UAL CORP /DE/, DEF 14A, 1999-03-23

UAL CORP /DE/
DEF 14A, 1999-03-23
AIR TRANSPORTATION, SCHEDULED

Previous: UAL CORP /DE/, S-8, 1999-03-23

Next: SELIGMAN CAPITAL FUND INC, 24F-2NT, 1999-03-23

<PAGE> 1
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 Section 240.14a-11(c) or
Section 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)(1) and 0-11.

1) Title of each class of securities to which transaction applies:
........................................................................

2) Aggregate number of securities to which transaction applies:
........................................................................

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):

........................................................................

4) Proposed maximum aggregate value of transaction:
........................................................................

5) Total fee paid:
........................................................................

[ ] 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.:
........................................................
3) Filing Party:
........................................................
4) Date Filed:
........................................................

<PAGE> 2

UAL CORPORATION LOGO

March 23, 1999

Dear Fellow Owner:

Despite difficult conditions in international markets, 1998 was our sixth
consecutive year to report increased annual earnings per share. The strategy we
developed early in the year to address the weakness in Asia has attributed to
our profitable performance. We believe our experience in 1998 has positioned us
well to manage whatever challenges may lie ahead.

As my tenure at the company comes to a close this year, I'm reminded about
how far we have come since the inception of the ESOP in 1994. Together we have
met the challenges to rise above the rest. We are not there yet, but the road
ahead is bright.

Our Board of Directors joins me in inviting you to attend the 1999 Annual
Meeting of Stockholders. A notice of the meeting and Proxy Statement follows.
You will also find enclosed your proxy or voting direction card and the 1998
annual report. Your vote is important. Please take a moment now to use the
"vote-by-phone" option described on the enclosed proxy or voting direction card,
or sign and return the card even if you plan to attend the meeting. I look
forward to seeing you on May 18.

Sincerely,
/s/ Gerald Greenwald

Gerald Greenwald
<PAGE> 3

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT

DATE: Tuesday, May 18, 1999
TIME: 10:00 a.m.
PLACE: Imperial Ballroom
Hyatt Regency Denver
1750 Welton Street
Denver, CO 80202

MATTERS TO BE VOTED ON:

- Election of the following members of the Board of Directors:

- Five Public Directors, to be elected by holders of Common Stock

- One ALPA Director, to be elected by holders of Class Pilot MEC Junior
Preferred Stock

- One IAM Director, to be elected by holders of Class IAM Junior Preferred
Stock

- One Salaried/Management Employee Director, to be elected by holders of
Class SAM Junior Preferred Stock

- Ratification of appointment of independent public accountants

- Any other matters that may be properly brought before the meeting

Francesca M. Maher
Senior Vice President,
General Counsel and Secretary

Chicago, Illinois
March 23, 1999

IMPORTANT

You are entitled to vote if our records show that you held your shares at
the close of business on March 19, 1999. PLEASE NOTE THAT YOU OR YOUR AUTHORIZED
REPRESENTATIVE MUST HAVE AN ADMISSION TICKET TO ATTEND THE MEETING. THE
ADMISSION TICKET IS LOCATED ON THE LOWER PORTION OF YOUR PROXY OR VOTING
DIRECTION CARD. WE HOPE YOU WILL ATTEND THE MEETING.

Please note that our audited financial statements and certain other
financial information are included as an Appendix to this Proxy Statement. This
Proxy Statement and the proxy or voting direction card are being mailed to you
on or about approximately March 23, 1999.
<PAGE> 4

PROXY STATEMENT

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS..................... 3
Directors to be Elected by Common Stock................... 3
Directors to be Elected by Other Classes of Stock......... 4
Independent Directors..................................... 5
CERTAIN INFORMATION CONCERNING OUR BOARD OF DIRECTORS....... 6
Committees................................................ 6
Compensation Committee Interlocks and Insider
Participation; Certain Relationships and Related
Transactions........................................... 9
Director Compensation..................................... 10
BENEFICIAL OWNERSHIP OF SECURITIES.......................... 11
Certain Beneficial Owners................................. 11
Directors and Executive Officers.......................... 14
UAL CORPORATION RELATIVE MARKET PERFORMANCE................. 15
EXECUTIVE COMPENSATION...................................... 16
UAL Corporation Compensation and Compensation
Administration Committees Report....................... 16
Summary Compensation Table................................ 19
Option/SAR Grants in 1998................................. 20
Aggregated Option/SAR Exercises in 1998 and Fiscal
Year-End Option/SAR Values............................. 21
Pension Plan Table........................................ 21
Employment Contracts and Arrangements..................... 22
PROPOSAL NO. 2 -- APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS............................................... 23
OTHER MATTERS............................................... 23
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 23
SUBMISSION OF STOCKHOLDER PROPOSALS......................... 23
VOTING RIGHTS AND PROXY INFORMATION......................... 23
GENERAL..................................................... 26
APPENDIX.................................................... A-1
</TABLE>

2
<PAGE> 5

PROPOSAL NO. 1

ELECTION OF DIRECTORS

Except where you withhold authority, your proxy will be voted at our 1999
Annual Meeting of Stockholders or any adjournments or postponements thereof 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. Incumbent directors will
hold office until the Annual Meeting and until their successors are elected and
qualified. Our Board of Directors expects all nominees named below to be
available for election. "We", "our", "us" and the "Company" each refers to UAL
Corporation.

DIRECTORS TO BE ELECTED BY COMMON STOCK

PUBLIC DIRECTORS

Five Public Directors are to be elected by the holders of Common Stock, par
value $.01 per share. Each nominee was previously elected by the holders of
Common Stock (other than Mr. Goodwin) and has served continuously as a Public
Director since the date of his election. The term "Public Director" is used as
defined in our Restated Certificate of Incorporation, as amended (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 or
the appropriate Board Committee as required by the Charter. No person other than
our directors 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> <C>
James E. Goodwin (1) President and Chief Operating 54 9/21/98
Officer (9/98) of the Company and
its wholly owned subsidiary,
United Air Lines, Inc. Senior Vice
President -- North America
(1995-9/98) and Senior Vice
President -- International of
United (1992-1995).
- - ------------------------------------------------------------------------------------------------
Gerald Greenwald (1) Chairman and Chief Executive 63 1994
Officer of the Company and United
(1994). Chairman, Tatra Truck
Company, Czech Republic (truck
manufacturing) (1993-1994).
(2) Director, Aetna Inc. and Time
Warner Inc.
- - ------------------------------------------------------------------------------------------------
John F. McGillicuddy (1) Retired Chairman and Chief 68 1984
Executive Officer, Chemical
Banking Corporation (banking and
finance) (1993).
(2) Director, Southern Peru Copper
Corporation, USX Corporation and
Young & Rubicam, Inc.
- - ------------------------------------------------------------------------------------------------
</TABLE>

3
<PAGE> 6

<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
(1) PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NOMINEE (2) OTHER BUSINESS AFFILIATIONS AGE SINCE
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James J. O'Connor (1) Retired Chairman and Chief 62 1984
Executive Officer (1998), Unicom
Corporation (holding company) and
its wholly owned subsidiary,
Commonwealth Edison Company
(supplier of electricity).
Chairman and Chief Executive
Officer, Unicom (1994-1998) and
Commonwealth Edison (1980-1998).
(2) Director, Corning Incorporated,
Everen Capital Corporation,
Scotsman Industries, Smurfit-Stone
Container Corporation and The
Tribune Company.
- - ------------------------------------------------------------------------------------------------
Paul E. Tierney, Jr. (1) Managing Member, Development 56 1990
Capital, LLC (investment
management) (1997). Managing
Director, Gollust, Tierney and
Oliver, Inc. (investment banking)
(1992-1996).
(2) Director, Liz Claiborne, Inc. and
C & B Publishing PLC.
- - ------------------------------------------------------------------------------------------------
</TABLE>

DIRECTORS TO BE ELECTED BY OTHER CLASSES OF STOCK

The following classes of directors are to be elected by the holder of
certain classes of our stock 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 our stock and has
served continuously as a director since the first date of his election. If a
nominee unexpectedly becomes unavailable before election, or we are 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.

ALPA DIRECTOR -- ELECTED BY 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, the holder of our Class
Pilot MEC Junior Preferred Stock ("Class Pilot MEC Stock"). The ALPA-MEC has
nominated and intends to re-elect Michael H. Glawe as the ALPA Director.

4
<PAGE> 7

IAM DIRECTOR -- ELECTED BY CLASS IAM STOCK

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

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

One Salaried/Management Employee Director (as defined in the Charter) is to
be elected by the holders of our Class SAM Junior Preferred Stock ("Class SAM
Stock"), who are Deval L. Patrick, the Salaried/Management Employee Director,
and William P. Hobgood, our Senior Vice President-People. Mr. Patrick 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 us and their effect on salaried and management employees. Under a
Stockholders Agreement among the holders of Class SAM Stock and us, each holder
has agreed to vote in favor of the System Roundtable nominee.

INDEPENDENT DIRECTORS

Four Independent Directors (as defined in the Charter) are elected by the
four Independent Directors as the holders of our Class I Junior Preferred Stock
("Class I Stock"). Each director holds office until the next annual meeting of
stockholders and until his or her successor is elected and qualified, subject to
the director's earlier death, retirement or removal. The Independent Director
Nomination Committee nominates, on behalf of our Board, individuals satisfying
the qualifications for Independent Directors under the Charter to be our Board's
nominees for election by the holders of the Class I Stock to serve as
Independent Directors upon expiration of the term of the Independent Directors
then in office. Under a Stockholders Agreement among the holders of Class I
Stock, us, ALPA and the IAM, the holders of Class I Stock have agreed to vote in
favor of the nominees who are nominated by the Independent Director Nomination
Committee under the Charter. No person, other than the members of the
Independent Director

5
<PAGE> 8

Nomination Committee, is responsible for the naming of nominees. The Independent
Director Nomination Committee has not chosen nominees for the current year at
this time. The Independent Directors are as follows.

<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
(1) PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
INDEPENDENT DIRECTOR (2) OTHER BUSINESS AFFILIATIONS AGE SINCE
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John W. Creighton, Jr. (1) Retired Chief Executive Officer 66 1998
and President (1997), Weyerhaeuser
Company (forest products).
President (1988-1997) and Chief
Executive Officer (1991-1997),
Weyerhaeuser.
(2) Director, Unocal Corporation.
- - ------------------------------------------------------------------------------------------------
Duane D. Fitzgerald (1) Retired Chief Executive Officer 59 1994
(1996), Bath Iron Works
Corporation (shipbuilding).
President (1988-1996) and Chief
Executive Officer (1991-1996),
Bath Iron Works. Vice President of
Bath's parent company, General
Dynamics Corporation (1995-1996).
(2) Director, CMP Group.
- - ------------------------------------------------------------------------------------------------
Richard D. McCormick (1) Chairman (1992), US WEST, Inc. 58 1994
(telecommunications). President
(1986-1998) and Chief Executive
Officer (1991-1998), US WEST.
(2) Director, Wells Fargo Corporation
and United Technologies
Corporation.
- - ------------------------------------------------------------------------------------------------
John K. Van de Kamp (1) President, Thoroughbred Owners of 63 1994
California (trade association)
(1996). Partner, Dewey Ballantine
(law firm) (1991-1996).
(2) Member, Advisory Board, Falcon
Classic Cable Income Properties,
Ltd.
- - ------------------------------------------------------------------------------------------------
</TABLE>

CERTAIN INFORMATION CONCERNING OUR BOARD OF DIRECTORS

Our Board of Directors held a total of twelve meetings in 1998. All
directors attended 75 percent or more of the Board meetings and Board Committee
meetings of which they were members.

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. Set forth

6
<PAGE> 9

below is a brief description of the functions performed, the names of the
committee members and the number of meetings held by each committee during 1998.

<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
MEETINGS
NAME OF COMMITTEE AND MEMBERS FUNCTIONS OF THE COMMITTEE IN 1998
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EXECUTIVE - authorized to exercise the powers 7
of the Board in management of our
Gerald Greenwald, Chairman business and affairs, with certain
Duane D. Fitzgerald exceptions
Michael H. Glawe - responsible for safety and security
Richard D. McCormick oversight for United, periodically
John F. McGillicuddy reviewing Board effectiveness and
John F. Peterpaul overseeing compensation
arrangements for non-employee
directors
- acts as a search committee and
recommends to Board appointment of
a successor CEO (requires 4 votes,
excluding Mr. Greenwald)
- - ------------------------------------------------------------------------------------------
AUDIT - reviews with independent public 2
accountants our annual financial
Duane D. Fitzgerald, Chairman statements prior to publication
John W. Creighton, Jr. - reviews the work of and approves
Richard D. McCormick non- audit services performed by
John F. McGillicuddy independent accountants
James J. O'Connor - makes annual recommendations to the
Paul E. Tierney, Jr. Board for appointment of
John K. Van de Kamp independent public accountants for
the coming year
- reviews the effectiveness of our
financial and accounting functions,
organization, operations and
management
- - ------------------------------------------------------------------------------------------
COMPENSATION - reviews and approves compensation 13
and benefits of our officers
Richard D. McCormick, - reviews general policy matters
Chairman relating to compensation and
Duane D. Fitzgerald benefits of our non-union employees
Michael H. Glawe - administers our equity incentive
Gerald Greenwald compensation plans, except for
James J. O'Connor responsibilities reserved for the
Deval L. Patrick Compensation Administration
John F. Peterpaul Committee
- - ------------------------------------------------------------------------------------------
</TABLE>

7
<PAGE> 10

<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
MEETINGS
NAME OF COMMITTEE AND MEMBERS FUNCTIONS OF THE COMMITTEE IN 1998
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMPENSATION ADMINISTRATION - administers our stock option plans 12
and executive compensation programs
Richard D. McCormick, to the extent these functions
Chairman cannot or are not appropriate to be
Duane D. Fitzgerald performed by the Compensation
James J. O'Connor Committee in light of any provision
of the Internal Revenue Code of
1986, as amended, securities laws
or other applicable laws or
regulations
- oversees evaluation process for CEO
performance
- - ------------------------------------------------------------------------------------------
CAP - oversees implementation of our 2
Competitive Action Plan to improve
Paul E. Tierney, Jr., United's competitiveness on
Chairman short-haul routes under which
John W. Creighton, Jr. United Shuttle(R) was established
Michael H. Glawe - approves on our behalf any
Gerald Greenwald modifications of or amendments to
John F. McGillicuddy the Competitive Action Plan, other
James J. O'Connor than those matters reserved to the
John F. Peterpaul Labor Committee
John K. Van de Kamp - approves modifications or
amendments to Salaried and
Management Employee Investment (as
defined in Charter) (vote must
include two union directors and all
Outside Public Directors, as
defined in Charter)
- - ------------------------------------------------------------------------------------------
LABOR - reviews and approves the entering 6
into of, and modifications and
Gerald Greenwald, Chairman amendments to, collective
Duane D. Fitzgerald bargaining agreements to which we
Paul E. Tierney, Jr. are a party, with certain
exceptions
- - ------------------------------------------------------------------------------------------
INDEPENDENT DIRECTOR - nominates candidates to become 2
NOMINATION Independent Director members of the
Board
John W. Creighton, Jr., - fills vacancies in Independent
Chairman Director positions
Duane D. Fitzgerald - appoints Independent Directors to
Michael H. Glawe serve on Board Committees
Richard D. McCormick - nominations and appointments
Deval L. Patrick require vote of majority of
John F. Peterpaul Independent Directors plus one
John K. Van de Kamp union director
- - ------------------------------------------------------------------------------------------
</TABLE>

8
<PAGE> 11

<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
MEETINGS
NAME OF COMMITTEE AND MEMBERS FUNCTIONS OF THE COMMITTEE IN 1998
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OUTSIDE PUBLIC DIRECTOR - nominates candidates to become 1
NOMINATION Outside Public Director members of
the Board
James J. O'Connor, Chairman - fills vacancies in Outside Public
John F. McGillicuddy Director positions
Paul E. Tierney, Jr. - appoints Outside Public Directors
to serve on Board Committees
- considers nominees you recommend if
submitted in writing to the
Committee Chairman at UAL
Corporation,
P. O. Box 66919, Chicago, IL 60666.
Qualification requirements are
specified in the Charter
- - ------------------------------------------------------------------------------------------
PENSION AND WELFARE PLANS - oversees our compliance with laws 2
OVERSIGHT governing employee benefit plans
that we maintain
John K. Van de Kamp, Chairman
John W. Creighton, Jr.
Michael H. Glawe
James E. Goodwin
James J. O'Connor
Deval L. Patrick
John F. Peterpaul
- - ------------------------------------------------------------------------------------------
TRANSACTION - evaluates and advises the Board on 0
any proposed merger or
John F. McGillicuddy, consolidation of us with or into,
Chairman the sale, lease or exchange of all
John W. Creighton, Jr. or substantially all of our
Duane D. Fitzgerald property or assets to, or a
Richard D. McCormick significant business transaction
James J. O'Connor with, any Labor Affiliate (as
Paul E. Tierney, Jr. defined in the Charter)
John K. Van de Kamp
- - ------------------------------------------------------------------------------------------
</TABLE>

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 ours. Mr. Glawe is also the Chairman of the ALPA-MEC and an officer
of ALPA. We and ALPA are parties to a collective bargaining agreement for our
pilots represented by ALPA.

9
<PAGE> 12

DIRECTOR COMPENSATION

We do not pay directors who are employees of the Company additional
compensation for their services as directors. In 1998, compensation for
non-employee directors included the following:

- annual retainer of $18,000

- $900 for each Board and Board committee meeting attended

- annual retainer of $2,700 to committee chairmen (other than chair of
Compensation Administration Committee)

- expenses of attending Board and committee meetings

- 400 shares of Common Stock each year

- 189 deferred stock units representing Common Stock each year

Under Stock Ownership Guidelines, our directors are to keep the 400 shares
above throughout their tenure on the Board. They may also elect to receive all
or some of their cash retainer and fees in Common Stock, as well as defer their
stock and cash compensation for tax purposes. All deferred credits are unfunded
and are not settled until after the director leaves the Board.

We consider it important for our directors to understand our business and
have exposure to our operations and employees. For this reason, we provide free
transportation and free cargo shipment on United to each of our directors and
their spouse and eligible dependent children. We reimburse our directors for
income taxes resulting from actual use of the travel and shipment privileges. A
director who was a director upon our change in control on July 12, 1994 is
entitled to continue the travel and cargo benefits for life. The cost of this
policy in 1998 for each director, including cash payments made in February 1999
for income tax liability, was as follows:

<TABLE>
<CAPTION>
NAME COST($) NAME COST($)
---- ------- ---- -------
<S> <C> <C> <C>
John W. Creighton, Jr. ...... 1,060 John F. McGillicuddy......... 34,931
Duane D. Fitzgerald.......... 18,358 James J. O'Connor............ 42,492
Michael H. Glawe............. 1,874 Deval L. Patrick............. 31,138
James E. Goodwin............. 4,836 John F. Peterpaul............ 6,496
Gerald Greenwald............. 13,579 Paul E. Tierney, Jr. ........ 90,517
Richard D. McCormick......... 43,903 John K. Van de Kamp.......... 30,073
</TABLE>

10
<PAGE> 13

BENEFICIAL OWNERSHIP OF SECURITIES

CERTAIN BENEFICIAL OWNERS

The following table shows the number of shares of our voting securities
beneficially owned by any person or group known to us as of March 19, 1999, to
be the beneficial owner of more than five percent (5%) of any class of our
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 45,571,457(1) 46.6%
Trustee Class P ESOP Voting Junior Preferred Stock 4,533,933(1) 100%
225 Franklin Street Class M ESOP Voting Junior Preferred Stock 3,786,510(1) 100%
Boston, MA 02110 Class S ESOP Voting Junior Preferred Stock 1,688,312(1) 100%

AXA Conseil Vie Assurance Mutuelle Common Stock 7,392,447(2) 13.9%
100-101 Terrasse Boieldieu
92042 Paris La Defense France
AXA Assurances I.A.R.D. Mutuelle
AXA Assurances Vie Mutuelle
21, rue de Chateaudun
75009 Paris France
AXA Courtage Assurance Mutuelle
26, rue Louis le Grand
75002 Paris France
AXA
9 Place Vendome
75001 Paris France
The Equitable Companies Incorporated
1290 Avenue of the Americas
New York, NY 10104

Oppenheimer Capital Common Stock 6,327,625(3) 10.8%
Oppenheimer Tower
World Financial Center
New York, NY 10281

United Airlines Pilots Class Pilot MEC Stock 1(4) 100%
Master Executive Council
Air Line Pilots Association,
International
6400 Shafer Court, Suite 700
Rosemont, IL 60018
</TABLE>

11
<PAGE> 14

<TABLE>
<CAPTION>
AMOUNT
AND NATURE PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP CLASS
------------------- ------------------------------------------ ------------- --------
<S> <C> <C> <C>
International Association of Class IAM Stock 1(5) 100%
Machinists and Aerospace Workers
District #141
9000 Machinists Place
Upper Marlboro, MD 20772

Deval L. Patrick Class SAM Stock 2(6) 66.67%
c/o Texaco Inc.
2000 Westchester Avenue
White Plaines, NY 10650

William P. Hobgood Class SAM Stock 1(6) 33.33%
Senior Vice President-People
United Airlines
P.O. Box 66100
Chicago, IL 60666

John W. Creighton, Jr. Class I Stock 1(7) 25%
1000 Second Avenue
Suite 3700
Seattle, WA 98104

Duane D. Fitzgerald Class I Stock 1(7) 25%
c/o UAL Corporation
P.O. Box 66919
Chicago, IL 60666

Richard D. McCormick Class I Stock 1(7) 25%
US WEST, Inc.
3200 Cherry Creek South Drive
Denver, CO 80209

John K. Van de Kamp Class I Stock 1(7) 25%
c/o Dewey Ballantine
333 S. Hope Street
Los Angeles, CA 90071
</TABLE>

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

(1) Based on Schedule 13G dated February 12, 1999, in which reporting person
reported that as of December 31, 1998, (a) as trustee under the ESOP (the
"ESOP Trustee"), it had shared voting power over 4,533,933 shares of Class P
ESOP Voting Junior Preferred Stock ("Class P Voting Stock") representing
25.4% of our voting power, 3,786,510 shares of Class M ESOP Voting Junior
Preferred Stock ("Class M Voting Stock") representing 20.4% of our voting
power, and 1,688,312 shares of Class S ESOP Voting Junior Preferred Stock
("Class S Voting Stock," and with the Class P Voting Stock and Class M
Voting Stock, the "Voting Preferred Stocks") representing 9.2% of our voting
power, and shared dispositive power over 10,451,370 shares of Class 1 ESOP
Convertible Preferred Stock and 867,322 shares of Class 2 ESOP Convertible
Preferred Stock, each convertible into quadruple that number of shares of
Common Stock ("Shares"), as well as 4,003 Shares issuable upon conversion of
the Voting Preferred Stocks, and (b) as trustee or discretionary advisor for
various collective investment funds and other employee benefit plans and
other

12
<PAGE> 15

index accounts, it had sole dispositive power over 150,144 Shares and sole
voting power over 142,544 of the 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/A (Amendment No. 9) dated February 10, 1999 in which
AXA Conseil Vie Assurance Mutuelle, AXA Assurances I.A.R.D. Mutuelle, AXA
Assurances Vie Mutuelle, and AXA Courtage Assurance Mutuelle, as a group,
AXA and The Equitable Companies Incorporated reported, as of December 31,
1998, sole voting power for 3,223,520 of the Shares, shared voting power for
1,641,600 of the Shares, and sole dispositive power for 7,392,447 Shares.

(3) Based on Schedule 13G/A (Amendment No. 1) dated February 9, 1999, in which
reporting person, on behalf of itself and/or certain investment advisory
clients or discretionary accounts, reported shared voting and dispositive
power for all the Shares.

(4) 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.

(5) 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.

(6) 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.

(7) Shares elect four Independent Directors and do not vote on other matters
except as required by law.

The foregoing information in footnotes (1) through (3) is based on our
review, as of March 19, 1999, of statements filed with the SEC under Sections
13(d) and 13(g) of the Securities Exchange Act of 1934.

13
<PAGE> 16

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 19, 1999,
by each director, nominee for director and executive officer included in the
Summary Compensation Table, and by all of our directors and executive officers
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 the owner). Certain of our directors
and executive officers also beneficially own shares of various other classes of
our preferred stock as shown above.

<TABLE>
<CAPTION>
VOTING
OPTIONS PREFERRED
COMMON STOCK DEFERRED EXERCISABLE STOCK
NAME OF DIRECTOR OR BENEFICIALLY STOCK WITHIN PERCENT BENEFICIALLY PERCENT
EXECUTIVE OFFICER AND GROUP OWNED(1) UNITS(2) 60 DAYS OF CLASS OWNED(3) OF CLASS
- - --------------------------- ------------ -------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
John W. Creighton, Jr..... 2,136 720 0 * 0
Duane D. Fitzgerald....... 0 5,428 0 * 0
Michael H. Glawe.......... 0 0 0 3,816 *
James E. Goodwin.......... 39,306 0 140,187 * 4,603 *
Gerald Greenwald.......... 256,177 0 853,774 2.2 12,341 *
Richard D. McCormick...... 2,198 4,679 0 * 0
John F. McGillicuddy...... 2,600 5,108 0 * 0
James J. O'Connor......... 5,400 1,960 0 * 0
Deval L. Patrick.......... 0 1,466 0 * 0
John F. Peterpaul......... 2,000 635 0 * 0
Paul E. Tierney, Jr....... 35,816 2,353 0 * 0
John K. Van de Kamp....... 0 2,623 0 * 0
Douglas A. Hacker......... 37,578 0 156,149 * 5,400 *
Stuart I. Oran............ 24,325 0 82,249 * 5,518 *
Andrew P. Studdert........ 14,760 0 45,024 * 2,525 *
Directors and Executive
Officers as a Group
(20 persons)............ 484,546 24,972 1,584,993 4.1 46,216 2.1
</TABLE>

- - -------------------------
* Less than 1%

(1) This number includes for (a) Mr. Goodwin, 10,000 shares held indirectly by
his wife, (b) Mr. Greenwald, 6,684 shares held indirectly by his wife and
1,043 shares held indirectly by a United 401(k) plan (calculated as of
December 31, 1998), and (c) the directors and executive officers as a group,
4,320 shares held indirectly by a spouse and 85 shares held in a 401(k) plan
(calculated as of December 31, 1998). You have to add the first three
columns of this table to get the total number of shares beneficially owed.

(2) Reflects beneficial ownership of Common Stock represented by deferred stock
units under the UAL Corporation 1995 Directors Plan. All directors have
deferred receipt of Common Stock under this plan until retirement from the
Board.

(3) Reflects beneficial ownership through the ESOP of (a) Class P Voting Stock
for Mr. Glawe, and (b) Class S Voting Stock for Messrs. Goodwin, Greenwald,
Hacker, Oran and Studdert, and for directors and executive officers as a
group. No director or executive officer other than Mr. Glawe beneficially
owns shares of Class P Voting Stock.

14
<PAGE> 17

Notwithstanding anything to the contrary in any of our previous filings
under the Securities Act of 1933 or the Securities Exchange Act that might
incorporate part or all future filings, including this Proxy Statement, the
performance graph below and report on the next page shall not be incorporated by
reference into any of the filings.

UAL CORPORATION
RELATIVE MARKET PERFORMANCE
TOTAL RETURN 1994-1998
[PERFORMANCE CHART]

<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UAL Corp. 100 83.25 170.07 238.19 352.52 227.47
S&P 500 Index 100 101.32 139.40 171.40 228.59 293.91
D-J Airline Group(1) 100 66.83 96.82 107.32 179.02 175.00
- - -----------------------------------------------------------------------------------------------------
</TABLE>

Source: Compustat Database
- - -------------------------
(1) Alaska Air, AMR, Delta, Southwest, USAirways

15
<PAGE> 18

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 it 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 less than at other large domestic air
carriers, which include the three largest of the five carriers in the Relative
Market Performance Graph on the preceding page. Base salaries also are
substantially less than other companies in general industry of comparable size.
Consistent with salary increases awarded to management employees under the terms
of the ESOP (the "Midterm Adjustment"), officers were awarded increases from a
total officer salary increase pool of 4% in July 1998. In determining the
amounts of the increases, the size of the pool, individual performance and
competitive salary relationships were taken into account.

Annual incentive compensation provides an opportunity for additional
earnings. 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 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.

16
<PAGE> 19

The normal stock compensation program is comprised entirely of annual stock
options. While there are no specific target award levels or weighting of factors
considered in determining stock grants, 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
Securities Exchange Act pursuant to Rule 16b-3 or Section 162(m) qualified
grants). 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 vest 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, 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 for a limited number of United employees in
response to compelling business requirements, such as for recruitment or
retention of key management employees.

STOCK OWNERSHIP GUIDELINES

To encourage accumulation and retention of Common Stock by 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; Senior Vice Presidents,
two times; and Vice Presidents, one times. Furthermore, officers are also
expected to retain a portion of the stock received upon exercise of options or
vesting of restricted stock awards until the value of their holdings equals or
exceeds double the specified minimums. 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 in a five year
Employment Agreement negotiated by Mr. Greenwald with ALPA and the IAM in 1994.
As part of the Midterm Adjustment, Mr. Greenwald's annual base salary increased
4% in July 1998 to $719,463. In determining the amount of the increase, the size
of the pool,

17
<PAGE> 20

Mr. Greenwald's performance and competitive salary relationships were taken into
account. A non-guaranteed target bonus of $725,000 per year has also been
established under the Employment Agreement, which was paid to Mr. Greenwald in
1999 (in Common Stock) since his 1998 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 (1) airline industry trends and (2) the Company's cumulative
profitability since July 12, 1994. 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
1998 and February 1999 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 EXECUTIVE OFFICERS

As part of the Midterm Adjustment, the other named executive officers were
awarded increases in July 1998 from a total officer salary increase pool of 4%.
In determining the amounts of the increases, the size of the pool, individual
performance and competitive salary relationships were taken into account. In
1999 each of the named executive officers received an incentive compensation
award for 1998 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. Each such officer
received a stock option grant in 1998 and February 1999 subject to the Company's
normal vesting schedule, in full compliance with Section 162(m) of the Internal
Revenue Code.

In 1998 Mr. Goodwin received an increase in base salary and a stock option
grant as a result of his promotion to President and Chief Operating Officer.

SEVERANCE AGREEMENTS

In 1998 the Company and United entered into new severance agreements with
officers (other than Mr. Greenwald) to encourage retention and continuing high
performance while minimizing potential distractions and concerns that can
accompany a change in CEO. The Compensation Committee believed it was important
to take steps to maintain a stable management team during the transition to a
new CEO when Mr. Greenwald retires, as expected later this year.

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

<TABLE>
<S> <C>
Richard D. McCormick, Chairman James J. O'Connor
Duane D. Fitzgerald Deval L. Patrick
Michael H. Glawe John F. Peterpaul
Gerald Greenwald
</TABLE>

UAL CORPORATION COMPENSATION ADMINISTRATION COMMITTEE

<TABLE>
<S> <C>
Richard D. McCormick, Chairman James J. O'Connor
Duane D. Fitzgerald
</TABLE>

18
<PAGE> 21

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------- -------------------------
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($)(1)
- - --------------------- ---- ------- ------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Greenwald............ 1998 697,629 725,000 79,723(2) 0 91,550 205,322
1997 670,490 725,000 94,839(2) 0 47,550 427,048
1996 657,184 725,000 103,548(2) 0 132,000 350,169

Goodwin.............. 1998 306,374 309,500 4,586 0 49,500 76,963
1997 249,712 183,391 904 0 15,250 108,597

Oran................. 1998 328,927 284,600 9,001 0 34,850 120,116
1997 316,199 280,755 9,001 0 16,150 176,120
1996 310,255 280,755 9,001 0 50,000 138,715

Hacker............... 1998 311,449 227,400 9,001 0 32,150 85,301
1997 299,470 220,000 10,333 0 15,250 122,116
1996 293,600 220,000 9,522 0 46,000 85,530

Studdert............. 1998 240,514 186,200 6,135 0 24,150 63,809
</TABLE>

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

<TABLE>
<S> <C> <C>
Greenwald = Gerald Greenwald, Chairman and Chief Executive Officer
Goodwin = James E. Goodwin, President and Chief Operating Officer
Oran = Stuart I. Oran, Senior Vice President -- International of United
Hacker = Douglas A. Hacker, Senior Vice President and Chief Financial Officer
Studdert = Andrew P. Studdert, Senior Vice President -- Fleet Operations of United
</TABLE>

- - -------------------------
(1) Amounts include value of shares of ESOP preferred stock allocated to the
officer's account for 1998, 1997 and 1996 as follows, based upon the
applicable 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, $105,826, $309,598, $221,797; Mr. Goodwin,
$66,253, $97,958 (1998 and 1997 only); Mr. Oran, $80,936, $131,350; $92,303;
Mr. Hacker, $71,625, $115,163, $81,006; and Mr. Studdert, $52,764 (1998
only). Balance represents compensation for split dollar insurance program
premiums.

(2) Amount includes $42,120 in 1998, $41,868 in 1997 and 1996 for term life
insurance benefits and $20,024 in 1998, $15,000 in 1997 and 1996 for
automobile benefits.

19
<PAGE> 22

OPTION/SAR GRANTS IN 1998

The following table sets forth information concerning stock options we
granted during 1998 to the named executive officers. The hypothetical present
values of stock options granted in 1998 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. YOU WOULD ALSO BENEFIT FROM AN INCREASE IN THE MARKET PRICE OF COMMON
STOCK.

<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO EXERCISE HYPOTHETICAL
UNDERLYING EMPLOYEES OR BASE PRESENT VALUE AT
OPTIONS/SARS IN FISCAL PRICE EXPIRATION DATE OF GRANT
NAME GRANTED(1) YEAR ($/SH) DATE $(2)
---- ------------ ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Gerald Greenwald....... 91,550 8.6 83.3235 5/5/08 2,621,992
James E. Goodwin....... 29,500 2.8 83.3125 5/5/08 844,880
20,000 1.9 68.0625 9/20/08 467,800
Stuart I. Oran......... 34,850 3.3 83.3125 5/5/08 998,104
Douglas A. Hacker...... 32,150 3.0 83.3125 5/5/08 920,776
Andrew P. Studdert..... 24,150 2.3 83.3125 5/5/08 691,656
</TABLE>

- - -------------------------
(1) All options become exercisable in four equal annual installments commencing
May 6, 1999, one year from the date of grant, with the exception of Mr.
Goodwin's option granted September 21, 1998, which becomes exercisable on
September 21, 1999, one year from date of grant.

(2) To realize hypothetical present values upon the exercise of the options, the
market price would have increased from $83.3125 to $111.95 and $68.0625 to
$91.45 for the May 6, 1998 and September 21, 1998 grants, respectively. 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 forty-six month period ending
May 1998, the estimated average holding 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 -- .33, holding
period --4 years, interest rate -- 5.6%, and dividend yield -- 0.00%.

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

20
<PAGE> 23

AGGREGATED OPTION/SAR EXERCISES IN 1998
AND FY-END OPTION/SAR VALUES(1)

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES VALUE OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON REALIZED AT FY-END (#) AT FY-END($)
NAME EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gerald Greenwald..... N/A N/A 797,887/273,213 27,162,819/3,382,851
James E. Goodwin..... N/A N/A 122,812/ 80,938 4,342,693/ 124,350
Stuart I. Oran....... 17,548 1,419,593 61,037/ 71,963 1,344,436/ 155,438
Douglas A. Hacker.... 5,054 1,034,703 136,612/ 66,588 4,283,379/ 143,003
Andrew P. Studdert... N/A N/A 24,237/ 57,863 394,066/ 394,066
</TABLE>

- - -------------------------
(1) Each option granted prior to July 12, 1994 is exercisable for two shares of
Common Stock and $84.81 in cash (after adjustment for the four-for-one stock
split in 1996). Value of those options includes the cash amount deliverable
upon exercise.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
FINAL YEARS OF PARTICIPATION
AVERAGE -------------------------------------------------------------------
PAY 15 20 25 30 35 40
------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000........... $ 48,000 $ 64,000 $ 80,000 $ 96,000 $ 112,000 $ 128,000
400,000........... 96,000 128,000 160,000 192,000 224,000 256,000
600,000........... 144,000 192,000 240,000 288,000 336,000 384,000
800,000........... 192,000 256,000 320,000 384,000 448,000 512,000
1,000,000........... 240,000 320,000 400,000 480,000 560,000 640,000
1,200,000........... 288,000 384,000 480,000 576,000 672,000 768,000
1,400,000........... 336,000 448,000 560,000 672,000 784,000 896,000
1,600,000........... 384,000 512,000 640,000 768,000 896,000 1,024,000
1,800,000........... 432,000 576,000 720,000 864,000 1,008,000 1,152,000
2,000,000........... 480,000 640,000 800,000 960,000 1,120,000 1,280,000
</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).
The retirement benefit amount is not offset by the participant's social security
benefit. Compensation used in calculating benefits under the plan includes base
salary and amounts shown as bonus in the Summary Compensation Table. If actual
base salary is below the pre-July 12, 1994 base salary rate, base salary is
adjusted to the pre-July 12, 1994 base salary rate. Under the qualified plan,
years of participation for persons named in the cash compensation table are as
follows: Mr. Greenwald -- 4 years; Mr. Goodwin -- 31 years; Mr. Oran -- 4 years;
Mr. Hacker -- 5 years and Mr. Studdert -- 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.

21
<PAGE> 24

The Employment Agreement entitles Mr. Greenwald to an annual pension equal
to the greater of the pension that would accrue under our 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.

We agreed to supplement Mr. Oran's benefit under the qualified pension
plans by granting him credit for additional years of service -- 20 years. In
addition, we agreed to waive the service requirement for benefit vesting under
the qualified pension plan for Mr. Oran and to impose no decrement to the
pension benefit based on age at retirement for Mr. Oran. We also agreed to
supplement Mr. Hacker's benefit by granting him credit for one additional year
of service.

EMPLOYMENT CONTRACTS AND ARRANGEMENTS

Mr. Greenwald's Employment Agreement provides that the options and
restricted stock received by Mr. Greenwald upon commencement of employment vest
on any termination of Mr. Greenwald's employment other than termination by us
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." Other terms of the Employment
Agreement are described in the "CEO Compensation" paragraph of the Compensation
and Compensation Administration Committees Report.

If Mr. Greenwald's employment is terminated by us without "cause" or by him
for "good reason," a base salary of $725,000 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,
we 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.

Each of the proxy-named officers (other than Mr. Greenwald) is party to a
Severance Agreement with the Company and United that provides for certain
benefits if the executive's employment with United is (1) involuntarily
terminated without "cause" (as defined in the agreement), or (2) constructively
terminated due to, among other things, a substantial adverse alteration of the
nature or status of the officer's responsibilities or a reduction in
compensation or benefits. Upon termination, the officer will be entitled to
receive (1) two years base salary and bonus continuation, (2) benefits
continuation for the term, and (3) retirement status under outstanding stock
option grants. The term of the agreement is two years. The Severance Agreements
terminate on the later of October 6, 2000 or 18 months after the date the
successor to Mr. Greenwald as CEO takes office.

22
<PAGE> 25

PROPOSAL NO. 2

APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

Our Board, at the recommendation of the Audit Committee, has appointed,
subject to your approval, the firm of Arthur Andersen LLP as independent public
accountants, to examine our financial statements for 1999. 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 you
do not approve the appointment of Arthur Andersen LLP, our Board will reconsider
the selection of independent public accountants.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE APPOINTMENT
OF ARTHUR ANDERSEN LLP AS OUR INDEPENDENT PUBLIC ACCOUNTANTS FOR 1999.

OTHER MATTERS

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

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

A Form 4 for three transactions in November 1998 for Stuart Oran was
inadvertently filed late in December 1998. We (and not the Section 16 officers)
take responsibility for making these filings.

SUBMISSION OF STOCKHOLDER PROPOSALS

The deadline for submitting stockholder proposals for inclusion in next
year's proxy statement and proxy card for our Annual Meeting in 2000 is November
23, 1999. Proposals must be submitted to the Secretary, Francesca M. Maher, UAL
Corporation, P.O. Box 66919, Chicago, Illinois 60666 and must comply with the
SEC rules. If we do not receive notice of any other matter that you wish to
raise at the Annual Meeting in 2000 on or before February 6, 2000 and a matter
is raised at that meeting, then the SEC rules permit the individuals named in
the proxies solicited by the Board for that meeting to exercise discretionary
voting power to vote on the matter.

VOTING RIGHTS AND PROXY INFORMATION

This Proxy Statement is furnished in connection with the solicitation of
proxies by and on behalf of our Board of Directors at the Annual Meeting to be
held on Tuesday, May 18, 1999. Our Board has fixed the close of business on
March 19, 1999, as the record date for determining the holders of our capital
stock who are entitled to notice of and to vote at the Annual Meeting. The
following chart identifies the number of shares of each class of our voting
stock outstanding as of the record date, the number of holders of each class as
of the record date entitled to vote at the Annual Meeting, the aggregate and per

23
<PAGE> 26

share votes for shares of each class for all matters on which the shares vote,
and the class of directors, if any, with respect to which each class of stock is
entitled to vote:

<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
AGGREGATE VOTES
SHARES NUMBER PER VOTING FOR
TITLE OF CLASS OUTSTANDING OF VOTES HOLDERS OF RECORD SHARE DIRECTORS
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock 51,502,382 51,502,382 13,789 1 Class elects 5
Public
Directors
- - -----------------------------------------------------------------------------------------------------------------
Class P Voting Stock 5,932,489 29,100,562.58 1 (ESOP Trustee) 4.91 --
- - -----------------------------------------------------------------------------------------------------------------
Class M Voting Stock 4,915,896 23,372,353.20 1 (ESOP Trustee) 4.75 --
- - -----------------------------------------------------------------------------------------------------------------
Class S Voting Stock 2,190,825 10,474,440 1 (ESOP Trustee) 4.78 --
- - -----------------------------------------------------------------------------------------------------------------
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 1 Class elects
and Senior Vice 1 SAM Director
President-People)
- - -----------------------------------------------------------------------------------------------------------------
Class I Stock 4 4 4 (Independent 1 Class elects
Directors) 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 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 Annual 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

24
<PAGE> 27

shares of all such classes outstanding at the record date is necessary to
constitute a quorum at the Annual 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.

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
Annual Meeting for the election of director(s) of such class.

Under the Delaware General Corporation Law and the Charter (1) the
affirmative vote of the holders of the shares of capital stock present in person
or by proxy at the Annual 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 (2) the affirmative vote of the holders
of the shares of capital stock representing a majority of the votes present in
person or by proxy at the Annual Meeting and entitled to be cast on the matter
will be required to approve the appointment of Arthur Andersen LLP.

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. 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 Annual Meeting in accordance with the instructions indicated by
such proxy. Our Board 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
Annual 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 Annual Meeting for action, including without
limitation any proposal to adjourn the Annual Meeting or concerning the conduct
of the Annual Meeting.

Abstentions will have the effect of a vote against the ratification of the
appointment of Arthur Andersen LLP and any other matters presented for a vote of
the stockholders (other than the election of directors). This is because
abstaining shares are considered present and unvoted, which means they have the
same effect as votes against the matter. Abstentions have no effect on the
election of directors. Broker non-votes will have no effect on the outcome of
the vote on any of the matters presented for your vote and will not be counted
for purposes of establishing a quorum.

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

Any proxy may be revoked by the person giving it at any time before it is
voted. We have not established any specified formal procedure for revocation. A
proxy may be revoked by a later proxy delivered using the telephone voting
procedures or by mail to the Secretary. A proxy may also be revoked by written
notice of revocation mailed to the Secretary. Attendance at the Annual Meeting
will not automatically revoke a proxy, but a holder of Common Stock in
attendance may request a ballot and vote in person, which revokes a prior
granted proxy.

25
<PAGE> 28

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.
Other requests for proxies or voting direction from brokers, trustees or
fiduciaries should be processed as described in the accompanying materials.

GENERAL

A copy of our summary Annual Report for the year ended December 31, 1998,
has been mailed to you on or about March 23, 1999. Our audited financial
statements, along with certain other financial information, are included in the
Appendix to this Notice of Annual Meeting and Proxy Statement. Additional copies
of the summary 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
our Secretary. A COPY OF OUR FORM 10-K TO THE SEC 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 us. 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 we may reimburse these custodians, nominees and fiduciaries
for their reasonable expenses. To assure the presence in person or by proxy of
the largest number of stockholders possible, we have engaged Georgeson to
solicit proxies on our behalf. We are paying them a proxy solicitation fee of
$7,500 and reimbursing them for reasonable out-of-pocket expenses.

IF YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU 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 OR VOTING
DIRECTION CARD FOR PROCEDURES TO VOTE BY TELEPHONE OR MAIL.

26
<PAGE> 29

APPENDIX

UAL CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED FINANCIAL STATEMENTS AND RELATED FINANCIAL INFORMATION

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Financial Data and Operating Statistics............ A-2
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. A-3
Quantitative and Qualitative Disclosures About Market
Risk...................................................... A-16
Report of Independent Public Accountants.................... A-18
Statements of Consolidated Operations....................... A-19
Statements of Consolidated Financial Position............... A-20
Statements of Consolidated Cash Flows....................... A-22
Statements of Consolidated Stockholders' Equity............. A-23
Notes to Consolidated Financial Statements.................. A-24
</TABLE>

A-1
<PAGE> 30

SELECTED FINANCIAL DATA AND OPERATING STATISTICS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AND RATES)
<S> <C> <C> <C> <C> <C>
Operating revenues.................................... $17,561 $17,378 $16,362 $14,943 $13,950
Earnings before extraordinary item and
cumulative effect of accounting
changes............................................. 821 958 600 378 77
Extraordinary loss on early
extinguishment of debt, net of tax.................. -- (9) (67) (29) --
Cumulative effect of accounting changes,
net of tax.......................................... -- -- -- -- (26
Net earnings.......................................... 821 949 533 349 51
Per share amounts, diluted:
Earnings before extraordinary item and
cumulative effect of accounting
changes.......................................... 6.83 9.04 5.85 5.23 0.19
Extraordinary loss on early
extinguishment of debt........................... -- (0.09) (0.79) (0.41) --
Cumulative effect of accounting
changes.......................................... -- -- -- -- (0.34
Net earnings (loss)................................. 6.83 8.95 5.06 4.82 (0.15
Total assets at year-end.............................. 18,559 15,464 12,677 11,641 11,764
Long-term debt and capital lease
obligations, including current portion,
and redeemable preferred stock...................... 5,345 4,278 3,385 4,102 4,077
Revenue passengers.................................... 87 84 82 79 74
Revenue passenger miles............................... 124,609 121,426 116,697 111,811 108,299
Available seat miles.................................. 174,008 169,110 162,843 158,569 152,193
Passenger load factor................................. 71.6% 71.8% 71.7% 70.5% 71.2%
Breakeven passenger load factor....................... 64.9% 66.0% 66.0% 66.1% 68.2%
Passenger revenue per passenger mile (in cents)....... 12.4 12.6 12.4 11.8 11.3
Operating revenue per available seat
mile (in cents)..................................... 10.1 10.3 10.0 9.4 9.1
Operating expense per available seat
mile (in cents)..................................... 9.2 9.5 9.3 8.9 8.8
Operating expense per available seat mile
excluding ESOP charges (in cents)................... 8.8 8.9 8.9 8.6 8.6
Fuel gallons consumed................................. 3,029 2,964 2,883 2,822 2,697
Average price per gallon of jet fuel(in cents)........ 59.0 69.5 72.2 59.5 58.8
</TABLE>

A-2
<PAGE> 31

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
referenced in the forward-looking statements are listed in the last paragraph of
the section, "Outlook for 1999."

On July 12, 1994, the stockholders 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 in the ESOPs is less than 55%. The entire
ESOP voting interest is currently exercisable, which is voted by the ESOP
trustee at the direction of, and on behalf of, the holders of the ESOP stock.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY --

UAL's total of cash and cash equivalents and short-term investments was
$815 million at December 31, 1998, compared to $845 million at December 31,
1997. Operating activities during the year generated $3.194 billion. Cash was
used primarily to fund net additions to property and equipment and to repurchase
common stock.

Property additions, including aircraft, aircraft spare parts, facilities
and ground equipment, amounted to $2.832 billion, while property dispositions
resulted in proceeds of $452 million. In 1998, United took delivery of ten A320,
sixteen A319, four B777, two B757, four B767 and five B747 aircraft. Thirty-four
of these aircraft were purchased and seven were acquired under capital leases.
Eight of the aircraft purchased during the year were later sold and then leased
back under capital leases. Additionally, United acquired six B727 and three
DC10-10 off-lease during 1998 and retired twenty-eight B737, five B747 and six
DC10-10 aircraft.

Consistent with a plan announced earlier in the year, the Company made
payments of $459 million for the repurchase of 7.1 million shares of common
stock. In January 1999, the Company completed its repurchase of up to $500
million of the Company's common stock after acquiring a total of 7.7 million
shares. Financing activities also included principal payments under debt and
capital lease obligations of $271 million and $322 million, respectively and
$154 million in aircraft lease deposits with certain banks in connection with
the financing of capital lease transactions. Additionally, the Company issued
$928 million in debt and used part of the proceeds to purchase $693 million in
equipment certificates under Company operating leases.

Included in cash and cash equivalents at December 31, 1998 were $142
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 at the end of the contract.

As of December 31, 1998, UAL had a working capital deficit of $2.760
billion as compared to $2.300 billion at December 31, 1997. Historically, UAL
has operated with a working capital deficit and, as in the past, UAL expects to
meet all of its obligations as

A-3
<PAGE> 32

they become due. In addition, UAL may from time to time repurchase on the open
market, in privately negotiated purchases or otherwise, its debt and equity
securities.

United has available a $750 million revolving credit facility, as well as a
separate $227 million short-term borrowing facility, as described in Note 8
"Short-Term Borrowings" in the Notes to Consolidated Financial Statements.

PRIOR YEARS. Operating activities in 1997 generated cash flows of $2.567
billion and the Company's sale of its interest in the Apollo Travel Services
Partnership provided $539 million in cash proceeds (see "Sale of Affiliate").
Cash was used primarily to fund net additions to property and equipment of
$2.812 billion and to repurchase common stock in the amount of $250 million.
Financing activities also included the early extinguishment of $151 million in
principal amount of various debt securities, mandatory repayments of long-term
debt totaling $136 million and payments under capital leases of $147 million. In
addition, the Company made $112 million in aircraft lease deposits with certain
banks in connection with the financing of certain aircraft acquired under
capital lease transactions and issued $597 million of enhanced pass through
certificates.

Operating activities in 1996 generated cash flows of $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 the reacquisition of UAL's Series B
preferred stock and aircraft lease deposits of $110 million with certain banks
in connection with the financing of certain capital lease transactions. Net
property additions amounted to $1.483 billion.

CAPITAL COMMITMENTS --

At December 31, 1998, commitments for the purchase of property and
equipment, principally aircraft, approximated $6.8 billion, after deducting
advance payments. Of this amount, an estimated $2.7 billion is due to be spent
in 1999. For further details, see Note 18 "Commitments, Contingent Liabilities
and Uncertainties" in the Notes to Consolidated Financial Statements.

CAPITAL RESOURCES --

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

At December 31, 1998, 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 BB- by S&P and Ba3 by Moody's.

RESULTS OF OPERATIONS

SUMMARY OF RESULTS --

UAL's earnings from operations were $1.478 billion in 1998, compared to
operating earnings of $1.259 billion in 1997. UAL's net earnings in 1998 were
$821 million ($6.83

A-4
<PAGE> 33

per share, diluted), compared to net earnings of $949 million in 1997 ($8.95 per
share, diluted).

The 1997 earnings include an extraordinary loss of $9 million, after tax,
on early extinguishment of debt and an after-tax gain on the ATS/Galileo
transaction (see "Sale of Affiliate") of $235 million ($2.40 per share,
diluted).

Management believes that a more complete understanding of UAL's results may
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. No
adjustments are made to Fully Distributed earnings to reflect future salary
increases. A comparison of results reported on a Fully Distributed basis to
results reported under generally accepted accounting principles (GAAP) is as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ------------------------
GAAP FULLY GAAP FULLY
(DILUTED) DISTRIBUTED (DILUTED) DISTRIBUTED
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net Income............................. $ 821 $1,308 $ 949 $1,546
----- ------ ------ ------
Per Share:
Earnings before gains on sales and
extraordinary loss................ $6.83 $10.24 $ 6.64 $ 9.97
Gains on sales of ATS/Galileo, net... -- -- 2.40 1.79
Extraordinary loss, net.............. -- -- (0.09) (0.07)
----- ------ ------ ------
$6.83 $10.24 $ 8.95 $11.69
===== ====== ====== ======
</TABLE>

The current relationship of earnings and earnings per share as computed on
a GAAP basis versus a Fully Distributed basis may not be representative of the
relationship in future periods because of various factors. These factors
include: the dependence of ESOP compensation expense on the common stock price;
trends and commitments with respect to wages; and the increasing number of
shares assumed outstanding under the GAAP basis during the remainder of the ESOP
period.

1998 COMPARED WITH 1997 --

OPERATING REVENUES. Operating revenues increased $183 million (1%) while
United's revenue per available seat mile (unit revenue) decreased 2% to 10.07
cents. Passenger revenues increased $178 million (1%) despite a 1% decrease in
yield from 12.55 to 12.36 cents due to a 3% increase in United's revenue
passenger miles. Available seat miles across the system were up 3% year over
year; however, passenger load factor decreased 0.2 point

A-5
<PAGE> 34

to 71.6%. The following analysis by market is based on information reported to
the U.S. Department of Transportation:

<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------------------------------------------------------
AVAILABLE SEAT REVENUE PASSENGER MILES REVENUE PER REVENUE
MILES (CAPACITY) (TRAFFIC) PASSENGER MILE (YIELD)
---------------- ----------------------- ----------------------
<S> <C> <C> <C>
Domestic................ 4% 5% 2%
Pacific................. (9%) (10%) (13%)
Atlantic................ 15% 11% (3%)
Latin America........... 17% 9% (8%)
</TABLE>

Pacific yields continue to be negatively impacted by the weakness of the
Japanese yen compared to the dollar during the first nine months of 1998, and
the continued effects of the Asian economic turmoil on demand for travel. Yields
in other international markets have been impacted by a negative pricing
environment resulting from excess industry capacity and weakened economies.

Cargo revenues increased $21 million (2%) on increased freight ton miles of
6%. A relatively flat freight yield together with a 1% lower mail yield,
resulted in a 1% decrease in cargo yield for the year. Other operating revenues
decreased $16 million (1%) due to the sale of ATS in July 1997, partially offset
by increases in frequent flyer program partner-related revenues and contract
sales to third parties.

OPERATING EXPENSES. Operating expenses decreased $36 million (0.2%) and
United's cost per available seat mile including ESOP compensation expense
decreased 3%, from 9.53 cents to 9.24 cents. Without the ESOP compensation
expense, United's cost per available seat mile would have been 8.76 cents, a
decrease of 2% from 1997. ESOP compensation expense decreased $158 million (16%)
reflecting the decrease in the estimated average fair value of stock committed
to the Supplemental ESOP. Purchased services increased $220 million (17%) due to
increases in computer reservations fees, credit card discounts, communications
expense and Year 2000-related spending. Depreciation and amortization increased
$69 million (10%) due to an increase in the number of owned aircraft and an $11
million decrease in gains on asset sales, from $23 million in 1997 to $12
million in 1998. Salaries and related costs increased $323 million (6%) due to
ESOP mid-term wage adjustments, which took place in July 1998 and increased
staffing in certain customer-oriented positions. Aircraft fuel decreased $273
million (13%) as a result of a 15% decrease in the average cost of fuel from
69.5 cents to 59.0 cents a gallon. Commissions decreased $183 million (12%) due
to a change in the commission structure implemented in the third quarter of 1997
as well as a slight decrease in commissionable revenues. Aircraft rent decreased
$49 million (5%) as a result of refinancing aircraft under operating lease.

OTHER INCOME AND EXPENSE. Other income (expense) amounted to $222 million
in expense in 1998 compared to $265 million in income in 1997. Interest expense
increased $69 million (24%) in 1998 due to the issuance of long-term debt in
1997 and 1998. Interest income increased $7 million (13%) due to higher
investment balances. In 1998, foreign exchange losses increased $65 million.
Because not all economic hedges qualify as accounting hedges, unrealized gains
and losses may be recognized in income in advance of the actual foreign currency
cash flows. This mismatch of accounting gains and losses and foreign currency
cash flows was especially pronounced during the fourth quarter of 1998 as a
result of the appreciation in value of the Japanese yen, relative to the U.S.
dollar. This mismatch resulted in a pre-tax charge of $52 million, which is
included in foreign

A-6
<PAGE> 35

exchange losses. In addition, 1997 included a $275 million gain on the sale of
ATS and a $103 million gain on the initial public offering of Galileo stock.

1997 COMPARED WITH 1996 --

OPERATING REVENUES. Operating revenues increased $1.016 billion (6%) and
United's revenue per available seat mile (unit revenue) increased 2% to 10.25
cents. Passenger revenues increased $877 million (6%) due to a 4% increase in
United's revenue passenger miles and a 2% increase in yield to 12.55 cents.
Available seat miles across the system were up 4% year over year resulting in a
slight increase to system passenger load factor of 0.1 points to 71.8%. The
following analysis by market is based on information reported to the U.S.
Department of Transportation ("DOT"):

<TABLE>
<CAPTION>
INCREASE (DECREASE)
AVAILABLE SEAT REVENUE PASSENGER MILES REVENUE PER REVENUE
MILES (CAPACITY) (TRAFFIC) PASSENGER MILE (YIELD)
---------------- ----------------------- ----------------------
<S> <C> <C> <C>
Domestic............... 2% 3% 1%
Pacific................ 3% --% 2%
Atlantic............... 19% 20% 3%
Latin America.......... --% 2% 8%
</TABLE>

Latin American yield was impacted by strengthening economies in Latin
American countries as well as an improved mix of high-yield passengers. Strong
U.S. and European economies provided a positive pricing environment resulting in
an increase in Atlantic yield. Pacific yields reflect a weak Japanese economy
and a stronger U.S. dollar. Domestic yield increased despite the fact that the
U.S. airline ticket tax was in effect for only four months of 1996 versus ten
months of 1997.

Cargo revenues increased $119 million (15%) on increases of 24% in freight
ton miles and 6% in mail ton miles, as a result of a new dedicated freighter
operation utilizing four DC10-30s and the introduction of long-range B777-200B
aircraft. A 5% lower freight yield was only partially offset by a 2% higher mail
yield for an overall decrease in cargo yield of 4%.

Other operating revenues increased $20 million (2%) due to increases in
frequent flyer program partner related revenues and fuel sales to third parties,
partially offset by the loss of ATS revenues resulting from its sale in July
1997 (see "Sale of Affiliate").

OPERATING EXPENSES. Operating expenses increased $880 million (6%) and
United's cost per available seat mile increased 2% from 9.33 to 9.53 cents,
including ESOP compensation expense. Without the ESOP compensation expense,
United's 1997 cost per available seat mile would have been 8.94 cents, an
increase of less than 1% from 1996. ESOP compensation expense increased $302
million (44%), reflecting the increase in the estimated average fair value of
ESOP stock committed to be released to employees as a result of UAL's higher
common stock price. Salaries and related costs increased $299 million (6%) as a
result of increased staffing in certain customer-contact positions, as well as
mid-term wage adjustments which took effect July 1, 1997. Commissions increased
$42 million (3%) due to increased commissionable revenues, partially offset by
the change in the commission structure which United implemented in the third
quarter of 1997. United lowered the base commission paid to travel agents from
10% to 8% (up to a maximum of $50) on all tickets purchased in the U.S. and
Canada for both domestic and international travel. This action is expected to
save approximately $100 million annually in

A-7
<PAGE> 36

commission costs. Purchased services increased $98 million (8%) due principally
to volume-related increases in computer reservations fees, credit card discounts
and communication charges. Aircraft maintenance increased $154 million (34%) due
to increased purchased maintenance as well as the timing of maintenance cycles.
Depreciation and amortization decreased $35 million (5%) despite the acquisition
of new aircraft, due to lower depreciation on DC10-10 aircraft which are
scheduled for retirement, gains on asset sales of $23 million in 1997 compared
to $11 million in 1996, and a $30 million charge in 1996 to reduce the carrying
value of aircraft seats being replaced. Aircraft fuel decreased $21 million (1%)
despite a 3% increase in consumption, due to a 4% decrease in the price of fuel
from 72.2 cents to 69.5 cents a gallon.

OTHER INCOME AND EXPENSE. Other income (expense) amounted to $265 million
in income in 1997 compared to $153 million in expense in 1996. Interest
capitalized, primarily on aircraft advance payments, increased $27 million
(35%). Interest expense decreased $9 million (3%) due to the prepayment of
long-term debt in 1996. Interest income decreased $5 million (9%) due to lower
average interest rates. In addition, 1997 included a $275 million gain on the
sale of ATS and a $103 million gain on the initial public offering of Galileo
stock. Included in 1996 is a $20 million charge for the settlement of litigation
related to the travel agency commission cap implemented by the Company in
February 1995.

OTHER INFORMATION

SALE OF AFFILIATE --

In July 1997, United completed the sale of its interest in the Apollo
Travel Services Partnership ("ATS"), a 77% owned affiliate whose accounts were
consolidated, to Galileo International, Inc. ("Galileo"), heretofore a 38% owned
affiliate accounted for under the equity method, for $539 million in cash. This
transaction resulted in a pre-tax gain of approximately $405 million. Of this
amount, $275 million was recognized during the third quarter of 1997 and the
balance will be recognized over the next 25 years, the estimated remaining life
of the assets acquired by Galileo.

Galileo raised a portion of the proceeds used to purchase ATS through the
completion of an initial public offering of 16,799,700 shares of its common
stock, representing 16.0% of its economic interest, at $24.50 per share for net
proceeds of approximately $390 million. This transaction resulted in a reduction
of the Company's ownership in Galileo from 38% to 32%. In accordance with the
Company's policy of recognizing gains or losses on the sale of a subsidiary's
stock based on the difference between the offering price and the Company's
carrying amount of such stock, the Company recognized a pre-tax gain of $103
million during the third quarter of 1997. The Company also recorded $40 million
of deferred taxes related to this gain.

United continues to account for Galileo under the equity method and to
purchase computer reservations services under its existing services agreement
with Galileo.

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
stockholders. The labor agreements and governance structure could inhibit
management's ability to alter strategy in a volatile,

A-8
<PAGE> 37

competitive industry by restricting certain operating and financing activities,
including the sale of assets, the issuance of equity securities and the ability
to furlough employees.

Consistent with the various agreements supporting the 1994
recapitalization, in 1997, employees represented by the Air Line Pilots'
Association, International ("ALPA") and the International Association of
Machinists and Aerospace Workers ("IAM") ratified agreements providing for
restoration of wage rates for the two groups in the year 2000 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% in the year 2000.

On October 1, 1997, the Association of Flight Attendants ("AFA") ratified a
new contract which will remain in effect through March 1, 2006. Included in the
contract were lump sum payments of 4% in December 1999 and 5% in 2001, 2003 and
2005; as well as minimum 2% wage increases in 2000, 2002 and 2004. Additionally,
the contract includes a series of arbitrations beginning in 2001 which can award
additional compensation increases, subject to meeting Vision 2000 goals as
discussed below. The agreement also provides for benefits and work rule changes
and a number of service quality and productivity enhancements designed to help
the Company achieve its customer satisfaction objectives.

On July 17, 1998, the International Association of Machinists and Aerospace
Workers ("IAM") became the collective-bargaining representative for United's
approximately 19,000 public contact employees (primarily customer service and
reservations sales and service representatives). In December, the Company and
the IAM began negotiations regarding a contract for the affected employees.

Also in July 1998, United announced its intentions to improve compensation
and benefits for the Company's nearly 2,000 administrative employees hired on or
after February 1, 1994 ("post-ESOP employees"). Currently, the Company's
administrative employees are being paid under a two-tier wage structure which
went into effect at the time of the 1994 recapitalization. Effective April 13,
2000, the two-tiers will be merged and post-ESOP employees will be paid on the
same basis as those employees hired prior to February 1, 1994. In addition, on
January 1, 1999, the benefits for full-time post-ESOP employees will match those
of employees hired prior to February 1, 1994, including company-paid medical,
dental and pension and the benefits for part-time employees will be improved.

The wage, benefit and work-rule adjustments outlined above are consistent
with the Company's objective, known as Vision 2000, to put employee compensation
on a competitive level with peer group compensation at the conclusion of the
agreements outlined above. The ultimate cost to the Company of Vision 2000,
particularly given that peer group compensation is subject to change between now
and the conclusion of the agreements, is not determinable. However, as a result
of these changes, the Company expects that its annual Salaries and related costs
will increase at a faster rate than its major competitors from now through the
year 2000.

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

A-9
<PAGE> 38

currency-denominated operating revenues and expenses. Despite the adverse
(favorable) effects a strengthening (weakening) foreign currency may 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.

By carrying passengers and cargo in both directions between the U.S. and
almost every major economic region in the world and by selling its services in
each local country, United attempts to mitigate its exposure to fluctuations in
any single foreign currency. The Company's biggest net exposures are typically
for Japanese yen, Hong Kong dollars, Australian dollars and British pounds.
During 1998, yen-denominated operating revenue net of yen-denominated operating
expense was approximately 66 billion yen (approximately $490 million), Hong Kong
dollar-denominated operating revenue net of Hong Kong dollar-denominated
operating expense was approximately 1,838 million Hong Kong dollars
(approximately $236 million), Australian dollar-denominated operating revenue
net of Australian dollar-denominated operating expense was approximately 245
million Australian dollars (approximately $153 million) and British
pound-denominated operating revenue net of British pound-denominated operating
expense was approximately 73 million British pounds (approximately $122
million). United hedges some of the risk of exchange rate volatility on its
anticipated future yen revenues and Hong Kong revenues by purchasing put options
for each respective currency. To reduce some of the costs of this hedging
program, the Company also sells call options in each currency from time to time.
United continually monitors its foreign currency hedging program and is no
longer entering into yen option contracts. At a point in the future, United may
elect to reestablish its yen hedging program. United also attempts to reduce its
exposure to transaction gains and losses by converting excess local currencies
generated to U.S. dollars and by entering into currency forward or exchange
contracts. The total notional amount of outstanding currency options and forward
exchange contracts, and their respective fair market values as of December 31,
1998, are summarized in Quantitative and Qualitative Disclosures About Market
Risk on page A-16.

United's foreign operations involve insignificant amounts of physical
assets; however, there are sizable intangible assets related to acquisitions of
Atlantic and Latin American 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.

AIRPORT RENTS AND LANDING FEES --

United is charged facility rental and landing fees at virtually 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

A-10
<PAGE> 39

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.

UPDATE ON YEAR 2000 READINESS --

The Company, like most corporations, faces potential problems if software
applications, computer equipment and embedded computer chips fail to recognize
calendar dates beginning in the year 2000. The Company has developed a five-step
process to achieve Year 2000 readiness: Awareness, Inventory, Assessment,
Remediation, and Testing. Awareness consists of the initial recognition that a
program, system, or device could be date-sensitive and susceptible to
malfunction. Inventory refers to the identification and documentation of all
such programs, systems, and devices. Assessment refers to the evaluation and
determination of what course of action should be taken with respect to a
specific program, system or device. Remediation refers to the corrective action
taken, such as repairing or replacing, to avoid malfunctions. Testing consists
of all activities undertaken to gain assurance that the remediated program,
system or device will function as expected for dates after 1999. The Company has
established a Year 2000 Program office to oversee this process.

The above-referenced five-step process is being applied in four major
areas. The first area consists of the information systems maintained and
supported by the Company's Information Services Division, collectively referred
to as information technology or "IT" systems. The IT systems include, among
other things, (1) the hardware related infrastructure, which includes voice and
data communications networks, and (2) mainframe and non-mainframe based software
applications. The Company develops and uses these software applications in
functions such as reservations, ticketing, flight scheduling, seat inventory and
customer service.

The second area consists of user maintained applications that generally are
not supported by the Company's Information Services Division. The third area
consists of operational systems and devices that include, among other things,
aircraft avionics, baggage handling, aircraft ground handling, passenger loading
bridges, and flight simulators. User maintained applications and operational
systems and devices are collectively referred to as "non-IT systems."

The fourth area consists of the Company's critical business partners which
would include, among others, air traffic control systems, airport authorities,
telecommunications providers, computer reservation systems, and airframe and
engine manufacturers.

As discussed below, the Company remains on target in completing its
five-step process. The awareness and inventory phases are complete. The
assessment phase is complete with respect to IT and non-IT systems, and
substantial progress has been made in the remediation phase of the IT systems,
and with a few exceptions for non-critical systems, substantially all IT and
non-IT systems will be remediated by March 31, 1999. The assessment process is
still ongoing with respect to critical business partners.

IT systems. The Company remains on schedule for completing the remediation
of its hardware infrastructure. Remediation and the initial system testing of
the mainframe hardware and software is substantially complete, while all other
hardware infrastructure, including data and voice networks, is expected to be
remediated and tested by March 31, 1999.

A-11
<PAGE> 40

Remediation and initial testing of essentially all internally developed IT
software applications has been completed as of December 31, 1998.

System integration testing for all IT systems that are critical to the
operations is expected to be completed by June 30, 1999, and system integration
testing for all other systems is expected to be completed by June 30, 1999.

Non-IT Systems. The technical assessment stage for non-IT systems is
complete. Most airport systems (including aircraft ground handling equipment,
customer service equipment at airports and passenger loading bridges) are not
date-sensitive and therefore will not require remediation. Those non-IT systems
that are date-sensitive and critical to the Company's business, such as aircraft
avionics and flight simulators, are scheduled to be substantially remediated and
tested by June 30, 1999.

Critical Business Partners. The Company has grouped its critical business
partners into three categories: strategic, preferred or commodity. The
"strategic" category consists of those partners, such as air traffic control
systems, airport authorities, telecommunications providers, computer reservation
systems, and airframe and engine manufacturers, without which the Company would
cease to operate. The "preferred" category consists of partners that have
substantial interaction with the Company, but whose absence would not
necessarily cause an immediate or irreversible interruption or cessation of
business operations. The "commodity" category consists of those partners who
provide goods or services that could be readily replaced and whose absence would
not materially impact the business. The Company has been contacting its
"strategic" partners and performing site visits to ascertain their state of Year
2000 readiness, and has contacted all of them as of December 31, 1998. Preferred
and commodity partners are being contacted to evaluate their Year 2000
remediation programs. To date the Company has contacted a significant number of
preferred and commodity partners. For those partners without programs in place
or not responding, the Company may look for alternate suppliers unless a Year
2000 program is in place with a planned completion date no later than June 30,
1999.

The Company is working closely with the Air Transport Association ("ATA"),
an industry organization consisting mostly of North American airlines. The ATA
has undertaken a study to assess the process that major domestic airports are
using to achieve Year 2000 readiness. Preliminary results of that study suggest
most of the larger domestic airports are making progress toward being Year 2000
compliant. Certain of the smaller domestic airports do not, as yet, have
detailed Year 2000 plans in place. A similar project is underway with the
International Air Transport Association to review the Year 2000 process at
international airports. Current information suggests that some key international
airports may be behind schedule.

The Company's aircraft manufacturers have concluded that there are no
flight safety issues. However, the Company continues to test its aircraft
systems and to work with its manufacturers to ensure Year 2000 readiness.

To date, the Company has projected that it will cost approximately $90
million ($38 million in capital spending and $52 million in expense) to make the
Company Year 2000 ready. Of that total, $28 million has already been spent,
while the remaining $62 million is expected to be spent in 1999. All the amounts
expected to be recognized as expense in 1999 have been taken into consideration
in the earnings outlook discussed in the "Outlook for 1999".

A-12
<PAGE> 41

A series of airline readiness reviews are planned during the second quarter
of 1999 to ensure aircraft, air traffic control, airports, support groups and
critical business partners are prepared for Year 2000 and can provide
uninterrupted operations. By September 30, 1999, the Company will complete a
risk analysis and develop risk estimates after completing the airline readiness
reviews. Based on the results of the airline readiness review, the Company will
develop any contingency plans that are needed. At this point in time, the
Company does not have specific Year 2000 contingency plans in place. It is
likely that certain international airports and air traffic control systems will
not complete their Year 2000 programs by September 30, 1999. We will continue to
evaluate Year 2000 readiness at these locations and develop contingency plans as
needed.

The Company believes that the current and planned activities to modify its
systems will reduce the risks of a business interruption. A failure by its
systems to be Year 2000 ready could materially and adversely impact the
Company's results of operations, liquidity and financial condition. The Company
also relies heavily upon its critical business partners in its normal business
activities. Failure by critical business partners to be Year 2000 ready could
materially and adversely impact the Company's results of operations, liquidity
and financial condition. Due to the general uncertainty surrounding the Year
2000 problem, and the uncertainty surrounding the readiness of its critical
business partners, the Company is unable at this time to determine if any
failure will occur or if such failure will have a material impact on the
Company's results of operations, liquidity and financial condition.

Readers are cautioned that the Year 2000 section contains forward-looking
information. Please see the "Outlook for 1999" for a list of some of the factors
that could cause actual results to differ materially from expected results.*

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. 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 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.*

NEW ACCOUNTING PRONOUNCEMENTS --

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and

A-13
<PAGE> 42

Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.

SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on the
financial statements. However, it could increase volatility in earnings and
other comprehensive income.

OUTLOOK FOR 1999 --

The Company anticipates continued strong performance in 1999 largely based
on expected strong U.S. economic activity. In addition, there are early
indications of some modest improvement in United's Pacific revenue and profit
performance. These factors are expected to outweigh the anticipated negative
impact on Atlantic unit revenues associated with industry capacity growth in the
region.

The Company expects in 1999 system capacity to grow 3%, which is less than
the forecasted industry capacity growth rate. Unit revenues are estimated to
range between 1% higher and 1% lower than 1998.

1999 units costs excluding ESOP charge are estimated to be about 1% higher
than 1998, based on an average fuel price of approximately 56 cents per gallon
including taxes. Among the factors affecting costs will be the cap in
international commissions instituted last year and the level of spending on Year
2000 (see "Update on Year 2000 Readiness").

In summary, the Company forecasts 1999 earnings to range between $10.00 and
$12.00 per fully distributed share, with its internal goal being to earn $11.00
per fully distributed share. The Company's earnings per share performance will
be helped by the reduction in share count stemming from the $500 million common
stock repurchase program completed earlier this year.

For the first quarter of 1999, the Company expects system capacity growth
of approximately 2.5%, with domestic capacity growing by around 4.7%. Unit costs
excluding ESOP charge are estimated to be 1% higher and unit revenues are
expected to be 1% lower than the same quarter in 1998. This revenue assumption
is based on a continuation of recent results and current data trends that
indicate a reversal of the domestic revenue weakness that began in the fourth
quarter of last year and lingered into the early part of the first quarter this
year. This reversal could be attributable to the dissipation of economic
uncertainty and an improvement in the pricing environment following the
expiration of fares sold in the aftermath of Northwest Airlines' pilot strike.
Separately, the Company also benefited this quarter from the recent labor unrest
at American Airlines.

Based on these assumptions, the Company's expectations for first quarter
earnings fall in a range around $1.35 per fully distributed share, the highest
First Call estimate as of March 11, 1999.

A-14
<PAGE> 43

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, unit revenues, revenues,
fully distributed unit costs, profits, fuel prices and fully distributed
earnings per share include: the success of the Company's cost-control efforts,
the outcome of negotiations on new contracts with the union groups, industry
capacity decisions, the airline pricing environment, the economic environment of
the airline industry, fuel prices, actions of the U.S., foreign and local
governments, the Asian economic environment and travel patterns, foreign
currency exchange rate fluctuations, and the general economic environment. With
respect to the forward-looking statements 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. Some factors that could significantly
impact the Company's expected Year 2000 readiness and the estimated cost thereof
include: the results of the technical assessment, remediation and testing of
date-sensitive systems and equipment and the ability of critical business
partners, including domestic and international airport authorities, aircraft
manufacturers and the Federal Aviation Administration, to achieve Year 2000
readiness.

A-15
<PAGE> 44

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK -- United's exposure to market risk associated with
changes in interest rates relates primarily to its debt obligations and
short-term investments. United does not use derivative financial instruments in
its investments portfolio. United's policy is to manage interest rate risk
through a combination of fixed and floating rate debt and entering into swap
agreements, depending upon market conditions. A portion of the borrowings are
denominated in foreign currencies which exposes the Company to risks associated
with changes in foreign exchange rates. In addition, the Company has placed
foreign currency deposits (primarily for Japanese yen, French francs and German
marks) to meet foreign currency lease obligations designated in the respective
currencies. The Company is not exposed to foreign currency risk on these
deposits since unrealized mark-to-market gains or losses on the foreign currency
deposits are offset by the losses or gains on the foreign currency obligations.
The fair value of these deposits is determined based on the present value of
future cash flows using an appropriate swap rate. The fair value of long-term
debt is based on the quoted market prices for the same or similar issues or the
present value of future cash flows using a U.S. Treasury rate that matches the
remaining life of the instrument, adjusted by a credit spread.

<TABLE>
<CAPTION>
(IN MILLIONS) EXPECTED MATURITY DATES 1998 1997
------------- -------------------------------------------------- --------------- ---------------
FAIR FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE TOTAL VALUE
---- ----- ----- ----- ----- ---------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash equivalents
Fixed rate.............. $ 301 $ -- $ -- $ -- $ -- $ -- $ 301 $ 301 $ 295 $ 295
Avg. interest rate.... 4.94% -- -- -- -- -- 4.94% 6.00%
Variable rate........... $ 89 $ -- $ -- $ -- $ -- $ -- $ 89 $ 89 $ -- $ --
Avg. interest rate.... 5.32% -- -- -- -- -- 5.32% --
Short term investments
Fixed rate.............. $ 386 $ -- $ -- $ -- $ -- $ -- $ 386 $ 386 $ 460 $ 460
Avg. interest rate.... 5.48% -- -- -- -- -- 5.48% 5.87%
Variable rate........... $ 39 $ -- $ -- $ -- $ -- $ -- $ 39 $ 39 $ 90 $ 90
Avg. interest rate.... 5.47% -- -- -- -- -- 5.47% 5.90%
Foreign currency deposits
Fixed rate -- yen
deposits.............. $ -- $ -- $ -- $ -- $ -- $ 330 $ 330 $ 354 $ 254 $ 281
Avg. interest rate.... -- -- -- -- -- 3.05% 3.05% 3.23%
Fixed rate -- FF
deposits.............. $ -- $ -- $ -- $ -- $ -- $ 11 $ 11 $ 13 $ 4 $ 4
Avg. interest rate.... -- -- -- -- -- 5.61% 5.61% 5.82%
Fixed rate -- DM
deposits.............. $ 1 $ 1 $ 1 $ 1 $ 1 $ 188 $ 193 $ 198 $ 60 $ 60
Avg. interest rate.... 6.49% 6.49% 6.49% 6.49% 6.49% 6.49% 6.49% 6.86%
LONG TERM DEBT
U.S. Dollar denominated
Fixed rate debt......... $ 35 $ 26 $ 27 $ 30 $ 33 $1,338 $1,491 $1,729 $1,501 $1,725
Avg. interest rate.... 7.45% 8.12% 8.18% 8.18% 8.18% 8.89% 8.8% 8.88%
Variable rate debt...... $ 52 $ 151 $ 56 $ 567 $ 522 $ 108 $1,456 $1,456 $ 813 $ 813
Avg. interest rate.... 5.72% 5.66% 5.72% 5.85% 5.44% 5.80% 5.67% 6.23%
Japanese Yen denominated
Fixed rate debt......... $ 10 $ 11 $ -- $ -- $ -- $ -- $ 21 $ 23 $ 26 $ 27
Avg. interest rate.... 7.50% 7.50% -- -- -- -- 7.50% 7.90%
</TABLE>

FOREIGN CURRENCY RISK -- United has established a foreign currency hedging
program using currency forwards and currency options (purchasing put options or
selling call options) to hedge exposure to the Japanese yen and Hong Kong
dollar. The goal of the hedging program is to effectively manage risk associated
with fluctuations in the value of the foreign currency, thereby making financial
results more stable and predictable. United does not use currency forwards or
currency options for trading purposes. United is no

A-16
<PAGE> 45

longer entering into yen option contracts. At a point in the future, United may
elect to reestablish its yen hedging program.

<TABLE>
<CAPTION>
NOTIONAL AVERAGE ESTIMATED
(IN MILLIONS, EXCEPT AVERAGE CONTRACT RATES) AMOUNT CONTRACT RATE FAIR VALUE
-------------------------------------------- -------- ------------- ----------
<S> <C> <C> <C>
Forward exchange contracts
Japanese Yen -- Purchased forwards........... $215 105.58 $ 3
-- Sold forwards............. $ 25 122.38 $ (2)
Hong Kong Dollar -- Sold forwards............ $ 86 7.89 $ (1)
French Franc -- Purchased forwards........... $ 50 5.05 $ 1
Currency options
Japanese Yen -- Put options.................. $315 128.48 $ 4
-- Call options.............. $317 127.60 $(50)
</TABLE>

As of December 31, 1997, United had $122 million of Japanese yen forwards
outstanding with a fair value of $(29) million, $200 million yen put options
with a fair value of $14 and $132 million yen call options with a fair value of
$(1) million.

PRICE RISK (AIRCRAFT FUEL) -- At December 31, 1998, the Company had
contracted to purchase approximately 2% of the Company's 1999 fuel requirements
at an average fixed price of $0.49 per gallon. When market conditions indicate
risk reduction is achievable, United enters into fuel option contracts to reduce
its price risk exposure to jet fuel. Based on projected market conditions,
United does not believe risk reduction is presently achievable and is no longer
entering into new option contracts. As market conditions change, so may United's
hedging program. The option contracts, which involve either purchasing call
options and simultaneously selling put options (collar strategy) or purchasing
call options, are designed to provide protection against sharp increases in the
price of aircraft fuel. In addition, to a limited extent United trades
short-term heating oil futures and option contracts, which are immaterial.

At December 31, 1997, United had $458 million in purchased call contracts
for crude oil with an estimated fair value of $10 million and $403 million in
sold put contracts for crude oil with an estimated fair value of $(28) million.

A-17
<PAGE> 46

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and
Board of Directors of 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, 1998 and 1997, and the related statements of consolidated
operations, consolidated cash flows and consolidated stockholders' equity for
each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 24, 1999

A-18
<PAGE> 47

UAL CORPORATION AND SUBSIDIARY COMPANIES

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Operating revenues:
Passenger......................................... $15,520 $15,342 $14,465
Cargo............................................. 913 892 773
Other operating revenues.......................... 1,128 1,144 1,124
------- ------- -------
17,561 17,378 16,362
------- ------- -------
Operating expenses:
Salaries and related costs........................ 5,341 5,018 4,719
ESOP compensation expense......................... 829 987 685
Aircraft fuel..................................... 1,788 2,061 2,082
Commissions....................................... 1,325 1,508 1,466
Purchased services................................ 1,505 1,285 1,187
Aircraft rent..................................... 893 942 952
Landing fees and other rent....................... 881 863 846
Depreciation and amortization..................... 793 724 759
Aircraft maintenance.............................. 624 603 449
Other operating expenses.......................... 2,104 2,128 2,094
------- ------- -------
16,083 16,119 15,239
------- ------- -------
Earnings from operations............................ 1,478 1,259 1,123
------- ------- -------
Other income (expense):
Interest expense.................................. (355) (286) (295)
Interest capitalized.............................. 105 104 77
Interest income................................... 59 52 57
Equity in earnings of affiliates.................. 72 66 64
Gain on sale of partnership interest.............. -- 275 --
Gain on sale of affiliate's stock................. -- 103 --
Miscellaneous, net................................ (103) (49) (56)
------- ------- -------
(222) 265 (153)
------- ------- -------
Earnings before income taxes, distributions on
preferred securities and extraordinary item....... 1,256 1,524 970
Provision for income taxes.......................... 429 561 370
------- ------- -------
Earnings before distributions on preferred
securities and extraordinary item................. 827 963 600
Distributions on preferred securities, net.......... (6) (5) --
Extraordinary loss on early extinguishment of
debt, net......................................... -- (9) (67)
------- ------- -------
Net earnings........................................ $ 821 $ 949 $ 533
======= ======= =======
Per share, basic:
Earnings before extraordinary item................ $ 12.71 $ 14.98 $ 8.76
Extraordinary loss on early extinguishment of
debt, net...................................... -- (0.15) (1.19)
------- ------- -------
Net earnings...................................... $ 12.71 $ 14.83 $ 7.57
======= ======= =======
Per share, diluted:
Earnings before extraordinary item................ $ 6.83 $ 9.04 $ 5.85
Extraordinary loss on early extinguishment of
debt, net...................................... -- (0.09) (0.79)
------- ------- -------
Net earnings...................................... $ 6.83 $ 8.95 $ 5.06
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

A-19
<PAGE> 48

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31
------------------
1998 1997
------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................. $ 390 $ 295
Short-term investments.................................... 425 550
Receivables, less allowance for doubtful accounts
(1998 -- $22; 1997 -- $15)............................. 1,138 1,051
Aircraft fuel, spare parts and supplies, less obsolescence
allowance (1998 -- $39; 1997 -- $29)................... 384 355
Deferred income taxes..................................... 256 244
Prepaid expenses and other................................ 315 453
------- -------
2,908 2,948
------- -------
Operating property and equipment:
Owned --
Flight equipment....................................... 12,006 10,382
Advances on flight equipment........................... 985 972
Other property and equipment........................... 3,134 2,842
------- -------
16,125 14,196
Less -- Accumulated depreciation and amortization...... 5,174 5,116
------- -------
10,951 9,080
------- -------
Capital leases --
Flight equipment....................................... 2,605 2,221
Other property and equipment........................... 97 98
------- -------
2,702 2,319
Less -- Accumulated amortization....................... 599 625
------- -------
2,103 1,694
------- -------
13,054 10,774
------- -------
Other assets:
Investments in affiliates................................. 304 223
Intangibles, less accumulated amortization (1998 -- $389;
1997 -- $374).......................................... 676 703
Aircraft lease deposits................................... 545 318
Prepaid rent.............................................. 631 60
Other..................................................... 441 438
------- -------
2,597 1,742
------- -------
$18,559 $15,464
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

A-20
<PAGE> 49

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31
------------------
1998 1997
------- -------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 184 $ --
Long-term debt maturing within one year................... 98 235
Current obligations under capital leases.................. 176 171
Advance ticket sales...................................... 1,429 1,267
Accounts payable.......................................... 1,151 1,030
Accrued salaries, wages and benefits...................... 952 869
Accrued aircraft rent..................................... 793 830
Other accrued liabilities................................. 885 846
------- -------
5,668 5,248
------- -------
Long-term debt.............................................. 2,858 2,092
------- -------
Long-term obligations under capital leases.................. 2,113 1,679
------- -------
Other liabilities and deferred credits:
Deferred pension liability................................ 89 25
Postretirement benefit liability.......................... 1,424 1,361
Deferred gains............................................ 1,180 1,210
Accrued aircraft rent..................................... 371 368
Deferred income taxes..................................... 398 79
Other..................................................... 354 450
------- -------
3,816 3,493
------- -------
Company-obligated mandatorily redeemable preferred
securities of a subsidiary trust.......................... 100 101
------- -------
Equity put options.......................................... 32 --
------- -------
Preferred stock committed to Supplemental ESOP.............. 691 514
------- -------
Stockholders' equity:
Serial preferred stock (Note 12).......................... -- --
ESOP preferred stock (Note 13)............................ -- --
Common stock at par, $0.01 par value; authorized
200,000,000 shares; issued 63,005,869 shares at
December 31, 1998 and 61,288,039 shares at December 31,
1997................................................... 1 1
Additional capital invested............................... 3,517 2,876
Retained earnings......................................... 1,028 309
Unearned ESOP preferred stock............................. (121) (177)
Stock held in treasury, at cost --
Preferred, 10,213,519 depositary shares at December 31,
1998 and 10,149,219 depositary shares at December 31,
1997 (Note 12)....................................... (305) (302)
Common, 11,201,216 shares at December 31, 1998 and
3,967,553 shares at December 31, 1997................ (835) (361)
Accumulated other comprehensive income.................... (2) (2)
Other..................................................... (2) (7)
------- -------
3,281 2,337
------- -------
Commitments and contingent liabilities (Note 18)............ $18,559 $15,464
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

A-21
<PAGE> 50

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash and cash equivalents at beginning of year...... $ 295 $ 229 $ 194
------- ------- -------
Cash flows from operating activities:
Net earnings...................................... 821 949 533
Adjustments to reconcile to net cash provided by
operating activities --
ESOP compensation expense...................... 829 987 685
Extraordinary loss on debt extinguishment, net
of tax....................................... -- 9 67
Gain on sale of partnership interest........... -- (275) --
Gain on sale of affiliate's stock.............. -- (103) --
Pension funding less than (greater than)
expense...................................... 101 43 (279)
Deferred postretirement benefit expense........ 149 139 130
Depreciation and amortization.................. 793 724 759
Provision for deferred income taxes............ 307 194 69
Undistributed earnings of affiliates........... (62) (16) (49)
Increase in receivables........................ (97) (222) (10)
Decrease (increase) in other current assets.... 105 -- (105)
Increase in advance ticket sales............... 162 78 89
Increase in accrued income taxes............... 38 20 84
Increase in accounts payable and accrued
liabilities.................................. 69 16 294
Amortization of deferred gains................. (64) (64) (63)
Other, net..................................... 43 88 249
------- ------- -------
3,194 2,567 2,453
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment............ (2,832) (2,812) (1,538)
Proceeds on disposition of property and
equipment.................................... 452 83 55
Proceeds on disposition of partnership
interest..................................... -- 539 --
Decrease (increase) in short-term
investments.................................. 125 (82) 482
Other, net..................................... (63) (29) 18
------- ------- -------
(2,318) (2,301) (983)
------- ------- -------
Cash flows from financing activities:
Reacquisition of preferred stock............... (3) -- (84)
Repurchase of common stock..................... (459) (250) --
Proceeds from issuance of long-term debt....... 928 597 --
Repayment of long-term debt.................... (271) (301) (791)
Principal payments under capital leases........ (322) (147) (112)
Purchase of equipment certificates under
Company operating leases..................... (693) -- --
Conversion of subordinated debentures.......... -- -- (324)
Increase in short-term borrowings.............. 184 -- --
Aircraft lease deposits........................ (154) (112) (110)
Cash dividends................................. (10) (10) (22)
Other, net..................................... 19 23 8
------- ------- -------
(781) (200) (1,435)
------- ------- -------
Increase in cash and cash equivalents during the
year.............................................. 95 66 35
------- ------- -------
Cash and cash equivalents at end of year............ $ 390 $ 295 $ 229
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

A-22
<PAGE> 51

UAL CORPORATION AND SUBSIDIARY COMPANIES

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

<TABLE>
<CAPTION>
UNEARNED ACCUMULATED
ADDITIONAL RETAINED ESOP OTHER
PREFERRED COMMON CAPITAL EARNINGS PREFERRED TREASURY COMP
STOCK STOCK INVESTED (DEFICIT) STOCK STOCK INCOME OTHER TOTAL
--------- ------ ---------- --------- --------- -------- ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995... $-- $-- $1,353 $(1,039) $(175) $ (282) $(74) $(22) $ (239)
-- -- ------ ------- ----- ------- ---- ---- ------
Year ended December 31, 1996:
Net earnings................. -- -- -- 533 -- -- -- -- 533
Other comprehensive income,
net:
Unrealized losses on
securities, net.......... -- -- -- -- -- -- (1) -- (1)

Minimum pension liability
adj...................... -- -- -- -- -- -- 75 -- 75
------- ---- ------
Total comprehensive income... -- -- -- 533 -- -- 74 -- 607
------- ---- ------
Cash dividends on preferred
stock ($1.44 per Series
B)......................... -- -- -- (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............ -- -- -- -- -- (84) -- -- (84)
ESOP dividend ($8.89 per
share)..................... -- -- 17 (40) 23 -- -- -- --
Preferred stock committed to
Supplemental ESOP.......... -- -- (106) -- -- -- -- -- (106)
Other........................ -- 1 46 -- -- (19) -- 9 37
-- -- ------ ------- ----- ------- ---- ---- ------
Balance at December 31, 1996... -- 1 2,160 (566) (202) (385) -- (13) 995
-- -- ------ ------- ----- ------- ---- ---- ------
Year ended December 31, 1997:
Net earnings................. -- -- -- 949 -- -- -- -- 949
Other comprehensive income,
net:
Minimum pension liability
adj. .................... -- -- -- -- -- -- (2) -- (2)
------- ---- ------
Total comprehensive income... -- -- -- 949 -- -- (2) -- 947
------- ---- ------
Cash dividends on preferred
stock ($1.44 per Series
B)......................... -- -- -- (10) -- -- -- -- (10)
Common stock repurchases....... -- -- -- -- -- (250) -- -- (250)
Issuance and amortization of
ESOP preferred stock....... -- -- 993 -- (6) -- -- -- 987
ESOP dividend ($8.89 per
share)..................... -- -- 36 (67) 31 -- -- -- --
Preferred stock committed to
Supplemental ESOP.......... -- -- (349) -- -- -- -- -- (349)
Other........................ -- -- 36 3 -- (28) -- 6 17
-- -- ------ ------- ----- ------- ---- ---- ------
Balance at December 31, 1997... -- 1 2,876 309 (177) (663) (2) (7) 2,337
-- -- ------ ------- ----- ------- ---- ---- ------
Year ended December 31, 1998:
Net earnings................. -- -- -- 821 -- -- -- -- 821
Other comprehensive income,
net:
Unrealized gains on
securities, net.......... -- -- -- -- -- -- 1 -- 1
Minimum pension liability
adj. .................... -- -- -- -- -- -- (1) -- (1)
------- ---- ------
Total comprehensive income... -- -- -- 821 -- -- -- -- 821
------- ---- ------
Cash dividends on preferred
stock ($1.44 per Series B)... -- -- -- (10) -- -- -- -- (10)
Common stock repurchases....... -- -- -- -- -- (459) -- -- (459)
Issuance and amortization of
ESOP preferred stock....... -- -- 823 -- 6 -- -- -- 829
ESOP dividend ($8.89 per
share)..................... -- -- 42 (92) 50 -- -- -- --
Preferred stock committed to
Supplemental ESOP.......... -- -- (177) -- -- -- -- -- (177)
Other........................ -- -- (47) -- -- (18) -- 5 (60)
-- -- ------ ------- ----- ------- ---- ---- ------
Balance at December 31, 1998... $-- $1 $3,517 $ 1,028 $(121) $(1,140) $ (2) $ (2) $3,281
== == ====== ======= ===== ======= ==== ==== ======
</TABLE>

See accompanying notes to consolidated financial statements.
A-23
<PAGE> 52

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. Certain prior-year financial statement items have been
reclassified to conform to the current year's presentation.

(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) 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.

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 borrowings rather than sales, and so
does not remove the securities from the balance sheet. At December 31, 1998,
United is obligated to repurchase $142 million of securities lent to third
parties.

At December 31, 1998 and 1997, $418 million and $440 million, respectively,
of investments in debt securities included in cash and cash equivalents and
short-term investments were classified as available-for-sale, and $241 million
and $287 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 proceeds from sales of available-for-sale securities are included in
interest income for each respective year.

(E) DERIVATIVE FINANCIAL INSTRUMENTS --

FOREIGN CURRENCY -- From time to time, United enters into Japanese yen
forward exchange contracts to minimize gains and losses on the revaluation of
short-term yen-denominated liabilities. The yen forwards typically have
short-term maturities and are marked to fair value at the end of each accounting
period. The unrealized mark-to-market

A-24
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

gains and losses on the yen forwards generally offset the losses and gains
recorded on the yen liabilities.

United has also entered into forwards and swaps to reduce exposure to
currency fluctuations on yen- and French franc-denominated capital lease
obligations. The cash flows of the forwards and swaps mirror those of the
capital leases. The premiums on the forwards and swaps, as measured at
inception, are being amortized over their respective lives as components of
interest expense. Any gains or losses realized upon early termination of these
forwards and swaps are deferred and recognized in income over the remaining life
of the underlying exposure.

The Company hedges some of the risks of exchange rate volatility on its
anticipated future yen and Hong Kong dollar revenues by purchasing put options
with little or no intrinsic value for each respective currency. The amount and
duration of these options are synchronized with the expected revenues, and thus,
the put options have been designated as a hedge. The premiums on purchased
option contracts are amortized over the lives of the contracts. Unrealized gains
on purchased put option contracts are deferred until contract expiration and
then recognized as a component of passenger revenue. To reduce hedging costs,
the Company sells call options in each of these currencies from time to time. At
the end of each accounting period, the written call option contracts are marked-
to-market and unrealized losses are recorded in "Miscellaneous, net".

INTEREST RATES -- United may from time to time, enter into swaps to reduce
exposure to interest rate fluctuations in connection with certain debt, capital
leases and operating leases. The cash flows of the swaps mirror those of the
underlying exposures. The premiums on the swaps, as measured at inception, are
amortized over their respective lives as components of interest expense. Any
gains or losses realized upon the early termination of these swaps are deferred
and recognized in income over the remaining life of the underlying exposure.

AIRCRAFT FUEL -- United uses a combination of a collar option strategy,
involving the simultaneous purchase of fuel call options with the simultaneous
sale of fuel put options with identical expiration dates, and purchased call
options to hedge a portion of its price risk related to aircraft fuel purchases.
The collars and purchased call options have been designated as a hedge. Gains or
losses on hedge positions are recognized upon contract expiration as a component
of aircraft fuel inventory. In addition, to a limited extent, United trades
short-term heating oil futures contracts. Unrealized losses on these contracts
are recorded currently in income while unrealized gains are deferred until
contract expiration. Both gains and losses are recorded as a component of
aircraft fuel expense.

(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 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

A-25
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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 16). 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.

The ESOPs cover employees represented by the Air Line Pilots' Association,
International, the International Association of Machinists and Aerospace Workers
and U.S. management and salaried 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. 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, five of which have already

A-26
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 13,
"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 records 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 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 charge to ESOP compensation expense. The ESOP
compensation expense is based on the average fair value of the shares committed
to be contributed. The Supplemental ESOP is being accounted for under Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB
25").

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.

During 1998, 2,087,531 shares of Class 1 ESOP Preferred Stock, 97,406
shares of Class 2 ESOP Preferred Stock and 2,182,628 shares of Voting Preferred
Stock were allocated to employee accounts, and another 889,031 shares of Class 2
ESOP Preferred Stock were allocated in the form of "book entry" shares,
effective December 31, 1997. Another 78,821 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, 1998, the year-end allocation of Class 1 ESOP Preferred Stock to
employee accounts had not yet been completed. There were 2,334,375 shares of
Class 1 ESOP Preferred Stock committed to be released and 565,823 shares held in
suspense by the ESOP as of December 31, 1998. For the Class 2 ESOP Preferred
Stock, 739,598 shares were committed to be contributed to employees at December
31, 1998. The fair value of the unearned ESOP shares recorded on the balance
sheet at December 31, 1998 and 1997 was $141 million and $344 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, 1998 and 1997 was $600 million and $679
million, respectively.

A-27
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) OTHER INCOME (EXPENSE) -- MISCELLANEOUS

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

<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
------------- ----- ---- ----
<S> <C> <C> <C>
Foreign exchange losses................................... $ (84) $(19) $ (8)
Minority interests........................................ -- (15) (21)
Travel agency litigation settlement....................... -- -- (20)
Other..................................................... (19) (15) (7)
----- ---- ----
$(103) $(49) $(56)
===== ==== ====
</TABLE>

(4) OTHER COMPREHENSIVE INCOME

On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" which establishes
standards for displaying comprehensive income and its components. The following
table presents the tax effect of those items included in other comprehensive
income:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- -------------------------
TAX NET OF TAX NET OF TAX NET OF
PRE-TAX EFFECT TAX PRE-TAX EFFECT TAX PRE-TAX EFFECT TAX
------- ------ ------ ------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized gains (losses)
on securities...........
Unrealized holding gains
(losses) arising
during period......... $ 1 $-- $ 1 $-- $-- $-- $ (1) $ -- $(1)
Less: reclassification
adjustments realized
in net income......... -- -- -- -- -- -- -- -- --
--- -- --- --- -- --- ---- ---- ---
Net unrealized gains
(losses).............. $ 1 $-- $ 1 $-- $-- $-- $ (1) $ -- $(1)
--- -- --- --- -- --- ---- ---- ---
Minimum pension
liability............. (1) -- (1) (4) 2 (2) 122 (47) 75
--- -- --- --- -- --- ---- ---- ---
Total other comprehensive
income.................. $-- $-- $-- $(4) $2 $(2) $121 $(47) $74
=== == === === == === ==== ==== ===
</TABLE>

The components of accumulated other comprehensive income consist of the
following items:

<TABLE>
<CAPTION>
UNREALIZED GAINS MINIMUM ACCUMULATED OTHER
(LOSSES) ON SECURITIES PENSION LIABILITY COMPREHENSIVE INCOME
---------------------- ----------------- --------------------
<S> <C> <C> <C>
December 31, 1995.......... $ 1 $(75) $(74)
Current period change.... (1) 75 74
--- ---- ----
December 31, 1996.......... $-- $ -- $ --
Current period change.... -- (2) (2)
--- ---- ----
December 31, 1997.......... $-- $ (2) $ (2)
Current period change.... 1 (1) --
--- ---- ----
December 31, 1998.......... $ 1 $ (3) $ (2)
=== ==== ====
</TABLE>

A-28
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) PER SHARE AMOUNTS

Basic earnings per share were computed by dividing net income by the
weighted-average number of shares of common stock outstanding during the year.
In addition, diluted earnings per share amounts include potential common shares
including ESOP shares committed to be released, and assume the conversion of
convertible debentures (for periods not actually converted) and elimination of
related interest expense.

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
EARNINGS ATTRIBUTABLE TO COMMON SHAREHOLDERS (MILLIONS)
Net Income............................................ $ 821 $ 949 $ 533
Preferred stock dividends............................. (102) (77) (60)
Preferred stock transactions(1)....................... -- -- (48)
------ ------ -----
Earnings attributable to common shareholders
(Basic)............................................ $ 719 $ 872 $ 425
Interest on convertible debentures, net of tax........ -- -- 2
Other................................................. -- -- 1
------ ------ -----
Earnings attributable to common shareholders
(Diluted).......................................... $ 719 $ 872 $ 428
====== ====== =====
SHARES (MILLIONS)
Weighted average shares outstanding (Basic)........... 56.5 58.8 56.1
Convertible preferred stock........................... 47.1 35.9 24.0
Incremental shares related to convertible debentures
and other.......................................... 1.6 2.7 4.5
------ ------ -----
Weighted average number of shares (Diluted)........... 105.2 97.4 84.6
====== ====== =====
EARNINGS PER SHARE
Basic................................................. $12.71 $14.83 $7.57
Diluted............................................... $ 6.83 $ 8.95 $5.06
</TABLE>

- - -------------------------
(1) 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 paid in capital invested
representing the excess of the fair value of the new securities over the
carrying value of Series B. Also, during 1996, 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.

At December 31, 1998, stock options to purchase 1,328,912 shares of common
stock were outstanding, but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common shares.

(6) AFFILIATES

United owns 32% of Galileo International, Inc. ("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 retained earnings is approximately $218 million of
undistributed earnings of Galileo and its

A-29
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

predecessor companies. The market value of United's investment in Galileo at
December 31, 1998 and 1997 was $1,455 million and $924 million, respectively.

In July 1997, United completed the sale of its interest in the Apollo
Travel Services Partnership ("ATS") a 77% owned affiliate whose accounts were
consolidated, to Galileo for $539 million in cash. See Other Information, "Sale
of Affiliate" in Management's Discussion and Analysis of Financial Condition and
Results of Operations for further details on the transaction.

Under operating agreements with Galileo, United purchases computer
reservations services from Galileo and during 1998 provided communications
services to Galileo while during 1997 and 1996 provided marketing, sales and
communication services to Galileo. Revenues derived from the sale of services to
Galileo amounted to approximately $13 million in 1998, $159 million in 1997 and
$249 million in 1996. The cost to United of services purchased from Galileo
amounted to approximately $170 million in 1998, $134 million in 1997 and $114
million in 1996. In connection with the sale of ATS, United entered into an
additional services agreement with Galileo under which the Company will provide
certain marketing and other services designed to increase the competitiveness of
Galileo's business and to generate additional bookings and revenues for Galileo.
Under this agreement, United could receive additional consideration in the sixth
year following the sale, based on specified improvements in air booking revenues
over a five-year period.

Prior to the sale to Galileo, ATS contributed the following amounts to the
Company's consolidated results, net of intercompany eliminations and minority
interests:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
(IN MILLIONS) 1997 1996
- - ------------- ---- ----
<S> <C> <C>
Operating revenues.......................................... $147 $239
Operating income............................................ $ 63 $ 86
Earnings before income taxes................................ $ 50 $ 70
</TABLE>

(7) INCOME TAXES

In 1998, the alternative minimum tax ("AMT") liability of the Company
exceeded the regular tax liability resulting in additional 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. If the regular tax liability
exceeds the AMT liability and AMT credits are available, then AMT credits are
used to reduce the net tax liability to the amount of the AMT liability.

A-30
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- - ------------- ---- ---- ----
<S> <C> <C> <C>
Current --
Federal.................................................. $113 $312 $281
State.................................................... 9 55 20
---- ---- ----
122 367 301
---- ---- ----
Deferred --
Federal.................................................. 270 178 47
State.................................................... 37 16 22
---- ---- ----
307 194 69
---- ---- ----
$429 $561 $370
==== ==== ====
</TABLE>

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

<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- - ------------- ---- ---- ----
<S> <C> <C> <C>
Income tax provision at statutory rate..................... $440 $533 $339
State income taxes, net of federal income tax benefit...... 30 46 28
ESOP dividends............................................. (33) (25) (13)
Nondeductible employee meals............................... 24 26 25
Tax credits................................................ (7) (2) (2)
Other, net................................................. (25) (17) (7)
---- ---- ----
$429 $561 $370
==== ==== ====
</TABLE>

Temporary differences and carryforwards that give rise to a significant
portion of deferred tax assets and liabilities for 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
(IN MILLIONS) ASSETS LIABILITIES ASSETS LIABILITIES
- - ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Employee benefits, including
postretirement medical and
ESOP........................ $ 964 $ 130 $ 918 $ 156
Depreciation, capitalized
interest and transfers of
tax benefits................ -- 1,937 -- 1,466
Gains on sale and
leasebacks.................. 368 -- 398 --
Rent expense.................. 411 -- 382 --
AMT credit carryforwards...... 198 -- 137 --
Other......................... 773 789 422 470
------ ------ ------ ------
$2,714 $2,856 $2,257 $2,092
====== ====== ====== ======
</TABLE>

At December 31, 1998, UAL and its subsidiaries had $198 million of federal
AMT credits and $8 million of foreign tax credits which may be carried forward
to reduce the tax liabilities of future years.

A-31
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) 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 that restricts
United's ability to grant liens on or otherwise encumber certain identified
assets with a market value of approximately $1.1 billion.

In addition, United had outstanding $184 million under a separate
short-term borrowing facility, bearing an average interest rate of 5.50%.
Receivables amounting to $358 million were pledged by United to secure repayment
of such outstanding borrowings. The maximum available borrowing amount under
this arrangement is $227 million.

(9) 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, 1998):

<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997
------------- ------ ------
<S> <C> <C>
Secured notes, 5.13% to 8.99%, averaging 6.74%,
due through 2014............................... $1,389 $1,295
Debentures, 9.00% to 11.21%, averaging 9.97%, due
through 2021................................... 785 785
Promissory notes, 5.63% to 11.00%, averaging
6.13%, due through 2000........................ 13 70
Commercial paper, 5.42%, due through 2003........ 591 --
Special facility bonds, 5.63%, due 2034.......... 190 190
------ ------
2,968 2,340
------ ------
Less: Unamortized discount on debt............... (12) (13)
Current maturities.......................... (98) (235)
------ ------
$2,858 $2,092
====== ======
</TABLE>

In March 1998, the Company, through a special-purpose financing entity that
is consolidated, issued $604 million of commercial paper to refinance certain
lease commitments. Although the issued commercial paper has short maturities,
the Company expects to continually rollover this obligation throughout the
5-year life of its supporting liquidity facility or bank standby facility. As
such, the commercial paper is classified as a long-term obligation in the
Company's statement of financial position.

In addition to scheduled principal payments, in 1997 the Company repaid $84
million in principal amount of secured notes and $51 million in principal amount
of debentures prior to maturity. These obligations were scheduled to mature at
various times from 2000 through 2021. An extraordinary loss of $9 million, net
of tax benefits of $5 million was recorded reflecting amounts paid in excess of
the debt carrying value.

In 1997, the California Statewide Communities Development Authority (the
"Authority") issued $190 million in special facilities revenue bonds to finance
the

A-32
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

acquisition and construction of certain facilities at the Los Angeles
International Airport ("LAX") which United guarantees payment of under a payment
agreement with the Authority. The bond proceeds are restricted to expenditures
on the LAX facilities and unspent amounts are classified as other assets in the
balance sheet.

At December 31, 1998, United had outstanding a total of $1.456 billion of
long-term debt bearing interest rates at 22 to 47.5 basis points over LIBOR.

Maturities of long-term debt for each of the four years after 1999 are:
2000 -- $188 million; 2001 -- $83 million; 2002 -- $597 million; and
2003 -- $555 million. Various assets, principally aircraft, having an aggregate
book value of $1.522 billion at December 31, 1998, were pledged as security
under various loan agreements.

(10) 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, 1998, 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
------------------------ CAPITAL
(IN MILLIONS) AIRCRAFT NON-AIRCRAFT LEASES
- - ------------- -------- ------------ -------
<S> <C> <C> <C>
Payable during --
1999........................................... $ 869 $ 451 $ 317
2000........................................... 882 447 308
2001........................................... 865 439 399
2002........................................... 854 420 341
2003........................................... 892 413 242
After 2003..................................... 10,729 6,537 1,759
------- ------ -------
Total minimum lease payments........... $15,091 $8,707 3,366
Imputed interest (at rates of 5.3% to 12.2%)..... (1,077)
======= ====== =======
Present value of minimum lease payments.......... 2,289
Current portion.................................. (176)
-------
Long-term obligations under capital leases....... $ 2,113
=======
</TABLE>

As of December 31, 1998, United leased 309 aircraft, 68 of which were under
capital leases. These leases have terms of 10 to 26 years, and expiration dates
range from 1999 through 2020.

In connection with the financing of certain aircraft accounted for as
capital leases, United had on deposit at December 31, 1998 an aggregate 38
billion yen ($330 million), 324 million German marks ($193 million), 60 million
French francs ($11 million) and $11 million in certain banks and had pledged an
irrevocable security interest in such deposits to certain of the aircraft
lessors. These deposits will be used to pay off an equivalent amount of recorded
capital lease obligations.

A-33
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amounts charged to rent expense, net of minor amounts of sublease rentals,
were $1.385 billion in 1998, $1.416 billion in 1997 and $1.424 billion in 1996.
Included in 1998 rental 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.

(11) 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, each representing
1/1000 of one share of Series B 12 1/4% preferred stock (see Note 12).
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 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, 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 fair value of the Preferred Securities at December 31, 1998 and 1997
was $90 and $106 million, respectively.

(12) SERIAL PREFERRED STOCK

At December 31, 1998, UAL had outstanding 3,203,177 depositary shares, each
representing 1/1000 of one share of Series B 12 1/4% preferred stock, with a
liquidation preference of $25 per depositary share ($25,000 per Series B
preferred share) and a stated capital of $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.

A-34
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Series B preferred stock ranks senior to all other preferred and common
stock, 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.

During 1998, UAL repurchased 64,300 depositary shares, at an aggregate cost
of $3 million, to be held in treasury.

UAL is authorized to issue up to 15,986,584 additional shares of serial
preferred stock.

(13) ESOP PREFERRED STOCK

The following activity related 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, 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
---------- -------- ----------
Shares issued......................... 1,848,629 242,877 3,073,969
Converted to common................... (146,473) (81,127) (229,999)
Balance December 31, 1997............... 8,652,618 806,260 7,266,406
---------- -------- ----------
Shares issued......................... 2,011,812 177,166 3,073,969
Converted to common................... (213,061) (116,104) (331,620)
---------- -------- ----------
Balance December 31, 1998............... 10,451,369 867,322 10,008,755
========== ======== ==========
</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 outstanding at any time commands

A-35
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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
stock. 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."

(14) COMMON STOCKHOLDERS' EQUITY

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

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Shares outstanding at beginning of year..... 57,320,486 58,817,480 50,718,424
Stock options exercised................... 382,136 840,100 500,174
Shares issued from treasury under
compensation arrangements.............. 11,944 28,224 25,949
Shares acquired for treasury.............. (7,237,975) (3,269,393) (180,565)
Forfeiture of restricted stock............ (7,600) (25,120) (70,488)
Conversion of Series A debentures......... -- -- 7,623,092
Conversion of ESOP preferred stock........ 1,316,786 911,300 352,929
Other..................................... 18,876 17,895 (152,035)
---------- ---------- ----------
Shares outstanding at end of year........... 51,804,653 57,320,486 58,817,480
========== ========== ==========
</TABLE>

During 1998 and 1997, the Company repurchased 7,061,109 and 2,881,092
shares of common stock, respectively, at a total purchase price of $459 million
and $250 million, respectively.

In connection with the Company's stock repurchase plan, UAL sold equity put
options, which entitle the holders to sell shares of UAL common stock to the
Company at specified prices. At December 31, 1998, 500,000 put options were
outstanding at a strike price of $64.04. These put options were exercised in
January.

(15) 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

A-36
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 (credited) to earnings currently. The
expense (credit) recorded for such eligible options was $(7) million in 1998,
$14 million in 1997 and $15 million in 1996.

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. During 1997, 5,000 shares of restricted
stock were issued from treasury. No shares were issued in 1998 and 1996. As of
December 31, 1998, 221,040 shares were restricted and still nonvested.
Additionally, 309,120 shares were reserved for future awards under the plan.

SFAS No. 123 ("Accounting for Stock-Based Compensation") establishes a fair
value based method of accounting for stock options. The Company has elected to
continue using the intrinsic value method of accounting prescribed in APB 25, as
permitted by SFAS No. 123. Had compensation cost for awards been determined
based on the fair value at the grant dates consistent with the method of SFAS
No. 123, the Company's net income and earnings per share would have instead been
reported as the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C> <C>
Net income (millions)................... As reported $ 821 $ 949 $ 533
Pro forma $ 812 $ 944 $ 531
Basic earnings per share................ As reported $12.71 $14.83 $7.57
Pro forma $12.55 $14.75 $7.55
Diluted earnings per share.............. As reported $ 6.83 $ 8.95 $5.06
Pro forma $ 6.74 $ 8.94 $5.07
</TABLE>

A-37
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted-average grant date fair value of restricted shares issued was
$87.44 for shares issued in 1997. The fair value of each option grant was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:

<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Risk-free interest rate................................. 5.6% 6.4% 6.4%
Dividend yield.......................................... 0.0% 0.0% 0.0%
Volatility.............................................. 33.0% 32.0% 32.0%
Expected life (years)................................... 4.0 4.0 4.0
</TABLE>

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

<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
WTD AVG WTD AVG WTD AVG
OLD SHARE OPTIONS: SHARES EXER PRICE SHARES EXER PRICE SHARES EXER PRICE
------------------ --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.... 168,393 $121.65 356,118 $120.80 480,610 $119.95
Exercised............ (49,918) $121.67 (187,725) $120.03 (124,117) $117.49
Terminated........... -- -- -- -- (375) $124.00
--------- ------- --------- ------- --------- -------
Outstanding at end of
year................. 118,475 $121.64 168,393 $121.65 356,118 $120.80
Options exercisable at
year-end............. 118,475 $121.64 168,393 $121.65 356,118 $120.80
</TABLE>

<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
WTD AVG WTD AVG WTD AVG
NEW SHARE OPTIONS: SHARES EXER PRICE SHARES EXER PRICE SHARES EXER PRICE
------------------ --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.... 4,749,612 $ 36.27 4,828,990 $ 31.64 3,767,624 $ 23.47
Granted.............. 1,064,200 $ 81.40 449,100 $ 77.86 1,319,800 $ 53.46
Exercised............ (282,300) $ 28.79 (464,650) $ 25.58 (251,934) $ 23.52
Terminated........... (119,676) $ 57.12 (63,828) $ 57.45 (6,500) $ 32.03
--------- --------- ---------
Outstanding at end of
year................. 5,411,836 $ 45.07 4,749,612 $ 36.27 4,828,990 $ 31.64
Options exercisable at
year-end............. 3,400,607 $ 29.97 2,518,238 $ 26.63 1,881,686 $ 22.89
Reserved for future
grants at year-end... 3,422,904 4,397,428 4,782,700
Wtd avg fair value of
options granted
during the year...... $27.95 $27.40 $18.94
</TABLE>

A-38
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following information related to stock options outstanding as of
December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- ------------------------
OUTSTANDING WEIGHTED- WEIGHTED- EXERCISABLE WEIGHTED-
AT AVERAGE AVERAGE AT AVERAGE
RANGE OF DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 CONTRACTUAL LIFE PRICE 1998 PRICE
--------------- ------------ ---------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Old Share Options:
$91 to 177............. 118,475 3.0 years $121.64 118,475 $121.64
New Share Options:
$20 to 29.............. 2,705,340 5.6 years $ 22.78 2,654,840 $ 22.71
$37 to 57.............. 1,264,747 7.3 years $ 52.46 636,999 $ 52.03
$60 to 88.............. 1,441,749 9.1 years $ 80.42 108,768 $ 77.87
--------- ---------
5,411,836 3,400,607
</TABLE>

(16) RETIREMENT AND POSTRETIREMENT PLANS

The Company has various retirement plans, both defined benefit and defined
contribution, which cover substantially all employees. The Company also provides
certain health care benefits, primarily in the U.S., to retirees and eligible
dependents, as well as certain life insurance benefits to retirees. 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.

The following table sets forth the reconciliation of the beginning and
ending balances of the benefit obligation and plan assets, the funded status and
the amounts recognized in the statement of financial position for the defined
benefit and other postretirement plans as of December 31:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
(IN MILLIONS) ---------------- ----------------
CHANGE IN BENEFIT OBLIGATION 1998 1997 1998 1997
---------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year........ $7,272 $6,133 $1,706 $1,323
Service cost................................... 276 232 48 44
Interest cost.................................. 533 477 109 107
Plan participants' contributions............... 1 1 -- --
Amendments..................................... 1 245 -- --
Actuarial (gain) loss.......................... 274 502 (169) 288
Foreign currency exchange rate changes......... 13 (14) --
Benefits paid.................................. (332) (304) (68) (56)
------ ------ ------ ------
Benefit obligation at end of year.............. $8,038 $7,272 $1,626 $1,706
====== ====== ====== ======
</TABLE>

A-39
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
CHANGE IN PLAN ASSETS 1998 1997 1998 1997
--------------------- ------ ------ ------- -------
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of
year....................................... $6,859 $5,919 $ 107 $ 103
Actual return on plan assets................. 934 1,075 8 7
Employer contributions....................... 187 173 -- --
Plan participants' contributions............. 1 1 -- --
Foreign currency exchange rate changes....... 5 (5) -- --
Benefits paid................................ (332) (304) (3) (3)
------ ------ ------- -------
Fair value of plan assets at end of year..... $7,654 $6,859 $ 112 $ 107
====== ====== ======= =======
Funded status................................ $ (384) $ (413) $(1,514) $(1,599)
Unrecognized actuarial (gains) losses........ (122) 28 19 183
Unrecognized prior service costs............. 660 648 -- --
------ ------ ------- -------
Net amount recognized........................ $ 154 $ 263 $(1,495) $(1,416)
====== ====== ======= =======
</TABLE>

<TABLE>
<CAPTION>
AMOUNTS RECOGNIZED IN THE STATEMENT OF
FINANCIAL POSITION CONSIST OF: 1998 1997 1998 1997
-------------------------------------- ------ ------ ------- -------
<S> <C> <C> <C> <C>
Prepaid (accrued) benefit cost............... $ 154 $ 263 $(1,495) $(1,416)
Accrued benefit liability.................... (275) (290) -- --
Intangible asset............................. 271 286 -- --
Accumulated other comprehensive income....... 4 4 -- --
------ ------ ------- -------
Net amount recognized........................ $ 154 $ 263 $(1,495) $(1,416)
====== ====== ======= =======
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE ASSUMPTIONS 1998 1997 1998 1997
---------------------------- ------ ------ ------- -------
<S> <C> <C> <C> <C>
Discount rate................................ 7.00% 7.25% 7.00% 7.25%
Expected return on plan assets............... 9.75% 9.75% 8.00% 8.00%
Rate of compensation increase................ 4.05% 3.85% -- --
</TABLE>

The assumed health care cost trend rates for gross claims paid were 5.0%
and 5.5% for 1998 and 1997, respectively, declining annually to a rate of 4.0%
by the year 1999 and remaining level thereafter.

The net periodic benefit cost included the following components:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------------- --------------------
(IN MILLIONS) 1998 1997 1996 1998 1997 1996
------------- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost.......................... $ 276 $ 232 $ 234 $ 48 $ 44 $ 44
Interest cost......................... 533 477 438 109 107 97
Expected return on plan assets........ (581) (531) (479) (8) (8) (8)
Amortization of prior service cost
including transition
obligation/(asset).................. 57 36 29 -- -- --
Recognized actuarial (gain)/loss...... 9 1 16 (4) (5) (5)
----- ----- ----- ---- ---- ----
Net period benefit costs.............. $ 294 $ 215 $ 238 $145 $138 $128
===== ===== ===== ==== ==== ====
</TABLE>

Total pension expense for all retirement plans (including defined
contribution plans) was $304 million in 1998, $229 million in 1997 and $252
million in 1996.

A-40
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the plans with accumulated benefit obligations in
excess of plan assets were $1.688 billion, $1.510 billion, and $1.118 billion,
respectively, as of December 31, 1998, and $1.482 billion, $1.273 billion, and
$908 million, respectively, as of December 31, 1997.

Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care trend rate would have the following effects:

<TABLE>
<CAPTION>
(IN MILLIONS) 1% INCREASE 1% DECREASE
------------- ----------- -----------
<S> <C> <C>
Effect on total service and interest cost............... $ 26 $ 21
Effect on postretirement benefit obligation............. $223 $178
</TABLE>

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

(17) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

See Quantitative and Qualitative Disclosures About Market Risk ("Market
Risk Disclosures") on page A-16 for a discussion of the Company's foreign
currency and fuel price risk management activities, and the fair value of all
significant financial instruments.

CREDIT EXPOSURES OF DERIVATIVES

The Company's theoretical risk in the derivative financial instruments
described in Market Risk Disclosures 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.

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, 1998, $1.229 billion principal amount of such bonds was
outstanding. As of December 31, 1998, UAL and United had jointly guaranteed $35
million of such bonds and United had guaranteed $1.211 billion of such bonds,
including accrued interest. The payments required to satisfy these obligations
are included in the future minimum lease payments disclosed in Note 10 "Lease
Obligations".

CONCENTRATIONS 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

A-41
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 or decrease in the near term, based on
revisions to estimates relating to the various claims.

At December 31, 1998, commitments for the purchase of property and
equipment, principally aircraft, approximated $6.8 billion, after deducting
advance payments. An estimated $2.7 billion will be spent in 1999, $1.8 billion
in 2000, $2.0 billion in 2001 and $0.3 billion in 2002 and thereafter. The major
commitments are for the purchase of B777, B747, B767, B757, A320 and A319
aircraft, which are scheduled to be delivered through 2002. These commitments,
combined with aircraft retirements, are part of the Company's plan to eventually
increase the fleet to an expected 645 aircraft at the end of 2001.

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.

In July 1998, the International Association of Machinists and Aerospace
Workers ("IAM") became the bargaining representative for United's public contact
employees and negotiations have begun regarding a contract. As a result,
approximately 82% of United's employees are represented by various labor
organizations. The labor contracts with the Air Line Pilots' Association and the
IAM become amendable in 2000. In October 1997, the Association of Flight
Attendants ratified a new contract, which will remain in effect through 2006.

(19) SEGMENT INFORMATION

During the fourth quarter of 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". United
has a global route network designed to transport passengers and cargo between
destinations in North America, the Pacific, Latin America and Europe. These
regions constitute United's four reportable segments. The accounting policies
for each of these segments are the same as those described in Note 1, "Summary
of Significant Accounting Policies", except that segment financial information
has been prepared using a management approach which is consistent with how the
Company's management internally disaggregates financial

A-42
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

information for the purpose of making internal operating decisions. UAL
evaluates performance based on United's fully distributed earnings before income
taxes. Revenues are attributed to each reportable segment based on the
allocation guidelines provided by the U.S. Department of Transportation, which
classifies flights between the U.S. and foreign designations as part of each
respective region. A reconciliation of the total amounts reported by reportable
segments to the applicable amounts in the financial statements follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------------
REPORTABLE
LATIN SEGMENT CONSOLIDATED
(IN MILLIONS) DOMESTIC PACIFIC AMERICA ATLANTIC TOTAL OTHER TOTAL
------------- -------- ------- ------- -------- ---------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue....................... $11,997 $2,843 $832 $1,846 $17,518 $ 43 $17,561
Interest income............... 33 14 3 8 58 1 59
Interest expense.............. 207 84 22 49 362 (7) 355
Equity in earnings of
affiliates.................. 41 17 4 10 72 -- 72
Depreciation and
amortization................ 520 145 45 95 805 (12) 793
Fully distributed earnings
before income taxes......... 1,641 63 68 277 2,049 36 2,085
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------
REPORTABLE
LATIN SEGMENT CONSOLIDATED
(IN MILLIONS) DOMESTIC PACIFIC AMERICA ATLANTIC TOTAL OTHER TOTAL
------------- -------- ------- ------- -------- ---------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue....................... $11,214 $3,552 $824 $1,745 $17,335 $ 43 $17,378
Interest income............... 29 13 3 6 51 1 52
Interest expense.............. 166 73 15 36 290 (4) 286
Equity in earnings of
affiliates.................. 38 17 3 8 66 -- 66
Depreciation and
amortization................ 474 159 38 76 747 (23) 724
Fully distributed earnings
before income taxes......... 1,410 589 129 347 2,475 36 2,511
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------
REPORTABLE
LATIN SEGMENT CONSOLIDATED
(IN MILLIONS) DOMESTIC PACIFIC AMERICA ATLANTIC TOTAL OTHER TOTAL
------------- -------- ------- ------- -------- ---------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue....................... $10,717 $3,438 $750 $1,412 $16,317 $45 $16,362
Interest income............... 26 11 2 5 44 13 57
Interest expense.............. 171 72 16 31 290 5 295
Equity in earnings of
affiliates.................. 38 16 3 7 64 -- 64
Depreciation and
amortization................ 509 134 39 58 740 19 759
Fully distributed earnings
before income taxes......... 1,048 423 45 139 1,655 -- 1,655
</TABLE>

A-43
<PAGE> 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
------------- ------ ------ ------
<S> <C> <C> <C>
Total fully distributed earnings for reportable
segments............................................. $2,049 $2,475 $1,655
UAL subsidiary earnings................................ 36 36 --
Less: ESOP compensation expense........................ 829 987 685
------ ------ ------
Total earnings before income taxes, distributions on
preferred securities and extraordinary item.......... $1,256 $1,524 $ 970
====== ====== ======
</TABLE>

UAL's operations involve an insignificant level of dedicated revenue
producing assets by reportable segment. The overwhelming majority of UAL's
revenue producing assets can be deployed in any of the four reportable segments.
UAL has significant intangible assets related to the acquisition of its Atlantic
and Latin American route authorities.

(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>
(IN MILLIONS) 1998 1997 1996
------------- ---- ---- -----
<S> <C> <C> <C>
Cash paid during the year for:
Interest (net of amounts capitalized)................... $234 $152 $ 244
Income taxes............................................ 160 362 242
Non-cash transactions:
Capital lease obligations incurred...................... 701 643 503
Long-term debt incurred in connection with additions to
equipment............................................ -- 185 82
Note receivables recorded in connection with the sale of
equipment and leasehold improvements................. -- 61 --
Increase (decrease) in pension intangible assets........ (15) 200 (191)
Increase in additional capital invested in connection
with the conversion of subordinated debentures to
common stock......................................... -- -- 217
Decrease in additional capital invested in connection
with the conversion of subordinated debentures to
mandatorily redeemable preferred securities.......... -- -- (102)
</TABLE>

A-44
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(21) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER YEAR
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1998:
Operating revenues.................... $4,055 $4,442 $4,783 $4,281 $17,561
Earnings from operations.............. 123 470 695 191 1,478
Net earnings.......................... $ 61 $ 282 $ 425 $ 54 $ 821
Earnings per share, basic............. $ 0.60 $ 4.43 $ 6.91 $ 0.53 $ 12.71
Earnings per share, diluted........... $ 0.34 $ 2.44 $ 3.71 $ 0.27 $ 6.83
1997:
Operating revenues.................... $4,121 $4,382 $4,640 $4,235 $17,378
Earnings from operations.............. 194 412 563 91 1,259
Earnings before extraordinary item.... 105 242 579 32 958
Extraordinary loss on early
extinguishment of debt.............. -- -- -- (9) (9)
Net earnings.......................... $ 105 $ 242 $ 579 $ 23 $ 949
Per share amounts, basic:
Earnings before extraordinary
item............................. $ 1.45 $ 3.77 $ 9.39 $ 0.21 $ 14.98
Extraordinary loss on early
extinguishment of debt........... -- -- -- (0.15) (0.15)
Net earnings........................ $ 1.45 $ 3.77 $ 9.39 $ 0.06 $ 14.83
Net earnings per share, diluted....... $ 0.92 $ 2.31 $ 5.61 $ 0.04 $ 8.95
</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.

During the third quarter of 1997, UAL recognized a pre-tax gain of $275
million on the sale of its interest in the Apollo Travel Services Partnership
(see Other Information, "Sale of Affiliate" in Management's Discussion and
Analysis of Financial Condition and Results of Operations).

A-45
<PAGE> 74

UAL CORPORATION

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

P The undersigned, having received the Notice of Annual 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
R 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,
O on such other matters as may properly come before the Annual Meeting of
Stockholders to be held at the Hyatt Regency Denver, 1750 Welton Street,
Denver, CO 80202 on May 18, 1999 at 10:00 a.m. and any adjournments or
X postponements thereof, unless otherwise specified herein.

This card or the telephonic voting procedures, when properly completed,
Y 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

[UNITED LOGO]

<PAGE> 75

<TABLE>
<S><C>
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 ANNUAL MEETING.

For Withhold For All FOR AGAINST ABSTAIN
1. ELECTION OF FIVE PUBLIC DIRECTOR NOMINEES: All All Except 2. RATIFICATION OF THE
James E. Goodwin, Gerald Greenwald, SELECTION OF ARTHUR
John F. McGillicuddy, James J. O'Connor, ANDERSEN LLP AS THE
Paul E. Tierney, Jr. INDEPENDENT ACCOUNTANTS.

FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S): ________________

DATED: _____________________________, 1999
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 here-
by revokes all proxies heretofore given by the
signer to vote at said Annual 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 ANNUAL MEETING OF STOCKHOLDERS
OF UAL CORPORATION
MAY 18, 1999
10:00 A.M.
[UNITED AIRLINES LOGO] IMPERIAL BALLROOM
HYATT REGENCY DENVER
1750 WELTON STREET
DENVER, CO

_________________________________

You must present this ticket to the UAL Corporation
representative at the entrance to the Imperial Ballroom to be
admitted to the Annual Meeting of Stockholders.
</TABLE>