UAL CORP /DE/, DEF 14A, 1997-03-31

UAL CORP /DE/
DEF 14A, 1997-03-31
AIR TRANSPORTATION, SCHEDULED

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO. )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]

Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12

UAL CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)

Payment of Filing Fee (Check the appropriate box):

[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
-------------------------------
(4) Date Filed:
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<PAGE>

LOGO UAL CORPORATION

March 31, 1997

Dear Fellow Owners:

Our Company had another spectacular year in 1996. With the hard work
and dedication of our 86,000 employees around the world, we posted
record earnings for the second year in a row. At the same time, our
customers' positive response to our service and product improvements,
favorable economic conditions, and the success of the Shuttle and
international expansion have all contributed to these impressive
results.

Three years ago, our employees were worried about their jobs. Today
they can be proud of the fact that United Airlines has grown, our
prospects have turned around, and the price of our stock has tripled.
As we approach the third anniversary of the ESOP and continue our
pursuit of the objectives set out in United's five-year strategic
plan, employee participation and support remain as vital as ever. To
review this exciting year and discuss the future of our Company, the
Board of Directors joins me in inviting you to attend the 1997 Annual
Meeting of Stockholders and to vote on the matters described in the
enclosed proxy statement.

Your vote is important. To be sure your shares are represented at
the meeting, please use the "vote-by-phone" option described on the
enclosed proxy or voting direction card, or sign and return the card
in the envelope provided, even if you plan to attend the meeting in
person.

I hope you will be able to attend the meeting and I look forward to
seeing you. If you plan to attend, please detach the admission card
attached to your proxy or voting direction card and bring it with you
to the meeting.

Sincerely yours,

/s/ Gerald Greenwald
Gerald Greenwald
<PAGE>

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT

The Annual Meeting of Stockholders of UAL Corporation, a Delaware
corporation (the "Company"), will be held in the Ballroom of the National
Press Club, 529 14th Street, NW, Washington, D.C. 20045 on Wednesday, May 21,
1997 at 10:00 a.m., local time, to:

1. Elect a Board of Directors as follows:

(a) Five Public Directors, to be elected by the holders of Common
Stock;

(b) Four Independent Directors, to be elected by the holders of Class
I Junior Preferred Stock; and

(c) One ALPA Director, one IAM Director and one Salaried/Management
Employee Director, to be elected by the holders of Class Pilot MEC
Junior Preferred Stock, Class IAM Junior Preferred Stock and Class SAM
Junior Preferred Stock, respectively.

2. Ratify the appointment of independent public accountants.

3. Transact any other business that is properly brought before the
meeting.

Only stockholders of record at the close of business on March 24, 1997, will
be entitled to vote at the meeting. PLEASE NOTE THAT ATTENDANCE AT THE MEETING
WILL BE LIMITED TO STOCKHOLDERS AS OF THE RECORD DATE (OR THEIR AUTHORIZED
REPRESENTATIVES) HOLDING AN ADMISSION TICKET. THE ADMISSION TICKET IS LOCATED
ON THE LOWER PORTION OF YOUR PROXY OR VOTING DIRECTION CARD.

Francesca M. Maher
Vice President--Law
and Corporate Secretary

Chicago, Illinois
March 31, 1997

IMPORTANT

WE HOPE YOU WILL ATTEND THE STOCKHOLDERS MEETING. TO ENSURE PROPER
REPRESENTATION AT THE MEETING, STOCKHOLDERS ARE REQUESTED TO VOTE THEIR
PROXIES BY TELEPHONE AS DESCRIBED ON THE ENCLOSED PROXY CARD OR DATE, SIGN AND
MAIL THEIR PROXIES IN THE FORM ENCLOSED EVEN THOUGH THEY PLAN TO ATTEND THE
MEETING. SIMILARLY, PARTICIPANTS IN THE UAL CORPORATION EMPLOYEE STOCK
OWNERSHIP PLAN (THE "ESOP") MAY GIVE THEIR VOTING DIRECTION BY TELEPHONE AS
DESCRIBED ON THE ACCOMPANYING VOTING DIRECTION CARD OR DATE, SIGN AND MAIL
THEIR VOTING DIRECTION CARD IN THE FORM ENCLOSED. OTHER REQUESTS FOR PROXIES
OR VOTING DIRECTION FROM BROKERS, TRUSTEES OR FIDUCIARIES SHOULD BE PROCESSED
AS DESCRIBED IN THE ACCOMPANYING MATERIALS.

Please note that the Company's audited financial statements and certain
other financial information are included as an Appendix to this Proxy
Statement. This proxy statement and the accompanying proxy card are being
mailed to stockholders on March 31, 1997.
<PAGE>

PROPOSAL NO. 1

ELECTION OF DIRECTORS

Except where authority has been withheld by a stockholder, the enclosed
proxy will be voted at the 1997 Annual Meeting of Stockholders of the Company
or any adjournments or postponements (the "Meeting") for the election of the
respective nominee(s) named below for a term of one year and until their
successors are duly elected and qualified. The terms of all directors will
expire at the Meeting. The Board of Directors expects all nominees named below
to be available for election.

DIRECTORS TO BE ELECTED BY HOLDERS OF COMMON STOCK

PUBLIC DIRECTORS

Five Public Directors are to be elected by the holders of Common Stock, par
value $.01 per share ("Common Stock"). Each nominee was previously elected by
the holders of Common Stock and has served continuously as a Public Director
since the date of his election. The term "Public Director" is used as defined
in the Restated Certificate of Incorporation, as amended, of the Company (the
"Charter").

If a nominee unexpectedly becomes unavailable before election, proxies from
holders of Common Stock will be voted for the person designated by the Board
of Directors or the appropriate Board Committee in accordance with the
requirements of the Charter. No person other than the directors of the Company
is responsible for the naming of nominees.

<TABLE>
<CAPTION>
(1) PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NOMINEE (2) OTHER BUSINESS AFFILIATIONS AGE SINCE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
John A. Edwardson (1) President (1994) and Chief Operating Officer 47 1994
(1995) of the Company and its wholly owned
subsidiary, United Air Lines, Inc. ("United").
Executive Vice President and Chief Financial
Officer, Ameritech Corporation
(telecommunications) (1991-1994).
(2) Director, Household International, Inc.
- ---------------------------------------------------------------------------------------
Gerald Greenwald (1) Chairman and Chief Executive Officer of the 61 1994
Company and United (1994). Chairman, Tatra
Truck Company, Czech Republic (truck
manufacturing) (1993-1994); President, Olympia
& York Development Limited (real estate
development company in the process of a
financial restructuring at the time Mr.
Greenwald agreed to serve as president and
certain subsidiaries of which filed for
protection under federal bankruptcy laws in
connection with such restructuring) (1992-
1993); and Managing Director, Dillon Read &
Co. Inc. (investment banking) (1991-1992).
(2) Director, Aetna Inc.
- ---------------------------------------------------------------------------------------
John F. McGillicuddy (1) Retired Chairman and Chief Executive Officer, 66 1984
Chemical Banking Corporation (banking and
finance) (1993). Chairman and Chief Executive
Officer, Chemical Banking Corporation (1992-
1993), and Manufacturers Hanover Corporation
and Manufacturers Hanover Trust Company (1979-
1992).
(2) Director, Southern Peru Copper Corporation and
USX Corporation.
</TABLE>

2
<PAGE>

DIRECTORS TO BE ELECTED BY HOLDERS OF OTHER CLASSES OF STOCK

The following classes of directors are to be elected by the holder of
certain classes of stock of the Company other than Common Stock. THE HOLDERS
OF COMMON STOCK DO NOT VOTE ON THE ELECTION OF THESE DIRECTORS. Each nominee
was previously elected by the holders of the applicable class of stock of the
Company and has served continuously as a director of the Company for the
period succeeding the date of his election. If a nominee unexpectedly becomes
unavailable before election, or the Company is notified that a substitute
nominee has been selected, votes will be cast pursuant to the authority
granted by the proxies from the respective holder(s) for the person who may be
designated as a substitute nominee or, if applicable, in accordance with the
nomination procedures identified below.

INDEPENDENT DIRECTORS--ELECTED BY HOLDERS OF CLASS I STOCK

Four Independent Directors (as defined in the Charter) are to be elected by
the four Independent Directors as the holders of Class I Junior Preferred
Stock of the Company ("Class I Stock"). Each nominee has been nominated by the
Independent Director Nomination Committee and, pursuant to a Stockholders
Agreement among the holders of Class I Stock, the Company, the Air Line Pilots
Association, International ("ALPA"), and the International Association of
Machinists and Aerospace Workers ("IAM"), each such holder has agreed to vote
in favor of such nominees. No person, other than the members of the
Independent Director Nomination Committee, is responsible for the naming of
the nominees.

<TABLE>
<CAPTION>
(1) PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NOMINEE (2) OTHER BUSINESS AFFILIATIONS AGE SINCE
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<S> <C> <C> <C>
Duane D. Fitzgerald (1) Retired Chairman (1996), and former President 57 1994
(1988-1996) and Chief Executive Officer (1991-
1996), Bath Iron Works Corporation
(shipbuilding) and former Vice President of
its parent company, General Dynamics
Corporation (1995-1996).
(2) Director, Central Maine Power Co. and Trustee,
IAM National Pension Fund.
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Richard D. McCormick (1) Chairman (1992), President (1986) and Chief 56 1994
Executive Officer (1991) of US WEST, Inc.
(telecommunications).
(2) Director, Norwest Corporation.
</TABLE>

3
<PAGE>

ALPA DIRECTOR--ELECTED BY HOLDER OF CLASS PILOT MEC STOCK

One ALPA Director (as defined in the Charter) is to be elected by the United
Airlines Pilots Master Executive Council, ALPA ("ALPA-MEC"), the holder of the
Class Pilot MEC Junior Preferred Stock of the Company ("Class Pilot MEC
Stock"). The ALPA-MEC has advised the Company that it has nominated and
intends to re-elect Michael H. Glawe as the ALPA Director.

<TABLE>
<CAPTION>
(1) PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NOMINEE (2) OTHER BUSINESS AFFILIATIONS AGE SINCE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Michael H. Glawe (1) Chairman, ALPA-MEC (labor union) (1996). 49 1/1/96
Chairman, ALPA-MEC Grievance Committee (1993-
1995), and Captain, B727, United, for the past
five years.
(2) Executive Board Member, ALPA.
</TABLE>

IAM DIRECTOR--ELECTED BY HOLDER OF CLASS IAM STOCK

One IAM Director (as defined in the Charter) is to be elected by the IAM,
the holder of the Class IAM Junior Preferred Stock of the Company ("Class IAM
Stock"). The IAM has advised the Company that it has nominated and intends to
re-elect John Peterpaul as the IAM Director.

<TABLE>
<CAPTION>
(1) PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NOMINEE (2) OTHER BUSINESS AFFILIATIONS AGE SINCE
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<S> <C> <C> <C>
John F. Peterpaul (1) Retired General Vice President, IAM (labor 61 1994
union) (1994). General Vice President, IAM,
for the past five years.
(2) Former Chairman, Railway Labor Executives'
Association; former member, National
Commission to Ensure a Strong Competitive
Airline Industry.
</TABLE>

4
<PAGE>

SALARIED/MANAGEMENT EMPLOYEE DIRECTOR--ELECTED BY HOLDERS OF CLASS SAM STOCK

One Salaried/Management Employee Director (as defined in the Charter) is to
be elected by the holders of the Class SAM Junior Preferred Stock of the
Company ("Class SAM Stock"), who are Joseph V. Vittoria, the
Salaried/Management Employee Director, and William P. Hobgood, Senior Vice
President-People of the Company. Mr. Vittoria has been nominated for re-
election by the "System Roundtable," a body of salaried and management
employees of United empowered to review and discuss issues relating to the
Company and their effect on salaried and management employees. Pursuant to a
Stockholders Agreement among the holders of Class SAM Stock and the Company,
each such holder has agreed to vote in favor of the System Roundtable nominee.

CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS

The Board of Directors of the Company held a total of nine meetings in 1996.
All directors attended 75 percent or more of the total of such meetings and
meetings of Board Committees of which they were members, other than John F.
McGillicuddy, who attended 73% of such meetings.

COMMITTEES

The Board of Directors has Executive, Audit, Compensation, Compensation
Administration, CAP, Labor, Independent Director Nomination, Outside Public
Director Nomination, Pension and Welfare Plans Oversight and Transaction
Committees.

EXECUTIVE COMMITTEE. The Executive Committee is authorized to exercise the
powers of the Board of Directors in the management of the business and affairs
of the Company, with certain exceptions. The Executive Committee is also
responsible for safety and security oversight for United, periodically
reviewing Board effectiveness and overseeing the compensation arrangements for
non-employee directors. The Executive Committee held five meetings in 1995.
Committee members: Gerald Greenwald, Chairman, and Michael H. Glawe, Richard
D. McCormick, John F. Peterpaul, Paul E. Tierney, Jr., and Paul A. Volcker.

AUDIT COMMITTEE. The Audit Committee reviews with the Company's independent
public accountants the annual financial statements of the Company prior to
publication, reviews the work of and approves non-audit services performed by
such independent accountants, makes annual recommendations to the Board for
the appointment of independent public accountants for the ensuing year, and
reviews the effectiveness of the financial and accounting functions,
organization, operations and management of the Company and its subsidiaries
and affiliates. The Audit Committee held two meetings in 1996. Committee
members: James J. O'Connor, Chairman, and Duane D. Fitzgerald, Richard D.
McCormick, John F. McGillicuddy, Paul E. Tierney, Jr., John K. Van de Kamp,
and Paul A. Volcker.

COMPENSATION COMMITTEE. The Compensation Committee reviews and approves the
compensation and benefits of all officers of the Company and reviews general
policy matters relating to compensation and benefits of non-union employees of
the Company and its subsidiaries. The Committee also administers the equity
incentive compensation plans of the Company, except for responsibilities
reserved for the Compensation Administration Committee. The Compensation
Committee held five meetings in 1996. Committee members: John F. McGillicuddy,
Chairman, and Duane D. Fitzgerald, Michael H. Glawe, Gerald Greenwald, Richard
D. McCormick, John F. Peterpaul, and Joseph V. Vittoria.

5
<PAGE>

COMPENSATION ADMINISTRATION COMMITTEE. The Compensation Administration
Committee administers the stock option plans and executive compensation
programs of the Company to the extent such functions cannot or are not
appropriate to be performed by the Compensation Committee in light of any
provision of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), securities laws, or other applicable laws or regulations, and
also oversees the evaluation process for CEO performance. The Compensation
Administration Committee held four meetings in 1996. Committee members: John
F. McGillicuddy, Chairman, and Duane D. Fitzgerald and Richard D. McCormick.

CAP COMMITTEE. The CAP Committee oversees implementation of the Company's
Competitive Action Plan to improve United's competitiveness on many short-haul
routes, pursuant to which "Shuttle by United" was established. The CAP
Committee has the exclusive authority to approve on behalf of the Company any
modifications of or amendments to the Competitive Action Plan, other than
those matters reserved to the Labor Committee. The CAP Committee held one
meeting in 1996. Committee members: Duane D. Fitzgerald, Chairman, and Michael
H. Glawe, Gerald Greenwald, John F. McGillicuddy, James J. O'Connor, John F.
Peterpaul, Paul E. Tierney, Jr., and John K. Van de Kamp.

LABOR COMMITTEE. The Labor Committee reviews and approves the entering into
of, and modifications and amendments to, collective bargaining agreements to
which the Company or any of its subsidiaries is a party, with certain
exceptions. The Committee held eight meetings in 1996. Committee members:
Gerald Greenwald, Chairman, and Richard D. McCormick and Paul E. Tierney, Jr.

INDEPENDENT DIRECTOR NOMINATION COMMITTEE. The Independent Director
Nomination Committee nominates candidates to become Independent Director
members of the Board of Directors, fills vacancies in Independent Director
positions and appoints Independent Directors to serve on Board Committees. The
Committee held three meetings in 1996. Committee members: John K. Van de Kamp,
Chairman, and Duane D. Fitzgerald, Michael H. Glawe, Richard D. McCormick,
John F. Peterpaul, Joseph V. Vittoria and Paul A. Volcker.

OUTSIDE PUBLIC DIRECTOR NOMINATION COMMITTEE. The Outside Public Director
Nomination Committee nominates candidates to become Outside Public Director
(as defined in the Charter) members of the Board of Directors, fills vacancies
in Outside Public Director positions and appoints Outside Public Directors to
serve on Board Committees. The Outside Public Director Nomination Committee
will consider nominees recommended by stockholders, who may submit
recommendations by addressing a letter to the Committee Chairman at UAL
Corporation, P. O. Box 66919, Chicago, Illinois 60666. Qualification
requirements for Outside Public Directors are specified in the Charter. The
Committee held one meeting in 1996. Committee members: Paul E. Tierney, Jr.,
Chairman, and John F. McGillicuddy and James J. O'Connor.

PENSION AND WELFARE PLANS OVERSIGHT COMMITTEE. The Pension and Welfare Plans
Oversight Committee oversees compliance by the Company and its subsidiaries
with laws governing employee benefit plans maintained by the Company and its
subsidiaries. The Committee held two meetings in 1996. Committee members: Paul
A. Volcker, Chairman, and Michael H. Glawe, James J. O'Connor, John F.
Peterpaul, John K. Van de Kamp and Joseph V. Vittoria.

TRANSACTION COMMITTEE. The Transaction Committee is authorized to evaluate
and advise the Board with respect to any proposed merger or consolidation of
the Company or any of its subsidiaries with or into, the sale, lease or
exchange of all or substantially all of the Company's or any of its
subsidiaries' property or assets to, or a significant business transaction
with, any Labor Affiliate (as defined in the Charter). The Transaction
Committee held no meetings in 1996. Committee members: Richard D. McCormick,
Chairman, and Duane D. Fitzgerald, John F. McGillicuddy, James J. O'Connor,
Paul E. Tierney, Jr., John K. Van de Kamp and Paul A. Volcker.

6
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

Messrs. Greenwald and Glawe serve on the Compensation Committee, but not the
Compensation Administration Committee. Messrs. Glawe and Greenwald are
employees of the Company. Mr. Glawe is also the Chairman of the ALPA-MEC and
an officer of ALPA. United and ALPA are parties to a collective bargaining
agreement for United's pilots represented by ALPA.

COMPENSATION OF DIRECTORS

Each non-employee director receives an annual retainer of $18,000 and is
paid $900 for each meeting attended. The non-employee Chairman of each
Committee other than the Compensation Administration Committee receives an
additional retainer of $2,700 per year. Each non-employee member of a
Committee receives a fee of $900 for each Committee meeting attended. The
above fees reflect the 10% reduction in Board compensation that was instituted
in January 1993 and reaffirmed by the Board in September 1994. Non-employee
directors also receive 400 shares of Common Stock annually (giving effect to
the four-for-one Common Stock split in 1996), which, pursuant to Stock
Ownership Guidelines, they are to keep throughout their tenure on the Board.
Directors may elect to receive all or any portion of their cash retainer and
fees in Common Stock, as well as to defer their stock and cash compensation
for federal income tax purposes. Directors who are employees of the Company or
any of its subsidiaries, including Messrs. Greenwald, Edwardson and Glawe, do
not receive any retainer fee, meeting fee or Common Stock for their service on
the Board of Directors or any Committee.

During 1996, the Board elected to terminate the retirement income plan for
current non-employee directors (the "Retirement Plan"). The benefit under the
Retirement Plan varied based on years of service and age at retirement, with
the maximum benefit being a life annuity of $20,000 per year. Surviving spouse
benefits were available in some cases, and a trust was created to serve as a
source for payment of benefits. The Retirement Plan terminated effective
December 31, 1996 for all current non-employee directors, and each such
director agreed to forfeit any and all benefits under the Retirement Plan. In
exchange, each such director received a credit under his deferred compensation
account with the Company equal to the actuarially determined present value of
his accrued benefit under the Retirement Plan at December 31, 1996, which was
credited in dollars or stock units, at the election of the director. Beginning
in 1997, each non-employee director will be credited annually during his
service on the Board with 139 deferred stock units, which equates to a Common
Stock value at December, 1996 that is approximately equal to the estimated
annual value of the Retirement Plan benefit at that time. All such deferred
credits are unfunded and are not settled until after the director leaves the
Board.

The Company considers it important for its directors to understand its
business and have exposure to its operations and employees. For this reason,
the Company provides free transportation and free cargo shipment on United to
each director of the Company and his spouse and eligible dependent children.
The directors are reimbursed by the Company for income taxes resulting from
actual use of the travel and shipment privilege. A director who was a director
upon the change in control of the Company on July 12, 1994, is entitled to
continue such travel and cargo benefits for life. The cost of this policy in
1996 for each director, including cash payments made in January 1997 for
income tax liability, was as follows:

<TABLE>
<CAPTION>
NAME COST($)
- ---- -------
<S> <C>
John A. Edwardson....... 26,394
Duane D. Fitzgerald..... 11,554
Michael H. Glawe........ 0
Gerald Greenwald........ 46,680
Richard D. McCormick.... 14,954
John F. McGillicuddy.... 13,299
</TABLE>
<TABLE>
<CAPTION>
NAME COST($)
---- -------
<S> <C>
James J. O'Connor........ 27,780
John F. Peterpaul........ 559
Paul E. Tierney, Jr. .... 74,895
John K. Van de Kamp...... 19,159
Joseph V. Vittoria....... 25,776
Paul A. Volcker.......... 652
</TABLE>

7
<PAGE>

SECURITIES BENEFICIALLY OWNED BY DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the number of shares of Common Stock and of
voting preferred stock held in the ESOP beneficially owned as of March 24,
1996, by each director and executive officer included in the Summary
Compensation Table, and by all directors and executive officers of the Company
as a group. Unless indicated otherwise by footnote, the owner exercises sole
voting and investment power over the securities (other than unissued
securities, the ownership of which has been imputed to such owner). Certain
directors and executive officers of the Company also beneficially own shares
of various other classes of preferred stock of the Company. See "Security
Ownership of Certain Beneficial Owners."

<TABLE>
<CAPTION>
NAME OF DIRECTOR OR VOTING PREFERRED
EXECUTIVE OFFICER AND COMMON STOCK PERCENT STOCK BENEFICIALLY PERCENT OF
GROUP BENEFICIALLY OWNED OF CLASS OWNED CLASS
- --------------------- ------------------ -------- ------------------ ----------
<S> <C> <C> <C> <C>
John A. Edwardson....... 444,923 (1) * 4,741 (2) *
Duane D. Fitzgerald..... 3,464 (3) * --
Michael H. Glawe........ -- 2,093 (4) *
Gerald Greenwald........ 865,137 (5) 1.5 7,221 (2) *
Richard D. McCormick.... 4,816 (6) * --
John F. McGillicuddy.... 6,555 (7) * --
James J. O'Connor....... 4,208 (8) * --
John F. Peterpaul....... 1,482 (9) * --
Paul E. Tierney, Jr.. .. 77,016 (10) * --
John K. Van de Kamp..... 1,470 (3) * --
Joseph V. Vittoria...... 2,863 (11) * --
Paul A. Volcker......... 3,699 (12) * --
Douglas A. Hacker....... 138,100 (13) * 2,955 (2) *
Joseph R. O'Gorman...... 58,764 (14) * 3,357 (2) *
Stuart I. Oran.......... 108,836 (15) * 2,741 (2) *
Directors and Executive
Officers as a Group (20
persons)............... 2,065,265 (16) 3.5 27,952 (17) 2.2
</TABLE>
- --------
* Less than 1%.
(1) Includes 282,000 shares that Mr. Edwardson has the right to acquire
within 60 days of March 24, 1997, by the exercise of stock options and
960 shares held indirectly by Mr. Edwardson's daughters.
(2) Reflects beneficial ownership of Class S ESOP Voting Junior Preferred
Stock ("Class S Voting Stock") owned through the ESOP.
(3) Reflects beneficial ownership of Common Stock represented by deferred
stock units under the UAL Corporation 1995 Directors Plan (the "1995
Plan"). All directors have deferred receipt of Common Stock deliverable
in respect of deferred stock units under the 1995 Plan until retirement
from the Board.
(4) Reflects beneficial ownership of Class P ESOP Voting Junior Preferred
Stock ("Class P Voting Stock") owned through the ESOP.
(5) Includes 593,000 shares that Mr. Greenwald has the right to acquire
within 60 days of March 24, 1997, by the exercise of stock options, 6,684
shares held indirectly by Mr. Greenwald's wife and 1,034 shares held
indirectly by a United 401(k) plan (calculated as of the close of
business on December 31, 1996).
(6) Includes 2,618 shares of Common Stock represented by deferred stock units
under the 1995 Plan.
(7) Includes 3,955 shares of Common Stock represented by deferred stock units
under the 1995 Plan.
(8) Includes 1,608 shares of Common Stock represented by deferred stock units
under the 1995 Plan.
(9) Includes 282 shares of Common Stock represented by deferred stock units
under the 1995 Plan.
(10) Includes 1,200 shares of Common Stock represented by deferred stock units
under the 1995 Plan.
(11) Includes 288 shares of Common Stock represented by deferred stock units
under the 1995 Plan.
(12) Includes 1,299 shares of Common Stock represented by deferred stock units
under the 1995 Plan.
(13) Includes 107,100 shares that Mr. Hacker has the right to acquire within
60 days of March 24, 1997, by the exercise of stock options.
(14) Includes 10,000 shares that Mr. O'Gorman has the right to acquire within
60 days of March 24, 1997, by the exercise of stock options.

8
<PAGE>

(15) Includes 61,000 shares that Mr. Oran has the right to acquire within 60
days of March 24, 1997, by the exercise of stock options.
(16) Includes 1,306,434 shares that directors or executive officers have the
right to acquire within 60 days of March 24, 1997, by the exercise of
stock options, shares represented by deferred stock units under the 1995
Plan, shares held indirectly as discussed in footnotes (1) and (5) and an
additional 96 shares held in a United 401(k) plan (calculated as of the
close of business on December 31, 1996).
(17) Reflects ownership of Class S Voting Stock owned through the ESOP. No
director or executive officer other than Mr. Glawe beneficially owns
shares of Class P Voting Stock.

Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934 (the "Exchange Act") that might
incorporate future filings, including this Proxy Statement, in whole or in
part, the following report and the performance graph immediately following
shall not be incorporated by reference into any such filings.

EXECUTIVE COMPENSATION

UAL CORPORATION COMPENSATION AND COMPENSATION ADMINISTRATION
COMMITTEES REPORT

PHILOSOPHY

The Company's executive compensation program is designed to attract, retain
and motivate top quality and experienced officers. The program provides
industry competitive compensation opportunities, supports a pay-for-
performance culture and emphasizes pay-at-risk. The program is heavily
oriented toward incentive compensation tied to the annual and longer-term
financial performance of the Company and to its longer-term return to
stockholders. The Company's compensation program provides, among other
matters, that the program will be administered in a manner consistent with the
philosophy of an employee-owned company.

COMPONENTS

There are two components to the executive compensation program:

-Cash compensation.

-Stock compensation.

The cash compensation program is composed of base salary and annual
incentive compensation. Base salaries are competitive with other large
domestic air carriers, which include the three largest of the five carriers in
the Relative Market Performance Graph that follows. Base salaries are
substantially less than other companies in general industry of comparable
size. Base salaries for officers were reduced on July 13, 1994, by 8.25%. No
general salary increases were awarded to officers in 1996.

Annual incentive compensation provides an opportunity for additional
earnings. Awards under the incentive compensation program effectively were
reduced by 8.25% on July 13, 1994, since these awards are calculated as a
percentage of base salary. Under the program, an incentive pool is created
based upon the Company's earnings; each year the Compensation Committee
approves a schedule of annual incentive pool funding relative to specified
earnings targets. The CEO recommends to the Compensation Committee (or the
Compensation Administration Committee, in the case of incentive awards
intended to qualify under Section 162(m) of the Internal Revenue Code)
incentive awards for each officer based upon an assessment of each officer's
contribution over the preceding year. The assessment is based upon, among
other things, an appraisal prepared annually for each officer on his or her
managerial skills and the performance by him or her of assigned
responsibilities. Before making a recommendation, the CEO discusses such
appraisals with other members of senior management and considers these
discussions, along with an overall evaluation of corporate performance and
industry competitive

9
<PAGE>

data. The Compensation Committee makes a final determination of awards for
officers, including the CEO (but excluding the other proxy-named officers),
who is assessed by the Compensation Committee using a comparable process
established under his Employment Agreement. The awards for the other proxy-
named officers are made by the Compensation Administration Committee based on
a pre-established formula in full compliance with Section 162(m) of the
Internal Revenue Code.

The normal stock compensation program is comprised entirely of annual stock
options. Option grants are determined in consideration of individual
performance and contribution and airline industry practice, using the same
group referred to above for base salary and annual incentive compensation. The
CEO recommends stock option grants for each officer to the Compensation
Committee (or the Compensation Administration Committee, in the case of awards
which qualify for certain exemptions from Section 16 of the Exchange Act
pursuant to Rule 16b-3 or Section 162(m) qualified grants). While there are no
specific target award levels or weighting of factors considered in determining
stock grants, grants are made within grant-range guidelines for each officer
level. The Committee determines stock awards for the CEO based upon a
comparable process and makes a final determination on stock awards for all
other officers.

Stock options may not be granted at less than fair market value on the date
of grant. Stock options carry a 10-year term and typically have exercise
vesting restrictions that lapse ratably over a four-year period. The Company's
stock option plan includes provisions to preserve, to the maximum extent
possible, the deductibility by the Company of amounts awarded under the plan.

The officer compensation program in total is primarily focused on promoting
pay-for-performance and emphasizing pay-at-risk, and heavily oriented toward
stockholder interests through the use of long-term incentives that create a
direct linkage between officer rewards and increased stockholder value. The
long-term incentive component, which is composed totally of stock-based
incentives, represents over half the total income opportunity for the
officers.

The Company has eliminated restricted stock as a component of its normal
compensation program. However, to enable the Company to attract high quality
management at the most senior officer levels within the Company, sign-on
compensation packages for these officers at the time of hiring may include
cash and restricted or other stock awards in addition to compensation of the
types described above. These compensation packages are often the subject of
negotiation, and may have vesting provisions for stock options that vary from
the normal schedule. In addition, restricted stock may be used on an
individual basis for a very limited number of United employees in response to
compelling business requirements, such as for recruitment or retention of key
management employees. No restricted shares were awarded during 1996.

STOCK OWNERSHIP GUIDELINES

To encourage accumulation and retention of Common Stock by Company officers,
guidelines have been adopted providing for minimum ownership of Common Stock
at the following multiples of annual salary: Chairman and Chief Executive
Officer and President and Chief Operating Officer, five times; Executive and
Senior Vice Presidents, two times; and Vice Presidents, one times. Unexercised
stock options, unvested restricted stock and ESOP stock ownership are not
recognized for purposes of these guidelines.

CEO COMPENSATION

The compensation package for Mr. Greenwald was established pursuant to a
five year Employment Agreement negotiated by Mr. Greenwald with ALPA and the
IAM in 1994 (the "Employment Agreement"). As part of the Employment Agreement,
a base salary rate of $665,188 was established for Mr. Greenwald, giving
effect to the 8.25% reduction. A non-guaranteed target bonus of $725,000 per
year was also established, which was paid to Mr. Greenwald in 1997 (in Common
Stock) since his 1996 performance was consistent with the Board Committee's
objectives and directions, and corporate performance did not compel a lesser
bonus. In making those determinations, the applicable Board Committee took
into account (i) airline industry trends and

10
<PAGE>

(ii) the Company's cumulative profitability since the transaction date. No
weighting was given to any particular factor. These are standards for
performance evaluation that were established under the Employment Agreement.
Mr. Greenwald received a stock option grant in 1996 subject to the Company's
normal vesting schedule, in full compliance with Section 162(m) of the
Internal Revenue Code.

COMPENSATION FOR THE OTHER NAMED OFFICERS

Base salary rates for the other named executive officers have not changed
since being reduced by 8.25% in July 1994. In 1997 each of the named executive
officers received an incentive compensation award for 1996 performance, which
was granted pursuant to the normal incentive compensation plan terms according
to a pre-established formula in full compliance with Section 162(m) of the
Internal Revenue Code. Certain of such officers received all or part of such
bonus in Common Stock. Each such officer received a stock option grant in 1996
subject to the Company's normal vesting schedule, in full compliance with
Section 162(m) of the Internal Revenue Code.

CHANGE IN CONTROL AGREEMENTS

The Company and United are parties to severance agreements (each, a
"Severance Agreement") with certain senior officers with provisions that took
effect upon the change in control of the Company on July 12, 1994. The Company
took action in 1996 to terminate all of the Severance Agreements. The
Severance Agreements for Messrs. O'Gorman and Hacker, the only named executive
officers who have such agreements, expire in August 1998 and August 1997,
respectively.

COMPENSATION CONSULTANT AND COMPETITIVE DATA

The Compensation Committee and Compensation Administration Committee consult
with independent compensation advisors on executive compensation matters. The
Committees also have access to competitive data on compensation levels for
officer positions.

UAL CORPORATION COMPENSATION COMMITTEE

John F. McGillicuddy, Chairman Gerald Greenwald
Duane D. Fitzgerald Richard D. McCormick
Michael H. Glawe John F. Peterpaul
Joseph V. Vittoria

UAL CORPORATION COMPENSATION ADMINISTRATION COMMITTEE

John F. McGillicuddy, Chairman Richard D. McCormick
Duane D. Fitzgerald

11
<PAGE>

UAL CORPORATION
RELATIVE MARKET PERFORMANCE
TOTAL RETURN 1992-1996

[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UAL Corp. 100 86.54 100.17 86.47 176.65 247.41
----------------------------------------------------------------
S&P 500 100 107.62 118.46 120.03 165.13 203.05
----------------------------------------------------------------
D-J Airline Group (1) 100 101.09 124.58 83.27 120.62 133.70
</TABLE>
Source: Compustat Database
- --------
(1) Alaska Air, AMR, Delta, Southwest, USAir

12
<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------------
OTHER RESTRICTED
NAME AND ANNUAL STOCK STOCK ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
POSITION YEAR ($) (1) ($) (2) ($) ($) (3) (#) (4) ($) (5)
- --------- ---- ------- --------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Greenwald 1996 657,184 725,000 103,548 (6) 0 132,000 350,169
1995 657,184 725,000 79,006 (6) 1,820,000 0 254,234
1994 313,300 3,662,521 (7) 16,224 2,300,000 800,000 169,002

Edwardson 1996 454,694 458,750 25,345 0 88,000 198,039
1995 455,222 455,000 6,962 1,251,250 0 132,704
1994 216,069 2,156,025 (7) 8,458 2,208,000 520,000 72,353

Oran 1996 310,255 280,755 9,001 0 50,000 138,715
1995 310,750 270,000 10,145 426,563 0 84,371
1994 147,865 1,540,000 (7) 312,846 (8) 1,150,000 220,000 61,638

O'Gorman 1996 308,196 275,000 60,746 (9) 0 40,000 124,881
1995 308,196 256,000 10,984 853,125 0 73,439
1994 322,916 234,029 7,078 0 120,000 16,452

Hacker 1996 293,600 220,000 9,522 0 46,000 85,530
1995 293,600 210,000 9,138 682,500 0 60,187
</TABLE>
- --------
Greenwald= Gerald Greenwald, Chairman and Chief Executive Officer
Edwardson = John A. Edwardson, President and Chief Operating Officer
Oran= Stuart I. Oran, Executive Vice President
O'Gorman= Joseph R. O'Gorman, Executive Vice President
Hacker= Douglas A. Hacker, Senior Vice President and Chief Financial Officer
- --------
(1) 1994 salaries for Messrs. Greenwald, Edwardson and Oran reflect a partial
year of service.
(2) Messrs. Greenwald and Edwardson received the after-tax value of their
entire 1996, 1995 and 1994 bonuses in Common Stock instead of cash. Mr.
Hacker received the after-tax value of a portion of his 1996 bonus, and
Mr. O'Gorman received the after-tax value of all of his 1994 bonus, in
Common Stock instead of cash. The value of these shares is included in the
Summary Compensation Table.
(3) The restricted stock granted in 1995 to all officers named in the Summary
Compensation Table and in 1994 to Mr. Greenwald vests in five equal annual
installments commencing one year from the date of grant; to Mr. Edwardson
in 1994 vests in four equal annual installments commencing two years from
the date of grant; and to Mr. Oran in 1994 vested 20% on January 15, 1995,
and the balance in four equal annual installments commencing one year from
the date of grant. The number and aggregate value, respectively, of
restricted holdings as of fiscal year-end is: Mr. Greenwald, 111,200
shares, $6,950,000; Mr. Edwardson, 107,200 shares, $6,700,000; Mr. Oran,
32,000 shares, $2,000,000; Mr. O'Gorman, 24,000 shares, $1,500,000; and
Mr. Hacker, 19,200 shares, $1,200,000. Officers are entitled to dividends,
if any, paid on such shares.
(4) Numbers have been adjusted to reflect the four-for-one Common Stock split
in 1996 (the "Stock Split").
(5) Amounts include value of shares of ESOP preferred stock allocated to the
officer's account for 1996, 1995 and 1994 as follows, based upon the year-
end closing price of the Common Stock multiplied by the number of shares
of Common Stock issuable upon conversion of such ESOP preferred stock: Mr.
Greenwald, $221,797, $125,246, $18,912; Mr. Edwardson, $145,775, $80,851,
$13,043; Mr. Oran, $92,303, $38,315, $8,869; Mr. O'Gorman, $91,405,
$66,426, $8,869; and Mr. Hacker, $81,006, $56,964 (1996 and 1995 only).
Balance represents compensation attributable to split dollar insurance
program premiums.
(6) Amount includes $41,868 in 1996 and $38,498 in 1995 attributable to term
life insurance benefits and $15,000 in each such year attributable to
automobile benefits.
(7) Includes one-time sign-on compensation consisting of Common Stock and cash
and, in the case of Mr. Edwardson, a donation of Common Stock to a
charitable foundation at his request in lieu of issuing such shares to
him.

13
<PAGE>

(8) Includes a one-time $300,000 payment made in 1995 in consideration of
waiving all rights under the Company's normal relocation policy.
(9) Includes $32,373 attributable to club membership fees.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning stock options granted
during 1996 by the Company to the named executive officers. The hypothetical
present values of stock options granted in 1996 are calculated under a
modified Black-Scholes model, a mathematical formula used to value options.
The actual amount, if any, realized upon exercise of stock options will depend
upon the amount by which the market price of the Common Stock on the date of
exercise exceeds the exercise price. The individuals named below will not be
able to realize a gain from the stock options granted unless, during the
exercise period, the market price of the Common Stock is above the exercise
price of the options. SUCH AN INCREASE IN THE MARKET PRICE OF THE COMMON STOCK
WOULD ALSO BENEFIT ALL STOCKHOLDERS OF THE CORPORATION.

<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTION/SARS
UNDERLYING GRANTED TO EXERCISE HYPOTHETICAL
OPTIONS/SARS EMPLOYEES IN OR BASE PRESENT VALUE AT
GRANTED FISCAL YEAR PRICE EXPIRATION DATE OF GRANT
NAME (#000S) (1) 1996 ($/SH) DATE ($000S) (2)
- ---- ------------ ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Gerald Greenwald........ 132 10.0 $53.47 4/23/06 2,500
John A. Edwardson....... 88 6.7 $53.47 4/23/06 1,667
Stuart I. Oran.......... 50 3.8 $53.47 4/23/06 947
Joseph R. O'Gorman...... 40 3.0 $53.47 4/23/06 758
Douglas A. Hacker....... 46 3.5 $53.47 4/23/06 871
</TABLE>
- --------
(1) Options become exercisable in four equal annual installments commencing
April 24, 1997, one year from the date of grant.
(2) To realize hypothetical present values upon the exercise of the options,
the market price would have increased from $53.47 to $72.41. The modified
Black-Scholes model used to calculate the hypothetical values at date of
grant considers a number of factors to estimate the option's present
value, including the stock's historic volatility calculated using the
monthly closing price of Common Stock over a twenty-two month period (July
1994 through April, 1996), the estimated exercise period of the option,
interest rates and the stock's expected dividend yield. The assumptions
used in the valuation of the options were: stock price volatility--.32,
exercise period--4 years, interest rate--6.4%, and dividend yield--0.00%.

BECAUSE THE STOCK OPTIONS DESCRIBED ABOVE ARE NOT TRANSFERABLE, THE
CORPORATION BELIEVES THE GRANT DATE PRESENT VALUES SHOWN ABOVE MAY BE
OVERSTATED.

There is no assurance that the hypothetical present values of stock options
presented in the table above represent the actual values of such options, and
the hypothetical values shown should not be construed as predictions by the
Company as to the future value of the Common Stock.

14
<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES (1)

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED ON VALUE OPTIONS/SARS MONEY OPTIONS/SARS
EXERCISE REALIZED AT FY-END(#000S) AT FY-END($000S)
NAME (#000S) ($000S) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Gerald Greenwald........ N/A N/A 560/372 22,382/10,784
John A. Edwardson....... N/A N/A 260/348 10,392/11,187
Stuart I. Oran.......... 66.5 (2) 1,985 (2) 68.5/105 2,738/2,650
Joseph R. O'Gorman...... 120 (3) 3,728 (3) 60/100 1,959/2,759
Douglas A. Hacker....... 4.4 (4) 162 (4) 95.6/96 4,103/2,414
</TABLE>
- --------
(1) Each option granted prior to July 12, 1994 (a "Pre-Closing Option"), is
exercisable for two shares of Common Stock and $84.81 in cash (after
adjustment for the Stock Split). Value of Pre-Closing Options includes the
cash amount deliverable upon exercise.
(2) Shares having an aggregate value of $818,268 were withheld by the Company
from the exercise proceeds to cover tax withholding obligations on the
value realized upon exercise.
(3) Shares and cash having an aggregate market value of $1,642,342 were
withheld by the Company from the exercise proceeds to cover tax
withholding obligations on the value realized upon exercise.
(4) Shares and cash having an aggregate market value of $52,715 were withheld
by the Company from the exercise proceeds to cover tax withholding
obligations on the value realized upon exercise.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF PARTICIPATION
FINAL -------------------------------------------------------------------------
AVERAGE PAY 15 20 25 30 35
- ----------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$ 400,000 $ 96,000 $128,000 $160,000 $192,000 $ 224,000
600,000 144,000 192,000 240,000 288,000 336,000
800,000 192,000 256,000 320,000 384,000 448,000
1,000,000 240,000 320,000 400,000 480,000 560,000
1,200,000 288,000 384,000 480,000 576,000 672,000
1,400,000 336,000 448,000 560,000 672,000 784,000
1,600,000 384,000 512,000 640,000 768,000 896,000
1,800,000 432,000 576,000 720,000 864,000 1,008,000
</TABLE>

The above illustration is based on retirement at age 65 and selection of a
straight life annuity (other annuity options are available, which would reduce
the amounts shown above). The amount of the normal retirement benefit under
the plan is the product of 1.6% times years of credited participation in the
plan times final average pay (highest five of last 10 years of covered
compensation, with compensation after July 12, 1994, being adjusted to add
back the 8.25% salary reduction). The retirement benefit amount is not offset
by the participant's social security benefit. Compensation covered by the plan
includes salary and amounts shown as annual bonus in the Summary Compensation
Table, other than sign-on compensation paid to Messrs. Greenwald, Edwardson
and Oran in 1994. Under the qualified plan, years of participation for persons
named in the cash compensation table are as follows: Mr. Greenwald--2 years;
Mr. Edwardson--2 years; Mr. Oran--2 years; Mr. O'Gorman--24 years and Mr.
Hacker--3 years. The amounts shown do not reflect limitations imposed by the
Internal Revenue Code on retirement benefits that may be paid under plans
qualified under the Internal Revenue Code. United has agreed to provide under
non-qualified plans the portion of the retirement benefits earned under the
pension plan that would otherwise be subject to Internal Revenue Code
limitations.

The Employment Agreement entitles Mr. Greenwald to an annual pension equal
to the greater of the pension that would accrue under the Company plans with
credit for 30 years of service or $500,000 per year. This pension is payable
at any time elected by Mr. Greenwald following retirement or termination of
employment. Mr. Greenwald's retirement benefit will continue to be paid to his
spouse at 67% of his benefit level under a joint survivor annuity. Pursuant to
the Employment Agreement, a revocable trust has been funded to provide funding
for the additional pension obligation for Mr. Greenwald.

15
<PAGE>

The Company has agreed to supplement Messrs. Edwardson's, Oran's and
O'Gorman's benefits under the qualified pension plans by granting them credit
for additional years of service--10 years for Mr. Edwardson, 20 years for Mr.
Oran and 6 years for Mr. O'Gorman. In addition, the Company has agreed to
waive the service requirement for benefit vesting under the qualified pension
plan for Messrs. Edwardson and Oran and to impose no decrement to the pension
benefit based on age at retirement for Messrs. Edwardson, Oran and O'Gorman.

EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS

Pursuant to his Employment Agreement, Mr. Greenwald is paid a salary of
$665,188 per year, giving effect to the 8.25% salaried and management salary
reduction in July 1994, and a non-guaranteed target bonus of $725,000 per
year, which target bonus will be payable if Mr. Greenwald's performance is
"consistent with the applicable Board Committee's objectives and directions"
and the Company's performance "does not compel" a lesser bonus. In addition,
the applicable Board Committee will take into account (i) airline industry
trends and (ii) the Company's financial performance (including cumulative
profitability since July 12, 1994) in determining the extent of Mr.
Greenwald's bonus. The applicable Board Committee also has the discretion to
award a bonus in excess of the target amount. The options and restricted stock
received by Mr. Greenwald upon commencement of employment pursuant to the
Employment Agreement vest on any termination of Mr. Greenwald's employment
other than termination by the Company for cause or a voluntary resignation.
The options, to the extent vested, will remain outstanding for 10 years,
notwithstanding termination of Mr. Greenwald's employment for any reason,
including "cause."

If Mr. Greenwald's employment is terminated by the Company without "cause"
or by him for "good reason," his salary (at the $725,000 pre-reduction rate)
and guaranteed $725,000 bonus would continue for 3 years and certain benefits
would continue through the end of the Employment Agreement term, at which time
Mr. Greenwald would retire. Generally, the Company will not be entitled to a
deduction for Federal income tax purposes with respect to the amounts
described above to the extent that such amounts exceed $1 million in any year.

The Company has agreed that, in the event of a termination of employment of
Mr. Edwardson by the Company without cause or by Mr. Edwardson with good
reason, the Company shall pay to Mr. Edwardson a lump sum equal to the greater
of his base salary and bonus paid in the prior 12-month period and the
amounts, if any, payable pursuant to standard severance arrangements, if any,
then applicable to senior executive officers of the Company. In the event of a
termination without cause within five years after commencement of employment,
Mr. Oran is entitled to a cash payment equal to his base salary and annual
bonus paid in the prior 12-month period, as well as immediate vesting of any
of his initial option grants that would have otherwise vested within 12 months
after the date of termination.

Each of Mr. Hacker and Mr. O'Gorman is a party to a Severance Agreement that
provides certain benefits if the executive's employment with United is
terminated (1) by the Company without "cause" (as defined in the Severance
Agreement) or (2) by the executive for "good reason" (as defined in the
Severance Agreement) in either case prior to August 31, 1997 (Mr. Hacker), or
August 1, 1998 (Mr. O'Gorman). Upon such a termination of employment, the
executive officer will be entitled to receive (1) a cash payment equal to
three times the sum of (a) the greater of the executive's base salary as in
effect on July 12, 1994, or as in effect on the date his employment terminates
plus (b) the average of the greater of the bonuses paid to the executive with
respect to the three years preceding July 12, 1994, or the bonuses paid to the
executive with respect to the three years preceding his termination of
employment, (2) continuation of travel privileges (and partial tax
reimbursement) on United for the executive and his spouse and other dependents
for three years following termination of employment (and for life thereafter
if the executive would have qualified for retiree travel privileges had his
employment continued during such three-year period), (3) coverage under
United's medical and other welfare benefits for a period of three years
following the date of termination (and for life thereafter if the executive
would have qualified for retiree medical benefits had his employment continued
during such three-year period), (4) a lump-sum payment equal to the value of
the pension benefits (including any early retirement benefits) that the
executive officer would have earned under United's pension plans and
arrangements had the executive officer

16
<PAGE>

continued to be employed for an additional three years, and (5) a lump-sum
payment equal to the amounts that United would have paid on behalf of the
executive officer with respect to split-dollar life insurance policies in
effect for the executive.

PROPOSAL NO. 2

APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors, at the recommendation of the Audit Committee, has
appointed, subject to approval by the stockholders, the firm of Arthur
Andersen LLP as independent public accountants, to examine the financial
statements of the Company for the year 1997. It is anticipated that a
representative of Arthur Andersen LLP will be present at the meeting and will
have the opportunity to make a statement, if he or she desires to do so, and
will be available to respond to appropriate questions at that time. If the
stockholders do not approve the appointment of Arthur Andersen LLP, the
selection of independent public accountants will be reconsidered by the Board
of Directors.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
COMPANY FOR 1997.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table shows the number of shares of the Company's voting
securities beneficially owned by any person or group known to the Company as
of March 24, 1997, to be the beneficial owner of more than five percent (5%)
of any class of the Company's voting securities.

<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP CLASS
- ------------------- -------------- ----------------- -------
<S> <C> <C> <C>
State Street Bank and Trust Company, Common Stock 30,708,576 (1) 34.5%
Trustee Class P Voting Stock 2,022,047 (1) 100%
225 Franklin Street Class M ESOP Voting Junior Preferred Stock 1,659,161 (1) 100%
Boston, MA 02110 Class S Voting Stock 741,228 (1) 100%

AXA Assurances I.A.R.D. Mutuelle Common Stock 12,419,455 (2) 21.1%
AXA Assurances Vie Mutuelle
La Grande Arche
Pardi Nord
92044 Paris La Defense
France

Alpha Assurances I.A.R.D. Mutuelle
Alpha Assurances Vie Mutuelle
101-100 Terrasse Boieldieu
92042 Paris La Defense
France

AXA Courtage Assurance Mutuelle
24, Rue Drouot
75008 Paris France

AXA
23, Avenue Matignon
75008 Paris France

The Equitable Companies Incorporated
787 Seventh Avenue
New York, New York 10019
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP CLASS
- ------------------- -------------- ----------------- -------
<S> <C> <C> <C>
Janus Capital Corporation Common Stock 7,908,770 (3) 13.5%
Thomas H. Bailey
Janus Twenty Fund
100 Fillmore Street
Denver, Colorado 80206-4923

Oppenheimer Group, Inc. Common Stock 3,247,716 (4) 5.54%
Oppenheimer Capital
Oppenheimer Tower, World
Financial Center
New York, NY 10281

United Airlines Pilots Class Pilot MEC Stock 1 (5) 100%
Master Executive Council
Air Line Pilots Association,
International
6400 Shafer Court, Suite 700
Rosemont, IL 60018

International Association of Class IAM Stock 1 (6) 100%
Machinists and Aerospace Workers
District #141
9000 Machinists Place
Upper Marlboro, MD 20772

Joseph V. Vittoria Class SAM Stock 2 (7) 66.67%
c/o UAL Corporation
P.O. Box 66919
Chicago, IL 60666

William P. Hobgood Class SAM Stock 1 (7) 33.33%
Senior Vice President-People
United Airlines
P.O. Box 66100
Chicago, IL 60666

Duane D. Fitzgerald Class I Stock 1 (8) 25%
c/o UAL Corporation
P.O. Box 66919
Chicago, IL 60666

Richard D. McCormick Class I Stock 1 (8) 25%
U S WEST, Inc.
7800 E. Orchard Road
Englewood, CO 80111-2533

John K. Van de Kamp Class I Stock 1 (8) 25%
c/o Dewey Ballantine
333 S. Hope Street
Los Angeles, CA 90071-3003

Paul A. Volcker Class I Stock 1 (8) 25%
599 Lexington Avenue
40th Floor
New York, NY 10022
</TABLE>
- --------
(1) Based on Schedule 13G dated February 10, 1997, in which the reporting
person reported that as of December 31, 1996, (i) as trustee under the
ESOP (the "ESOP Trustee"), it had shared voting power over 2,022,047
shares of Class P Voting Stock representing 25.4% of the voting power of
the Company, 1,659,161 shares of Class M ESOP Voting Junior Preferred
Stock ("Class M Voting Stock," and together with the Class P Voting Stock
and the Class S Voting Stock, the "Voting Preferred Stocks") representing

18
<PAGE>

20.4% of the voting power of the Company, and 741,228 shares of Class S
Voting Stock representing 9.2% of the voting power of the Company, and
shared dispositive power over 6,950,461 shares of Class 1 ESOP Convertible
Preferred Stock and 644,510 shares of Class 2 ESOP Convertible Preferred
Stock, each convertible into quadruple that number of shares of Common
Stock ("Shares"), as well as 1,889 Shares issuable upon conversion of the
Voting Preferred Stocks, and (ii) as trustee or discretionary advisor for
various collective investment funds and other employee benefit plans and
other index accounts, it had sole dispositive power over 326,920 Shares and
sole voting power over 281,020 of such Shares. The reporting person
disclaims beneficial ownership of all shares reported. Voting power of
Voting Preferred Stocks is limited to matters other than the vote for
directors.
(2) Based on Schedule 13G dated February 12, 1997 in which AXA Assurances
I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances I.A.R.D.
Mutuelle, Alpha Assurances Vie Mutuelle and AXA Courtage Assurance
Mutuelle, AXA and The Equitable Companies Incorporated reported, as of
December 31, 1996, sole voting power for 8,068,416 of such Shares, shared
voting power for 436,900 of such Shares, sole dispositive power for
12,419,135 such Shares, and shared dispositive power for 320 such Shares.
Such amounts include 160,000 Shares issuable upon exercise of options and
320 shares issuable upon conversion of convertible preferred stock.
(3) Based on Schedule 13G dated February 10, 1997, in which, as of December
31, 1996, Janus Capital Corporation and Thomas H. Bailey reported shared
voting and dispositive power over all such Shares and Janus Twenty Fund
reported shared voting and dispositive power over 4,839,600 of such
Shares. Janus Capital Corporation and Thomas H. Bailey disclaim beneficial
ownership of all such Shares.
(4) Based on Schedule 13G dated January 17, 1997, in which the reporting
persons, on behalf of subsidiary companies and/or certain investment
advisory clients or discretionary accounts, reported shared voting and
dispositive power for all such Shares. The reporting persons disclaim
beneficial ownership of all such Shares.
(5) Share elects one ALPA Director and has one vote on all matters submitted
to the holders of Common Stock other than the election of directors.
(6) Share elects one IAM Director and has one vote on all matters submitted to
the holders of Common Stock other than the election of directors.
(7) Shares elect one Salaried/Management Employee Director and each share has
one vote on all matters submitted to the holders of Common Stock other
than the election of directors. Pursuant to a Stockholders Agreement, the
holders of Class SAM Stock have agreed to vote their shares in favor of
the election of the Salaried/Management Employee Director nominated by the
System Roundtable of United salaried and management employees.
(9) Shares elect four Independent Directors and do not vote on other matters
except as required by law. Pursuant to a Stockholders Agreement dated as
of July 12, 1994, the holders of Class I Stock have agreed to vote their
shares in favor of the election of the Independent Directors nominated by
the Independent Director Nomination Committee of the Board of Directors of
the Company.

The foregoing information in footnotes (1) through (4) is based on a review,
as of March 24, 1997, by the Company of statements filed with the Securities
and Exchange Commission under Sections 13(d) and 13(g) of the Exchange Act.

OTHER MATTERS

The Board of Directors knows of no other proposals to be presented for
consideration at the Meeting, but if other matters do properly come before the
Meeting, the persons named in the proxy will vote the shares according to
their best judgment.

SUBMISSION OF STOCKHOLDER PROPOSALS

Any stockholder proposal submitted for consideration at the Company's 1998
Annual Meeting of Stockholders must be received by December 1, 1997, by the
Secretary of the Company, Francesca M. Maher, UAL Corporation, P.O. Box 66919,
Chicago, Illinois 60666 and must otherwise comply with rules promulgated by
the Securities and Exchange Commission.

19
<PAGE>

VOTING RIGHTS AND PROXY INFORMATION

This Proxy Statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors of the Company at the
Annual Meeting of Stockholders called to be held on Wednesday, May 21, 1997.
The Board of Directors has fixed the close of business on March 24, 1997, as
the record date (the "Record Date") for determining the holders of capital
stock of the Company who are entitled to notice of and to vote at the Meeting.
The following chart identifies the number of shares of each class of voting
stock of the Company outstanding as of the Record Date, the number of holders
of each such class as of the Record Date entitled to vote at the Meeting, the
aggregate and per share votes for shares of each class for all matters on
which such shares vote, and the class of directors, if any, with respect to
which each class of stock is entitled to vote:

<TABLE>
<CAPTION>
AGGREGATE
SHARES NUMBER OF VOTES PER VOTING
TITLE OF CLASS OUTSTANDING VOTES HOLDERS OF RECORD SHARE FOR DIRECTORS
- -------------- ----------- ------------- ---------------------------- --------- -----------------------
<S> <C> <C> <C> <C> <C>
Common Stock 59,019,407 59,019,407 12,966 1 Class elects 5
Public Directors
Class P Voting Stock 3,429,238 33,347,932.37 1 (ESOP Trustee) 9.72 --

Class M Voting Stock 2,793,462 26,783,662.75 1 (ESOP Trustee) 9.59 --

Class S Voting Stock 1,250,470 12,003,235.88 1 (ESOP Trustee) 9.60 --

Class Pilot MEC Stock 1 1 1 (ALPA-MEC) 1 Class elects
1 ALPA Director

Class IAM Stock 1 1 1 (IAM) 1 Class elects
1 IAM Director

Class SAM Stock 3 3 2 (SAM Director and 1 Class elects
Senior Vice President-People) 1 SAM Director

Class I Stock 4 4 4 (Independent Directors) 1 Class elects
4 Independent Directors
</TABLE>
The Voting Preferred Stocks held by a trust established under a tax-
qualified employee stock ownership plan (the "Qualified ESOP") that have been
allocated to individual participants in the ESOP will be voted by
participants, as named fiduciaries under the Employee Retirement Income
Security Act of 1974, as amended, on a confidential pass-through basis. The
ESOP Trustee generally is obligated to vote as instructed by the participants
to whom the Voting Preferred Stock has been allocated, and the outstanding
shares command the entire voting power of each class of Voting Preferred
Stock. The Class P Voting Stock allocated to former employees who were members
of ALPA will be voted by the ESOP Trustee. The ESOP Trustee will (except as
may be required by law) vote the unallocated or otherwise unvoted shares in
the Qualified ESOP in proportions directed by participants who give
instructions to the ESOP Trustee with respect to such shares; each participant
who is an employee has the right to give such directions to the ESOP Trustee
in the proportion that the participant's allocated shares bears to the
allocated shares of all participants giving such directions. Shares held by
the ESOP Trustee under a non-qualified employee stock ownership plan (the
"Supplemental ESOP") will be voted as instructed by the administrative
committee appointed under the Supplemental ESOP. The Supplemental ESOP
provides that the administrative committee will consider the views of
participants concerning the vote, but is not required to take any particular
action in response to those views.

The holders of Common Stock, the Voting Preferred Stocks, the Class Pilot
MEC Stock, the Class IAM Stock and the Class SAM Stock will vote together as a
single class on all items of business at the Meeting except the election of
directors. The presence in person or by proxy of the holders of a majority of
the total voting power of the shares of all such classes outstanding at the
Record Date is necessary to constitute a quorum at the Meeting for all items
of business other than the election of directors. The Class I Stock does not
vote on any matter other than the election of the Independent Directors.

20
<PAGE>

The presence in person or by proxy of the holders of a majority of the total
voting power of the outstanding shares entitled to vote on the election of a
particular class of director(s) is necessary to constitute a quorum at the
Meeting for the election of director(s) of such class.

Under the Delaware General Corporation Law and the Charter, (i) the
affirmative vote of the holders of the shares of capital stock present in
person or represented by proxy at the Meeting representing a plurality of the
votes cast on the matter will be required to elect each of the directors to be
elected by the applicable class of capital stock, and (ii) the affirmative vote
of the holders of the shares of capital stock representing a majority of the
votes present in person or represented by proxy at the Meeting and entitled to
be cast on the matter will be required to approve the appointment of Arthur
Andersen LLP.

If the enclosed proxy is properly returned by dating, executing, and mailing,
or the proxy is voted properly by using the telephone procedures specified, the
proxy will be voted at the Meeting in accordance with the instructions
indicated by such proxy. IF NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE
VOTED FOR THE ELECTION OF DIRECTORS OF THE CLASS, IF ANY, ON WHICH THE SHARES
REPRESENTED BY THE PROXY ARE ENTITLED TO VOTE AND FOR THE APPOINTMENT OF ARTHUR
ANDERSEN LLP. The Board of Directors of the Company does not know of any
matters, other than as described in this Notice of Annual Meeting and Proxy
Statement, that are to come before the Meeting. If a proxy is given, the
persons named in the proxy will have authority to vote in accordance with their
best judgment on any other matter that is properly presented at the Meeting for
action, including without limitation any proposal to adjourn the Meeting or
concerning the conduct of the Meeting.

Abstentions will have the effect of a vote against the ratification of the
appointment of Arthur Andersen and any other matters presented for a vote of
the stockholders (other than the election of directors). As to abstentions, the
shares of capital stock are considered present at the Meeting. The abstentions
are not, however, affirmative votes for the matters presented for a vote and,
therefore, they will have the same effect as votes against any matter presented
for a vote of the stockholder other than the election of directors, as to which
they will have no effect on the outcome of the vote. Broker non-votes will have
no effect on the outcome of the vote on any of the matters presented for a vote
of stockholders at the Meeting and will not be counted for purposes of
establishing a quorum.

If a quorum is not present at the time the Meeting is convened for any
particular purpose, or if for any other reason the Company believes that
additional time should be allowed for the solicitation of proxies, the Company
may adjourn the Meeting with a vote of the stockholders then present. The
persons named in the enclosed form of proxy may vote any shares of capital
stock for which they have voting authority in favor of such an adjournment.

Any proxy may be revoked by the person giving it at any time before it is
voted, and such right is not limited by or subject to compliance with any
specified formal procedure. A proxy may be revoked by a later proxy delivered
using the telephone voting procedures or by mail to the Secretary of the
Company. A proxy may also be revoked by written notice of revocation mailed to
the Secretary of the Company. Attendance at the Meeting will not automatically
revoke a proxy, but a holder of Common Stock in attendance may request a ballot
and vote in person, thereby revoking a prior granted proxy.

Special voting rules will apply if you are an ESOP participant holding Voting
Preferred Stock through the ESOP Trustee. Telephone, as well as mail,
procedures are available with respect to these shares. Please consult the
accompanying materials for information concerning the voting of these shares.

GENERAL

A copy of the Company's Annual Report for the year ended December 31, 1996,
has been mailed to each stockholder on or about March 31, 1997. The audited
financial statements of the Company, along with certain other financial
information, are included in the Appendix to this Notice of Meeting and Proxy
Statement.

21
<PAGE>

Additional copies of the Annual Report and this Notice of Annual Meeting and
Proxy Statement, including the Appendix, and accompanying proxy may be
obtained from Georgeson & Company, Inc., Wall Street Plaza, New York, New York
10005 or from the Secretary of the Company. A COPY OF THE COMPANY'S FORM 10-K
TO THE SECURITIES AND EXCHANGE COMMISSION MAY BE OBTAINED WITHOUT CHARGE BY
WRITING TO FRANCESCA M. MAHER, SECRETARY, UAL CORPORATION, P.O. BOX 66919,
CHICAGO, ILLINOIS 60666.

Proxies are being solicited by and on behalf of the Board. All expenses of
this solicitation, including the cost of preparing and mailing this Proxy
Statement, will be borne by the Company. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
material to beneficial owners of Common Stock and Voting Preferred Stock held
of record by such persons, and the Company may reimburse such custodians,
nominees and fiduciaries for their reasonable expenses. To assure the presence
in person or by proxy of the largest number of stockholders possible, the
Company has engaged Georgeson & Co. to solicit proxies on behalf of the
Company. The Company has agreed to pay such firm a proxy solicitation fee not
to exceed $10,000 and to reimburse such firm for its reasonable out-of-pocket
expenses.

STOCKHOLDERS WHO PLAN TO ATTEND THE MEETING MUST DETACH THE ADMISSION CARD
ATTACHED TO THE PROXY OR VOTING DIRECTION CARD BEFORE MAILING AND BRING THE
ADMISSION CARD TO THE MEETING.

YOUR VOTE IS IMPORTANT!--SEE THE ENCLOSED PROXY CARD FOR
PROCEDURES TO VOTE BY TELEPHONE OR MAIL.

22
<PAGE>

APPENDIX

UAL CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED FINANCIAL STATEMENTS AND RELATED FINANCIAL INFORMATION

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Financial Data.................................................. A-2
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... A-3
Report of Independent Public Accountants................................. A-12
Statements of Consolidated Operations.................................... A-13
Statements of Consolidated Financial Position............................ A-14
Statements of Consolidated Cash Flows.................................... A-16
Statements of Consolidated Shareholders' Equity.......................... A-17
Notes to Consolidated Financial Statements............................... A-18
</TABLE>

A-1
<PAGE>

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Operating revenues................ $16,362 $14,943 $13,950 $13,325 $11,853
Earnings (loss) before
extraordinary item and cumulative
effect of accounting changes..... 600 378 77 (31) (417)
Extraordinary loss on early
extinguishment of debt, net of
tax.............................. (67) (29) -- (19) --
Cumulative effect of accounting
changes, net of tax.............. -- -- (26) -- (540)
Net earnings (loss)............... 533 349 51 (50) (957)
Per share amounts, fully diluted:
Earnings (loss) before
extraordinary item and
cumulative effect of accounting
changes........................ 5.82 5.18 0.19 (0.66) (4.34)
Extraordinary loss on early
extinguishment of debt......... (0.78) (0.40) -- (0.19) --
Cumulative effect of accounting
changes........................ -- -- (0.34) -- (5.60)
Net earnings (loss)............. 5.04 4.78 (0.15) (0.85) (9.94)
Total assets at year-end.......... 12,677 11,641 11,764 12,840 12,257
Long-term debt and capital lease
obligations, including current
portion, and redeemable preferred
stock............................ 3,385 4,102 4,077 3,735 3,783
</TABLE>

A-2
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This section contains forward-looking statements which are identified with
an asterisk (*). Factors that could significantly impact the expected
results implied in the forward-looking statements are listed in the last
paragraph of the section, "Outlook for 1997."

On July 12, 1994, the shareholders of UAL Corporation ("UAL") approved a
plan of recapitalization that provides an approximately 55% equity and voting
interest in UAL to certain employees of United Air Lines, Inc. ("United") in
exchange for wage concessions and work-rule changes. The employees' equity
interest is being allocated to individual employee accounts through the year
2000 under Employee Stock Ownership Plans ("ESOPs") which were created as part
of the recapitalization. Since the ESOP shares are being allocated over time,
the current ownership interest held by employees is substantially less than
55%. The entire ESOP voting interest is currently exercisable, which generally
will be voted by the ESOP trustee at the direction of, and on behalf of, the
employees participating in the ESOPs.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY--

UAL's total of cash and cash equivalents and short-term investments was $697
million at December 31, 1996, compared to $1.143 billion at December 31, 1995.
Operating activities during the year generated $2.453 billion. Cash was used
primarily to repay long-term debt and to fund net additions to property and
equipment. In addition to the early extinguishment of $641 million in
principal amount of various debt securities, UAL made mandatory repayments of
long-term debt totaling $150 million and payments under capital lease
obligations of $112 million during the year. Financing activities also
included payments of $324 million for conversions of all of UAL's outstanding
6 3/8% convertible debentures, $84 million for repurchases of UAL's Series B
preferred stock and deposits of an equivalent $110 million in Japanese yen
with certain banks in connection with the financing of certain capital lease
transactions.

In 1996, United took delivery of seven A320, eight B777, four B757 and two
B747 aircraft. Thirteen of these aircraft were purchased, three were acquired
under operating leases and five were acquired under capital leases. Property
additions, including aircraft, aircraft spare parts, facilities and ground
equipment, amounted to $1.538 billion, while property dispositions resulted in
proceeds of $55 million.

Included in cash and cash equivalents at December 31, 1996 were $30 million
of securities held by third parties under securities lending agreements, as
well as collateral in the amount of 102% of the value of the securities lent.
United is obligated to reacquire the securities from the borrower at the end
of the contract.

As of December 31, 1996, UAL had a working capital deficit of $2.321 billion
as compared to $1.390 billion at December 31, 1995. Historically, UAL has
operated with a working capital deficit and, as in the past, UAL expects to
meet all of its obligations as they become due. In addition, UAL may from time
to time repurchase on the open market, in privately negotiated purchases or
otherwise, debentures or preferred stock as part of its efforts to reduce its
obligations and improve its balance sheet.

United has an agreement with a syndicate of banks for a $750 million
revolving credit facility expiring in 2002. Interest on drawn amounts under
the facility is calculated at floating rates based on the London interbank
offered rate ("LIBOR") plus a margin which is subject to adjustment based on
certain changes in the credit ratings of United's long-term senior unsecured
debt. Among other restrictions, the credit facility contains a covenant which
restricts United's ability to grant liens on or otherwise encumber certain
identified assets with a market value of approximately $1.1 billion.

During the second quarter, United reduced the maximum available borrowings
under a separate short-term borrowing facility from $270 million to $227
million. This agreement has been extended through February 1998.

A-3
<PAGE>

Prior Years. Operating activities in 1995 generated cash flows of $1.624
billion. Cash was used primarily to repay long-term debt, reacquire preferred
stock, reduce short-term borrowings and fund net additions to property and
equipment. In addition to the early extinguishment of $750 million in
principal amount of various debt securities, UAL made mandatory repayments of
long-term debt totaling $102 million. Payments under capital lease obligations
amounted to $80 million during the year and short-term borrowings were reduced
by $269 million. In addition, UAL spent $131 million to repurchase Series B
preferred stock to be held in treasury. Property additions, including the
acquisition of 39 previously leased aircraft, amounted to $1.111 billion.
Property dispositions resulted in proceeds of $578 million.

Operating activities in 1994 generated cash flows of $1.334 billion, which
was offset by the distribution of $2.1 billion to holders of old UAL common
stock under the recapitalization. This distribution was partially funded by
net proceeds of $735 million on the issuance of debentures and $400 million on
the issuance of Series B preferred stock. Subsequent to issuance, UAL spent
$87 million to repurchase Series B preferred stock to be held in treasury.
Other financing activities included principal payments under debt and capital
lease obligations of $305 million and $87 million, respectively, and a $46
million reduction of short-term borrowings. Property additions, including the
acquisition of two B747 aircraft and aircraft spare parts, amounted to $636
million. Property dispositions resulted in proceeds of $432 million.

CAPITAL COMMITMENTS--

At December 31, 1996, commitments for the purchase of property and
equipment, principally aircraft, approximated $6.9 billion, after deducting
advance payments. An estimated $2.9 billion is due to be spent in 1997, $1.9
billion in 1998, $1.0 billion in 1999 and $1.1 billion in 2000 and thereafter.
The above amounts reflect firm orders for 21 B747, 6 B757, 20 B777, 14 A320
and 24 A319 aircraft to be delivered through 2002. However, these amounts do
not include a recent order for an additional three A320 and four A319
aircraft. Under the Company's current fleet plan, the above aircraft will
principally be used to replace older aircraft which will be retired. As a
result, the Company expects only modest growth in its passenger fleet through
2002.

During the third quarter, United renegotiated its financing arrangements
with Airbus Industrie and International Aero Engines for the acquisition of
A320-200 aircraft. In connection therewith, United relinquished its right to
return such aircraft upon eleven months' notice. As a result, the Company's
capital commitments include the 14 A320s still to be delivered through 1998,
and the Company's future minimum lease payment disclosures now include the
A320s already delivered under operating lease. This increase in future minimum
lease payments of approximately $1.9 billion has no impact on the reported
monthly rent expense for these aircraft.

Consistent with UAL's strategic plan and the Company's focus on attracting
more high yield passengers, the Board of Directors has authorized an
investment of approximately $400 million in United's onboard product,
including new aircraft seats and other cabin improvements. This amount, which
is expected to be spent during the next three years, is not reflected in the
above commitments.

In connection with the construction of the Indianapolis Maintenance Center,
United agreed to spend an aggregate $800 million on capital investments by the
year 2001 and employ at least 7,500 individuals by the year 2004. In the event
such targets are not reached, United may be required to make certain payments
to the city of Indianapolis and state of Indiana.

CAPITAL RESOURCES--

Funds necessary to finance aircraft acquisitions are expected to be obtained
from internally generated funds, irrevocable external financing arrangements
or other external sources.

A-4
<PAGE>

At December 31, 1996, up to $631 million of securities could be issued under
an effective shelf registration statement UAL and United have on file with the
Securities and Exchange Commission. Securities that can be issued under the
shelf include secured and unsecured debt, equipment trust and pass through
certificates, equity or a combination thereof. UAL's ability to issue equity
securities is limited by its restated certificate of incorporation.

At December 31, 1996, United's senior unsecured debt was rated BB by
Standard and Poor's ("S & P") and Baa3 by Moody's Investors Service Inc.
("Moody's"). UAL's Series B preferred stock and redeemable preferred
securities were rated B+ by S & P and Ba3 by Moody's. In November 1996, S & P
revised its ratings outlook for both UAL and United's securities from stable
to positive.

In April 1996, the stockholders of UAL Corporation approved an increase in
the number of authorized shares of common stock from 100 million to 200
million shares, in connection with a four-for-one split of the corporation's
common stock in the form of a 300% stock dividend effective at the close of
business on May 6, 1996. All share and per share data have been restated to
give effect to this stock split.

RESULTS OF OPERATIONS

The results of operations in the airline business historically fluctuate in
response to general economic conditions. This is because small fluctuations in
yield (passenger revenue per revenue passenger mile) and cost per available
seat mile can have a significant effect on operating results. UAL anticipates
industrywide fare levels, capacity growth, low-cost competition, general
economic conditions, labor and fuel costs, taxes, U.S. and international
governmental policies and other factors will continue to affect its operating
results.

The July 1994 employee investment transaction and recapitalization resulted
in non-cash compensation charges for stock periodically committed to be
released to employees during the term of the ESOPs. The amount of the non-cash
compensation expense in the future cannot be predicted, because it is based on
the future market value of UAL's common stock. Further, it is anticipated that
tax provisions (credits) in future periods could be impacted by permanent
differences between tax deductions and book expenses related to the ESOPs.

SUMMARY OF RESULTS--

UAL's earnings from operations were $1.123 billion in 1996, compared to
operating earnings of $829 million in 1995. UAL's net earnings in 1996 were
$533 million ($5.16 per share, primary; $5.04 per share, fully diluted),
compared to net earnings of $349 million in 1995 ($5.00 per share, primary;
$4.78 per share, fully diluted). These earnings include extraordinary losses
of $67 million and $29 million, after tax, on early extinguishment of debt, in
1996 and 1995, respectively.

The per share amounts for 1996 and 1995 include the effects on equity of
repurchases of Series B preferred stock and, for 1996, include the effects on
equity of the exchange of mandatorily redeemable preferred securities for
Series B preferred stock. For 1995, the per share amounts also include the
effects on equity of the exchange of convertible debentures for Series A
convertible preferred stock. These transactions had no effect on earnings;
however, the effects on equity are included as an adjustment to earnings
attributable to common shareholders in the computation of earnings per share.
Excluding the preferred stock transactions, UAL's 1996 earnings per share were
$6.55, primary, and $6.39, fully diluted; 1995 earnings per share were $5.14,
primary, and $4.90, fully diluted.

Management believes that a more complete understanding of UAL's results can
be gained by viewing them on a pro forma, "fully distributed" basis. This
approach considers all ESOP shares which will ultimately be distributed to
employees throughout the ESOP period (rather than just the shares committed to
be released) to be immediately outstanding and thus fully distributed.
Consistent with this method, the ESOP compensation expense is excluded from
fully distributed net earnings, and ESOP convertible preferred stock dividends
are not deducted from earnings attributable to common stockholders. A
comparison of results reported on a fully distributed basis to results
reported under generally accepted accounting principles ("GAAP") is as
follows:

A-5
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------- ---------------------------
GAAP FULLY GAAP FULLY
(FULLY DILUTED) DISTRIBUTED (FULLY DILUTED) DISTRIBUTED
--------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Net Income.............. $ 533 $ 960 $ 349 $ 662
------ ------ ------ ------
Per Share:
Earnings before
extraordinary loss... $ 5.82 $ 7.32 $ 5.18 $ 5.35
Extraordinary loss,
net of tax........... (0.78) (0.51) (0.40) (0.22)
------ ------ ------ ------
$ 5.04 $ 6.81 $ 4.78 $ 5.13
====== ====== ====== ======
</TABLE>

1996 COMPARED WITH 1995--

Operating Revenues. Operating revenues increased $1.419 billion (10%).
United's revenue per available seat mile increased 7% to 10.02 cents.
Passenger revenues increased $1.238 billion (9%) due to a 4% increase in
United's revenue passenger miles and a 5% increase in yield to 12.35 cents.
The following analysis by market is based on information reported to the U.S.
Department of Transportation ("DOT"):

Yield increases in the domestic (7%), Atlantic (7%) and Latin American (4%)
markets were partially offset by a 4% decrease in Pacific yield. Domestic
yield increased as a result of a larger proportion of high yield business
traffic and fare levels influenced by the expiration of the Federal passenger
excise tax from January through August. (See "Outlook for 1997"). A weaker
Japanese yen versus the dollar had a significant negative impact on 1996
Pacific yield. (See "Foreign Operations"). Both domestic and international
revenue passenger miles increased by 4%. Available seat miles increased 3% for
the system, reflecting increases of 4% in the Pacific and Latin American and
3% in domestic markets. Atlantic available seat miles remained unchanged. As a
result, system passenger load factor increased 1.2 points to 71.7%.

Cargo revenues increased $16 million (2%). Freight ton miles increased 6%
and mail ton miles increased 5%. A 6% lower freight yield was only partially
offset by a 3% higher mail yield for an overall decrease in cargo yield of 3%.

Other operating revenues increased $165 million (17%) due to increases in
frequent flyer program partner related revenues, contract maintenance and fuel
sales to third parties.

Operating Expenses. Operating expenses increased $1.125 billion (8%).
United's cost per available seat mile increased 5% from 8.87 cents to 9.32
cents. ESOP compensation expense increased $181 million (36%), reflecting a
higher average common stock price in 1996. Aircraft fuel increased $402
million (24%) due to a 2% increase in consumption and a 21% increase in the
average price per gallon of fuel from 59.5 cents to 72.2 cents. Without the
increases in ESOP compensation expense and aircraft fuel, United's cost per
available seat mile would have increased 2%. Salaries and related costs
increased $193 million (4%) due principally to increased staffing in certain
customer-oriented positions. Other expenses increased $166 million (9%) due
principally to costs associated with sales to third parties of fuel, contract
maintenance and other work. Purchased services increased $125 million (12%)
due principally to volume-related increases in computer reservations fees,
credit card discounts and communication charges. Aircraft maintenance
increased $42 million (10%) due to increased purchased maintenance, as well as
the timing of maintenance cycles. Depreciation and amortization increased $35
million (5%) due principally to a $30 million charge to reduce the carrying
value of aircraft seats that will be replaced under a plan to improve the
Company's onboard product. Commissions were flat year over year despite an
increase in commissionable revenues due to lower average commission rates.
These lower rates were partially attributable to the full year effects of a
new travel agent commission plan introduced in 1995. Aircraft rent decreased
$57 million (6%) due to the acquisition of 39 aircraft off-lease in the second
half of 1995.

Other Income and Expense. Other expense amounted to $153 million in 1996
compared to $208 million in 1995. Interest capitalized, primarily on aircraft
advance payments, increased $35 million (83%). Interest expense decreased $104
million (26%) due to the prepayment of long-term debt in 1995 and 1996 and the
conversion of convertible debentures in the second quarter of 1996. Interest
income decreased $41 million (42%) due to lower investment balances. Equity in
earnings of affiliates increased $16 million (33%) due to higher

A-6
<PAGE>

earnings from the Galileo International Partnership resulting from increased
booking revenues. Included in other expense for 1996 is a $20 million charge
for the settlement of litigation related to the travel agency commission cap
implemented by the Company in 1995. In addition, 1995 included a $41 million
pre-tax gain on disposition of aircraft owned by Air Wisconsin, Inc., a
subsidiary of UAL.

1995 COMPARED WITH 1994--

Operating Revenues. Operating revenues increased $993 million (7%). United's
revenue per available seat mile increased 3% to 9.39 cents. Passenger revenues
increased $932 million (8%) due primarily to a 3% increase in United's revenue
passenger miles and a 4% increase in yield to 11.79 cents. The following
analysis by market is based on information reported to the DOT:

Yield increases in the domestic (4%), Pacific (5%) and Atlantic (9%) markets
were offset by a 5% decrease in Latin America yield. Both domestic and
international revenue passenger miles increased by 3%. Available seat miles
increased 4% systemwide, as increases of 8% and 4% on Pacific and domestic
routes, respectively, were partially offset by a decrease of 3% in the
Atlantic. As a result, United's system passenger load factor decreased 0.7
points to 70.5%.

Cargo revenues increased $72 million (11%). Freight ton miles increased 6%
and mail ton miles increased 19%. A 3% higher freight yield was offset by a
lower mail yield for an overall increase in cargo yield of 2%. Other operating
revenues include a $43 million (30%) increase in Mileage Plus partner related
revenues, offset by a $50 million (24%) decrease in fuel sales to third
parties.

Operating Expenses. Operating expenses increased $685 million (5%). United's
cost per available seat mile also increased 1% from 8.79 cents to 8.87 cents,
which includes the non-cash ESOP compensation expense. Without this expense,
United's cost per available seat mile would have been 8.55 cents versus 8.64
cents in 1994. ESOP compensation expense increased $322 million, reflecting a
higher average common stock price in 1995 combined with a shorter expense
period in 1994, as the recapitalization took place on July 12, 1994. Landing
fees and other rent increased $181 million (29%) due to increased facilities
rent, primarily due to new facilities at Denver, and increased landing fees as
the number of systemwide departures increased 7%. Aircraft rent increased $76
million (8%) as a result of new A320 and B777 aircraft on operating leases.
Purchased services increased $115 million (12%) due principally to volume-
related increases in computer reservations fees and credit card discounts. An
increase of $95 million (6%) in aircraft fuel reflects a capacity related
increase in United's consumption of 5% and an increase in United's average
price per gallon to 59.5 cents from 58.8 cents. The increase in average price
per gallon reflected a charge of approximately $20 million resulting from the
new federal fuel tax that took effect October 1, 1995. Commissions increased
$45 million (3%) due principally to increased commissionable revenues
partially offset by the effects of a new travel agents commission payment
plan.

Salaries and related costs decreased $153 million (3%) primarily due to the
full-year effect of savings resulting from wage and benefit reductions for
employees participating in the ESOPs and to $48 million of one-time ESOP
related costs recorded in 1994, partially offset by higher average wage rates
for other employee groups and increased staffing in certain customer-oriented
positions. Other operating expenses decreased $82 million (7%) due mainly to
lower fuel sales.

Other Income and Expense. Other expense amounted to $208 million in 1995
compared to $350 million in 1994. Interest expense increased $27 million (7%)
due to the issuance of $600 million principal amount of 6 3/8% convertible
subordinated debentures in exchange for Series A preferred stock. Interest
income increased $13 million (15%) due to higher average interest rates earned
on investments. Equity in earnings of affiliates increased $28 million as a
result of increased earnings at Galileo. Included in "Miscellaneous, net" in
1995 were foreign exchange losses of $20 million, a $60 million gain on
property dispositions and a $23 million charge for minority interests in
Apollo Travel Services Partnership ("ATS"). "Miscellaneous, net" in 1994
included charges of $121 million for fees and costs incurred in connection
with the recapitalization, a $22 million charge for minority interests in ATS
and foreign exchange gains of $15 million.

Income Tax Provision. The income tax provision for 1994 was significantly
impacted by the nondeductibility of certain recapitalization costs.

A-7
<PAGE>

OTHER INFORMATION

LABOR AGREEMENTS AND WAGE ADJUSTMENTS--

The 1994 recapitalization resulted in new labor agreements for certain
employee groups and a new corporate governance structure, which was designed
to achieve balance between the various employee-owner groups and public
shareholders. The new labor agreements and governance structure could inhibit
management's ability to alter strategy in a volatile, competitive industry by
restricting certain operating and financing activities, including the sale of
assets and the issuance of equity securities and the ability to furlough
employees. UAL's ability to react to competition may be hampered further by
the fixed long-term nature of these various agreements. The labor agreements
with employees represented by the Air Line Pilots Association, International
("ALPA") and the International Association of Machinists and Aerospace Workers
("IAM") become amendable in the year 2000, the end of the ESOP period.

The various agreements supporting the July 1994 recapitalization provide
that employees represented by ALPA and the IAM, and non-union United States
salaried and management employees ("SAM Employees") may receive mid-term wage
increases beginning in 1997. The Company recently announced that it had
reached tentative agreements with both the ALPA and the IAM concerning mid-
term wage adjustments. Included in the agreements are a 5% increase for each
union group in July 1997 and a second 5% increase in July 1998. Further, the
agreement with ALPA calls for a corresponding 5% increase in both 1997 and
1998 to "book rates" (book rates are used to compute certain other employee
benefits), and the agreement with the IAM also provides for lump sum payments
for all IAM employees and increases in hourly license premium and skill pay
for mechanics. Although not finalized, management has indicated it expects the
SAM Employees to receive an increase patterned after the IAM tentative
agreement. Assuming such an increase for SAM Employees, the cost to the
Company in 1997 for all of these wage and benefit adjustments will be
approximately $120 million. These costs are included in the Company's outlook
for 1997 (See "Outlook for 1997").

In early 1997, management articulated a broader plan for addressing employee
compensation at the end of the ESOP period, known as Vision 2000. The goal of
Vision 2000 is to put employee compensation costs (including the effects of
base pay, benefits and work rules) on a competitive level with peer group
compensation elsewhere in the industry at the conclusion of the ESOP period,
and the establishment of a universal variable pay plan so that all employees
can benefit when the Company prospers.* Within this framework the Company
agreed to further changes in wages and benefits as part of the tentative
agreements reached with ALPA and the IAM. These agreements also provide for
restoration of wage rates for the two groups to levels that existed prior to
the recapitalization in July 1994, as well as restoration of the Company's
contribution to the pilots defined contribution plan from its current rate of
1% to its pre-ESOP rate of 9%. The restoration of these wages and benefits
would become effective at the conclusion of the ESOP period. The ultimate cost
to the Company of Vision 2000, particularly given that peer group compensation
is subject to change between now and the year 2000, is not determinable,
however these costs are expected to be competitive within the industry.

The tentative agreements reached with ALPA and the IAM are subject to
ratification by both groups of employees. Employees covered under IAM's "all
other agreement" had previously agreed to a mid-term wage adjustment calling
for wage increases of 3% in each of 1997 and 1998 and 2% in each of 1999 and
2000 with eligibility for lump-sum profit sharing payments in 1998 and 1999 of
up to 2%, depending on the Company's performance in 1997 and 1998,
respectively. This group will have an opportunity to ratify the provisions of
the new agreement as a substitute for their current negotiated arrangement.

United's contract with the Association of Flight Attendants ("AFA") became
amendable March 1, 1996. On April 9, 1996, United announced that the flight
attendants had rejected a previously announced tentative agreement. United and
the AFA are involved in traditional negotiations under the Railway Labor Act,
which historically have taken several years to complete. While negotiations
continue, the terms of United's current flight attendant agreement will remain
in effect.

A-8
<PAGE>

FOREIGN OPERATIONS--

United generates revenues and incurs expenses in numerous foreign
currencies. These expenses include aircraft leases, commissions, catering,
personnel costs, reservation and ticket office services, customer service
expenses and aircraft maintenance. Changes in foreign currency exchange rates
impact operating income through changes in foreign currency-denominated
operating revenues and expenses. Despite the adverse (favorable) effects a
strengthening (weakening) foreign currency will have on U.S. originating
traffic, a strengthening (weakening) of foreign currencies tends to increase
(decrease) reported revenue and operating income because United's foreign
currency-denominated operating revenue generally exceeds its foreign currency-
denominated operating expense for each currency. United's biggest net
exposures are typically for Japanese yen, Hong Kong dollars and Australian
dollars. During 1996, yen-denominated operating revenue net of yen-denominated
operating expense was approximately 61 billion yen (approximately $560
million), Hong Kong dollar-denominated operating revenue net of Hong Kong
dollar-denominated operating expense was approximately 1,727 million Hong Kong
dollars (approximately $223 million) and Australian dollar-denominated
operating revenue net of Australian dollar-denominated operating expense was
approximately 193 million Australian dollars (approximately $152 million).

Other non-operating income (expense) is also affected by transaction gains
and losses resulting from exchange rate fluctuations. The foreign exchange
gains and losses recorded by United result from the impact of exchange rate
changes on translation of foreign currency-denominated assets and liabilities.
To the extent that yen-denominated liability balances are predictable, United
currently attempts to minimize transaction gains and losses by investing in
yen-denominated time deposits or entering into yen forwards to offset the
impact of rate changes. (See "Risk Management"). In addition, United has
entered into foreign currency swap and forward contracts to reduce exposure to
currency fluctuations in connection with other long-term yen-denominated
obligations.

United's foreign operations involve insignificant amounts of physical
assets; however, there are sizable intangible assets related to acquisitions
of foreign route authorities. Operating authorities in international markets
are governed by bilateral aviation agreements between the United States and
foreign countries. Changes in U.S. or foreign government aviation policies can
lead to the alteration or termination of existing air service agreements that
could adversely impact the value of United's international route authority.
Significant changes in such policies could also have a material impact on
UAL's operating revenues and results of operations.

RISK MANAGEMENT--

United mitigates its exposure to fluctuations in any single foreign currency
by carrying passengers and cargo in both directions between the U.S. and
almost every major economic region in the world. Also, United reduces its
exposure to transaction gains and losses by converting excess local currencies
generated to U.S. dollars. Further, the Company has attempted to minimize some
of its exposure to jet fuel price changes by utilizing fixed price contracts
with suppliers for up to 10% of its annual consumption needs. With the
exception of these efforts, historically the Company has done little to
actively manage the impact of these risks on expected future cash flows from
operations.

In 1997, United intends to become more active in hedging its risks related
to foreign currency fluctuations and movements in jet fuel prices through the
use of various derivative financial instruments including, but not limited to,
options, forwards, swaps and futures contracts. The Company's Risk Tolerance
Committee, a group of senior officers of the Company, is responsible for
setting acceptable levels of risk and reviewing risk management activities,
subject to oversight by the Board of Director's Audit Committee. United's goal
is not to speculate in these areas, but rather to make its financial results
more stable and predictable.

DEFERRED TAX ASSETS--

UAL's consolidated balance sheet at December 31, 1996 includes a net
deferred tax asset of $359 million, compared to $474 million at December 31,
1995. The net deferred tax asset is composed of approximately $1.928 billion
of deferred tax assets and $1.569 billion of deferred tax liabilities. The
deferred tax assets include, among

A-9
<PAGE>

other things, $644 million related to obligations for postretirement and other
employee benefits, $428 million related to gains on sales and leasebacks, $231
million related to alternative minimum tax ("AMT") credit carryforwards and
$11 million of federal and state net operating loss ("NOL") carryforwards. The
AMT credit carryforwards do not expire; the federal NOL carryforwards will
expire in 2007 if not utilized prior to that time.

Management believes that a majority of the deferred tax assets will be
realized through reversals of existing deferred tax liabilities with similar
reversal patterns and the balance will be realized as a result of generating
future taxable income.

UAL's ability to generate sufficient amounts of taxable income from future
operations is dependent upon numerous factors, including general economic
conditions, inflation, fuel costs, the state of the industry and other factors
beyond management's control. There can be no assurances that UAL will meet its
expectation of future taxable income. However, based on the extended period
over which postretirement benefits will be recognized, and the indefinite
carryforward period for AMT credits, management believes it is more likely
than not that future taxable income will be sufficient to utilize the deferred
tax assets at December 31, 1996.

SAFETY AND SECURITY MEASURES--

During 1996, President Clinton formed a special commission to review
aviation safety and airport security. In February 1997, the commission issued
its final report calling for increased safety and security measures and
improvements in the air traffic control infrastructure. Although the extent of
specific programs and their related implementation schedules are still not
clear, further increases in government-mandated security measures may have an
adverse affect on the Company's results of operations and financial condition
depending upon such factors as the ability of United to pass through any new
Federal taxes, surcharges or additional operating expenses to customers. Any
effective increase in the cost of air transportation may dampen passenger and
cargo traffic levels and have a dilutive effect on yield.

AIRPORT RENTS AND LANDING FEES--

United is charged facility rental and landing fees at every airport at which
it operates. In recent years, many airports have increased or sought to
increase rates charged to airlines as a means of compensating for increasing
demands upon airport revenues. Airlines have challenged certain of these
increases through litigation and in some cases have not been successful. The
Federal Aviation Administration ("FAA") and the DOT have instituted an
administrative hearing process to judge whether rate increases are legal and
valid. However, to the extent the limitations on such charges are relaxed or
the ability of airlines to challenge such charges is restricted, the rates
charged by airports may increase substantially. Management cannot predict the
magnitude of any such increase.

ENVIRONMENTAL AND LEGAL CONTINGENCIES--

United has been named as a Potentially Responsible Party at certain
Environmental Protection Agency ("EPA") cleanup sites which have been
designated as Superfund Sites. United's alleged proportionate contributions at
the sites are minimal; however, at sites where the EPA has commenced
litigation, potential liability is joint and several. Additionally, United has
participated and is participating in remediation actions at certain other
sites, primarily airports. The estimated cost of these actions is accrued when
it is determined that it is probable that United is liable. Such accruals have
not been material. Environmental regulations and remediation processes are
subject to future change, and determining the actual cost of remediation will
require further investigation and remediation experience. Therefore, the
ultimate cost cannot be determined at this time. However, while such cost may
vary from United's current estimate, United believes the difference between
its accrued reserve and the ultimate liability will not be material.

UAL has certain other contingencies resulting from this and other litigation
and claims incident to the ordinary course of business. Management believes,
after considering a number of factors, including (but not

A-10
<PAGE>

limited to) the views of legal counsel, the nature of such contingencies and
prior experience, that the ultimate disposition of these contingencies is not
likely to materially affect UAL's financial condition, operating results or
liquidity.*

OUTLOOK FOR 1997--

Real Gross Domestic Product in the U.S. is expected to continue to grow
moderately at a rate of 2.0% to 2.5%. U.S. domestic airline industry capacity
growth is expected to grow 2% to 3% in 1997, a slight decrease from its 1996
growth rate. The growth rate of small, low-cost carriers is expected to be
lower in 1997 than 1996.

The Company anticipates continued strong performance in 1997. Available seat
miles are expected to increase 3.5%, with revenue per available seat mile up
approximately 3%. Costs per available seat mile excluding ESOP charges are
expected to increase approximately 2%. This unit cost forecast reflects lower
fuel prices in 1997 than in 1996. It also assumes a mid-term wage adjustment
for all employee groups participating in the ESOP (see "Labor Agreements and
Wage Adjustments").

For the first quarter, United expects total system revenue per available
seat mile to increase by 6% to 7% versus the same period last year, on 3.5%
higher capacity. System load factor should approximate 70%. Costs per
available seat mile excluding ESOP charges are expected to increase 4%
(excluding fuel the expected increase is 2% to 3%) over the first quarter of
1996.

United expects the Federal passenger excise tax, which expired again on
December 31, 1996, to be reinstated in March 1997. While the authority to
collect this tax is scheduled to expire once again at the end of the third
quarter, the Company expects a replacement funding mechanism, either
reinstatement of the current tax or a substitute user-based fee system, to go
into effect at the end of this period. However, the Company is unable to
determine what effect, if any, reinstatement of the tax will have on the
domestic pricing environment.

In 1997, United expects to introduce a dedicated fleet of four DC10-30 cargo
freighters to its cargo operations. All of the aircraft are currently in the
Company's passenger fleet, and after being converted to freighters, two will
be brought into the cargo operations during the first quarter and two during
the third quarter. As a result, cargo revenues and to a lesser extent the
related costs are expected to increase significantly in 1997. For the first
quarter, cargo revenues are expected to be 8% to 9% higher than the first
quarter of 1996.

United expects to take delivery of 31 aircraft in 1997, consisting of 4
A319s, 5 A320s, 6 B747s, 2 B757s and 14 B777s and retire 23 aircraft from its
existing passenger fleet.

The information included in the above outlook section, as well as certain
statements made throughout the Management's Discussion and Analysis of
Financial Condition and Results of Operations that are identified by an
asterisk (*), is forward-looking and involves risks and uncertainties that
could result in actual results differing materially from expected results. It
is not reasonably possible to itemize all of the many factors and specific
events that could affect the outlook of an airline operating in the global
economy. Some factors that could significantly impact expected capacity, load
factors, yields, revenues, expenses, unit costs, capital spending, cash flows
and margins include the airline pricing environment, willingness of customers
to travel, fuel cost, low-fare carrier expansion, capacity decisions of other
carriers, cost of safety and security measures, actions of the U.S. and
foreign governments, foreign currency exchange rate fluctuations, inflation,
the economic environment of the airline industry, the general economic
environment, the price of UAL common stock and other factors discussed herein.
With respect to the forward-looking statement set forth in the "Environmental
and Legal Contingencies" section, some of the factors that could affect the
ultimate disposition of these contingencies are changes in applicable laws,
the development of facts in individual cases, settlement opportunities and the
actions of plaintiffs, judges and juries. With respect to the forward-looking
statements set forth in the "Labor Agreements and Wage Adjustments" section,
some of the factors that could affect the ability of the Company to achieve
its goals are the ratification of the mid-term wage agreements, wage rates of
peer groups at the Company's competitors, compensation levels in the industry
and the status of the Company's relationships with the union groups.

A-11
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and
Board of Directors, UAL Corporation:

We have audited the accompanying statements of consolidated financial
position of UAL Corporation (a Delaware corporation) and subsidiary companies
as of December 31, 1996 and 1995, and the related statements of consolidated
operations, consolidated cash flows and consolidated shareholders' equity for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UAL
Corporation and subsidiary companies as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.

/s/ Arthur Andersen LLP
Arthur Andersen LLP

Chicago, Illinois
February 26, 1997

A-12
<PAGE>

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Operating revenues:
Passenger......................................... $14,465 $13,227 $12,295
Cargo............................................. 773 757 685
Other operating revenues.......................... 1,124 959 970
------- ------- -------
16,362 14,943 13,950
------- ------- -------
Operating expenses:
Salaries and related costs........................ 4,719 4,526 4,679
ESOP compensation expense......................... 685 504 182
Aircraft fuel..................................... 2,082 1,680 1,585
Commissions....................................... 1,466 1,471 1,426
Purchased services................................ 1,187 1,062 947
Aircraft rent..................................... 952 1,009 933
Landing fees and other rent....................... 846 803 622
Depreciation and amortization..................... 759 724 725
Aircraft maintenance.............................. 449 407 410
Other operating expenses.......................... 2,094 1,928 1,920
------- ------- -------
15,239 14,114 13,429
------- ------- -------
Earnings from operations........................... 1,123 829 521
------- ------- -------
Other income (expense):
Interest expense.................................. (295) (399) (372)
Interest capitalized.............................. 77 42 41
Interest income................................... 57 98 85
Equity in earnings of affiliates.................. 64 48 20
Miscellaneous, net................................ (56) 3 (124)
------- ------- -------
(153) (208) (350)
------- ------- -------
Earnings before income taxes, extraordinary item
and cumulative effect of accounting change........ 970 621 171
Provision for income taxes......................... 370 243 94
------- ------- -------
Earnings before extraordinary item and cumulative
effect of accounting change....................... 600 378 77
Extraordinary loss on early extinguishment of debt,
net of tax........................................ (67) (29) --
Cumulative effect of accounting change, net of
tax............................................... -- -- (26)
------- ------- -------
Net earnings....................................... $ 533 $ 349 $ 51
======= ======= =======
Per share, primary:
Earnings before extraordinary item and cumulative
effect of accounting change...................... $ 5.96 $ 5.46 $ 0.19
Extraordinary loss on early extinguishment of
debt, net........................................ (0.80) (0.46) --
Cumulative effect of accounting change, net....... -- -- (0.34)
------- ------- -------
Net earnings (loss)............................... $ 5.16 $ 5.00 $ (0.15)
======= ======= =======
Per share, fully diluted:
Earnings before extraordinary item and cumulative
effect of accounting change...................... $ 5.82 $ 5.18 $ 0.19
Extraordinary loss on early extinguishment of
debt, net........................................ (0.78) (0.40) --
Cumulative effect of accounting change, net....... -- -- (0.34)
------- ------- -------
Net earnings (loss)............................... $ 5.04 $ 4.78 $ (0.15)
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

A-13
<PAGE>

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31
---------------
1996 1995
ASSETS ------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 229 $ 194
Short-term investments........................................ 468 949
Receivables, less allowance for doubtful accounts (1996--$24;
1995--$19)................................................... 962 951
Aircraft fuel, spare parts and supplies, less obsolescence
allowance (1996--$31; 1995--$38)............................. 369 298
Deferred income taxes......................................... 227 236
Prepaid expenses and other.................................... 427 415
------- -------
2,682 3,043
------- -------
Operating property and equipment:
Owned--
Flight equipment.............................................. 8,393 7,778
Advances on flight equipment.................................. 943 735
Other property and equipment.................................. 2,989 2,700
------- -------
12,325 11,213
Less--Accumulated depreciation and amortization............... 5,380 5,153
------- -------
6,945 6,060
------- -------
Capital leases--
Flight equipment.............................................. 1,775 1,362
Other property and equipment.................................. 106 102
------- -------
1,881 1,464
Less--Accumulated amortization................................ 583 503
------- -------
1,298 961
------- -------
8,243 7,021
------- -------
Other assets:
Intangibles, less accumulated amortization (1996--$353; 1995--
$306)........................................................ 524 763
Deferred income taxes......................................... 132 238
Aircraft lease deposits....................................... 168 71
Other......................................................... 928 505
------- -------
1,752 1,577
------- -------
$12,677 $11,641
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

A-14
<PAGE>

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY ------- -------
<S> <C> <C>
Current liabilities:
Long-term debt maturing within one year..................... $ 165 $ 90
Current obligations under capital leases.................... 132 99
Advance ticket sales........................................ 1,189 1,100
Accounts payable............................................ 994 696
Accrued salaries, wages and benefits........................ 906 870
Accrued aircraft rent....................................... 800 771
Other accrued liabilities................................... 817 807
------- -------
5,003 4,433
------- -------
Long-term debt............................................... 1,661 2,919
------- -------
Long-term obligations under capital leases................... 1,325 994
------- -------
Other liabilities and deferred credits:
Deferred pension liability.................................. 178 368
Postretirement benefit liability............................ 1,290 1,225
Deferred gains.............................................. 1,151 1,214
Accrued aircraft rent....................................... 352 272
Other....................................................... 424 336
------- -------
3,395 3,415
------- -------
Company-obligated mandatorily redeemable preferred securities
of a subsidiary trust....................................... 102 --
------- -------
Minority interest............................................ 31 59
------- -------
Preferred stock committed to Supplemental ESOP............... 165 60
------- -------
Shareholders' equity:
Serial preferred stock--(Note 11)........................... -- --
ESOP preferred stock--(Note 12)............................. -- --
Common stock at par, $0.01 par value; authorized 200,000,000
shares; issued 59,519,096 shares at December 31, 1996 and
51,195,657 shares at
December 31, 1995.......................................... 1 --
Additional capital invested................................. 2,160 1,353
Accumulated deficit......................................... (566) (1,039)
Unearned ESOP preferred stock............................... (202) (175)
Stock held in treasury -
Preferred (Note 11)......................................... (302) (218)
Common, 701,616 shares at December 31, 1996 and 477,233
shares at
December 31, 1995.......................................... (83) (64)
Pension liability adjustment................................ -- (76)
Other....................................................... (13) (20)
------- -------
995 (239)
------- -------
Commitments and contingent liabilities (Note 18).............
------- -------
$12,677 $11,641
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

A-15
<PAGE>

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash and cash equivalents at beginning of year...... $ 194 $ 500 $ 437
------- ------- -------
Cash flows from operating activities:
Net earnings....................................... 533 349 51
Adjustments to reconcile to net cash provided by
operating activities--
ESOP compensation expense.......................... 685 504 182
Cumulative effect of accounting change............. -- -- 26
Extraordinary loss on debt extinguishment.......... 67 29 --
Pension funding in excess of expense............... (279) (275) (114)
Deferred postretirement benefit expense............ 130 125 145
Depreciation and amortization...................... 759 724 725
Provision for deferred income taxes................ 69 214 78
Undistributed earnings of affiliates............... (49) (38) (19)
Decrease (increase) in receivables................. (10) (62) 207
Decrease (increase) in other current assets........ (105) (109) 40
Increase (decrease) in advance ticket sales........ 89 80 (16)
Increase (decrease) in accrued income taxes........ 84 (52) (11)
Increase (decrease) in accounts payable and accrued
liabilities....................................... 294 79 (127)
Amortization of deferred gains..................... (63) (79) (85)
Other, net......................................... 249 135 252
------- ------- -------
2,453 1,624 1,334
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment................ (1,538) (1,111) (636)
Proceeds on disposition of property and equipment.. 55 578 432
Decrease in short-term investments................. 482 83 376
Other, net......................................... 18 (28) 26
------- ------- -------
(983) (478) 198
------- ------- -------
Cash flows from financing activities:
Issuance of preferred stock........................ -- -- 400
Reacquisition of preferred stock................... (84) (131) (87)
Proceeds from issuance of long-term debt........... -- -- 735
Repayment of long-term debt........................ (791) (852) (305)
Principal payments under capital leases............ (112) (80) (87)
Conversion of subordinated debentures.............. (324) -- --
Recapitalization distribution...................... (2) (5) (2,070)
Decrease in short-term borrowings.................. -- (269) (46)
Aircraft lease deposits............................ (110) (77) --
Cash dividends..................................... (22) (49) (53)
Other, net......................................... 10 11 44
------- ------- -------
(1,435) (1,452) (1,469)
------- ------- -------
Increase (decrease) in cash and cash equivalents
during the year.................................... 35 (306) 63
------- ------- -------
Cash and cash equivalents at end of year............ $ 229 $ 194 $ 500
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

A-16
<PAGE>

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE)

<TABLE>
<CAPTION>
UNEARNED
ADDITIONAL RETAINED ESOP
PREFERRED COMMON CAPITAL EARNINGS PREFERRED TREASURY
STOCK STOCK INVESTED (DEFICIT) STOCK STOCK OTHER TOTAL
--------- ------ ---------- --------- --------- -------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... $ 30 $ 127 $ 932 $ 249 $ -- $ (65) $(70) $ 1,203
---- ----- ------ ------- ----- ----- ---- -------
Year ended December 31,
1994:
Net earnings........... -- -- -- 51 -- -- -- 51
Cash dividends declared
on preferred stock
($6.25 per Series A
share; $1.44 per
Series B share)....... -- -- -- (59) -- -- -- (59)
Issuance and
amortization of ESOP
preferred stock....... -- -- 265 -- (83) -- -- 182
Issuance of Series B
preferred stock....... -- -- 400 -- -- -- -- 400
Reacquisition of Series
B preferred stock..... -- -- -- -- -- (87) -- (87)
ESOP Recapitalization.. -- (128) (378) (1,576) -- -- -- (2,082)
Pension liability
adjustment............ -- -- -- -- -- -- 37 37
Other.................. (30) 1 68 -- -- (9) 9 39
---- ----- ------ ------- ----- ----- ---- -------
Balance at December 31,
1994................... -- -- 1,287 (1,335) (83) (161) (24) (316)
---- ----- ------ ------- ----- ----- ---- -------
Year ended December 31,
1995:
Net earnings........... -- -- -- 349 -- -- -- 349
Cash dividends declared
on preferred stock
($6.25 per Series A
share; $1.44 per
Series B share)....... -- -- -- (40) -- -- -- (40)
Exchange of Series A
debentures............ -- -- (546) -- -- -- -- (546)
Issuance and
amortization of ESOP
preferred stock....... -- -- 604 -- (100) -- -- 504
Reacquisition of Series
B preferred stock..... -- -- -- -- -- (131) -- (131)
ESOP dividend ($8.89
per share)............ -- -- 5 (13) 8 -- -- --
Pension liability
adjustment............ -- -- -- -- -- -- (60) (60)
Other.................. -- -- 3 -- -- 10 (12) 1
---- ----- ------ ------- ----- ----- ---- -------
Balance at December 31,
1995................... -- -- 1,353 (1,039) (175) (282) (96) (239)
---- ----- ------ ------- ----- ----- ---- -------
Year ended December 31,
1996:
Net earnings........... -- -- -- 533 -- -- -- 533
Cash dividends declared
on preferred stock
($1.44 per Series B
share)................ -- -- -- (20) -- -- -- (20)
Conversion of Series A
debentures............ -- -- 217 -- -- -- -- 217
Exchange of Series B
preferred stock....... -- -- (102) -- -- -- -- (102)
Issuance and
amortization of ESOP
preferred stock....... -- -- 735 -- (50) -- -- 685
Reacquisition of Series
B preferred stock..... -- -- -- -- -- (86) -- (86)
ESOP dividend ($8.89
per share)............ -- -- 17 (40) 23 -- -- --
Pension liability
adjustment............ -- -- -- -- -- -- 76 76
Other.................. -- 1 (60) -- -- (17) 7 (69)
---- ----- ------ ------- ----- ----- ---- -------
Balance at December 31,
1996................... $-- $ 1 $2,160 $ (566) $(202) $(385) $(13) $ 995
==== ===== ====== ======= ===== ===== ==== =======
</TABLE>

See accompanying notes to consolidated financial statements.

A-17
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation--UAL Corporation ("UAL") is a holding company
whose principal subsidiary is United Air Lines, Inc. ("United"). The
consolidated financial statements include the accounts of UAL and all of its
majority-owned affiliates (collectively "the Company"). All significant
intercompany transactions are eliminated. Investments in affiliates are
carried on the equity basis.

(b) Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

(c) Airline Revenues--Passenger fares and cargo revenues are recorded as
operating revenues when the transportation is furnished. The value of unused
passenger tickets is included in current liabilities.

(d) Foreign Currency Transactions--Monetary assets and liabilities
denominated in foreign currencies are converted at exchange rates in effect at
the balance sheet date. The resulting foreign exchange gains and losses are
charged or credited directly to income. United has entered into foreign
currency swap and forward contracts to reduce certain exposure to currency
fluctuations. Foreign currency gains and losses on the contracts are included
in income currently, offsetting the foreign currency losses and gains on the
obligations.

(e) Cash and Cash Equivalents and Short-term Investments--Cash in excess of
operating requirements is invested in short-term, highly liquid, income-
producing investments. Investments with a maturity of three months or less on
their acquisition date are classified as cash and cash equivalents. Other
investments are classified as short-term investments. The proceeds from sales
of available-for-sale securities are included in interest income for each
respective year.

From time to time, United lends certain of its securities classified as cash
and cash equivalents and short-term investments to third parties. United
requires collateral in an amount exceeding the value of the securities and is
obligated to reacquire the securities at the end of the contract. United
accounts for these transactions as secured lendings rather than sales, and so
does not remove the securities from the balance sheet.

(f) Aircraft Fuel, Spare Parts and Supplies--Aircraft fuel and maintenance
and operating supplies are stated at average cost. Flight equipment spare
parts are stated at average cost less an obsolescence allowance.

(g) Operating Property and Equipment--Owned operating property and equipment
is stated at cost. Property under capital leases, and the related obligation
for future minimum lease payments, are initially recorded at an amount equal
to the then present value of those lease payments.

Depreciation and amortization of owned depreciable assets is based on the
straight-line method over their estimated service lives. Leasehold
improvements are amortized over the remaining period of the lease or the
estimated service life of the related asset, whichever is less. Aircraft are
depreciated to estimated salvage values, generally over lives of 10 to 30
years; buildings are depreciated over lives of 25 to 45 years; and other
property and equipment are depreciated over lives of 3 to 15 years.

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 service lives. Lease terms are 10 to 30 years for aircraft and
flight simulators and 25 years for buildings. Amortization of capital leases
is included in depreciation and amortization expense.

A-18
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Maintenance and repairs, including the cost of minor replacements, are
charged to maintenance expense accounts. Costs of additions to and renewals of
units of property are charged to property and equipment accounts.

(h) Intangibles--Intangibles consist primarily of route acquisition costs
and intangible pension assets (see Note 15). Route acquisition costs are
amortized over 40 years.

(i) Mileage Plus Awards--United accrues the estimated incremental cost of
providing free travel awards earned under its Mileage Plus frequent flyer
program (including awards earned from mileage credits sold) when such award
levels are reached. United, through its wholly-owned subsidiary, Mileage Plus
Holdings, Inc., sells mileage credits to participating partners in the Mileage
Plus program. The resulting revenue is recorded in other operating revenues
during the period in which the credits are sold.

(j) Deferred Gains--Gains on aircraft sale and leaseback transactions are
deferred and amortized over the lives of the leases as a reduction of rental
expense.

(2) EMPLOYEE STOCK OWNERSHIP PLANS AND RECAPITALIZATION

On July 12, 1994, the shareholders of UAL approved a plan of
recapitalization to provide an approximately 55% equity interest in UAL to
certain employees of United in exchange for wage concessions and work-rule
changes. The employees' equity interest is being allocated to individual
employees through the year 2000 under Employee Stock Ownership Plans ("ESOPs")
which were created as a part of the recapitalization. Pursuant to the terms of
the plan of recapitalization, holders of old UAL common stock received
approximately $2.1 billion in cash and the remaining 45% of the equity in the
form of new common stock.

The ESOPs established as part of the recapitalization cover the pilots, U.S.
management and salaried employees and U.S. union ground employees. The ESOPs
include a "Leveraged ESOP", a "Non-Leveraged ESOP" and a "Supplemental ESOP."
Both the Leveraged ESOP and the Non-Leveraged ESOP are tax qualified plans
while the Supplemental ESOP is not a tax qualified plan. The purpose of having
the three ESOPs is to deliver the agreed-upon shares to employees in a manner
which utilizes the tax incentives available to tax qualified ESOPs to the
greatest degree possible. Accordingly, shares are delivered to employees
primarily through the Leveraged ESOP, secondly, through the Non-Leveraged
ESOP, and lastly, through the Supplemental ESOP.

The equity interests are being delivered to employees through two classes of
preferred stock (Class 1 and Class 2 ESOP Preferred Stock, collectively "ESOP
Preferred Stock"), and the voting interests are being delivered through three
separate classes of preferred stocks (Class P, M and S Voting Preferred Stock,
collectively "Voting Preferred Stock"). The Class 1 ESOP Preferred Stock is
being delivered to an ESOP trust in seven separate sales through January 1,
2000 under the Leveraged ESOP, three of which have already taken place. Based
on Internal Revenue Code limitations, shares of the Class 2 ESOP Preferred
Stock are either contributed to the Non-Leveraged ESOP or allocated as "book
entry" shares to the Supplemental ESOP, annually through the year 2000. The
classes of preferred stock are described more fully in Note 12, ESOP Preferred
Stock.

The Leveraged ESOP and Non-Leveraged ESOP are being accounted for under
AICPA Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans" ("SOP"). For the Leveraged ESOP, as shares of Class 1 ESOP
Preferred Stock are sold to an ESOP trust, the Company reports the issuance as
a credit to additional capital invested and a corresponding charge to unearned
ESOP preferred stock. Shares are committed to be released to employees on a
pro rata basis through April 12, 2000. ESOP compensation expense is recorded
for the average fair value of the shares committed to be released during the
period with a corresponding credit to unearned ESOP preferred stock for the
cost of the shares. Any difference between the

A-19
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

fair value of the shares and the cost of the shares is charged or credited to
additional capital invested. For the Non-Leveraged ESOP, the Class 2 ESOP
Preferred Stock is recorded as additional capital invested as the shares are
committed to be contributed, with the offsetting entry to ESOP compensation
expense. The ESOP compensation expense is based on the average fair value of
the shares committed to be contributed, in accordance with the SOP. The
Supplemental ESOP is being accounted for under Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees."

Shares of ESOP Preferred Stock are legally released or allocated to employee
accounts as of year-end. Dividends on the ESOP Preferred Stock are also paid
at the end of the year. Dividends on unallocated shares are used by the ESOP
to pay down the loan from UAL and are not considered dividends for financial
reporting purposes. Dividends on allocated shares are satisfied by releasing
shares from the ESOP's suspense account to the employee accounts and are
charged to equity.

ESOP compensation expense was $685 million and $504 million in 1996 and
1995, respectively. During 1994, the Company recorded $182 million of ESOP
compensation expense for the period July 13 through December 31, 1994. During
1996, 2,402,310 shares of Class 1 ESOP Preferred Stock, 359,577 shares of
Class 2 ESOP Preferred Stock and 2,735,905 shares of Voting Preferred Stock
were allocated to employee accounts, and another 312,086 shares of Class 2
ESOP Preferred Stock were allocated in the form of "book entry" shares,
effective December 31, 1995. Another 21,970 shares of Class 2 ESOP Preferred
Stock previously allocated in book entry form were issued and either
contributed to the qualified plan or converted and sold on behalf of
terminating employees. At December 31, 1996, the year-end allocation of Class
1 ESOP Preferred Stock to employee accounts had not yet been completed. There
were 2,345,749 shares of Class 1 ESOP Preferred Stock committed to be released
and 1,127,292 shares held in suspense by the ESOP as of December 31, 1996. For
the Class 2 ESOP Preferred Stock, 728,224 shares were committed to be
contributed to employees at December 31, 1996. The fair value of the unearned
ESOP shares recorded on the balance sheet at December 31, 1996 and 1995 was
$309 million and $230 million, respectively.

For the Class 2 ESOP Preferred Stock committed to be contributed to
employees under the Supplemental ESOP, employees can elect to receive their
"book entry" shares in cash upon termination of employment. The estimated fair
value of such shares at December 31, 1996 was $206 million.

(3) OTHER INCOME (EXPENSE)--MISCELLANEOUS

Other income (expense)--"miscellaneous, net" consisted of the following:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- -----
(IN MILLIONS)
<S> <C> <C> <C>
Foreign exchange gains (losses).......................... $ (8) $(20) $ 15
Net gains on disposition of property or rights/1/........ -- 60 10
Minority interests....................................... (21) (23) (22)
Recapitalization transaction costs....................... -- -- (121)
Travel agency litigation settlement...................... (20) -- --
Other.................................................... (7) (14) (6)
---- ---- -----
$(56) $ 3 $(124)
==== ==== =====
</TABLE>
- --------
1 As a result of the Company's adoption of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," net gains on disposition of
property or rights for 1996, which amounted to $11 million, are included in
operating expenses as a component of depreciation and amortization.

A-20
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(4) AFFILIATES

United owns 38% of the Galileo International Partnership ("Galileo") through
a wholly-owned subsidiary. United's investment in Galileo, which owns the
Apollo and Galileo computer reservations systems, is carried on the equity
basis. Included in the Company's accumulated deficit is approximately $147
million of undistributed earnings of Galileo and its predecessor companies.

Under operating agreements with Galileo, United purchases computer
reservations services from Galileo and provides marketing, sales and
communication services to Galileo. Revenues derived from the sale of services
to Galileo amounted to approximately $249 million in 1996, $238 million in
1995 and $233 million in 1994. The cost to United of services purchased from
Galileo amounted to approximately $114 million in 1996, $104 million in 1995
and $94 million in 1994.

United also owns 77% of the Apollo Travel Services Partnership ("ATS"),
whose accounts are consolidated. ATS markets the Apollo computer reservations
system to travel agencies in the United States, Mexico and the Caribbean.
Below is a summary of ATS' contribution to the Company's consolidated results,
net of intercompany eliminations and minority interests:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Operating revenues............................................. $ 239 $ 237 $ 244
Operating income............................................... $ 86 $ 90 $ 92
Earnings before income taxes................................... $ 70 $ 76 $ 73
</TABLE>

A-21
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(5) PER SHARE AMOUNTS

Earnings per share are presented on both a primary and a fully diluted basis.
Primary earnings per share were computed based on weighted average common
shares and common equivalents outstanding, including ESOP shares committed to
be released. In addition, fully diluted per share amounts assume the conversion
of convertible debentures (for periods not actually converted) and elimination
of related interest.

<TABLE>
<CAPTION>
EARNINGS ATTRIBUTABLE TO COMMON SHAREHOLDERS 1996 1995 1994
-------------------------------------------- ----- ----- ------
(MILLIONS)
<S> <C> <C> <C>
Net income........................................... $ 533 $ 349 $ 51
Preferred stock dividends............................ (60) (53) (59)
Preferred stock transactions/1/...................... (48) 20 (3)
Other................................................ 1 2 --
----- ----- ------
Earnings attributable to common shareholders
(primary)........................................... $ 426 $ 318 $ (11)
Interest on convertible debentures, net of tax....... 2 23 --
Other................................................ -- 2 --
----- ----- ------
Earnings attributable to common shareholders (fully
diluted)............................................ $ 428 $ 343 $ (11)
===== ===== ======
<CAPTION>
SHARES 1996 1995 1994
------ ----- ----- ------
(MILLIONS)
<S> <C> <C> <C>
Average shares outstanding........................... 56.1 49.6 75.2
Common stock equivalents/2/.......................... 26.5 13.9 --
----- ----- ------
Average number of common and common-equivalent shares
(primary)........................................... 82.6 63.5 75.2
Incremental shares related to convertible debentures
and other........................................... 2.4 8.2 --
----- ----- ------
Average number of shares (fully diluted)............. 85.0 71.7 75.2
===== ===== ======
<CAPTION>
EARNINGS PER SHARE 1996 1995 1994
------------------ ----- ----- ------
<S> <C> <C> <C>
Primary............................................. $5.16 $5.00 $(0.15)
Fully diluted....................................... $5.04 $4.78 $(0.15)
</TABLE>
- --------
1 In April 1995, UAL issued convertible subordinated debentures in exchange for
Series A preferred stock and recorded a non-cash increase of $45 million in
additional capital invested representing the excess of the carrying value of
the preferred stock exchanged over the fair value of the debentures. In
December 1996, a UAL-controlled trust issued trust-originated preferred
securities in exchange for shares of Series B preferred stock and recorded a
non-cash decrease of $27 million in additional capital invested representing
the excess of the fair value of the new securities over the carrying value of
Series B. Also, during the last three years, the Company repurchased shares
of its Series B preferred stock, resulting in increases to additional capital
invested representing the excess of amounts paid to reacquire the preferred
stock over the liquidation preference of such stock. These transactions had
no effect on earnings; however, their net impact on UAL's equity is included
in the computation of earnings per share.
2 Common stock equivalents are not included in 1994 as they are anti-dilutive.

A-22
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In April 1996, the stockholders of UAL Corporation approved an increase in
the number of authorized shares of common stock from 100 million to 200 million
shares, in connection with a four-for-one split of the corporation's common
stock in the form of a 300% stock dividend effective at the close of business
on May 6, 1996. All share and per share data have been restated to give effect
to this stock split.

In addition, in connection with the July 1994 recapitalization, each old
common share was exchanged for one-half share of new common stock. As required
under generally accepted accounting principles for transactions of this type,
the historical weighted average shares outstanding were not restated except as
mentioned above for the 1996 stock split. Further, the 1995 and 1996 periods
include the average number of ESOP preferred shares considered outstanding
during each respective period. Thus, direct comparisons between earnings per
share amounts are not meaningful.

(6) INCOME TAXES

In 1996, the regular tax liability of the Company exceeded the alternative
minimum tax (AMT) liability resulting in a utilization of AMT credits. The
federal income tax liability is the greater of the tax computed using the
regular tax system or the tax under the AMT system. However, if the regular tax
liability exceeds the AMT liability and AMT credits are available, the AMT
credits are used to reduce the net tax liability to the amount of the AMT
liability. During 1996, UAL utilized $34 million of AMT credits.

The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current--
Federal..................................................... $281 $ 29 $12
State....................................................... 20 -- 4
---- ---- ---
301 29 16
---- ---- ---
Deferred--
Federal..................................................... 47 187 73
State....................................................... 22 27 5
---- ---- ---
69 214 78
---- ---- ---
$370 $243 $94
==== ==== ===
</TABLE>

The income tax provision differed from amounts computed at the statutory
federal income tax rate, as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Income tax provision at statutory rate..................... $339 $217 $60
State income taxes, net of federal income tax benefit...... 28 18 6
ESOP dividends............................................. (13) (5) --
Nondeductible employee meals............................... 25 23 22
Nondeductible ESOP transaction costs....................... -- -- 21
Foreign tax credits........................................ (2) (2) (3)
Rate change effect......................................... -- -- (14)
Other, net................................................. (7) (8) 2
---- ---- ---
$370 $243 $94
==== ==== ===
</TABLE>

A-23
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1996 and 1995 are as
follows:

<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Employee benefits,
including
postretirement
medical................ $ 644 $ 93 $ 594 $ 92
Depreciation,
capitalized interest
and transfers of tax
benefits............... -- 1,172 -- 1,077
Gains on sale and
leasebacks............. 428 -- 450 --
Rent expense............ 351 -- 310 --
AMT credit
carryforward........... 231 -- 265 --
Net operating loss
carryforwards.......... 11 -- 123 --
Other................... 263 304 183 282
------ ------ ------ ------
$1,928 $1,569 $1,925 $1,451
====== ====== ====== ======
</TABLE>

At December 31, 1996, UAL and its subsidiaries had $231 million of federal
AMT credit carryforwards available for an indefinite period, $4 million of
general business credit carryforwards which expire between 2003 and 2007, $5
million of foreign tax credit carryforwards expiring between 2000 and 2001, $8
million of state tax benefit from net operating loss carryforwards expiring
between 1999 and 2011 and $3 million of federal tax benefit from net operating
loss carryforwards expiring in 2007.

UAL's ability to generate sufficient amounts of taxable income from future
operations is dependent upon numerous factors, including general economic
conditions, inflation, fuel costs, the state of the industry and other factors
beyond management's control. There can be no assurances that UAL will meet its
expectation of future taxable income. However, based on the extended period
over which postretirement benefits will be recognized, and the indefinite
carryforward period for AMT credits, management believes it is more likely than
not that future taxable income will be sufficient to utilize the deferred tax
assets at December 31, 1996.

(7) SHORT-TERM BORROWINGS

United has an agreement with a syndicate of banks for a $750 million
revolving credit facility expiring in 2002. Interest on drawn amounts under the
facility is calculated at floating rates based on the London interbank offered
rate ("LIBOR") plus a margin which is subject to adjustment based on certain
changes in the credit ratings of United's long-term senior unsecured debt.
Among other restrictions, the credit facility contains a covenant which
restricts United's ability to grant liens on or otherwise encumber certain
identified assets with a market value of approximately $1.1 billion.

During the second quarter of 1996, United reduced the maximum available
amount of borrowings under a separate short-term borrowing facility from $270
million to $227 million. This agreement has been extended through February
1998.

A-24
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(8) LONG-TERM DEBT

A summary of long-term debt, including current maturities, as of December 31
is as follows (interest rates are as of December 31, 1996):

<TABLE>
<CAPTION>
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Secured notes, 6.78% to 8.90%, averaging 8.12%, due
through 2014........................................... $ 819 $ 975
Debentures, 6.75% to 11.21%, averaging 9.61%, due 1997
to 2021................................................ 936 1,419
Convertible subordinated debentures, 6.375%............. -- 597
Convertible debentures, 7.75%, due 2010................. 16 25
Promissory notes, 6.10% to 11.00%, averaging 6.44%, due
1997 to 2000........................................... 64 61
------ ------
1,835 3,077
Less: Unamortized discount on debt...................... (9) (68)
Current maturities.................................... (165) (90)
------ ------
$1,661 $2,919
====== ======
</TABLE>

In addition to scheduled principal payments, in 1996 and 1995 the Company
repaid $149 million and $228 million, respectively, in principal amount of
secured notes and $492 million and $327 million, respectively, in principal
amount of debentures prior to maturity. These obligations were scheduled to
mature at various times from 2000 through 2021. Extraordinary losses of $67
million and $29 million, respectively, net of tax benefits of $40 million and
$18 million, respectively, were recorded, reflecting amounts paid in excess of
the debt carrying value.

In April 1995, UAL issued $600 million aggregate principal amount of 6 3/8%
convertible subordinated debentures, due 2025, for all outstanding shares of
its Series A convertible preferred stock. On March 20, 1996, UAL issued a
redemption notice for all outstanding 6 3/8% convertible subordinated
debentures. Prior to the May 1 redemption date, debenture holders elected to
convert all of their outstanding debentures into an aggregate of $324 million
in cash and 7,623,092 shares of common stock. These conversions resulted in a
net reduction to long-term debt of $545 million and an increase of $218 million
in additional capital invested.

At December 31, 1996, there was outstanding $16 million in convertible
debentures, which are obligations of Air Wis Services, Inc. ("Air Wis"), a
wholly owned subsidiary of UAL. The debentures are convertible into shares of
UAL common stock at the conversion price of $87.13. During 1996 and 1995, Air
Wis reacquired $8 million and $5 million, respectively, of these debentures,
resulting in insignificant gains.

At December 31, 1996, United had outstanding a total of $197 million of long-
term debt bearing interest at rates 85 to 128 basis points over LIBOR. In
connection with certain of these debt financings, United has entered interest
rate swap agreements to effectively fix interest rates at December 31, 1996 at
8.554% on $33 million of notional amount (see Note 17).

Maturities of long-term debt for each of the four years after 1997 are:
1998--$78 million; 1999--$47 million; 2000--$51 million; and 2001--$43 million.
Various assets, principally aircraft, having an aggregate book value of $865
million at December 31, 1996, were pledged as security under various loan
agreements.

At December 31, 1996, UAL and United had an effective shelf registration
statement on file with the Securities and Exchange Commission to offer up to
$631 million of securities, including secured and unsecured debt, equipment
trust and pass through certificates, equity or a combination thereof. UAL's
ability to issue equity securities is limited by its restated certificate of
incorporation.

A-25
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(9) LEASE OBLIGATIONS

The Company leases aircraft, airport passenger terminal space, aircraft
hangars and related maintenance facilities, cargo terminals, other airport
facilities, real estate, office and computer equipment and vehicles.

Future minimum lease payments as of December 31, 1996, under capital leases
(substantially all of which are for aircraft) and operating leases having
initial or remaining noncancelable lease terms of more than one year are as
follows:

<TABLE>
<CAPTION>
OPERATING LEASES
-----------------
NON- CAPITAL
AIRCRAFT AIRCRAFT LEASES
-------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Payable during--
1997........................................... $ 943 $ 473 $ 233
1998........................................... 942 463 236
1999........................................... 939 447 210
2000........................................... 957 435 186
2001........................................... 939 459 261
After 2001..................................... 13,403 7,871 1,036
------- ------- ------
Total minimum lease payments..................... $18,123 $10,148 2,162
======= =======
Imputed interest (at rates of 5.3% to 12.2%)..... (705)
------
Present value of minimum lease payments.......... 1,457
Current portion.................................. (132)
------
Long-term obligations under capital leases....... $1,325
======
</TABLE>

As of December 31, 1996, United leased 298 aircraft, 54 of which were under
capital leases. These leases have terms of 4 to 26 years, and expiration dates
range from 1997 through 2020.

In connection with the financing of certain aircraft accounted for as capital
leases, United had on deposit at December 31, 1996 an aggregate 19 billion yen
($168 million) in certain banks and had pledged an irrevocable security
interest in such deposits to the aircraft lessors. These deposits will be used
to pay off an equivalent amount of recorded capital lease obligations.

Amounts charged to rent expense, net of minor amounts of sublease rentals,
were $1.424 billion in 1996, $1.439 billion in 1995, and $1.222 billion in
1994. Included in 1996 rent expense was $15 million in contingent rentals,
resulting from changes in interest rates for operating leases under which the
rent payments are based on variable interest rates. In connection with certain
of these leases, United has entered into interest rate swap agreements (see
Note 17).

(10) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF A
SUBSIDIARY TRUST

In December 1996, UAL Corporation Capital Trust I (the "Trust") issued $75
million of its 13 1/4% Trust Originated Preferred Securities (the "Preferred
Securities") in exchange for 2,999,304 depositary shares of the Company, each
representing 1/1000 of one share of Series B 12 1/4% preferred stock (see Note
11). Concurrent with the issuance of the Preferred Securities and the related
purchase by UAL of the Trust's common securities, the Company issued to the
Trust $77 million aggregate principal amount of its 13 1/4% Junior Subordinated
Debentures (the "Debentures") due 2026. The Debentures are and will be the sole
assets of the Trust. The interest and other payment dates on the Debentures
correspond to the distribution and other payment dates on

A-26
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the Preferred Securities. Upon maturity or redemption of the Debentures, the
Preferred Securities will be mandatorily redeemed. The Debentures are
redeemable at UAL's option, in whole or in part, on or after July 12, 2004, at
a redemption price equal to 100% of the principal amount to be redeemed, plus
accrued and unpaid interest to the redemption date. Upon the repayment of the
Debentures, whether at maturity, upon redemption or otherwise, the proceeds
thereof will be applied to redeem the Preferred Securities.

There is a full and unconditional guarantee by UAL of the Trust's obligations
under the securities issued by the Trust. However, the Company's obligations
are subordinate and junior in right of payment to certain other of its
indebtedness. UAL has the right to defer payments of interest on the Debentures
by extending the interest payment period, at any time, for up to 20 consecutive
quarters. If interest payments on the Debentures are so deferred, distributions
on the Preferred Securities will also be deferred. During any deferral,
distributions will continue to accrue with interest thereon. In addition,
during any such deferral, UAL may not declare or pay any dividend or other
distribution on, or redeem or purchase, any of its capital stock.

The transaction resulted in a reduction of approximately $102 million to paid
in capital as the fair value of the Preferred Securities issued exceeded the
carrying value ($75 million) of the exchanged Series B preferred stock. The
difference between the assigned value of the Preferred Securities and their
redemption value ($27 million) will be amortized against distributions on the
Preferred Securities over their term.

(11) SERIAL PREFERRED STOCK

In connection with the July 1994 recapitalization, UAL issued 16,416,000
depositary shares, each representing 1/1000 of one share of Series B 12 1/4%
preferred stock, resulting in net proceeds of $400 million, which was recorded
as additional capital invested. The shares issued had an aggregate liquidation
preference of $410 million, or $25 per depositary share ($25,000 per Series B
preferred share), and a stated capital of $164 ($0.01 per Series B preferred
share). Under its terms, any portion of the Series B preferred stock or the
depositary shares is redeemable for cash after July 11, 2004, at UAL's option,
at the equivalent of $25 per depositary share, plus accrued dividends. The
Series B preferred stock is not convertible into any other securities, has no
stated maturity and is not subject to mandatory redemption.

The Series B preferred stock ranks senior to all other preferred and common
stocks, except the Preferred Securities, as to receipt of dividends and amounts
distributed upon liquidation. The Series B preferred stock has voting rights
only to the extent required by law and with respect to charter amendments that
adversely affect the preferred stock or the creation or issuance of any
security ranking senior to the preferred stock. Additionally, if dividends are
not paid for six cumulative quarters, the Series B preferred stockholders are
entitled to elect two additional members to the UAL Board of Directors until
all dividends are paid in full. Pursuant to UAL's restated certificate of
incorporation, UAL is authorized to issue a total of 50,000 shares of Series B
preferred stock.

As discussed in Note 10, in December 1996, UAL Corporation Capital Trust I, a
Delaware statutory business trust controlled by UAL, exchanged mandatorily
redeemable preferred securities of the subsidiary trust for 2,999,304
depositary shares of Series B preferred stock of UAL.

A-27
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Series B preferred stock issued and outstanding consisted of the following
(dollars in millions):

<TABLE>
<CAPTION>
DEPOSITARY LIQUIDATION
SHARES SHARES VALUE
------ ---------- -----------
(MILLIONS)
<S> <C> <C> <C>
Balance January 1, 1994...................... -- -- $ --
Issuance of Series B preferred stock........ 16,416 16,416,000 410
Repurchase of Series B...................... (3,336) (3,336,400) (83)
------ ---------- -----
Balance December 31, 1994.................... 13,080 13,079,600 $ 327
Repurchase of Series B...................... (4,260) (4,259,709) (107)
------ ---------- -----
Balance December 31, 1995.................... 8,820 8,819,891 $ 220
Repurchase of Series B...................... (2,553) (2,553,110) (64)
Exchange of Series B........................ (3,000) (2,999,304) (75)
------ ---------- -----
Balance December 31, 1996.................... 3,267 3,267,477 $ 81
====== ========== =====
</TABLE>

UAL is authorized to issue up to 15,986,584 additional shares of serial
preferred stock. The repurchased shares are held in treasury by UAL.

(12) ESOP PREFERRED STOCK

The following activity relates to UAL's outstanding ESOP preferred stocks
(see Note 2 for a description of the ESOPs):

<TABLE>
<CAPTION>
CLASS 1 ESOP CLASS 2 ESOP ESOP VOTING
------------ ------------ -----------
<S> <C> <C> <C>
Balance December 31, 1994.............. 1,789,585 -- 3
--------- ------- ---------
Shares issued......................... 2,850,103 304,882 1,448,384
Converted to common................... (7,183) (2,811) (9,994)
--------- ------- ---------
Balance December 31, 1995.............. 4,632,505 302,071 1,438,393
--------- ------- ---------
Shares issued......................... 2,367,575 381,044 3,073,970
Converted to common................... (49,618) (38,605) (89,927)
--------- ------- ---------
Balance December 31, 1996.............. 6,950,462 644,510 4,422,436
========= ======= =========
</TABLE>

An aggregate of 17,675,345 shares of Class 1 and Class 2 ESOP Preferred Stock
will be issued to employees under the ESOPs. Each share of ESOP Preferred Stock
is convertible into four shares of UAL common stock and shares are converted to
common as employees retire or otherwise leave the Company. The stock has a par
value of $0.01 per share and is nonvoting. The Class 1 ESOP Preferred Stock has
a liquidation value of $126.96 per share plus all accrued and unpaid dividends;
the Class 2 does not have a liquidation value. The Class 1 ESOP Preferred Stock
provides a fixed annual dividend of $8.8872 per share, which ceases on March
31, 2000; the Class 2 does not pay a fixed dividend.

Class P, M and S Voting Preferred Stocks were established to provide the
voting power to the employee groups participating in the ESOPs. Additional
Voting Preferred Stock is issued as shares of the Class 1 and Class 2 ESOP
Preferred Stock are allocated to employees. In the aggregate, 17,675,345 shares
of Voting Preferred Stock will be issued through the year 2000. The Voting
Preferred Stock at any time outstanding commands voting power for approximately
55% of the vote of all classes of capital stock in all matters requiring a
stockholder vote, other than for the election of members of the Board of
Directors. The Voting Preferred Stock will generally continue to represent
approximately 55% of the aggregate voting power until the "Sunset." The

A-28
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

"Sunset" will occur when the common shares issuable upon conversion of the
outstanding Class 1 and Class 2 ESOP Preferred Stock, plus any common equity
(generally common stock issued or issuable at the time of the recapitalization)
and available unissued ESOP shares held in the ESOPs or any other employee
benefit plans sponsored by the Company for the benefit of its employees,
represent, in the aggregate less than 20% of the common equity and available
unissued ESOP shares of the Company. For purposes of defining the "Sunset"
employee ownership is approximately 62% at December 31, 1996. The Voting
Preferred Stock has a par value and liquidation preference of $0.01 per share.
The stock is not entitled to receive any dividends and is convertible into
.0004 shares of UAL common stock.

Class Pilot MEC, IAM, SAM and I junior preferred stock (collectively
"Director Preferred Stocks") were established to effectuate the election of one
or more members to UAL's Board of Directors. One share each of Class Pilot MEC
and Class IAM junior preferred stock is authorized and issued. The Company is
authorized to issue ten shares each of Class SAM and Class I junior preferred
stocks. There are three shares of Class SAM and four shares of Class I issued.
Each of the Director Preferred Stocks has a par value and liquidation
preference of $0.01 per share. The stock is not entitled to receive any
dividends and Class I will be redeemed automatically upon the transfer of the
shares to any person not elected to the Board of Directors or upon the
occurrence of the "Sunset."

(13) COMMON SHAREHOLDERS' EQUITY

Changes in the number of shares of UAL common stock outstanding during the
years ended December 31 were as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Shares outstanding at beginning of
year................................ 50,718,424 49,756,424 98,275,748
Old shares--
Stock options exercised.............. -- -- 319,056
Shares issued from treasury under
compensation arrangements........... -- -- 4,400
Shares acquired for treasury......... -- -- (353,044)
Forfeiture of restricted stock....... -- -- (39,200)
Other................................ -- -- (1,516)
---------- ---------- -----------
50,718,424 49,756,424 98,205,444
Effect of recapitalization........... (49,102,720)
New shares--
Stock options exercised.............. 500,174 722,744 950,020
Shares issued from treasury under
compensation arrangements........... 25,949 932,584 451,068
Shares acquired for treasury......... (180,565) (504,444) (747,592)
Forfeiture of restricted stock....... (70,488) (43,000) --
Conversion of Series A debentures.... 7,623,092 38,304 --
Conversion of ESOP preferred stock... 352,929 39,976 --
Other................................ (152,035) (224,164) 204
---------- ---------- -----------
Shares outstanding at end of year.... 58,817,480 50,718,424 49,756,424
========== ========== ===========
</TABLE>

At December 31, 1996 and 1995, UAL held 701,616 and 477,233 shares,
respectively, of common stock in treasury.

A-29
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(14) STOCK OPTIONS AND AWARDS

The Company has granted options to purchase common stock to various officers
and employees. The option price for all stock options is at least 100% of the
fair market value of UAL common stock at the date of grant. Options generally
vest and become exercisable in four equal, annual installments beginning one
year after the date of grant, and generally expire in ten years.

As a result of the 1994 recapitalization, all outstanding options became
fully vested at the time of the transaction and the holders of such options
became eligible to utilize the cashless exercise features of stock options.
Under a cashless exercise, the Company withholds, at the election of the
optionee, from shares that would otherwise be issued upon exercise, that number
of shares having a fair market value equal to the exercise price and/or related
income taxes. For outstanding options eligible for cashless exercise, changes
in the market price of the stock are charged to earnings currently. The expense
recorded for such eligible options was $15 million for 1996, $27 million in
1995, and $15 million in 1994.

Stock options which were outstanding at the time of the recapitalization are
exercisable for shares of old common stock, each of which is in turn converted
into two shares of new common stock and $84.81 in cash upon exercise.
Subsequent to the recapitalization, the Company granted stock options which are
exercisable for shares of new common stock.

The Company has also awarded shares of restricted stock to officers and key
employees. These shares generally vest over a five-year period and are subject
to certain transfer restrictions and forfeiture under certain circumstances
prior to vesting. Unearned compensation, representing the fair market value of
the stock at the measurement date for the award, is amortized to salaries and
related costs over the vesting period. As a result of the 1994
recapitalization, all outstanding nonvested shares of restricted stock became
vested at the time of the transaction and $12 million of compensation expense
was recorded for the remaining balance of unearned compensation attributable to
the outstanding shares at that time.

In 1994, subsequent to the recapitalization, 451,068 restricted shares of new
common stock were issued from treasury, and in 1995, an additional 892,852
restricted shares were issued from treasury. As of December 31, 1996, 619,120
shares were restricted and still nonvested. Additionally, 353,200 shares were
reserved for future awards under the plan. In 1996, 1995 and 1994, 70,488,
43,000 and 39,200 shares, respectively, were forfeited and returned to treasury
stock.

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a fair value based method
of accounting for stock options. The Company has elected to continue using the
intrinsic value based method of accounting prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted
by SFAS No. 123. If the fair value based method accounting provisions of SFAS
No. 123 had been adopted as of the beginning of 1995, the effect on 1995 and
1996 net earnings would have been immaterial. The effects on 1995 and 1996 may
not be representative of the effects SFAS No. 123 may have in future years,
because no grants prior to January 1, 1995 have been considered.

A-30
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Stock option activity for the past three years was as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
WTD AVG WTD AVG WTD AVG
SHARES EXER PRICE SHARES EXER PRICE SHARES EXER PRICE
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Old Share Options:
Outstanding at beginning
of year................ 480,610 $119.95 1,081,100 $132.77 1,673,782 $120.21
Exercised.............. (124,117) $117.49 (295,671) $113.61 (554,771) $ 95.32
Surrendered upon
exercise of SARs...... -- -- (12,927) $ 75.68 (1,000) $ 83.31
Terminated............. (375) $124.00 (291,892) $175.24 (36,911) $118.30
--------- --------- ---------
Outstanding at end of
year................... 356,118 $120.80 480,610 $119.95 1,081,100 $132.77
Options exercisable at
year-end............... 356,118 $120.80 480,610 $119.95 1,081,100 $132.77
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
WTD AVG WTD AVG WTD AVG
SHARES EXER PRICE SHARES EXER PRICE SHARES EXER PRICE
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
New Share Options:
Outstanding at beginning
of year................ 3,767,624 $ 23.47 3,784,000 $ 22.59 -- $ --
Granted................ 1,319,800 $ 53.46 344,000 $ 32.40 3,838,000 $ 22.59
Exercised.............. (251,934) $ 23.52 (136,376) $ 22.61 -- $ --
Terminated............. (6,500) $ 32.03 (224,000) $ 22.91 (54,000) $ 22.53
--------- --------- ---------
Outstanding at end of
year................... 4,828,990 $ 31.64 3,767,624 $ 23.47 3,784,000 $ 22.59
Options exercisable at
year-end............... 1,881,686 $ 22.89 1,133,140 $ 22.55 600,000 $ 22.59
Reserved for future
grants at year-end..... 4,782,700 1,696,000 1,816,000
</TABLE>

The following information relates to stock options outstanding as of
December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- --------------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1996 EXERCISE PRICE
--------------- ----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Old Share Options:
$79 to 177............. 356,118 4.6 years $120.80 356,118 $120.80
New Share Options:
$20 to 29.............. 3,377,190 7.6 years $ 22.77 1,854,186 $ 22.61
$37 to 61.............. 1,451,800 9.3 years $ 52.33 27,500 $ 41.61
--------- ---------
4,828,990 1,881,686
</TABLE>

(15) RETIREMENT PLANS

The Company has various retirement plans which cover substantially all
employees. Defined benefit plans covering certain employees (primarily union
ground employees) provide a stated benefit for specified periods of service,
while defined benefit plans for other employees provide benefits based on
employees' years of service

A-31
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

and average compensation for a specified period of time before retirement. The
Company's goal is to fully fund the estimated present value of its accumulated
benefit obligation under the plans. The Company also provides several defined
contribution plans which cover substantially all U.S. employees who have
completed one year of service. For certain groups of employees (primarily
pilots, salaried employees hired after February 1, 1994 and employees of
Mileage Plus, Inc.), the Company contributes an annual amount on behalf of
each participant, calculated as a percentage of the participants' earnings or
a percentage of the participants' contributions.

The following table sets forth the defined benefit plans' funded status and
amounts recognized in the statements of financial position as of December 31:

<TABLE>
<CAPTION>
1996 1995
--------------------------- -------------
ASSETS EXCEED ACCUMULATED ACCUMULATED
ACCUMULATED BENEFITS BENEFITS
BENEFITS EXCEED ASSETS EXCEED ASSETS
------------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Actuarial present value of accumu-
lated benefit obligation......... $(5,344) $(235) $(5,309)
Actuarial present value of pro-
jected benefit obligation........ $(5,812) $(335) $(5,774)
Plan assets at fair value......... 5,850 60 4,947
------- ----- -------
Projected benefit obligation in
excess of plan assets............ 38 (275) (827)
Unrecognized net loss............. 138 (70) 356
Prior service cost not yet
recognized in net periodic
pension cost..................... 230 216 482
Remaining unrecognized net asset.. (16) 37 15
Adjustment required to recognize
minimum liability................ -- (86) (400)
------- ----- -------
Pension asset (liability)
recognized in the statements of
consolidated financial position.. $ 390 $(178) $ (374)
======= ===== =======
Actuarial assumptions:
Weighted average discount rate.. 7.75% 7.25%
Rate of increase in compensa-
tion........................... 3.15% 3.15%
</TABLE>

Total pension expense for all retirement plans (including defined
contribution plans) was $252 million in 1996, $193 million in 1995, and $350
million in 1994.

Plan assets are invested primarily in governmental and corporate debt
instruments and corporate equity securities.

The net periodic pension cost of defined benefit plans included the
following components:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost--benefits earned during the year............ $237 $173 $216
Interest cost on projected benefit obligation............ 440 396 379
Actual (return) loss on plan assets...................... (703) (934) 28
Net amortization and deferral............................ 268 545 (351)
---- ---- ----
Net periodic pension cost................................ $242 $180 $272
==== ==== ====
Expected average long-term rate of return................ 9.75% 9.75% 9.75%
</TABLE>

Changes in interest rates or rates of inflation may impact the assumptions
used in the valuation of pension obligations, including discount rates and
rates of increase in compensation, resulting in increases or decreases in
United's pension liability and net periodic pension cost.

A-32
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(16) OTHER EMPLOYEE BENEFITS

The Company provides certain health care benefits, primarily in the U.S., to
retirees and eligible dependents. Benefits are generally funded from Company
assets on a current basis, although amounts sufficient to pay claims incurred,
but not yet paid, are held in trust at year-end. Certain plan benefits are
subject to co-payments, deductibles and other limits described in the plans and
the benefits are reduced once a retiree becomes eligible for Medicare. The
Company also provides certain life insurance benefits to retirees. The assets
to fund retiree life insurance benefits are being held in a deposit trust
administration fund with a major insurance company. The Company has reserved
the right, subject to collective bargaining agreements, to modify or terminate
the health care and life insurance benefits for both current and future
retirees.

Information on the plans' funded status, on an aggregate basis at December
31, follows:

<TABLE>
<CAPTION>
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees..................................................... $ 498 $ 536
Other fully eligible participants............................ 193 210
Other active participants.................................... 648 676
------ ------
Total accumulated postretirement benefit obligation.......... 1,339 1,422
Unrecognized net gain (loss)................................. 109 (54)
Fair value of plan assets.................................... (103) (99)
------ ------
Accrued postretirement benefit obligation.................... $1,345 $1,269
====== ======
Discount rate................................................ 7.75% 7.25%
</TABLE>

Net postretirement benefit costs included the following components:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost--benefits attributed to service during the
period.................................................. $ 44 $ 37 $ 46
Amortization of unrecognized net loss (gain)............. (5) (5) 3
Actual return on assets.................................. (7) (7) --
Interest cost on benefit obligation...................... 98 100 95
---- ---- ----
Net postretirement benefit costs......................... $130 $125 $144
==== ==== ====
</TABLE>

The assumed health care cost trend rates were 7.4% and 8.5% for 1996 and
1995, respectively, declining annually to a rate of 4% by the year 2001 and
remaining level thereafter. The effect of a 1% increase in the assumed health
care cost trend rate would increase the accumulated postretirement benefit
obligation at December 31, 1996, by $79 million and the aggregate of the
service and interest cost components of net postretirement benefit cost for
1996 by $10 million.

The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1994. SFAS No. 112 requires recognition of the
liability for postemployment benefits during the period of employment. Such
benefits include company paid continuation of group life insurance and medical
and dental coverage for certain employees after employment but before
retirement. The effect of adopting SFAS No. 112 was a cumulative charge for
recognition of the transition liability of $42 million, before tax benefits of
$16 million. The ongoing expenses related to postemployment benefits will vary
based on actual claims experience.

Changes in interest rates or rates of inflation may impact the assumptions
used in the valuation of postretirement and postemployment obligations,
including discount rates, resulting in increases or decreases in United's
liability and net periodic cost.

A-33
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(17) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

During 1996, the Company attempted to manage its exposure to interest rates,
foreign exchange rates and jet fuel prices through certain operational
decisions and the limited use of various derivative financial instruments.
Except for minor investments in certain futures and options contracts to assist
in opportunistic purchases of jet fuel, the Company used derivative financial
instruments only for the purpose of hedging existing commitments or
obligations, not for hedging expected future operating cash flows or for
generating trading profits. In 1997, the Company expects to more actively hedge
the risks associated with foreign exchange rates and jet fuel prices on
expected future operating cash flows through a greater use of derivative
financial instruments.

Credit Exposures of Derivatives

The Company's theoretical risk in the derivative financial instruments
described below is the cost of replacing the contracts at current market rates
in the event of default by any of the counterparties. However, the Company does
not anticipate such default as counterparties are selected based on credit
ratings and the relative market positions with each counterparty are monitored.
Furthermore, the risk of such default is mitigated by provisions in the
contracts which require either party to post increasing amounts of collateral
as the value of the contract moves against them, subject to certain thresholds,
or through the use of mutual put options where contracts are terminated at
certain predefined intervals. Counterparty credit risk is further minimized by
settlements throughout the duration of the contract.

Interest Rate Risk Management

United has entered into interest rate swap agreements in order to manage the
interest rate exposure associated with certain variable rate debt and leases.
The swap agreements have remaining terms averaging 14 years, corresponding to
the terms of the related debt or lease obligations. Under the agreements,
United makes payments to counterparties at fixed rates and in return receives
payments based on variable rates indexed to LIBOR. At December 31, 1996, a
notional amount of $53 million of interest rate swap agreements effectively
fixed interest rates between 8.55% and 8.65% on such obligations. The notional
amounts of the swaps do not represent amounts exchanged between the parties
and, therefore, are not a measure of the Company's exposure resulting from its
use of the swaps. Rather, the amounts exchanged are based on interest rates
applied to the notional amounts. The fair values to United of interest rate
swap agreements at December 31, 1996 and 1995 were $(4) million and $(46)
million, respectively, taking into account interest rates in effect at the
time.

Foreign Exchange Risk Management

A strengthening (weakening) of foreign currencies versus the U.S. dollar
tends to increase (decrease) reported revenue and operating income because
United's foreign currency-denominated operating revenue generally exceeds its
foreign currency-denominated operating expense for each currency. United
attempts to mitigate its exposure to fluctuations in any single currency by
carrying passengers and cargo in both directions between the U.S. and almost
every major economic region in the world. In addition, United reduces its
exposure to foreign exchange fluctuations by converting excess local currencies
generated into U.S. dollars. As a result of rate fluctuations, United is also
exposed to transaction gains and losses which it attempts to manage as follows:

United is party to foreign currency swap and forward contracts to reduce
exposure to currency fluctuations in connection with 15.3 billion of Japanese
yen-denominated debt and lease obligations. The swap contract effectively fixes
future lease principal payments at an indirect yen exchange rate of 95.63. At
December 31, 1996, the swap contract had a notional amount of $84 million,
which will reduce periodically through 2004 as payments are made under the
leases. The fair value of the currency swap contract to United at December 31,

A-34
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1996 was approximately $1.8 million based on the change in the yen to dollar
exchange rate and interest rates in the U.S. and Japan. The forward contracts
effectively fix future debt payments at an indirect exchange rate of 116.14. At
December 31, 1996, the forward contracts had a notional amount of $67 million,
which will reduce periodically through 2001, as payments are made under the
debt agreements. The fair value of the currency forward contract to United at
December 31, 1996 was approximately $(1.9) million.

United incurs certain other identifiable Japanese yen-denominated liabilities
as a result of operations (commissions) and financing activities (accrued rent
on aircraft operating leases and interest on capital leases). United minimizes
transaction gains and losses by investing in yen-denominated time deposits and
by entering into yen forward contracts to offset the impact of rate changes. At
December 31, 1996, these forward contracts had a notional amount of $54 million
and a fair value to United of $(1.4) million.

Fuel Price Risk Management

United enters into contracts from time to time, with certain fuel suppliers
to purchase fuel at a fixed average price over a given period of time,
typically one year, to protect against increases in jet fuel prices. At
December 31, 1996, the level of 1997 fuel needs contracted at fixed average
prices was insignificant.

At December 31, 1996, the fair values of futures contracts used for
opportunistic purchases of jet fuel were insignificant.

Balance Sheet Financial Instruments: Fair Values

At December 31, 1996 and 1995, $418 million and $606 million, respectively,
of investments in debt securities included in cash and cash equivalents and
short-term investments were classified as available-for-sale, and $232 million
and $530 million, respectively, were classified as held-to-maturity.
Investments in debt securities classified as available-for-sale are stated at
fair value based on the quoted market prices for the securities, which does not
differ significantly from their cost basis. Investments classified as held-to-
maturity are stated at cost which approximates market due to their short-term
maturities.

The fair value of long-term debt, including debt due within one year, is
primarily based on the quoted market prices for the same or similar issues or
on the then current rates offered for debt with similar terms and maturities.
The fair value of long-term debt, including debt due within one year, at
December 31, 1996 and 1995 was $2.041 billion and $3.435 billion, respectively,
compared with carrying values of $1.835 billion and $3.077 billion.

Financial Guarantees

Special facility revenue bonds have been issued by certain municipalities to
build or improve airport and maintenance facilities leased by United. Under the
lease agreements, United is required to make rental payments in amounts
sufficient to pay the maturing principal and interest payments on the bonds. At
December 31, 1996, $1.060 billion principal amount of such bonds was
outstanding. As of December 31, 1996, UAL and United had jointly guaranteed $35
million of such bonds and United had guaranteed $1.041 billion of such bonds,
including accrued interest.

Transfers of the tax benefits of accelerated depreciation and investment tax
credits associated with the acquisition of certain equipment have been made
previously by United to various tax lessors through tax lease transactions.
Proceeds from tax benefit transfers were recognized as income in the year the
lease transactions were consummated. The subject equipment is being depreciated
for book purposes. United has agreed to indemnify (guaranteed in some cases by
UAL) the tax lessors against loss of such benefits in certain

A-35
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

circumstances and has agreed to indemnify others for loss of tax benefits in
limited circumstances for certain used aircraft purchased by United subject to
previous tax lease transactions. Certain tax lessors have required that letters
of credit be issued in their favor by financial institutions as security for
United's indemnity obligations under the leases. The outstanding balance of
such letters of credit totaled $49 million at December 31, 1996. At that date,
United had granted mortgages on aircraft and engines having a total book value
of $187 million as security for indemnity obligations under tax leases and
letters of credit.

Concentration of Credit Risk

The Company does not believe it is subject to any significant concentration
of credit risk. Most of the Company's receivables result from sales of tickets
to individuals through geographically dispersed travel agents, company outlets
or other airlines, often through the use of major credit cards. These
receivables are short term, generally being settled shortly after the sale.

(18) COMMITMENTS, CONTINGENT LIABILITIES AND UNCERTAINTIES

The Company has certain contingencies resulting from litigation and claims
(including environmental issues) incident to the ordinary course of business.
Management believes, 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 its prior experience, that the ultimate disposition
of these contingencies is not expected to materially affect UAL's consolidated
financial position or results of operations. UAL records liabilities for legal
and environmental claims against it in accordance with generally accepted
accounting principles. These amounts are recorded based on the Company's
assessments of the likelihood of their eventual settlements. The amounts of
these liabilities could increase in the near term, based on revisions to
estimates relating to the various claims.

At December 31, 1996, commitments for the purchase of property and equipment,
principally aircraft, approximated $6.9 billion, after deducting advance
payments. An estimated $2.9 billion is due to be spent in 1997, $1.9 billion in
1998, $1.0 billion in 1999 and $1.1 billion in 2000 and thereafter. The above
amounts reflect firm orders for 21 B747, 6 B757, 20 B777, 14 A320 and 24 A319
aircraft to be delivered through 2002. However, these amounts do not include a
recent order for an additional three A320 and four A319 aircraft. Under the
Company's current fleet plan, the above aircraft will principally be used to
replace older aircraft which will be retired. As a result, the Company expects
only modest growth in its passenger fleet through 2002.

Consistent with UAL's strategic plan and the Company's focus on attracting
more high yield passengers, the Board of Directors has authorized an investment
of approximately $400 million in United's onboard product, including new
aircraft seats and other cabin improvements. This amount, which is expected to
be spent in the next three years, is not reflected in the above commitments.

Approximately 60% of United's employees are represented by various labor
organizations. In connection with the 1994 employee investment transaction,
members of the Air Line Pilots' Association and the International Association
of Machinists and Aerospace Workers entered into labor contracts with United
which become amendable in 2000.

A-36
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(19) FOREIGN OPERATIONS

Operating authorities in international markets are governed by bilateral
aviation agreements between the U.S. and foreign countries. Under generally
accepted accounting principles ("GAAP"), foreign operations are defined as
operations that exist outside the U.S. United derives an insignificant amount
of its operating revenues and operating income from such operations. However,
the Company's results are significantly impacted by revenues produced from
international flights between the U.S. and foreign destinations. Based on
allocation guidelines provided by the U.S. Department of Transportation
("DOT"), which classifies flights between the U.S. and foreign destinations as
part of each respective foreign entity, and thus, differs from the definition
of foreign operations under GAAP, United reported the following results by
geographic entity to the DOT for each of the last three years:

<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
OPERATING OPERATING OPERATING OPERATING OPERATING OPERATING
ENTITY REVENUE INCOME REVENUE INCOME REVENUE INCOME
------ --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Domestic........ $10,717 $ 738 $ 9,586 $460 $ 8,966 $261
Pacific......... 3,438 288 3,336 348 3,009 310
Atlantic........ 1,412 86 1,287 10 1,190 (102)
Latin America... 750 18 686 14 722 44
------- ------ ------- ---- ------- ----
Total......... $16,317 $1,130 $14,895 $832 $13,887 $513
======= ====== ======= ==== ======= ====
</TABLE>

Additionally, United has sizable intangible assets related to acquisitions
of foreign route authorities. Changes in U.S. or foreign government aviation
policies can lead to the alteration or termination of existing air service
agreements that could diminish the value of United's international route
authority.

(20) STATEMENT OF CONSOLIDATED CASH FLOWS--SUPPLEMENTAL DISCLOSURES

Supplemental disclosures of cash flow information and non-cash investing and
financing activities were as follows:

<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest (net of amounts capitalized)....................... $ 244 $346 $302
Income taxes................................................ 242 65 69
Non-cash transactions:
Capital lease obligations incurred.......................... 503 376 --
Long-term debt incurred in connection with additions to
equipment.................................................. 82 26 21
Long-term debt issued in connection with the exchange of
Series A convertible preferred stock....................... -- 546 --
Net unrealized gain (loss) on investments................... (1) 4 (3)
Increase (decrease) in pension intangible................... (191) 2 13
Increase in additional capital invested in connection with
the conversion of
subordinated debentures to common stock.................... 217 1 --
Decrease in additional capital invested in connection with
the conversion of subordinated debentures to mandatorily
redeemable preferred securities............................ (102) -- --
</TABLE>

A-37
<PAGE>

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(21) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1996:
Operating revenues................... $3,735 $4,164 $4,488 $3,976 $16,362
Earnings from operations............. 62 398 610 53 1,123
Earnings before extraordinary item... 6 226 347 20 600
Extraordinary loss on early
extinguishment of debt.............. (29) (30) (7) (1) (67)
Net earnings (loss).................. $ (23) $ 196 $ 340 $ 19 $ 533
Per share amounts, primary:
Earnings (loss) before extraordinary
item............................... $(0.32) $ 2.37 $ 3.85 $(0.35) $ 5.96
Extraordinary loss on early
extinguishment of debt............. (0.58) (0.36) (0.08) (0.01) (0.80)
Net earnings (loss)................. $(0.90) $ 2.01 $ 3.77 $(0.36) $ 5.16
Net earnings (loss) per share, fully
diluted............................. $(0.90) $ 1.99 $ 3.77 $(0.36) $ 5.04
1995:
Operating revenues................... $3,334 $3,815 $4,127 $3,667 $14,943
Earnings from operations............. 38 302 467 22 829
Earnings (loss) before extraordinary
item................................ 3 151 243 (19) 378
Extraordinary loss on early
extinguishment of debt.............. -- -- -- (29) (29)
Net earnings (loss).................. $ 3 $ 151 $ 243 $ (48) $ 349
Per share amounts, primary:
Earnings (loss) before extraordinary
item............................... $(0.26) $ 3.00 $ 3.52 $(1.04) $ 5.46
Extraordinary loss on early
extinguishment of debt............. -- -- -- (0.58) (0.46)
Net earnings (loss)................. $(0.26) $ 3.00 $ 3.52 $(1.62) $ 5.00
Net earnings (loss) per share, fully
diluted............................. $(0.26) $ 2.73 $ 3.22 $(1.62) $ 4.78
</TABLE>

The sum of quarterly earnings per share amounts is not the same as annual
earnings per share amounts because of changing numbers of shares outstanding.

A-38
<PAGE>
PROXY

UAL CORPORATION

THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF UAL CORPORATION

The undersigned, having received the Notice of Meeting and Proxy Statement,
hereby appoints Gerald Greenwald, John F. McGillicuddy and James J. O'Connor,
and each of them, as proxies with full power of substitution, for and in the
name of the undersigned, to vote all shares of Common Stock of UAL Corporation
owned of record by the undersigned on the matters listed on the reverse side
hereof and, in their discretion, on such other matters as may properly come
before the Meeting of Stockholders to be held at The National Press Club, 529
14th Street, NW, Washington, DC 20045 on May 21, 1997 at 10:00 a.m., local time,
and any adjournments or postponements thereof, unless otherwise specified
herein.

This card or the telephonic voting procedures, when properly completed, also
constitutes voting instructions to the respective Trustees of the Employees'
Stock Purchase Plan, 401(k) Plans and International Employee Stock Ownership
Plans of UAL Corporation or United Air Lines, Inc. to vote, in person or by
proxy, all shares of Common Stock of UAL Corporation allocated to the accounts
of the undersigned held by the Trustees.

You are encouraged to specify your choices by marking the appropriate oval SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY OVALS IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR
SHARES UNLESS YOU VOTE BY PHONE OR SIGN AND RETURN THIS CARD.

[SEE REVERSE SIDE]

- --------------------------------------------------------------------------------

. FOLD AND DETACH HERE .

DID YOU KNOW...UNITED AIRLINES WON ACCLAIM FROM FREQUENT FLYERS AND TRAVEL
PROFESSIONALS WORLDWIDE IN 1996? OUR AWARDS INCLUDE:

. UNITED AIRLINES: OVERALL ONBOARD SERVICE AWARD - Onboard Services magazine.
United was chosen from 40 airlines worldwide to receive this honor.

. UNITED AIRLINES: BEST TRANSATLANTIC AIRLINE - Executive Travel/OAG poll (in
the U.K.). United is the first U.S. carrier ever to win this prestigious
title.

. MILEAGE PLUS(R): AIRLINE PROGRAM OF THE YEAR - InsideFlyer magazine - for
the third year in a row.

. MILEAGE PLUS: BEST CUSTOMER SERVICE - InsideFlyer magazine.

. MILEAGE PLUS: BEST FREQUENT FLYER PROGRAM - Business Traveler
International.

. UNITED AIRLINES: HEALTHIEST AIRLINE FOOD - Physicians' Committee for
Responsible Medicine - for the second year in a row.

. UNITED AIRLINES INFLIGHT DUTY FREE RETAILER OF THE YEAR - Frontier
magazine.

DID YOU KNOW...THAT 1996 WAS A YEAR FOR THE RECORD BOOKS AT UNITED AIRLINES?

. United took delivery of eight new Boeing 777 aircraft, bringing our fleet
of Boeing 777s to 16 - the largest in the industry.

. More than 15,000,000 customers used our new E-Ticket/SM/ services to
reserve their flights.

. Customers planned 570,131 flights, car rentals and hotel stays using UNITED
CONNECTION(R) software.

. Our luxurious new ARRIVALS(R) facilities in Chicago, London and Miami were
visited by over 700 First and Connoisseur Class(R) customers each month.

. Over 850 TONS OF COFFEE were brewed, and over 74,000,000 MEALS were served,
on United flights worldwide.

. Mileage Plus members donated more than 16,000,000 miles to UNITED-SPONSORED
CHARITIES.

[UNITED AIRLINES LOGO] [UNITED EXPRESS LOGO] [SHUTTLE BY UNITED LOGO]
<PAGE>

UAL CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.

[ ]

This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted "FOR" all of the Board of
Directors' nominees for Public Director and "FOR" Proposal 2. If this card
constitutes voting instructions to a plan trustee, such trustee will vote as
described in the plan documents and any accompanying materials. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Meeting.

For Withhold For All
1. Election of five Public Director nominees: All All Except
John A. Edwardson, Gerald Greenwald,
John F. McGillicuddy, James J. O'Connor,
Paul E. Tierney

For, except vote withheld from the following nominee(s): _______________________

2. Ratification of the For Against Abstain
selection of Arthur
Andersen LLP as the
independent accountants.

Dated:__________________________________, 1997
Signature(s)__________________________________
______________________________________________
Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. The signer hereby revokes all proxies
heretofore given by the signer to vote at said Meeting or any adjournments
or postponements thereof.

- --------------------------------------------------------------------------------

. FOLD AND DETACH HERE .

Telephone Voting Instructions
Dear Stockholders:

Your vote is important to us. We have provided an automated telephone
option for granting your proxy which you may access 24 hours a day by dialing
this toll free number: 1-888-457-2964 (if located within the U.S.) on a touch
tone telephone.

After dialing 1-888-457-2964, you will hear the following instructions:

Please enter your six digit control number which appears directly
above the words "Dear Stockholders."

Please press 1 if you wish to vote for the recommendations of
the Board of Directors.

Please press 9 if you do not wish to vote for the recommendations of
the Board of Directors.

Once this is completed, the telephone option will automatically hang
up and your proxy will be voted as you directed. THERE IS NO NEED FOR YOU TO
MAIL BACK YOUR PROXY CARD.

HOWEVER, if you wish to withhold authority to vote or vote against some,
but not all of the recommendations of the Board of Directors, you must do so by
signing the proxy card above and returning it in the envelope provided.

ESOP participants located within the U.S. should follow the vote by phone
instructions on the ESOP Voting Direction Card.

- --------------------------------------------------------------------------------

. FOLD AND DETACH HERE .

Admission Ticket Meeting of Stockholders
- ---------------- of UAL Corporation
May 21, 1997
10:00 a.m.
[UNITED AIRLINES LOGO] Ballroom
National Press Club
529 14th Street, NW
Washington, D.C.
----------------
_________________________________

You must present this ticket to the UAL Corporation representative at the
entrance to the Ballroom to be admitted to the Meeting of Stockholders.