5,421
32,218
4,338
(614)
72
42
(19)
(519)
3,819
1,556
2,263
6.86
6.85
$
$
$
$
26,333
6,452
32,785
937
4,142
37,864
9,713
7,522
2,203
2,290
1,819
1,651
1,342
754
326
5,078
32,698
5,166
(669)
49
25
(352)
(947)
4,219
(3,121)
7,340
19.52
19.47
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
49
Table of Contents
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In millions)
Net income
Other comprehensive income (loss), net change related to:
Employee benefit plans, net of taxes
Fuel derivative financial instruments, net of taxes
Investments and other, net of taxes
Total other comprehensive income (loss), net
Total comprehensive income, net
2017
2,131
$
Year Ended December 31,
2016
2,263
$
2015
7,340
$
(195)
1
(6)
(200)
1,931
$
(313)
316
(1)
2
2,265
$
70
182
(4)
248
7,588
$
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
50
Table of Contents
ASSETS
Current assets:
UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
(continued on next page)
At December 31,
2017
2016
Cash and cash equivalents
Short-term investments
Receivables, less allowance for doubtful accounts (2017—$7; 2016—$10)
Aircraft fuel, spare parts and supplies, less obsolescence allowance
(2017—$354; 2016—$295)
Prepaid expenses and other
Total current assets
Operating property and equipment:
Owned—
Flight equipment
Other property and equipment
Total owned property and equipment
Less—Accumulated depreciation and amortization
Total owned property and equipment, net
Purchase deposits for flight equipment
Capital leases—
Flight equipment
Other property and equipment
Total capital leases
Less—Accumulated amortization
Total capital leases, net
Total operating property and equipment, net
Other assets:
Goodwill
Intangibles, less accumulated amortization (2017—$1,313; 2016—$1,234)
Deferred income taxes
Restricted cash
Investments in affiliates and other, net
Total other assets
Total assets
51
$
$
1,482
2,316
1,340
924
1,051
7,113
28,692
6,946
35,638
(11,159)
24,479
1,344
1,151
11
1,162
(777)
385
26,208
4,523
3,539
—
91
852
9,005
42,326
$
$
2,179
2,249
1,176
873
832
7,309
25,873
5,652
31,525
(9,975)
21,550
1,059
1,319
331
1,650
(941)
709
23,318
4,523
3,632
655
124
579
9,513
40,140
Table of Contents
UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Advance ticket sales
Frequent flyer deferred revenue
Accounts payable
Accrued salaries and benefits
Current maturities of long-term debt
Current maturities of capital leases
Other
Total current liabilities
Long-term debt
Long-term obligations under capital leases
Other liabilities and deferred credits:
Frequent flyer deferred revenue
Postretirement benefit liability
Pension liability
Advanced purchase of miles
Deferred income taxes
Lease fair value adjustment, net
Other
Total other liabilities and deferred credits
Commitments and contingencies
Stockholders’ equity:
Preferred stock
Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 286,973,195 and
314,612,744 shares at December 31, 2017 and 2016, respectively
Additional capital invested
Retained earnings
Stock held in treasury, at cost
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
At December 31,
2017
2016
$ 3,876
2,176
2,196
2,166
1,565
128
569
12,676
11,703
996
2,565
1,602
1,921
—
225
198
1,634
8,145
$ 3,730
2,135
2,139
2,307
849
116
1,010
12,286
9,918
822
2,748
1,581
1,892
430
—
277
1,527
8,455
—
—
3
6,098
4,621
(769)
(1,147)
8,806
$42,326
3
6,569
3,427
(511)
(829)
8,659
$40,140
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
52
Table of Contents
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities -
2017
Year Ended December 31,
2016
2015
$
2,131
$
2,263
$
7,340
Deferred income taxes
Depreciation and amortization
Special charges, non-cash portion
Other operating activities
Changes in operating assets and liabilities -
Decrease in fuel hedge collateral
Decrease in fuel derivatives
Decrease in other liabilities
Decrease in advanced purchase of miles
Increase (decrease) in frequent flyer deferred revenue
Increase in other assets
Increase (decrease) in accounts payable
Increase (decrease) in advance ticket sales
Increase in receivables
Net cash provided by operating activities
Investing Activities:
Capital expenditures
Purchases of short-term and other investments
Proceeds from sale of short-term and other investments
Proceeds from sale of property and equipment
Other, net
Net cash used in investing activities
Financing Activities:
Proceeds from issuance of long-term debt and airport construction financing
Repurchases of common stock
Payments of long-term debt
Principal payments under capital leases
Capitalized financing costs
Proceeds from the exercise of stock options
Other, net
Net cash used in financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Investing and Financing Activities Not Affecting Cash:
Property and equipment acquired through the issuance of debt and capital leases
Equity interest in Republic Airways Holdings, Inc. received in consideration for
bankruptcy claims
Airport construction financing
Operating lease conversions to capital lease
Exchange of convertible notes for common stock
Cash Paid During the Period for:
Interest
Income taxes
945
2,149
35
142
—
—
(478)
(865)
(142)
(533)
66
146
(183)
3,413
(3,998)
(3,241)
3,177
12
120
(3,930)
2,765
(1,844)
(901)
(124)
(80)
2
(13)
(195)
(712)
2,303
1,591
935
92
42
—
—
571
20
$
$
$
1,648
1,977
391
109
26
(20)
(446)
(249)
(60)
(298)
239
(22)
(16)
5,542
(3,223)
(2,768)
2,712
28
13
(3,238)
808
(2,614)
(1,215)
(136)
(64)
6
2
(3,213)
(909)
3,212
2,303
386
—
91
12
—
584
14
$
$
$
(3,177)
1,819
247
115
551
(305)
(180)
(224)
6
(160)
(77)
52
(15)
5,992
(2,747)
(2,517)
2,707
86
(136)
(2,607)
1,073
(1,233)
(2,178)
(123)
(37)
16
(13)
(2,495)
890
2,322
3,212
866
—
17
285
202
660
15
$
$
$
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
53
Table of Contents
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY
(In millions)
Balance at December 31, 2014
Net income
Other comprehensive income
Convertible debt redemptions
Share-based compensation
Proceeds from exercise of stock options
Repurchases of common stock
Other
Balance at December 31, 2015
Net income
Other comprehensive income
Share-based compensation
Proceeds from exercise of stock options
Repurchases of common stock
Treasury stock retired
Other
Balance at December 31, 2016
Net income
Other comprehensive loss
Share-based compensation
Proceeds from exercise of stock options
Repurchases of common stock
Treasury stock retired
Net treasury stock issued for share-based awards
Excess tax benefits from share-based awards
Reclassification of stranded tax effects (Note 1)
Balance at December 31, 2017
Common
Stock
Additional
$
Shares Amount
4
375
—
—
—
—
—
11
—
—
—
—
—
(21)
—
—
4
365
—
—
—
—
—
—
—
—
—
(50)
(1)
—
—
—
3
315
—
—
—
—
—
—
—
—
—
(28)
—
—
—
—
—
—
—
—
3
287
$
Capital
Invested
7,721
$
—
—
202
7
16
—
—
7,946
—
—
32
6
—
(1,415)
—
6,569
—
—
56
2
—
(508)
(21)
—
—
6,098
$
$
Treasury
Stock
(367)
—
—
—
—
—
(1,232)
(11)
(1,610)
—
—
—
—
(2,607)
3,709
(3)
(511)
—
—
—
—
(1,844)
1,576
10
—
—
(769)
$
Retained
Earnings
(Accumulated
Deficit)
$
$
(3,883)
7,340
—
—
—
—
—
—
3,457
2,263
—
—
—
—
(2,293)
—
3,427
2,131
—
—
—
—
(1,068)
(1)
14
118
4,621
Accumulated
Other
Comprehensive
Income (Loss)
(1,079)
$
—
248
—
—
—
—
—
(831)
—
2
—
—
—
—
—
(829)
—
(200)
—
—
—
—
—
—
(118)
(1,147)
$
Total
2,396
$
7,340
248
202
7
16
(1,232)
(11)
8,966
2,263
2
32
6
(2,607)
—
(3)
8,659
2,131
(200)
56
2
(1,844)
—
(12)
14
—
8,806
$
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
54
Table of Contents
UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
(In millions)
Operating revenue:
Passenger—Mainline
Passenger—Regional
Total passenger revenue
Cargo
Other operating revenue
Total operating revenue
Operating expense:
Salaries and related costs
Aircraft fuel
Landing fees and other rent
Regional capacity purchase
Depreciation and amortization
Aircraft maintenance materials and outside repairs
Distribution expenses
Aircraft rent
Special charges (Note 14)
Other operating expenses
Total operating expenses
Operating income
Nonoperating income (expense):
Interest expense
Interest capitalized
Interest income
Miscellaneous, net (Note 14)
Total nonoperating expense, net
Income before income taxes
Income tax expense (benefit) (Note 14)
Net income
2017
Year Ended December 31,
2016
2015
$
$
26,552
5,852
32,404
1,035
4,297
37,736
11,045
6,913
2,240
2,232
2,149
1,856
1,349
621
176
5,655
34,236
3,500
(643)
84
57
3
(499)
3,001
852
2,149
$
$
25,414
6,043
31,457
876
4,223
36,556
10,275
5,813
2,165
2,197
1,977
1,749
1,303
680
638
5,418
32,215
4,341
(614)
72
42
(19)
(519)
3,822
1,558
2,264
$
$
26,333
6,452
32,785
937
4,142
37,864
9,713
7,522
2,203
2,290
1,819
1,651
1,342
754
326
5,076
32,696
5,168
(670)
49
25
(351)
(947)
4,221
(3,080)
7,301
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
55
Table of Contents
UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In millions)
Net income
Other comprehensive income (loss), net change related to:
Employee benefit plans, net of taxes
Fuel derivative financial instruments, net of taxes
Investments and other, net of taxes
Total other comprehensive income (loss), net
Total comprehensive income, net
$
2017
2,149
$
Year Ended December 31,
2016
2,264
$
2015
7,301
$
(195)
1
(6)
(200)
1,949
(313)
316
(1)
2
2,266
$
70
182
(4)
248
7,549
$
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
56
Table of Contents
ASSETS
Current assets:
UNITED AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
Cash and cash equivalents
Short-term investments
Receivables, less allowance for doubtful accounts (2017—$7; 2016—$10)
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017—$354; 2016—$295)
Prepaid expenses and other
Total current assets
Operating property and equipment:
Owned—
Flight equipment
Other property and equipment
Total owned property and equipment
Less—Accumulated depreciation and amortization
Total owned property and equipment, net
Purchase deposits for flight equipment
Capital leases—
Flight equipment
Other property and equipment
Total capital leases
Less—Accumulated amortization
Total capital leases, net
Total operating property and equipment, net
Other assets:
Goodwill
Intangibles, less accumulated amortization (2017—$1,313; 2016—$1,234)
Deferred income taxes
Restricted cash
Investments in affiliates and other, net
Total other assets
Total assets
At December 31,
2017
2016
$
$
1,476
2,316
1,340
924
1,051
7,107
28,692
6,946
35,638
(11,159)
24,479
1,344
1,151
11
1,162
(777)
385
26,208
4,523
3,539
—
91
852
9,005
42,320
$
$
2,173
2,249
1,176
873
832
7,303
25,873
5,652
31,525
(9,975)
21,550
1,059
1,319
331
1,650
(941)
709
23,318
4,523
3,632
612
124
579
9,470
40,091
57
(continued on next page)
Table of Contents
UNITED AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Advance ticket sales
Frequent flyer deferred revenue
Accounts payable
Accrued salaries and benefits
Current maturities of long-term debt
Current maturities of capital leases
Other
Total current liabilities
Long-term debt
Long-term obligations under capital leases
Other liabilities and deferred credits:
Frequent flyer deferred revenue
Postretirement benefit liability
Pension liability
Advanced purchase of miles
Deferred income taxes
Lease fair value adjustment, net
Other
Total other liabilities and deferred credits
Commitments and contingencies
Stockholder’s equity:
Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at
December 31, 2017 and 2016
Additional capital invested
Retained earnings
Accumulated other comprehensive loss
Receivable from related parties
Total stockholder’s equity
Total liabilities and stockholder’s equity
At December 31,
2017
2016
$ 3,876
2,176
2,196
2,166
1,565
128
574
12,681
11,703
996
2,565
1,602
1,921
—
252
198
1,634
8,172
$ 3,730
2,135
2,144
2,307
849
116
1,009
12,290
9,918
822
2,748
1,581
1,892
430
—
277
1,527
8,455
—
1,787
8,218
(1,147)
(90)
8,768
$42,320
—
3,573
5,937
(829)
(75)
8,606
$40,091
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
58
Table of Contents
UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities -
2017
Year Ended December 31,
2016
2015
$
2,149
$
2,264
$
7,301
Deferred income taxes
Depreciation and amortization
Special charges, non-cash portion
Other operating activities
Changes in operating assets and liabilities -
Decrease in fuel hedge collateral
Decrease in fuel derivatives
Decrease in other liabilities
Decrease in advanced purchase of miles
Increase (decrease) in frequent flyer deferred revenue
Increase in other assets
Increase (decrease) in accounts payable
Increase (decrease) in advance ticket sales
Increase in receivables
Increase in intercompany receivables
Net cash provided by operating activities
Investing Activities:
Capital expenditures
Purchases of short-term and other investments
Proceeds from sale of short-term and other investments
Proceeds from sale of property and equipment
Other, net
Net cash used in investing activities
Financing Activities:
Dividend to UAL
Payments of long-term debt
Proceeds from issuance of long-term debt
Principal payments under capital leases
Capitalized financing costs
UAL contributions related to stock plans
Other, net
Net cash used in financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Investing and Financing Activities Not Affecting Cash:
Property and equipment acquired through the issuance of debt and capital leases
Equity interest in Republic Airways Holdings, Inc. received in consideration for bankruptcy
claims
Airport construction financing
Operating lease conversions to capital lease
Cash Paid During the Period for:
Interest
Income taxes
929
2,149
35
142
—
—
(479)
(865)
(142)
(533)
66
146
(183)
(15)
3,399
(3,998)
(3,241)
3,177
12
120
(3,930)
(1,844)
(901)
2,765
(124)
(80)
2
1
(181)
(712)
2,297
1,585
935
92
42
—
571
20
$
$
$
1,650
1,977
391
108
26
(20)
(444)
(249)
(60)
(251)
239
(22)
(16)
(58)
5,535
(3,223)
(2,768)
2,712
28
13
(3,238)
(2,614)
(1,215)
808
(136)
(64)
6
9
(3,206)
(909)
3,206
2,297
386
—
91
12
584
14
$
$
$
(3,136)
1,819
247
115
551
(305)
(181)
(224)
6
(160)
(77)
52
(15)
(12)
5,981
(2,747)
(2,517)
2,707
86
(136)
(2,607)
(1,233)
(2,178)
1,073
(123)
(37)
16
(2)
(2,484)
890
2,316
3,206
866
—
17
285
660
15
$
$
$
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
59
Table of Contents
UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDER’S EQUITY
(In millions)
Balance at December 31, 2014
Net income
Other comprehensive income
Dividend to UAL
Share-based compensation
UAL contribution related to stock plans
Other
Balance at December 31, 2015
Net income
Other comprehensive income
Dividend to UAL
Share-based compensation
UAL contribution related to stock plans
Other
Balance at December 31, 2016
Net income
Other comprehensive loss
Dividend to UAL
Share-based compensation
UAL contribution related to stock plans
Excess tax benefits from share-based awards
Reclassification of stranded tax effects (Note 1)
Other
Balance at December 31, 2017
Additional
Capital
Invested
7,347
$
—
—
(1,232)
7
16
—
6,138
—
—
(2,603)
32
6
—
3,573
—
—
(1,844)
56
2
—
—
—
1,787
$
Retained
Earnings
(Accumulated
Deficit)
$
$
(3,628)
7,301
—
—
—
—
—
3,673
2,264
—
—
—
—
—
5,937
2,149
—
—
—
—
14
118
—
8,218
Accumulated
Other
Comprehensive
Income (Loss)
(1,079)
$
—
248
—
—
—
—
(831)
—
2
—
—
—
—
(829)
—
(200)
—
—
—
—
(118)
—
(1,147)
$
Receivable
from Related
Parties, Net
(5)
$
—
—
—
—
—
(12)
(17)
—
—
—
—
—
(58)
(75)
—
—
—
—
—
—
—
(15)
(90)
$
Total
$ 2,635
7,301
248
(1,232)
7
16
(12)
8,963
2,264
2
(2,603)
32
6
(58)
8,606
2,149
(200)
(1,844)
56
2
14
—
(15)
$ 8,768
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
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Overview
UNITED CONTINENTAL HOLDINGS, INC.
UNITED AIRLINES, INC.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
United Continental Holdings, Inc. (together with its consolidated subsidiaries, “UAL” or the “Company”) is a holding company and its principal, wholly-
owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, “United”). 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. When appropriate, UAL and United are named specifically for their individual contractual obligations and related
disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use
the words “we,” “our,” “us,” and the “Company” in this report for disclosures that relate to all of UAL and United.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(a)
(b)
Use of Estimates— The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition— The Company records passenger ticket sales and tickets sold by other airlines for use on United as passenger revenue
when the transportation is provided or upon estimated breakage. The value of unused passenger tickets is included in current liabilities as
Advance ticket sales. Tickets sold by other airlines are recorded at the estimated values to be billed to the other airlines. Differences between
amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate.
When necessary, the Company records a reserve against its interline billings and payables if historical experience indicates that these amounts
are different. 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. Basic Economy tickets cannot be extended and refunds are not allowed except for ticket
cancellations that are within 24 hours of purchase and one week or more prior to the original scheduled departure flight.
Fees charged in association with changes or extensions to non-refundable tickets are recorded as other revenue at the time the fee is incurred. The
fare on the changed ticket, including any additional collection of fare, is deferred and recognized in accordance with our transportation revenue
recognition policy at the time the transportation is provided. 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 sale. Therefore, the pricing
of the change fee and the initial customer order are separately determined and represent distinct earnings processes.
The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused. These estimates are based on the
evaluation of actual historical results and forecasted trends. Refundable tickets expire after one year from the date of issuance.
The Company recognizes cargo and other revenue as service is provided.
Under our capacity purchase agreements (“CPAs”) with regional carriers, we purchase all of the capacity related to aircraft covered by the
contracts and are responsible for selling all of the related seat inventory. We record the passenger revenue and related expenses as separate
operating revenue and expense in the consolidated statement of operations.
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Accounts receivable primarily consist of amounts due from credit card companies and customers of our aircraft maintenance and cargo
transportation services. We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on
historical write-offs and other specific analyses. Bad debt expense and write-offs were not material for the years ended December 31, 2017, 2016
and 2015.
(c)
Frequent Flyer Accounting— United’s MileagePlus program builds customer loyalty by offering awards, benefits and services to program
participants. Members in this program earn miles for flights on United, United Express, Star Alliance members and certain other airlines that
participate in the program. Members can also earn miles by purchasing the goods and services of our network of non-airline partners. We sell
miles to these partners, which include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our
participating airline partners. Miles can be redeemed for free (other than taxes and government imposed fees), discounted or upgraded air travel
and non-travel awards. The Company records its obligation for future award redemptions using a deferred revenue model.
Miles Earned in Conjunction with Flights
When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the air transportation occurs
and defers a portion of the ticket sale representing the value of the related miles as a multiple-deliverable revenue arrangement. The Company
determines the estimated selling price of air transportation and miles as if each element is sold on a separate basis. The total consideration from
each ticket sale is then allocated to each of these elements, individually, on a pro rata basis. The miles are recorded in Frequent flyer deferred
revenue on the Company’s consolidated balance sheet and recognized into revenue when the transportation is provided.
The Company’s estimated selling price of miles is based on an equivalent ticket value less fulfillment discount, which incorporates the expected
redemption of miles, as the best estimate of selling price for these miles. The equivalent ticket value is based on the prior 12 months’ weighted
average equivalent ticket value of similar fares as those used to settle award redemptions while taking into consideration such factors as
redemption pattern, cabin class, loyalty status and geographic region. The estimated selling price of miles is adjusted by a fulfillment discount
that considers a number of factors, including redemption patterns of various customer groups.
Co-branded Credit Card Partner Mileage Sales
United has a significant contract, the Second Amended and Restated Co-Branded Card Marketing Services Agreement (the “Co-Brand
Agreement”), to sell MileagePlus miles to its co-branded credit card partner, Chase Bank USA, N.A. (“Chase”). United identified the following
significant revenue elements in the Co-Brand Agreement: the air transportation element represented by the value of the mile (generally resulting
from its redemption for future air transportation and whose fair value is described above); use of the United brand and access to MileagePlus
member lists; advertising; and other travel related benefits.
The fair value of the elements is determined using management’s estimated selling price of each element. The objective of using the estimated
selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone
basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to,
discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The
Company estimated the selling prices and volumes over the term of the Co-Brand Agreement in order to determine the allocation of proceeds to
each of the multiple elements to be delivered. We also evaluate volumes on an annual basis, which may result in a change in the allocation of
estimated selling price on a prospective basis.
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The Company records passenger revenue related to the air transportation element when the transportation is delivered. The other elements are
generally recognized as Other operating revenue when earned.
Expiration of Miles
The Company accounts for miles sold and awarded that will never be redeemed by program members, which we refer to as breakage. The
Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns.
Miles expire after 18 months of member account inactivity.
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 programs.
Other Information
The following table provides additional information related to the frequent flyer program (in millions):
Other Revenue
Recognized Upon
Award of Miles
to Third-Party
Customers (a)
Increase in Frequent
Flyer Deferred
Revenue for Miles
Awarded (b)
Year Ended
December 31,
Cash Proceeds
from Miles Sold
and Earned
2,343
3,022
2,999
$
2017
2016
2015
(a) This amount represents other revenue recognized during the period from the sale of miles to third parties, representing the marketing-related deliverable services
component of the sale.
(b) This amount represents the increase to Frequent flyer deferred revenue during the period.
(c) This amount represents the net decrease in the advance purchase of miles obligation due to cash payments for the sale of miles less than miles awarded to customers.
2,025
2,050
2,173
1,183
1,221
1,050
$
$
Decrease in
Advanced
Purchase
of Miles (c)
(865)
$
(249)
(224)
(d)
Cash and Cash Equivalents and Restricted Cash— Highly liquid investments with a maturity of three months or less on their acquisition date
are classified as cash and cash equivalents.
Restricted cash primarily includes cash collateral for letters of credit and collateral associated with obligations for facility leases and workers’
compensation. Restricted cash is classified as short-term or long-term in the consolidated balance sheets based on the expected timing of return
of the assets to the Company.
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that
sum to the total of the same such amounts shown in the statements of consolidated cash flows:
UAL
At December 31,
2016
2017
United
At December 31,
2016
2015
2017
2015
Current assets:
Cash and cash equivalents
Restricted cash included in Prepaid expenses and other
Other assets:
Restricted cash
$1,482 $2,179 $3,006 $1,476 $2,173 $3,000
2
2
—
—
18
18
91
124
204
91
124
204
(e)
(f)
(g)
Total cash, cash equivalents and restricted cash shown in the statement of
consolidated cash flows
$1,591 $2,303 $3,212 $1,585 $2,297 $3,206
Short-term Investments— Short-term investments are classified as available-for-sale and are stated at fair value. Realized gains and losses on
sales of investments are reflected in nonoperating income (expense) in the consolidated statements of operations. Unrealized gains and losses on
available-for-sale securities are reflected as a component of accumulated other comprehensive income (loss).
Aircraft Fuel, Spare Parts and Supplies— The Company accounts for aircraft fuel, spare parts and supplies at average cost and provides an
obsolescence allowance for aircraft spare parts with an assumed residual value of 10% of original cost.
Property and Equipment— The Company records additions to owned operating property and equipment at cost when acquired. Property under
capital leases and the related obligation for future lease payments are recorded at an amount equal to the initial present value of those lease
payments. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are capitalized as property and
equipment. It is the Company’s policy to record compensation from delays in delivery of aircraft as a reduction of the cost of the related aircraft.
Depreciation and amortization of owned depreciable assets is based on the straight-line method over the assets’ estimated useful lives. Leasehold
improvements are amortized over the remaining term of the lease, including estimated facility renewal options when renewal is reasonably
assured at key airports, or the estimated useful life of the related asset, whichever is less. Properties under capital leases are amortized on the
straight-line method over the life of the lease or, in the case of certain aircraft, over their estimated useful lives, whichever is shorter.
Amortization of capital lease assets is included in depreciation and amortization expense. The estimated useful lives of property and equipment
are as follows:
Aircraft and related rotable parts
Buildings
Other property and equipment
Computer software
Building improvements
Estimated Useful Life (in years)
25 to 30
25 to 45
3 to 15
5 to 15
1 to 40
As of December 31, 2017 and 2016, the Company had a carrying value of computer software of $345 million and $356 million, respectively. For
the years ended December 31, 2017, 2016 and 2015, the Company’s depreciation expense related to computer software was $117 million,
$108 million and
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(h)
(i)
(j)
(k)
(l)
(m)
(n)
$93 million, respectively. Aircraft and aircraft spare parts were assumed to have residual values of approximately 10% of original cost, and other
categories of property and equipment were assumed to have no residual value.
Maintenance and Repairs— The cost of maintenance and repairs, including the cost of minor replacements, is charged to expense as incurred,
except for costs incurred under our power-by-the-hour (“PBTH”) engine maintenance agreements. PBTH contracts transfer certain risk to third-
party service providers and fix the amount we pay per flight hour or per cycle to the service provider in exchange for maintenance and repairs
under a predefined maintenance program. Under PBTH agreements, the Company recognizes expense at a level rate per engine hour, unless the
level of service effort and the related payments during the period are substantially consistent, in which case the Company recognizes expense
based on the amounts paid.
Lease Fair Value Adjustments— Lease fair value adjustments, which arose from recording operating leases at fair value under fresh start or
business combination accounting, are amortized on a straight-line basis over the related lease term.
Regional Capacity Purchase— Payments made to regional carriers under CPAs are reported in Regional capacity purchase in our consolidated
statements of operations.
Advertising— Advertising costs, which are included in Other operating expenses, are expensed as incurred. Advertising expenses were
$217 million, $220 million and $201 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Intangibles— The Company has finite-lived and indefinite-lived intangible assets, including goodwill. Finite-lived intangible assets are
amortized over their estimated useful lives. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment
annually or more frequently if events or circumstances indicate that the asset may be impaired. Goodwill and indefinite-lived assets are reviewed
for impairment on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. See Note 2 of this report for
additional information related to intangibles.
Long-Lived Asset Impairments— The Company evaluates the carrying value of long-lived assets subject to amortization whenever events or
changes in circumstances indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft
fleet type as the lowest level of identifiable cash flows. An impairment charge is recognized when the asset’s carrying value exceeds its net
undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset’s carrying value and fair
market value. See Note 14 of this report for additional information related to asset impairments.
Share-Based Compensation— The Company measures the cost of employee services received in exchange for an award of equity instruments
based on the grant date fair value of the award. The resulting cost is recognized over the period during which an employee is required to provide
service in exchange for the award, usually the vesting period. Obligations for cash-settled restricted stock units (“RSUs”) are remeasured at fair
value throughout the requisite service period on the last day of each reporting period based upon UAL’s stock price. In addition to the service
requirement, certain RSUs have performance metrics that must be achieved prior to vesting. These awards are accrued based on the expected
level of achievement at each reporting period. A cumulative adjustment is recorded on the last day of each reporting period to adjust
compensation expense based on both UAL’s stock price and the then current level of expected performance achievement for the performance-
based awards. See Note 5 of this report for additional information on UAL’s share-based compensation plans.
(o)
Ticket Taxes— Certain governmental taxes are imposed on the Company’s ticket sales through a fee included in ticket prices. The Company
collects these fees and remits them to the appropriate government agency. These fees are recorded on a net basis (excluded from operating
revenue).
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(p)
(q)
(r)
(s)
(t)
Retirement of Leased Aircraft— The Company accrues for estimated lease costs over the remaining term of the lease at the present value of
future minimum lease payments, net of estimated sublease rentals (if any), in the period that aircraft are permanently removed from service.
When reasonably estimable and probable, the Company estimates maintenance lease return condition obligations for items such as minimum
aircraft and engine conditions specified in leases and accrues these amounts over the lease term while the aircraft are operating, and any
remaining unrecognized estimated obligations are accrued in the period that an aircraft is removed from service.
Uncertain Income Tax Positions— The Company has recorded reserves for income taxes and associated interest that may become payable in
future years. Although management believes that its positions taken on income tax matters are reasonable, the Company nevertheless has
established tax and interest reserves in recognition that various taxing authorities may challenge certain of the positions taken by the Company,
potentially resulting in additional liabilities for taxes and interest. The Company’s uncertain tax position reserves are reviewed periodically and
are adjusted as events occur that affect its estimates, such as the availability of new information, the lapsing of applicable statutes of limitation,
the conclusion of tax audits, the measurement of additional estimated liability, the identification of new tax matters, the release of administrative
tax guidance affecting its estimates of tax liabilities, or the rendering of relevant court decisions. The Company records penalties and interest
relating to uncertain tax positions as part of income tax expense in its consolidated statements of operations. The Company has not recorded any
material expense or liabilities related to interest or penalties in its consolidated financial statements.
Labor Costs— The Company records expenses associated with amendable labor agreements when the amounts are probable and estimable.
These include costs associated with lump sum cash payments that would be made in conjunction with the ratification of labor agreements. To the
extent these upfront costs are in lieu of future pay increases, they would be capitalized and amortized over the term of the labor agreements. If
not, these amounts would be expensed.
Third-Party Business— The Company has third-party business revenue that includes fuel sales, catering, ground handling, maintenance
services and frequent flyer award non-air redemptions. Third-party business revenue is recorded in Other operating revenue. The Company also
incurs third-party business expenses, such as maintenance, ground handling and catering services for third parties, fuel sales and non-air mileage
redemptions. The third-party business expenses are recorded in Other operating expenses.
Recently Issued Accounting Standards— In 2014, the Financial Accounting Standards Board (“FASB”) amended the FASB Accounting
Standards Codification and created a new Topic 606, Revenue from Contracts with Customers (“Topic 606”) . This amendment prescribes that an
entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. The amendment supersedes the revenue recognition requirements
in Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry Topics of the Accounting Standards
Codification. The Company used the full-retrospective approach in adopting this standard on January 1, 2018. The standard impacts the
classification of certain revenue streams and affects the timing of revenue and expense recognition for others. For the Company, the most
significant impact of this standard is the reclassification of certain ancillary fees from other operating revenue into passenger revenue on the
statement of consolidated operations. These ancillary fees are directly related to passenger travel, such as ticket change fees and baggage fees,
and will no longer be considered distinct performance obligations separate from the passenger travel component. In addition, the ticket change
fees, which were previously recognized when received, will be recognized when transportation is provided. While the classification of certain
transactions within operating revenue and between operating revenue and operating expenses will change, the adoption of the standard will not
have a material impact on our earnings. Further, adoption of the standard will have no impact on cash provided by or used in
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operating, financing, or investing activities in our consolidated cash flows statements. Adoption of Topic 606 is expected to impact our reported
results as shown in the table below:
Statements of Consolidated Operations for the Years Ended December 31,
As Reported
Adjustment
As Adjusted
for Adoption of
Topic 606
2017
2016
2017
2016
2017
2016
Operating revenue:
Passenger—Mainline
Passenger—Regional
Total passenger revenue
Cargo
Other operating revenue
Total operating revenue
Operating expenses
Operating income
Nonoperating expense, net
Income before income taxes
Income tax expense (benefit)
Net income
Earnings per share, basic
Earnings per share, diluted
Current assets:
Prepaid expenses and other
Other assets:
Deferred income taxes
Current liabilities:
Advance ticket sales
Frequent flyer deferred revenue
Other
Other liabilities and deferred credits:
Frequent flyer deferred revenue
Advanced purchase of miles
Deferred income taxes
Stockholders’ equity:
Retained earnings
$ 26,552 $ 25,414 $ 1,707 $ 1,615 $ 28,259 $ 27,029
6,400
33,429
934
2,195
36,558
32,206
4,352
(579)
3,773
1,539
2,234
6,201
34,460
1,114
2,210
37,784
34,217
3,567
(527)
3,040
896
2,144 $
349
2,056
79
(2,087)
48
(21)
69
(28)
41
28
13 $
357
1,972
58
(2,028)
2
(12)
14
(60)
(46)
(17)
(29) $
6,043
31,457
876
4,223
36,556
32,218
4,338
(519)
3,819
1,556
5,852
32,404
1,035
4,297
37,736
34,238
3,498
(499)
2,999
868
$ 2,131 $ 2,263 $
$
$
7.04 $
6.86 $
0.04 $ (0.09) $
7.08 $
7.02 $
6.85 $
0.04 $ (0.09) $
7.06 $
6.77
6.76
Consolidated Balance Sheets as of December 31,
As Reported
Adjustment
As Adjusted
for Adoption of
Topic 606
2017
2016
2017
2016
2017
2016
$1,051
$ 832
$ 20
$ 20
$1,071
$ 852
—
655
—
48
—
703
3,876
2,176
569
2,565
—
225
3,730
2,135
1,010
2,748
430
—
64
16
7
26
—
(21)
65
14
79
(8)
3
—
3,940
2,192
576
2,591
—
204
3,795
2,149
1,089
2,740
433
—
4,621
3,427
(72)
(85)
4,549
3,342
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In 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842, Leases (“Topic 842”). The guidance
requires lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) at the commencement
date and recognize expenses on their income statements similar to the current Topic 840, Leases . It is effective for fiscal years and interim
periods beginning after December 15, 2018, and early adoption is permitted. Lessees and lessors are required to adopt Topic 842 using a
modified retrospective approach for all leases existing at or commencing after the date of initial application with an option to use certain practical
expedients. We have not completed our evaluation of the impact of the new standard, but believe that it will have a significant impact on our
consolidated balance sheets. The new standard is not expected to have a material impact on the Company’s results of operations or cash flows.
The primary effect of adopting the new standard will be to record assets and obligations for its operating leases.
In 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) (“ASU 2016-01”).
This standard makes several changes, including the elimination of the available-for-sale classification of equity investments, and requires equity
investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. It is effective
for interim and annual periods beginning after December 15, 2017. Based on its portfolio of investments as of December 31, 2017, the Company
does not expect the adoption of ASU 2016-01 to have a material impact on its consolidated financial statements.
In 2017, the FASB issued Accounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost (“ASU 2017-07”). The update requires employers to present the service cost component of the net periodic benefit
cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other
components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial
gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will have to disclose
the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income
statement . ASU 2017-07 is effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted.
The Company does not expect the adoption of ASU 2017-07 to have a material impact on its consolidated financial statements. Early adoption of
ASU 2017-07 would have impacted the statement of consolidated operations as shown in the table below:
Statements of Consolidated Operations for the Years Ended December 31,
As Reported
2017
2016
Adjustment
2017
2016
As Adjusted for
Adoption of
ASU 2017-07
2017
2016
Operating expense:
Salaries and related costs
Special charges
Nonoperating income (expense):
Miscellaneous, net
$ 11,045 $ 10,275 $ (104) $ (99) $ 10,941 $ 10,176
745
—
107
176
176
638
3
(19)
(104)
8
(101)
(11)
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). This standard focuses on a
targeted improvement to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017
from accumulated other comprehensive income (“AOCI”) to retained earnings (“RE”). The amount of the reclassification would be the
difference between the amount initially charged
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or credited directly to other comprehensive income at the previously enacted U.S. federal corporate income tax rate that remains in AOCI and the
amount that would have been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate income
tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations. ASU 2018-02 is effective for
interim and annual periods beginning after December 15, 2018, and early adoption is permitted. We have elected to early adopt this standard for
the year ended December 31, 2017. We have reclassified $118 million from AOCI to RE as a result of this adoption. See Note 6 of this report for
additional information.
NOTE 2 - GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents information about the Company’s goodwill and other intangible assets at December 31 (in millions):
Goodwill
Item
Finite-lived intangible assets
Frequent flyer database (b)
Hubs
Contracts
Patents and tradenames
Airport slots and gates
Other
Total
Indefinite-lived intangible assets
Route authorities
Airport slots and gates
Tradenames and logos
Alliances
Total
Asset life (a)
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
2017
2016
22
20
13
3
8
25
$
$
$
$
$
4,523
1,177
145
121
108
97
109
1,757
1,562
536
593
404
3,095
$
$
832
89
103
108
97
84
1,313
$
$
$
$
$
4,523
1,177
145
135
108
97
109
1,771
1,562
536
593
404
3,095
$
$
771
82
95
108
97
81
1,234
(a) Weighted average life expressed in years.
(b) The frequent flyer database is amortized based on an accelerated amortization schedule to reflect utilization of the assets. Estimated cash flows correlating to the expected attrition
rate of customers in the frequent flyer database is considered in the determination of the amortization schedules.
Amortization expense in 2017, 2016 and 2015 was $79 million, $90 million and $105 million, respectively. Projected amortization expense in 2018, 2019,
2020, 2021 and 2022 is $67 million, $61 million, $55 million, $50 million and $40 million, respectively.
See Note 14 of this report for additional information related to impairment of intangible assets.
NOTE 3 – COMMON STOCKHOLDERS’ EQUITY AND PREFERRED SECURITIES
In 2017, UAL repurchased approximately 28 million shares of UAL common stock for $1.8 billion, completing its July 2016 repurchase authorization. In
December 2017, UAL’s Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL’s common stock. As of December 31,
2017, the Company had approximately $3.0 billion remaining to purchase shares under its existing share repurchase authority. UAL may repurchase shares
through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with
applicable securities laws. UAL may repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such
repurchases at any time. See Part II, Item 5, Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities, of
this report for additional information.
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In 2017, the Company retired 25 million treasury shares that were originally acquired at an average cost of approximately $63 per share.
At December 31, 2017, approximately 10 million shares of UAL’s common stock were reserved for future issuance related to the issuance of equity-based
awards under the Company’s incentive compensation plans.
As of December 31, 2017, UAL had two shares of junior preferred stock (par value $0.01 per share) outstanding. In addition, UAL is authorized to issue
250 million shares of preferred stock (without par value) under UAL’s amended and restated certificate of incorporation.
NOTE 4 - EARNINGS PER SHARE
The computations of UAL’s basic and diluted earnings per share are set forth below for the years ended December 31 (in millions, except per share
amounts):
Earnings available to common stockholders
Basic weighted-average shares outstanding
Effect of convertible notes
Effect of employee stock awards
Diluted weighted-average shares outstanding
Earnings per share, basic
Earnings per share, diluted
2017
2,131
$
2016
2,263
$
2015
7,340
$
302.7
—
0.9
303.6
329.9
—
0.4
330.3
$
$
7.04
7.02
$
$
6.86
6.85
$
$
376.1
0.3
0.5
376.9
19.52
19.47
The number of antidilutive securities excluded from the computation of diluted earnings per share amounts was not material.
NOTE 5 - SHARE-BASED COMPENSATION PLANS
UAL maintains several share-based compensation plans. In May 2017, UAL’s Board of Directors and stockholders approved the United Continental
Holdings, Inc. 2017 Incentive Compensation Plan (the “2017 Plan”). The 2017 Plan is an incentive compensation plan that allows the Company to use
different forms of long-term equity incentives to attract, retain, and reward officers and employees (including prospective officers and employees). The
2017 Plan replaced the United Continental Holdings, Inc. 2008 Incentive Compensation Plan (the “2008 Plan”). Any awards granted under the 2008 Plan
prior to the approval of the 2017 Plan remain in effect pursuant to their terms. Awards may not be granted under the 2017 Plan after May 24, 2027. Under
the 2017 Plan, the Company may grant: non-qualified stock options, incentive stock options (within the meaning of Section 422 of the Internal Revenue
Code of 1986), stock appreciation rights, restricted shares, RSUs, performance compensation awards, performance units, cash incentive awards, other
equity-based and equity-related awards, and dividends and dividend equivalents.
All awards are recorded as either equity or a liability in the Company’s consolidated balance sheets. The share-based compensation expense is recorded in
salaries and related costs.
During 2017, UAL granted share-based compensation awards pursuant to both the 2008 Plan and the 2017 Plan. These share-based compensation awards
include approximately 1.6 million RSUs, consisting of 1.0 million time-vested RSUs and 0.6 million performance-based RSUs, and approximately 36,000
stock options. The time-vested RSUs vest pro-rata, a majority of which vest on February 28th of each year over a three year period from the date
70
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of grant. These RSUs are generally equity awards settled in stock for domestic employees and liability awards settled in cash for international employees.
The cash payments are based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. The performance-based
RSUs vest based on the Company’s relative improvement in pre-tax margin compared to a group of airline industry peers for the three years ending
December 31, 2019. If the performance condition is achieved, cash payments will be made after the end of the performance period based on the 20-day
average closing price of UAL common stock immediately prior to the vesting date and based on the level, if any, of the performance goal achieved. The
Company accounts for the performance-based RSUs as liability awards. The stock options have a ten-year term and vest pro-rata over the third, fourth and
fifth anniversaries of the date of grant.
The following table provides information related to UAL’s share-based compensation plan cost for the years ended December 31 (in millions):
Compensation cost:
RSUs
Restricted stock
Stock options
Total
2017
2016
2015
$
$
63
8
2
73
$
$
58
11
1
70
$
$
52
6
—
58
The table below summarizes UAL’s unearned compensation and weighted-average remaining period to recognize costs for all outstanding share-based
awards that are probable of being achieved as of December 31, 2017 (in millions, except as noted):
RSUs
Stock options
Restricted stock
Total
Weighted-
Average
Remaining
Period
(in years)
1.9
3.9
1.2
Unearned
Compensation
46
$
4
3
53
$
RSUs and Restricted Stock . All performance-based RSUs, as well as a portion of the outstanding time-vested RSUs, will be settled in cash. As of
December 31, 2017, UAL had recorded a liability of $38 million related to its RSUs. UAL paid $50 million, $69 million and $85 million related to its RSUs
during 2017, 2016 and 2015, respectively.
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The table below summarizes UAL’s RSUs and restricted stock activity for the years ended December 31 (shares in millions):
Outstanding at December 31, 2014
Granted
Vested
Forfeited
Outstanding at December 31, 2015
Granted
Vested
Forfeited
Outstanding at December 31, 2016
Granted
Vested
Forfeited
Outstanding at December 31, 2017
RSUs
3.8
1.0
(1.6)
(0.6)
2.6
1.9
(1.4)
(0.2)
2.9
1.6
(1.0)
(0.3)
3.2
Restricted Stock
0.7
0.2
(0.4)
(0.2)
0.3
0.4
(0.1)
(0.1)
0.5
—
(0.2)
—
0.3
Weighted-
Average
Grant Price
32.55
$
66.53
31.14
46.23
48.68
50.63
41.47
53.42
52.00
—
51.60
51.88
52.30
The fair value of RSUs and restricted stock that vested in 2017, 2016 and 2015 was $76 million, $80 million and $92 million, respectively. The fair value of
the restricted stock and the stock-settled RSUs was based upon the UAL common stock price on the date of grant. These awards are accounted for as equity
awards. The fair value of the cash-settled RSUs was based on the UAL common stock price as of the last day preceding the settlement date. These awards
are accounted for as liability awards. Restricted stock vesting and the recognition of the expense is similar to the stock option vesting described below.
Stock Options . During 2017, UAL granted approximately 36,000 stock options with exercise prices equal to the fair market value of UAL’s common stock
on the date of grant with a weighted-average exercise price of $77.56 and a weighted-average grant date fair value of approximately $0.7 million. In 2016,
UAL granted approximately 0.1 million stock options with exercise prices equal to the fair market value of UAL’s common stock on the date of grant and
an additional approximately 0.3 million stock options with exercise prices at a 25% premium of the grant date fair market value resulting in a weighted-
average exercise price of $56.19 and a weighted-average grant date fair value of approximately $2.3 million. UAL did not grant any stock options in 2015.
Expense related to each portion of an option grant is recognized on a straight-line basis over the specific vesting period for those options.
The Company determined the grant date fair value of stock options using a Black Scholes option pricing model, which requires the use of several
assumptions. The risk-free interest rate is based on the U.S. treasury yield curve in effect for the expected term of the option at the time of grant. The
dividend yield on UAL’s common stock was assumed to be zero since UAL did not have any plans to pay dividends at the time of the option grants. The
volatility assumptions were based upon historical volatilities of UAL using daily stock price returns equivalent to the expected term of the option. The
expected term of the options was determined based upon a simplified assumption that the option will be exercised evenly from vesting to expiration due to
the Company’s lack of relevant historical data related to stock options.
72
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As of December 31, 2017, there were approximately 0.5 million outstanding stock option awards, 0.1 million of which were exercisable, with weighted-
average exercise prices of $51.67 and $34.74, respectively, intrinsic values of $8 million and $5 million, respectively, and weighted-average remaining
contractual lives (in years) of 6.3 and 3.7, respectively.
NOTE 6 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The tables below present the components of the Company’s AOCI, net of tax (in millions):
Balance at December 31, 2014
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive income
Net other comprehensive income (loss)
Balance at December 31, 2015
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive income
Net other comprehensive income (loss)
Balance at December 31, 2016
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive income
Reclassification of stranded tax effects
Net other comprehensive income (loss)
Balance at December 31, 2017
Pension and
Other
Postretirement
Liabilities
$
(472)
Fuel
Derivatives
Contracts
(499)
$
Investments
and Other
8
$
Deferred
Taxes
$
(116)
78 (a)
31
109
(363)
(517)(a)
26
(491)
(854)
(306)(a)
58
—
(248)
(1,102)
73
$
$
$
(320)
604
284
(215)
(4)
217
213
(2)
—
2
—
2
—
$
$
$
$
$
$
(5)
—
(5)
3
—
(2)
(2)
1
(7)
—
—
(7)
(6)
88
(228)
(140)
(256)
187
95
282
26
74
(21)
(118)(b)
(65)
(39)(c)
$
$
$
Total
$(1,079)
(159)
407
248
$ (831)
(334)
336
2
$ (829)
(239)
39
(118)
(318)
$(1,147)
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Details about AOCI Components
Fuel derivative contracts
Amount Reclassified from AOCI to
Income
Year Ended December 31,
2017
2016
2015
Affected Line Item in
the Statement Where
Net Income is Presented
Fuel contracts-reclassifications of losses into earnings (d)
$
2
$
217
$
604
Aircraft fuel
Pension and Postretirement liabilities
Amortization of unrecognized (gains) losses and prior service cost (e)
58
Investments and other
Available-for-sale securities—reclassifications of gains into earnings
—
26
(2)
31
—
Salaries and related costs
Miscellaneous, net
(a) Prior service credits increased by $0 million, $30 million and $0 million and actuarial losses increased by approximately $306 million, $560 million and $78 million for 2017, 2016
and 2015, respectively.
(b) This amount represents the reclassification from AOCI to RE of the stranded tax effects resulting from the enactment of the Tax Act.
(c) Deferred tax balance relates mainly to Pension and Other Postretirement Liabilities.
(d) The last of the Company’s fuel hedge derivatives designated for cash flow hedge accounting expired in December 2016. The 2017 amount reclassified from AOCI into fuel expense
represents hedge losses on December 2016 settled trades, but for which the associated fuel purchased in December 2016 was not consumed until January 2017. The Company’s current
strategy is to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and other factors.
(e) This AOCI component is included in the computation of net periodic pension and other postretirement costs (see Note 8 of this report for additional information).
Prior to the release of the deferred income tax valuation allowance in the third quarter of 2015, the Company recorded approximately $465 million of
valuation allowance adjustments in AOCI. Subsequent to the release of the deferred income tax valuation allowance in 2015, the $465 million debit
remained within AOCI, of which $180 million related to losses on fuel hedges designated for hedge accounting and $285 million related to pension and
other postretirement liabilities. Accounting rules required the adjustments to remain in AOCI as long as the Company had fuel derivatives designated for
cash flow hedge accounting and the Company continues to provide pension and postretirement benefits. In 2016, the Company settled all of its fuel hedges
and has not entered into any new fuel derivative contracts for hedge accounting. Accordingly, the Company reclassified the $180 million to income tax
expense in 2016.
74
Table of Contents
NOTE 7 - INCOME TAXES
The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate and consisted of the following significant
components, as follows (in millions):
UAL
Income tax provision at statutory rate
State income taxes, net of federal income tax benefit
Foreign tax rate differential
Foreign income taxes
Nondeductible employee meals
Impact of Tax Act
Income tax adjustment from AOCI
State rate change
Valuation allowance
Other, net
Current
Deferred
United
Income tax provision at statutory rate
State income taxes, net of federal income tax
Foreign tax rate differential
Foreign income taxes
Nondeductible employee meals
Impact of Tax Act
Income tax adjustment from AOCI
State rate change
Valuation allowance
Other, net
Current
Deferred
2017
$1,050
29
(43)
3
17
(192)
—
12
(16)
8
$ 868
$ (77)
945
$ 868
2017
$1,051
29
(43)
3
17
(209)
—
12
(16)
8
$ 852
$ (77)
929
$ 852
2016
$1,337
38
—
3
16
—
180
(12)
20
(26)
$1,556
$ (92)
1,648
$1,556
2016
$1,338
38
—
3
16
—
180
(12)
20
(25)
$1,558
$ (92)
1,650
$1,558
2015
$ 1,477
38
—
4
15
—
—
—
(4,662)
7
$(3,121)
$
56
(3,177)
$(3,121)
2015
$ 1,477
38
—
4
15
—
—
—
(4,621)
7
$(3,080)
$
56
(3,136)
$(3,080)
The Company’s effective tax rate for the year ended December 31, 2017 differed from the federal statutory rate of 35% primarily because of the provisional
one-time income tax benefit of $192 million as a result of the enactment of the Tax Act. This provisional benefit is the result of the remeasurement of
deferred tax assets and liabilities, partially offset by a write-down of the employee benefit deferred tax asset for future non-deductible compensation, and a
one-time transition tax on foreign earnings and profits. The Company’s effective tax rate for the year ended December 31, 2016 differed from the federal
statutory rate of
75
Table of Contents
35% primarily because of the non-cash income tax expense of $180 million that was related to losses on fuel derivatives designated for hedge accounting.
Subsequent to the release of the valuation allowance in 2015, this deferred income tax expense of $180 million remained in AOCI until all fuel derivatives
were settled in December 2016.
Total income tax expense in 2017 includes the provisional one-time transition tax of $19 million on previously deferred foreign earnings. The undistributed
cumulative earnings of foreign subsidiaries contributing to the one-time transition tax were $122 million. The Company expects to repatriate these earnings
in 2018.
As of December 31, 2017, we had not completed our analysis of all aspects of the Tax Act. However, we have made a provisional estimate for its effect on
our existing deferred tax balances and the one-time transition tax. We remeasured certain deferred tax assets and liabilities based on the rates at which they
are expected to reverse in the future, which is generally 21%. We are still analyzing certain aspects of the Tax Act and refining our calculations, which
could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
Temporary differences and carryforwards that give rise to deferred tax assets and liabilities at December 31, 2017 and 2016 were as follows (in millions):
Deferred income tax asset (liability):
Federal and state net operating loss (“NOL”) carryforwards
Deferred revenue
Employee benefits, including pension, postretirement and medical
Alternative minimum tax credit carryforwards
Other
Less: Valuation allowance
Total deferred tax assets
Depreciation
Intangibles
Total deferred tax liabilities
Net deferred tax asset (liability)
UAL
United
2017
2016
2017
2016
$
601
1,069
1,051
—
351
(63)
$ 3,009
$ (2,431)
(803)
$ (3,234)
$ 1,613
2,096
1,662
116
523
(68)
$ 5,942
$(3,961)
(1,326)
$(5,287)
574
$
1,069
1,051
—
351
(63)
$ 2,982
$(2,431)
(803)
$(3,234)
$ 1,571
2,096
1,662
116
522
(68)
$ 5,899
$(3,961)
(1,326)
$(5,287)
$
(225)
$
655
$ (252)
$
612
United and its domestic consolidated subsidiaries file a consolidated federal income tax return with UAL. Under an intercompany tax allocation policy,
United and its subsidiaries compute, record and pay UAL for their own tax liability as if they were separate companies filing separate returns. In
determining their own tax liabilities, United and each of its subsidiaries take into account all tax credits or benefits generated and utilized as separate
companies and they are each compensated for the aforementioned tax benefits only if they would be able to use those benefits on a separate company basis.
The Company’s federal and state NOL carryforwards relate to prior years’ NOLs, which may be used to reduce tax liabilities in future years. These tax
benefits are mostly attributable to federal pre-tax NOL carryforwards of $2.4 billion for UAL. If not utilized these federal pre-tax NOLs will expire as
follows (in billions): $0.2 in 2026, $0.5 in 2028 and $1.7 thereafter. In addition, for UAL the majority of tax benefits of the state NOLs of $49 million, net
of a valuation allowance of $52 million, will expire over a five to 20-year period.
The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets.
The Company establishes valuation allowances if it is not more
76
Table of Contents
likely than not that it will realize its deferred income tax assets. In making this determination, the Company considers all available positive and negative
evidence and makes certain assumptions. The Company considers, among other things, projected future taxable income, scheduled reversals of deferred tax
liabilities, the overall business environment, the Company’s historical financial results and tax planning strategies. In evaluating the likelihood of utilizing
the Company’s net deferred income tax assets, the significant factors that the Company considers include (1) the Company’s recent history and forecasted
profitability; (2) growth in the U.S. and global economies; and (3) the future impact of taxable temporary differences. In 2015, the Company concluded that
its deferred income tax assets were more likely than not to be realized and released almost all of its valuation allowance in 2015, resulting in a $3.1 billion
benefit in its provision for income taxes.
The Company has a valuation allowance of $63 million for certain state and local NOLs and credit carryforwards. The Company expects these NOLs and
credits will expire unused due to limited carryforward periods. The ability to utilize these state NOLs and credits will be evaluated on a quarterly basis to
determine if there are any significant events or any prudent and feasible tax planning strategies that would affect the Company’s ability to realize these
deferred tax assets.
The Company’s unrecognized tax benefits related to uncertain tax positions were $21 million, $74 million and $24 million at December 31, 2017, 2016 and
2015, respectively. Included in the ending balance at December 31, 2017 is $21 million that would affect the Company’s effective tax rate if recognized.
The changes in unrecognized tax benefits relating to settlements with taxing authorities, unrecognized tax benefits as a result of tax positions taken during a
prior period and unrecognized tax benefits relating from a lapse of the statute of limitations were immaterial during 2017, 2016 and 2015. The Company
does not expect significant increases or decreases in their unrecognized tax benefits within the next 12 months.
There are no material amounts included in the balance at December 31, 2017 for tax positions for which the ultimate deductibility is highly certain but for
which there is uncertainty about the timing of such deductibility.
The Company’s federal income tax returns for tax years after 2001 remain subject to examination by the Internal Revenue Service (“IRS”) and state taxing
jurisdictions. Currently, there are no ongoing examinations of the Company’s prior year tax returns being conducted by the IRS.
NOTE 8 - PENSION AND OTHER POSTRETIREMENT PLANS
The following summarizes the significant pension and other postretirement plans of United:
Pension Plans
United maintains two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U.S. non-pilot employees.
Each of these plans provide benefits based on a combination of years of benefit accruals service and an employee’s final average compensation. Additional
benefit accruals are frozen under the plan covering certain pilot employees and management and administrative employees. Benefit accruals for certain
non-pilot employees continue. United maintains additional defined benefit pension plans, which cover certain international employees.
Other Postretirement Plans
United maintains postretirement medical programs which provide medical benefits to certain retirees and eligible dependents, as well as life insurance
benefits to certain retirees participating in the plan. Benefits provided are subject to applicable contributions, co-payments, deductibles and other limits as
described in the specific plan documentation.
Actuarial assumption changes are reflected as a component of the net actuarial gains/(losses) during 2017 and 2016. These amounts will be amortized over
the average remaining service life of the covered active employees or the average life expectancy of inactive participants and will impact 2017 and 2016
pension and retiree medical expense as described below.
77
Table of Contents
The following table sets forth the reconciliation of the beginning and ending balances of the benefit obligation and plan assets, the funded status and the
amounts recognized in these financial statements for the defined benefit and other postretirement plans (in millions):
Accumulated benefit obligation:
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss
Gross benefits paid and settlements
Other
Projected benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Gross benefits paid and settlements
Other
Fair value of plan assets at end of year
Funded status—Net amount recognized
Amounts recognized in the consolidated balance sheets consist of:
Noncurrent asset
Current liability
Noncurrent liability
Total liability
Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss
Prior service cost
Total accumulated other comprehensive loss
78
Pension Benefits
Year Ended
December 31, 2017
4,739
$
Year Ended
December 31, 2016
4,158
$
$
$
$
$
$
5,253
195
220
525
(366)
25
5,852
3,355
510
419
(366)
14
3,932
(1,920)
$
$
$
$
$
4,473
112
200
738
(243)
(27)
5,253
2,975
230
421
(243)
(28)
3,355
(1,898)
Pension Benefits
December 31, 2017 December 31, 2016
$
$
$
$
9
(8)
(1,921)
(1,920)
(1,610)
(1)
(1,611)
$
$
$
$
2
(8)
(1,892)
(1,898)
(1,482)
(1)
(1,483)
Table of Contents
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Benefits paid
Actuarial loss (gain)
Plan amendments
Other
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Fair value of plan assets at end of year
Funded status—Net amount recognized
Amounts recognized in the consolidated balance sheets consist of:
Current liability
Noncurrent liability
Total liability
Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial gain
Prior service credit
Total accumulated other comprehensive income
Other Postretirement Benefits
Year Ended
December 31, 2017
Year Ended
December 31, 2016
$
$
$
$
1,687
13
66
68
(178)
40
—
14
1,710
55
1
108
68
(178)
54
(1,656)
$
$
$
$
2,002
19
86
69
(191)
(165)
(138)
5
1,687
56
2
119
69
(191)
55
(1,632)
Other Postretirement Benefits
December 31, 2017 December 31, 2016
$
$
$
$
(54)
(1,602)
(1,656)
301
208
509
$
$
$
$
(51)
(1,581)
(1,632)
384
245
629
The following information relates to all pension plans with an accumulated benefit obligation and a projected benefit obligation in excess of plan assets at
December 31 (in millions):
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
79
2017
$ 5,637
4,567
3,709
2016
$ 5,025
3,985
3,164
Table of Contents
Net periodic benefit cost for the years ended December 31 included the following components (in millions):
Service cost
Interest cost
Expected return on plan assets
Curtailment gain
Amortization of unrecognized actuarial (gain) loss
Amortization of prior service credits
Other
Net periodic benefit cost (credit)
2017
2016
2015
Pension
Benefits
Other
Postretirement
Benefits
Pension
Benefits
Other
Postretirement
Benefits
Pension
Benefits
Other
Postretirement
Benefits
$
$
195 $
220
(243)
—
128
—
5
305 $
112 $
13 $
200
66
(216)
(2)
—
—
(33)
76
(37) —
5
—
177 $
7 $
19 $
86
(2)
(107)
(19)
(31)
—
(54) $
124 $
200
(194)
—
85
—
4
219 $
21
82
(2)
—
(22)
(32)
—
47
See Note 14 of this report for additional information related to the curtailment gain recorded in 2016.
The estimated amounts that will be amortized in 2018 out of accumulated other comprehensive income (loss) into net periodic benefit cost are as follows (in
millions):
Actuarial (gain) loss
Prior service (credit) cost
The assumptions used for the benefit plans were as follows:
Assumptions used to determine benefit obligations
Discount rate
Rate of compensation increase
Assumptions used to determine net expense
Discount rate
Expected return on plan assets
Rate of compensation increase
Pension
Benefits
Other
Postretirement
Benefits
$
132 $
—
(32)
(37)
Pension Benefits
2016
2017
3.65%
3.89%
4.18%
3.54%
4.58%
7.04%
3.53%
80
4.19%
7.02%
3.54%
Table of Contents
Assumptions used to determine benefit obligations
Discount rate
Assumptions used to determine net expense
Discount rate
Expected return on plan assets
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2023)
Other Postretirement Benefits
2017
2016
3.63%
4.07%
4.07%
3.00%
6.25%
5.00%
4.49%
3.00%
6.50%
5.00%
The Company used the Society of Actuaries’ 2014 mortality tables, modified to reflect the Social Security Administration Trustee’s Report on current
projections regarding expected longevity improvements.
The Company selected the 2017 discount rate for substantially all of its plans by using a hypothetical portfolio of high quality bonds at December 31, 2017,
that would provide the necessary cash flows to match projected benefit payments.
We develop our expected long-term rate of return assumption for our defined benefit plans based on historical experience and by evaluating input from the
trustee managing the plans’ assets. Our expected long-term rate of return on plan assets for these plans is based on a target allocation of assets, which is
based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The plans strive to have assets sufficiently diversified so
that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries regularly
review our actual asset allocation and the pension plans’ investments are periodically rebalanced to our targeted allocation when considered
appropriate. United’s plan assets are allocated within the following guidelines:
Equity securities
Fixed-income securities
Alternatives
Other
Percent of Total
Expected Long-Term
Rate of Return
27-42 %
30-40
10-25
0-10
9.5 %
5.5
7.3
7.3
One-hundred percent of other postretirement plan assets are invested in a deposit administration fund.
Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement plans. A 1% change in the assumed
health care trend rate for the Company would have the following additional effects (in millions):
Effect on total service and interest cost for the year ended December 31, 2017
Effect on postretirement benefit obligation at December 31, 2017
1% Increase 1% Decrease
(8)
(149)
11
170
$
$
A one percentage point decrease in the weighted average discount rate would increase the Company’s postretirement benefit liability by approximately
$185 million and increase the estimated 2017 benefits expense by approximately $8 million.
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Fair Value Information. Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and
minimize the use of unobservable inputs. These inputs are prioritized as follows:
Level 1
Level 2
Level 3
Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value
Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs
Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market
participants would price the assets or liabilities
Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The valuation techniques are as follows:
(a) Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities; and
(b) Income approach. Techniques to convert future amounts to a single current value based on market expectations (including present value techniques,
option-pricing and excess earnings models).
The following tables present information about United’s pension and other postretirement plan assets at December 31 (in millions):
2017
2016
Pension Plan Assets:
Equity securities funds
Fixed-income securities
Alternatives
Other investments
Total
Other Postretirement Benefit Plan Assets:
Deposit administration fund
Total Level 1 Level 2 Level 3
$1,406 $
269 $
1,470
637
419
$3,932 $
—
—
32
301 $ 1,091 $
133 $ — $
834
—
124
18
139
172
329 $
Assets
Measured
at NAV(a)
1,004
618
498
91
2,211
Total Level 1 Level 2 Level 3
$1,173 $
230 $
1,298
586
298
$3,355 $
111 $ — $
824
—
68
11
134
87
232 $
—
—
47
277 $ 1,003 $
Assets
Measured
at NAV(a)
832
463
452
96
1,843
$
54 $ — $ — $
54 $
—
$
55 $ — $ — $
55 $
—
(a) In accordance with the relevant accounting standards, certain investments that are measured at fair value using the net asset value (“NAV”) per share (or its equivalent) have not been
classified in the fair value hierarchy. These investments are commingled funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments
issued by various U.S. and non-U.S. public- or private-sector entities. Redemption periods for these investments range from daily to annually.
Equity and Fixed-Income. Equities include investments in both developed market and emerging market equity securities. Fixed-income includes primarily
U.S. and non-U.S. government fixed-income securities and U.S. and non-U.S corporate fixed-income securities.
Deposit Administration Fund. This investment is a stable value investment product structured to provide investment income.
Alternatives. Alternative investments consist primarily of investments in hedge funds, real estate and private equity interests.
Other investments. Other investments consist of cash, insurance contracts and other funds.
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The reconciliation of United’s defined benefit plan assets measured at fair value using unobservable inputs (Level 3) for the years ended December 31, 2017
and 2016 is as follows (in millions):
Balance at beginning of year
Actual return on plan assets:
Sold during the year
Held at year end
Purchases, sales, issuances and settlements (net)
Balance at end of year
2017
$ 287
2016
$ 208
7
16
73
$ 383
4
3
72
$ 287
Funding requirements for tax-qualified defined benefit pension plans are determined by government regulations. United’s contributions reflected above
have satisfied its required contributions through the 2017 calendar year. In 2018, employer anticipated contributions to all of United’s pension and
postretirement plans are at least $420 million and approximately $109 million, respectively.
The estimated future benefit payments, net of expected participant contributions, in United’s pension plans and other postretirement benefit plans as of
December 31, 2017 are as follows (in millions):
2018
2019
2020
2021
2022
Years 2023 – 2027
Defined Contribution Plans
Pension
$
305 $
326
331
357
369
1,912
Other
Postretirement
Other Postretirement—
subsidy receipts
113 $
118
121
124
126
646
6
6
6
7
7
43
Depending upon the employee group, employer contributions consist of matching contributions and/or non-elective employer contributions. United’s
employer contribution percentages vary from 1% to 16% of eligible earnings depending on the terms of each plan. United recorded contributions to its
defined contribution plans of $656 million, $592 million and $522 million in the years ended December 31, 2017, 2016 and 2015, respectively.
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Multi-Employer Plans
United’s participation in the IAM National Pension Plan (“IAM Plan”) for the annual period ended December 31, 2017 is outlined in the table below. There
have been no significant changes that affect the comparability of 2017 and 2016 contributions. The risks of participating in these multi-employer plans are
different from single-employer plans, as United may be subject to additional risks that others do not meet their obligations, which in certain circumstances
could revert to United. The IAM Plan reported $414 million in employers’ contributions for the year ended December 31, 2016. For 2016, the Company’s
contributions to the IAM Plan represented more than 5% of total contributions to the IAM Plan.
Pension Fund
EIN/ Pension Plan Number
Pension Protection Act Zone Status (2017 and 2016)
FIP/RP Status Pending/Implemented
United’s Contributions
IAM National Pension Fund
51-6031295 - 002
Green Zone. Plans in the green zone are at least 80 percent funded.
No
$50 million, $41 million and $40 million in the years ended December 31,
2017, 2016 and 2015, respectively
Surcharge Imposed
Expiration Date of Collective Bargaining Agreement
No
N/A
At the date the Consolidated Financial Statements were issued, Forms 5500 were not available for the plan year ending in 2017.
Profit Sharing
Substantially all employees participate in profit sharing based on a percentage of pre-tax earnings, excluding special charges, profit sharing expense and
share-based compensation. Profit sharing percentages range from 5% to 20% depending on the work group, and in some cases profit sharing percentages
vary above and below certain pre-tax margin thresholds. Eligible U.S. co-workers in each participating work group receive a profit sharing payout using a
formula based on the ratio of each qualified co-worker’s annual eligible earnings to the eligible earnings of all qualified co-workers in all domestic work
groups. Eligible non-U.S. co-workers receive profit sharing based on the calculation under the U.S. profit sharing plan for management and administrative
employees. The Company recorded profit sharing and related payroll tax expense of $349 million, $628 million and $698 million in 2017, 2016 and 2015,
respectively. Profit sharing expense is recorded as a component of Salaries and related costs in the Company’s statements of consolidated operations.
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NOTE 9 - FAIR VALUE MEASUREMENTS AND INVESTMENTS
Fair Value Information. Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and
minimize the use of unobservable inputs. These inputs are described in Note 8 of this report. The table below presents disclosures about the fair value of
financial assets and liabilities measured at fair value on a recurring basis in the Company’s financial statements as of December 31 (in millions):
Total
$ 1,482
2017
Level 1
$ 1,482
Level 2
$ —
Level 3
$ —
Total
$ 2,179
2016
Level 1
$ 2,179
Cash and cash equivalents
Short-term investments:
Corporate debt
Asset-backed securities
Certificates of deposit placed through an
account registry service (“CDARS”)
U.S. government and agency notes
Other fixed-income securities
Other investments measured at NAV
Restricted cash
Long-term investments:
Equity securities
Enhanced equipment trust certificates
(“EETC”)
958
753
120
113
188
184
109
99
22
—
—
—
—
—
—
109
958
753
—
—
120
113
188
—
—
—
—
—
—
—
99
—
—
—
—
22
835
792
246
140
54
182
124
—
23
Level 2
$ —
Level 3
$ —
835
792
—
—
246
140
54
—
—
—
—
—
—
—
—
—
—
—
—
—
124
—
—
—
—
—
23
Available-for-sale investment maturities —The short-term investments shown in the table above are classified as available-for-sale. As of December 31,
2017, asset-backed securities have remaining maturities of less than one year to approximately 17 years, corporate debt securities have remaining maturities
of less than one year to approximately three years and CDARS have maturities of less than one year. U.S. government and other securities have maturities
of less than one year to approximately three years. The EETC securities mature in 2019.
Restricted cash —Restricted cash primarily includes cash collateral for letters of credit and collateral associated with obligations for facility leases and
workers’ compensation.
Equity securities —Equity securities represent United’s investment in Azul Linhas Aereas Brasileiras S.A. (“Azul”), which was previously accounted for
as a cost-method investment. The fair value of Azul’s shares became readily determinable in the second quarter of 2017 upon its initial public offering and
the investment is now accounted for as available-for-sale.
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Investments presented in the table above have the same fair value as their carrying value. The table below presents the carrying values and estimated fair
values of financial instruments not presented in the tables above as of December 31 (in millions):
Fair Value of Debt by Fair Value Hierarchy Level
Long-term debt
Carrying
Amount
$ 13,268
2017
Fair Value
Total
$ 13,787
Level 1
$ —
Level 2 Level 3
$ 3,672
$ 10,115
Carrying
Amount
$ 10,767
Fair value of the financial instruments included in the tables above was determined as follows:
2016
Fair Value
Total
$ 11,055
Level 1 Level 2 Level 3
$ 2,871
$ 8,184
$ —
Description
Cash and cash equivalents
Short-term investments,
Equity securities, EETC and
Restricted cash
Other investments measured at
NAV
The carrying amounts approximate fair value because of the short-term maturity of these assets.
Fair Value Methodology
Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which
uses valuation techniques to convert future amounts into a single present amount based on current market expectations
about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third-
party valuation services.
In accordance with the relevant accounting standards, certain investments that are measured at fair value using the
NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair
value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the
amounts presented in the statement of financial position. The investments measured using NAV are shares of mutual
funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by
various U.S. and non-U.S. public- or private-sector entities. The Company can redeem its shares at any time at NAV
subject to a three-day settlement period.
Long-term debt
Fair values were based on either market prices or the discounted amount of future cash flows using our current
incremental rate of borrowing for similar liabilities.
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NOTE 10 - DEBT
(In millions)
Secured
Notes payable, fixed interest rates of 2.88% to 9.52% (weighted average rate of 4.39% as of December 31, 2017), payable through
2028
Notes payable, floating interest rates of the London interbank offered rate (“LIBOR”) plus 0.2% to 2.25%, payable through 2028
Term loan, LIBOR plus 2.00%, or alternative rate based on certain market rates plus 1.00%, due 2024
Term loan, LIBOR subject to a 0.75% floor, plus 2.50%, or alternative rate based on certain market rates plus 1.50%, due 2019
Term loan, LIBOR subject to a 0.75% floor, plus 2.75%, or alternative rate based on certain market rates plus 1.75%, due 2021
Unsecured
6.375% Senior Notes due 2018 (a)
6% Senior Notes due 2020 (a)
4.25% Senior Notes due 2022 (a)
5% Senior Notes due 2024 (a)
Other
Less: unamortized debt discount, premiums and debt issuance costs
Less: current portion of long-term debt
Long-term debt, net
(a) UAL is the issuer of this debt. United is a guarantor.
At December 31,
2017
2016
$
8,661
1,880
1,489
—
—
300
300
400
300
101
13,431
(163)
(1,565)
$ 11,703
$
7,586
1,546
—
866
192
300
300
—
—
101
10,891
(124)
(849)
$ 9,918
The table below presents the Company’s contractual principal payments (not including debt discount or debt issuance costs) at December 31, 2017 under
then-outstanding long-term debt agreements in each of the next five calendar years (in millions):
2018
2019
2020
2021
2022
After 2022
Secured debt
$
1,565
1,165
1,170
1,157
1,492
6,882
$ 13,431
2017 Credit and Guaranty Agreement. On March 29, 2017, United and UAL, as borrower and guarantor, respectively, entered into an Amended and
Restated Credit and Guaranty Agreement (as amended by the First Amendment to the Amended and Restated Credit and Guaranty Agreement, dated as of
November 15, 2017, the “November 2017 Amendment,” and as so amended, the “2017 Credit Agreement”). The 2017 Credit Agreement consists of a
$1.5 billion term loan due April 1, 2024, which was used to retire the entire principal balance of the term loans under the credit and guaranty agreement,
dated March 27, 2013 (as amended, the “2013 Credit Agreement”), and increased the term loan balance by approximately $440 million. The 2017 Credit
Agreement
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also includes a $2.0 billion revolving credit facility available for drawing until April 1, 2022, which increased the available capacity under the revolving
credit facility by $650 million as compared to that in the 2013 Credit Agreement. The primary purpose of the November 2017 Amendment was to reduce
the interest rate on borrowings by 0.25%. The obligations of United under the amended 2017 Credit Agreement are secured by liens on certain international
route authorities, certain take-off and landing rights and related assets of United.
Borrowings under the 2017 Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 2.00% per annum, or another rate based on
certain market interest rates, plus a margin of 1.00% per annum. The principal amount of the term loan must be repaid in consecutive quarterly installments
of 0.25% of the original principal amount thereof, commencing on June 30, 2017, with any unpaid balance due on April 1, 2024. United may prepay all or a
portion of the loan from time to time, at par plus accrued and unpaid interest. United pays a commitment fee equal to 0.75% per annum on the undrawn
amount available under the revolving credit facility.
As of December 31, 2017, United had its entire capacity of $2.0 billion available under the revolving credit facility of the Company’s 2017 Credit
Agreement.
As of December 31, 2017, United had cash collateralized $75 million of letters of credit. United also had $362 million of surety bonds securing various
obligations at December 31, 2017. Most of the letters of credit have evergreen clauses and are expected to be renewed on an annual basis. The surety bonds
have expiration dates through 2021.
EETCs. As of December 31, 2017, United had $8.6 billion principal amount of equipment notes outstanding issued under EETC financings included in
notes payable in the table of outstanding debt above. Generally, the structure of these EETC financings consists of pass-through trusts created by United to
issue pass-through certificates, which represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The
proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issued by United and secured by its aircraft. The
payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a
depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of
the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on United’s consolidated balance sheet because the
proceeds held by the depositary are not United’s assets.
In February 2018, November 2017, September 2016 and June 2016, United created separate EETC pass-through trusts, each of which issued pass-through
certificates. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes issued by United and secured by its aircraft.
The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates. Certain
details of the pass-through trusts with proceeds received from issuance of debt in 2017 are as follows (in millions, except stated interest rate):
EETC Date
February 2018
February 2018
November 2017
November 2017
September 2016
September 2016
June 2016
June 2016
Class
AA
A
B
B
AA
A
AA
A
Principal
677
$
258
258
236
637
283
729
324
$ 3,402
Final expected
distribution
date
March 2030
March 2030
January 2026
October 2025
October 2028
October 2028
July 2028
July 2028
Stated
interest
rate
3.50%
3.70%
3.65%
3.65%
2.875%
3.10%
3.10%
3.45%
88
Total debt
recorded
as of December 31,
2017
Proceeds
received from
issuance of
debt during
2017
Remaining
proceeds from
issuance of debt
to be received
in future
periods
$
$
—
—
258
236
637
283
729
324
2,467
$
$
—
—
258
236
557
247
319
142
1,759
$
$
677
258
—
—
—
—
—
—
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In 2017, United borrowed approximately $497 million aggregate principal amount from various financial institutions to finance the purchase of several
aircraft delivered in 2017. The notes evidencing these borrowings, which are secured by the related aircraft, mature in 2027 and have interest rates
comprised of the LIBOR plus a specified margin.
Unsecured debt
4.25% Senior Notes due 2022. In September 2017, UAL issued $400 million aggregate principal amount of 4.25% Senior Notes due October 1, 2022 (the
“4.25% Senior Notes due 2022”). These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture
for the 4.25% Senior Notes due 2022 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price
equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest.
5% Senior Notes due 2024. In January 2017, UAL issued $300 million aggregate principal amount of 5% Senior Notes due February 1, 2024 (the “5%
Senior Notes due 2024”). These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the
5% Senior Notes due 2024 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to
101% of the principal amount of notes repurchased plus accrued and unpaid interest.
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As of December 31, 2017, UAL and United were in compliance with their respective debt covenants. The collateral, covenants and cross default provisions
of the Company’s principal debt instruments that contain such provisions are summarized in the table below:
Debt Instrument
Various equipment notes and other notes payable
Credit Agreement
6.375% Senior Notes due 2018
6% Senior Notes due 2020
4.25% Senior Notes due 2022
5% Senior Notes due 2024
Collateral, Covenants and Cross Default Provisions
Secured by certain aircraft. The indentures contain events of default that are
customary for aircraft financing, including in certain cases cross default to
other related aircraft.
Secured by certain of United’s international route authorities, specified
take-off and landing slots at certain airports and certain other assets.
The 2017 Credit Agreement requires the Company to maintain at least
$2.0 billion of unrestricted liquidity at all times, which includes unrestricted
cash, short-term investments and any undrawn amounts under any revolving
credit facility, and to maintain a minimum ratio of appraised value of
collateral to the outstanding obligations under the 2017 Credit Agreement
of 1.6 to 1.0 at all times. The 2017 Credit Agreement contains covenants
that, among other things, restrict the ability of UAL and its restricted
subsidiaries (as defined in the 2017 Credit Agreement) to incur additional
indebtedness and to pay dividends on or repurchase stock, although the
Company currently has ample ability under these restrictions to repurchase
stock under the Company’s share repurchase program.
The 2017 Credit Agreement contains events of default customary for this
type of financing, including a cross default and cross acceleration provision
to certain other material indebtedness of the Company.
The indentures for these notes contain covenants that, among other things,
restrict the ability of the Company and its restricted subsidiaries (as defined
in the indentures) to incur additional indebtedness and pay dividends on or
repurchase stock, although the Company currently has ample ability under
these restrictions to repurchase stock under the Company’s share repurchase
program.
NOTE 11 - LEASES AND CAPACITY PURCHASE AGREEMENTS
United leases aircraft, airport passenger terminal space, aircraft hangars and related maintenance facilities, cargo terminals, other airport facilities, other
commercial real estate, office and computer equipment and vehicles.
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At December 31, 2017, United’s scheduled future minimum lease payments under operating leases having initial or remaining noncancelable lease terms of
more than one year, aircraft leases, including aircraft rent under CPAs and capital leases (substantially all of which are for aircraft) were as follows (in
millions):
2018
2019
2020
2021
2022
After 2022
Minimum lease payments
Imputed interest
Present value of minimum lease payments
Current portion
Long-term obligations under capital leases
Facility and Other
Operating Leases
1,234
$
1,075
1,169
935
797
6,109
11,319
$
Aircraft Operating
Leases
$
$
1,038
855
628
510
388
1,513
4,932
Capital Leases (a)
200
$
133
113
110
105
1,156
1,817
$
(693)
1,124
(128)
996
$
(a) Includes airport construction projects managed by United in which United has construction risk, including project cost overruns. The Company recorded an asset for project costs
and a related liability equal to project costs funded by parties other than United. As of December 31, 2017, United had an asset balance of $814 million recorded in operating property
and equipment and $777 million recorded in current and long-term obligations under capital leases for these airport construction projects.
As of December 31, 2017, United’s aircraft capital lease minimum payments relate to leases of 31 mainline and 43 regional aircraft as well as to leases of
nonaircraft assets. Imputed interest rate ranges are 3.5% to 20.8%.
Aircraft operating leases have initial terms of five to 26 years, with expiration dates ranging from 2018 through 2029. Under the terms of most leases,
United has the right to purchase the aircraft at the end of the lease term, in some cases, at fair market value, and in others, at fair market value or a
percentage of cost.
During 2015, the Company reached an agreement with AerCap Holdings N.V., a major aircraft leasing company, to lease used Airbus S.A.S (“Airbus”)
A319s. Eleven aircraft have been delivered since the inception of this agreement, and seven more aircraft are expected to be delivered between 2019 and
2020. In addition, United has options for seven more A319 aircraft, subject to certain conditions.
United is the lessee of real property under long-term operating leases at a number of airports where we are also the guarantor of approximately $1.4 billion
of underlying debt and interest thereon as of December 31, 2017. These leases are typically with municipalities or other governmental entities, which are
excluded from the consolidation requirements concerning a variable interest entity (“VIE”). To the extent United’s leases and related guarantees are with a
separate legal entity other than a governmental entity, United is not the primary beneficiary because the lease terms are consistent with market terms at the
inception of the lease and the lease does not include a residual value guarantee, fixed-price purchase option, or similar feature. United has facility operating
leases that extend to 2054.
United’s nonaircraft rent expense was approximately $1.3 billion, $1.2 billion and $1.3 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.
In addition to nonaircraft rent and aircraft rent, which is separately presented in the consolidated statements of operations, United had aircraft rent related to
regional aircraft operating leases, which is included as part of Regional capacity purchase expense in United’s consolidated statement of operations, of
$458 million, $439 million and $461 million for the years ended December 31, 2017, 2016 and 2015, respectively.
In connection with UAL Corporation’s and United Air Lines, Inc.’s (predecessors to UAL and United) fresh-start reporting requirements upon their exit
from Chapter 11 bankruptcy protection in 2006 and the Company’s
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acquisition accounting adjustments related to the Company’s merger transaction in 2010, lease valuation adjustments for operating leases were initially
recorded in the consolidated balance sheet, representing the net present value of the differences between contractual lease rates and the fair market lease
rates for similar leased assets at the time. An asset (liability) results when the contractual lease rates are more (less) favorable than market lease terms at the
valuation date. The lease valuation adjustment is amortized on a straight-line basis as an increase (decrease) to rent expense over the individual applicable
remaining lease terms, resulting in recognition of rent expense as if United had entered into the leases at market rates. The related remaining lease terms,
primarily related to aircraft which make up the majority of the fair value lease adjustment balance, are one to seven years for United. The lease valuation
adjustments are classified within other noncurrent liabilities and the net accretion amounts are $79 million, $82 million and $107 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
Regional CPAs
United has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. Under these CPAs, the
Company pays the regional carriers contractually agreed fees (carrier costs) for operating these flights plus a variable reimbursement (incentive payment for
operational performance) based on agreed performance metrics, subject to annual inflation adjustments. The fees for carrier 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. Under these CPAs, the Company is responsible for all fuel costs
incurred, as well as landing fees and other costs, which are either passed through by the regional carrier to the Company without any markup or directly
incurred by the Company. United’s CPAs are for 518 regional aircraft as of December 31, 2017, and the CPAs have terms expiring through 2029. Aircraft
operated under CPAs include aircraft leased directly from the regional carriers and those owned by United or leased from third-party lessors and operated
by the regional carriers. See Part I, Item 2, Properties, of this report for additional information.
In 2017, United entered into a five-year CPA with Air Wisconsin Airlines for regional service under the United Express brand to operate up to 65 CRJ200
aircraft. In addition, United extended the term of its existing CPA with ExpressJet Airlines to operate up to approximately 125 aircraft through
December 31, 2022. In January 2018, United removed all Bombardier Q200 turboprop aircraft and Embraer ERJ 135 aircraft from service.
United holds a minority equity interest in two of its regional carriers, Champlain Enterprises, Inc. and Republic Airways Holdings, Inc. The contracts with
these related parties are executed in the ordinary course of business. United recorded approximately $538 million, $486 million and $366 million in
expenses related to its capacity purchase agreements with these regional carriers for the years ended December 31, 2017, 2016 and 2015, respectively. There
were approximately $24 million and $32 million in accounts payable due to these companies as of December 31, 2017 and December 31, 2016,
respectively. There were no material accounts receivable due from these companies as of December 31, 2017 and December 31, 2016.
Our future commitments under our CPAs are dependent on numerous variables, and are, therefore, difficult to predict. The most important of these variables
is the number of scheduled block hours. Although we are not required to purchase a minimum number of block hours under certain of our CPAs, we have
set forth below estimates of our future payments under the CPAs based on our assumptions. United’s estimates of its future payments under all of the CPAs
do not include the portion of the underlying obligation for any aircraft leased to a regional carrier or deemed to be leased from other regional carriers and
facility rent that are disclosed as part of aircraft and nonaircraft operating leases. For purposes of calculating these estimates, we have assumed (1) the
number of block hours flown is based on our anticipated level of flight activity or at any contractual minimum utilization levels if applicable, whichever is
higher, (2) that we will reduce the fleet as rapidly as contractually allowed under each CPA, (3) that aircraft utilization, stage length and load factors will
remain constant, (4) that each carrier’s operational performance will remain at historic levels and (5) an annual projected inflation rate. These amounts
exclude variable pass-through costs such as fuel and landing fees, among others. Based on these
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assumptions as of December 31, 2017, our future payments through the end of the terms of our CPAs are presented in the table below (in billions):
2018
2019
2020
2021
2022
After 2022
$
2.0
1.8
1.6
1.5
1.4
3.2
$ 11.5
The actual amounts we pay to our regional operators under CPAs could differ materially from these estimates. For example, a 10% increase or decrease in
scheduled block hours for all of United’s regional operators (whether as a result of changes in average daily utilization or otherwise) in 2018 would result in
a corresponding change in annual cash obligations under the CPAs of approximately $147 million.
NOTE 12 - VARIABLE INTEREST ENTITIES
Variable interests are contractual, ownership or other monetary interests in an entity that change with fluctuations in the fair value of the entity’s net assets
exclusive of variable interests. A VIE can arise from items such as lease agreements, loan arrangements, guarantees or service contracts. An entity is a VIE
if (a) the entity lacks sufficient equity or (b) the entity’s equity holders lack power or the obligation and right as equity holders to absorb the entity’s
expected losses or to receive its expected residual returns. Therefore, if the equity owners as a group do not have the power to direct the entity’s activities
that most significantly impact its economic performance, the entity is a VIE.
If an entity is determined to be a VIE, the entity must be consolidated by the primary beneficiary. The primary beneficiary is the holder of the variable
interests that has the power to direct the activities of a VIE that (i) most significantly impact the VIE’s economic performance and (ii) has the obligation to
absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. Therefore, the Company must identify which
activities most significantly impact the VIE’s economic performance and determine whether it, or another party, has the power to direct those activities.
The Company’s evaluation of its association with VIEs is described below:
Aircraft Leases . We are the lessee in a number of operating leases covering the majority of our leased aircraft. The lessors are trusts established specifically
to purchase, finance and lease aircraft to us. These leasing entities meet the criteria for VIEs. We are generally not the primary beneficiary of the leasing
entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase
option or similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the aircraft. This is the case for
many of our operating leases; however, leases of 38 mainline jet aircraft contain a fixed-price purchase option that allow United to purchase the aircraft at
predetermined prices on specified dates during the lease term. Additionally, leases covering 158 leased regional jet aircraft contain an option to purchase the
aircraft at the end of the lease term at prices that, depending on market conditions, could be below fair value. United has not consolidated the related trusts
because, even taking into consideration these purchase options, United is still not the primary beneficiary. United’s maximum exposure under these leases is
the remaining lease payments, which are reflected in future lease commitments in Note 11 of this report.
EETCs. United evaluated whether the pass-through trusts formed for its EETC financings, treated as either debt or aircraft operating leases, are VIEs
required to be consolidated by United under applicable accounting guidance, and determined that the pass-through trusts are VIEs. Based on United’s
analysis as described below, United determined that it does not have a variable interest in the pass-through trusts.
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The primary risk of the pass-through trusts is credit risk (i.e. the risk that United, the issuer of the equipment notes, may be unable to make its principal and
interest payments). The primary purpose of the pass-through trust structure is to enhance the credit worthiness of United’s debt obligation through certain
bankruptcy protection provisions, a liquidity facility (in certain of the EETC structures) and improved loan-to-value ratios for more senior debt classes.
These credit enhancements lower United’s total borrowing cost. Pass-through trusts are established to receive principal and interest payments on the
equipment notes purchased by the pass-through trusts from United and remit these proceeds to the pass-through trusts’ certificate holders.
United does not invest in or obtain a financial interest in the pass-through trusts. Rather, United has an obligation to make interest and principal payments
on its equipment notes held by the pass-through trusts. United did not intend to have any voting or non-voting equity interest in the pass-through trusts or to
absorb variability from the pass-through trusts. Based on this analysis, the Company determined that it is not required to consolidate the pass-through trusts.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Commitments. As of December 31, 2017, United had firm commitments and options to purchase aircraft from The Boeing Company (“Boeing”) and Airbus
presented in the table below:
Aircraft Type
Airbus A350
Boeing 737 MAX
Boeing 777-300ER
Boeing 787
(a) United also has options and purchase rights for additional aircraft.
Number of Firm
Commitments (a)
45
161
4
18
The aircraft listed in the table above are scheduled for delivery from 2018 through 2027. In 2018, United expects to take delivery of 10 Boeing 737 MAX
aircraft, seven Boeing 787 aircraft and four Boeing 777-300ER aircraft. To the extent the Company and the aircraft manufacturers with whom the Company
has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company’s future capital
commitments could change. Additionally, the Company has entered into a contract to purchase three used Boeing 767-300ER aircraft from Hawaiian
Airlines, Inc. with expected delivery dates in the second half of 2018.
The table below summarizes United’s commitments as of December 31, 2017, which primarily relate to the acquisition of aircraft and related spare engines,
aircraft improvements and include other capital purchase commitments for the years ended December 31 (in billions). Any new firm aircraft orders,
including through the exercise of purchase options and purchase rights, will increase the total future capital commitments of the Company.
2018
2019
2020
2021
2022
After 2022
$ 3.2
2.9
2.1
2.4
1.8
9.8
22.2
$
In February 2018, the Company secured $935 million of EETC financing to finance certain aircraft deliveries in 2017 and the first half of 2018. The
Company has also secured backstop financing commitments from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries,
subject to certain customary
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conditions. Financing may be necessary to satisfy the Company’s capital commitments for its firm order aircraft and other related capital expenditures.
Legal and Environmental. The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business. As of
December 31, 2017, 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. The Company records liabilities for legal and
environmental claims when a loss is probable and reasonably estimable. These amounts are recorded based on the Company’s assessments of the likelihood
of their eventual disposition.
Guarantees and Indemnifications. In the normal course of business, the Company enters into numerous real estate leasing and aircraft financing
arrangements that have various guarantees included in the contracts. These guarantees are primarily in the form of indemnities under which the Company
typically indemnifies the lessors and any tax/financing parties against tort liabilities that arise out of the use, occupancy, operation or maintenance of the
leased premises or financed aircraft. Currently, the Company believes that any future payments required under these guarantees or indemnities would be
immaterial, as most tort liabilities and related indemnities are covered by insurance (subject to deductibles). Additionally, certain leased premises such as
fueling stations or storage facilities include indemnities of such parties for any environmental liability that may arise out of or relate to the use of the leased
premises.
As of December 31, 2017, United is the guarantor of approximately $1.8 billion in aggregate principal amount of tax-exempt special facilities revenue
bonds and interest thereon. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long-term agreements with the
respective governing bodies. The leasing arrangements associated with $1.4 billion of these obligations are accounted for as operating leases with the
associated expense recorded on a straight-line basis resulting in ratable accrual of the lease obligation over the expected lease term. These tax-exempt
special facilities revenue bonds are included in our lease commitments disclosed in Note 11 of this report. The leasing arrangements associated with
approximately $441 million of these obligations are accounted for as capital leases. All of these bonds are due between 2019 and 2038.
Increased Cost Provisions. In United’s financing transactions that include loans, United typically agrees to reimburse lenders for any reduced returns with
respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on LIBOR, for certain other
increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take
certain limited steps to mitigate the requirement for, or the amount of, such increased costs. At December 31, 2017, the Company had $3.4 billion of
floating rate debt and $60 million of fixed rate debt, with remaining terms of up to 11 years, that are subject to these increased cost provisions. In several
financing transactions involving loans or leases from non-U.S. entities, with remaining terms of up to 11 years and an aggregate balance of $3.3 billion, the
Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-U.S. entities to withholding taxes, subject to
customary exclusions.
As of December 31, 2017, United is the guarantor of $157 million of aircraft mortgage debt issued by one of United’s regional carriers. The aircraft
mortgage debt is subject to similar increased cost provisions as described above for the Company’s debt, and the Company would potentially be responsible
for those costs under the guarantees.
Fuel Consortia. United participates in numerous fuel consortia with other air 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
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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, 2017, approximately $1.5 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 has provided indirect guarantees of the debt. As of December 31,
2017, the Company’s contingent exposure was approximately $244 million principal amount of such bonds based on its recent consortia participation. The
Company’s contingent exposure could increase if the participation of other air carriers decreases. The guarantees will expire when the tax-exempt bonds are
paid in full, which ranges from 2022 to 2049. The Company did not record a liability at the time these indirect guarantees were made.
Regional Capacity Purchase. As of December 31, 2017, United had 257 call options to purchase regional jet aircraft being operated by certain of its
regional carriers with contract dates extending until 2029. These call options are exercisable upon wrongful termination or breach of contract, among other
conditions. None of the call options were exercisable at December 31, 2017.
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 credit card processing agreements, the financial institutions in certain circumstances have the
right to require that the Company maintain a reserve equal to a portion of advance ticket sales that has been processed by that financial institution, but for
which the Company has not yet provided the air transportation. Such financial institutions may require additional cash or other collateral reserves to be
established or additional withholding of payments related to receivables collected if the Company does not maintain certain minimum levels of unrestricted
cash, cash equivalents and short-term investments (collectively, “Unrestricted Liquidity”). The Company’s current level of Unrestricted Liquidity is
substantially in excess of these minimum levels.
Labor Negotiations. As of December 31, 2017, United, including its subsidiaries, had approximately 89,800 employees. Approximately 80% of United’s
employees were represented by various U.S. labor organizations as of December 31, 2017. The agreement with the International Brotherhood of Teamsters
(the “IBT”) contains provisions that require the Company to align contract terms with other airlines’ workgroups under certain conditions.
UNITE HERE is attempting to organize United’s Catering Operations employees, who are currently unrepresented, and filed an application to do so with
the National Mediation Board on January 24, 2018.
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NOTE 14 - SPECIAL CHARGES
Special charges in the statements of consolidated operations consisted of the following for the years ended December 31 (in millions):
Operating:
Severance and benefit costs
Impairment of assets
Cleveland airport lease restructuring
Labor agreement costs
(Gains) losses on sale of assets and other special charges
Total operating special charges
Nonoperating:
(Gains) losses on extinguishment of debt and other
Total operating and nonoperating special charges before income
taxes
Income tax benefit related to special charges
Income tax adjustments (Notes 6 and 7)
Total operating and nonoperating special charges, net of
income taxes and income tax adjustments
2017
$ 116
25
—
—
35
176
2016
$ 37
412
74
64
51
638
2015
$ 107
79
—
18
122
326
—
176
(63)
(192)
(1)
637
(229)
180
202
528
(11)
(3,130)
$
(79)
$
588
$
(2,613)
2017
During 2017, the Company recorded $83 million ($53 million net of taxes) of severance and benefit costs related to a voluntary early-out program for its
technicians and related employees represented by the IBT. In the first quarter of 2017, approximately 1,000 technicians and related employees elected to
voluntarily separate from the Company and will receive a severance payment, with a maximum value of $100,000 per participant, based on years of service,
with retirement dates through early 2019. Also during 2017, the Company recorded $33 million ($21 million net of taxes) of severance primarily related to
its management reorganization initiative.
During 2017 the Company recorded a $10 million ($6 million net of taxes) impairment charge related to obsolete spare parts inventory and a $15 million
($10 million net of taxes) intangible asset impairment charge related to a maintenance service agreement.
2016
In April 2016, the Federal Aviation Administration (“FAA”) announced that it will designate Newark Liberty International Airport (“Newark”) as a Level 2
schedule-facilitated airport under the International Air Transport Association Worldwide Slot Guidelines. The designation was associated with an updated
demand and capacity analysis of Newark by the FAA. In 2016, the Company determined that the FAA’s action impaired the entire value of its Newark slots
because the slots are no longer the mechanism that governs take-off and landing rights. Accordingly, the Company recorded a $412 million special charge
($264 million net of taxes) to write off the intangible asset.
In 2016, the City of Cleveland agreed to amend the Company’s lease, which runs through 2029, associated with certain excess airport terminal space
(principally Terminal D) and related facilities at Hopkins International Airport (“Cleveland”). The Company recorded an accrual for remaining payments
under the lease for facilities
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that the Company no longer uses and will continue to incur costs under the lease without economic benefit to the Company. This liability was measured and
recorded at its fair value when the Company ceased its right to use such facilities leased to it pursuant to the lease. The Company recorded a net charge of
$74 million ($47 million net of taxes) related to the amended lease.
The fleet service, passenger service, storekeeper and other employees represented by the International Association of Machinists and Aerospace Workers
(the “IAM”) ratified seven new contracts with the Company which extended the contracts through 2021. The technicians and related employees represented
by the IBT ratified a six-year joint collective bargaining agreement which extended the contract through 2022. During 2016, the Company recorded
$171 million ($110 million net of taxes) of special charges primarily for payments in conjunction with the IAM and IBT agreements described above. As
part of the ratified contract with the IBT, the Company amended some of its technicians and related employees’ postretirement medical plans. The
amendments triggered curtailment accounting, resulting in the recognition of a one-time $60 million gain ($38 million net of taxes) for accelerated
recognition of a prior service credit in one of the plans. Also, as part of the ratified contract with the Association of Flight Attendants, the Company
amended two of its flight attendant postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of a
one-time $47 million gain ($30 million net of taxes) for accelerated recognition of a prior service credit.
During 2016, the Company recorded $37 million ($24 million net of taxes) of severance and benefit costs related to a voluntary early-out program for the
Company’s flight attendants and other severance agreements. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company
for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016.
2015
During its annual assessment in the fourth quarter, the Company recorded $33 million ($22 million net of related income tax benefit) related to the
impairment of its indefinite-lived intangible assets (certain domestic slots and international Pacific routes), $8 million for the write-off of unexercised
aircraft purchase options and $7 million for inventory held for sale. For the full-year 2015, the Company also recorded other impairments, including
$10 million for discontinued internal software projects and $10 million for the impairment of several engines held for sale.
The Company recorded $107 million of severance and benefit costs primarily related to a voluntary early-out program for its flight attendants. In 2014,
more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per
participant, based on years of service, with retirement dates through the end of 2016.
During 2015, the Company also recorded $18 million related to collective bargaining agreements, $60 million of integration-related costs primarily related
to systems integration and training for employees, $32 million related to charges for settlements in connection with legal matters, $16 million for the cease
use of an aircraft under lease and $14 million for losses on the sale of aircraft and other miscellaneous gains and losses.
The Company recorded $202 million of losses as part of Nonoperating income (expense): Miscellaneous, net due primarily to the write-off of $134 million
related to the unamortized non-cash debt discount from the extinguishment of the 6% Notes due 2026 and the 6% Notes due 2028. During 2015, the
Company also recorded a $61 million foreign exchange loss related to its cash holdings in Venezuela. The Venezuelan government has maintained currency
controls and fixed official exchange rates (i.e. Sistema Complementario de Administracion de Divisas (“SICAD”), and Sistema Marginal de Divisas
(“SIMADI”)) for many years. Previously, airlines were permitted to use the more favorable SICAD rate (13.5 Venezuelan bolivars to one U.S. dollar) if
repatriating profits and for payments of local goods and services in Venezuela. During 2015, many of the payments for local goods and services transitioned
to utilizing the SIMADI rate (200 Venezuelan bolivars to one U.S. dollar) or were required to be paid in U.S. dollars. Furthermore, the Venezuelan
government has not permitted the exchange and repatriations of local currency since mid-2014. As a result, the Company changed the exchange
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rate from historical SICAD rates to a combination of SIMADI and SICAD rates based on projections of future cash payments. Including this adjustment, the
Company’s resulting cash balance held in Venezuelan bolivars at December 31, 2015 was approximately $13 million.
Accrual Activity
Activity related to the accruals for severance and medical costs and future lease payments on permanently grounded aircraft is as follows (in millions):
Balance at December 31, 2014
Accrual
Payments
Balance at December 31, 2015
Accrual and related adjustments
Payments
Balance at December 31, 2016
Accrual
Payments
Balance at December 31, 2017
Severance/
Benefit Costs
109
$
107
(189)
27
37
(50)
14
116
(93)
37
$
Permanently
Grounded Aircraft
102
$
30
(54)
78
(17)
(20)
41
(4)
(15)
22
$
The Company’s accrual and payment activity is primarily related to severance and other compensation expense associated with voluntary employee early
retirement programs.
NOTE 15 - SEGMENT INFORMATION
Operating segments are defined as components of an enterprise with separate financial information, which are evaluated regularly by the chief operating
decision maker and are used in resource allocation and performance assessments.
The Company deploys its aircraft across its route network through a single route scheduling system to maximize its value. When making resource allocation
decisions, the Company’s chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics. The
Company’s chief operating decision maker makes resource allocation decisions to maximize the Company’s consolidated financial results. Managing the
Company as one segment allows management the opportunity to maximize the value of its route network.
The Company’s operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) for the years ended December 31
is presented in the table below (in millions):
Domestic (U.S. and Canada)
Pacific
Atlantic
Latin America
Total
2017
$ 23,131
4,898
6,285
3,422
$ 37,736
2016
$ 22,202
4,959
6,157
3,238
$ 36,556
2015
$ 21,931
5,498
7,068
3,367
$ 37,864
The Company attributes revenue among the geographic areas based upon the origin and destination of each flight segment. The Company’s operations
involve an insignificant level of dedicated revenue-producing assets in
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geographic regions as the overwhelming majority of the Company’s revenue producing assets (primarily U.S. registered aircraft) can be deployed in any of
its geographic regions.
NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
UAL
(In millions, except per share amounts)
2017
Operating revenue
Income from operations
Net income
Basic earnings per share
Diluted earnings per share
2016
Operating revenue
Income from operations
Net income
Basic earnings per share
Diluted earnings per share
March 31
June 30
September 30
December 31
Quarter Ended
$
$
8,420
278
96
0.31
0.31
8,195
649
313
0.88
0.88
100
$
$
$ 10,000
1,399
818
2.67
2.66
$
9,396
1,060
588
1.78
1.78
$
$
9,878
1,092
637
2.12
2.12
9,913
1,624
965
3.02
3.01
9,438
729
580
1.99
1.99
9,052
1,005
397
1.26
1.26
Table of Contents
UAL’s quarterly financial data is subject to seasonal fluctuations and historically its second and third quarter financial results, which reflect higher travel
demand, are better than its first and fourth quarter financial results. UAL’s quarterly results were impacted by the following significant items (in millions):
March 31
June 30
September 30
December 31
Quarter Ended
2017
Operating:
Severance and benefit costs
Impairment of assets
(Gains) losses on sale of assets and other special charges
$
Total operating special charges
Income taxes:
Income tax benefit related to special charges
Income tax adjustments (Note 7)
37
—
14
51
(18)
—
$
41
—
3
44
(16)
—
Total operating special charges, net of income taxes and
income tax adjustments
$
33
$ 28
2016
Operating:
Labor agreement costs and related items
Cleveland airport lease restructuring
Severance and benefit costs
Impairment of assets
(Gains) losses on sale of assets and other special charges
Total operating special charges
Nonoperating and income taxes:
Losses (gain) on extinguishment of debt and other
Income tax expense (benefit) related to special charges
Income tax adjustments (Note 6)
Total operating and nonoperating special charges, net of
$
100
74
8
—
8
190
8
(72)
—
$
10
—
6
412
6
434
(9)
(153)
—
$
$
$
23
15
12
50
(18)
—
$
15
10
6
31
(11)
(192)
32
$
(172)
14
—
13
—
18
45
—
(16)
—
$
(60)
—
10
—
19
(31)
—
12
180
income taxes and income tax adjustments
$
126
$
272
$
29
$
161
See Note 14 of this report for additional information of these items.
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ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Control and Procedures
UAL and United each maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted
by UAL and United to the SEC is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms, and is
accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. The management of UAL and United, including the Chief Executive Officer and Chief Financial Officer, performed an
evaluation to conclude with reasonable assurance that UAL’s and United’s disclosure controls and procedures were designed and operating effectively to
report the information each company is required to disclose in the reports they file with the SEC on a timely basis. Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer of UAL and United have concluded that as of December 31, 2017, disclosure controls and procedures
were effective.
Changes in Internal Control over Financial Reporting during the Quarter Ended December 31, 2017
During the three months ended December 31, 2017, there was no change in UAL’s or United’s internal control over financial reporting that materially
affected, or is reasonably likely to materially affect, their internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of United Continental Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited United Continental Holdings, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated
financial statements as of and for the year ended December 31, 2017 of the Company and our report dated February 22, 2018 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting in Item 9A. Our
responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
February 22, 2018
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United Continental Holdings, Inc. Management Report on Internal Control Over Financial Reporting
February 22, 2018
To the Stockholders of United Continental Holdings, Inc.
Chicago, Illinois
The management of United Continental Holdings, Inc. (“UAL”) is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the design and operating effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment,
management used the framework set forth in Internal Control—Integrated Framework (2013 Framework) issued by the Committee of the Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal
control over financial reporting was effective as of December 31, 2017.
Our independent registered public accounting firm, Ernst & Young LLP, who audited UAL’s consolidated financial statements included in this Form 10-K,
has issued a report on UAL’s internal control over financial reporting, which is included herein.
United Airlines, Inc. Management Report on Internal Control Over Financial Reporting
February 22, 2018
To the Stockholder of United Airlines, Inc.
Chicago, Illinois
The management of United Airlines, Inc. (“United”) is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f). United’s internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Because of its inherent limitations, United’s internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including United’s Chief Executive Officer and Chief Financial Officer, United conducted
an evaluation of the design and operating effectiveness of its internal control over financial reporting as of December 31, 2017. In making this assessment,
management used the framework set forth in Internal Control—Integrated Framework (2013 Framework) issued by the Committee of the Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, United’s Chief Executive Officer and Chief Financial Officer concluded that its
internal control over financial reporting was effective as of December 31, 2017.
This annual report does not include an attestation report of United’s registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by United’s registered public accounting firm pursuant to the rules of the Securities and Exchange
Commission that permit United to provide only management’s report in this annual report.
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ITEM 9B.
OTHER INFORMATION.
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Certain information required by this item with respect to UAL is incorporated by reference from UAL’s definitive proxy statement for its 2018 Annual
Meeting of Stockholders. Information regarding the executive officers of UAL is presented below.
Information required by this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form 10-K.
EXECUTIVE OFFICERS OF UAL
The executive officers of UAL as of February 23, 2018 are listed below, along with their ages, tenure as officer and business background for at least the last
five years.
Kate Gebo. Age 49. Ms. Gebo has served as Executive Vice President Human Resources and Labor Relations of UAL and United since December 2017.
From November 2016 to November 2017, Ms. Gebo served as Senior Vice President Global Customer Service Delivery and Chief Customer Officer of
United. From October 2015 to November 2016, Ms. Gebo served as Vice President of the Office of the Chief Executive Officer. From November 2009 to
October 2015, Ms. Gebo served as Vice President of Corporate Real Estate of United.
Brett J. Hart. Age 48. Mr. Hart has served as Executive Vice President, Chief Administrative Officer and General Counsel of UAL and United since May
2017. From February 2012 to May 2017, he served as Executive Vice President and General Counsel of UAL and United. Mr. Hart served as acting Chief
Executive Officer and principal executive officer of the Company, on an interim basis, from October 2015 to March 2016. From December 2010 to
February 2012, he served as Senior Vice President, General Counsel and Secretary of UAL, United and Continental Airlines, Inc. (“Continental”). From
June 2009 to December 2010, Mr. Hart served as Executive Vice President, General Counsel and Corporate Secretary at Sara Lee Corporation, a consumer
food and beverage company. From March 2005 to May 2009, Mr. Hart served as Deputy General Counsel and Chief Global Compliance Officer of Sara
Lee Corporation.
Gregory L. Hart. Age 52. Mr. Hart has served as Executive Vice President and Chief Operations Officer of UAL and United since February 2014. From
December 2013 to February 2014, he served as Senior Vice President Operations of UAL and United. From September 2012 to December 2013, Mr. Hart
served as Senior Vice President Technical Operations of United. From October 2010 to September 2012, Mr. Hart served as Senior Vice President Network
of United and Continental. From September 2008 to September 2010, Mr. Hart served as Vice President Network Strategy of Continental. Mr. Hart joined
Continental in 1997.
Linda P. Jojo. Age 52. Ms. Jojo has served as Executive Vice President Technology and Chief Digital Officer of UAL and United since May 2017. From
November 2014 to May 2017, Ms. Jojo served as Executive Vice President and Chief Information Officer of UAL and United. From July 2011 to October
2014, Ms. Jojo served as Executive Vice President and Chief Information Officer of Rogers Communications, Inc., a Canadian communications and media
company. From October 2008 to June 2011, Ms. Jojo served as Chief Information Officer of Energy Future Holdings, a Dallas-based privately held energy
company and electrical utility provider.
Chris Kenny. Age 53. Mr. Kenny has served as Vice President and Controller of UAL and United since October 2010. From September 2003 to September
2010, Mr. Kenny served as Vice President and Controller of Continental. Mr. Kenny joined Continental in 1997.
J. Scott Kirby. A ge 50. Mr. Kirby has served as President of UAL and United since August 2016. Prior to joining the Company, from December 2013 to
August 2016, Mr. Kirby served as President of American Airlines
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Group and American Airlines, Inc. Mr. Kirby also previously served as President of US Airways from October 2006 to December 2013. Mr. Kirby held
significant other leadership roles at US Airways and at America West prior to the 2005 merger of those carriers, including Executive Vice President—Sales
and Marketing (2001 to 2006); Senior Vice President, e-business (2000 to 2001); Vice President, Revenue Management (1998 to 2000); Vice President,
Planning (1997 to 1998); and Senior Director, Scheduling and Planning (1995 to 1998). Prior to joining America West, Mr. Kirby worked for American
Airlines Decision Technologies and at the Pentagon.
Andrew C. Levy. Age 48. Mr. Levy has served as Executive Vice President and Chief Financial Officer of UAL and United since August 2016. From
November 2014 to August 2016, he was the Chief Executive Officer and Managing Partner of AML Ventures, LLC, an investment and advisory firm
specializing in the airline industry. Previously, Mr. Levy held leadership roles at Allegiant Travel Company (“Allegiant”) for thirteen years, including as
Chief Operating Officer and a Director from September 2013 to October 2014; President from September 2009 to October 2014; Chief Financial Officer
from October 2007 to May 2010; and Managing Director, Planning & Treasurer from April 2001 to October 2010. Prior to joining Allegiant, Mr. Levy
worked at Mpower Communications, Inc., Savoy Capital and ValuJet Airlines, Inc.
Oscar Munoz. Age 59. Mr. Munoz has served as Chief Executive Officer of UAL and United since September 2015, and also as President of UAL and
United from September 2015 until August 2016. From February 2015 to September 2015, Mr. Munoz served as President and Chief Operating Officer of
CSX Corporation (“CSX”), a railroad and intermodal transportation services company, overseeing operations, sales and marketing, human resources,
service design and information technology. Prior to his appointment as President and Chief Operating Officer of CSX, Mr. Munoz served as Executive Vice
President and Chief Operating Officer of CSX from January 2012 to February 2015 and as Executive Vice President and Chief Financial Officer of CSX
from 2003 to 2012. Mr. Munoz has been a member of the UAL Board of Directors since 2010.
Andrew P. Nocella. Age 48. Mr. Nocella has served as Executive Vice President and Chief Commercial Officer of UAL and United since September 2017.
From February 2017 to September 2017, he served as Executive Vice President and Chief Revenue Officer of UAL and United. Prior to joining the
Company, from August 2016 to February 2017, Mr. Nocella served as Senior Vice President, Alliances and Sales of American Airlines, Inc. From
December 2013 to August 2016, he served as Senior Vice President and Chief Marketing Officer of American Airlines, Inc. From August 2007 to
December 2013, he served as Senior Vice President, Marketing and Planning of US Airways.
There are no family relationships among the executive officers or the directors of UAL. The executive officers are elected by UAL’s Board of Directors
each year and hold office until the next annual meeting of stockholders, until their successors are elected and qualified, or until their earlier death,
resignation or removal.
The Company has a code of ethics, the “Code of Ethics and Business Conduct,” for its directors, officers and employees. The code serves as a “Code of
Ethics” as defined by SEC regulations, and as a “Code of Business Conduct and Ethics” under the listed Company Manual of the NYSE. The code is
available on the Company’s website at http://ir.united.com. Waivers granted to certain officers from compliance with or future amendments to the code will
be disclosed on the Company’s website in accordance with Item 5.05 of Form 8-K.
ITEM 11.
EXECUTIVE COMPENSATION.
Information required by this item with respect to UAL is incorporated by reference from UAL’s definitive proxy statement for its 2018 Annual Meeting of
Stockholders.
Information required by this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
Information required by this item with respect to UAL is incorporated by reference from UAL’s definitive proxy statement for its 2018 Annual Meeting of
Stockholders.
Information required by this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form 10-K.
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ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Information required by this item with respect to UAL is incorporated by reference from UAL’s definitive proxy statement for its 2018 Annual Meeting of
Stockholders.
Information required by this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The Audit Committee of the UAL Board of Directors has adopted a policy on pre-approval of services of the Company’s independent registered public
accounting firm. As a wholly-owned subsidiary of UAL, United’s audit services are determined by UAL. The policy provides that the Audit Committee
shall pre-approve all audit and non-audit services to be provided to UAL and its subsidiaries and affiliates by its independent auditors. The process by which
this is carried out is as follows:
For recurring services, the Audit Committee reviews and pre-approves the independent registered public accounting firm’s annual audit services in
conjunction with the annual appointment of the outside auditors. The reviewed materials include a description of the services along with related fees. The
Audit Committee also reviews and pre-approves other classes of recurring services along with fee thresholds for pre-approved services. In the event that the
additional services are required prior to the next scheduled Audit Committee meeting, pre-approvals of additional services follow the process described
below.
Any requests for audit, audit related, tax and other services not contemplated with the recurring services approval described above must be submitted to the
Audit Committee for specific pre-approval and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly
scheduled meetings. However, the authority to grant specific pre-approval between meetings, as necessary, has been delegated to the Chair of the Audit
Committee. The Chair must update the Audit Committee at the next regularly scheduled meeting of any services that were granted specific pre-approval.
On a periodic basis, the Audit Committee reviews the status of services and fees incurred year-to-date and a list of newly pre-approved services since its last
regularly scheduled meeting. The Audit Committee has considered whether the 2017 and 2016 non-audit services provided by Ernst & Young LLP, the
Company’s independent registered public accounting firm, are compatible with maintaining auditor independence.
All of the services in 2017 and 2016 under the Audit Fees, Audit Related Fees, Tax Fees and All Other Fees categories below have been approved by the
Audit Committee pursuant to paragraph (c)(7) of Rule 2-01 of Regulation S-X of the Exchange Act.
The aggregate fees billed for professional services rendered by the Company’s independent auditors in 2017 and 2016 are as follows (in thousands):
Service
Audit Fees
Audit Related Fees
Tax Fees
All Other Fees
Note: UAL and United amounts are the same.
107
2017
2016
$
4,548 $
3,751
565
584
215
1,252
2
2
$ 5,699 $ 5,220
Table of Contents
AUDIT FEES
For 2017 and 2016, audit fees consist primarily of the audit and quarterly reviews of the consolidated financial statements and the audit of the effectiveness
of internal control over financial reporting of United Continental Holdings, Inc. and its wholly-owned subsidiaries. Audit fees also include the audit of the
consolidated financial statements of United, employee benefit plan audits, attestation services required by statute or regulation, comfort letters, consents,
assistance with and review of documents filed with the SEC, and accounting and financial reporting consultations and research work necessary to comply
with generally accepted auditing standards.
AUDIT RELATED FEES
For 2017 and 2016, fees for audit related services consisted of professional services related to due diligence and consultations related to the adoption of new
accounting standards.
TAX FEES
Tax fees for 2017 and 2016 relate to professional services provided for research and consultations regarding tax accounting and tax compliance matters,
review of U.S. and international tax impacts of certain transactions and assistance in assembling data to prepare for and respond to governmental reviews of
past tax filings, exclusive of tax services rendered in connection with the audit.
ALL OTHER FEES
Fees for all other services billed in 2017 and 2016 consist of subscriptions to Ernst & Young LLP’s on-line accounting research tool.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV
(a)(1)
(2)
Financial Statements . The financial statements required by this item are listed in Part II, Item 8, Financial Statements and Supplementary
Data herein.
Financial Statement Schedules. The financial statement schedule required by this item is listed below and included in this report after the
signature page hereto.
Schedule II-Valuation and Qualifying Accounts for the years ended December 31, 2017, 2016 and 2015.
All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated
financial statements or notes thereto.
(b)
Exhibits. The exhibits required by this item are provided in the Exhibit Index.
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Exhibit No.
Registrant
Exhibit
Plan of Merger
EXHIBIT INDEX
*2.1
UAL
United
*2.2
United
*3.1
UAL
*3.2
UAL
*3.3
United
*3.4
United
*4.1
UAL
United
*4.2
UAL
United
*4.3
UAL
United
Agreement and Plan of Merger, dated as of May 2, 2010, by and among UAL Corporation, Continental Airlines, Inc.
and JT Merger Sub Inc. (schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (filed
as Exhibit 2.1 to UAL’s Form 8-K filed May 4, 2010, Commission file number 1-6033, and incorporated herein by
reference)
Agreement and Plan of Merger, dated as of March 28, 2013, by and between Continental Airlines, Inc. and United Air
Lines, Inc. (filed as Exhibit 2.1 to UAL’s Form 8-K filed April 3, 2013, Commission file number 1-6033, and
incorporated herein by reference)
Articles of Incorporation and Bylaws
Amended and Restated Certificate of Incorporation of United Continental Holdings, Inc. (filed as Exhibit 3.1 to UAL’s
Form 8-K filed October 1, 2010, Commission file number 1-6033, and incorporated herein by reference)
Amended and Restated Bylaws of United Continental Holdings, Inc. (filed as Exhibit 3.1 to UAL’s Form 10-Q for the
quarter ended March 31, 2016, Commission file number 1-6033, and incorporated herein by reference)
Amended and Restated Certificate of Incorporation of United Airlines, Inc. (filed as Exhibit 3.1 to UAL’s Form 8-K
filed April 3, 2013, Commission file number 1-6033, and incorporated herein by reference)
Amended and Restated By-laws of United Airlines, Inc. (filed as Exhibit 3.2 to UAL’s Form 8-K filed April 3, 2013,
Commission file number 1-6033, and incorporated herein by reference)
Instruments Defining Rights of Security Holders, Including Indentures
Amended and Restated Indenture, dated as of January 11, 2013, by and among United Continental Holdings, Inc. as
Issuer, United Air Lines, Inc. as Guarantor, and the Bank of New York Mellon Trust Company, N.A. as Trustee,
providing for issuance of 6% Notes due 2028, 6% Notes due 2026 and 8% Notes due 2024 (filed as Exhibit 4.6 to
UAL’s Form 10-K for the year ended December 31, 2012, Commission file number 1-6033, and incorporated herein by
reference)
First Supplemental Indenture, dated as of April 1, 2013, by and among United Continental Holdings, Inc., United
Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Amended and Restated
Indenture, dated as of January 11, 2013 (filed as Exhibit 4.1 to UAL’s Form 8-K filed April 3, 2013, Commission file
number 1-6033, and incorporated herein by reference)
Second Supplemental Indenture, dated as of September 13, 2013, by and among United Continental Holdings, Inc.,
United Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Amended and Restated
Indenture, dated as of January 11, 2013 (filed as Exhibit 4.1 to UAL’s Form 8-K filed September 19, 2013,
Commission file number 1-6033, and incorporated herein by reference)
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*4.4
United
*4.5
UAL
United
*4.6
UAL
United
*4.7
UAL
United
*4.8
UAL
United
*4.9
*4.10
*4.11
*4.12
*4.13
*4.14
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Indenture, dated as of July 15, 1997, between Continental Airlines, Inc. and The Bank of New York Mellon Trust
Company, N.A. (as successor to Bank One, N.A.), as trustee related to Continental Airlines, Inc.’s 4.5% Convertible
Notes due 2015 (filed as Exhibit to 4.1 to Continental’s Form S-3/A filed July 18, 1997, Commission file number
1-10323, and incorporated herein by reference)
Fourth Supplemental Indenture, dated as of October 1, 2010, by and among Continental Airlines, Inc., United
Continental Holdings, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, with respect to the
Indenture, dated as of July 15, 1997, between Continental Airlines, Inc. and The Bank of New York Mellon Trust
Company, N.A. (as successor to Bank One, N.A.), as trustee related to Continental Airlines, Inc.’s 4.5% Convertible
Notes due 2015 (filed as Exhibit 4.3 to UAL’s Form 8-K dated October 1, 2010, Commission file number 1-6033, and
incorporated herein by reference)
Fifth Supplemental Indenture, dated as of May 15, 2014, among United Continental Holdings, Inc., United Airlines,
Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (filed as Exhibit 4.1 to UAL’s Form 8-K
filed on May 19, 2014, Commission file number 1-6033, and incorporated herein by reference)
Indenture, dated as of May 7, 2013, among United Continental Holdings, Inc., United Airlines, Inc. and The Bank of
New York Mellon Trust Company, N.A., as Trustee (filed as Exhibit 4.1 to UAL’s Form 8-K filed on May 10, 2013,
Commission file number 1-6033, and incorporated herein by reference)
First Supplemental Indenture, dated as of May 7, 2013, among United Continental Holdings, Inc., United Airlines,
Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, providing for the issuance of 6.375%
Senior Notes due 2018 (filed as Exhibit 4.2 to UAL’s Form 8-K filed on May 10, 2013, Commission file number
1-6033, and incorporated herein by reference)
Form of 6.375% Senior Notes due 2018 (filed as Exhibit A to Exhibit 4.2 to UAL’s Form 8-K filed on May 10, 2013,
Commission file number 1-6033, and incorporated herein by reference)
Form of Notation of Note Guarantee (filed as Exhibit B to Exhibit 4.2 to UAL’s Form 8-K filed on May 10, 2013,
Commission file number 1-6033, and incorporated herein by reference)
Second Supplemental Indenture, dated as of November 8, 2013, among United Continental Holdings, Inc., United
Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, providing for the issuance of
6.000% Senior Notes due 2020 (filed as Exhibit 4.2 to UAL’s Form 8-K filed on November 12, 2013, Commission file
number 1-6033, and incorporated herein by reference)
Form of 6.000% Senior Notes due 2020 (filed as Exhibit 4.3 to UAL’s Form 8-K filed on November 12, 2013,
Commission file number 1-6033, and incorporated herein by reference)
Form of Notation of Note Guarantee (filed as Exhibit 4.4 to UAL’s Form 8-K filed on November 12, 2013,
Commission file number 1-6033, and incorporated herein by reference)
Third Supplemental Indenture, dated as of January 26, 2017, among United Continental Holdings, Inc., United
Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, providing for the issuance of
5.000% Senior Notes due 2024 (filed as Exhibit 4.2 to UAL’s Form 8-K filed January 27, 2017, Commission file
number 1-6033, and incorporated herein by reference)
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*4.15
*4.16
*4.17
UAL
United
UAL
United
UAL
United
*4.18
*4.19
UAL
United
UAL
United
*†10.1
UAL
*†10.2
UAL
†10.3 UAL
*†10.4
UAL
United
*†10.5
UAL
United
*†10.6
UAL
United
*†10.7
UAL
United
Form of 5.000% Senior Notes due 2024 (filed as Exhibit A to Exhibit 4.2 to UAL’s Form 8-K filed January 27, 2017,
Commission file number 1-6033, and incorporated herein by reference)
Form of Notation of Note Guarantee (filed as Exhibit B to Exhibit 4.2 to UAL’s Form 8-K filed January 27, 2017,
Commission file number 1-6033, and incorporated herein by reference)
Fourth Supplemental Indenture, dated as of September 29, 2017, among United Continental Holdings, Inc., United
Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, providing for the issuance of
4.250% Senior Notes due 2022 (filed as Exhibit 4.2 to UAL’s Form 8-K filed October 4, 2017, Commission file
number 1-6033, and incorporated herein by reference)
Form of 4.250% Senior Notes due 2022 (filed as Exhibit A to Exhibit 4.2 to UAL’s Form 8-K filed October 4, 2017,
Commission file number 1-6033, and incorporated herein by reference)
Form of Notation of Note Guarantee (filed as Exhibit B to Exhibit 4.2 to UAL’s Form 8-K filed October 4, 2017,
Commission file number 1-6033, and incorporated herein by reference)
Material Contracts
Agreement, dated April 19, 2016, by and among PAR Capital Management, Inc., Altimeter Capital Management, LP,
United Continental Holdings, Inc. and the other signatories listed on the signature page thereto (filed as Exhibit 10.1 to
UAL’s Form 8-K filed April 20, 2016, Commission file number 1-6033, and incorporated herein by reference)
United Continental Holdings, Inc. Profit Sharing Plan (amended and restated effective January 1, 2016) (Filed as
Exhibit 10.2 to UAL’s Form 10-K for the year ended December 31, 2016, Commission file number 1-6033, and
incorporated herein by reference)
First Amendment, dated January 29, 2018, to United Continental Holdings, Inc Profit Sharing Plan
Employment Agreement, dated December 31, 2015, among United Continental Holdings, Inc., United Airlines, Inc.
and Oscar Munoz (filed as Exhibit 10.1 to UAL’s Form 8-K/A filed January 7, 2016, Commission file number
1-6033, and incorporated herein by reference)
Amendment to Employment Agreement, dated April 19, 2016, by and among United Continental Holdings, Inc.,
United Airlines, Inc. and Oscar Munoz (filed as Exhibit 10.1 to UAL’s Form 8-K filed April 20, 2016, Commission
file number 1-6033, and incorporated herein by reference)
Second Amendment to Employment Agreement, dated April 21, 2017, by and among United Continental Holdings,
Inc., United Airlines, Inc. and Oscar Munoz (incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed on April 21, 2017, Commission file number 1-6033, and incorporated herein by reference)
SERP Agreement, dated as of October 1, 2010, by and among United Continental Holdings, Inc., Continental
Airlines, Inc. and James E. Compton (filed as Exhibit 10.12 to UAL’s Form 10-K for the year ended December 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
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*†10.8
UAL
United
*†10.9
UAL
United
*†10.10
*†10.11
*†10.12
UAL
United
UAL
United
UAL
United
*†10.13
UAL
*†10.14
UAL
*†10.15
*†10.16
*†10.17
UAL
United
UAL
United
UAL
United
*†10.18
UAL
SERP Agreement, dated as of October 1, 2010, by and among United Continental Holdings, Inc., Continental
Airlines, Inc. and Gerald Laderman (filed as Exhibit 10.2 to UAL’s Form 10-Q for the quarter ended September 30,
2015, Commission file number 1-10323, and incorporated herein by reference)
SERP Agreement, dated as of October 1, 2010, by and among United Continental Holdings, Inc., Continental
Airlines, Inc. and Michael P. Bonds (filed as Exhibit 10.10 to UAL’s Form 10-K for the year ended December 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
United Continental Holdings, Inc. Senior Officer Severance Plan (effective October 1, 2014) (filed as Exhibit 10.1 to
UAL’s Form 10-Q for the quarter ended September 30, 2015, Commission file number 1-10323, and incorporated
herein by reference)
Employment Agreement, dated as of October 1, 2010, by and among United Continental Holdings, Inc., United Air
Lines, Inc., Continental Airlines, Inc. and Jeffery A. Smisek (filed as Exhibit 10.21 to UAL’s Form 10-K for the year
ended December 31, 2010, Commission file number 1-6033, and incorporated herein by reference)
Performance Award Agreement, dated May 5, 2016, by and among United Continental Holdings, Inc., United
Airlines, Inc. and Brett J. Hart (filed as Exhibit 10.3 to UAL’s Form 10-Q for the quarter ended June 30, 2016,
Commission file number 1-6033, and incorporated herein by reference)
Form of Stock Option Award Notice pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation
Plan (filed as Exhibit 10.1 to UAL’s Form 10-Q for the quarter ended September 30, 2016, Commission file number
1-6033, and incorporated herein by reference)
Form of Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc. 2008 Incentive
Compensation Plan (filed as Exhibit 10.2 to UAL’s Form 10-Q for the quarter ended September 30, 2016,
Commission file number 1-6033, and incorporated herein by reference)
Confidentiality and Non-Competition Agreement, dated April 23, 2009, by and among Continental Airlines, Inc. and
Jeffery A. Smisek (filed as Exhibit 10.1 to Continental Airlines, Inc.’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009, Commission file number 1-10323, and incorporated herein by reference)
Separation Agreement, dated as of September 8, 2015, by and among United Continental Holdings, Inc., United
Airlines, Inc. and Jeffery A. Smisek (filed as Exhibit 10.1 to UAL’s Form 8-K filed September 8, 2015, Commission
file number 1-6033, and incorporated herein by reference)
Description of Benefits for Officers of United Continental Holdings, Inc. and United Airlines, Inc. (filed as Exhibit
10.11 to UAL’s Form 10-K for the year ended December 31, 2015, Commission file number 1-6033 and incorporated
herein by reference)
United Continental Holdings, Inc. Officer Travel Policy (filed as Exhibit 10.24 to UAL’s Form 10-K for the year
ended December 31, 2010, Commission file number 1-6033, and incorporated herein by reference)
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*†10.19
UAL
*†10.20
UAL
*†10.21
UAL
*†10.22
UAL
*†10.23
UAL
*†10.24
UAL
*†10.25
UAL
*†10.26
UAL
*†10.27
UAL
*†10.28
UAL
United Continental Holdings, Inc. 2008 Incentive Compensation Plan (filed as Annex A to UAL Corporation’s 2013
Definitive Proxy Statement filed on April 26, 2013, Commission file number 1-6033, and incorporated herein by
reference) (now named the United Continental Holdings, Inc. 2008 Incentive Compensation Plan)
First Amendment to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan (changing the name to
United Continental Holdings, Inc. 2008 Incentive Compensation Plan) (filed as Annex A to UAL’s Definitive Proxy
Statement filed on April 26, 2013, Commission file number 1-6033, and incorporated herein by reference)
Second Amendment to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan (filed as Exhibit
10.19 to UAL’s Form 10-K for the year ended December 31, 2016, Commission file number 1-6033, and incorporated
herein by reference)
Form of Stock Option Award Notice pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation
Plan (filed as Exhibit 10.5 to UAL’s Form 10-Q for the quarter ended June 30, 2008, Commission file number
1-6033, and incorporated herein by reference)
Form of Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc. 2008 Incentive
Compensation Plan (stock settled) (filed as Exhibit 10.21 to UAL’s Form 10-K for the year ended December 31, 2016,
Commission file number 1-6033, and incorporated herein by reference)
Form of Restricted Share Award Notice pursuant to the United Continental Holdings, Inc. 2008 Incentive
Compensation Plan (awards during and after 2014) (filed as Exhibit 10.27 to UAL’s Form 10-K for the year ended
December 31, 2013, Commission file number 1-6033, and incorporated by reference)
United Continental Holdings, Inc. Performance-Based Restricted Stock Unit Program (adopted pursuant to the United
Continental Holdings, Inc. 2008 Incentive Compensation Plan) (filed as Exhibit 10.31 to UAL’s Form 10-K for the
year ended December 31, 2010, Commission file number 1-6033, and incorporated herein by reference)
First Amendment to the United Continental Holdings, Inc. Performance-Based Restricted Stock Unit Program
(adopted pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan) (effective with respect
to performance periods beginning on or after January 1, 2012) (filed as Exhibit 10.33 to UAL’s Form 10-K for the
year ended December 31, 2011, Commission file number 1-6033, and incorporated herein by reference)
Second Amendment to the United Continental Holdings, Inc. Performance-Based Restricted Stock Unit Program
(adopted pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan) (filed as Exhibit 10.29
to UAL’s Form 10-K for the year ended December 31, 2012, Commission file number 1-6033, and incorporated herein
by reference)
Third Amendment to the United Continental Holdings, Inc. Performance-Based Restricted Stock Unit Program
(adopted pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan) (filed as Exhibit 10.1
to UAL’s Form 10-Q for the quarter ended March 31, 2015, Commission file number 1-6033, and incorporated herein
by reference)
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*†10.29
UAL
*†10.30
UAL
*†10.31
UAL
*†10.32
UAL
*†10.33
UAL
*†10.34
UAL
*†10.35
UAL
*†10.36
UAL
*†10.37
UAL
Fourth Amendment to the United Continental Holdings, Inc. Performance-Based Restricted Stock Unit Program
(adopted pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan) (filed as Exhibit 10.22
to UAL’s Form 10-K for the year ended December 31, 2015, Commission file number 1-6033 and incorporated herein
by reference)
Form of Performance-Based Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc.
Performance-Based Restricted Stock Unit Program (ROIC awards) (filed as Exhibit 10.23 to UAL’s Form 10-K for
the year ended December 31, 2015, Commission file number 1-6033 and incorporated herein by reference)
Form of Performance-Based Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc.
Performance-Based Restricted Stock Unit Program (Relative Pre-tax Margin awards) (for performance periods
beginning on or after January 1, 2015) (filed as Exhibit 10.2 to UAL’s Form 10-Q for the quarter ended March 31,
2015, Commission file number 1-6033, and incorporated herein by reference)
United Continental Holdings, Inc. Incentive Plan 2010, as amended and restated February 17, 2011 (previously
named the Continental Airlines, Inc. Incentive Plan 2010) (filed as Annex B to UAL’s Definitive Proxy Statement
filed April 26, 2013, Commission file number 1-6033, and incorporated herein by reference)
First Amendment to the United Continental Holdings, Inc. Incentive Plan 2010, as amended and restated February 17,
2011 (filed as Annex B to UAL’s 2013 Definitive Proxy Statement filed on April 26, 2013, Commission file number
1-6033, incorporated herein by reference)
United Continental Holdings, Inc. Annual Incentive Program (adopted pursuant to the United Continental Holdings,
Inc. Incentive Plan 2010) (as amended and restated February 21, 2013) (filed as Exhibit 10.43 to UAL’s Form 10-K
for the year ended December 31, 2012, Commission file number 1-6033, and incorporated herein by reference)
United Continental Holdings, Inc. Long-Term Relative Performance Program (adopted pursuant to the United
Continental Holdings, Inc. Incentive Plan 2010) (filed as Exhibit 10.43 to UAL’s Form 10-K for the year ended
December 31, 2010, Commission file number 1-6033, and incorporated herein by reference)
First Amendment to the United Continental Holdings, Inc. Long-Term Relative Performance Program (adopted
pursuant to the United Continental Holdings, Inc. Incentive Plan 2010) (effective with respect to performance periods
beginning on or after January 1, 2012) (filed as Exhibit 10.49 to UAL’s Form 10-K for the year ended December 31,
2011, Commission file number 1-6033, and incorporated herein by reference)
Second Amendment to the United Continental Holdings, Inc. Long-Term Relative Performance Program (adopted
pursuant to the United Continental Holdings, Inc. Incentive Plan 2010) (effective with respect to performance periods
beginning on or after January 1, 2014) (filed as Exhibit 10.40.2 to UAL’s Form 10-K for the year ended December 31,
2013, Commission file number 1-6033, and incorporated herein by reference)
114
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*†10.38
UAL
*†10.39
UAL
*†10.40
UAL
*†10.41
UAL
*†10.42
UAL
*†10.43
UAL
*†10.44
UAL
*†10.45
UAL
*†10.46
UAL
*†10.47
UAL
*†10.48
UAL
*†10.49
UAL
Form of Annual Incentive Program Award Notice pursuant to the United Continental Holdings, Inc. Annual Incentive
Program (for fiscal years beginning on or after January 1, 2013) (filed as Exhibit 10.47 to UAL’s Form 10-K for the
year ended December 31, 2012, Commission file number 1-6033, and incorporated herein by reference)
Form of Long-Term Relative Performance Award Notice pursuant to the United Continental Holdings, Inc. Long-
Term Relative Performance Program (for use with respect to performance periods beginning January 1, 2014) (filed as
Exhibit 10.45 to UAL’s Form 10-K for the year ended December 31, 2013, Commission file number 1-6033, and
incorporated herein by reference)
Description of Compensation and Benefits for United Continental Holdings, Inc. Non-Employee Directors (filed as
Exhibit 10.30 to UAL’s Form 10-K for the year ended December 31, 2014, Commission file number 1-6033, and
incorporated herein by reference)
United Continental Holdings, Inc. 2006 Director Equity Incentive Plan (as amended and restated, effective
February 20, 2014, filed as Annex A to UAL’s Definitive Proxy Statement filed April 25, 2014, Commission file
number 1-6033, and incorporated herein by reference)
Form of Share Unit Award Notice pursuant to the United Continental Holdings, Inc. 2006 Director Equity Incentive
Plan (for awards granted on or after June 2011) (filed as Exhibit 10.9 to UAL’s Form 10-Q for the quarter ended
June 30, 2014, Commission file number 1-6033, and incorporated herein by reference)
Continental Airlines, Inc. 1998 Stock Incentive Plan (filed as Exhibit 4.3 to Continental’s Form S-8 Registration
Statement (No. 333-57297), Commission file number 1-10323, and incorporated herein by reference)
Amendment No. 1 to 1998 Incentive Plan, 1997 Incentive Plan and 1994 Incentive Plan (filed as Exhibit 10.2 to
Continental’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, Commission file no. 1-10323, and
incorporated herein by reference)
Amendment to 1998 Incentive Plan, 1997 Incentive Plan and 1994 Incentive Plan (filed as Exhibit 10.5 to
Continental’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, Commission file no. 1-10323 and
incorporated herein by reference)
Form of Outside Director Stock Option Grant pursuant to the Continental Airlines, Inc. 1998 Incentive Plan (filed as
Exhibit 10.12(c) to Continental’s Form 10-K for the year ended December 31, 2006, Commission file number
1-10323, and incorporated herein by reference)
Continental Airlines, Inc. Incentive Plan 2000, as amended and restated (filed as Exhibit 10.1 to Continental’s Form
10-Q for the quarter ended March 31, 2002, Commission file number 1-10323, and incorporated herein by reference)
Amendment to Incentive Plan 2000, dated as of March 12, 2004 (filed as Exhibit 10.6 to Continental’s Form 10-Q for
the quarter ended March 31, 2004, Commission file number 1-10323, and incorporated herein by reference)
Second Amendment to Incentive Plan 2000, dated as of June 6, 2006 (filed as Exhibit 10.1 to Continental’s Form
10-Q for the quarter ended June 30, 2006, Commission file number 1-10323, and incorporated herein by reference)
115
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*†10.50
UAL
*†10.51
UAL
*†10.52
UAL
*†10.53
UAL
*†10.54
UAL
*†10.55
UAL
*†10.56
UAL
United
*†10.57
UAL
*†10.58
UAL
*†10.59
UAL
*†10.60
UAL
*†10.61
UAL
Third Amendment to Incentive Plan 2000, dated as of September 14, 2006 (filed as Exhibit 10.1 to Continental’s Form
10-Q for the quarter ended September 30, 2006, Commission file number 1-10323, and incorporated herein by
reference)
Form of Outside Director Stock Option Agreement pursuant to Incentive Plan 2000 (filed as Exhibit 10.14(b) to
Continental’s Form 10-K for the year ended December 31, 2000, Commission file number 1-10323, and incorporated
herein by reference)
Form of Outside Director Stock Option Grant pursuant to Incentive Plan 2000 (filed as Exhibit 10.1 to Continental’s
Form 10-Q for the quarter ended March 31, 2008, Commission file number 1-10323, and incorporated herein by
reference)
Form of Non-Employee Director Option Grant Document pursuant to Continental Airlines, Inc. Incentive Plan 2010,
as amended and restated through February 17, 2010 (filed as Exhibit 10.12(a) to Continental’s Form 10-K for the year
ended December 31, 2009, Commission file number 1-10323, and incorporated herein by reference)
United Air Lines, Inc. Management Cash Direct & Cash Match Program (amended and restated effective January 1,
2014) (filed as Exhibit 10.64 to UAL’s Form 10-K for the year ended December 31, 2013, Commission file number
1-10323, and incorporated herein by reference)
United Continental Holdings, Inc. Executive Severance Plan (effective October 1, 2014) (filed as Exhibit 10.1 to
UAL’s Form 8-K filed June 20, 2014, Commission file number 1-6033, and incorporated herein by reference)
Separation Agreement, dated as of February 9, 2017, by and among United Continental Holdings, Inc., United
Airlines, Inc. and Julia Haywood (filed as Exhibit 10.2 to UAL’s Form 10-Q for the quarter ended March 31, 2017,
Commission file number 1-6033, and incorporated herein by reference)
First Amendment to the United Continental Holdings, Inc. 2006 Director Equity Incentive Plan (as amended and
restated on February 20, 2014) (filed as Exhibit 10.3 to UAL’s Form 10-Q for the quarter ended March 31, 2017,
Commission file number 1-6033, and incorporated herein by reference)
United Continental Holdings, Inc. 2017 Incentive Compensation Plan (filed as Exhibit 10.1 to UAL’s Form 8-K filed
on May 30, 2017, Commission file number 1-6033, and incorporated herein by reference)
Form of Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc. 2017 Incentive
Compensation Plan (filed as Exhibit 10.6 to UAL’s Form 10-Q for the quarter ended June 30, 2017, Commission file
number 1-6033, and incorporated herein by reference)
Form of Stock Option Award Notice pursuant to the United Continental Holdings, Inc. 2017 Incentive Compensation
Plan (filed as Exhibit 10.7 to UAL’s Form 10-Q for the quarter ended June 30, 2017, Commission file number
1-6033, and incorporated herein by reference)
United Continental Holdings, Inc. Performance-Based RSU Program (adopted pursuant to the United Continental
Holdings, Inc. 2017 Incentive Compensation Plan) (filed as Exhibit 10.8 to UAL’s Form 10-Q for the quarter ended
June 30, 2017, Commission file number 1-6033, and incorporated herein by reference)
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UAL
†10.63
UAL
†10.64
UAL
*^10.65
*^10.66
*^10.67
*^10.68
*^10.69
*^10.70
*^10.71
*^10.72
*^10.73
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Form of Performance-Based RSU Award Notice pursuant to the United Continental Holdings, Inc. Performance-Based
RSU Program (Relative Pre-tax Margin awards) (filed as Exhibit 10.9 to UAL’s Form 10-Q for the quarter ended
June 30, 2017, Commission file number 1-6033, and incorporated herein by reference)
United Continental Holdings, Inc. Annual Incentive Program (adopted pursuant to the United Continental Holdings,
Inc. 2017 Incentive Compensation Plan)
Form of Annual Incentive Plan Award Notice pursuant to the United Continental Holdings, Inc. Annual Incentive
Program (adopted pursuant to the United Continental Holdings, Inc. 2017 Incentive Compensation Plan)
Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines.
Inc. (filed as Exhibit 10.27 to UAL’s Form 10-Q for the quarter ended March 31, 2010, Commission file number
1-6033, and incorporated herein by reference)
Letter Agreement No. 1 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.28 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement No. 2 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.29 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Amended and Restated Letter Agreement No. 2 to the Airbus A350-900XWB Purchase Agreement, dated June 19,
2013 (filed as Exhibit 10.9 to UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number
1-6033, and incorporated herein by reference)
Letter Agreement No. 3 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.30 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Amended and Restated Letter Agreement No. 3 to the Airbus A350-900XWB Purchase Agreement, dated June 19,
2013 (filed as Exhibit 10.10 to UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number
1-6033, and incorporated herein by reference)
Letter Agreement No. 4 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.31 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Amended and Restated Letter Agreement No. 4 to the Airbus A350-900XWB Purchase Agreement, dated June 19,
2013 (filed as Exhibit 10.11 to UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number
1-6033, and incorporated herein by reference)
Letter Agreement No. 5 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.32 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
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*^10.81
*^10.82
*^10.83
*^10.84
*^10.85
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Letter Agreement No. 6 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.33 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement No. 7 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.34 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement No. 8 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.35 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement No. 9 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.36 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement No. 10 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.37 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement No. 11 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.38 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement No. 12 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.39 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement No. 13 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among
Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.40 to UAL’s Form 10-Q for the quarter ended March 31,
2010, Commission file number 1-6033, and incorporated herein by reference)
Amendment No. 1 to the Airbus A350-900XWB Purchase Agreement, dated June 25, 2010, by and among Airbus
S.A.S and United Air Lines, Inc. (filed as Exhibit 10.6 to UAL’s Form 10-Q for the quarter ended June 30, 2010,
Commission file number 1-6033, and incorporated herein by reference)
Amendment No. 2 to the Airbus A350-900XWB Purchase Agreement, dated June 19, 2013 (filed as Exhibit 10.8 to
UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number 1-6033, and incorporated herein by
reference)
Amended and Restated Letter Agreement No. 5 to the Airbus A350-900XWB Purchase Agreement, dated June 19,
2013 (filed as Exhibit 10.12 to UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number
1-6033, and incorporated herein by reference)
Amended and Restated Letter Agreement No. 6 to the Airbus A350-900XWB Purchase Agreement, dated June 19,
2013 (filed as Exhibit 10.13 to UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number
1-6033, and incorporated herein by reference)
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*^10.91
*^10.92
*^10.93
*^10.94
*^10.95
*^10.96
*^10.97
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Amended and Restated Letter Agreement No. 7 to the Airbus A350-900XWB Purchase Agreement, dated June 19,
2013 (filed as Exhibit 10.14 to UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number
1-6033, and incorporated herein by reference)
Amended and Restated Letter Agreement No. 10 to the Airbus A350-900XWB Purchase Agreement, dated June 19,
2013 (filed as Exhibit 10.15 to UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number
1-6033, and incorporated herein by reference)
Amended and Restated Letter Agreement No. 12 to the Airbus A350-900XWB Purchase Agreement, dated June 19,
2013 (filed as Exhibit 10.16 to UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number
1-6033, and incorporated herein by reference)
Letter Agreement No. 14 to the Airbus A350-900XWB Purchase Agreement, dated May 6, 2016, between Airbus
S.A.S. and United Airlines, Inc. (filed as Exhibit 10.6 to UAL’s Form 10-Q for the quarter ended June 30, 2016,
Commission file number 1-6033, and incorporated herein by reference)
Amendment No. 3, dated March 14, 2017, to Airbus A350-900XWB Purchase Agreement, dated March 5, 2010,
between Airbus S.A.S. and United Airlines, Inc. (filed as Exhibit 10.1 to UAL’s Form 10-Q for the quarter ended
March 31, 2017, Commission file number 1-6033, and incorporated herein by reference)
Amended and Restated A350-900 Purchase Agreement, dated September 1, 2017, including letter agreements related
thereto, between Airbus S.A.S. and United Airlines, Inc. (filed as Exhibit 10.1 to UAL’s Form 10-Q for the quarter
ended September 30, 2017, Commission file number 1-6033, and incorporated herein by reference)
Purchase Agreement No. 1951, including exhibits and side letters thereto, dated July 23, 1996, by and among
Continental and Boeing (filed as Exhibit 10.8 to Continental’s Form 10-Q for the quarter ended June 30, 1996,
Commission file number 1-10323, and incorporated herein by reference)
Supplemental Agreement No. 1 to Purchase Agreement No. 1951, dated October 10, 1996 (filed as Exhibit 10.14(a)
to Continental’s Form 10-K for the year ended December 31, 1996, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 2 to Purchase Agreement No. 1951, dated March 5, 1997 (filed as Exhibit 10.3 to
Continental’s Form 10-Q for the quarter ended March 31, 1997, Commission file number 1-10323 and incorporated
herein by reference)
Supplemental Agreement No. 3, including exhibit and side letter, to Purchase Agreement No. 1951, dated July 17,
1997 (filed as Exhibit 10.14(c) to Continental’s Form 10-K for the year ended December 31, 1997, Commission file
number 1-10323, and incorporated herein by reference)
Supplemental Agreement No. 4, including exhibits and side letters, to Purchase Agreement No. 1951, dated October
10, 1997 (filed as Exhibit 10.14(d) to Continental’s Form 10-K for the year ended December 31, 1997, Commission
file number 1-10323, and incorporated herein by reference)
Supplemental Agreement No. 5, including exhibits and side letters, to Purchase Agreement No. 1951, dated October
10, 1997 (filed as Exhibit 10.1 to Continental’s Form 10-Q for the quarter ended June 30, 1998, Commission file
number 1-10323, and incorporated herein by reference)
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*^10.98
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*^10.103
*^10.104
*^10.105
*^10.106
*^10.107
*^10.108
*^10.109
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Supplemental Agreement No. 6, including exhibits and side letters, to Purchase Agreement No. 1951, dated July 30,
1998 (filed as Exhibit 10.1 to Continental’s Form 10-Q for the quarter ended September 30, 1998, Commission file
number 1-10323, and incorporated herein by reference)
Supplemental Agreement No. 7, including side letters, to Purchase Agreement No. 1951, dated November 12, 1998
(filed as Exhibit 10.24(g) to Continental’s Form 10-K for the year ended December 31, 1998, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 8, including side letters, to Purchase Agreement No. 1951, dated December 7, 1998 (filed
as Exhibit 10.24(h) to Continental’s Form 10-K for the year ended December 31, 1998, Commission file number
1-10323, and incorporated herein by reference)
Letter Agreement No. 6-1162-GOC-131R1 to Purchase Agreement No. 1951, dated March 26, 1998 (filed as Exhibit
10.1 to Continental’s Form 10-Q for the quarter ended March 31, 1998, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 9, including side letters, to Purchase Agreement No. 1951, dated February 18, 1999 (filed
as Exhibit 10.4 to Continental’s Form 10-Q for the quarter ended March 31, 1999, Commission file number 1-10323,
and incorporated herein by reference)
Supplemental Agreement No. 10, including side letters, to Purchase Agreement No. 1951, dated March 19, 1999 (filed
as Exhibit 10.4(a) to Continental’s Form 10-Q for the quarter ended March 31, 1999, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 11, including side letters, to Purchase Agreement No. 1951, dated March 14, 1999 (filed
as Exhibit 10.7 to Continental’s Form 10-Q for the quarter ended June 30, 1999, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 12, including side letters, to Purchase Agreement No. 1951, dated July 2, 1999 (filed as
Exhibit 10.8 to Continental’s Form 10-Q for the quarter ended September 30, 1999, Commission file number 1-10323,
and incorporated herein by reference)
Supplemental Agreement No. 13 to Purchase Agreement No. 1951, dated October 13, 1999 (filed as Exhibit 10.25(n) to
Continental’s Form 10-K for the year ended December 31, 1999, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 14 to Purchase Agreement No. 1951, dated December 13, 1999 (filed as Exhibit 10.25(o)
to Continental’s Form 10-K for the year ended December 31, 1999, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 15, including side letters, to Purchase Agreement No. 1951, dated January 13, 2000 (filed
as Exhibit 10.1 to Continental’s Form 10-Q for the quarter ended March 31, 2000, Commission file number 1-10323,
and incorporated herein by reference)
Supplemental Agreement No. 16, including side letters, to Purchase Agreement No. 1951, dated March 17, 2000 (filed
as Exhibit 10.2 to Continental’s Form 10-Q for the quarter ended March 31, 2000, Commission file number 1-10323,
and incorporated herein by reference)
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*^10.118
*^10.119
*^10.120
*^10.121
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Supplemental Agreement No. 17, including side letters, to Purchase Agreement No. 1951, dated May 16, 2000 (filed as
Exhibit 10.2 to Continental’s Form 10-Q for the quarter ended June 30, 2000, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 18, including side letters, to Purchase Agreement No. 1951, dated September 11, 2000
(filed as Exhibit 10.6 to Continental’s Form 10-Q for the quarter ended September 30, 2000, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 19, including side letters, to Purchase Agreement No. 1951, dated October 31, 2000
(filed as Exhibit 10.20(t) to Continental’s Form 10-K for the year ended December 31, 2000, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 20, including side letters, to Purchase Agreement No. 1951, dated December 21, 2000
(filed as Exhibit 10.20(u) to Continental’s Form 10-K for the year ended December 31, 2000, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 21, including side letters, to Purchase Agreement No. 1951, dated March 30, 2001 (filed
as Exhibit 10.1 to Continental’s Form 10-Q for the quarter ended March 31, 2001, Commission file number 1-10323,
and incorporated herein by reference)
Supplemental Agreement No. 22, including side letters, to Purchase Agreement No. 1951, dated May 23, 2001 (filed as
Exhibit 10.3 to Continental’s Form 10-Q for the quarter ended June 30, 2001, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 23, including side letters, to Purchase Agreement No. 1951, dated June 29, 2001 (filed as
Exhibit 10.4 to Continental’s Form 10-Q for the quarter ended June 30, 2001, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 24, including side letters, to Purchase Agreement No. 1951, dated August 31, 2001 (filed
as Exhibit 10.11 to Continental’s Form 10-Q for the quarter ended September 30, 2001, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 25, including side letters, to Purchase Agreement No. 1951, dated December 31, 2001
(filed as Exhibit 10.22(z) to Continental’s Form 10-K for the year ended December 31, 2001, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 26, including side letters, to Purchase Agreement No. 1951, dated March 29, 2002 (filed
as Exhibit 10.4 to Continental’s Form 10-Q for the quarter ended March 31, 2002, Commission file number 1-10323,
and incorporated herein by reference)
Supplemental Agreement No. 27, including side letters, to Purchase Agreement No. 1951, dated November 6, 2002
(filed as Exhibit 10.22(ab) to Continental’s Form 10-K for the year ended December 31, 2002, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 28, including side letters, to Purchase Agreement No. 1951, dated April 1, 2003 (filed as
Exhibit 10.6 to Continental’s Form 10-Q for the quarter ended March 31, 2003, Commission file number 1-10323, and
incorporated herein by reference)
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*^10.129
*^10.130
*^10.131
*^10.132
*^10.133
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Supplemental Agreement No. 29, including side letters, to Purchase Agreement No. 1951, dated August 19, 2003 (filed
as Exhibit 10.2 to Continental’s Form 10-Q for the quarter ended September 30, 2003, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 30 to Purchase Agreement No. 1951, dated November 4, 2003 (filed as Exhibit 10.23(ae)
to Continental’s Form 10-K for the year ended December 31, 2003, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 31 to Purchase Agreement No. 1951, dated August 20, 2004 (filed as Exhibit 10.4 to
Continental’s Form 10-Q for the quarter ended September 30, 2004, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 32, including side letters, to Purchase Agreement No. 1951, dated December 29, 2004
(filed as Exhibit 10.21(ag) to Continental’s Form 10-K for the year ended December 31, 2004, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 33, including side letters, to Purchase Agreement No. 1951, dated December 29, 2004
(filed as Exhibit 10.21(ah) to Continental’s Form 10-K for the year ended December 31, 2004, Commission file number
1-10323, and incorporated herein by reference)
Supplemental Agreement No. 34 to Purchase Agreement No. 1951, dated June 22, 2005 (filed as Exhibit 10.3 to
Continental’s Form 10-Q for the quarter ended June 30, 2005, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 35 to Purchase Agreement No. 1951, dated June 30, 2005 (filed as Exhibit 10.4 to
Continental’s Form 10-Q for the quarter ended June 30, 2005, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 36 to Purchase Agreement No. 1951, dated July 28, 2005 (filed as Exhibit 10.1 to
Continental’s Form 10-Q for the quarter ended September 30, 2005, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 37 to Purchase Agreement No. 1951, dated March 30, 2006 (filed as Exhibit 10.2 to
Continental’s Form 10-Q for the quarter ended March 31, 2006, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 38 to Purchase Agreement No. 1951, dated June 6, 2006 (filed as Exhibit 10.3 to
Continental’s Form 10-Q for the quarter ended June 30, 2006, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 39 to Purchase Agreement No. 1951, dated August 3, 2006 (filed as Exhibit 10.4 to
Continental’s Form 10-Q for the quarter ended September 30, 2006, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 40 to Purchase Agreement No. 1951, dated December 5, 2006 (filed as Exhibit 10.23(ao)
to Continental’s Form 10-K for the year ended December 31, 2006, Commission file number 1-10323, and incorporated
herein by reference)
122
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*^10.134
*^10.135
*^10.136
*^10.137
*^10.138
*^10.139
*^10.140
*^10.141
*^10.142
*^10.143
*^10.144
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Supplemental Agreement No. 41 to Purchase Agreement No. 1951, dated June 1, 2007 (filed as Exhibit 10.1 to
Continental’s Form 10-Q for the quarter ended June 30, 2007, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 42 to Purchase Agreement No. 1951, dated June 12, 2007 (filed as Exhibit 10.2 to
Continental’s Form 10-Q for the quarter ended June 30, 2007, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 43 to Purchase Agreement No. 1951, dated July 18, 2007 (filed as Exhibit 10.1 to
Continental’s Form 10-Q for the quarter ended September 30, 2007, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 44 to Purchase Agreement No. 1951, dated December 7, 2007 (filed as Exhibit 10.21(as)
to Continental’s Form 10-K for the year ended December 31, 2007, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 45 to Purchase Agreement No. 1951, dated February 20, 2008 (filed as Exhibit 10.2 to
Continental’s Form 10-Q for the quarter ended March 31, 2008, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 46 to Purchase Agreement No. 1951, dated June 25, 2008 (filed as Exhibit 10.5 to
Continental’s Form 10-Q for the quarter ended June 30, 2008, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 47 to Purchase Agreement No. 1951, dated October 30, 2008 (filed as Exhibit 10.21(av)
to Continental’s Form 10-K for the year ended December 31, 2008, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 48 to Purchase Agreement No. 1951, dated January 29, 2009 (filed as Exhibit 10.3 to
Continental’s Form 10-Q for the quarter ended June 30, 2009, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 49 to Purchase Agreement No. 1951, dated May 1, 2009 (filed as Exhibit 10.4 to
Continental’s Form 10-Q for the quarter ended June 30, 2009, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 50 to Purchase Agreement No. 1951, dated July 23, 2009 (filed as Exhibit 10.2 to
Continental’s Form 10-Q for the quarter ended September 30, 2009, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 51 to Purchase Agreement No. 1951, dated August 5, 2009 (filed as Exhibit 10.3 to
Continental’s Form 10-Q for the quarter ended September 30, 2009, Commission file number 1-10323, and
incorporated herein by reference)
123
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*^10.145
*^10.146
*^10.147
*^10.148
*^10.149
*^10.150
*^10.151
*^10.152
*^10.153
*^10.154
*^10.155
*^10.156
*^10.157
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Supplemental Agreement No. 52 to Purchase Agreement No. 1951, dated August 31, 2009 (filed as Exhibit 10.4 to
Continental’s Form 10-Q for the quarter ended September 30, 2009, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 53 to Purchase Agreement No. 1951, dated December 23, 2009 (filed as Exhibit
10.22(bb) to Continental’s Form 10-K for the year ended December 31, 2009, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 54 to Purchase Agreement No. 1951, dated March 2, 2010 (filed as Exhibit 10.2 to
Continental’s Form 10-Q for the quarter ended March 31, 2010, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 55 to Purchase Agreement No. 1951, dated March 31, 2010 (filed as Exhibit 10.3 to
Continental’s Form 10-Q for the quarter ended March 31, 2010, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 56 to Purchase Agreement No. 1951, dated August 12, 2010 (filed as Exhibit 10.4 to
Continental’s Form 10-Q for the quarter ended September 30, 2010, Commission File Number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 57 to Purchase Agreement No. 1951, dated March 2, 2011 (filed as Exhibit 10.1 to UAL’s
Form 10-Q for the quarter ended March 31, 2011, Commission file number 1-6033, and incorporated herein by
reference)
Supplemental Agreement No. 58 to Purchase Agreement No. 1951, dated January 6, 2012 (filed as Exhibit 10.1 to
UAL’s Form 10-Q for the quarter ended March 31, 2012, Commission file number 1-6033, and incorporated herein by
reference)
Supplemental Agreement No. 59 to Purchase Agreement No. 1951, dated July 12, 2012 (filed as Exhibit 10.5 to UAL’s
Form 10-Q for the quarter ended September 30, 2012, Commission file number 1-6033, and incorporated herein by
reference)
Supplemental Agreement No. 60 to Purchase Agreement No. 1951, dated November 7, 2012 (filed as Exhibit 10.2 to
UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number 1-6033, and incorporated herein by
reference)
Supplemental Agreement No. 61 to Purchase Agreement No. 1951, dated September 11, 2013 (filed as Exhibit 10.1 for
the quarter ended September 30, 2013, Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 62 to Purchase Agreement No. 1951, dated January 14, 2015 (filed as Exhibit 10.3 for
the quarter ended March 31, 2015, Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 63 to Purchase Agreement No. 1951, dated May 26, 2015 (filed as Exhibit 10.1 for the
quarter ended June 30, 2015, Commission file number 1-10323, and incorporated herein by reference)
Supplemental Agreement No. 64 to Purchase Agreement No. 1951, dated June 12, 2015 (filed as Exhibit 10.2 for the
quarter ended June 30, 2015, Commission file number 1-10323, and incorporated herein by reference)
124
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*^10.159
*^10.160
*^10.161
*^10.162
*^10.163
*^10.164
*^10.165
*^10.166
*^10.167
*^10.168
*^10.169
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Aircraft General Terms Agreement, dated October 10, 1997, by and among Continental and Boeing (filed as Exhibit
10.15 to Continental’s Form 10-K for the year ended December 31, 1997, Commission File Number 1-10323, and
incorporated herein by reference)
Letter Agreement 6-1162-CHL-048, dated February 8, 2002, by and among Continental and Boeing (filed as Exhibit
10.44 to Continental’s Form 10-K for the year ended December 31, 2001, Commission file number 1-10323, and
incorporated herein by reference)
Purchase Agreement No. 2484, including exhibits and side letters, dated December 29, 2004, by and among
Continental and Boeing (filed as Exhibit 10.27 to Continental’s Form 10-K for the year ended December 31, 2004,
Commission file number 1-10323, and incorporated herein by reference)
Supplemental Agreement No. 1 to Purchase Agreement No. 2484, dated June 30, 2005 (filed as Exhibit 10.5 to
Continental’s Form 10-Q for the quarter ended June 30, 2005, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 2, including exhibits and side letters, to Purchase Agreement No. 2484, dated January 20,
2006 (filed as Exhibit 10.27(b) to Continental’s Form 10-K for the year ended December 31, 2005, Commission file
number 1-10323, and incorporated herein by reference)
Supplemental Agreement No. 3 to Purchase Agreement No. 2484, dated May 3, 2006 (filed as Exhibit 10.4 to
Continental’s Form 10-Q for the quarter ended June 30, 2006, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 4 to Purchase Agreement No. 2484, dated July 14, 2006 (filed as Exhibit 10.5 to
Continental’s Form 10-Q for the quarter ended September 30, 2006, Commission file number 1-10323, and
incorporated herein by reference)
Supplemental Agreement No. 5 to Purchase Agreement No. 2484, dated March 12, 2007 (filed as Exhibit 10.1 to
Continental’s Form 10-Q for the quarter ended March 31, 2007, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 6 to Purchase Agreement No. 2484, dated October 22, 2008 (filed as Exhibit 10.25(f) to
Continental’s Form 10-K for the year ended December 31, 2008, Commission file number 1-10323, and incorporated
herein by reference)
Supplemental Agreement No. 7 to Purchase Agreement No. 2484, dated November 7, 2012 (filed as Exhibit 10.179 to
UAL’s Form 10-K for the year ended December 31, 2012, Commission file number 1-6033, and incorporated herein by
reference)
Supplemental Agreement No. 8 to Purchase Agreement No. 2484, dated June 17, 2013 (filed as Exhibit 10.4 to UAL’s
Form 10-Q for the quarter ended June 30, 2013, Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 9 to Purchase Agreement No. 2484, dated June 6, 2014 (filed as Exhibit 10.4 to UAL’s
Form 10-Q for the quarter ended June 30, 2014, Commission file number 1-6033, and incorporated herein by reference)
125
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*^10.171
*^10.172
*^10.173
*^10.174
*^10.175
*^10.176
*^10.177
*^10.178
*^10.179
*^10.180
*^10.181
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Supplemental Agreement No. 10 to Purchase Agreement No. 2484, dated January 14, 2015 (filed as Exhibit 10.4 to
UAL’s Form 10-Q for the quarter ended March 31, 2015, Commission file number 1-6033, and incorporated herein by
reference)
Supplemental Agreement No. 11 to Purchase Agreement No. 2484, dated April 30, 2015 (filed as Exhibit 10.3 to
UAL’s Form 10-Q for the quarter ended June 30, 2015, Commission file number 1-10323, and incorporated herein by
reference)
Amended and Restated Letter Agreement No. 11, dated August 8, 2005, by and among Continental and General
Electric Company (filed as Exhibit 10.3 to Continental’s Form 10-Q for the quarter ended September 30, 2005,
Commission file number 1-10323, and incorporated herein by reference)
Agreement, dated May 7, 2003, by and among Continental and the United States of America, acting through the
Transportation Security Administration (filed as Exhibit 10.1 to Continental’s Form 10-Q for the quarter ended June 30,
2003, Commission file number 1-10323, and incorporated herein by reference)
Purchase Agreement No. PA-03784, dated July 12, 2012, between The Boeing Company and United Air Lines, Inc.
(filed as Exhibit 10.1 to UAL’s Form 10-Q for the quarter ended September 30, 2012, Commission file number 1-6033,
and incorporated herein by reference)
Supplemental Agreement No. 01 to Purchase Agreement No. PA-03784, dated September 27, 2012 (filed as Exhibit
10.2 to UAL’s Form 10-Q for the quarter ended September 30, 2012, Commission file number 1-6033, and
incorporated herein by reference)
Supplemental Agreement No. 02 to Purchase Agreement Number PA-03784, dated March 1, 2013 (filed as Exhibit
10.3 to UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number 1-6033, and incorporated
herein by reference)
Supplemental Agreement No. 03 to Purchase Agreement Number PA-03784, dated June 27, 2013 (filed as Exhibit 10.7
to UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number 1-6033, and incorporated herein by
reference)
Supplemental Agreement No. 04 to Purchase Agreement Number PA-03784, dated September 11, 2013 (filed as
Exhibit 10.2 to UAL’s Form 10-Q for the quarter ended September 30, 2013, Commission file number 1-6033, and
incorporated herein by reference)
Supplemental Agreement No. 05 to Purchase Agreement Number PA-03784, dated March 3, 2014 (filed as Exhibit
10.2 to UAL’s Form 10-Q for the quarter ended June 30, 2014, Commission file number 1-6033 and incorporated herein
by reference)
Supplemental Agreement No. 06 to Purchase Agreement Number PA-03784, dated June 6, 2014 (filed as Exhibit 10.3
to UAL’s Form 10-Q for the quarter ended June 30, 2014, Commission file number 1-6033, and incorporated herein by
reference)
Supplemental Agreement No. 07 to Purchase Agreement Number PA-03784, dated May 26, 2015 (filed as Exhibit 10.6
to UAL’s Form 10-Q for the quarter ended June 30, 2015, Commission file number 1-10323 and incorporated herein by
reference)
126
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*^10.183
*^10.184
*^10.185
*^10.186
*^10.187
*^10.188
*^10.189
*^10.190
*^10.191
*^10.192
*^10.193
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Supplemental Agreement No. 08 to Purchase Agreement Number PA-03784, dated June 12, 2015 (filed as Exhibit 10.7
to UAL’s Form 10-Q for the quarter ended June 30, 2015, Commission file number 1-10323 and incorporated herein by
reference)
Supplemental Agreement No. 9 to Purchase Agreement No. 03784, dated January 20, 2016, between The Boeing
Company and United Airlines, Inc. (filed as Exhibit 10.2 to UAL’s Form 10-Q for the quarter ended March 31, 2016,
Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 10 to Purchase Agreement No. 03784, dated February 8, 2016, between The Boeing
Company and United Airlines, Inc. (filed as Exhibit 10.4 to UAL’s Form 10-Q for the quarter ended March 31, 2016,
Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 11 to Purchase Agreement Number No. 03784, dated March 7, 2016, between The
Boeing Company and United Airlines, Inc. (filed as Exhibit 10.6 to UAL’s Form 10-Q for the quarter ended March 31,
2016, Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 12 to Purchase Agreement No. 03784, dated June 24, 2016, between The Boeing
Company and United Airlines, Inc. (filed as Exhibit 10.7 to UAL’s Form 10-Q for the quarter ended June 30, 2016,
Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 13 to Purchase Agreement No. 03784, dated December 27, 2016, between The Boeing
Company and United Airlines, Inc. (filed as Exhibit 10.174 to UAL’s Form 10-K for the year ended December 31,
2016, Commission file number 1-6033, and incorporated herein by reference)
Purchase Agreement No. PA-03776, dated July 12, 2012, between The Boeing Company and United Continental
Holdings, Inc. (filed as Exhibit 10.3 to UAL’s Form 10-Q for the quarter ended September 30, 2012, Commission file
number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 01 to Purchase Agreement No. 03776, dated June 17, 2013 (filed as Exhibit 10.5 to
UAL’s Form 10-Q for the quarter ended June 30, 2013, Commission file number 1-6033, and incorporated herein by
reference)
Purchase Agreement Assignment to Purchase Agreement No. 03776, dated October 23, 2013, between United
Continental Holdings, Inc. and United Airlines, Inc. (filed as Exhibit 10.3 to UAL’s Form 10-Q for the quarter ended
September 30, 2013, Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 02 to Purchase Agreement No. 03776, dated January 14, 2015 (filed as Exhibit 10.5 to
UAL’s Form 10-Q for the quarter ended March 31, 2015, Commission file number 1-6033, and incorporated herein by
reference)
Supplemental Agreement No. 03 to Purchase Agreement No. 03776, dated May 26, 2015 (filed as Exhibit 10.4 to
UAL’s Form 10-Q for the quarter ended June 30, 2015, Commission file number 1-10323, and incorporated herein by
reference)
Supplemental Agreement No. 04 to Purchase Agreement No. 03776, dated June 12, 2015 (filed as Exhibit 10.5 to
UAL’s Form 10-Q for the quarter ended June 30, 2015, Commission file number 1-10323, and incorporated herein by
reference)
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*^10.195
*^10.196
*^10.197
*^10.198
*^10.199
*^10.200
*^10.201
*^10.202
*^10.203
*^10.204
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Supplemental Agreement No. 5 to Purchase Agreement No. 03776, dated January 20, 2016, between The Boeing
Company and United Airlines, Inc. (filed as Exhibit 10.1 to UAL’s Form 10-Q for the quarter ended March 31, 2016,
Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 6 to Purchase Agreement No. 03776, dated February 8, 2016, between The Boeing
Company and United Airlines, Inc. (filed as Exhibit 10.3 to UAL’s Form 10-Q for the quarter ended March 31, 2016,
Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 7 to Purchase Agreement No. 03776, dated December 27, 2016, between The Boeing
Company and United Airlines, Inc. (filed as Exhibit 10.183 to UAL’s Form 10-K for the year ended December 31,
2016, Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 8, including exhibits and side letters, to Purchase Agreement No. 03776, dated June 7,
2017, between The Boeing Company and United Airlines, Inc. (filed as Exhibit 10.3 to UAL’s Form 10-Q for the
quarter ended June 30, 2017, Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 9, including exhibits and side letters, to Purchase Agreement No. 03776, dated June 15,
2017, between The Boeing Company and United Airlines, Inc. (filed as Exhibit 10.4 to UAL’s Form 10-Q for the
quarter ended June 30, 2017, Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement No. 6-1162-KKT-080, dated July 12, 2012, among Boeing, United Continental Holdings, Inc., United
Air Lines, Inc., and Continental Airlines, Inc. (filed as Exhibit 10.4 to UAL’s Form 10-Q for the quarter ended
September 30, 2012, Commission file number 1-6033, and incorporated herein by reference)
Purchase Agreement No. 3860, dated September 27, 2012, between Boeing and United Air Lines, Inc. (filed as Exhibit
10.6 to UAL’s Form 10-Q for the quarter ended September 30, 2012, Commission file number 1-6033, and
incorporated herein by reference)
Supplemental Agreement No. 1 to Purchase Agreement No. 3860, dated June 17, 2013 (filed as Exhibit 10.6 to UAL’s
Form 10-Q for the quarter ended June 30, 2013, Commission file number 1-6033, and incorporated herein by reference)
Supplemental Agreement No. 2 to Purchase Agreement No. 3860, dated December 16, 2013 (filed as Exhibit 10.1 to
UAL’s Form 10-Q for the quarter ended June 30, 2014, Commission file number 1-6033, and incorporated herein by
reference)
Supplemental Agreement No. 3 to Purchase Agreement No. 3860, dated as of July 22, 2014 (filed as Exhibit 10.3 to
UAL’s Form 10-Q for the quarter ended September 30, 2014, Commission file number 1-6033, and incorporated herein
by reference)
Supplemental Agreement No. 4 to Purchase Agreement No. 3860, dated as of January 14, 2015 (filed as Exhibit 10.6 to
UAL’s Form 10-Q for the quarter ended March 31, 2015, Commission file number 1-6033, and incorporated herein by
reference)
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*^10.206
*^10.207
*^10.208
*^10.209
*^10.210
*^10.211
*^10.212
*10.213
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
UAL
United
Supplemental Agreement No. 5 to Purchase Agreement No. 3860, dated as of April 30, 2015 (filed as Exhibit 10.8 to
UAL’s Form 10-Q for the quarter ended June 30, 2015, Commission file number 1-10323, and incorporated herein by
reference)
Supplemental Agreement No. 6 to Purchase Agreement No. 3860, dated as of December 31, 2015 (filed as Exhibit
10.178 to UAL’s Form 10-K for the year ended December 31, 2015, Commission file number 1-6033, and incorporated
herein by reference)
Supplemental Agreement No. 7 to Purchase Agreement No. 3860, dated March 7, 2016, between The Boeing Company
and United Airlines, Inc. (filed as Exhibit 10.5 to UAL’s Form 10-Q for the quarter ended March 31, 2016,
Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement to Purchase Agreement No. 3860, dated May 5, 2016, between The Boeing Company and United
Airlines, Inc. (filed as Exhibit 10.5 to UAL’s Form 10-Q for the quarter ended June 30, 2016, Commission file number
1-6033, and incorporated herein by reference)
Supplemental Agreement No. 8, including exhibits and side letters, to Purchase Agreement No. 3860, Dated June 15,
2017, between The Boeing Company and United Airlines, Inc. (filed as Exhibit 10.5 to UAL’s Form 10-Q for the
quarter ended June 30, 2017, Commission file number 1-6033, and incorporated herein by reference)
Letter Agreement No. UAL-LA-1604287 to Purchase Agreement Nos. 3776, 3784 and 3860, dated December 27, 2016,
between The Boeing Company and United Airlines, Inc. (filed as Exhibit 10.194 to UAL’s Form 10-K for the year
ended December 31, 2016, Commission file number 1-6033, and incorporated herein by reference)
Amendment No. 3, dated March 14, 2017, to Airbus A350-900XWB Purchase Agreement, dated March 5, 2010,
between Airbus S.A.S. and United Airlines, Inc. (filed as Exhibit 10.1 to UAL’s Form 10-Q for the quarter ended
March 31, 2017, Commission file number 1-6033, and incorporated herein by reference)
Amended and Restated A350-900 Purchase Agreement, dated September 1, 2017, including letter agreements related
thereto, between Airbus S.A.S. and United Airlines, Inc. (filed as Exhibit 10.1 to UAL’s Form 10-Q for the quarter
ended September 30, 2017, Commission file number 1-6033, and incorporated herein by reference)
Credit and Guaranty Agreement, dated as of March 27, 2013, among Continental Airlines, Inc. and United Air Lines,
Inc., as co-borrowers, United Continental Holdings, Inc., as parent and a guarantor, the subsidiaries of United
Continental Holdings, Inc. other than the co-borrowers party thereto from time to time, as guarantors, the lenders party
thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to UAL’s
Form 8-K filed March 28, 2013, Commission file number 1-6033, and incorporated herein by reference)
*10.214
UAL
United
First Amendment to Credit and Guaranty Agreement, dated as of March 27, 2014 (filed as Exhibit 10.1 to UAL’s Form
10-Q for the quarter ended March 31, 2014, Commission file number 1-6033, and incorporated herein by reference)
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*10.216
*10.217
*10.218
UAL
United
UAL
United
UAL
United
UAL
United
10.219
UAL
United
Second Amendment to Credit and Guaranty Agreement, dated as of July 25, 2014 (filed as Exhibit 10.1 to UAL’s Form
8-K filed September 19, 2014, Commission file number 1-6033, and incorporated herein by reference)
Third Amendment to Credit and Guaranty Agreement, dated as of September 15, 2014 (filed as Exhibit 10.2 to UAL’s
Form 8-K filed September 19, 2014, Commission file number 1-6033, and incorporated herein by reference)
Fourth Amendment to Credit and Guaranty Agreement, dated as of May 24, 2016 (filed as Exhibit 10.4 to UAL’s Form
10-Q for the quarter ended June 30, 2016, Commission file number 1-6033, and incorporated herein by reference)
Amended and Restated Credit and Guaranty Agreement, dated as of March 29, 2017, among United Airlines, Inc., as
borrower, United Continental Holdings, Inc., as parent and a guarantor, the subsidiaries of United Continental Holdings,
Inc. from time to time party thereto other than the borrower party thereto from time to time, as guarantors, the lenders
from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to
UAL’s Form 8-K filed April 3, 2017, Commission file number 1-6033, and incorporated herein by reference)
First Amendment, dated as of November 15, 2017, to Amended and Restated Credit Guaranty Agreement
Computation of Ratios
12.1 UAL
United Continental Holdings, Inc. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges
12.2 United
United Airlines, Inc. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges
21
UAL
United
23.1
UAL
List of Subsidiaries
List of United Continental Holdings, Inc. and United Airlines, Inc. Subsidiaries
Consents of Experts and Counsel
Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP) for United Continental Holdings,
Inc.
23.2 United
Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP) for United Airlines, Inc.
Rule 13a-14(a)/15d-14(a) Certifications
31.1
UAL
31.2
UAL
31.3
United
31.4
United
Certification of the Principal Executive Officer of United Continental Holdings, Inc. pursuant to 15 U.S.C. 78m(a) or
78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002)
Certification of the Principal Financial Officer of United Continental Holdings, Inc. pursuant to 15 U.S.C. 78m(a) or
78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002)
Certification of the Principal Executive Officer of United Airlines, Inc. pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
Certification of the Principal Financial Officer of United Airlines, Inc. pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
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32.1
UAL
32.2
United
101
UAL
United
Section 1350 Certifications
Certification of the Chief Executive Officer and Chief Financial Officer of United Continental Holdings, Inc. pursuant
to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
Certification of the Chief Executive Officer and Chief Financial Officer of United Airlines, Inc. pursuant to 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
Interactive Data File
The following materials from each of United Continental Holdings, Inc.‘s and United Airlines, Inc.‘s Annual Reports on
Form 10-K for the year ended December 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i)
the Statements of Consolidated Operations, (ii) the Statements of Consolidated Comprehensive Income (Loss), (iii) the
Consolidated Balance Sheets, (iv) the Statements of Consolidated Cash Flows, (v) the Statements of Consolidated
Stockholders’ Equity (Deficit) and (vi) the Combined Notes to Consolidated Financial Statements.
*
†
^
Previously filed.
Indicates management contract or compensatory plan or arrangement. Pursuant to Item 601(b)(10), United is permitted to omit certain compensation-related exhibits from this
report and therefore only UAL is identified as the registrant for purposes of those items.
Confidential portion of this exhibit has been omitted and filed separately with the SEC pursuant to a request for confidential treatment.
131
Table of Contents
ITEM 16.
FORM 10-K SUMMARY.
None.
132
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITED CONTINENTAL HOLDINGS, INC.
UNITED AIRLINES, INC.
(Registrants)
By:
/s/ Andrew C. Levy
Andrew C. Levy
Executive Vice President and Chief Financial
Officer
Date: February 22, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of United
Continental Holdings, Inc. and in the capacities and on the date indicated.
Signature
Capacity
/s/ Oscar Munoz
Oscar Munoz
/s/ Andrew C. Levy
Andrew C. Levy
/s/ Chris Kenny
Chris Kenny
/s/ Carolyn Corvi
Carolyn Corvi
/s/ Jane C. Garvey
Jane C. Garvey
/s/ Barney Harford
Barney Harford
/s/ Todd M. Insler
Todd M. Insler
/s/ Walter Isaacson
Walter Isaacson
Chief Executive Officer, Director
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
133
Table of Contents
Signature
Capacity
/s/ James A.C. Kennedy
James A.C. Kennedy
/s/ Robert A. Milton
Robert A. Milton
/s/ William R. Nuti
William R. Nuti
/s/ Sito Pantoja
Sito Pantoja
/s/ Edward M. Philip
Edward M. Philip
/s/ Edward L. Shapiro
Edward L. Shapiro
/s/ Laurence E. Simmons
Laurence E. Simmons
/s/ David J. Vitale
David J. Vitale
/s/ James M. Whitehurst
James M. Whitehurst
Date: February 22, 2018
Director
Director
Director
Director
Director
Director
Director
Director
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of United
Airlines, Inc. and in the capacities and on the date indicated.
Signature
Capacity
/s/ Oscar Munoz
Oscar Munoz
/s/ Andrew C. Levy
Andrew C. Levy
/s/ Chris Kenny
Chris Kenny
/s/ Gregory L. Hart
Gregory L. Hart
/s/ J. Scott Kirby
J. Scott Kirby
Date: February 22, 2018
Chief Executive Officer, Director
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer, Director
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director
Director
134
Table of Contents
Schedule II
Valuation and Qualifying Accounts
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
Description
Allowance for doubtful accounts—UAL and United:
2017
2016
2015
Obsolescence allowance—spare parts—UAL and United:
2017
2016
2015
Valuation allowance for deferred tax assets—UAL:
2017
2016
2015
Valuation allowance for deferred tax assets—United:
2017
2016
2015
(a) Deduction from reserve for purpose for which reserve was created.
Balance at
Beginning of
Period
Additions
Charged to
Costs and
Expenses
$
$
$
$
20
18
25
75
61
38
11
47
—
11
47
—
$
$
$
$
10
18
22
295
235
169
68
48
4,751
68
48
4,721
135
Deductions
(a)
$
$
$
$
23
26
29
17
16
—
27
27
4,703
27
27
4,673
Other
$ —
—
—
$
1
15
28
$ 11
—
—
$ 11
—
—
Balance at
End of
Period
$
$
$
$
7
10
18
354
295
235
63
68
48
63
68
48
FIRST AMENDMENT TO
UNITED CONTINENTAL HOLDINGS, INC.
PROFIT SHARING PLAN (2016)
Exhibit 10.3
WHEREAS, United Continental Holdings, Inc. (the “Company”) sponsors the United Continental Holdings, Inc. Profit Sharing Plan (the “Plan”);
WHEREAS, Appendix B of the Plan sets forth the Factors used in the determination of profit sharing Awards for each Participating Employee Group under
Section III.B.3 of the Plan;
WHEREAS, the Company has reached joint collective bargaining agreements and certain other agreements with various represented employee groups,
necessitating certain changes to Appendix B, effective for the 2017 Plan Year and thereafter;
WHEREAS, Section V.A reserves to the Company the right to amend the Plan in its sole discretion; and
WHEREAS, the Company has previously delegated the authority to amend the Plan with respect to changes relating to implementation of collective
bargaining agreements to the Company’s Executive Vice President Human Resources and Labor Relations;
NOW, THEREFORE, the Plan is hereby amended effective January 1, 2017, for the 2017 Plan Year and thereafter, as set forth below:
Labor Group
Represented
Central Load Planners
Customer Service Representatives
Dispatchers
Fleet Service Employees
Flight Attendants
Maintenance Instructors
Pilots
Reservations Representatives
Simulator Technicians
Storekeeper Employees
Technicians
Non-Represented
Chelsea Food Service
Flight Qualified Management
Management & Administrative
“APPENDIX B - FACTORS
Union Representation
Factor for
Base Percentage A
Factor for
Base Percentage B
IAM
IAM
PAFCA
IAM
AFA
IAM
ALPA
IAM
IBT
IAM
IBT
None
None
None
5
5
5
5
10
5
10
5
5
5
5
5
5
5
10
10
10
10
20
10
20
10
10
10
10
10
10
10”
IN WITNESS WHEREOF, the Company has caused this amendment to be executed on its behalf this 29 th day of January, 2018.
UNITED CONTINENTAL HOLDINGS, INC.
/s/ Kate Gebo
Kate Gebo
Executive Vice President,
Human Resources and Labor Relations
2
UNITED CONTINENTAL HOLDINGS, INC.
ANNUAL INCENTIVE PROGRAM
(Adopted pursuant to the 2017 Incentive Compensation Plan)
Exhibit 10.63
1. Purpose . This United Continental Holdings, Inc. Annual Incentive Program (the “ Program ”) has been adopted by the Compensation Committee (the “
Committee ”) of the Board of Directors of United Continental Holdings, Inc., a Delaware corporation (the “ Company ”), to implement in part the “Cash Incentive
Award” provisions of the United Continental Holdings, Inc. 2017 Incentive Compensation Plan, as amended from time to time (the “ 2017 Plan ”). The Program is
intended to provide a method for attracting, motivating, and retaining officers and employees of the Company and its subsidiaries and to compensate such officers
and employees based on performance measures of the Company and its consolidated subsidiaries as described herein. The Program and participation hereunder
shall be subject to the terms of the 2017 Plan; provided, however, to the extent that terms of the 2017 Plan reference requirements related to Section 162(m) of the
Internal Revenue Code of 1986, as amended (the “Code”), which were eliminated by the Tax Cuts and Jobs Act of 2017, the Committee may eliminate such
requirements with respect to any award granted pursuant to this Program to the extent consistent with any transition relief issued by the Internal Revenue Service
relating to the elimination of the performance-based compensation exemption under Section 162(m) of the Code.
2. Participants . Each individual who is an Eligible Employee on the first day of a fiscal year of the Company or who becomes an Eligible Employee after
the first day of a fiscal year shall become a Participant and receive the opportunity to receive an Annual Incentive Payment with respect to such fiscal year only if
such individual is selected by the Administrator in its sole discretion (subject to the terms of any applicable employment agreement) for participation in the
Program with respect to such fiscal year prior to the last day of such fiscal year. Selection by the Administrator for participation in the Program for a fiscal year or
portion thereof constitutes a Cash Incentive Award under the 2017 Plan. The Chief Executive Officer of the Company (the “ CEO ”) shall have the power to
terminate any Participant’s participation in the Program upon written notice to such Participant of such termination and, only in the case of a Participant who is
subject to section 16 of the Securities Exchange Act of 1934, as amended (“ Section 16 ”), subject to ratification of such action by the Committee.
3. Definitions . Where the following words and phrases are used in the Program, they shall have the respective meanings set forth below, unless the context
clearly indicates to the contrary:
(a) “ Administrator ” means the Committee or the CEO of the Company, subject to the provisions of Section 4.
(b) “ Annual Incentive Payment ” means, with respect to a Participant for a fiscal year, the dollar amount calculated by multiplying such Participant’s
Target Opportunity with respect to such fiscal year by the applicable incentive percentage (i.e., Entry Incentive Percentage, Target Incentive Percentage, Stretch
Incentive Percentage, and provided that the Administrator may provide for
1
varying percentages (including through linear interpolation) between performance levels) determined by the Administrator based on the satisfaction of the
performance measure(s) as may be established by the Committee under the Program, which performance measures may include Earning Per Share, Pre-tax Income,
performance measures set forth in the 2017 Plan or such other secondary performance measures as may be selected by the Administrator.
(c) “ Base Salary ” with respect to a fiscal year means the Participant’s base annual salary with respect to such fiscal year payable or paid, as
applicable, by the Company or a consolidated subsidiary, as in effect on a date specified by the Administrator or over a period specified by the Administrator for
such fiscal year as determined by the Administrator at the time such Participant commences participation in the Program for such fiscal year (except as otherwise
specifically provided in the Program).
(d) “ Broad Based Payment ” means, with respect to a fiscal year, that a payment has been or will be paid under the Company’s broad-based profit
sharing plan to the participants in that plan with respect to such fiscal year.
(e) “ Change of Control ” means, with respect to the Cash Incentive Award at issue, a “Change of Control” as defined in the 2017 Plan as in effect on
the date that the Committee makes the designations enumerated in Section 4(b) for such Cash Incentive Award.
(f) “ Change of Control Level ” with respect to a fiscal year means the amount established by the Committee as the Change of Control Level with
respect to such fiscal year pursuant to Section 4 hereof.
(g) “ Change Year ” means the fiscal year during which a Change of Control occurs.
(h) “ Disability ” means, with respect to a Participant, the disability of such Participant such as would entitle such Participant to receive disability
income benefits pursuant to the long-term disability plan of the Company or a subsidiary then covering such Participant or, if no such plan exists or is applicable to
such Participant, the permanent and total disability of such Participant within the meaning of section 22(e)(3) of the Code.
(i) “ Eligible Employee ” means any individual who is an officer of the Company or a subsidiary.
(j) “ Entry Incentive Percentage ” means, with respect to a Participant for a fiscal year, that percentage established by the Administrator as the Entry
Incentive Percentage with respect to such Participant for such fiscal year pursuant to Section 4 hereof.
(k) “ Entry Level ” with respect to a fiscal year means the amount established by the Committee as the Entry Level of the specified performance
measure(s) with respect to such fiscal year pursuant to Section 4 hereof.
2
(l) “ Participant ” means an Eligible Employee who has received a Cash Incentive Award under the Program with respect to a fiscal year of the
Company pursuant to Section 4.
(m) “ Performance Target ” means, with respect to a fiscal year, the minimum level of the performance measure(s) as may be established by the
Administrator that must be achieved for such fiscal year in order for a Participant to be eligible to receive an Annual Incentive Payment for such fiscal year.
(n) “ Pre-tax Income ” means, with respect to each fiscal year, the aggregate consolidated net income adjusted to exclude reported income taxes of the
Company for such fiscal year as shown on the Company’s consolidated financial statements for such fiscal year and as further adjusted by the Committee for any
other objectively determinable component of Pre-Tax Income, as determined by the Committee in its sole and absolute discretion.
(o) “ Stretch Incentive Percentage ” means, with respect to a Participant for a fiscal year, that percentage established by the Administrator as the
Stretch Incentive Percentage with respect to such Participant for such fiscal year pursuant to Section 4 hereof.
(p) “ Stretch Level ” with respect to a fiscal year means the amount established by the Committee as the Stretch Level of the specified performance
measure(s) with respect to such fiscal year pursuant to Section 4 hereof.
(q) “ Target Incentive Percentage ” means, with respect to a Participant for a fiscal year, that percentage established by the Administrator as the Target
Incentive Percentage with respect to such Participant for such fiscal year pursuant to Section 4 hereof.
(r) “ Target Level ” with respect to a fiscal year means the amount established by the Committee as the Target Level of the specified performance
measure(s) with respect to such fiscal year pursuant to Section 4 hereof.
(s) “ Target Opportunity ” means, with respect to a Participant for a fiscal year, a dollar amount established by the Administrator as the Target
Opportunity for such Participant with respect to such fiscal year (which, in the discretion of the Administrator, may be expressed as a percentage of such
Participant’s Base Salary for such fiscal year (or different percentages of such Participant’s Base Salary with respect to different portions of such fiscal year)).
4. Administration .
(a) The Program shall be administered by the Administrator, so that (i) Cash Incentive Awards made to, and the administration (or interpretation of
any provision) of the Program as it relates to, any person who is subject to Section 16, shall be made or effected by the Committee, and (ii) Cash Incentive Awards
made to, and the administration (or interpretation of any provision) of the Program as it relates to, any person who is not subject to Section 16, shall be made or
effected by the Committee or the CEO, unless the Program specifies that the Committee shall take specific action (in which case such action may only be taken by
3
the Committee) or the Committee (as to any Award described in this clause (ii) or the administration or interpretation of any specific provision of the Program)
specifies that it shall serve as Administrator. Notwithstanding the foregoing, the Committee may from time to time in its discretion put any conditions and
restrictions on the powers that may be exercised by the CEO in his or her capacity as Administrator. The action of a majority of the members of the Committee
shall be the act of the Committee.
(b) With respect to each fiscal year of the Company during the term of the Program, beginning on or after January 1, 2018:
to each objective performance measure as may be established by the Committee for such fiscal year for purposes of the Program; and
(i) the Committee shall establish in writing the Entry Level, the Target Level, the Stretch Level, and the Change of Control Level with respect
(ii) the Administrator shall establish in writing the Entry Incentive Percentage, the Target Incentive Percentage and the Stretch Incentive
Percentage for such fiscal year for each individual who is selected by the Administrator to be a Participant in the Program for such fiscal year; provided, however,
that the Administrator may allocate the Entry Incentive Percentage, the Target Incentive Percentage and the Stretch Incentive Percentage fully to a single
Performance Target or may allocate a portion of such percentages to multiple performance measures as may be established by the Administrator for such
Participant with respect to such fiscal year.
Each designation of Entry Level, Target Level, Stretch Level, and Change of Control Level with respect to a performance measure shall be
subject to adjustment by the Committee in its discretion, and each designation of Entry Incentive Percentage, Target Incentive Percentage and Stretch Incentive
Percentage shall be subject to adjustment as determined by the Administrator in its discretion. At the time the Committee makes the designations described in the
first sentence of this Section 4(b) with respect to a fiscal year, the Committee may designate a maximum reduction percentage (which may range from 0% to 100%)
that may be applied by the Administrator to an Annual Incentive Payment for such fiscal year pursuant to Section 5(b)(ii). At the time a Participant receives an
award under the Program for a fiscal year, the Administrator shall determine the manner in which such Participant’s Base Salary and Target Opportunity for such
fiscal year shall be determined.
(c) With respect to each fiscal year during which the Program is effective, and in no event later than the time that will permit the Company to pay any
required Annual Incentive Payment for such fiscal year within the time period prescribed in Section 5, the Committee shall certify in writing (including by
electronic mail transmission), except as otherwise provided in Sections 6 and 7 below, prior to the payment of any Annual Incentive Payment, whether the
Performance Target has been achieved for such fiscal year and, if so, the level of the Performance Target achieved. For purposes of the preceding sentence,
approved minutes of the Committee meeting in which the certification is made shall be treated as a written certification.
(d) The interpretation and construction by the Administrator of any provision of the Program, and any determination or action by the Administrator
pursuant to any provision hereof, shall be final and conclusive for all purposes, and each Participant’s
4
participation in the Program is expressly subject to the foregoing. The Administrator shall not be liable for any action or determination taken or made in good faith
or upon reliance in good faith on the records of the Company or information presented to the Administrator by the Company’s officers, employees, or other persons
(including the Company’s outside auditors) as to matters such member reasonably believes are within such other person’s professional or expert competence. If a
Participant disagrees with any decision, determination, or action made or taken by the Administrator, then the dispute shall be limited to whether the Administrator
has satisfied its duty to make such decision or determination or take such action in good faith.
5. Annual Incentive Payments .
(a) If (i) the Committee certifies in writing, in accordance with Section 4(c), that the Performance Target has been met for a fiscal year, and (ii) the
Broad Based Payment has been or will be paid with respect to such fiscal year, then each Participant in the Program who has remained continuously employed by
the Company or a subsidiary from the date that he or she became a Participant with respect to such fiscal year until the last day of such fiscal year, and who has not
otherwise surrendered the related Cash Incentive Award to the Company, shall receive, as soon as reasonably practicable after the applicable certification by the
Committee described in Section 4(c) above with respect to such fiscal year (but in no event later than March 15 of the year following the end of such fiscal year), a
cash payment equal to the Annual Incentive Payment, if any, for such Participant with respect to such fiscal year. For purposes of clarity, if the applicable
Performance Target has not been achieved or the Broad Based Payment has not been (or will not be, as the case may be) paid for a fiscal year, then no Annual
Incentive Payment shall be payable with respect to such fiscal year.
(b) (i) Notwithstanding the provisions of Section 5(a) and, except as provided in the last sentence of this subparagraph, notwithstanding the provisions
of Section 6(a), the Committee shall have the right, in its sole discretion, to reduce or eliminate any Annual Incentive Payment with respect to a fiscal year that is
otherwise payable pursuant to such Sections if the Committee determines in its discretion that such reduction or elimination is appropriate and in the best interest of
the Company based on the Company’s unrestricted cash, cash equivalents, and short-term investments and cash readily accessible under the Company’s unused
lines of credit as of the end of such fiscal year; provided, however, that any such reduction or elimination shall apply in a uniform and nondiscriminatory manner to
all Participants who are, but for the application of this paragraph, entitled to receive an Annual Incentive Payment under such Sections with respect to such fiscal
year. The Committee shall not have the right under this subparagraph to reduce or eliminate any Annual Incentive Payment that is payable pursuant to Section 6(b),
Section 7 or, following a Change of Control, Section 6(a).
(ii) Notwithstanding the provisions of Section 5(a), in addition to any reduction to an Annual Incentive Payment that may be required pursuant to the
provisions of Section 5(b)(i), the Administrator shall have the right, in its sole discretion, to reduce the Annual Incentive Payment of a Participant with respect to a
fiscal year that is otherwise payable to such Participant pursuant to Section 5(a); provided, however, that such reduction shall not be greater than the Annual
Incentive Payment that would have otherwise been payable (determined prior to any reduction pursuant to Section 5(b)(i)) multiplied by the maximum reduction
percentage, if any, for the applicable fiscal year as determined pursuant to Section 4(b). Any action by the Administrator pursuant to this subparagraph may vary
among individual Participants. The Administrator shall not have the right under this subparagraph to reduce any Annual Incentive Payment that is payable pursuant
to Section 6 or Section 7.
5
(c) Except as otherwise provided by the Administrator at the time a person becomes a Participant, if a person becomes a Participant after the first day
of a fiscal year, then such Participant’s Annual Incentive Payment, if any, with respect to such fiscal year shall be pro-rated based on a fraction, the numerator of
which is the number of days during the period beginning on the date of such Participant’s commencement of participation in the Program for such fiscal year and
ending on the last day of such fiscal year, and the denominator of which is 365. Notwithstanding the foregoing, pro-ration shall not be required if the Target
Opportunity applicable with respect to such Participant has been established with respect to such Participant’s Base Salary earned for such fiscal year, in which
case the Base Salary earned shall automatically reflect a pro-ration of the incentive opportunity.
6. Payments upon Certain Terminations of Employment . Notwithstanding the provisions of Section 5:
(a) If a Participant’s employment or transition agreement, if any, with the Company or a subsidiary thereof provides for an annual incentive payment
(or pro-rated portion thereof) with respect to the fiscal year in which such Participant terminates employment, then payment shall be made in accordance with the
terms of such employment or transition agreement without regard to the continuous employment requirement set forth in Section 5.
(b) If a Participant does not have an employment agreement with the Company or a subsidiary thereof, or if any such employment agreement does not
provide for an annual incentive payment (or pro-rated portion thereof) in the event the Participant’s employment terminates by reason of death or Disability, then
with respect to the fiscal year during which such Participant’s termination of employment due to death or Disability occurs, (i) the performance measure(s) as may
be established by the Committee for such fiscal year shall be deemed to be achieved at a level equal to the Target Level, (ii) the Broad Based Payment shall be
deemed to have been paid, and (iii) the Annual Incentive Payment shall be paid to the Participant or the Participant’s estate (as the case may be) within 30 days
following the Participant’s termination of employment on a pro-rated basis, calculated based on a fraction, the numerator of which is the number of days during the
period beginning on the first day of such fiscal year (or, if later, the date of such Participant’s commencement of participation in the Program for such fiscal year)
and ending on the date of the Participant’s termination of employment due to death or Disability, and the denominator of which is 365.
(c) With respect to Sections 6(a) and 6(b), such payment shall be based on the Participant’s rate of annual base salary as in effect immediately prior to
his or her termination of employment (except, with respect to Section 6(a), as otherwise provided in the Participant’s employment or transition agreement).
Additionally, with respect to Section 6(b), the applicable certification of the achievement of the performance goal by the Committee described in Sections 4 and 5
above shall not be required.
6
7. Payments upon a Change of Control . Notwithstanding the provisions of Section 5, if a Change of Control occurs, then the following shall apply with
respect to each Participant who is employed by the Company or a subsidiary on the day immediately preceding the Change of Control:
(a) With respect to the Change Year, (i) the Performance Target shall be deemed to be achieved at the Change of Control Level, (ii) the Broad Based
Payment shall be deemed to have been paid, (iii) the Annual Incentive Payment (pro-rated based on a fraction, the numerator of which is the number of days during
the period beginning on the date of the Participant’s commencement of participation in the Program for such Change Year and ending on the date of the Change of
Control, and the denominator of which is 365) shall be paid to the Participant on or before March 15 of the year following the Change Year, and (iv) such
Participant shall not be entitled to any other Annual Incentive Payment with respect to the Change Year.
(b) The payment described in Section 7(a) shall be based on the Participant’s rate of annual base salary as in effect on the first day of such Change
Year (or, if higher, as in effect immediately prior to the occurrence of the Change of Control). Additionally, with respect to Section 7(a), the applicable certification
of the achievement of the performance goal by the Committee described in Sections 4 and 5 above shall not be required.
8. Amendments, Termination and Other Matters .
(a) Subject to the other provisions of this Section 8, the Program may be amended from time to time or terminated by the Committee; provided that the
Program may not be amended or terminated in a manner that would materially impair the rights of any Participant with respect to any outstanding Cash Incentive
Award with respect to a fiscal year that has ended prior to such amendment or termination without the consent of such Participant, and may not be amended or
terminated in contemplation of or in connection with a Change of Control, nor may any Participant’s participation herein be terminated in connection with a
Change of Control, unless adequate and effective provision for the making of all payments otherwise payable pursuant to Section 7 of the Program (as in effect on
the date that the Committee makes the designations enumerated in Section 4(b) with respect to the applicable Cash Incentive Award) with respect to such Change
of Control shall be made in connection with any such amendment or termination.
(b) Except as otherwise provided in a Participant’s employment or transition agreement with the Company or a subsidiary of the Company,
(i) participation in the Program by a Participant shall terminate upon such Participant’s termination of employment with the Company and its subsidiaries or as
otherwise set forth herein, and (ii) no Participant shall have any right to continue to participate in the Program or have any vested right to any incentive or other
payment hereunder (except as aforesaid in connection with a Change of Control and except with respect to fiscal years that have already ended prior to such
amendment or termination or prior to such Participant’s termination of employment with the Company and its subsidiaries).
7
(c) Participation in the Program shall not confer any right of future employment. The Program is not intended to create a pension or welfare benefit
plan and is intended to be exempt from application of the Employee Retirement Income Security Act of 1974, as amended. The Program is unfunded and shall not
create, or be construed to create, a trust or separate fund or funds, and each Participant shall be entitled to look only to the Company for any benefit hereunder, and
shall have no greater right than an unsecured creditor of the Company.
(d) No liability whatsoever shall attach to or be incurred by any past, present or future stockholders, officers, directors, or employees, as such, of the
Company or any of its subsidiaries, under or by reason of the Program or the administration thereof, and each Participant, in consideration of receiving benefits and
participating hereunder, expressly waives and releases any and all claims relating to any such liability.
(e) No incentive payment or Cash Incentive Award or other right, title, interest, or benefit hereunder shall ever be assignable or transferable, or liable
for, or charged with any of the torts or obligations of a Participant or any person claiming under a Participant, or be subject to seizure by any creditor of a
Participant or any person claiming under a Participant. No Participant or any person claiming under a Participant shall have the power to anticipate or dispose of
any incentive payment, Cash Incentive Award or other right, title, interest, or benefit hereunder in any manner until the same shall have actually been distributed
free and clear of the terms of the Program. Incentive payments hereunder shall be payable only to the Participant (or in the event of the death of a Participant, to
such Participant’s estate). Notwithstanding the preceding provisions of this paragraph, the Company shall comply with the terms of any qualified domestic relations
order providing for the transfer or assignment of all or any portion of a Participant’s interest under the Program. The provisions of the Program shall be binding on
all successors and assigns of a Participant, including without limitation the estate of such Participant and the executor, administrator or trustee of such estate, or any
receiver or trustee in bankruptcy or representative of the Participant’s creditors.
(f) Wherever appropriate herein, words used in the singular shall be considered to include the plural, and words used in the plural shall be considered
to include the singular. The masculine gender, where appearing in the Program, shall be deemed to include the feminine gender.
(g) The Program shall be construed in accordance with the laws of the State of Delaware, without giving effect to the conflict of laws provisions
thereof.
(h) Notwithstanding any provision in Sections 5(c), 6 or 7 to the contrary, if a Participant’s Annual Incentive Payment for a fiscal year is to be
pro-rated pursuant to the terms of the Program, and if such Participant’s Target Opportunity for such fiscal year changed during such fiscal year, then any such
pro-ration shall be subject to adjustment by the Administrator in an equitable and appropriate manner to the extent the Administrator determines to be necessary to
reflect such change in such Participant’s Target Opportunity and to prevent the enlargement of the benefit intended to be provided to the Participant under the
Program for such fiscal year.
8
9. Clawback . Notwithstanding any provision in the Program to the contrary, the payments provided under the Program shall be subject to a clawback to the
extent necessary to comply with applicable law including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection
Act or any Securities and Exchange Commission rule, or to comply with any Company policy in effect as of the date of grant of such award.
10. Tax Withholding . The Company shall have the right to withhold from any payment hereunder all applicable federal, state, local and other taxes as
required by law.
11. Effective Date . The Program shall be effective as of the date of its adoption by the Committee and shall be applicable to fiscal years of the Company
beginning on or after January 1, 2018.
9
Exhibit 10.64
ANNUAL INCENTIVE AWARD NOTICE
to [NAME]
Pursuant to the United Continental Holdings, Inc. Annual Incentive Program
(Adopted pursuant to the 2017 Incentive Compensation Plan)
Fiscal Year 20[ ]
1. The Program . This document constitutes your formal notice (the “ Notice ”) of a Cash Incentive Award under the United Continental Holdings, Inc.
Annual Incentive Program (as amended from time to time, the “ Program ”) adopted under the United Continental Holdings, Inc. 2017 Incentive Compensation
Plan (as amended from time to time, the “ 2017 Plan ”). This Notice evidences your right to participate in the Program with respect to the period commencing on
January 1, 20[ ] and ending on December 31, 20[ ] (the “ Fiscal Year ”), subject to the terms of the Program and the 2017 Plan. The effective date of your
commencement in the Program with respect to this award is [ , 20 ].
2. Performance Goal[s] . The Compensation Committee of the Board of Directors of the Company (the “ Committee ”) has established the following
performance goal[s] for the Fiscal Year, which must be achieved in order for you to receive an Annual Incentive Payment for the Fiscal Year:
(a) Company Financial Performance . You shall be eligible to receive an Annual Incentive Payment with respect to the Company’s financial
performance and determined in accordance with Section 3 of this Notice, if the Company’s financial performance with respect to the Fiscal Year is equal to
or greater than the Entry Level set forth below. For purposes of calculating your potential Annual Incentive Payment in accordance with Section 3 of this
Notice, the following are the levels of financial performance set by the Committee for the Fiscal Year:
i. Entry Level: ;
ii. Target Level: ; and
iii. Stretch Level: .
[[ INSERT OTHER PERFORMANCE GOAL(S) ]. 1 You shall be eligible to receive an Annual Incentive Payment with respect to [INSERT
PERFORMANCE GOAL] performance and determined in accordance with Section 3 of this Notice, if the [INSERT PERFORMANCE GOAL] for the
Fiscal Year is equal to or greater than the Entry Level [INSERT PERFORMANCE GOAL] set forth below [and the Company achieves a minimum Pre-tax
Income of $ for such Fiscal Year]. For purposes of calculating
1
The Committee may establish one or more performance measures for a Fiscal Year in addition to the financial performance measure. If the Committee
establishes such additional measures, this additional portion of the award will be inserted with respect to each such additional performance measure.
1
your potential Annual Incentive Payment in accordance with Section 3 of this Notice, the following are the levels of [INSERT PERFORMANCE GOAL] set
by the Committee for the Fiscal Year:
i. Entry Level [ : ];
ii. Target Level [ : ]; and
iii. Stretch Level [ : ].]
(b) If a Change of Control occurs during the Fiscal Year, then the Company’s performance for the Fiscal Year will be deemed to be equal to
.
In order to receive an Annual Incentive Payment for the Fiscal Year, the Program also requires that a payment must have been or will be made under the
Company’s broad-based profit sharing plan to the participants in that plan with respect to the Fiscal Year (the “ Broad Based Payment ”).
3. Payment upon Achievement of the Performance Goal[s] . Your Target Opportunity for the Fiscal Year is [ % of your Base Salary] [
% of your Base Salary from to and % of your Base Salary from to ] [$ ]. If (i) the
Committee certifies in writing that the [Performance Target has][Performance Targets have] been met as of the end of the Fiscal Year, (ii) the Broad Based
Payment has been or will be paid for the Fiscal Year, and (iii) you remain continuously employed by the Company or its subsidiaries through the last day of the
Fiscal Year, then you will receive an Annual Incentive Payment as soon as reasonably practicable after the applicable certification by the Committee (but in no
event later than March 15 of the year following the Fiscal Year). With respect to the financial performance measure and each other performance measure as may be
established by the Committee with respect to the Fiscal Year, the amount of your Annual Incentive Payment will be based on the product of (a) your Target
Opportunity multiplied by (b) the applicable percentage of your Target Opportunity based on the level of performance achieved by the Company for the Fiscal Year
with respect to the applicable performance measure. Subject to Section 6 of this Notice, your total Annual Incentive Payment will be the sum of the amounts
calculated pursuant to the prior sentence. The applicable percentages of your Target Opportunity shall be determined in accordance with the following table(s)
[(straight line interpolation will be used between levels)]:
Level of financial performance achieved
Entry Level
Target Level
Stretch Level (or higher)
Level of achieved 1
Entry Level
Target Level [ ]
Stretch Level [ ] (or higher)
2
Percentage of Target Opportunity
% (Entry Incentive Percentage)
% (Target Incentive Percentage)
% (Stretch Incentive Percentage)
Percentage of Target Opportunity
—% (Entry Incentive Percentage)
—% (Target Incentive Percentage)
—% (Stretch Incentive Percentage)
4. Continuous Employment Requirement . Receipt of an Annual Incentive Payment is conditioned on your continuous employment with the Company or its
subsidiaries through the last day of the Fiscal Year (with limited exceptions, as described in the Program).
5. Pro-Rated Payment . Your Annual Incentive Payment may be pro-rated as provided in the Program under certain circumstances.
6. Negative Discretion . Pursuant to the Program, in general, (a) the Committee shall have the right to reduce or eliminate the Annual Incentive Payment that
would otherwise be payable for the Fiscal Year if the Committee determines, in its discretion, that such reduction or elimination is appropriate and in the best
interest of the Company based on the Company’s unrestricted cash, cash equivalents, and short term investments and cash readily accessible under the Company’s
unused lines of credit as of the end of the Fiscal Year; provided, however, that any such reduction or elimination shall apply in a uniform and nondiscriminatory
manner to all Participants who are otherwise entitled to receive an Annual Incentive Payment with respect to the Fiscal Year, and (b) the Administrator shall have
the right to reduce or eliminate the Annual Incentive Payment that would otherwise be payable for the Fiscal Year based on your individual performance and such
other factors determined by the Administrator, in its sole discretion.
7. Program and 2017 Plan Control . Capitalized terms used but not defined in this Notice are defined in the Program. The Program and the 2017 Plan are
hereby incorporated into this Notice by reference. All statements in this Notice are qualified in their entirety by reference to the Program and the 2017 Plan. If you
have any questions, or wish to obtain a copy of the Program or the 2017 Plan, please contact .
3
Exhibit 10.219
EXECUTION VERSION
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AND GUARANTY AGREEMENT
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AND GUARANTY AGREEMENT (this “ First Amendment ”), dated as of
November 15, 2017 among UNITED AIRLINES, INC. , a Delaware corporation (the “ Borrower ”), UNITED CONTINENTAL HOLDINGS, INC., a Delaware
corporation (“UCH”), BARCLAYS BANK PLC, as Fronting Lender, and JPMORGAN CHASE BANK, N.A., as administrative agent for the Lenders party to the
Loan Agreement referred to below (together with its permitted successors in such capacity, the “ Administrative Agent ”), and on behalf of the Consenting Lenders
(as defined below) executing consents to this Amendment and each Revolving Lender. Unless otherwise indicated, all capitalized terms used herein and not
otherwise defined shall have the respective meanings provided such terms in the Loan Agreement referred to below (as amended by this First Amendment).
W I T N E S S E T H:
WHEREAS, the Borrower, UCH and certain of its subsidiaries other than the Borrower from time to time, as guarantors, the Lenders and the Administrative
Agent are parties to a $3,500,000,000 Amended and Restated Credit and Guaranty Agreement dated as of March 29, 2017 (as amended, modified and
supplemented and in effect on the date hereof, the “ Loan Agreement ”) comprised of a $2,000,000,000 revolving credit and revolving letter of credit facility and a
$1,500,000,000 term loan facility (of which $1,492,500,000 was outstanding immediately prior to effectiveness of this First Amendment);
WHEREAS, the Borrower has requested to amend certain terms of the Loan Agreement as hereinafter set forth;
WHEREAS, with respect to the Term Lenders holding any Term Loans outstanding immediately prior to the First Amendment Effective Date (as defined
below) (such Term Loans, the “ Refinanced Term Loans ”) whose executed consent to this First Amendment has not been received by the Administrative Agent on
or prior to a deadline (the “ Non-Consenting Lenders ”; the Term Lenders that are not the Non-Consenting Lenders (including the “Fronting Lender” as defined
below) are hereinafter referred to as the “ Consenting Lenders ”) as agreed between the Borrower and the Administrative Agent and announced by the
Administrative Agent to the Term Lenders (the “ Consent Deadline ”), the Borrower hereby gives notice to each Non-Consenting Lender, pursuant to
Section 10.08(e) of the Loan Agreement, that upon the First Amendment Effective Date, the principal amount of and accrued and unpaid interest on its Refinanced
Term Loans will be repaid in full on behalf of the Borrower by the Administrative Agent or Barclays Bank PLC, as Fronting Lender (the “ Fronting Lender ”);
WHEREAS, on the First Amendment Effective Date, the Refinanced Term Loans held by the Consenting Lenders and Fronting Lender shall be converted to
new Class B Term Loans (the “ Replacement Term Loans ”); and
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1 - Loan Agreement Amendments . Subject to the satisfaction of the conditions set forth in Section 2 hereof:
(a) Amended Definition . Section 1.01 of the Loan Agreement shall be amended by amending and restating in its entirety the below definition as follows:
“ Applicable Margin ” shall mean the rate per annum determined pursuant to the following:
Class of Loans
Class B Term Loans
Revolving Loans
Applicable Margin
Eurodollar Loans
Applicable Margin
ABR Loans
2.00%
2.25%
1.00%
1.25%
(b) New Definitions . Section 1.01 of the Loan Agreement shall be amended by adding in appropriate alphabetical order the following definitions:
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975
of the Code or (c) any Person whose assets include (for purposes of Section 3(42) of ERISA or otherwise for purposes of Title I of ERISA or Section 4975 of the
Code) the assets of any such “employee benefit plan” or “plan.”
“ PTE ” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
(c) Section 2.09 . Section 2.09 is hereby amended by adding the following at the end of such section:
“Notwithstanding any provision to the contrary set forth in this Agreement, in the event the Administrative Agent determines, pursuant to and in
accordance with this Section 2.09, that reasonable means do not exist for ascertaining the applicable LIBO Rate and the Administrative Agent and the
Borrower mutually determine that the syndicated loan market has broadly accepted a replacement standard for the LIBO Rate, then the Administrative Agent
and Borrower may, without the consent of any Lender, amend this Agreement to adopt such new broadly accepted market standard and to make such other
changes as shall be necessary or appropriate in the good faith determination of the Administrative Agent and the Borrower in order to implement such new
market standard herein and in the other Loan Documents so long as the Administrative Agent shall not have received, within five Business Days of the date
notice of such replacement standard is provided to the Lenders, a written notice from the Required Lenders stating that such Required Lenders object to such
amendment.”
(d) Section 2.10 . The first sentence of Section 2.10(b) shall be amended and restated to read as follows: The principal amount of the Class B Term Loans
shall be repaid in consecutive quarterly installments (each, an “ Installment ”) of $3,750,000, on the 29th day of each March, June, September and December,
commencing on December 29, 2017.
(e) Section 2.13 . Section 2.13(d) of the Loan Agreement shall be amended by deleting the words “the first six months after the Closing Date” in the first
and second sentences of such Section and replacing them with “six months after November 15, 2017” in each such instance.
(f) Certain ERISA Matters . A new Section 10.20 is added to the Credit Agreement as follows:
“SECTION 10.20. Certain ERISA Matters .
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person
became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of each party to this Agreement, each Lead Arranger, each
Joint Lead Arranger and their respective Affiliates, that at least one of the following is and will be true:
(i) such Lender is not using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more
Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments,
(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent
qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a
class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions
involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable
with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this
Agreement,
(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B)
such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the
Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans,
the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the
best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into,
participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement, or
(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such
Lender.
(b) In addition, unless sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not provided another
representation, warranty and covenant as provided in sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of
the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases
being a Lender party hereto, for the benefit of each party to this Agreement, each Lead Arranger, each Joint Lead Arranger and their respective Affiliates, that:
(i) none of the Administrative Agent or any Lead Arranger or any of their respective Affiliates is a fiduciary with respect to the assets of such Lender
(including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any
documents related to hereto or thereto),
(ii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and
performance of the Loans, the Letters of Credit, the Commitments and this Agreement is independent (within the meaning of 29 CFR § 2510.3-21) and is a
bank, an insurance carrier, an investment adviser, a broker-dealer or other person that holds, or has under management or control, total assets of at least
$50 million, in each case as described in 29 CFR § 2510.3-21(c)(1)(i)(A)-(E),
(iii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and
performance of the Loans, the Letters of Credit, the Commitments and this Agreement is capable of evaluating investment risks independently, both in
general and with regard to particular transactions and investment strategies (including in respect of the Obligations),
(iv) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and
performance of the Loans, the Letters of Credit, the Commitments and this Agreement is a fiduciary under ERISA or the Code, or both, with respect to the
Loans, the Letters of Credit, the Commitments and this Agreement and is responsible for exercising independent judgment in evaluating the transactions
hereunder, and
(v) no fee or other compensation is being paid directly to the Administrative Agent or any Lead Arranger or any their respective Affiliates for
investment advice (as opposed to other services) in connection with the Loans, the Letters of Credit, the Commitments or this Agreement.
(c) The Administrative Agent and each Lead Arranger hereby informs the Lenders that each such Person is not undertaking to provide impartial investment
advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the
transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Letters of
Credit, the Commitments and this Agreement, (ii) may recognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an amount less than
the amount being paid for an interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) may receive fees or other payments in
connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility
fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit
fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early
termination fees or fees similar to the foregoing.”
SECTION 2 - Conditions to Effectiveness . This First Amendment shall become effective on the date when each of the following conditions specified below
shall have been satisfied (the “ First Amendment Effective Date ”):
(i) the Administrative Agent and the Borrower shall have received a signed signature page to this First Amendment from the Borrower, the Guarantor, the
Fronting Lender, each Revolving Lender and the Administrative Agent and a signed consent from each Consenting Lender, and in the case of each such Consenting
Lender such Consenting Lender shall have elected on its signature page either “Option A” or “Option B” as described in Exhibit A hereto;
(ii) the Administrative Agent shall have received with respect to the Borrower a certificate of the Secretary of State of the state of Delaware, dated as of a
recent date, as to its good standing;
(iii) the Administrative Agent shall have received a certificate of the Secretary or an Assistant Secretary (or similar officer), of the Borrower dated the date
hereof and certifying as to the incumbency and specimen signature of each officer of the Borrower executing this First Amendment or any other document
delivered by it in connection herewith;
(iv) the Borrower shall have paid to the Administrative Agent for the benefit of itself and the Consenting Lenders the then-unpaid balance of all accrued
and unpaid fees due, owing and payable by the Borrower to them in connection with this First Amendment, as agreed to by the Borrower, and the reasonable
attorneys’ fees of Milbank, Tweed, Hadley & McCloy LLP as counsel to the Administrative Agent and to the Fronting Lender incurred in connection with the
preparation, execution and delivery of this First Amendment as to which the Borrower shall have received an invoice prior to the First Amendment Effective Date;
(v) the Administrative Agent shall have received an Officer’s Certificate from the Borrower certifying as to the truth in all material respects of the
representations and warranties set forth in Section 3 of this First Amendment as though made by it on the date hereof, except to the extent that any such
representation or warranty relates to a specified date, in which case as of such date (provided, that any representation or warranty that is qualified by materiality,
“Material Adverse Change” or “Material Adverse Effect” shall be true and correct in all respects as of the applicable date, before and after giving effect to the First
Amendment);
(vi) all interest accrued on the Term Loans that has not yet been paid by the Borrower to the Administrative Agent as of the First Amendment Effective
Date shall have been paid in full; and
(vii) all amounts owing to the Non-Consenting Lenders pursuant to Section 2.15 ( Break Funding Payments ) of the Loan Agreement in connection with
the repayment of their Refinanced Term Loans pursuant to this First Amendment shall have been paid by the Borrower to the Administrative Agent for the account
of each such Non-Consenting Lender, subject in the case of each Non-Consenting Lender to its giving the Borrower a written certificate setting forth any such
amount due to it at least one Business Day prior to the First Amendment Effective Date.
The Administrative Agent shall promptly notify the parties hereto of the occurrence of the First Amendment Effective Date.
SECTION 3 - Representations and Warranties . In order to induce the Consenting Lenders and the Administrative Agent to enter into this First Amendment,
the Borrower represents and warrants to each of the Consenting Lenders and the Administrative Agent that on and as of the date hereof after giving effect to this
First Amendment, (i) no Event of Default has occurred and is continuing or would result from giving effect to the First Amendment and (ii) the representations and
warranties contained in the Loan Agreement and the other Loan Documents (other than the representations and warranties set forth in Sections 3.05(b), 3.06 and
3.09(a) of the Loan Agreement), are true and correct in all material respects on and as of the date hereof with the same effect as if made on and as of the date hereof
except to the extent that such representations and warranties expressly relate to an earlier date and in such case as of such date; provided that any representation or
warranty that is qualified by materiality, “Material Adverse Change” or “Material Adverse Effect” shall be true and correct in all respects, as though made on and
as of the applicable date, before and after giving effect to the First Amendment.
SECTION 4 - Reference to and Effect on the Loan Agreement; Ratification . At and after the effectiveness of this First Amendment, each reference in the
Loan Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan
Agreement, as amended by this First Amendment. The Loan Agreement and each of the other Loan Documents, as specifically amended by this First Amendment,
and the obligations of the Borrower hereunder and thereunder, are and shall continue to be in full force and effect and are hereby in all respects ratified and
confirmed. The parties hereto confirm and agree that the guaranty under Section 9 of the Loan Agreement shall continue in full force and effect after giving effect
to this First Amendment, and the term “Obligations” as used in the Loan Agreement shall include all
obligations of the Borrower under the Loan Agreement, as amended by this First Amendment. This First Amendment shall be deemed to be a “Loan Document” for
all purposes of the Loan Agreement and the other Loan Documents. The execution, delivery and effectiveness of this First Amendment shall not, except as
expressly provided herein, operate as an amendment or waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan
Documents, nor constitute an amendment or waiver of any provision of any of the Loan Documents.
SECTION 5 - Execution in Counterparts . This First Amendment may be executed in counterparts (and by different parties hereto on different counterparts),
each of which shall constitute an original, but all of which when taken together shall constitute a single contract. The execution and delivery of a consent to this
First Amendment by each Consenting Lender shall be irrevocable and shall be binding upon such Consenting Lender’s successors, permitted transferees and
permitted assigns. This First Amendment shall become effective as set forth in Section 2, and from and after the First Amendment Effective Date shall be binding
upon and inure to the benefit of the parties hereto and their respective successors, permitted transferees and permitted assigns. Delivery of an executed counterpart
of a signature page of this First Amendment or of a consent to this First Amendment by facsimile or electronic .pdf copy shall be effective as delivery of a
manually executed counterpart of this First Amendment or such consent, respectively.
SECTION 6 - Governing Law . THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS FIRST
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
SECTION 7 - Refinancing of Non-Consenting Lender Term Loans; Assignments of Certain Lenders . Subject to the satisfaction of the conditions set forth
in Section 2 and effective as of the First Amendment Effective Date:
(a) the outstanding Refinanced Term Loans of each Non-Consenting Lender shall, pursuant to 10.08(e) of the Loan Agreement, be repaid, on behalf of the
Borrower by payment from the Fronting Lender of an amount equal to the outstanding principal amount of, and accrued and unpaid interest on all of such
Refinanced Term Loans, and all of such Non-Consenting Lender’s existing Refinanced Term Loans shall be deemed refinanced by new Class B Term Loans held
by the Fronting Lender in an amount corresponding to the amount of existing Refinanced Term Loans held by such Non-Consenting Lender,
(b) each Consenting Lender who elects Option A as described in Exhibit A hereto will hold new Class B Term Loans, in a principal amount equal to its
Refinanced Term Loans or greater amount as agreed between such Consenting Lender and the Fronting Lender, subject to the amended terms described in this First
Amendment,
(c) each Consenting Lender who elects Option B as described in Exhibit A hereto (each such Lender a “ Cash Roll Lender ”), shall on or prior to the First
Amendment Effective Date and upon execution and delivery of its consent as described in Exhibit A hereto (i) be deemed to have assigned its Refinanced Term
Loans to the Fronting Lender pursuant to the
terms hereof (the “ First-Step Assignment ”), (ii) receive an amount equal to the outstanding principal amount of, and accrued and unpaid interest to but excluding
the First Amendment Effective Date on, such Refinanced Term Loans and (iii) commit (or have such other Eligible Assignees as such Cash Roll Lender may
designate commit) to purchase new Class B Term Loans from the Fronting Lender in a principal amount to be determined by the Fronting Lender up to the amount
of the Refinanced Term Loans such Cash Roll Lender assigned pursuant to the First-Step Assignment (or such greater amount as may be agreed between such Cash
Roll Lender and the Fronting Lender),
(d) the Replacement Term Loans shall be deemed the Class B Term Loans and replace the Refinanced Term Loans, and all Replacement Term Loans shall
be subject to the same Interest Period as the Refinanced Term Loans in existence immediately prior to the First Amendment Effective Date, and shall continue to
accrue interest in accordance with Section 2.07 of the Credit Agreement on and after the First Amendment Effective Date at the same interest rate, except for the
change in the Applicable Margin pursuant to this First Amendment effective on the First Amendment Effective Date, and
(e) the Fronting Lender shall advance a Replacement Term Loan in a principal amount equal to the principal amount of Refinanced Term Loans required to
be paid by the Fronting Lender pursuant to this Section 7.
[REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY]
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered as of the day and year above written.
JPMORGAN CHASE BANK, N.A., as Administrative Agent
and a Revolving Lender
By: /s/ Cristina Caviness
Name: Cristina Caviness
Title: Vice President
UAL 2017
Repricing Amendment
BARCLAYS BANK PLC, as Fronting Lender and a Revolving
Lender
By: /s/ Tom Blouin
Name: Tom Blouin
Title:
Managing Director
UAL 2017
Repricing Amendment
BANK OF AMERICA, N.A., as a Revolving Lender
By: /s/ Christopher Wozniak
Name: Christopher Wozniak
Title:
Director
UAL 2017
Repricing Amendment
BNP PARIBAS, as a Revolving Lender
By: /s/ Robert Papas
Name: Robert Papas
Title:
Managing Director
By: /s/ Angela Bentley Arnold
Name: Angela Bentley Arnold
Title:
Managing Director
UAL 2017
Repricing Amendment
CITIBANK, N.A., as a Revolving Lender
By: /s/ Meghan O’Connor
Name: Meghan O’Connor
Title:
Vice President
UAL 2017
Repricing Amendment
CRÉDIT AGRICOLE CORPORATE AND INVESTMENT
BANK, as a Revolving Lender
By: /s/ Elisa Lajonchere
Name: Elisa Lajonchere
Title:
Managing Director
By: /s/ Brian Bolotin
Name: Brian Bolotin
Title:
Managing Director
UAL 2017
Repricing Amendment
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a
Revolving Lender
By: /s/ Vipul Dhadda
Name: Vipul Dhadda
Title:
Authorized Signatory
By: /s/ D. Andrew Maletta
Name:
Title:
D. Andrew Maletta
Authorized Signatory
UAL 2017
Repricing Amendment
DEUTSCHE BANK AG NEW YORK BRANCH, as a
Revolving Lender
By: /s/ Marcus Tarkington
Name: Marcus Tarkington
Director
Title:
By:
/s/ Anca Trifan
Name: Anca Trifan
Title:
Managing Director
UAL 2017
Repricing Amendment
GOLDMAN SACHS BANK USA, as a Revolving Lender
By:
/s/ Chris Lam
Name: Chris Lam
Title:
Authorized Signatory
UAL 2017
Repricing Amendment
INDUSTRIAL AND COMMERCIAL BANK OF CHINA
LIMITED, NEW YORK BRANCH, as a Revolving Lender
By:
/s/ Christopher McKay
Name: Christopher McKay
Title:
Director
By:
/s/ Peichen Chen
Name:
Title:
Peichen Chen
Assistant Vice President
UAL 2017
Repricing Amendment
MORGAN STANLEY BANK, N.A., as a Revolving Lender
By:
/s/ Brian Roggi
Name: Brian Roggi
Title:
Authorized Signatory
UAL 2017
Repricing Amendment
MORGAN STANLEY SENIOR FUNDING INC., as a
Revolving Lender
By:
/s/ Brian Roggi
Name: Brian Roggi
Title:
Vice President
UAL 2017
Repricing Amendment
STANDARD CHARTERED BANK, as a Revolving Lender
By:
/s/ Daniel Mattern
Name: Daniel Mattern
Title:
Associate Director
UAL 2017
Repricing Amendment
STATE BANK OF INDIA, as a Revolving Lender
By:
/s/ Rahul Joshi
Name: Rahul Joshi
Title:
Head Corporate Credit
UAL 2017
Repricing Amendment
WELLS FARGO BANK, N.A., as a Revolving Lender
By: /s/ Thomas M. Molitor
Name: Thomas M. Molitor
Title: Managing Director
UAL 2017
Repricing Amendment
COMPASS BANK, as a Revolving Lender
By: /s/ Daniel Feldman
Name: Daniel Feldman
Title: Vice President
UAL 2017
Repricing Amendment
UNITED AIRLINES, INC.
By: /s/ Andrew Levy
Name: Andrew Levy
Title:
Executive Vice President
and Chief Financial Officer
UNITED CONTINENTAL HOLDINGS, INC.
By: /s/ Andrew Levy
Name: Andrew Levy
Title:
Executive Vice President
and Chief Financial Officer
UAL 2017
Repricing Amendment
EXHIBIT A
LENDER CONSENT TO FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT
AND GUARANTY AGREEMENT
November 6, 2017
Reference is made to the Amended and Restated Credit and Guaranty Agreement, dated as of March 29, 2017 (as amended, restated, supplemented or otherwise
modified through the date hereof, the “ Loan Agreement ”) among UNITED AIRLINES, INC., a Delaware corporation (the “ Borrower ”), UNITED
CONTINENTAL HOLDINGS, INC. and its other subsidiaries party thereto as guarantors from time to time, JPMORGAN CHASE BANK, N.A., as administrative
agent for the Lenders (together with its permitted successors in such capacity, the “ Administrative Agent ”), and the “Lenders” party thereto.
Posted for your review is a draft of the First Amendment (the “ Amendment ”) to the Loan Agreement. Barclays Bank PLC will be acting as Fronting Lender in
connection with the Amendment. Capitalized terms used and not defined in this Consent have the meanings set forth in the Loan Agreement, as amended by the
Amendment.
This Consent sets forth the procedures for (i) submitting your consent to the Amendment; (ii) electing either (a) a cashless roll as described in Option A below or
(b) a cash roll as described in Option B below; (iii) electing not to consent to the Amendment and be treated as a “Non-Consenting Lender” and/or (iv) submitting
questions or comments on the Amendment.
PROCEDURES FOR CONSENTING TO THE AMENDMENT
Each Term Lender is requested to consent to the Amendment by following the procedures set forth herein. Additionally, each Consenting Lender may elect one of
the following options:
•
OPTION A (Cashless): If you elect Option A, on the First Amendment Effective Date, your Class B Term Loans, in a principal amount equal to your
Refinanced Term Loans or greater amount as agreed between you and the Fronting Lender, will automatically be subject to the amended terms
described in the Amendment.
•
OPTION B (Cash Roll): If you elect Option B, on the First Amendment Effective Date (i) your Class B Term Loans will be assigned to the Fronting
Lender pursuant to the terms of the Amendment (the “ First-Step Assignment ”), (ii) you will receive an amount equal to the outstanding principal
amount of, together with accrued and unpaid interest to the First Amendment Effective Date on, such Term Loans, and (iii) you or such other Eligible
Assignees as you may designate will commit to purchase new Class B Term Loans from the Fronting Lender (the “ Second-Step Assignment ”) in a
principal amount to be determined by the Fronting Lender up to the amount of the original Class B Term Loans you assigned pursuant to the First-Step
Assignment (or such greater amount as may be agreed between you and the Fronting Lender).
In order to consent to the Amendment and elect either Option A or Option B, each Consenting Lender is required to complete and sign the signature page to the
Amendment (a copy of which is attached hereto as Annex I, with the full Amendment document being posted separately to
Intralinks). In addition, if you elect Option B, the Fronting Lender will separately be contacting you to arrange execution and delivery of appropriate Assignment
and Acceptance to effect the Second-Step Assignment.
Delivery Instructions for Consenting Lenders: If you are a Consenting Lender, please indicate your consent to the Amendment by submitting an executed
signature page, a form of which is attached hereto as Annex I, to UnitedAirlinesNov17@lendamend.com no later than 1:00p.m., New York City time, on
November 9, 2017. For questions about signature pages or execution matters please contact LendAmend at +1 (646) 453-2861. Term Lenders not delivering a
signature page prior to such time will be treated as “Non-Consenting Lenders” with respect to the Amendment . Please note that EACH LEGAL ENTITY MUST
SUBMIT A SEPARATE SIGNATURE PAGE.
PROCEDURES FOR NON-CONSENTING LENDERS
If you do not wish to consent to the Amendment for any of your Class B Term Loans, you are requested to please promptly advise the Fronting Lender of your
intention. Non-Consenting Lenders will be repaid in accordance with the Amendment.
PROCEDURES FOR UPSIZING COMMITMENTS
Each existing Lender that wishes to upsize its Class B Term Loan commitment in excess of its current amount is asked to contact their sales representative at
Barclays Bank.
REQUEST FOR REVIEW AND COMMENTS TO THE AMENDMENT
Each Lender is requested to review the terms of the Amendment.
All questions or comments on the Amendment of a business nature should be directed to Barclays Bank at:
•
Michael Miller, michael.miller3@barclays.com, (212) 526-1288.
If you have any questions of a legal nature, they should be directed to the counsel for the Fronting Lender and the Administrative Agent, Milbank, Tweed,
Hadley & McCloy LLP at:
•
•
•
Elihu F. Robertson, erobertson@milbank.com, (212) 530-5187
James V. Pascale, jpascale@milbank.com, (212) 530-5370
Joshua Forman, jforman@milbank.com, (212) 530-5246
ANNEX I
CONSENTING LENDERS
By a Term Lender’s signature hereto, such Term Lender is electing to consent to the Amendment by Option A: CASHLESS for the entire principal
amount of Term Loans held by such Term Lender unless a different option is checked:
CURRENT HOLDING AMOUNT: $
PLEASE CHECK:
OPTION A : ☐ CASHLESS
OPTION B : ☐ CASH ROLL
LENDER:
By:
*
By:
Name:
Title:
Name:
Title:
For Lenders requiring a second signature line.
If you do not check any boxes you will be deemed to have elected a FULL CASHLESS ROLL.
*
**
** * In the event of immaterial discrepancies between lender indicated holding amount and the Agent’s Lender Register, the Agent’s Lender Register will prevail.
United Continental Holdings, Inc. and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
Exhibit 12.1
(In millions, except ratios)
Earnings:
Earnings before income taxes
Add (deduct):
Fixed charges, from below
Amortization of capitalized interest
Distributed earnings of affiliates
Interest capitalized
Equity earnings in affiliates
Earnings as adjusted
Fixed charges:
Interest expense
Portion of rent expense representative of the interest factor (a)
Fixed charges
Ratio of earnings to fixed charges
(a)
Imputed interest applied to rent expense.
2017
2016
2015
2014
2013
$2,999 $3,819 $4,219 $1,128 $ 539
1,389
9
—
(84)
(4)
1,629
11
—
(49)
(1)
$4,309 $5,129 $5,609 $2,736 $2,129
1,370
11
1
(72)
—
1,428
12
1
(49)
(2)
1,648
12
1
(52)
(1)
$ 643 $ 614 $ 669 $ 735 $ 783
846
$1,389 $1,370 $1,428 $1,648 $1,629
913
756
759
746
3.10
3.74
3.93
1.66
1.31
United Airlines, Inc. and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
Exhibit 12.2
(In millions, except ratios)
Earnings:
Earnings before income taxes
Add (deduct):
Fixed charges, from below
Amortization of capitalized interest
Distributed earnings of affiliates
Interest capitalized
Equity earnings in affiliates
Earnings as adjusted
Fixed charges:
Interest expense
Portion of rent expense representative of the interest factor (a)
Fixed charges
Ratio of earnings to fixed charges
(a)
Imputed interest applied to rent expense.
2017
2016
2015
2014
2013
$3,001 $3,822 $4,221 $1,110 $ 637
1,389
9
—
(84)
(4)
1,627
11
—
(49)
(1)
$4,311 $5,132 $5,612 $2,725 $2,225
1,370
11
1
(72)
—
1,429
12
1
(49)
(2)
1,655
12
1
(52)
(1)
$ 643 $ 614 $ 670 $ 742 $ 781
846
$1,389 $1,370 $1,429 $1,655 $1,627
759
913
756
746
3.10
3.75
3.93
1.65
1.37
United Continental Holdings, Inc. and United Airlines, Inc. Subsidiaries
(as of February 22, 2018)
Jurisdiction of Incorporation
Exhibit 21
Entity
United Continental Holdings, Inc.
Wholly-owned subsidiaries*:
United Airlines, Inc.
• Air Wis Services, Inc.
• Air Wisconsin, Inc.
• Domicile Management Services, Inc. **
• Air Micronesia, LLC.
• CAL Cargo, S.A. de C.V.**
• CALFINCO Inc.
• Century Casualty Company
• Continental Airlines de Mexico, S.A.**
• Continental Airlines Domain Name Limited
• Continental Airlines Finance Trust II
• Continental Airlines Fuel Purchasing Group, LLC
• Continental Airlines, Inc. Supplemental Retirement
Plan for Pilots Trust Agreement
• Continental Airlines Purchasing Holdings LLC
• Continental Airlines Purchasing Services LLC**
• Continental Express, Inc.
• Covia LLC
• Mileage Plus Holdings, LLC
• MPH I, Inc.
• Mileage Plus Marketing, Inc.
• Mileage Plus, Inc.
• Presidents Club of Guam, Inc.
• UABSPL Holdings, Inc.
• UAL Benefits Management, Inc.**
• United Atlantic LP**
• United Atlantic Services C.V.**
• United Atlantic Corporate LLC
• United Atlantic Corporate Center C.V.**
• United Atlantic Finance
• United Atlantic B.V.
• United Atlantic Services LLC
• United Aviation Fuels Corporation
Delaware
Delaware
Wisconsin
Delaware
Delaware
Delaware
Mexico
Delaware
Vermont
Mexico
England
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Netherlands
Cayman Islands
Netherlands
Delaware
Delaware
• United Airlines Business Private Services Limited**
• United Ground Express, Inc.
• United Travel Services, LLC
• United Vacations, Inc.
India
Delaware
Delaware
Delaware
*
**
Subsidiaries of United Continental Holdings, Inc. are wholly owned unless otherwise indicated
Domicile Management Services Inc. is 99.9% owned by Air Wis Services, Inc. and 0.1% owned by United Airlines, Inc. CAL Cargo, S.A. de C.V. is
99.99% owned by United Airlines, Inc. and .01% owned by CALFINCO Inc. Continental Airlines de Mexico, S.A. is 99.9997% owned by United
Airlines, Inc. and .0003% owned by private entities. Continental Airlines Purchasing Services LLC is 99% owned by Continental Airlines Purchasing
Holdings LLC and 1% owned by United Airlines, Inc. UAL Benefits Management, Inc. has 100% of its Class A Common Stock owned by United
Airlines, Inc. and 100% of its Class B Common Stock owned by Health Care Services Corporation. United Atlantic LP is 99.9% owned by United
Airlines, Inc. and 0.1% owned by United Atlantic Services LLC. United Atlantic Services C.V. is 99.9% owned by United Atlantic LP and 0.1% owned
by United Atlantic Services LLC. United Atlantic Corporate Center C.V. is 99.9% owned by United Atlantic Services C.V. and 0.1% owned by United
Atlantic Corporate LLC. United Airlines Business Private Services Limited is 99.99% owned by United Airlines, Inc. and 0.01% owned by UABSPL
Holdings, Inc. on behalf of United Airlines, Inc.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
Exhibit 23.1
(1) Registration Statement (Form S-3 No. 333-221865),
(2) Registration Statement (Form S-4 No. 333-167801),
(3) Registration Statement (Form S-8 No. 333-197815),
(4) Registration Statement (Form S-8 No. 333-151778),
(5) Registration Statement (Form S-8 No. 333-131434),
(6) Registration Statement (Form S-8 No. 333-218637),
of our reports dated February 22, 2018, with respect to the consolidated financial statements and schedule of United Continental Holdings, Inc. and the
effectiveness of internal control over financial reporting of United Continental Holdings, Inc., included in this Annual Report (Form 10-K) of United
Continental Holdings, Inc. for the year ended December 31, 2017.
/s/ Ernst & Young LLP
Chicago, Illinois
February 22, 2018
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-221865-01) of our report dated February 22, 2018, with
respect to the consolidated financial statements and schedule of United Airlines, Inc., included in this Annual Report (Form 10-K) of United Airlines, Inc.
for the year ended December 31, 2017.
Exhibit 23.2
/s/ Ernst & Young LLP
Chicago, Illinois
February 22, 2018
Certification of the Principal Executive Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 31.1
I, Oscar Munoz, certify that:
(1)
I have reviewed this annual report on Form 10-K for the period ended December 31, 2017 of United Continental Holdings, Inc. (the “Company”);
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4)
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent
fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting; and
(5)
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control
over financial reporting.
/s/ Oscar Munoz
Oscar Munoz
Chief Executive Officer
Date: February 22, 2018
Certification of the Principal Financial Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 31.2
I, Andrew C. Levy, certify that:
(1)
I have reviewed this annual report on Form 10-K for the period ended December 31, 2017 of United Continental Holdings, Inc. (the “Company”);
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4)
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent
fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting; and
(5)
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control
over financial reporting.
/s/ Andrew C. Levy
Andrew C. Levy
Executive Vice President and Chief
Financial Officer
Date: February 22, 2018
Certification of the Principal Executive Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 31.3
I, Oscar Munoz, certify that:
(1)
I have reviewed this annual report on Form 10-K for the period ended December 31, 2017 of United Airlines, Inc. (the “Company”);
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4)
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent
fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting; and
(5)
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control
over financial reporting.
/s/ Oscar Munoz
Oscar Munoz
Chief Executive Officer
Date: February 22, 2018
Certification of the Principal Financial Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 31.4
I, Andrew C. Levy, certify that:
(1)
I have reviewed this annual report on Form 10-K for the period ended December 31, 2017 of United Airlines, Inc. (the “Company”);
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4)
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent
fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting; and
(5)
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control
over financial reporting.
/s/ Andrew C. Levy
Andrew C. Levy
Executive Vice President and Chief
Financial Officer
Date: February 22, 2018
Certification of United Continental Holdings, Inc.
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.1
Each undersigned officer certifies that to the best of his knowledge based on a review of the annual report on Form 10-K for the period ended
December 31, 2017 of United Continental Holdings, Inc. (the “Report”):
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of United
Continental Holdings, Inc.
Date: February 22, 2018
/s/ Oscar Munoz
Oscar Munoz
Chief Executive Officer
/s/ Andrew C. Levy
Andrew C. Levy
Executive Vice President and Chief Financial Officer
Certification of United Airlines, Inc.
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.2
Each undersigned officer certifies that to the best of his knowledge based on a review of the annual report on Form 10-K for the period ended
December 31, 2017 of United Airlines, Inc. (the “Report”):
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of United
Airlines, Inc.
Date: February 22, 2018
/s/ Oscar Munoz
Oscar Munoz
Chief Executive Officer
/s/ Andrew C. Levy
Andrew C. Levy
Executive Vice President and Chief Financial Officer