<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1993 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 33-21220
UNITED AIR LINES, INC.
(Exact name of registrant as specified in its charter)
Delaware
36-2675206
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
Location: 1200 Algonquin Road, Elk Grove Township, Illinois
60007
Mailing Address: P. O. Box 66100, Chicago, Illinois
60666
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code
(708) 952-4000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filings pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
Yes [X] No [ ]
The number of shares of common stock outstanding as of March 1, 1994
was 200. Registrant is a wholly-owned subsidiary of UAL Corporation,
and there is no market for Registrant's common stock.
The Registrant meets the conditions set for the in General
Instructions J(1)(a) and J(1)(b) of Form 10-K and is omitting herein
information in response to Items 4, 10, 11, 12 and 13.
PART I
Item 1. Business
Introduction
United Air Lines, Inc. ("United" or the "Company") was
incorporated under the laws of the State of Delaware on December
30, 1968. The executive offices of the Company are located at
1200 Algonquin Road, Elk Grove Township, Illinois 60007. The
Company's mailing address is P.O. Box 66100, Chicago, Illinois
60666. The telephone number for the Company is (708) 952-4000.
United is the principal subsidiary of UAL Corporation
("UAL"), and is wholly-owned by UAL. United accounted for
virtually all of UAL's revenues and expenses in 1993. United is
a major commercial air transportation company.
Proposed Employee Investment Transaction
On December 22, 1993, the Board of Directors of UAL approved
an agreement in principle (as amended, the "Agreement in
Principle") with the Air Line Pilots Association ("ALPA") and the
International Association of Machinists ("IAM") concerning a
proposed transaction (the "Employee Investment Transaction") that
would provide a majority equity interest in UAL to certain of the
employees of United in exchange for wage and benefit concessions
and work-rule changes. In January 1994, ALPA and the IAM
ratified the Agreement in Principle. The Employee Investment
Transaction is subject to, among other conditions, execution of
definitive documentation and approval by UAL's stockholders.
The proposed Employee Investment Transaction is intended to
put in place a lower cost structure that allows United to compete
effectively in domestic markets and improve its long-term
financial competitiveness. The concessions would come from three
of United's employee groups: employees represented by ALPA,
employees represented by the IAM, and the salaried and management
employees. Employees represented by the Association of Flight
Attendants ("AFA") have been invited to participate in the
transaction, and representatives of UAL have engaged in
discussions with AFA representatives concerning such
participation but the transaction does not require their
participation to proceed.
In the proposed transaction, an employee stock ownership
plan ("ESOP") would be created to provide United employees with a
minimum of a 53% equity interest in UAL in exchange for wage and
benefit concessions and work-rule changes. The employee interest
could increase to up to 63%, depending on the average market
value of UAL's common stock in the year after the transaction
closes. The transaction would not be dependent on external
financing.
Pursuant to the terms of the Agreement In Principle, current
stockholders of UAL would receive the remaining 37% to 47% of the
new common stock and $88 per share of cash and face amount of
debt and preferred stock. The transaction would provide for the
creation of a low-cost short-haul operation to compete in
domestic markets. For additional information concerning the
Agreement in Principle and the proposed Employee Investment
Transaction, see Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operation".
Recent Developments
In January 1994, United entered into an agreement with The
Boeing Company ("Boeing") to acquire two new B747-400 aircraft in
1994, in place of options for two similar aircraft (see "Flight
Equipment" in Item 2, Properties).
In March 1994, United opened a new major aircraft
maintenance and overhaul facility ("MOC-II") in Indianapolis.
Operating under a lease with the Indianapolis Airport Authority
which expires November 30, 2031, when all phases of the
construction work are completed United will occupy approximately
300 acres of land and up to three million square feet of space,
including 15 aircraft dock positions. MOC-II will be used for
maintenance of Boeing 737 aircraft, engine repair, spare parts
storage, ground equipment maintenance, technical support and
administrative functions.
Airline Operations
United has been engaged in the air transportation of
persons, property and mail since 1934, and certain of its
predecessors began operations as early as 1926. United is one of
the world's largest investor-owned airlines as measured by
operating revenues, revenue passengers and revenue passenger
miles flown. At the end of 1993, United served 159 airports in
the United States and 32 foreign countries. During 1993, United
averaged 2,040 departures daily, flew a total of 101 billion
revenue passenger miles, and carried an average of 191,000
passengers per day.
United provides service to its domestic and international
markets principally through a system of hub airports at major
cities. Each hub provides United flights to a network of spoke
destinations as well as flights to other United hubs. This
arrangement permits travelers to fly from point of origin to more
destinations without switching carriers. Currently, United flies
from four U.S. hubs - Chicago-O'Hare International ("O'Hare"),
Denver, San Francisco International, and Dulles International
near Washington, D.C. ("Dulles") - and is the principal carrier
at each of these hubs. United also has a Pacific hub operation
at Tokyo Narita airport, and an Atlantic hub operation at London
Heathrow Airport. During the last several years, United has
strengthened the revenue-generating capability of the hub
airports by: (1) adding new spokes (new cities and airports);
(2) adding frequency on previously operated route segments; and
(3) entering into marketing agreements with smaller U.S. air
carriers which serve less populated destinations and with foreign
carriers which serve destinations that United could not serve
economically itself.
United has developed a route system covering North America,
Asia, the South Pacific, Europe and Latin America.
Within North America, East-West traffic is served by nonstop
Transcontinental flights and by the hubs at Chicago O'Hare and
Denver, while North-South traffic on the West Coast is served by
the San Francisco hub.
Within North America, United has a marketing program with
selected independent regional air carriers, known as the United
Express ("UE") program, which allows United to increase the
number of destinations served by its hub-and-spoke network. Six
regional carriers currently participate in the UE marketing
program providing connecting schedules to ten major cities also
served by United: Air Wisconsin Airlines Corporation to Chicago
and Denver; UFS, Inc. to Chicago; Mesa Airlines, Inc. to Denver
and Los Angeles; WestAir Commuter Airlines, Inc. to San
Francisco, Los Angeles, Seattle and Portland, Oregon; Great Lakes
Aviation to Chicago, Denver and Minneapolis; and Atlantic Coast
Airlines, Inc. to Washington-Dulles, Newark and Orlando.
Connecting schedules of three of these carriers result in part
from separate transfers to them in 1993 of operating assets of
Air Wisconsin, Inc., which is an indirect subsidiary of UAL
Corporation.
Within North America, United also has marketing agreements
that provide for sharing of the "UA" code on certain routes with
two other domestic air carriers, Trans World Express ("TWE") and
Aloha Airlines. Code-sharing allows an airline to expand the
marketing of its service brand by using its two-letter designator
code to designate in computerized reservations systems a
connecting flight operated by another airline on the itinerary.
Under these agreements, the UA designator code is reflected on
TWE flights between approximately 20 cities in the Northeast U.S.
which connect with United's international flights in and out of
New York John F. Kennedy International Airport ("Kennedy"), and
on Aloha Airlines' flights between and among the Hawaiian Islands
in connection with United's flights in and out of Hawaii.
Finally, North American traffic is also served by code-sharing
agreements United has with two Caribbean air carriers, ALM and
Sunaire, under which each reflects the United designator code on
its flights.
Asian traffic is served from six U.S. cities via the Tokyo
hub and with nonstop flights from San Francisco to Hong Kong,
Osaka, Seoul and Taipei; from Honolulu to Osaka; and, beginning
in 1993, from Los Angeles to Hong Kong, and from Chicago to Seoul. Effective
October 1994, United plans to offer nonstop service between Los
Angeles and Osaka and, as soon as government approvals are
received, service between Los Angeles and Ho Chi Minh City,
Vietnam, via Taipei. South Pacific traffic to Auckland,
Melbourne and Sydney is served from Los Angeles. United plans to
begin nonstop service between San Francisco and Sydney beginning
in June 1994 (subject to the approval of the Australian
government), further strengthening United's San Francisco
international hub and supplementing United's Los Angeles to
Sydney service. United also has code-sharing agreements with two
South Pacific air carriers, Ansett Australia and Ansett New
Zealand. Based on reports filed with the Department of
Transportation, United was the leading U.S. carrier in the
Pacific in 1993 in terms of revenue passenger miles. During
1993, United's Pacific Division accounted for 25% of United's
revenues.
Service between the U.S. and Europe is provided by: flights
from six U.S. cities to the London hub, with connecting service
at London to several European cities; flights from four U.S.
cities to Paris, with connecting service to two European cities;
and nonstop service from Dulles to Brussels, Frankfurt, Madrid,
Milan/Rome and, beginning in 1993, to Amsterdam, Glasgow and
Zurich; and from Chicago to Frankfurt. European traffic is also
served by United's code-sharing agreements with British Midland
and Emirates. In addition, in 1993 a comprehensive marketing
agreement was signed with Germany's flag carrier, Lufthansa, and
is awaiting governmental approvals. If approved, this worldwide
alliance would, among other things, allow code-sharing between
the two airlines on Transatlantic route segments, and would
permit United to code-share on Lufthansa flights to eight cities
in Germany beyond Frankfurt (Berlin, Cologne, Dusseldorf,
Hanover, Hamburg, Munich, Nuremberg and Stuttgart), as well as
Vienna. Similarly, the agreement would permit Lufthansa to code-
share on United flights to eleven cities in the U.S. -- five
beyond Chicago, five beyond Washington, D.C., and one beyond San
Francisco. A 1993 agreement to acquire USAir's Philadelphia-
London route was terminated due to the transaction's failure to
receive the requisite governmental approvals.
Service between the U.S. and Latin America is provided by
flights to 14 Latin American cities in 11 countries from a number
of cities in the U.S. Ten Latin American cities are served
nonstop from Miami, three nonstop from Los Angeles and four from
New York-Kennedy. United also has a code-sharing agreement with
Transbrasil.
Operating revenues attributed to United's foreign operations
were approximately $5.6 billion in 1993, $4.9 billion in 1992 and
$3.9 billion in 1991.
Selected Operating Statistics
The following table sets forth certain selected operating
data for United:
Year Ended December 31
1993 1992 1991 1990 1989
Revenue Aircraft Miles
(millions)(a) 756 695 635 597 552
Revenue Aircraft
Departures 746,665 721,504 691,402 654,555 621,113
Available Seat Miles
(millions)(b) 150,728 137,491 124,100 114,995 104,547
Revenue Passenger Miles
(millions)(c) 101,258 92,690 82,290 76,137 69,639
Revenue Passengers
(thousands) 69,814 66,692 62,003 57,598 54,859
Average Passenger Journey
(miles) 1,450 1,390 1,327 1,322 1,269
Average Flight Length
(miles) 1,013 964 918 912 888
Passenger Load Factor(d) 67.2% 67.4% 66.3% 66.2% 66.6%
Break-even Load Factor(e) 65.6% 70.4% 69.5% 66.5% 63.0%
Average Yield Per Revenue
Passenger Mile
(in cents)(f) 12.5 12.2 12.5 12.6 12.2
Cost Per Available Seat
Mile (in cents)(g) 9.3 9.6 9.8 9.6 8.9
Average Fare Per Revenue
Passenger $181.65 $169.87 $166.05 $167.26 $155.60
Average Daily Utilization
of each Aircraft
(hours:minutes)(h) 8:30 8:19 8:13 8:14 8:09
(a) "Revenue aircraft miles" means the number of miles flown in
revenue producing service.
(b) "Available seat miles" represents the number of seats
available for passengers multiplied by the number of miles those
seats are flown.
(c) "Revenue passenger miles" represents the number of miles
flown by revenue passengers.
(d) "Passenger load factor" represents revenue passenger miles
divided by available seat miles.
(e) "Break-even load factor" represents the number of revenue
passenger miles at which operating earnings would have been zero
(based on the actual average yield) divided by available seat
miles.
(f) "Average yield per revenue passenger mile" represents the
average revenue received for each mile a revenue passenger is
carried.
(g) "Cost per available seat mile" represents operating expenses
divided by available seat miles.
(h) "Average daily utilization of each aircraft" means the
average air hours flown in service per day per aircraft for the
total fleet of aircraft.
Industry Conditions
Seasonal and Other Factors. United's results of
operations for interim periods are not necessarily indicative of
those for an entire year, since the air travel business is
subject to seasonal fluctuations. United's first and fourth
quarter results normally are affected by reduced travel demand in
the fall and winter, and United's operations, particularly at its
O'Hare and Denver hubs, are often affected adversely by winter
weather. In the past, these fluctuations have generally resulted
in better operating results for United in the second and third
quarters. See Item 8, "Financial Statements and Supplementary
Data," for summarized unaudited financial data for the four
quarters of 1993 and 1992 incorporated by reference therein.
The results of operations in the air travel business have
also fluctuated significantly in the past in response to general
economic conditions. In addition, the airline business is
characterized by a high degree of operating leverage. As a
result, the economic environment and small fluctuations in
United's yield per revenue passenger mile and cost per available
seat mile can have a significant impact on operating results.
The Company anticipates that seasonal factors and general
economic conditions, in addition to industrywide fare levels,
labor and fuel costs, the competition from other airlines with
lower operating costs than United's international government
policies, and other factors, will continue to impact United's
operations.
Competition and Fares. The airline industry is highly
competitive. In domestic markets, new and existing carriers are
free to initiate service on any route. United faces competition
from other carriers on virtually every route it serves. In
United's domestic markets, these competitors include all of the
other major U.S. airlines as well as smaller carriers.
United's marketing strategy is driven by four principal
competitive factors: schedule convenience, overall customer
service, frequent flyer programs and price. United seeks to
attract travelers through convenient scheduling (particularly
during peak demand periods), high quality service, frequent flyer
programs designed to reward customer loyalty, and competitive
pricing.
During 1993, certain domestic carriers, both in and out of
bankruptcy proceedings, reorganized their operating cost
structures. These carriers, together with more recent entrants
to the airline business, and a select number of established
domestic carriers, currently have cost structures significantly
lower than United's, and therefore may be able to operate
profitably at lower fare levels. Furthermore, certain carriers
in the short-to-medium distance domestic markets have been able
to compete against major air carriers, including United, by
operating without as great a reliance upon a hub-and-spoke
system. These airlines operate efficiently through strategies
such as rapid turnaround of flights on a point-to-point basis.
The success of these carriers and such strategies has led certain
major carriers, including United, to consider ways in which
to reorganize their short-haul operations to allow them to compete
more effectively in domestic markets.
From time to time, excess aircraft capacity and other
factors such as the cash needs of financially distressed carriers
induce airlines to engage in "fare wars." Such factors can have
a material adverse impact on the Company's revenues. The Company
maintains yield and inventory management programs designed to
manage the number of seats offered in various fare categories in
order to enhance the effectiveness of fare promotions and
maximize revenue production on each flight.
In order to improve its ability to compete effectively in
the markets that it serves, United has taken several steps to
reduce its costs and capital expenditures. In January 1993,
United announced a cost reduction program, which included the
layoff of 2,800 employees in February 1993. In 1993 United
reached agreement with Boeing to convert 49 Boeing aircraft
orders into options and delay delivery of certain of the Boeing
aircraft. United also reached agreement with Airbus Industrie
("Airbus") to delay delivery of 14 A320s originally scheduled for
delivery after 1994. In addition, United announced in 1993 that
it would accelerate the retirement of 25 widebody aircraft.
United also negotiated over $100 million in annual savings from
suppliers. Finally, in 1993 United reached agreements to sell
assets related to the operation of 16 of its flight kitchens to
Dobbs International Services, Inc. and Caterair International
Corp. for $119 million in a series of phased closings which are
expected to be completed by mid-1994.
The Employee Investment Transaction, if consummated,
contemplates the creation of a low-cost, short-haul operation
within United to compete more effectively in domestic markets and
improve its long-term financial competitive position.
In its international markets, United competes with major
U.S. carriers as well as investor-owned and national flag
carriers of foreign countries. Competition in certain
international markets is subject to varying degrees of
governmental regulation (see "Government Regulation"), and in
certain instances United's foreign competitors enjoy subsidies
and other forms of governmental support which are not available
to U.S. carriers.
United and other U.S. carriers have certain advantages over
foreign air carriers in their ability to generate U.S.-origin-
destination traffic from their integrated domestic route systems.
However, the U.S. carriers are in many cases constrained from
carrying passengers to points beyond designated gateway cities in
foreign countries due to limitations in the bilateral air service
agreements with such countries or restrictions imposed
unilaterally by the foreign governments. To the extent that
foreign competitors can offer more connecting services to points
beyond these gateway cities, they have an advantage in attracting
traffic moving between these foreign points and in attracting
traffic moving between such cities and points in the United
States. Also, several foreign air carriers have sought and
obtained access to the U.S. domestic market through substantial
equity investments and code sharing arrangements with U.S.
airlines. The comprehensive marketing agreement signed in 1993
with Germany's flag carrier, Lufthansa, if approved, is also
expected to enhance the Company's competitive position in
international markets.
No material part of the business of United and its
subsidiaries is dependent upon a single customer or very few
customers. Consequently, the loss of the few largest customers
of United would not have a material adverse effect on the
Company.
Airport Access. United's operations at its principal
domestic hub, Chicago-O'Hare International Airport ("O'Hare"), as
well as at three other airports, Kennedy, New York LaGuardia
("LaGuardia"), and Washington National ("National"), are limited
by the "high density traffic airports rule" administered by the
Federal Aviation Administration ("FAA"). Under this rule, take-
off and landing rights ("slots") required for the conduct of
domestic flight operations may be bought, sold or traded. As of
December 31, 1993, United held 753 domestic air carrier slots at
O'Hare, 43 at National, 65 at LaGuardia and 11 at Kennedy. In
addition, Air Wisconsin, Inc. held (or owned the beneficial
interest in) 38 air carrier slots and 118 commuter slots at
O'Hare which are either operated by United or leased to United
Express carriers serving O'Hare. Under the high density rule
carriers are required to relinquish slots to the FAA for
reallocation if they fail to meet certain minimum use standards.
Slots for international services at O'Hare are allocated by
the FAA seasonally to both U.S. and foreign carriers based upon
the carriers' historical operations and requests for additional
capacity. The FAA holds a certain number of slots in reserve for
this purpose. Slots over that number are provided through the
withdrawal of domestic slots from carriers at O'Hare and the
reallocation of those slots for international operations of
requesting carriers. United has lost as many as 33 daily slots -
that is, slots that were being used by United three days or more
per week - during a single operating season.
During 1993, Congress amended the U.S. Department of
Transportation ("DOT") appropriations bill for fiscal year 1994.
This legislation capped for that fiscal year the number of slots
that could be withdrawn from U.S. carriers for allocation to
international operations. Also, in November 1991, United
petitioned the FAA for a repeal of the international slot
withdrawal provisions of the regulations. This petition has not,
however, been acted upon by the agency. United believes that the
number and distribution of slots it holds at the airports subject
to the high density rule are sufficient to support its current
operations. There can be no assurance, however, that additional
slots sufficient to accommodate otherwise desirable service
expansions will be available to United on satisfactory terms in
the future. There is also no assurance that the current slot
regulations will remain in effect. If an alternative to the
current system were to be adopted, no assurance can be given that
such alternative would preserve United's investment in slots
already acquired or that slots adequate for future operations
would be available.
United believes that, at present, it has a sufficient number
of leased gates and other airport facilities at the cities it
serves to meet its current and near term needs. From time to
time, expansion by United at certain airports may be constrained
by insufficient availability of gates on attractive terms.
United's ability to expand its international operations in Asia,
the South Pacific, Europe and Latin America is subject to
restrictions at many of the airports in these regions, including
noise curfews, slot controls and absence of adequate airport
facilities.
At Los Angeles and elsewhere, United and other airlines face
continuing disputes as to the level of landing fee rates and
other charges for airport operations. Recently, some of these
rates and charges have escalated rapidly.
Mileage Plus Program. United operates a frequent flyer
marketing program known as "Mileage Plus" wherein credits are
earned by flying on United or using the services of one of the
other airlines, credit card companies, car rental agencies and
hotels (the "Partners") participating in the Mileage Plus
program. The program is designed to enable United to retain and
increase the business of frequent travelers. Credits earned
under the program may be exchanged at certain plateaus for free
travel or service upgrades on United or for use with one or more
of the Partners.
When an award level is attained, United records a liability
for the incremental costs of accrued credits under the Mileage
Plus program based on the expected redemptions. United's incre
mental costs include the costs of providing service for an other
wise vacant seat including fuel, meals, certain incremental
personnel and ticketing costs. The incremental costs do not
include any contribution to overhead or profit. Awards
earned after July 1989 have an expiration date three
years from date earned. The program also contains certain
restrictive provisions, including blackout dates and capacity
controlled bookings, which substantially limit the use of the
awards on certain flights.
In 1993 United announced that the mileage levels for Mileage
Plus domestic award travel would be increased on a prospective
basis. As revised in January 1994, the Mileage Plus rules will
require 25,000 miles, instead of the 20,000 miles now required,
for award tickets issued for economy class travel within the
continental United States. Other mileage award level changes
were also announced, as was a change to a bank-account type of
system to track mileage; all changes are scheduled to take
effect February 1, 1995.
Lawsuits challenging these changes and changes to American
Airlines' frequent flyer program are pending in Illinois. While
United believes that it has the right to make the aforementioned
changes to its program, and is defending itself vigorously in the
pending litigation, an adverse court decision could restrict
United's ability to alter award levels now or in the future.
At December 31, 1993 and 1992, United estimated that the
total number of outstanding awards was approximately 7.7 million
and 7.4 million, respectively. United estimated that 5.8 million
and 5.5 million, respectively, of such awards could be expected
to be redeemed and, accordingly, had recorded a liability
amounting to $205 million and $207 million, respectively, at
December 31, 1993 and 1992. The difference between the awards
expected to be redeemed and the total awards outstanding is the
estimate, based on historical data, of awards (1) which will
never be redeemed, (2) which will be redeemed for other than free
trips, or (3) which will be redeemed on partner carriers.
The number of awards used on United were 1.6 million, 1.4
million and 1.6 million for the years 1993, 1992 and 1991,
respectively. Such awards represented 7.5%, 6.7% and 6.7% of
United's total revenue passenger miles for each period, res
pectively. With these low percentages, seat availability and
restrictions on the use of free travel awards, United believes
that the displacement, if any, of revenue passengers by users of
Mileage Plus awards is minimal.
United has agreements with certain air carriers and other
parties to utilize the Mileage Plus program and receives and
makes payments based on the earning and redemption of awards by
Mileage Plus participants with such parties.
Computer Reservations Systems. Travel agents account for a
substantial percentage of United's sales. The complexity of the
various schedules and fares offered by air carriers has fostered
the development of electronic distribution systems that display
information relating the fares and schedules of United and other
airlines to travel agents and others. United believes that the
use of such systems has been a key factor in the marketing and
distribution of airlines' products.
Before September 1993, United had an ownership interest in
two general partnerships which owned and marketed computer
reservation system ("CRS") products and services. In September
1993, The Covia Partnership ("Covia"), a 50%-owned affiliate of
United, and The Galileo Company Limited, a 25.6%-owned affiliate
of United, combined. In the combination Covia was renamed as
"Galileo International Partnership" ("Galileo"), and a second
entity, the Apollo Travel Services Partnership ("ATS"), was
formed. These two general partnerships are owned 38% and 77%,
respectively, by United through a wholly-owned subsidiary.
Galileo is held 50% by European carriers and 50% by North
American carriers. It owns the Apollo and Galileo CRSs and
markets CRS services worldwide through a system of national
distribution companies located in countries in which Galileo
operates and which are usually owned by the Galileo partner
airline resident in a particular country, or if there is none, by
Galileo or a local contractor. Galileo is used by approximately
30% of the travel agent locations outside North America, where it
has over 42,000 terminals at more than 14,000 locations.
ATS, which is held solely by the North American carriers, is
responsible for marketing, sales and support of Apollo CRS
products and services in the United States, Mexico and the
Caribbean. A third entity, Galileo Japan Partnership, a 50%-
owned affiliate of United, was also formed in September 1993 for
the purpose of distributing CRS services in Japan.
In Canada, Apollo is distributed as the "Apollo by Gemini"
product sold by the Gemini Group Limited Partnership
("Gemini"),in which Galileo owned a one-third interest. Gemini
is under a court order to dissolve by November 1994, and Air
Canada has agreed to acquire Galileo's interest in Gemini.
Galileo is in discussions concerning an alternative distribution
of its CRS products and services in Canada.
Competition among CRS vendors is intense, and services
similar to these offered by Galileo are marketed by several air
carriers and other concerns, both in the United States and
worldwide. In the European and Pacific CRS markets, various
consortia of foreign carriers have formed CRSs to be marketed in
countries in which the owning carriers have a substantial
presence.
Government Regulation
General. All carriers engaged in air transportation in the
United States, including United, are subject to regulation by the
DOT and the FAA under the Federal Aviation Act of 1958, as
amended (the "Aviation Act"). The DOT has authority to regulate
certain economic and consumer protection aspects of air
transportation. It is empowered to issue certificates of public
convenience and necessity for domestic air transportation upon a
carrier's showing of fitness; to prohibit unjust discrimination;
to prescribe forms of accounts and require reports from air
carriers; to regulate methods of competition, including the
provision and use of computerized reservation systems; and to
administer regulations providing for consumer protection,
including regulations governing the accessibility of air
transportation facilities for handicapped individuals. United's
operations require certificates of public convenience and
necessity issued by the DOT, an air carrier operating certificate
and related operations specifications issued by the FAA.
United's operations also require licenses issued by the
aviation authorities of the foreign countries United serves.
Foreign aviation authorities may from time to time impose a
greater degree of economic regulation than exists with respect to
United domestic operations.
In international markets, United competes against foreign
investor-owned and national flag carriers and U.S. carriers that
have been granted authority to provide scheduled passenger and
freight service between points in the United States and various
overseas destinations. In connection with its international
services, United is required to file with the DOT and observe
tariffs establishing the fares and rates charged and the rules
governing the transportation provided. In addition, United's
operating authorities in international markets are governed by
the aviation agreements between the United States and foreign
countries.
In certain cases, fares, rates and schedules require the
approval of the DOT and the relevant foreign governments. United
has recommended to the U.S. Congress that it consider developing
an international aviation policy that seeks enhanced access to
international markets for U.S. carriers in return for access to
U.S. markets by foreign carriers. Shifts in United States or
foreign government aviation policies can lead to the alteration
or termination of existing air service agreements that the U.S.
has with other governments, which could diminish the value of
United's international routes. For example, in 1993 the DOT
determined that the Government of Japan violated its aviation
agreement with the U.S. when it prevented United from
implementing service between Tokyo and Sydney as part of United's
New York-Tokyo-Sydney schedule. The DOT is considering various
actions against Japan. While such disputes are generally the
subject of inter-governmental negotiations, there are no
assurances that United's operating rights under the bilateral
aviation agreements and DOT-issued certificates of public
convenience and necessity can be preserved in such cases.
The DOT and the U.S. Congress have engaged from time to time
in various regulatory and legislative initiatives, respectively,
with respect to CRS activities and issues, such as the level of
booking fees, host versus non-host functionality, mandatory
dehosting, travel agency connection of third-party hardware and
software to a CRS, terms of the contracts between CRS vendors and
travel agencies, continued airline ownership of CRS vendors, and
the ability to access multiple CRS systems from a single computer
terminal. New regulatory or legislative initiatives in many of
these areas, if enacted, could have a material adverse effect
upon CRS vendors in general and ATS and United in particular.
Safety. The FAA has regulatory jurisdiction over flight
operations generally, including equipment, ground facilities,
maintenance, communications and other matters. In order to
ensure compliance with its operational and safety standards, the
FAA requires air carriers to obtain operating, airworthiness and
other certificates.
United's aircraft and engines are maintained in accordance
with the standards and procedures recommended and approved by the
manufacturers and the FAA. For all of its engines, United
utilizes a "condition monitoring" maintenance program so that the
schedule for engine removals and overhauls is based on
performance trend monitoring of engine operating data. In
addition, all engines contain time-limited components, each of
which has a maximum amount of time (measured by operating hours)
or a maximum number of operating cycles (measured by takeoffs and
landings) after which the component must be removed from the
engine assembly and overhauled or scrapped. Similarly, United's
FAA-approved maintenance program specifies the number of hours or
operating cycles between inspections and overhauls of the
airframes and their component parts. The nature and extent of
each inspection and overhaul is specifically prescribed by the
approved maintenance program.
From time to time, the FAA issues airworthiness directives
("ADs") which require air carriers to undertake inspections and
to make unscheduled modifications and improvements on aircraft,
engines and related components and parts. The ADs sometimes
cause United to incur substantial, unplanned expense and
occasionally aircraft or engines must be removed from service
prematurely in order to undergo mandated inspections or
modifications on an accelerated basis. The issuance of any
particular AD may have a greater or lesser impact on United
compared to its competitors depending upon the equipment covered
by the directive.
Since 1988 the airlines, in cooperation with the FAA, have
been engaged in an in-depth review of the adequacy of existing
maintenance procedures applicable to older versions of most of
the aircraft types in general use in the airline industry. These
include certain of the Boeing and Douglas aircraft used by
United. As a part of this program, the FAA has issued ADs
requiring interim inspections and remedial maintenance
procedures. While certain of these aging aircraft ADs have
necessitated unscheduled removals from service and increased
maintenance costs, compliance is not expected to have a material
adverse impact on United's costs or operations.
Legislation enacted by the U.S. Congress required the
installation, in all types of aircraft operated by United, of a
traffic collision avoidance system (TCAS) by November 30, 1993,
and a windshear detection system by December 30, 1993. United
completed the installations of both systems prior to their
respective mandated deadline dates on all aircraft operated by
it.
Both the DOT and the FAA have authority to institute
administrative and judicial proceedings to enforce the Aviation
Act and their own regulations, rules and orders. Both civil and
criminal sanctions may be assessed for violations. The Aviation
Act provides for the assessment of civil penalties in amounts of
up to $10,000 per violation which are applicable to most cases
involving the safety of commercial aircraft operations, including
the airport security responsibilities of air carriers.
Environmental Regulations. The Airport Noise and Capacity
Act of 1990 ("ANCA") requires the phase-out by December 31, 1999
of Stage 2 aircraft operations, subject to certain waivers. The
FAA has issued final regulations which would require carriers to
modify or reduce the number of Stage 2 aircraft operated by 25%
by December 31, 1994, 50% by December 31, 1996, 75% by December
31, 1998 and 100% by December 31, 1999. Alternatively, a carrier
could satisfy compliance requirements by operating a fleet that
is at least 55% Stage 3 by December 31, 1994, 65% Stage 3 by
December 31, 1996, 75% Stage 3 by December 31, 1998 and 100%
Stage 3 by December 31, 1999. At December 31, 1993, United
operated 371 Stage 3 aircraft representing 70% of United's total
fleet, and thus is in compliance with these regulations.
The ANCA recognizes the rights of operators of airports with
noise problems to implement local noise abatement procedures so
long as such procedures do not interfere unreasonably with inter
state or foreign commerce or the national air transportation
system. ANCA generally requires FAA approval of local noise
restrictions on Stage 3 aircraft first effective after October
1990, and establishes a regulatory notice and review process for
local restrictions on Stage 2 aircraft first proposed after
October 1990. While United has had sufficient scheduling
flexibility to accommodate local noise restrictions imposed to
the present, United's operations could be adversely affected if
locally-imposed regulations become more restrictive or
widespread.
Federal Aviation Regulation Part 150, which was issued
pursuant to Title I of the Aviation Safety and Noise Abatement
Act of 1979, provides limited funding to airport operators to
formulate noise compatibility programs, and established
procedures through which such programs may be approved by the
FAA. This rule may encourage the consideration of additional
local aircraft and airport usage restrictions.
The Environmental Protection Agency regulates operations,
including air carrier operations, which affect the quality of air
in the United States. United has made all necessary
modifications to its operating fleet to meet emission standards
issued by the Environmental Protection Agency ("EPA").
Federal and state environmental laws require that
underground storage tanks (USTs) be upgraded to new construction
standards and equipped with leak detection by December 22, 1998.
These requirements are phased into effect based on the age,
construction and use of existing tanks. United operates a number
of underground and above ground storage tanks throughout its
system, primarily used for the storage of fuels and deicing
fluids. A program for the removal or upgrading of USTs and
remediation of any related contamination has been ongoing since
1987. Compliance with these federal and state UST regulations is
not expected to have a material adverse effect on United's
financial condition.
United has been identified by the EPA as a potentially
responsible party with respect to Superfund sites involving soil
and groundwater contamination at the Bay Area Drum Site in San
Francisco, California, the Chemsol, Inc. Site in Piscataway, New
Jersey, the Petrochem/Ekotek Site in Salt Lake City, Utah, the
Monterey Park Site at Monterey Park, California, the West Contra
Costa Sanitary Landfill Site in Richmond, California, and the
Douglasville Site in Berks County, Pennsylvania. Because of the
limited nature of the volume of pollutants allegedly contributed
by United to the above Superfund sites, the outcome of these
matters is not expected to have a material adverse effect on
United's financial condition.
United is aware of soil and groundwater contamination
present on its leaseholds at several U.S. airports, with the most
significant locations being San Francisco International Airport,
Kennedy, Seattle Tacoma International Airport, Spokane
International Airport, and Stapleton International Airport in
Denver (which is expected to close in the Spring of 1994 due to
the opening of a new airport for Denver). United is
investigating these sites, assessing its obligations under
applicable environmental regulations and lease agreements, and
where appropriate remediating these sites. Remediation of these
sites, for which United may be responsible, is not expected to
have a material adverse effect on United's financial condition.
Other Government Matters. Besides the DOT and the FAA,
other federal agencies with jurisdiction over certain aspects of
United's operations are the Department of Justice (Antitrust
Division and Immigration and Naturalization Service), the Equal
Employment Opportunity Commission, the Occupational Safety and
Health Administration, the Department of Labor (the Office of
Federal Contract Compliance Programs of the Employment Standards
Administration), the National Labor Relations Board, the National
Mediation Board, the National Transportation Safety Board, the
Treasury Department (U.S. Customs Service), the Federal
Communications Commission (due to use of radio facilities by
aircraft), and the United States Postal Service (carriage of
domestic mail). In connection with its service to cities in
other countries, United is subject to varying degrees of
regulation by foreign governments. United has no existing
obligation to the Civil Reserve Air Fleet.
Fuel
United's results of operations are significantly affected by
the price and availability of jet fuel. Based on 1993 fuel
consumption, every $.01 change in the average annual
price-per-gallon of jet fuel caused a change of approximately $27
million in United's annual fuel costs. The table below shows
United's fuel expenses, fuel consumption, average price per
gallon and fuel as a percent of total operating expenses for
annual periods from 1989 through 1993:
1993 1992 1991 1990 1989
Fuel expense,
including tax
(in millions) $1,718 $1,679 $1,674 $1,811 $1,353
Gallons consumed
(in millions) 2,699 2,529 2,338 2,253 2,128
Average cost per
gallon (in cents) 63.6 66.4 71.6 80.4 63.6
% of total
operating
expenses 12% 13% 14% 16% 15%
United's average fuel cost per gallon in 1993 was 4.2% lower
than in 1992. Changes in fuel prices are industry-wide
occurrences that benefit or harm United's competitors as well as
United. Accordingly, lower fuel prices may be offset by
increased price competition and lower revenues for all air
carriers, including United. There can be no assurance that
United will be able to increase its fares in response to any
increases in fuel prices in the future.
In order to assure adequate supplies of fuel and to provide
a measure of control over fuel costs, United continues to ship
fuel on major pipelines, maintains fuel storage facilities, and
trades fuel to locations where it is needed. In 1993, almost all
of United's fuel was purchased under contracts with major U.S.
and international oil companies. Most of these contracts are
terminable by either party on short notice. United also
purchases minor volumes of fuel on the spot market at some
domestic locations. In addition, United purchases foreign fuel
on a spot basis from the Middle East, Caribbean and Far East.
Although United has not experienced any problem with fuel
availability in the past few years and does not anticipate any in
the near future, it is impossible to predict the future
availability of jet fuel. If there were major reductions in the
availability of jet fuel, United's business would be adversely
affected.
Insurance
United carries liability insurance of a type customary in
the air transportation industry, in amounts which it deems
adequate, covering passenger liability, public liability and
property damage liability. Insurance is subject to price
fluctuations from time to time. The amount recoverable by United
under aircraft hull insurance covering all damage to its aircraft
is not subject to any deductible amount in the event of a total
loss. In the event of a partial loss, however, such recovery is
subject to a per-occurrence deductible of $1,000,000 for B747s,
B757s, B767s and DC10s, $750,000 for B737-300s, and B737-500s,
and $500,000 for all other aircraft except commuter aircraft, for
which the deductible is $100,000.
Employees - Labor Matters
On December 31, 1993, United had 81,511 employees
(approximately ten percent of whom are part-time employees).
Approximately 64% of United's employees were represented by
various labor organizations.
The employee groups, number of employees, labor organization
and current contract status for each of United's major collective
bargaining groups as of December 31, 1993 are as follows:
Number of Contract Open
Employee Group Employees* Union For Amendment
Mechanics, ramp
servicemen & other
ground employees 26,984 IAM December 1, 1994**
Flight
attendants 17,330 AFA April 1, 1996
Pilots 8,022 ALPA December 1, 1994**
*The flight kitchen sales (see Item 2, Properties,
"Transfers of Assets") occurring in 1994 are expected to
reduce United's number of total employees by more than 4,000
from December 31, 1993 levels.
**If the proposed Employee Investment Transaction is
consummated, the IAM and the ALPA contracts each will not be
open for amendment until the year 1999 or 2000, depending on
when the transaction closes and whether the AFA participates
in the transaction.
United's relations with these labor organizations are
governed by the Railway Labor Act. Under this Act, collective
bargaining agreements between United and these organizations
become amendable upon the expiration of their stated term. If
either party wishes to modify the terms of any such agreement, it
must notify the other party before the contract becomes
amendable. After receipt of such notice, the parties must meet
for direct negotiations and, if no agreement is reached, either
party may request that a mediator be appointed. If no agreement
is reached, the National Mediation Board may determine, at any
time, that an impasse exists and may proffer arbitration. Either
party may decline to submit to arbitration. If arbitration is
rejected, a 30-day "cooling off" period commences, following
which the labor organization may strike and the airline may
resort to "self-help," including the imposition of its proposed
amendments and the hiring of replacement workers.
United's wage and related costs accounted for 33% of its
total operating expenses for the twelve months ended December 31,
1993. In order to enhance its competitive position, United has
taken various steps to reduce its unit costs, including the
layoffs of 2,800 employees in February 1993, the reduction in
force which is resulting from the flight kitchen sales,
reductions in non-personnel expenses and the redeployment of
certain aircraft to more profitable airports.
The long-term competitiveness of United's labor costs, and
the long-term financial stability and profitability of United, is
expected to be improve if the proposed Employee Investment
Transaction is consummated.
Item 2. Properties
Flight Equipment
As of December 31, 1993, United's aircraft fleet totaled 544
jet aircraft, of which 246 were owned and 298 were leased. These
aircraft are listed below:
Average Average
Aircraft Type No. of Seats Owned Leased* Total Age (Years)
B727-222A 147 50 25 75 15
B737-200 109 45 - 45 25
B737-200A 109 -- 24 24 14
B737-300 128 14 87 101 5
B737-500 108 28 29 57 2
B747-100 393 18 -- 18 22
B747-SP 244 2 7 9 17
B747-200 369 2 7 9 15
B747-400 398 3 19 22 2
B757-200 188 34 54 88 2
B767-200 179 19 -- 19 11
B767-300ER 206 3 20 23 1
DC10-10 287 28 13 41 19
DC10-30 298 -- 8 8 14
A320-200 144 -- 5 5 1
TOTAL OPERATING
FLEET 246 298 544 10
=== === === ==
________________
* United' s aircraft leases have initial terms of 4 to 26
years, and expiration dates range from 1994 through 2018.
Under the terms of leases for 287 of the aircraft in the
operating fleet, United has the right to purchase the
aircraft at the end of the lease term, in some cases at fair
market value and in others at fair market value or a
percentage of cost.
As of December 31, 1993, 78 of the 246 aircraft owned
by United were encumbered under transaction agreements.
In 1993 United took delivery of 43 new aircraft.
United acquired ten B737-500s, four B747-400s, 16 B757-200s,
eight B767-300ERs, and five A320-200s.
In early 1993, United revised its capital spending
plan based on reductions in its capacity requirements for the
next several years. Consistent with this reduced capital
spending plan, United reached agreement with Boeing to convert 49
firm aircraft orders into options, and to delay delivery of
certain aircraft originally scheduled for delivery between 1993
and 1996 into the 1996-1999 period. Under the terms of the
agreement, if United does not elect to confirm the delivery of
these option aircraft, it will forfeit significant deposits.
United also reached agreement with Airbus to delay delivery of 14
A320s originally scheduled for delivery after 1994. In addition,
United announced in 1993 that it would accelerate the retirement
of 25 widebody aircraft, including 15 DC10-10s and ten B747-SPs,
retiring them prior to the end of 1994; six of these 25 widebody
aircraft (five DC10-10s and one B747-SP) were retired in 1993.
As a result of these new agreements, as of December
31, 1993, United had taken delivery of all aircraft on order,
with the exception of 34 B777-200 aircraft, which are scheduled
to be delivered between 1995 and 1999. In addition to the B777-
200 order, United has arrangements with Airbus and A320 engine
manufacturer International Aero Engines to lease an additional 45
A320-200 aircraft, which are scheduled for delivery through 1998.
At December 31, 1993, United also had purchase options for 186
B737 aircraft, 54 B757-200 aircraft, 34 B777-200 aircraft, 52
B747-400 aircraft, 8 B767-300ER aircraft and 50 A320-200.
In January 1994, United entered into an agreement with
Boeing to acquire two new B747-400 aircraft in 1994, in place of
options for two similar aircraft. These two aircraft orders
fulfill part of United's obligation to Boeing under the 1993
restructuring agreement described above.
The following table sets forth United's firm aircraft
orders, options and expected delivery schedules as of December
31, 1993:
Order Status Aircraft Type Number To Be Delivered
Delivery Rate
Firm Orders B777-200 34 1995-1999 0-3 per month
Total-Firms 34*
Options** B737*** 186 1996-2002 0-5 per month
B747-400* 52 1996-2003 2-10 per year
B757-200 54 1996-1999 0-2 per month
B767-300ER 8 1997-1999 0-1 per month
B777-200 34 1998-2000 1 per month
A320-200 50 1996-2001 1-3 per month
Total-Options384
________________
* In addition, United has agreed to lease an additional 45
A320-200 aircraft. Deliveries of these aircraft are
expected to occur between 1994 and 1998. Also, in January
1994, United entered into an agreement with Boeing to
acquire two new B747-400 aircraft in 1994, in place of
options for two similar aircraft.
** Rate of deliveries with respect to option aircraft assumes
that all options are exercised and that all orders subject
to reconfirmation are confirmed by United.
*** Models 300, 400 and 500, at United's discretion.
Ground Facilities
In the vicinity of O'Hare, United owns a 106 acre complex
consisting of over one million square feet of office space for
its executive headquarters, a computer facility, and a training
center. United operates reservation centers in or near eight
U.S. cities - Chicago, Denver, Detroit, Honolulu, Los Angeles,
San Francisco, Seattle and Washington, D.C. United also operates
133 city ticket offices in the U.S., plus offices in the Pacific
and European countries served by United.
United's Maintenance Operation Center ("MOC") at San
Francisco International Airport occupies 144 acres of land, three
million square feet of floor space and 12 aircraft hangar docks,
under leases expiring in 2013. Virtually all major aircraft and
component maintenance for United's fleet occurs at the MOC,
including aircraft acceptance and flight testing, and the
installation, testing and repairing of engines, electronics, and
interior fittings. United also has a major facility at the
Oakland, California airport which is dedicated to airframe
maintenance and which includes a hangar with sufficient space to
accommodate maintenance work on four wide-bodied aircraft
simultaneously. As of December 31, 1993, United employed more
than 11,970 mechanics, inspectors, engineers, and maintenance
support personnel at the MOC and over 1,660 at the Oakland
facility. United also has line aircraft maintenance employees
and facilities at 36 domestic and 18 international locations.
In March 1994, United opened a new major aircraft
maintenance and overhaul facility ("MOC-II") in Indianapolis.
Operating under a lease with the Indianapolis Airport Authority
which expires November 30, 2031. When all phases of the
construction work are completed, as scheduled, in 2004, United
will employ 6,300 people at MOC-II, and will occupy approximately
300 acres of land and up to three million square feet of space,
including 15 aircraft dock positions. MOC-II will be used for
maintenance of Boeing 737 aircraft, engine repair, spare parts
storage, ground equipment maintenance, technical support and
administrative functions.
In Spring 1994 United expects to relocate its Denver hub
operations to the new Denver International Airport. Under a new
30-year lease and use agreement, expiring in 2023, United
eventually will occupy 44 gates and over one million square feet
of exclusive terminal building space. The new airport is located
northeast of Stapleton International Airport and approximately 25
miles from downtown Denver. Upon the opening of the new airport,
Stapleton will be closed to all aircraft operations. United's
flight training center will continue to be located near Stapleton
and is under lease, including options to extend, until 2018.
This flight training center consists of four buildings with a
total of 300,000 square feet located on 22 acres of land
adjoining Stapleton. The flight training center accommodates 26
flight simulators and over 90 computer-based training stations,
as well as cockpit procedures trainers, autoflight system
trainers and emergency evacuation trainers.
United has entered into various leases relating to its use
of airport landing areas, gates, hangar sites, terminal buildings
and other airport facilities in most of the municipalities it
serves. In many cases United has constructed, at its expense,
the buildings it occupies on its leased properties. In general,
buildings and fixtures constructed by United on leased land are
the property of the lessor upon the expiration of such leases.
United also has leased and improved ticketing, sales and general
office space in the downtown and outlying areas of most of the
larger cities in its system. United believes its facilities are
suitable and adequate for its current requirements. United will
continue to acquire equipment and facilities as necessary to
support its airline operations.
Transfers of Assets
In third quarter of 1993, United reached agreements to sell,
lease or otherwise transfer assets related to the operation of 16
of its 17 domestic flight kitchens to Dobbs International
services, Inc. and Caterair International Corp. for $119 million
in a series of phased closings that commenced in December 1993
and are expected scheduled to continue through mid-1994. Under
the agreements, the purchasers will provide catering services for
United at the airports served by the flight kitchens for seven years.
Item 3. Legal Proceedings
The Company is involved from time to time in legal
proceedings incidental to the ordinary course of its business.
Such proceedings include claims brought by and against the
Company or its subsidiaries including claims seeking substantial
compensatory and punitive damages. Such claims arise from
routine commercial disputes as well as incidents resulting in
bodily injury and damage to property. The Company believes that
the potential liabilities in all of bodily injury and property
damage actions are adequately insured and none of the other
actions are expected to have any material adverse effect on the
Company or its subsidiaries.
Noise Proceedings
United may be affected by legal proceedings brought by
owners of property located near certain airports. Plaintiffs
generally seek to enjoin certain aircraft operations and/or to
obtain damages against airport operators and air carriers as a
result of alleged aircraft noise or air pollution. Any liability
or injunctive relief imposed against airport operations or air
carriers could result in higher costs to United and other air
carriers.
The ultimate disposition of the matters discussed in Item 3
hereof, and other claims affecting the Company, are not expected
to have a material adverse effect on the Company's financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders
Omitted pursuant to General Instruction J (2) (c) of Form 10-
K.
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
United is a wholly-owned subsidiary of UAL Corporation.
Item 6. Selected Financial Data
Year Ended December 31
1993 1992 1991 1990 1989
(In Millions)
Operating revenues $14,354 $12,725 $11,660 $11,023 $9,773
Earnings (loss) before
extraordinary item and
cumulative effect of
accounting changes (17) (386) (335) 96 358
Extraordinary loss on early
extinguishment of debt,
net of tax (19) - - - -
Cumulative effect of
accounting changes - (547) - - -
Net earnings (loss) (36) (933) (335) 96 358
Total assets at year end 12,153 12,067 9,907 8,001 7,217
Long-term debt and capital
lease obligations, including
current portion at year end 3,614 3,628 2,531 1,326 1,404
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Proposed Employee Investment Transaction
On December 22, 1993, the Board of Directors of UAL
Corporation ("UAL"), parent company of United Air Lines, Inc.
("United"), approved a non-binding agreement in principle that
would provide a majority equity interest in UAL to the employees
of United in exchange for wage concessions and work-rule changes.
In January 1994, the agreement was ratified by the Air Line
Pilots Association ("ALPA") and the International Association of
Machinists ("IAM"). The transaction is subject to, among other
things, approval by UAL stockholders.
The employee investment plan is intended to put in place a
lower cost structure that allows United to compete effectively in
the aviation marketplace and address its long-term financial
viability. The concessions will come from three of United's
employee groups: employees represented by ALPA, employees
represented by the IAM and the salaried and management employees.
Employees represented by the Association of Flight Attendants
("AFA") have been invited to participate in the plan and UAL has
engaged in discussions with the AFA concerning such participation.
In the transaction, an Employee Stock Ownership Plan will
be created to provide United employees with a minimum of a 53%
equity interest in UAL in exchange for wage concessions and
work-rule changes. The employee interest may increase to up to
63%, depending on the average market value of UAL common stock in
the year after the transaction closes. The transaction is not
dependent on external financing.
Pursuant to the terms of the agreement in principle,
current UAL stockholders would receive the remaining 37 to 47% of
the common stock and $88 per share in cash and face amount of
debt and preferred stock. The non-common stock consideration is
expected to aggregate approximately $743 million of cash, $900
million face amount of senior unsecured debentures and $900
million face amount of preferred stock depending on the number of
common shares on which the distribution is made. While the
agreement in principle contemplates that the debentures would be
issued by UAL, such debentures could be issued by United.
The agreement includes terms for the creation of a low-cost
short-haul operation to compete in domestic markets. This
short-haul operation, in combination with the other wage and
work-rule concessions, is expected to increase United's cash
flows from operating activities.
UAL agreed that if the transaction closes prior to August
31, 1994, severance payments and employee benefits coverage
approximating $50 million would be provided by United to IAM
employees being terminated from United as a result of the recent
sale of flight kitchens (see Sale of Flight Kitchens), in
addition to payments required under United's labor contracts.
Certain of the severance payments, which are to be made on a
monthly basis, became payable in January 1994 after the unions
ratified the agreement; however, these monthly payments terminate
but are not refunded if the transaction does not close before
August 31, 1994 or certain other conditions are not met. Other
lump-sum severance amounts are payable only if the transaction
closes prior to the required date. UAL has also agreed to pay up
to $45 million of transaction fees and expenses incurred by ALPA
and the IAM if the transaction is closed by August 31, 1994. If
the transaction does not close by the required date but certain
conditions are met, UAL will pay up to $12.5 million of ALPA and
IAM transaction expenses.
Under the terms of the agreement in principle, United may
not, among other things, incur incremental debt or other
obligations, or sell certain assets, other than in the ordinary
course of business, prior to the consummation of the transaction.
In addition, after consummation of the transaction, certain
activities, including certain asset dispositions, may require a
different approval process by the UAL Board of Directors, and in
some cases the shareholders, than is currently required.
Liquidity and Capital Resources
During 1993, United's total cash, cash equivalents and
short-term investments decreased $266 million to a balance of
$966 million at December 31, 1993. Operating activities
generated $818 million. Cash was used primarily to repay
long-term debt, reduce short-term borrowings and to fund net
additions to property and equipment.
Repayments of long-term debt amounted to $664 million,
including the early extinguishment of $500 million of senior
subordinated notes in June 1993. In addition, $55 million was
used for capital lease payments during the period. Long-term
debt and capital lease obligations incurred in connection with
aircraft financings during 1993 amounted to $557 million. As a
result of the year's financing activities, United's debt:equity
ratio was 85:15 at December 31, 1993, unchanged from December 31,
1992.
During 1993, United placed 43 new aircraft in service.
These aircraft were financed primarily with long-term debt,
capital leases and operating leases. United acquired 10 B737-500
aircraft, 16 B757-200 aircraft, four B747-400 aircraft, eight
B767-300ER aircraft and five A320-200 aircraft during 1993. Of
these, 16 aircraft were purchased, 18 were purchased and then
sold and leased back, seven were acquired under operating leases
and two were acquired in capital lease transactions. Aircraft
purchases and other property additions, including aircraft
modification projects and aircraft spare parts, amounted to
$1.484 billion. Property dispositions, which included sale and
leaseback transactions and the sales of five B727 aircraft,
provided $1.156 billion.
In early 1993, United revised its capital spending plan
based on reductions in its capacity requirements for the next
several years. United reached agreement with The Boeing Company
("Boeing") to convert certain aircraft orders into options.
Under the terms of the agreement, if United does not elect to
confirm the delivery of these option aircraft before 1998, it
will forfeit significant deposits. United also announced an
agreement with Airbus Industrie ("Airbus") to delay from 1995 and
1996 to 1997 and 1998 delivery of 14 leased A320 aircraft. In
addition, United announced that it would accelerate the
retirement of 25 widebody aircraft, including 15 DC10-10s and ten
B747-SPs, retiring them prior to the end of 1994. In 1993,
United recorded a $59 million charge to reduce the net book value
of the DC-10 aircraft to estimated net realizable value.
As a result of these new agreements, as of December 31,
1993, United had taken delivery of all aircraft on order, with
the exception of 34 B777 aircraft, which are expected to be
delivered between 1995 and 1999. In addition to the B777 order,
United has arrangements with Airbus and International Aero
Engines to lease an additional 45 A320 aircraft, which are
scheduled for delivery through 1998. At December 31, 1993,
United also had options for 186 B737 aircraft, 54 B757 aircraft,
34 B777 aircraft, 52 B747 aircraft, eight B767 aircraft and 50
A320 aircraft. In January 1994, United entered into an agreement
with Boeing to acquire two B747-400 aircraft in 1994 in place of
options for two similar aircraft. United continually reviews its
fleet to determine whether aircraft acquisitions will be used to
expand the fleet or to replace older aircraft, depending on
market and regulatory conditions at the time of delivery.
Commitments for the purchase of aircraft and other property
at December 31, 1993 approximated $4.3 billion, after deducting
advance payments. An estimated $0.6 billion will be spent in
1994, $1.1 billion in 1995, $0.8 billion in 1996, $1.2 billion in
1997, $0.4 billion in 1998, and $0.2 billion after 1998. These
amounts do not include the two B747-400 aircraft to be acquired
under the January 1994 agreement referred to above.
Funds necessary to finance aircraft acquisitions are
expected to be obtained from internally generated funds,
irrevocable external financing arrangements or other external
sources. In 1993, UAL and United filed a shelf registration
statement with the Securities and Exchange Commission for up to
$1.5 billion of securities, including secured and unsecured debt,
equipment trust certificates, equity or a combination of both.
Under the terms of this shelf registration statement, a 1992
shelf and a 1991 shelf were combined with the 1993 shelf
statement. In December 1993, United issued $100 million of
debentures under the shelf registration statement. In May and
November 1993, United issued $176 million and $118 million,
respectively, of pass through certificates under the shelf
registration to refinance aircraft under operating leases. On a
combined basis, up to $1.776 billion of additional securities may
be offered at December 31, 1993. The shelf registration
statement may be utilized for purposes of registering securities
to be issued in the employee investment transaction.
United's senior unsecured debt is rated BB by Standard &
Poor's Corporation ("S & P") and Baa3 by Moody's Investors
Service Inc. ("Moody's"). These ratings reflect an October 1993
downgrade by Moody's. On December 17, 1993, Moody's announced
that it was placing United's securities under review for possible
downgrade citing reports about the potential for the employee
investment transaction. On December 20, 1993, S & P announced
that it was placing the securities on CreditWatch with developing
implications, meaning the ratings may be raised or lowered.
United is in the process of constructing a maintenance
facility in Indianapolis, which begins operation in 1994. The
facility is being financed primarily with tax-exempt bonds and
other capital sources.
As of December 31, 1993, United had a working capital
deficit of $1.608 billion. Historically, United has operated
with a working capital deficit and, as in the past, United
expects to meet all of its obligations as they become due.
Operating and financing activities in 1992 generated cash
flows of $287 million and $127 million, respectively, which more
than offset cash used for net additions to property, resulting in
a $96 million increase in cash, cash equivalents and short-term
investments. During the year, $2.458 billion was spent on
property additions, principally aircraft. United acquired 25
B737-500 aircraft, 25 B757-200 aircraft, 10 B767-300ER aircraft
and six B747-400 aircraft in 1992. Of these, 18 aircraft were
purchased, 38 were purchased and then sold and leased back and 10
were acquired in capital lease transactions. Property
dispositions provided cash proceeds of $2.363 billion. In 1992,
United also acquired certain Latin American route authorities and
other related assets from Pan American World Airways, Inc. ("Pan
Am").
During 1991, operating property additions amounted to
$2.122 billion and included the acquisition of 23 B757-200
aircraft, 18 B737-500 aircraft, five B767-300ER aircraft, four
B747-400 aircraft and seven used B747-200 aircraft. Dispositions
of property, including the sale and leaseback of 15 aircraft and
the sales of two DC8-71 aircraft and four B727-100 aircraft,
provided $1.281 billion. United also acquired international
route authorities and other assets from Pan Am, which was the
primary cause of a $358 million increase in intangibles.
However, cash provided by operating activities of $355 million
and financing activities of $827 million allowed United to
maintain a relatively stable balance of cash, cash equivalents
and short-term investments, which amounted to $1.136 billion at
December 31, 1991.
Results of Operations
United's results of operations in 1993 improved
considerably as compared to 1992. In 1993, United recorded a net
loss of $36 million, compared to a 1992 net loss of $933 million.
The 1993 results include an extraordinary loss of $19 million on
the early extinguishment of debt. The 1992 results include a
$547 million cumulative effect of adopting Statement of Financial
Accounting Standard ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" and SFAS No. 109,
"Accounting for Income Taxes." The 1993 loss before
extraordinary item was $17 million, compared to a 1992 loss
before cumulative effect of accounting changes of $386 million.
United recorded operating earnings in 1993 of $295 million
compared to an operating loss in 1992 of $496 million. The
improved performance in 1993 was benefitted by the cost reduction
program implemented in 1993, the realignment of domestic
schedules to eliminate unprofitable routes in an effort to
enhance revenue performance and the impact of a labor union
strike on a competing air carrier. United's 1992 losses were
significantly affected by uneconomic fare actions initiated by
other carriers that increased traffic and load factors to
unprecedented levels, but resulted in substantially reduced yield
(passenger revenue per revenue passenger mile).
While United's results showed improvement in 1993, the
results of operations in the airline business can fluctuate
significantly in response to general economic conditions. This
is because small fluctuations in yield and cost per available
seat mile can have a significant effect on operating results.
Thus, United believes that industrywide fare levels, increasing
low-cost competition, prolonged operations of carriers under
bankruptcy protection, general economic conditions, fuel costs,
international governmental policies and other factors over which
it has limited control, will continue to affect its operating
results.
In addition, United expects its 1994 operating results to
be impacted by increases in operating expenses of approximately
$100 million related to operations at the new Denver
International Airport, and approximately $70 million related to
employee pension costs as a result of lowering the assumed
discount rate from 8.75% to 7.5%.
1993 Compared with 1992
Operating Revenues Operating revenues increased $1.629
billion (13%). Passenger revenues increased $1.353 billion (12%)
due to a 9% increase in revenue passenger miles and a 2% increase
in yield to 12.48 cents. Domestic revenue passenger miles
increased 6% on an increase of 8% in domestic available seat
miles, resulting in a decrease of 1.0 point in domestic passenger
load factor to 65.2%. International revenue passenger miles
increased 14%. Passenger traffic increased in substantially all
international markets, especially in Latin America, where United
began service in the first quarter of 1992. Passenger load
factors increased in Latin America, the Atlantic and the Pacific.
On a system basis, available seat miles increased 10% and
passenger load factor decreased 0.2 points to 67.2%.
Cargo revenues increased $167 million (21%), due to
increases of $144 million in freight revenues and $23 million in
mail revenues. The freight revenue increase reflects both volume
and unit revenue increases largely attributable to increased
international operations. Contract services and other revenues
increased $109 million (18%) primarily as a result of revenues
generated by Apollo Travel Services Partnership ("ATS"), a
consolidated general partnership 77% owned by United, that was
formed by the 1993 merger of two affiliates of United. (see Note
3 of the Notes to Consolidated Financial Statements)
Operating Expenses Operating expenses increased $838
million (6%). United's cost per available seat mile decreased 3%
to 9.33 cents. The decrease in unit cost was largely due to the
implementation of a cost reduction program in early 1993.
Commissions increased $288 million (13%) due to increased
revenues and slightly higher cargo commission rates. Salaries
and related costs increased $208 million (5%) primarily due to
higher average wage rates and higher costs associated with
pensions and health insurance. Rentals and landing fees
increased $169 million (13%) primarily reflecting rent associated
with a larger number of aircraft on operating leases. Aircraft
maintenance increased $60 million (20%) due principally to higher
outside maintenance costs. Purchased services increased $48
million (5%) due principally to higher computer reservations fees
and higher costs associated with international operations, such
as communications, navigation charges and security. Depreciation
and amortization increased $27 million (4%) due principally to
newly acquired aircraft. Aircraft fuel expense increased $39
million, as a 7% increase in fuel consumption was partially
offset by a 4% decrease in the average price per gallon of fuel
to 63.6 cents. Other operating expenses increased $80 million
(10%) due principally to the consolidation of ATS after the
merger. Advertising and promotion decreased $51 million (24%)
and food and beverages decreased $24 million (7%) due to cost
reduction efforts.
Other Income and Expense Other expense amounted to $321
million in 1993 compared to $106 million in 1992. Interest
expense increased $31 million due primarily to increased debt and
capital lease obligations incurred in connection with aircraft
financings. Interest capitalized decreased $41 million (45%) due
to lower advance payments on new aircraft. United's equity in
the results of affiliates shifted from income of $42 million in
1992, representing United's share of Covia Partnership ("Covia")
earnings, to losses of $30 million in 1993, primarily due to a
charge recorded by Galileo International for the cost of
eliminating duplicate facilities and operations after the merger
of Covia and the Galileo Company. Included in "Miscellaneous,
net" were foreign exchange losses of $20 million in 1993 compared
to gains of $2 million in 1992. Also included in 1993 was a
charge of $59 million to reduce the net book value of 15 DC-10
aircraft to estimated net realizable value and a $17 million gain
resulting from the final settlement for overpayment of annuities
purchased in 1985 to cover certain vested pension benefits.
Interest income increased $11 million due principally to interest
received in connection with the same settlement. In 1992,
"Miscellaneous, net" also included gains on disposition of
property of $32 million, a charge of $13 million to record the
cash settlement of class action claims resulting from litigation
relating to the use of airline fare data.
1992 Compared with 1991
In 1992, United recorded a net loss of $933 million,
compared to the 1991 net loss of $335 million. The 1992 loss
before the cumulative effect of adoption of SFAS No. 106 and SFAS
No. 109 was $386 million.
Operating Revenues Operating revenues increased $1.065
billion (9%). Passenger revenues increased $1.033 billion (10%)
due to a 13% increase in revenue passenger miles partially offset
by a 2% decrease in yield to 12.19 cents. The increase in
passenger traffic was largely attributable to United's
international operations. European operations increased
significantly with the April 1991 acquisition of route
authorities from Pan Am. Latin American operations began in
January 1992 as United started serving certain former Pan Am
destinations. Pacific air travel demand also improved compared
to 1991, which was adversely impacted by the Gulf war. Domestic
traffic increased primarily as a result of fare reductions
initiated by other carriers. Domestic revenue passenger miles
increased 5% and available seat miles increased 2%, resulting in
a 2.0 point increase in domestic load factor to 66.2%. On a
system basis, United's revenue passenger miles increased 13% and
available seat miles increased 11%, resulting in a 1.1 point
increase in passenger load factor to 67.4%.
Cargo revenues increased $89 million (13%), primarily due
to increased freight revenues, reflecting both volume and unit
revenue increases as a result of expanded international
operations. Contract services and other revenues decreased $57
million (9%) primarily as a result of a decrease in fuel sales.
Operating Expenses Operating expenses increased $1.070
billion (9%). United's cost per available seat mile decreased 2%
to 9.6 cents. Salaries and related costs increased $430 million
(11%) primarily due to increased flight crew and customer service
personnel, higher average wage rates and higher costs associated
with pensions and health insurance. The increase in salaries and
related costs included $75 million related to SFAS No. 106, which
was adopted effective January 1, 1992. Rentals and landing fees
increased $212 million (20%) reflecting rent associated with an
increasing number of aircraft on operating leases and higher
airport facilities rent and landing fees, primarily related to
international operations. Commissions increased $166 million
(8%) due to increased revenues, as average commission rates
remained relatively unchanged. Purchased services increased $142
million (18%) due principally to higher computer reservations
fees and higher costs associated with international operations,
such as communications, navigation charges and security.
Depreciation and amortization increased $91 million (15%) due
principally to newly acquired aircraft. Food and beverages
increased $49 million (17%) due to a higher per passenger cost,
reflecting a passenger mix more heavily weighted by international
passengers. Aircraft fuel expense increased $5 million, as an 8%
increase United's in fuel consumption was partially offset by a
7% decrease in the average price per gallon of fuel to 66.4
cents. Aircraft maintenance decreased $57 million (16%) due
principally to lower outside maintenance costs and the retirement
of the B727-100 fleet. Other operating expenses decreased $2
million due to selling less fuel to third parties.
Other Income and Expense Other expense amounted to $106
million in 1992 compared to $22 million in 1991. Interest
expense increased $106 million due primarily to increased debt
and capital lease obligations incurred in connection with 1991
and 1992 aircraft financings. Interest income decreased $19
million due to lower interest rates. Equity in the earnings of
affiliates increased $35 million as a result of higher Covia
booking revenues and the settlement of certain partner accounts
in 1991. "Other income (expense) - Miscellaneous, net" included
foreign exchange gains of $2 million in 1992 compared to losses
of $20 million in 1991. Also included in 1992 was a charge of
$13 million to record the cash settlement of class action claims
resulting from litigation relating to the use of airline fare
data and gains of $32 million on the disposition of property,
primarily one B747-SP aircraft, seventeen B727 aircraft and four
B737-200 aircraft. In 1991, gains on the disposition of property
amounted to $49 million, which reflected sales of two DC8-71s and
four B727-100s.
Other Information
Deferred Tax Asset
United's consolidated balance sheet at December 31, 1993
includes a net cumulative deferred tax asset of $697 million.
The net deferred tax asset is composed of approximately $1.9
billion of deferred tax assets and approximately $1.2 billion of
deferred tax liabilities. The deferred tax assets include, among
other things, $598 million related to obligations for
postretirement and other employee benefits, $480 million related
to gains on sales and leasebacks and $202 million related to
alternative minimum tax ("AMT") credit carryforwards which do not
expire.
The majority of the deferred tax assets will be realized
through reversals of existing deferred tax liabilities with
similar reversal patterns. To realize the benefits of the
remaining deferred tax assets relating to temporary differences,
United needs to generate approximately $1.2 billion in future
taxable income. Based on the expectations for future taxable
income, the extended period over which postretirement benefits
will be recognized, and the indefinite carryforward period for
AMT credits, management believes it is more likely than not that
the deferred tax assets will be realized.
Although United has experienced both book and tax losses in
the past three years, in the ten years prior to these losses,
United reported cumulative taxable income of $2.8 billion
(including $400 million of gains on dispositions of businesses).
Following is a summary of United's pretax book income and taxable
income for the last five years:
(In Millions) 1993 1992 1991 1990 1989
Pretax book income (loss) $ (26) $(602) $(513) $167 $595
Taxable income (loss) $(156) $(502) $(784) $274 $638
The losses in the past three years were largely attributable
to certain events beyond management control, including the Gulf
war, the unanticipated duration of the recession in both the
U. S. and other areas of the world and the proliferation of
numerous low-cost air carriers resulting in severe competition in
the airline industry. While the economic outlook in Japan and
Europe could continue to negatively affect United's operating
results, management believes that these economies will begin to
improve, and when combined with certain cost containment
strategies, United's financial results should improve.
Management has already taken several steps to reduce costs
and capital expenditures. United's improved operating results in
1993 versus 1992 are principally attributable to these actions,
as highlighted below:
o Implemented a program in January 1993 to reduce planned 1993
operating expenses by $400 million, including the furlough
of 2,800 employees in February 1993.
o Reached agreement with Boeing, its principal supplier, to
convert 49 aircraft orders into options and defer their
scheduled delivery dates.
o Reduced 1993 to 1996 capital spending by $6 billion.
o Agreed to sell flight kitchens which will result in the
avoidance of an estimated $70 million of capital
expenditures and estimated cost savings of more than $320
million over the seven year catering contract with the
purchaser, before taking into account the severance payments
resulting from the employee investment transaction.
o Accelerated the retirement of 25 older aircraft to reduce
costs and improve operating efficiencies.
o Negotiated over $100 million in annual savings from
suppliers.
o Reduced domestic capacity by eliminating certain
unprofitable routes and reducing capacity in certain markets
to better match demand.
o Increased the use of cooperative arrangements with domestic
and international carriers resulting in increased revenue
opportunities through code-sharing.
The long-term financial stability and profitability of the
company is expected to be further enhanced through the proposed
employee investment transaction. However, in the event the
proposed employee investment transaction does not occur, United
is prepared to make additional structural changes to return to
profitablilty.
United's ability to generate sufficient amounts of taxable
income from future operations is dependent upon numerous factors,
including general economic conditions, inflation, oil prices, the
state of the industry and other factors beyond management's
control. In the event that future taxable income is inadequate
to realize the benefits of the remaining deferred tax assets,
United has identified certain tax planning strategies that would
significantly contribute to the utilization of these assets.
These strategies include, among other things, eliminating the
prefunding of certain employee benefits and the sale of unused
route authorities.
There can be no assurances that United will meet its
expectation of future taxable income. However, based on the
above factors, management believes it is more likely than not
that future taxable income will be sufficient to utilize the
cumulative deferred tax assets at December 31, 1993.
Contingencies
During 1992, United recorded a $13 million charge
representing its share of the cash component of a settlement of
certain class action claims. Under the settlement, which has
been approved by the U.S. District Court, six airlines paid
approximately $45 million in cash and will issue $397 million in
face amount of certificates affording discounts of up to
approximately 10% on future air travel on any of the six carriers.
No liability was established for the certificate portion of
the settlement since United expects that in the aggregate, future
revenues associated with certificate redemption will exceed the
cost of providing the related air service. United anticipates
that the portion of the total issued certificates that may be
redeemed on United will approximate United's 22% market share
among the six carriers, but actual redemption may be greater or
lesser.
The ultimate impact of the settlement on United's future
revenues, operating margins and earnings is not reasonably
estimable since neither the portion of the certificates to be
redeemed on United nor the generative or dilutive revenue effect
of certificate redemption is known.
United has been named as a Potentially Responsible Party at
certain Environmental Protection Agency ("EPA") cleanup sites
which have been designated as Superfund Sites. At sites where
the EPA has commenced remedial litigation, potential liability is
joint and several. United's alleged proportionate contributions
at the sites are minimal. Additionally, United has participated
and is participating in remediation actions at certain other
sites, primarily airports. The estimated cost of these actions
is accrued when it is determined that it is probable that United
is liable. Such accruals have not been material.
United has certain other contingencies resulting from
litigation and claims incident to the ordinary course of
business. Although the ultimate outcome of these matters could
have a material effect on United's financial condition, operating
results or liquidity, 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 United's financial condition,
operating results or liquidity.
New Accounting Standards
In November 1992, the Financial Accounting Standards Board
("FASB") issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which requires recognition of the
liability for postemployment benefits during the period of
employment. Such benefits include company paid continuation of
group life insurance and medical and dental coverage for certain
employees after employment but before retirement. United will
adopt the new standard in the first quarter of 1994. Based on
preliminary estimates, United currently expects to record a
transition obligation, which will result in a cumulative charge
of $26 million, net of tax. Prior years' financial statements
will not be restated. Ongoing expenses will vary based on actual
claims experience.
In May 1993, the FASB issued SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which
requires fair value accounting for certain investments. United
is required to adopt the new standard in 1994 and the standard is
not to be applied retroactively. Upon adoption, United will
record a periodic charge or credit to adjust the carrying value
of certain investments to fair value. The adjustment will be
recorded in earnings or as a separate component of equity,
depending on the type of investment. United does not expect a
material impact on either earnings or equity as a result of
adopting SFAS No. 115.
Energy Tax
The Omnibus Budget Reconciliation Act of 1993 signed into
law on August 10, 1993, imposes a 4.3 cent per gallon tax on
commercial aviation jet fuel purchased for use in domestic
operations. This new fuel tax will become effective October 1,
1995, and is scheduled to continue until October 1, 1998. Based
on United's 1993 domestic fuel consumption of 1.7 billion
gallons, the new fuel tax, when effective, is expected to
increase United's operating expenses by approximately $75 million
annually.
Foreign Currency Transactions
United generates revenues and incurs expenses in numerous
foreign currencies; however, United has limited exposure to
foreign exchange rate fluctuations due to its ability to convert
excess local currencies generated to U.S. dollars. In addition,
United has exposure to transaction gains and losses resulting
from rate fluctuation. The foreign exchange gains and losses
recorded in recent years, including losses recorded in early
1993, were primarily the result of the impact of exchange rate
changes on unhedged Japanese yen-denominated long-term debt,
lease obligations and current liabilities, since the aggregate
balance of such liabilities exceeded United's yen-denominated
assets. During 1993, United increased the amount of its
yen-denominated assets to minimize the impact of foreign exchange
rate changes on reported financial results.
Sale of Flight Kitchens
In the third quarter of 1993, United reached agreements to
sell assets related to the operation of 16 of its flight kitchens
to Dobbs International Services, Inc. and Caterair International
Corp. for $119 million. Under the agreements, the purchasers
will provide catering services for United at the airports served
by the flight kitchens for seven years. United expects the
catering agreement to result in savings of approximately $320
million over its term, before taking into account the severance
payments resulting from the employee investment transaction. The
asset sales for most, if not all, of the flight kitchens are
expected to be completed in the second quarter of 1994. The
asset sales result in an insignificant gain.
Item 8. Financial Statements and Supplementary Data
Page
Number
Report of independent public accountants 41
Consolidated financial statements -
Statement of consolidated operations for the
years ended December 31, 1993, 1992 and 1991 42
Statement of consolidated financial
position as of December 31, 1993 and 1992 43-44
Statement of consolidated cash flows for the
years ended December 31, 1993, 1992 and 1991 45
Statement of consolidated shareholder's equity
for the years ended December 31, 1993, 1992
and 1991 46
Notes to consolidated financial statements 47-66
Reference is made to Item 14(a)(2), page 68, for the Financial
Statements Schedules included in this report.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors,
United Air Lines, Inc.:
We have audited the accompanying statement of consolidated financial
position of United Air Lines, Inc. (a Delaware corporation) and subsidiary
companies as of December 31, 1993 and 1992, and the related statements of
consolidated operations, consolidated cash flows and consolidated
shareholder's equity for each of the three years in the period ended
December 31, 1993. These financial statements and the schedules referred
to below 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 financial statements referred to above present
fairly, in all material respects, the financial position of United Air
Lines, Inc. and subsidiary companies as of December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in notes 5 and 11 to the consolidated financial
statements, effective January 1, 1992, the Company changed its methods of
accounting for income taxes and postretirement benefits other than
pensions.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules referenced in
Item 14(a)(2) herein are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
February 23, 1994
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED OPERATIONS
(In Millions)
Year Ended December 31
1993 1992 1991
Operating revenues:
Passenger $12,682 $11,329 $10,296
Cargo 960 793 704
Contract services and other 712 603 660
14,354 12,725 11,660
Operating expenses:
Salaries and related costs 4,695 4,487 4,057
Commissions 2,500 2,212 2,046
Aircraft fuel 1,718 1,679 1,674
Rentals and landing fees 1,466 1,297 1,085
Purchased services 974 926 784
Depreciation and amortization 722 695 604
Aircraft maintenance 366 306 363
Food and beverages 317 341 292
Personnel expenses 260 266 239
Advertising and promotion 163 214 207
Other 878 798 800
14,059 13,221 12,151
Earnings (loss) from operations 295 (496) (491)
Other income (expense):
Interest expense (347) (316) (210)
Interest capitalized 51 92 91
Interest income 75 64 83
Equity in earnings (loss) of affiliates (30) 42 7
Miscellaneous, net (70) 12 7
(321) (106) (22)
Loss before extraordinary item,
income taxes and cumulative effect
of accounting changes (26) (602) (513)
Provision (credit) for income taxes (9) (216) (178)
Loss before extraordinary item and
cumulative effect of accounting changes (17) (386) (335)
Extraordinary loss on early
extinguishment of debt, net of tax (19) - -
Cumulative effect of accounting changes:
Accounting for postretirement
benefits, net of tax - (580) -
Accounting for income taxes - 33 -
Net loss $ (36) $ (933) $ (335)
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(In Millions)
December 31
Assets 1993 1992
Current assets:
Cash and cash equivalents $ 285 $ 454
Short-term investments 681 778
Receivables, less allowance for doubtful
accounts (1993 - $22; 1992 - $12) 1,092 1,064
Related party receivables 397 311
Aircraft fuel, spare parts and supplies, less
obsolescence allowance (1993 - $69; 1992 - $46) 277 314
Refundable income taxes 47 109
Deferred income taxes 127 34
Prepaid expenses 361 328
3,267 3,392
Operating property and equipment:
Owned -
Flight equipment 7,899 7,604
Advances on flight equipment 589 706
Other property and equipment 2,658 2,077
11,146 10,387
Less - Accumulated depreciation and amortization 4,678 4,183
6,468 6,204
Capital leases -
Flight equipment 1,027 958
Other property and equipment 104 100
1,131 1,058
Less - Accumulated amortization 395 343
736 715
7,204 6,919
Other assets:
Intangibles, less accumulated amortization
(1993 - $165; 1992 - $129) 789 800
Deferred income taxes 570 579
Other 323 377
1,682 1,756
$12,153 $12,067
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(In Millions, Except Share Data)
December 31
Liabilities and Shareholder's Equity 1993 1992
Current liabilities:
Short-term borrowings $ 315 $ 450
Long-term debt maturing within one year 125 73
Current obligations under capital leases 62 53
Advance ticket sales 1,036 1,066
Accounts payable 632 649
Accrued salaries, wages and benefits 941 903
Accrued aircraft rent 886 708
Other accrued liabilities 878 858
4,875 4,760
Long-term debt 2,603 2,694
Long-term obligations under capital leases 824 808
Other liabilities and deferred credits:
Deferred pension liability 571 576
Postretirement benefit liability 1,058 960
Deferred gains 1,400 1,430
Other 113 101
3,142 3,067
Minority interest 35 -
Shareholder's equity:
Common stock, $5 par value; authorized,
1,000 shares; outstanding 200 shares - -
Additional capital invested 839 816
Retained earnings (deficit) (95) (59)
Unearned compensation (17) (11)
Pension liability adjustment (53) (8)
674 738
Commitments and contingent liabilities (Note 13)
$12,153 $12,067
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(In Millions)
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
<S> <C> <C> <C>
Cash and cash equivalents at beginning of year $ 454 $ 437 $ 214
Cash flows from operating activities:
Net loss (36) (933) (335)
Adjustments to reconcile to net cash provided by
operating activities -
Extraordinary loss on early extinguishment
of debt 19 - -
Cumulative effect of accounting change - 547 -
Deferred pension expense 242 165 75
Deferred postretirement benefit expense 89 75 -
Depreciation and amortization 722 695 604
Foreign exchange (gains) losses 20 (2) 20
Gains on disposition of property (2) (32) (49)
Provision (credit) for deferred income taxes (59) (128) 18
Undistributed (earnings) losses of affiliates 42 (27) (4)
Decrease (increase) in receivables (20) (144) 6
Decrease (increase) in related party
receivables (39) (309) 18
Decrease (increase) in other current assets 15 (67) (89)
Increase (decrease) in advance ticket sales (31) 184 40
Increase (decrease) in accrued income taxes 39 191 (279)
Increase (decrease) in accounts payable
and accrued liabilities (124) 134 378
Amortization of deferred gains (83) (82) (82)
Other, net 24 20 34
818 287 355
Cash flows from investing activities:
Additions to property and equipment (1,484) (2,458) (2,122)
Proceeds on disposition of property and equipment 1,156 2,363 1,281
Decrease (increase) in short-term investments 114 (84) 240
Acquisition of intangibles (3) (146) (358)
Increase in loans to affiliates (22) (48) -
Other, net 7 (24) -
(232) (397) (959)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 99 197 687
Repayment of long-term debt (664) (83) (76)
Principal payments under capital leases (55) (50) (31)
Capital contributions from parent company - 60 192
Decrease in advances to parent company - - 53
Increase (decrease) in short-term borrowings (135) 1 1
Other, net - 2 1
(755) 127 827
Increase (decrease) in cash and cash equivalents
during the year (169) 17 223
Cash and cash equivalents at end of year $ 285 $ 454 $ 437
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED SHAREHOLDER'S EQUITY
(In Millions)
<TABLE>
<CAPTION>
Additional Unearned Pension
Common Capital Retained Compen- Liability
Stock Invested Earnings sation Adjustment Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $ - $567 $1,209 $ (8) $ - $1,768
Year ended December 31, 1991:
Net loss - - (335) - - (335)
Capital contributions
from parent company -
Cash contribution - 192 - - - 192
United Vacations, Inc. - (19) - - - (19)
Unearned compensation
of parent company
restricted stock plan - 15 - (15) - -
Amortization of unearned
compensation under
restricted stock plan - - - 6 - 6
Increase resulting from
exercise of parent
company stock options - 1 - - - 1
Balance at December 31, 1991 - 756 874 (17) - 1,613
Year ended December 31, 1992:
Net loss - - (933) - - (933)
Capital contribution from
parent company - 60 - - - 60
Adjustment required to
recognize minimum pension
liability - - - - (8) (8)
Amortization of unearned
compensation under
restricted stock plan - - - 5 - 5
Forfeiture of parent company
restricted stock - (1) - 1 - -
Increase resulting from
exercise of parent
company stock options - 1 - - - 1
Balance at December 31, 1992 - 816 (59) (11) (8) 738
Year ended December 31, 1993:
Net loss - - (36) - - (36)
Adjustment required to
recognize minimum pension
liability - - - - (45) (45)
Unearned compensation of
parent company restricted
stock plan - 16 - (16) - -
Amortization of unearned
compensation under
restricted stock plan - - - 9 - 9
Forfeiture of parent company
restricted stock - (1) - 1 - -
Increase resulting from
exercise of parent
company stock options - 8 - - - 8
Balance at December 31, 1993 $ - $839 $ (95) $(17) $(53) $ 674
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Consolidation-
United Air Lines, Inc. ("United") is a wholly-owned subsidiary of UAL
Corporation ("UAL"). The consolidated financial statements include the
accounts of United and all of its subsidiaries. All significant
intercompany transactions are eliminated. Investments in affiliates are
carried on the equity basis.
(b) Accounting Changes-
Effective January 1, 1992, United adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (see Note 11) and SFAS No. 109,
"Accounting for Income Taxes" (see Note 5).
(c) Airline Revenues-
Passenger fares and cargo revenues are recorded as operating revenues
when the transportation is furnished. The value of unused passenger tickets
is included in current liabilities.
(d) Foreign Currency Transactions-
Monetary assets and liabilities denominated in foreign currencies are
converted at exchange rates in effect at the balance sheet date. The
resulting foreign exchange gains and losses, and gains and losses on foreign
currency call options used to hedge foreign currency obligations, are
charged or credited directly to income.
(e) Cash and Cash Equivalents and Short-term Investments-
Cash in excess of operating requirements is pooled with funds from UAL
and its subsidiary companies and invested in short-term, highly liquid,
income-producing investments. Investments with an original maturity of
three months or less on their acquisition date are classified as cash and
cash equivalents. Cash and cash equivalents and short-term investments are
stated at cost, which approximates market value. Due to the short maturity
of these instruments, their carrying amount is a reasonable estimate of fair
value.
(f) Aircraft Fuel, Spare Parts and Supplies-
Aircraft fuel and maintenance and operating supplies are stated at
average cost. Flight equipment spare parts are stated at average cost less
an obsolescence allowance.
(g) Operating Property and Equipment-
Owned operating property and equipment is stated at cost. Property
under capital leases, and the related obligation for future minimum lease
payments, are initially recorded at an amount equal to the then present
value of those lease payments.
Depreciation and amortization of owned depreciable assets is based on
the straight-line method over their estimated service lives. Leasehold
improvements are amortized over the remaining period of the lease or the
estimated service life of the related asset, whichever is less. Aircraft
are depreciated to estimated salvage values, generally over lives of 10 to
25 years; buildings are depreciated over lives of 25 to 45 years; and other
property and equipment are depreciated over lives of three 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 19 years for aircraft
and flight simulators and 25 years to 40 years for buildings. Amortization
of capital leases is included in depreciation and amortization expense.
Gains or losses on dispositions of individual units of owned property
and equipment are reflected in earnings. 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, slots and
intangible pension assets (see Note 10). Route acquisition costs and slots
are amortized over 40 years and 5 years, respectively.
(i) Mileage Plus Awards-
United accrues the estimated incremental cost of providing free travel
awards earned under its Mileage Plus frequent flyer program when such award
levels are reached.
(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.
(k) Interest Rate Swap Agreements-
United enters into interest rate swap agreements to hedge certain
interest rate exposure. The differential to be paid or received under the
swap agreements is accrued and included in interest expense or rental
expense.
(2) Proposed Employee Investment Transaction
On December 22, 1993, the Board of Directors of UAL approved a
non-binding agreement in principle that would provide a majority equity
interest in UAL to the employees of United in exchange for wage concessions
and work-rule changes. In January 1994, the agreement was ratified by the
Air Line Pilots Association ("ALPA") and the International Association of
Machinists ("IAM"). The transaction is subject to, among other things,
approval by UAL stockholders.
In the transaction, an Employee Stock Ownership Plan will be created
to provide United employees with a minimum of a 53% equity interest in UAL
in exchange for wage concessions and work-rule changes. The employee
interest may increase to up to 63%, depending on the average market value of
UAL common stock in the year after the transaction closes. The transaction
is not dependent on external financing.
Pursuant to the terms of the agreement in principle, current UAL
stockholders would receive the remaining 37 to 47% of the common stock and
$88 per share in cash and face amount of debt and preferred stock. The
non-common stock consideration is expected to aggregate approximately $743
million of cash, $900 million face amount of senior unsecured debentures and
$900 million face amount of preferred stock depending on the number of
common shares on which the distribution is made. While the agreement in
principle contemplates that the debentures would be issued by UAL, such
debentures could be issued by United.
UAL agreed that if the transaction closes prior to August 31, 1994,
severance payments and employee benefits coverage approximating $50 million
would be provided by United to IAM employees being terminated from United as
a result of the recent sale of flight kitchens (see Note 16), in addition to
payments required under United's labor contracts. Certain of the severance
payments, which are to be made on a monthly basis, became payable in January
1994 after the unions ratified the agreement; however, these monthly
payments terminate but are not refunded if the transaction does not close
before August 31, 1994 or certain other conditions are not met. Other
lump-sum severance amounts are payable only if the transaction closes prior
to the required date. UAL has also agreed to pay up to $45 million of
transaction fees and expenses incurred by ALPA and the IAM if the
transaction is closed by August 31, 1994. If the transaction does not close
by the required date but certain conditions are met, UAL will pay up to
$12.5 million of ALPA and IAM transaction expenses.
(3) Merger of Affiliates
In September 1993, the Covia Partnership ("Covia"), a 50% owned
affiliate of United, and The Galileo Company Limited, a 25.9% owned
affiliate of United, merged. The merger resulted in the formation of the
Apollo Travel Services Partnership ("ATS") and the Galileo International
Partnership ("Galileo"), two general partnerships that are owned 77% and
38%, respectively, by United through a wholly-owned subsidiary. Galileo
owns the Apollo and Galileo computer reservations systems. ATS is
responsible for marketing, sales and support of Apollo in the United States,
Mexico and the Caribbean.
Prior to the merger, United's investments in these companies were
carried on the equity basis. As a result of the merger and United's
majority ownership of ATS, the accounts of ATS are consolidated, resulting
in non-cash increases of $78 million in assets, $46 million in liabilities
and $34 million in minority interests as of the date of the merger.
United's investment in Galileo is carried on the equity basis. The
accounting for the merger resulted in no change in the book value of the
assets and liabilities of the companies combined. During the fourth
quarter, Galileo recorded a charge for the cost of eliminating duplicate
facilities and operations. United's share of this charge was recorded in
"Equity in earnings (loss) of affiliates." The merger is expected to create
operating efficiencies by eliminating duplication.
Under operating agreements with Covia prior to the merger, United
provided certain computer support services for, and purchased computer
reservation services, communications and other information from Covia.
Revenues derived from the sale of services to Covia amounted to
approximately $21 million, $22 million and $31 million in 1993, 1992 and
1991, respectively. The cost to United of services purchased from the Covia
Partnership amounted to approximately $168 million, $219 million, and $191
million in 1993, 1992 and 1991, respectively. Under operating agreements
with Galileo subsequent to the merger, United purchases computer
reservation services from Galileo and ATS provides marketing, sales and
communication services for Galileo. Revenues derived from the sale of
services to Galileo amounted to approximately $58 million and the cost of
services purchased from Galileo amounted to approximately $47 million in
1993.
Summarized financial information for the significant entities accounted for
on the equity basis, follows.
Covia - Summarized financial information as of September 15, 1993 and
December 31, 1992 and for the period from January 1, 1993 through September
15, 1993 and the years ended December 31, 1992 and 1991 (in millions):
September 15, December 31,
1993 1992
Current assets $168 $132
Non-current assets 312 322
Total assets 480 454
Current liabilities 83 98
Long-term liabilities 44 13
Total liabilities 127 111
Net assets $353 $343
1993 1992 1991
Net services revenues $398 $527 $451
Costs and expenses 334 444 436
Income before cumulative effect
of change in accounting 64 83 15
Net income 47 83 15
Effective January 1, 1993, Covia adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions" which resulted
in a cumulative charge of $17 million.
Galileo - Summarized financial information as of December 31, 1993 and for
the period from September 16, 1993 through December 31, 1993 (in millions):
December 31,
1993
Current assets $141
Non-current assets 467
Total assets 608
Current liabilities 173
Long-term liabilities 440
Total liabilities 613
Net assets $ (5)
1993
Services revenues $186
Costs and expenses 327
Net loss (141)
During 1993, Galileo recorded $114 million of charges which included the
cost of eliminating duplicate facilities and operations.
(4) Other Income (Expense) - Miscellaneous
Other income (expense) - miscellaneous, net consisted of the
following:
1993 1992 1991
(In Millions)
Foreign exchange gains or losses $(20) $ 2 $(20)
Amortization of hedge
transaction costs (6) (4) (8)
Write down of aircraft to
net realizable value (59) - -
Gain on settlement of 1985
annuity purchases 17 - -
Net gains on disposition of property 2 32 49
Gain on sale of certain
property rights - 9 15
Settlement of class action claims
regarding airline fare data - (13) -
Other (4) (14) (29)
$(70) $ 12 $ 7
(5) Income Taxes
United, its subsidiaries and other affiliated companies file a
consolidated federal income tax return with UAL. Under an intercompany
tax allocation policy, United and its subsidiaries compute, record, and
pay UAL for their own tax liability as if they were separate companies
filing separate tax returns. In determining their own tax liabilities,
United and each of its subsidiaries take into account all tax credits or
benefits generated and utilized as separate companies, and they are
compensated for the aforementioned tax benefits only if they would be able
to use those benefits on separate company bases.
In 1993, United incurred a regular tax loss but had an alternative
minimum tax ("AMT") liability. The regular tax loss will be carried back
to reduce taxable income generated in previous years resulting in federal
and state refunds and additional AMT credits. Certain preferences, mainly
depreciation adjustments, have caused alternative minimum taxable income
to exceed regular taxable income, resulting in the AMT liability.
The provision (credit) for income taxes is summarized as follows:
1993 1992 1991
(In Millions)
Current-
Federal $ 50 $ (85) $(198)
State - (3) 2
50 (88) (196)
Deferred-
Federal (68) (114) 24
State 9 (14) (6)
(59) (128) 18
$ (9) $(216) $(178)
The income tax provision (credit) differed from amounts computed at
the statutory federal income tax rate, as follows:
1993 1992 1991
(In Millions)
Income tax provision (credit)
at statutory rate $ (9) $(205) $(174)
State income taxes, net of
federal income tax benefit 6 (11) (3)
Nondeductible employee meals 8 8 6
Foreign sales corporation
benefit (1) (6) (6)
Rate change effect (9) - -
Foreign tax credits (3) (2) (2)
Losses of foreign affiliate - - 1
Other, net (1) - -
Income tax provision (credit)
as reported $ (9) $(216) $(178)
United adopted SFAS No. 109 "Accounting for Income Taxes," effective
January 1, 1992. This statement provides for an asset and liability
approach to accounting for income taxes. United recognized a tax benefit
of $33 million for the cumulative effect of adopting SFAS No. 109.
Deferred income taxes (credit) for 1993 and 1992 reflect the impact of
"temporary differences" between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws.
These temporary differences are determined in accordance with SFAS No. 109
and are more inclusive in nature than "timing differences" as determined
under previously applicable accounting principles.
During 1991, deferred income taxes were provided for significant
timing differences in the recognition of revenue and expenses for tax and
financial statement purposes. Principally, these items consisted of the
following: $81 million for depreciation and capitalized interest, $(62)
million for gains on sale and leaseback transactions, $32 million for
gains on asset dispositions, $(24) million for rent expense, $(31) for
pension expense, $16 million for other employee benefits and $12 million
for prepaid commissions.
Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities for 1993 and
1992 are as follows:
1993 1992
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
(In Millions)
Employee benefits, including
postretirement medical $ 598 $ 31 $ 657 $ 119
Prepaid commissions - 49 - 51
Depreciation, capitalized
interest and transfers of
tax benefits - 1,105 - 1,013
Gains on sale and leasebacks 480 - 479 -
Rent expense 207 - 169 -
AMT credit carryforward 202 - 132 -
Foreign exchange
gains and losses 84 - 102 -
Frequent flyer accrual 72 - 72 -
Other 295 56 385 200
$1,938 $1,241 $1,996 $1,383
United has determined, based on its history of operating earnings,
available carrybacks, expectations for the future and potential tax
planning strategies, that it is more likely than not that the deferred tax
assets at December 31, 1993 will be realized before expiration.
The significant differences between pretax book losses and taxable
losses for the last three years were as follows (in millions):
1993 1992 1991
Pretax book loss $ (26) $(602) $(513)
Gains on sale and leasebacks 17 304 171
Depreciation, capitalized interest
and transfers of tax benefits (370) (278) (218)
Rent expense 139 127 93
Pension expense (3) (95) (194)
Other employee benefits 47 36 (67)
Gains on asset dispositions (41) (3) (110)
Other, net 81 9 54
Taxable loss $(156) $(502) $(784)
At December 31, 1993, United and its subsidiaries had $202 million of
federal AMT credit carryforwards available for an indefinite period and
$27 million of state tax benefit from net operating loss carryforwards
expiring between 1997 and 2009.
(6) Short-Term Borrowings
At December 31, 1993, United had outstanding $315 million in
short-term borrowings, bearing an average interest rate of 3.34%.
Receivables amounting to $367 million were pledged by United to secure
repayment of such outstanding borrowings. Due to the short maturity of
these borrowings, their carrying amount is a reasonable estimate of fair
value. In February 1993, United entered agreements to increase the
maximum available amount of borrowings under this arrangement from $450
million to $500 million. Pursuant to the terms of this agreement, in the
event of a change in control of United or UAL, such as the proposed
employee investment transaction, the lenders under this agreement may
decline to make new loans to United.
(7) Long-Term Debt
A summary of long-term debt, excluding current maturities, as of
December 31 is as follows (interest rates are as of December 31, 1993):
1993 1992
(In Millions)
Secured notes, 4.2125% to 11.54%, averaging
7.41%, due 1994 to 2014 $ 1,399 $ 1,057
Deferred purchase certificates, Japanese yen-
denominated, 7.75%, due 1994 to 1998 178 183
Debentures, 6.75% to 10.25%, averaging 9.36%,
due 1997 to 2021 1,000 900
Promissory notes, 3.72% to 4.38%, averaging
4.07%, due 1994 through 1998 41 76
Senior subordinated notes - 500
2,618 2,716
Unamortized discount on debt (15) (22)
$ 2,603 $ 2,694
The fair value of long-term debt, including current maturities, at
December 31, 1993 and 1992 were estimated to be $2.928 billion and $2.893
billion, respectively, based on the quoted market prices for the same or
similar issues or on the then current rates offered for debt of the same
remaining maturities.
In the second quarter of 1993, United retired $500 million of senior
subordinated notes. The notes, bearing interest at 12.5% and 13%, were
scheduled to mature in 1995 and 1998 for $150 and $350 million,
respectively. An extraordinary loss of $19 million, net of tax benefits of
$8 million, was recorded in the first quarter of 1993, based on United's
stated intention to retire the notes.
In May 1993, United issued $176 million of pass through certificates
under a 1992 shelf registration to refinance aircraft under operating
leases. In June 1993, a new shelf registration filed by UAL and United for
up to $1.5 billion of securities, including secured and unsecured debt,
equipment trust and pass through certificates, equity or a combination
thereof, was declared effective. Under the terms of the 1993 shelf
registration statement, the 1992 shelf and a 1991 shelf, under which $394
million and $100 million, respectively, of securities remained, were
combined with the 1993 shelf. In November 1993, United issued $118 million
of pass through certificates under the shelf registration to refinance
aircraft under operating leases. In December 1993, United issued $100
million of 6.75% debentures due 1997 under the shelf. On a combined basis,
up to $1.776 billion of additional securities may be offered at December
31, 1993.
In connection with 1993 aircraft financings, United issued $470
million of secured notes due through 2013. Interest rates were fixed
between 7.53% and 8.99% on $270 million of principal amount. Initial
interest rates on the remaining notes were 166 and 176 basis points over
the London interbank offered rate ("LIBOR") and will be 650 basis points
over LIBOR after nine months. In addition, during 1993, United retired $74
million of principal amount of secured notes in connection with sale and
leaseback transactions.
At December 31, 1993, United had outstanding a total of $544 million
of long-term debt bearing interest at rates 85 to 176 basis points over
LIBOR. In connection with certain of these debt financings, United has
entered interest rate swap agreements to effectively fix interest rates at
December 31, 1993 between 8.554% and 8.6% on $73 million of notional
amount. The swap agreements have terms of 18.5 years, corresponding to the
terms of the related debt obligations. Under the agreements, United makes
payments to counterparties at fixed rates and in return receives payments
based on LIBOR. In the event of default by the counterparties, United is
exposed to credit risk for periodic settlements due under the swap
agreements; however, United does not anticipate such default. The fair
values of these swap agreements at December 31, 1993 and 1992 were $8
million and $3 million, respectively, representing the estimated amount
that United would pay to terminate the swap agreements, based on interest
rates in effect at the time.
Maturities of long-term debt for each of the four years after 1994
are: 1995 -- $107 million; 1996 -- $112 million; 1997 -- $114 million; and
1998 -- $175 million.
Various assets, principally aircraft, having an aggregate book value
of $1.634 billion at December 31, 1993, were pledged under various loan
agreements.
(8) Lease Obligations
United leases aircraft, airport passenger terminal space, aircraft
hangars and related maintenance facilities, cargo terminals, flight
kitchens, real estate, office and computer equipment and vehicles.
Future minimum lease payments as of December 31, 1993, under capital
leases and operating leases having initial or remaining noncancelable lease
terms of more than one year are as follows:
Operating Capital
Leases Leases
(In Millions)
Payable during-
1994 $ 1,255 $ 144
1995 1,268 144
1996 1,249 146
1997 1,230 141
1998 1,273 145
After 1998 19,639 548
Total minimum lease payments $25,914 1,268
Imputed interest (at rates of 5.3%
to 12.2%) (382)
Present value of minimum lease payments 886
Current portion (62)
Long-term obligations under capital leases $ 824
As of December 31, 1993, United leased 298 aircraft, 45 of which
were under capital leases. These leases have terms of four to 26 years,
and expiration dates range from 1994 through 2017. Under the terms of
leases for 287 of the aircraft, United has the right of first refusal to
purchase, at the end of the lease term, certain aircraft at fair market
value and others at either fair market value or a percentage of cost.
United has five Airbus A320-200 aircraft under 24-year operating leases
which are cancelable upon eleven months notice during the initial 10 years
of the leases.
Amounts charged to rent expense, net of minor amounts of sublease
rentals, were $1.176 billion in 1993, $1.021 billion in 1992, and $854
million in 1991. Included in rent expense for 1993 and 1992 were
insignificant amounts of contingent rentals, resulting from changes in
interest rates for operating leases under which the rent payments are
based on variable interest rates. In connection with certain of these
leases, United has entered interest rate swap agreements, with terms
similar to those discussed in Note 7 - Long-Term Debt. At December 31,
1993, a notional amount of $415 million of interest rate swap agreements
effectively fixed interest rates between 8.02% and 8.65% on such leases.
The fair values of these swap agreements at December 31, 1993 and 1992
were $34 million and $8 million, respectively.
(9) Foreign Operations
United conducts operations in various foreign countries, principally
in the Pacific, Europe and Latin America. Operating revenues from foreign
operations were approximately $5.560 billion in 1993, $4.863 billion in
1992 and $3.870 billion in 1991.
(10) Retirement Plans
United has various retirement plans which cover substantially all
employees. Defined benefit plans covering certain employees (primarily
union ground employees) provide a stated benefit for specified periods of
service, while defined benefit plans for other employees provide benefits
based on employees' years of service and average compensation for a
specified period of time before retirement. Pension costs are funded to
at least the minimum level required by the Employee Retirement Income
Security Act of 1974. The company also provides several defined
contribution plans which cover substantially all U. S. employees who have
completed one year of service. For certain groups of employees (primarily
pilots), the company contributes an annual amount on behalf of each
participant, calculated as a percentage of the participants' earnings or a
percentage of the participants' contributions.
The following table sets forth the defined benefit plans' funded
status and amounts recognized in the statement of consolidated financial
position as of December 31:
1993 1992
Accumulated Assets Accumulated
Benefits Exceed Benefits
Exceed Accumulated Exceed
Assets Benefits Assets
(In Millions)
Actuarial present value of
accumulated benefit obligation $4,200 $2,179 $1,088
Actuarial present value of
projected benefit obligation $5,025 $2,705 $1,356
Plan assets at fair value 3,589 2,290 762
Projected benefit obligation
in excess of plan assets 1,436 415 594
Unrecognized net gain (loss) (624) (27) (28)
Prior service cost not yet recognized
in net periodic pension cost (455) (122) (435)
Remaining unrecognized net asset 16 70 3
Adjustment required to
recognize minimum liability 346 - 255
Pension liability recognized in the
statement of consolidated financial
position $ 719 $ 336 $ 389
For the valuation of pension obligations as of December 31, 1993 and
1992, the weighted average discount rates used were 7.5% and 8.75%,
respectively, and the rates of increase in compensation were 4.0% and 4.3%,
respectively. Substantially all of the accumulated benefit obligation is
vested.
Total pension expense for all retirement plans (including defined
contribution plans) was $346 million in 1993, $324 million in 1992, and
$252 million in 1991.
Plan assets are invested primarily in governmental and corporate debt
instruments and corporate equity securities. The expected average
long-term rate of return on plan assets at December 31 was 9.75% for 1993,
10.25% for 1992 and 11.25% for 1991.
The net periodic pension cost of defined benefit plans included the
following components:
1993 1992 1991
(In Millions)
Service cost - benefits earned
during the year $ 186 $ 180 $ 144
Interest cost on projected
benefit obligation 356 320 257
Actual return on plan assets (310) (289) (237)
Net amortization and deferral 19 24 6
Net periodic pension cost $ 251 $ 235 $ 170
(11) Postretirement Benefits
United provides certain life insurance and health care benefits for
substantially all retired employees. The estimated cost of life insurance
benefits is accrued and funded over the years of service of those
employees expected to qualify for such benefits. United provides various
defined benefit postretirement health care plans which pay stated
percentages of most necessary medical expenses incurred by retirees, after
subtracting payments by Medicare or other providers and after a stated
deductible has been met. United funds this plan as medical claims are
paid. Effective January 1, 1992, United adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". This
standard requires that the expected cost of postretirement benefits be
charged to expense during the years in which employees render service.
Upon adoption, United elected to record the transition obligation of $925
million as a one-time charge against earnings. Prior to 1992, the cost of
health care benefits was recognized as expense as claims were paid. The
total cost of these postretirement benefits was $33 million in 1991.
Information on the plans' funded status, on an aggregate basis at
December 31, follows (in millions):
1993 1992
Accumulated postretirement
benefit obligation:
Retirees $ 416 $ 442
Other fully eligible participants 236 277
Other active participants 679 416
Total accumulated postretirement
benefit obligation 1,331 1,135
Unrecognized net loss (149) (49)
Fair value of plan assets (91) (86)
Accrued postretirement benefit obligation $1,091 $1,000
Net postretirement benefit costs included the following components
(in millions):
1993 1992
Service cost - benefits attributed to
service during the period $ 38 $ 28
Amortization of unrecognized net loss 3 -
Interest cost on benefit obligation 92 83
Net postretirement benefit costs $133 $111
For the valuation of the accumulated postretirement benefit
obligation as of December 31, 1993 and 1992, the discount rate was 7.5%
and 8.75%, respectively. An 11% and 12% annual rate of increase in the
per capita cost of covered health care was assumed for 1993 and 1992,
respectively; the rate is assumed to decrease annually to a rate of 4% by
the year 2001, remaining level thereafter. The effect of a 1% increase in
the assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation at December 31, 1993, by $175 million
and the aggregate of the service and interest cost components of net
postretirement benefit cost for 1993 by $21 million.
(12) Related Party Transactions
In 1992 and 1991, UAL made capital contributions of $60 million and
$192 million, respectively, to United. In 1991, UAL also made a capital
contribution to United of its investment in United Vacations, Inc., a
wholly-owned subsidiary. At December 31, 1993 and 1992, United had
accounts receivable from UAL of $361 million and $288 million,
respectively.
Certain officers and key employees of United participate in UAL
stock award plans. Under UAL's incentive stock option program, stock
appreciation rights ("SARs") were granted in tandem with certain stock
options prior to 1992. On exercise of these SARs, holders would receive
in cash 100% of the appreciation in fair market value of the UAL shares
subject to the SAR. The estimated payment value of SARs, net of market
value adjustments, was charged to United's earnings over the vesting
period. In 1992, all active officers relinquished their SARs but retained
the tandem stock options. The expense (credit) recorded for SARs was $1
million in 1993, $(1) million in 1992 and $18 million in 1991. In
February 1994, UAL reinstated the use of SARs and 818,370 SARs were
authorized in tandem with existing options with an outstanding average
option price of $128.50. The SARs are not exercisable until September 1,
1994, and will expire if the employee investment transaction is
consummated.
<PAGE>
Under UAL's restricted stock plan, 138,500 and 101,750 shares of UAL
common stock were awarded to officers and key employees of United in 1993
and 1991, respectively. No shares were issued under this plan in 1992.
In 1993, 1992 and 1991, 9,000, 6,500 and 4,200 shares, respectively, were
forfeited under this plan. Unearned compensation, representing the fair
market value of the stock on the date of award, is being amortized to
salaries and related costs over the vesting period.
Air Wis Services, Inc. ("Air Wis") became a wholly-owned subsidiary
of UAL in January 1992. Air Wis owns Air Wisconsin, Inc. In April 1993,
UAL transferred the Air Wisconsin, Inc. operations at Dulles to Atlantic
Coast Airlines. In September 1993, UAL transferred certain Air Wisconsin,
Inc. operations at O'Hare to United Feeder Services. In December 1993,
UAL transferred the jet operations of Air Wisconsin, Inc. to CJT Holdings.
These operations are being conducted by the counterparties in these
agreements under the United Express trade name. These actions are not
expected to have a material effect on United's results of operations or
financial position. At December 31, 1993 and 1992, United had outstanding
loans to Air Wisconsin, Inc. in the amount of $80 million and $58 million,
respectively, bearing interest at market rates.
(13) Commitments and Contingencies
United 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 United is subject and its prior experience, that
the ultimate disposition of these contingencies is not expected to
materially affect United's consolidated financial position or results of
operations.
At December 31, 1993, commitments for the purchase of property and
equipment, principally aircraft, approximated $4.3 billion after deducting
advance payments. An estimated $0.6 billion is expected to be expended
during 1994, $1.1 billion in 1995, $0.8 billion in 1996, $1.2 billion in
1997, $0.4 billion in 1998, and $0.2 billion after 1998. The major
commitments are for the purchase of thirty-four B777 aircraft, which are
expected to be delivered between 1995 and 1999. These amounts reflect
United's revised capital spending plan and agreements with The Boeing
Company, to convert certain aircraft orders into options. Under the terms
of the agreements, if United does not elect to confirm the delivery of
these option aircraft before 1998, it will forfeit significant deposits.
In addition to the B777 order, United has arrangements with Airbus
and International Aero Engines to lease an additional 45 A320 aircraft,
which are scheduled for delivery through 1998. Under the agreement,
United is making advance payments through 1996 which are refundable upon
delivery of each aircraft.
At December 31, 1993, United also had purchase options for 186 B737
aircraft, 54 B757 aircraft, 34 B777 aircraft, 52 B747 aircraft, eight B767
aircraft and 50 A320 aircraft. Consistent with its revised capital
spending plan, United has recently cancelled options on certain aircraft.
In January 1994, United entered an agreement with Boeing to acquire two
B747-400 aircraft in 1994 and cancelled options for two B747 aircraft.
These aircraft are not included in the commitment amounts above.
As of December 31, 1993, United had guaranteed $97 million of
indebtedness of affiliates. Special facility revenue bonds have been
issued by certain municipalities to build or improve airport 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, 1993, $907 million
principal amount of such bonds was outstanding. Payment of United's
obligations with respect to $40 million of this amount is secured through
standby letters of credit. As of December 31, 1993, UAL and United had
jointly guaranteed $35 million of such bonds and United had guaranteed
$841 million of such bonds, including accrued interest. Included in this
amount are bonds issued by the City of Denver in connection with the
construction of certain United facilities at Denver International Airport,
which will replace Stapleton International Airport ("Stapleton"). Denver
has agreed to retire the outstanding special facility revenue bonds
related to United's Stapleton facilities. The new airport is expected to
open in 1994.
Transfers of the tax benefits of accelerated depreciation and
investment tax credits associated with the acquisition of certain
equipment have been made previously by United to various tax lessors
through tax lease transactions. Proceeds from tax benefit transfers were
recognized as income in the year the lease transactions were consummated.
The subject equipment is being depreciated for book purposes. United has
agreed to indemnify (guaranteed in some cases by UAL) the tax lessors
against loss of such benefits in certain circumstances and has agreed to
indemnify others for loss of tax benefits in limited circumstances for
certain used aircraft purchased by United subject to previous tax lease
transactions. Certain tax lessors have required that letters of credit be
issued in their favor by financial institutions as security for United's
indemnity obligations under the leases. The outstanding balance of such
letters of credit totaled $68 million at December 31, 1993. At that date,
United had granted mortgages on aircraft and engines having a total book
value of $252 million as security for indemnity obligations under tax
leases and letters of credit.
United is in the process of constructing a maintenance facility in
Indianapolis, which begins operation in 1994. The facility is being
financed primarily with tax-exempt bonds and other capital sources. In
connection with incentives received, United has agreed to reach an $800
million capital spending target and employ at least 6,300 individuals.
United does not believe it is subject to any significant
concentration of credit risk. Most of United's receivables result from
sales of tickets to individuals through travel agents, company outlets or
other airlines, often through the use of major credit cards. These
receivables are short term, generally being settled shortly after the sale.
(14) New Accounting Standards
In November 1992, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
which requires recognition of the liability for postemployment benefits
during the period of employment. Such benefits include company paid
continuation of group life insurance and medical and dental coverage for
certain employees after employment but before retirement. United will
adopt the new standard in the first quarter of 1994. Based on preliminary
estimates, United currently expects to record a transition obligation
which will result in a cumulative charge of $26 million, net of tax.
Prior years' financial statements will not be restated. Ongoing expenses
will vary based on actual claims experience.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires fair value
accounting for certain investments. United is required to adopt the new
standard in 1994 and the standard is not to be applied retroactively.
Upon adoption, United will record a periodic charge or credit to adjust
the carrying value of certain investments to fair value. The adjustment
will be recorded in earnings or as a separate component of equity,
depending on the type of investment. United does not expect a material
impact on either earnings or equity as a result of adopting SFAS No. 115.
(15) Statement of Consolidated Cash Flows - Supplemental Disclosures
Supplemental disclosures of cash flow information and non-cash
investing and financing activities were as follows:
1993 1992 1991
(In Millions)
Cash paid during the year for:
Interest (net of amounts
capitalized) $319 $188 $ 87
Income taxes $ 43 $ 6 $ 62
Non-cash transactions:
Capital lease obligations
incurred $ 70 $276 $277
Long-term debt incurred in
connection with additions
to equipment $487 $755 $318
Increase in pension intangible $ 19 $ 8 $192
(16) Other Matters
In the third quarter of 1993, United reached agreements to sell
assets related to the operation of 16 of its flight kitchens to Dobbs
International Services, Inc. and Caterair International Corp. for $119
million. Under the agreements, the purchasers will provide catering
services for United at the airports served by the flight kitchens for
seven years. The asset sales for most, if not all, of the flight kitchens
are expected to be finalized in the second quarter of 1994. The asset
sales result in an insignificant gain.
(17) Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
(In Millions)
<S> <C> <C> <C> <C> <C>
1993:
Operating revenues $3,280 $3,513 $3,952 $3,609 $14,354
Earnings (loss) from
operations (107) 93 288 21 295
Earnings (loss) before
extraordinary item (129) 27 151 (66) (17)
Extraordinary loss on
early extinguishment
of debt (19) - - - (19)
Net earnings (loss) $ (148) $ 27 $ 151 $ (66) $ (36)
1992:
Operating revenues $2,938 $3,098 $3,531 $3,158 $12,725
Earnings (loss) from
operations (165) (79) 59 (311) (496)
Earnings (loss) before
cumulative effect of
accounting changes (105) (82) 15 (214) (386)
Cumulative effect of
accounting changes (547) - - - (547)
Net earnings (loss) $ (652) $ (82) $ 15 $ (214) $ (933)
</TABLE>
In the second quarter of 1993, United retired $500 million of senior
subordinated notes. An extraordinary loss of $19 million, net of tax
benefits of $8 million, was recorded in the first quarter of 1993, based on
United's stated intention to retire the notes.
In the third quarter of 1993, United recorded a charge of $59 million
to reduce the net book value of 15 DC-10 aircraft to estimated net
realizable value. In addition, third quarter earnings included a $17
million gain and interest income of $27 million resulting from the final
settlement for overpayment of annuities purchased in 1985 to cover certain
vested pension benefits. The 1993 fourth quarter included $53 million of
equity in the loss of Galileo, which primarily reflects United's share of a
charge recorded by Galileo for the cost of eliminating duplicate facilities
and operations.
Effective January 1, 1992, United adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions" and SFAS No.
109, "Accounting for Income Taxes." The effect of adopting SFAS No. 106
was a cumulative charge of $580 million, net of tax benefits of $345
million. The effect of adopting SFAS No. 109 was a cumulative benefit of
$33 million.
In the 1992 fourth quarter, operating expenses included charges of
$18 million for certain foreign employee benefits and certain taxes. In
addition, operating expenses included charges of $25 million related to the
announced cost reduction program. The 1992 second quarter included a $13
million non-operating charge to record the cash settlement of class action
claims resulting from litigation relating to the use of airline fare data.
Item 9. Disagreements on Accounting and Financial Disclosure
No reportable event has occurred.
PART III
Item 10. Directors and Executive Officers of the Company
Omitted pursuant to General Instruction J (2) (c) of Form 10-K.
Item 11. Executive Compensation
Omitted pursuant to General Instruction J (2) (c) of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Omitted pursuant to General Instruction J (2) (c) of Form 10-K.
Item 13. Certain Relationships and Related Transactions
Omitted pursuant to General Instruction J (2) (c) of Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
(a) 1. The financial statements required
by this item are listed in Item 8, "Financial
Statements and Supplementary Data" on page 40
herein.
2. The financial statements schedules required by
this item are listed below:
Page
Financial statement schedules: Number
Schedules -
As of December 31, 1993:
I--Marketable securities 70
VII--Guarantees of securities
of other issuers 77
For the years ended December 31,
1993, 1992 and 1991:
V--Property, plant and
equipment 71-73
VI--Accumulated deprecia-
tion, depletion and
amortization of
property, plant and
equipment 74-76
VIII--Valuation and
qualifying accounts 78-80
IX--Short-term borrowing 81
X--Supplementary income
statement information 82
All other schedules are omitted because they are not
applicable, not required or the required information is
shown in the consolidated financial statements or notes
thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable.
3. The exhibits required by this item are listed in
"Index to Exhibits" on pages 83 through 87
herein. The financial statements of the Covia
Partnership and the Galileo International
Partnership are included herein as exhibits.
(b) Reports on Form 8-K
On October 28, 1993, United filed a report on Form 8-K dated
October 28, 1993 to include a press release issued by UAL
reporting UAL's financial results for the third quarter of 1993
and certain financial information for United.
On November 19, 1993, United filed a report on Form 8-K
dated November 17, 1993 to include exhibits relating to an
offering covered by the Registration Statement on Form S-3 (File
No. 33-57192) included as Exhibit 4.1 hereto.
On December 1, 1993, United filed a report on Form 8-K dated
November 30, 1993 to include a press release issued by UAL on its
discussions with union representatives.
On December 23, 1993, United filed a report on Form 8-K to
report the execution of an agreement in principle dated December
22, 1993 among UAL, ALPA and the IAM concerning the proposed
Employee Investment Transaction.
On February 4, 1994, United filed a report on Form 8-K to
report the execution of an amendment, dated February 3, 1994,
among UAL, ALPA and the IAM to the agreement in principle dated
December 22, 1993 among the parties concerning the proposed
Employee Investment Transaction.
On February 4, 1994, United filed a report on Form 8-K to
include the text of a speech concerning the proposed Employee
Investment Transaction delivered by Stephen M. Wolf, the Chairman
and Chief Executive Officer of the Company.
United Air Lines, Inc. and Subsidiary Companies
Schedule I -- Marketable Securities
As of December 31, 1993
<TABLE>
<CAPTION>
Amount at Which
Carried on Statement
Principal Market of Consolidated
Title of Issue (1) Amount Cost Value Financial Position
(In Millions)
<S> <C> <C> <C> <C>
Time deposits $ 310 $ 310 $ 310 $ 310
United States government agencies securities 291 293 293 293
Commercial paper 188 187 187 187
Corporate bonds and notes 72 73 73 73
Yankee certificates of deposit 25 25 25 25
Variable rate certificates of deposit 22 22 22 22
Eurodollar certificates of deposit 11 11 11 11
Other 40 40 40 40
Total marketable securities $ 959 $ 961 $ 961 961
Reconciliation with statement of consolidated
financial position:
Cash 5
Total $ 966
Amount classified as cash and cash equivalents $ 285
Amount classified as short-term investments 681
Total $ 966
</TABLE>
(1) No individual security issue exceeds 2% of total assets.
United Air Lines, Inc. and Subsidiary Companies
Schedule V - Property, Plant and Equipment
For the Year Ended December 31, 1993
<TABLE>
<CAPTION>
Other
Balance at Changes- Balance at
Beginning Additions, Add End
Classification of Year at Cost Retirements (Deduct) of Year
(In Millions)
<S> <C> <C> <C> <C> <C>
Operating property and equipment:
Owned -
Flight equipment $ 7,604 $1,510(1) $1,225(2) $(319)(3) $ 7,899
329 (5)
Advances on flight equipment 706 212(4) - (329)(5) 589
Other property and equipment 2,077 233 38 386 (6) 2,658
10,387 1,955 1,263 67 11,146
Capital leases -
Flight equipment 958 69(7) - - 1,027
Other property and equipment 100 1 - 3 104
1,058 70 - 3 1,131
$11,445 $2,025 $1,263 $ 70 $12,277
Non-operating property $ 35 $ - $ 8 $ 269 $ 296
(1) Includes the cost of 9 B737-500 aircraft, 3 B747-400 aircraft, 15 B757-200 aircraft, and 7 B767-300ER aircraft
purchased.
(2) Includes the cost of aircraft sold and leased back (6 B737-500, 3 B747-400, 2 B757-200 and 7 B767-300ER aircraft)
and aircraft sold (3 B727-100 and 2 B727-200 aircraft).
(3) Includes principally the cost of 24 B727-100 aircraft, 5 DC10-10 aircraft, 1 B747SP aircraft and spare parts
transferred to non-operating property.
(4) Represents principally advance payments on B737, B747, B757, B767, B777 and A320 aircraft on order.
(5) Represents the transfer of prior advances to flight equipment upon delivery of the aircraft.
(6) Includes the cost of assets held by Apollo Travel Services Partnership at the time of consolidation.
(7) Includes the capitalized lease amount of 1 B737-500 aircraft and 1 B757-200 aircraft acquired under capital leases.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule V - Property, Plant and Equipment
For the Year Ended December 31, 1992
<TABLE>
<CAPTION>
Other
Balance at Changes- Balance at
Beginning Additions, Add End
Classification of Year at Cost Retirements (Deduct) of Year
(In Millions)
<S> <C> <C> <C> <C> <C>
Operating property and equipment:
Owned -
Flight equipment $ 6,710 $2,450(1) $2,136(2) $ (30)(3) $ 7,604
610 (5)
Advances on flight equipment 785 531(4) - (610)(5) 706
Other property and equipment 1,891 222 37 1 2,077
9,386 3,203 2,173 (29) 10,387
Capital leases -
Flight equipment 682 276(6) - - 958
Other property and equipment 100 - - - 100
782 276 - - 1,058
$10,168 $3,479 $2,173 $ (29) $11,445
Non-operating property $ 43 $ 14 $ 49(7) $ 27(3) $ 35
(1) Includes the cost of 16 B737-500 aircraft, 6 B747-400 aircraft, 25 B757-200 aircraft, and 9 B767-300ER aircraft
purchased.
(2) Includes the cost of aircraft sold and leased back (3 B737-500, 4 B747-400, 27 B757-200 and 6 B767-300ER aircraft) and
aircraft sold (8 B727-100, 2 B727-200, 1 B737-200 and 1 B747SP aircraft).
(3) Includes principally the cost of 1 B727-100 aircraft, 3 B737-200 aircraft and spare parts transferred to non-operating
property.
(4) Represents principally advance payments on B737, B747, B757, B767, B777 and A320 aircraft on order.
(5) Represents the transfer of prior advances to flight equipment upon delivery of the aircraft.
(6) Includes the capitalized lease amount of 9 B737-500 aircraft and 1 B767-300ER aircraft acquired under capital leases.
(7) Includes principally the cost of 3 B727-100 aircraft and 3 B737-200 aircraft sold and 4 B727-100 aircraft donated.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule V - Property, Plant and Equipment
For the Year Ended December 31, 1991
<TABLE>
<CAPTION>
Other
Balance at Changes- Balance at
Beginning Additions, Add End
Classification of Year at Cost Retirements (Deduct) of Year
(In Millions)
<S> <C> <C> <C> <C> <C>
Operating property and equipment:
Owned -
Flight equipment $5,677 $1,694(1) $1,013(2) $ (36)(3) $ 6,710
388 (5)
Advances on flight equipment 641 532(4) - (388)(5) 785
Other property and equipment 1,733 199 23 (18) 1,891
8,051 2,425 1,036 (54) 9,386
Capital leases -
Flight equipment 421 261(6) - - 682
Other property and equipment 100 - - - 100
521 261 - - 782
$8,572 $2,686 $1,036 $ (54) $10,168
Non-operating property $ 84 $ - $ 64 (7) $ 23 (3) $ 43
(1) Includes the cost of 11 B737-500 aircraft, 4 B747-400 aircraft, 16 B757-200 aircraft and 5 B767-300ER aircraft
purchased.
(2) Includes the cost of aircraft sold and leased back (2 B737-500, 3 B747-400, 5 B767-300ER and 5 B757-200 aircraft)
and aircraft sold (4 B727-100 and 2 DC8-71 aircraft).
(3) Includes principally the cost of 8 B727 aircraft transferred to non-operating property.
(4) Represents principally advance payments on B737, B757, B767 and B747 aircraft on order.
(5) Represents the transfer of prior advances to flight equipment upon delivery of the aircraft.
(6) Includes the capitalized lease amount of 5 B737-500 aircraft and 4 B757-200 aircraft acquired under capital leases.
(7) Represents principally the cost of 2 B747-200 aircraft sold.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
For the Year Ended December 31, 1993
<TABLE>
<CAPTION>
Additions Charged to
Costs and Expenses Other
Balance at Depreciation Changes- Balance at
Beginning and Other Add End
Classification of Year Amortization Accounts Retirements (Deduct) of Year
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
Operating property and equipment:
Owned -
Flight equipment $3,081 $ 471 $ - $ 139 $(224) $3,189
Other property and equipment 1,102 141 13 27 260 1,489
4,183 612 13 166 36 4,678
Capital leases -
Flight equipment 289 42 1 - 6 338
Other property and equipment 54 3 - - - 57
343 45 1 - 6 395
$4,526 $ 657 $ 14 $ 166 $ 42 $5,073
Non-operating property $ 26 $ - $ 23 $ 8 $ 225 $ 266
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
For the Year Ended December 31, 1992
<TABLE>
<CAPTION>
Additions Charged to
Costs and Expenses Other
Balance at Depreciation Changes- Balance at
Beginning and Other Add End
Classification of Year Amortization Accounts Retirements (Deduct) of Year
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
Operating property and equipment:
Owned -
Flight equipment $2,884 $ 459 $ - $ 226 $ (36) $3,081
Other property and equipment 993 139 4 33 (1) 1,102
3,877 598 4 259 (37) 4,183
Capital leases -
Flight equipment 250 35 - - 4 289
Other property and equipment 51 3 - - - 54
301 38 - - 4 343
$4,178 $ 636 $ 4 $ 259 $ (33) $4,526
Non-operating property $ 46 $ - $ - $ 44 $ 24 $ 26
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
For the Year Ended December 31, 1991
<TABLE>
<CAPTION>
Additions Charged to
Costs and Expenses Other
Balance at Depreciation Changes- Balance at
Beginning and Other Add End
Classification of Year Amortization Accounts Retirements (Deduct) of Year
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
Operating property and equipment:
Owned -
Flight equipment $2,666 $ 399 $ - $ 148 $ (33) $2,884
Other property and equipment 891 116 4 18 - 993
3,557 515 4 166 (33) 3,877
Capital leases -
Flight equipment 225 25 - - - 250
Other property and equipment 47 3 - - 1 51
272 28 - - 1 301
$3,829 $ 543 $ 4 $ 166 $ (32) $4,178
Non-operating property $ 4 $ - $ 5 $ 1 $ 38 $ 46
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule VIII--Valuation and Qualifying Accounts
For the Year Ended December 31, 1993
<TABLE>
<CAPTION>
Balance at Additions Charged to Balance at
Beginning Costs and Other End of
Description of Year Expenses Accounts Deductions Year
(In Millions)
<S> <C> <C> <C> <C> <C>
Reserve deducted from asset to which it applies:
Allowance for doubtful accounts $ 12 $ 19 $ 7 $ 16(1) $ 22
Obsolescence allowance -
Flight equipment spare parts $ 46 $ 12 $ 26 $ 15(1) $ 69
(1) Deduction from reserve for purpose for which reserve was created.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule VIII--Valuation and Qualifying Accounts
For the Year Ended December 31, 1992
<TABLE>
<CAPTION>
Balance at Additions Charged to Balance at
Beginning Costs and Other End of
Description of Year Expenses Accounts Deductions Year
(In Millions)
<S> <C> <C> <C> <C> <C>
Reserve deducted from asset to which it applies:
Allowance for doubtful accounts $ 13 $ 18 $ - $ 19(1) $ 12
Obsolescence allowance -
Flight equipment spare parts $ 67 $ 12 $ 2 $ 35(2) $ 46
(1) Deduction from reserve for purpose for which reserve was created.
(2) Includes deduction from reserve for parts dispositions and write-offs and $15 million of reserves transferred in
connection with parts transferred to non-operating property.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule VIII--Valuation and Qualifying Accounts
For the Year Ended December 31, 1991
<TABLE>
<CAPTION>
Balance at Additions Charged to Balance at
Beginning Costs and Other End of
Description of Year Expenses Accounts Deductions Year
(In Millions)
<S> <C> <C> <C> <C> <C>
Reserve deducted from asset to which it applies:
Allowance for doubtful accounts $ 13 $ 14 $ - $ 14(1) $ 13
Obsolescence allowance -
Flight equipment spare parts $ 57 $ 13 $ 2 $ 5(1) $ 67
(1) Deduction from reserve for purpose for which reserve was created.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule IX - Short-Term Borrowings
For the Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
Category of Aggregate End Interest During the During the During the
Short-term Borrowings of Year Rate Year Year (1) Year (2)
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Notes payable to others, net
of unamortized discount:
1993 $315 3.3% $488 $421 3.1%
1992 $450 4.2% $450 $449 4.0%
1991 $449 5.0% $449 $448 6.1%
(1) Computed by dividing the sum of the beginning of the year balance and the 12 month-end balances by 13.
(2) Computed by dividing total annual interest expense by the average amount outstanding during the year.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule VII--Guarantees of Securities of Other Issuers
As of December 31, 1993
<TABLE>
<CAPTION>
Name of Issuer of Securities Title of Issue Total Amount
Guaranteed by Person of Each Class of Guaranteed and
for Which Statement is Filed Securities Guaranteed Outstanding Nature of Guarantee
(In Millions)
<S> <C> <C> <C>
Guaranteed by United Air Lines, Inc.:
Regional Airports Improvement Corporation Facilities Lease Refunding
Revenue Bonds, 6.875% $ 35 Principal and interest
Adjustable-Rate Facilities Lease
Refunding Revenue Bonds, 8.80% 25 Principal and interest
City of Chicago Chicago-O'Hare International
Airport Special Facility
Revenue Bonds -
Series 1984A, 8.85% 87 Principal and interest
Series 1984B, 8.85% 87 Principal and interest
Series 1984C, 8.20% 135 Principal and interest
Series 1988A, 8.40% 75 Principal and interest
Series 1988B, 8.95% 64 Principal and interest
Series 1990, 8.25% to 8.50% 101 Principal and interest
City and County of Denver, Colorado Special Facilities Airport
Revenue Bonds, 6.875% 266 Principal and interest
Galileo International Partnership Unsecured borrowings under
revolving credit facilities 97 Principal and interest
$972
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Schedule X--Supplementary Income Statement Information
For the Years Ended December 31, 1993, 1992 and 1991
Charged to Costs and Expenses
I t e m 1993 1992 1991
(In Millions)
Maintenance and repairs $1,516 $1,397 $1,423
Taxes other than payroll
and income taxes $ 198 $ 178 $ 139
Amortization of intangibles $ 53 $ 47 $ 48
INDEX TO EXHIBITS
Exhibit Number Description
3.1 Registrant's Restated Certificate of
Incorporation, as amended March 13, 1992
(filed as Exhibit 3.1 of Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by
reference).
3.2 Registrant's By-laws, as amended on June
25, 1987 (filed as Exhibit 3(b) to
Registrant's S-1 Registration Statement (Nos.
33-21220 and 22-18246) effective June 3,
1988, and incorporated herein by reference).
4.1 Registrant's Registration Statement Form
S-3 (No. 33-46033) filed on January 21, 1993,
relating to the offer of $1,500,000,000
Debt Securities, Warrants to Purchase Debt
Securities, Equipment Trust Certificates
and/or Pass-Through Certificates, and
incorporated herein by reference; Amendment
Nos. 1, 2, 3 and 4 to UAL's (File No. 1-6033)
Registration Statement Form S-3 (No. 33-
46033) filed on January 21, March 19, May 7
and May 28, 1993, respectively, and each
incorporated herein by reference.
Registrant's indebtedness under any
single instrument, or any potential indebtedness
under any instruments except as described in
Exhibit 4.1, does not exceed 10% of
Registrant's total assets on a consolidated
basis. Copies of such instruments will be
furnished to the Commission upon request.
10.1 Letter Agreement, dated December 22, 1993,
among UAL Corporation, Air Line Pilots
Association, International UAL-MEC and the
International Association of Machinists and
Aerospace Workers (filed as Exhibit 10.1 to
UAL Corporation's Form 8-K dated December 22,
1993 and incorporated herein by reference;
amendment thereto filed as Exhibit 10.1 to
UAL's (File No. 1-6033) Form 8-K dated
February 4, 1994 and incorporated herein by
reference).
10.2 Letter Agreement No. 6-1162-DLJ-1193 dated
January 25, 1994 to Agreement dated December
18, 1990 between The Boeing Company, as
seller, and United Air Lines, Inc., and
United Worldwide Corporation, as buyer, for
the acquisition of Boeing 777-200 aircraft
(as previously amended and supplemented,
"777-200 Purchase Agreement" (filed as
Exhibit 10.7 to UAL's Annual Report on Form
10-K for the year ended December 31, 1990 and
incorporated herein by reference; supplements
thereto filed as Exhibits 10.1, 10.2 and
10.22 to UAL's (File No. 1-6033) Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1993, and incorporated herein by
reference)). (Filed as Exhibit 10.2 to UAL's
(File No. 1-6033) Annual Report on Form 10-K
for the year ended December 31, 1993, with a
request for confidential treatment of certain
portions and incorporated herein by
reference.)
10.3 Supplemental Agreement No. 5 dated January
17, 1994 to Agreement dated December 18, 1990
between The Boeing Company, as seller, and
United Air Lines, Inc., and United Worldwide
Corporation, as buyer, for the acquisition of
Boeing 747-400 aircraft (as previously
amended and supplemented, "747-400 Purchase
Agreement" (filed as Exhibit 10.8 to UAL's
(File No. 1-6033) Annual Report on Form 10-K
for the year ended December 31, 1990, and
incorporated herein by reference; supplements
thereto filed as (i) Exhibits 10.4 and 10.5
to UAL's (File No. 1-6033) Annual Report on
Form 10-K for the year ended December 31,
1991 and (ii) Exhibits 10.3, 10.4, 10.5, 10.6
and 10.22 to UAL's (File No. 1-6033)
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993 and incorporated herein
by reference)). (Filed as Exhibit 10.3 to
UAL's (File No. 1-6033) Annual Report on Form
10-K for the year ended December 31, 1993,
with a request for confidential treatment of
certain portions and incorporated herein by
reference.)
10.4 Amendment No. 1 dated as of November 24, 1993
to A320 Purchase Agreement dated August 10,
1992 between AVSA, S.A.R.L., as seller, and
United Air Lines, Inc., as buyer, for the
acquisition of Airbus Industrie A320-200
model aircraft (as previously amended and
supplemented, "A320-200 Purchase Agreement"
(filed as Exhibit 10.14 to UAL's (File No. 1-
6033) Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated
herein by reference)). (Filed as Exhibit
10.4 to UAL's (File No. 1-6033) Annual Report
on Form 10-K for the year ended December 31,
1993, with a request for confidential
treatment of certain portions and
incorporated herein by reference).
10.5 Amendment No. 1 dated as of November 24, 1993
to Letter Agreement No. 8 dated as of August
10, 1992 to A320-200 Purchase Agreement
(filed as Exhibit 10.5 to UAL's (File No. 1-
6033) Annual Report on Form 10-K for the year
ended December 31, 1993, with a request for
confidential treatment of certain portions
and incorporated herein by reference).
10.6 Agreement dated March 1, 1990 between
The Boeing Company and United Air Lines,
Inc., as amended and supplemented, for the
acquisition of Boeing 767-300ER aircraft
(filed as Exhibit (10)L to UAL's (File No. 1-
6033) Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated
herein by reference; supplements thereto
filed as (i) Exhibits 10.7, 10.8, 10.9 and
10.10 to UAL's (File No. 1-6033) Annual
Report on Form 10-K for the year ended
December 31, 1991, and (ii) Exhibits 10.7,
10.8, 10.9, 10.10, 10.11, 10.12, 10.13 and
10.22 to UAL's (File No. 1-6033) Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1993, and incorporated herein by
reference).
10.7 Agreement dated April 26, 1989 between
The Boeing Company and United Air Lines,
Inc., as amended and supplemented, for the
acquisition of Boeing 757-200 and 737
aircraft (filed as Exhibit (10)K to UAL's
(File No. 1-6033) Annual Report on Form 10-K
for the year ended December 31, 1989, and
incorporated herein by reference; supplements
thereto filed as (i) Exhibits 10.12 and 10.13
to UAL's (File No. 1-6033) Annual Report on
Form 10-K for the year ended December 31,
1991, and (ii) Exhibits 10.14, 10.15, 10.16,
10.17, 10.18, 10.19 and 10.22 to UAL's (File
No. 1-6033) Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993, and
incorporated herein by reference).
10.8 An amended and restated agreement, dated
March 19, 1992, between The Boeing Company
and United Air Lines, Inc., for the
acquisition of Boeing 737 aircraft (filed as
Exhibit 10.15 to UAL's (File No. 1-6033)
Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated herein by
reference; supplements thereto filed as
Exhibits 10.20, 10.21 and 10.22 to UAL's
(File No. 1-6033) Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, and
incorporated herein by reference).
10.9 Letter Agreement among the State of
Indiana, the City of Indianapolis, the
Indianapolis Airport Authority and United Air
Lines, Inc. dated June 15, 1992, amending the
Agreement dated November 21, 1991, concerning
United's aircraft maintenance facility ("MOC
II Agreement" (filed as Exhibit 10.29 to
UAL's (File No. 1-6033) Annual Report on Form
10-K for the year ended December 31, 1991,
and incorporated herein by reference)).
(Filed as Exhibit 10.9 to UAL's (File No. 1-
6033) Annual Report on Form 10-K for the year
ended December 31, 1993 and incorporated
herein by reference.)
10.10 Letter Agreement among the State of
Indiana, the City of Indianapolis, the
Indianapolis Airport Authority and United Air
Lines, Inc. dated December 23, 1993, amending
the MOC II Agreement (filed as Exhibit 10.10
to UAL's (File No. 1-6033) Annual Report on
Form 10-K for the year ended December 31,
1993 and incorporated herein by reference).
12 Computation of Ratio of Earnings to
Fixed Charges.
24.1 Consent of Independent Public
Accountants.
24.2 Consent of Independent Public
Accountants.
99.1 Financial Statements of the Covia
Partnership (filed as Exhibit 99.1 to UAL's
(File No. 1-6033) Annual Report on Form 10-K
for the year ended December 31, 1993 and
incorporated herein by reference).
99.2 Financial Statements of the Galileo
International Partnership together with the
report and consent of its independent public
accountants (filed as Exhibit 99.2 to UAL's
(File No. 1-6033) Annual Report on Form 10-K
for the year ended December 31, 1993 and
incorporated herein by reference).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNITED AIR LINES, INC.
By: /s/ STEPHEN M. WOLF
Stephen M. Wolf
Chairman and Chief Executive
Officer and a Director
(Principal Executive Officer)
By: /s/ JOHN C. POPE
John C. Pope
President and
Chief Operating Officer
and a Director
(Principal Financial Officer)
By: /s/ FREDERIC F. BRACE
Frederic F. Brace
Vice President - Corporate
Development and Controller
(Principal Accounting Officer)
March 11, 1994
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant as Directors on March 11,
1994.
/s/ PAUL G. GEORGE
Paul G. George
/s/ JAMES M. GUYETTE
James M. Guyette
/s/ LAWRENCE M. NAGIN
Lawrence M. Nagin
/s/ JOSEPH R. O'GORMAN
Joseph R. O'Gorman
<PAGE>
Exhibit 12
United Air Lines, Inc. and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991 1990 1989
(In Millions)
Earnings:
<S> <C> <C> <C> <C> <C>
Earnings (loss) before
income taxes and
extraordinary items $ (26) $(602) $(513) $167 $ 595
Fixed charges,
from below 1,072 964 749 590 504
Interest capitalized (51) (92) (91) (71) (52)
Earnings $ 995 $ 270 $ 145 $686 $1,047
Fixed charges:
Interest expense $ 347 $ 317 $ 211 $192 $ 211
Portion of rental expense
representative of the
interest factor 725 647 538 398 293
Fixed charges $1,072 $ 964 $ 749 $590 $ 504
Ratio of earnings to
fixed charges (a) (a) (a) 1.16 2.08
</TABLE>
(a) Earnings were inadequate to cover fixed charges by $77 million in 1993,
$694 million in 1992 and $604 million in 1991.
<PAGE>
Exhibit 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our report included in this Form 10-K, into
the Company's previously filed Form S-3 Registration Statement
(File No. 33-46033), as amended; and Form S-3 Registration
Statement (File No. 33-57192), as amended.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
March 11, 1994
Exhibit 24.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Galileo International Partnership:
We hereby consent to the incorporation of our report
on Covia Partnership for the period January 1, 1993 to September 15,
1993 and Galileo International Partnership for the period
September 16, 1993 to December 31, 1993 included in this Form 10-K,
into United Air Lines, Inc.'s previously filed Form S-3
Registration Statement (File No. 33-46033), as amended; and
Form S-3 Registration Statement (File No. 33-57192), as amended.
KPMG Peat Marwick
Chicago, Illinois
March 11, 1994
